AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION NO. 333-31617
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 5085, 7699 76-0530346
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
</TABLE>
14900 WOODHAM DRIVE, SUITE A-125
HOUSTON, TEXAS 77073
(281) 821-9407
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM E. HAYNES
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INNOVATIVE VALVE TECHNOLOGIES, INC.
14900 WOODHAM DRIVE, SUITE A-125
HOUSTON, TEXAS 77073
(281) 821-9407
FAX: (281) 821-1123
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JAMES L. LEADER, ESQ. STEPHEN P. FARRELL, ESQ.
BAKER & BOTTS, L.L.P. MORGAN, LEWIS & BOCKIUS LLP
3000 ONE SHELL PLAZA 101 PARK AVENUE
HOUSTON, TEXAS 77002-4995 NEW YORK, NEW YORK 10178-0060
(713) 229-1234 (212) 309-6000
FAX: (713) 229-1522 FAX: (212) 309-6273
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1997
3,350,000 SHARES
[LOGO] INVATEC(TM)
Innovative Valve Technologies, Inc.
COMMON STOCK
------------------
ALL OF THE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE ("COMMON
STOCK"), OFFERED HEREBY ARE BEING SOLD BY INNOVATIVE VALVE TECHNOLOGIES, INC.
("INVATEC").
PRIOR TO THIS OFFERING (THIS "OFFERING"), THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $11.00 AND $13.00 PER SHARE. SEE "UNDERWRITING" FOR A
DISCUSSION OF THE FACTORS INVATEC AND THE UNDERWRITERS WILL CONSIDER IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMMON STOCK HAS BEEN
APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "IVTC."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY SHOULD CONSIDER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
PER SHARE.............. $ $ $
TOTAL(3)............... $ $ $
================================================================================
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING OFFERING EXPENSES PAYABLE BY INVATEC, ESTIMATED AT
$2,000,000.
(3) INVATEC HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
502,500 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNT AND PROCEEDS TO COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES, INC. ON OR ABOUT ,
1997.
NATIONSBANC MONTGOMERY SECURITIES, INC. FURMAN SELZ
, 1997
<PAGE>
[LOGO] INVATEC(TM)
Innovative Valve Technologies, Inc.
Invatec was formed in 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. The Company intends to be a leader in the consolidation of the
highly fragmented repair and distribution sectors of the North American
industrial valve industry by continuing to execute its aggressive acquisition
strategy and to implement its national operating program designed to increase
internal growth, market share and profitability. Immediately after this Offering
closes, Invatec will have combined seven businesses with 32 locations whose
revenues totaled approximately $76.2 million on a pro forma combined basis
during fiscal 1996.
[Graphic: Photograph of numerous installed gate valves.]
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
2
<PAGE>
ON-SITE REPAIR SERVICES
[Graphic: Photograph of a process-system unit in operation.]
Invatec's trained crews are available to perform emergency and scheduled on-site
repair of valves and process-system components. For large-scale plant
turnarounds, Invatec uses its fleet of twenty-eight mobile machine shops to
perform work at customers' facilities.
NEW PRODUCT AND VALUE-ADDED DISTRIBUTION
[Graphic: Photograph of assorted valves and related parts in inventory.
Invatec's facilities maintain inventories of new valves and process-system
components. Many of these products are assembled, tested and certified by
Invatec technicians and can be customized to meet individual customer needs and
application requirements.
ON-LINE REPAIR SERVICES
[Graphic: Photograph of technician using hand-held tools in on-line valve repair
operations with the SafeSeal system.]
Invatec uses proprietary technology to repair leaking valve packings and
performs other repairs while a process system is on-line, thereby eliminating
the costs associated with product leakage and plant downtime.
IN-SHOP REPAIR SERVICES
[Graphic: Photograph of Invatec technician performing in-shop repair on a
valve.]
Invatec's seventeen repair centers are fully equipped to assemble, repair and
customize valves and related process-system components.
Invatec serves customers in the United States and Canada through 32 sales and
service offices. Its broad geographic presence, along with a comprehensive
offering of repair and value-added distribution services, enables Invatec to
serve large regional and national customers effectively.
[Graphic: Map of North America showing the locations of the Company's
facilities.]
* INVATEC CORPORATE OFFICE
Houston, Texas
* The Safe Seal Company, Inc.
Houston, Texas
Founded in 1991
* Plant Specialties, Inc.
Sulphur, Louisiana
Founded in 1972
* Harley Industries, Inc.
Tulsa, Oklahoma
Founded in 1937
* ICE/VARCO
Pittsburgh, Pennsylvania
Founded in 1981
* GSV, Inc.
Tampa, Florida
Founded in 1921
* Steam Supply/Flickinger Company
Seattle, Washington
Founded in 1915
* Southern Valve Service, Inc.
Mobile, Alabama
Founded in 1984
<PAGE>
PROSPECTUS SUMMARY
THE OFFERING MADE HEREBY (THIS "OFFERING") WILL CLOSE CONCURRENTLY WITH,
AND IS CONDITIONED ON, INVATEC ACQUIRING SOUTHERN VALVE SERVICE, INC. (TOGETHER
WITH A RELATED ENTITY, "SVS") AND INDUSTRIAL CONTROLS & EQUIPMENT, INC.
(TOGETHER WITH THREE RELATED ENTITIES, "ICE/VARCO") AND COMPLETING A MERGER IN
WHICH THE SAFE SEAL COMPANY, INC. ("SSI") WILL BECOME ITS SUBSIDIARY (THE
"SSI MERGER"). DURING 1997, INVATEC HAS PURCHASED STEAM SUPPLY & RUBBER CO.,
INC. (TOGETHER WITH THREE RELATED ENTITIES, "STEAM SUPPLY") (JULY) AND SSI HAS
PURCHASED HARLEY INDUSTRIES, INC. ("HARLEY") (JANUARY), GSV, INC. ("GSV")
(MARCH) AND PLANT SPECIALTIES INC. ("PLANT SPECIALTIES") (JUNE) (COLLECTIVELY
THESE SEVEN ACQUIRED BUSINESSES ARE SOMETIMES REFERRED TO AS THE "ACQUIRED
BUSINESSES"). SSI AND ITS SUBSIDIARIES ARE AFFILIATES OF INVATEC. UNLESS
OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (i) "INVATEC" MEAN
INNOVATIVE VALVE TECHNOLOGIES, INC., (ii) THE "COMPANY" MEAN INVATEC AND THE
ACQUIRED BUSINESSES AND (iii) A "FISCAL YEAR" MEAN A YEAR ENDED DECEMBER 31
FOR THE COMPANY AND TWO ACQUIRED BUSINESSES, A YEAR ENDED OCTOBER 31 FOR FOUR
ACQUIRED BUSINESSES AND A YEAR ENDED SEPTEMBER 30 FOR ONE ACQUIRED BUSINESS. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED BY THE CONTEXT, THE INFORMATION IN THIS
PROSPECTUS (i) GIVES EFFECT TO (a) THE TRANSACTIONS REFERRED TO ABOVE (THE
"ACQUISITIONS") AND (b) REVERSE STOCK SPLITS OF THE OUTSTANDING COMMON STOCK
AND THE OUTSTANDING SSI COMMON STOCK EFFECTED IN CONNECTION WITH THIS OFFERING
AND (ii) ASSUMES THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
THE NUMBER OF SHARES OF COMMON STOCK INVATEC WILL ISSUE IN THE ACQUISITION OF
SVS AND THE SSI MERGER AND IN THE REPAYMENT OF CERTAIN INDEBTEDNESS AND FEES
WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON STOCK IN THIS
OFFERING. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THOSE SHARES ARE
ESTIMATED ON THE BASIS OF AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $12.00 PER
SHARE (THE MIDPOINT OF THE ESTIMATED INITIAL PUBLIC OFFERING PRICE RANGE).
THE COMPANY
Invatec was formed 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 (collectively, "repair and distribution services") throughout North
America. Industrial valves are used in petrochemical and chemical plants,
petroleum refineries, pulp and paper mills, electric and other utilities and
other industrial process facilities to direct and regulate the flow of
feedstocks, intermediates, products and fuels in process systems. The Company
intends to be a leader in the consolidation of the highly fragmented repair and
distribution sectors of the North American industrial valve industry by
continuing to execute its aggressive acquisition strategy and to implement its
national operating program designed to increase internal growth, market share
and profitability. Based on available market data, the Company believes there
are approximately 1,200 independent companies in these sectors, most of which
are small businesses operating in single geographic areas in proximity to their
customers. Immediately after this Offering closes, Invatec will have combined
seven businesses with 32 locations whose revenues totaled approximately $76.2
million on a pro forma combined basis during fiscal 1996.
Three broad sectors comprise the industrial valve industry: (i)
manufacturing; (ii) distribution; and (iii) repair services. On the basis of
available industry data and management's assessments, the Company believes that
the distribution and repair sectors of the industrial valve industry represent a
current worldwide annual market in excess of $20.6 billion, of which North
America accounts for approximately $9.2 billion, including approximately $3.7
billion attributable to repair services and $5.5 billion attributable to
distribution and related services. A recent industry study estimates that over
650 million industrial valves currently are installed in North America,
including more than 140 million rising steam valves ("RSVs") in various process
industries. This study also estimates that more than 370 million RSVs are in use
worldwide. The Company believes substantially every RSV experiences at least one
leak during its operational life and estimates that between 4 million and 7
million of the RSVs installed in North America are leaking at a rate requiring
repair or replacement at any one point in time.
Many of the Company's customers are large Fortune 500 industrial companies
and large utilities, including Amoco, Chevron, Florida Power Corporation, Dow
Chemical, DuPont and Union Carbide. The
3
<PAGE>
Company provides both on-line and off-line repair services for valves and other
process-system components. An on-line repair enables the valve and other
process-system components to continue to operate under pressure while the repair
is performed and an off-line repair requires the temporary removal of the
damaged valve or other process-system components. The Company performs off-line
repairs both at the customer's plant and in the Company's repair facilities,
depending on the size and nature of the repair. In addition to its repair
business, Invatec also engages in value-added distribution services, which
include (i) assembly of new valves, actuators and other components into packaged
systems for sale, (ii) rebuilding of previously used valves (other than safety
relief valves) to their original specifications for sale and (iii) testing and
certification of new and rebuilt valves and systems in accordance with the
specifications of its customers and manufacturers and applicable industry
standards. The Company also distributes a variety of other valves and related
parts and process-system components directly to end users and to other valve
service companies.
The Company believes demand for its products and services is driven by (i)
an overall increase in customer outsourcing of maintenance and repair work for
industrial valves, (ii) more restrictive fugitive emissions standards mandated
by recent changes in government regulations, such as the Clean Air Act, as
amended in 1990, (iii) the large existing population of aged valves resulting
from many industrial companies lengthening the period of time between
comprehensive maintenance projects (or "turnarounds") and delaying
construction of new plant facilities and other capital improvements and (iv) a
general trend among industrial companies to reduce the number of distributors
and service providers they utilize and are required to monitor. The Company
believes it is well positioned to meet the growing demand of its customers for
outsourced repair and value-added distribution services for industrial valves
and other process-system components. The Company's combination of its repair and
distribution services capabilities will allow it to become a single-source
provider of these services. The Company believes this combination will (i)
promote internal economies of scale, (ii) provide the Company with valuable
information that can be used to expand its future repair services revenue base
and (iii) better equip the Company to respond to problems associated with the
repair and upgrading of its customers' process-system valves and other
components.
The Company believes significant opportunities are available in the repair
and distribution services sectors of its industry to a well capitalized,
national company employing professionally trained service technicians and
machinists and providing a full complement of on-line, on-site and in-shop
repair services and value-added distribution services. It also believes the
fragmented nature of its industry will provide it with significant opportunities
to consolidate the capabilities and resources of a large number of existing
repair and distribution services businesses.
BUSINESS STRATEGY
The Company intends to become the leading North American provider of
comprehensive repair and distribution services by emphasizing growth through
acquisitions of other repair and distribution services businesses and
implementing a national operating strategy aimed at increasing internal growth
and market share and enhancing profitability. The Company's growth strategy will
focus on capitalizing on certain trends in its targeted industries, including
increased outsourcing, increased focus on reducing economic losses attributable
to leaking valves and increased regulatory requirements applicable to
process-system facilities.
GROWTH THROUGH ACQUISITIONS. The Company intends to continue the
aggressive acquisition program initiated by SSI to enter new geographic markets.
The Company also intends to pursue acquisitions within its existing markets as a
primary means of expanding its repair and distribution services capabilities
within those markets and as a means for gaining access to new process-industry
customers, specialized services, new products or other strategic synergies.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The principal elements of
the Company's operating strategy are:
o CROSS-SELLING REPAIR AND DISTRIBUTION SERVICES. The Acquired
Businesses currently provide their respective customers with differing
levels of repair services and distribution services. By offering a full
line of services through most of its locations, the Company believes it
can capitalize on the
4
<PAGE>
outsourcing trend in its targeted industries and position itself as the
repair services provider and valve and related parts supplier of choice
for its customers.
o INCREASING INTERNAL GROWTH THROUGH TECHNOLOGY ROLL-OUT. The Company
uses its proprietary SafeSeal(TM) system to perform on-line repairs of
RSVs leaking as a result of the deterioration of their stem-packing
materials. The Company believes the SafeSeal(TM) system represents a
significant improvement over traditional valve packing restoration
methods. This technology offers customers the ability to (i)
substantially reduce or eliminate lost feedstock, product and fuel
costs attributable to leaking valve packing, (ii) safely bring leaking
valves into compliance with applicable emission standards without
having to undertake a shutdown and (iii) establish an effective,
on-line means of remediating any further packing-related leaks. The
Company believes the Acquired Businesses and other businesses acquired
in the future will serve as a platform to roll out this technology to
many of their existing and prospective process-industry customers in
existing and new markets.
o CAPITALIZING ON GEOGRAPHIC DIVERSITY. The Company believes it will
enhance its relationships with customers and OEMs and generate
substantial opportunities for new business by providing repair and
distribution services on a comprehensive basis throughout North
America.
o ACHIEVING COST EFFICIENCIES AND STANDARDIZING AND IMPLEMENTING "BEST
PRACTICES." The Company believes it should be able to reduce the
total operating expenses of the Acquired Businesses and other
businesses acquired in the future by eliminating certain duplicative
administrative functions and operating facilities and consolidating
certain functions performed separately by each business prior to its
acquisition. In addition, the Company believes the standardization of
"best practices" to be adopted throughout the Acquired Businesses
will enable the Company to provide superior customer service at a
lower cost to its customers.
THIS OFFERING
Common Stock offered by Invatec...... 3,350,000 shares
Common Stock to be outstanding after
this Offering(1)................... 7,391,139 shares
Use of Proceeds...................... To fund the cash portion of the purchase
price for two Acquired Businesses, to pay
additional consideration in connection
with the acquisition by SSI of one of the
other Acquired Businesses and to repay
outstanding indebtedness of Invatec and
the Acquired Businesses. See "Use of
Proceeds."
Nasdaq National Market symbol........ IVTC
- ------------
(1) The number of shares to be outstanding when this Offering closes will
include (i) 242,839 shares owned by existing stockholders of Invatec on the
date of this Prospectus, (ii) 1,253,962 shares to be issued to subsidiaries
of Philip Services Corp. (collectively with its subsidiaries, "Philip") in
repayment of $8.7 million of indebtedness the Company incurred in connection
with the Acquisitions and this Offering and the redemption of $2.0 million
of SSI preferred stock, (iii) 2,419,338 shares to be issued in the SSI
Merger and (iv) 125,000 shares to be issued as consideration in the SVS
Acquisition. This share number does not include (i) 393,793 shares reserved
for issuance on the conversion of convertible notes issued as part of the
purchase price in two of the Acquisitions or (ii) a total of 1,308,248
shares subject to stock options that will be outstanding when this Offering
closes. See "Management -- Option Grants." The number of shares to be
outstanding when this Offering closes will decrease if the initial public
offering price is higher, and will increase if that price is lower, than
$12.00 per share. For example, 7,317,421 shares would be outstanding if that
price is $13.00, while 7,478,260 shares would be outstanding if that price
is $11.00.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------------
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following summary unaudited pro forma combined financial information
represents historical information of the Company, as adjusted to give effect to
(i) the Acquisitions on a historical basis, (ii) the other pro forma adjustments
referred to below and (iii) the closing of this Offering and the application of
the estimated net proceeds therefrom. See "Selected Financial Information" and
the Unaudited Pro Forma Combined Financial Statements and the Notes thereto
included herein.
FIRST SIX
MONTHS OF
FISCAL 1996 FISCAL 1997
----------- ------------
Statement of Operations Information(1):
Revenues........................... $76,234 $ 45,276
Gross profit....................... 23,177 13,565
Selling, general and administrative
expenses(2)(3).................... 19,314 11,499
Income from operations............. 3,863 2,066
Interest expense, net.............. (332) (161)
Other income (expense), net........ 56 8
Income from continuing operations
before income taxes............... 3,587 1,913
Net income(4)...................... $ 2,041 $ 1,090
=========== ============
Net income per common share from
continuing operations............. $ .28 $ .15
=========== ============
Shares used in computing pro forma
income per share from continuing
operations(5)..................... 7,391 7,391
=========== ============
AT JUNE 30, 1997(6)
----------------------------
PRO
FORMA(1)
COMBINED AS ADJUSTED(6)
-------- --------------
Balance Sheet Information:
Working capital (deficit).......... $ (9,669) $ 17,799
Total assets....................... 68,462 67,561
Total debt, including current
portion(7)........................ 40,600 6,143
Stockholders' equity............... 14,027 49,083
- ------------
(1) The pro forma combined statement of operations information assumes the
Acquisitions and related financings, the issuance of the presently
outstanding Common Stock, the net incurrence of other indebtedness during
1997, the issuance of 1,253,962 shares of Common Stock in repayment of $8.7
million of indebtedness the Company owes to Philip and redemption of $2.0
million of SSI preferred stock owned by Philip and this Offering all were
closed, and the estimated net proceeds from this Offering were applied, on
January 1, 1996. The pro forma balance sheet information assumes all those
events and transactions (other than (i) SSI's acquisitions of Harley, GSV
and Plant Specialties and related financings and other borrowings prior to
June 30, 1997 and (ii) the closing of this Offering and the application of
the estimated net proceeds therefrom) occurred on June 30, 1997 and also
assumes that the incurrence of indebtedness after that date to pay the costs
and expenses of this Offering occurred on that date. The pro forma combined
financial information (i) is not necessarily indicative of the results of
operations the Company would have obtained had those events and transactions
actually occurred when assumed or of the Company's future financial position
or results of operations, (ii) is based on preliminary estimates, available
information and certain assumptions that management deems appropriate and
(iii) should be read in conjunction with the other financial statements and
notes thereto included herein. The pro forma combined statement of
operations information for fiscal 1996 and the first six months of fiscal
1997 includes: (i) the year ended December 31, 1996 and the six months ended
June 30, 1997 for Invatec, SSI and GSV; (ii) the year ended October 31, 1996
and the six months ended June 30, 1997 for Harley and Plant Specialties;
(iii) the year ended October 31, 1996 and the six months ended April 30,
1997 for Steam Supply and SVS; and (iv) the year ended September 30, 1996
and the six months ended March 31, 1997 for ICE/VARCO. The pro forma
combined balance sheet includes: (i) the balance sheets of Invatec, SSI, and
ICE/VARCO at June 30, 1997; and (ii) the balance sheets of Steam Supply and
SVS at July 31, 1997.
(2) Does not include: (i) salaries and benefits of certain owners and managers
of the Acquired Businesses who were not or will not be employed by the
Company and will not be replaced and certain excess administrative support
service fees charged by ICE/VARCO's former parent company, as follows:
fiscal 1996, $1,674,000; and first six months of fiscal 1997, $937,000; or
(ii) $5.1 million of non-cash, non-recurring special compensation expenses
attributable to stock awards made by SSI in fiscal 1996 and in the first
six months of fiscal 1997 and sales of Common Stock by Invatec in the first
six months of fiscal 1997.
(3) Includes goodwill amortization to be recorded as a result of the
acquisitions of the Acquired Businesses over a 40-year period, as follows:
fiscal 1996, $602,000; and first six months of fiscal 1997, $301,000.
(4) Assumes an effective tax rate of 43%.
(5) Computed on the basis described in the Notes to the Unaudited Pro Forma
Combined Financial Statements.
(6) Reflects the closing of this Offering and Invatec's application of the
estimated net proceeds therefrom as described under "Use of Proceeds."
(7) Pro forma combined total debt includes $4.4 million payable to former owners
of Acquired Businesses.
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.
HISTORY OF LOSSES
Invatec, incorporated in Delaware in March 1997, has conducted no
operations to date other than in connection with this Offering and its
acquisitions in separate transactions (the "Acquisitions") of seven businesses
(the "Acquired Businesses"), four of which (The Safe Seal Company, Inc.
("SSI") and its three significant subsidiaries) are affiliates of Invatec. SSI
did not acquire its significant subsidiaries until 1997. SSI incurred net losses
of $281,000, $1,505,000 and $415,000 during fiscal 1994, 1995 and 1996,
respectively, and a net loss of $1,766,000 in the six months ended June 30,
1997. The losses incurred in the six months ended June 30, 1997 reflect special
non-cash, non-recurring compensation expenses totaling $2,393,000, but no
assurance can be given the Company will not continue to incur losses in future
periods. In the quarter ended September 30, 1997, the Company will record a
special non-cash, non-recurring compensation expense (presently estimated at
approximately $1.4 million) as a result of its grant to certain officers of
Invatec of options to purchase 202,589 shares of Common Stock at an exercise
price of $1.00 per share. When this Offering closes, the Company will pay a
total of approximately $1.3 million of non-recurring financing charges to a
subsidiary of Philip Services Corp. (collectively with its subsidiaries,
"Philip") with shares of Common Stock, valued for this purpose at the initial
per share price to the public in this Offering, and will pay an aggregate of
$330,000 of cash bonuses to William E. Haynes, its chief executive officer
($300,000), and two of its other executive officers ($15,000 each).
ABSENCE OF COMBINED OPERATING HISTORY
Because the Company is consolidating the operations of the Acquired
Businesses and recording the Acquisitions in accordance with the purchase method
of accounting, the pro forma information herein may not be indicative of the
Company's future operating results and financial condition. Until the Company
establishes centralized accounting and other administrative systems, it will
rely primarily on the separate systems of the Acquired Businesses. The success
of the Company will depend, in part, on the extent to which it is able to
centralize these functions and otherwise integrate the Acquired Businesses and
such additional businesses as it may hereafter acquire into a cohesive,
efficient enterprise. The Company's executive officers have only limited
experience working together, and no assurance can be given they will be able to
manage the Company effectively or successfully execute the Company's acquisition
and operating strategies.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company's business strategy for growth focuses primarily on acquiring
additional businesses providing industrial valve and other process-system
component repair and distribution services. The acquisition strategy of the
Company presents risks that, singly or in any combination, could materially
adversely affect its business and financial performance. These risks include (i)
the adverse effects on existing operations which could result from the diversion
of management attention and resources to acquisitions, (ii) the possible loss of
acquired customer or supplier bases and key personnel, including service
technicians and machinists, and (iii) the contingent and latent risks (including
environmental risks) associated with the past operations of and other
unanticipated problems arising in the acquired businesses. The success of the
Company's acquisition strategy will depend on the extent to which the Company is
able to acquire, successfully integrate and profitably manage additional
businesses, and no assurance can be given this strategy will succeed. In this
connection, if competition for acquisition candidates develops, the cost of
acquiring businesses could increase materially. Acquisitions accounted for as
purchases may result in substantial annual non-cash amortization charges for
goodwill and other intangible assets in the Company's statements of operations.
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CAPITAL REQUIREMENTS
The Company's acquisition strategy will require substantial capital. The
Company intends to finance future acquisitions with future free cash flow and
through issuances of shares of Common Stock or debt securities, including
convertible debt securities. Using internally generated cash or debt to complete
acquisitions could substantially limit the Company's operational and financial
flexibility. The extent to which the Company will be able or willing to use
shares of Common Stock to consummate acquisitions will depend on its market
value from time to time and the willingness of potential sellers to accept it as
full or partial payment. Using shares of Common Stock for this purpose may
result in significant dilution to then existing stockholders. The Company has
obtained a commitment from Chase Securities Inc. ("Chase Securities") to
structure, arrange and syndicate a new credit facility, which will be a secured
revolving credit facility of up to $60.0 million to be used for acquisitions and
general corporate purposes (the "New Credit Facility"). No assurance can be
given the Company will be able to obtain the capital it would need to finance a
successful acquisition program and its other cash needs. If the Company is
unable to obtain additional capital on acceptable terms, it may be required to
reduce the scope of its presently anticipated expansion, which could materially
adversely affect its business and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Supplemental Unaudited Pro Forma Combined Financial
Information -- Liquidity and Capital Resources."
FACTORS AFFECTING INTERNAL GROWTH
The factors affecting the Company's ability to generate internal growth
will include the extent to which it is able to: (i) integrate SSI's
SafeSeal(TM)technology into the operations of the other Acquired Businesses and
other businesses it may acquire and otherwise expand the range of repair
services offered by these businesses; (ii) leverage its relationships with
customers in existing markets into work for those customers in other markets
where they currently use the services of competitors; and (iii) reduce overhead
costs of acquired businesses. No assurance can be given the Company will be able
to market its SafeSeal(TM) technology successfully as being safer, more
effective and more cost-efficient than other available on-line valve repair
methods. Factors affecting the Company's ability to expand services will include
the extent to which it is able to attract and retain qualified operating
management, service technicians and machinists in existing and new areas of
operation and train its technicians to use the SafeSeal technology and other new
technologies that become available.
BENEFITS OF OFFERING TO EXISTING STOCKHOLDERS
The Company will use approximately $11.8 million of its net proceeds from
this Offering to repay indebtedness guaranteed by Philip and to repay the entire
$3.2 million of indebtedness it owes to Philip (after giving effect to the
issuance of 1,253,962 shares of Common Stock to Philip (i) in repayment of $8.7
million of indebtedness owed by the Company to Philip and (ii) for the
redemption of $2.0 million of SSI preferred stock owned by Philip, as described
in "Certain Transactions -- Financing Arrangements" and "-- The SSI
Merger"), and also will pay cash bonuses totaling $330,000 to three of
Invatec's executive officers, including $300,000 to be paid to William E.
Haynes, its Chairman of the Board, President and Chief Executive Officer. Mr.
Haynes is also a director of Philip. See "Use of Proceeds." This Offering will
benefit the existing stockholders of Invatec and SSI by creating a public market
for the Common Stock.
CONCENTRATION OF OWNERSHIP
Concurrently with the closing of this Offering, The Roger L. Miller Family
Trust, Roger L. Miller and Computerized Accounting & Tax Services, Inc.
("CATS"), a corporation Mr. Miller owns (collectively, the "Miller
Interests"), will sell to Philip 300,000 shares of the Common Stock they then
own for a cash purchase price of $11.58 per share. When this Offering closes,
Philip will own approximately 32.5% of the outstanding Common Stock.
RELIANCE ON CUSTOMERS IN HISTORICALLY CYCLICAL INDUSTRIES
The businesses of most of the Company's industrial customers, particularly
refineries and chemical, power and pulp and paper plants, tend to be cyclical.
Margins in those industries are highly sensitive to demand cycles, and the
Company's customers in those industries historically have tended to delay large
capital projects, including expensive turnarounds, during down cycles. As a
result, the Company's business and results of operations may reflect the
cyclical nature of the various industries it serves.
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OPERATING HAZARDS
The Company performs a significant portion of its repair services in
refineries, chemical plants and other industrial facilities that process,
produce, store, transport or handle potentially hazardous substances, including
highly corrosive, flammable or explosive substances kept at extremes of
temperature and pressure. These services (i) include sealing leaks and repairing
valves on process units operating under pressure, (ii) typically involve a
combination of individuals and machinery operating in restricted work areas and
(iii) are subject to the usual hazards associated with providing on-site
services in these types of facilities, such as pipeline leaks and ruptures,
explosions, fires, oil and chemical spills, discharges or releases of toxic
substances or gases. These hazards can cause personal injury and loss of life,
severe damage to or destruction of property and equipment and environmental
damage and may result in suspension of operations of all or part of the facility
being serviced. If a catastrophic event occurs at a plant to which the Company
provides services, the Company may have to defend itself against large claims.
It maintains insurance coverage in the amounts and against the risks it believes
accord with industry practice, but this insurance does not cover all types or
amounts of liabilities. No assurance can be given either (i) this insurance will
be adequate to cover all losses or liabilities the Company may incur in its
operations or (ii) the Company will be able to maintain insurance of the types
or at levels it deems necessary or adequate or at rates it considers reasonable.
COMPETITION
The markets for the Company's repair and distribution services generally
are highly competitive. The Company believes the principal competitive factors
in a distributor's sale of new valves and other process-system components
directly to industries in the distributor's market include price and the ability
of the distributor to offer on a timely basis a wide selection of the new,
better-performing valves and other components the original equipment
manufacturers ("OEMs") have designed to meet the needs of these industries.
Factors affecting delivery time include inventory size and whether, in the case
of pressure safety, relief and safety-relief valves (collectively, "PRVs") and
certain other valves, the OEM or the distributor assembles, sets, tests and
seals, or otherwise customizes, the valve. In the case of repair services, the
Company believes the principal competitive factors are quality and availability
of service (including emergency service and documentation of valve histories),
price, use of OEM-approved replacement parts, familiarity with the OEMs'
products and local brand equity of the repair business.
In its distribution operations, the Company competes with the direct sales
forces and distribution networks of OEMs offering the same or comparable lines
of products. It competes for repair services business with other repair services
businesses, OEMs and customers' in-house maintenance crews. Some of its
competitors may have lower overhead cost structures and, consequently, may be
able to provide their services at lower rates than the Company. The Company's
competitors for on-line leak sealing services include two national competitors
and several regional competitors. See "Business -- Competition."
The Company believes the industrial valve repair and distribution sectors
of the industrial valve industry are subject to consolidation, and that a number
of competitors may attempt to consolidate these sectors. Some of these
competitors may have greater resources than the Company to finance acquisition
and internal growth opportunities and may be willing to pay higher prices than
the Company for the same opportunities. Consequently, the Company may encounter
significant competition in its efforts to achieve its growth objectives,
particularly through its acquisition strategy.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGIES
The success of the Company will depend in part on its ability to obtain and
protect patents and other intellectual property rights covering its products and
services. The Company, through subsidiaries, owns three United States patents
and has two United States patent applications pending which relate primarily to
the SafeSeal(TM) system. The process of seeking patent protection can be long
and expensive, and no assurance can be given patents will issue from the
Company's currently pending applications or future applications or that, if
patents are issued, they will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to the Company. In addition,
the laws of certain foreign countries may not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Litigation,
which could demand significant financial and management resources, may be
necessary
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to enforce patents or other intellectual property rights of the Company. One of
the Company's customers has a license to certain of the Company's technology
under certain of its patents pertaining to the SafeSeal(TM) system. Although, to
the knowledge of the Company, that customer has not pursued the development of
technology that would compete with the SafeSeal(TM) system (and instead has
opted to continue outsourcing on-line valve repair service work to the Company),
there can be no assurance it will not elect to do so in the future. Moreover,
there can be no assurance others will not independently develop substantially
equivalent or better technology that would be free of the Company's patents and
other intellectual property rights. See "Business -- Intellectual Property."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for repair
and distribution services (particularly the demand attributable to scheduled
turnarounds in the power industry, which typically are scheduled for
mild-weather months) and competitive factors. Accordingly, quarterly comparisons
of the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
GOVERNMENTAL REGULATION
A wide range of federal, state and local regulations relating to health,
safety and environmental matters applies to the Company's business. The
Company's in-shop reconditioning and remanufacturing of used valves frequently
involves the use, handling, storage and contracting for the disposal or
recycling of a variety of substances or wastes considered hazardous or toxic.
Environmental laws are complex and subject to frequent change. These laws impose
liability in some cases without regard to negligence or fault and expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company which complied with all applicable laws when performed. No
assurance can be given the Company's compliance with amended, new or more
stringent laws or regulations, stricter interpretations of existing laws or the
future discovery of environmental conditions will not require additional,
material expenditures by the Company. Regulations of the Occupational Safety and
Health Administration ("OSHA") also apply to the Company's business, including
requirements the Company's training programs must meet respecting, among other
matters, release detection procedures, appropriate work practices, emergency
procedures and other methods the Company's technicians can use to protect
themselves and the environment. See "Business -- Governmental Regulation and
Environmental Matters." Future acquisitions by the Company also may be subject
to regulation, including antitrust reviews. The Company believes it
substantially complies with all currently applicable laws relating to its
business.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations will depend on the continuing
efforts of its executive officers and the senior management of the Acquired
Businesses and likely will depend on the senior management of any significant
businesses the Company acquires in the future. The business or prospects of the
Company could be affected adversely if any of these persons do not continue in
their respective management roles after joining the Company and the Company is
unable to attract and retain qualified replacements. The ability of the Acquired
Businesses (other than SSI) and any additional repair services companies the
Company may acquire to include the SafeSeal(TM) system in their services will
require the training of their service technicians in the use of the technology,
and the success of the Company's growth strategy generally, as well as the
Company's current operations, will depend on the extent to which it is able to
retain, recruit and train qualified sales personnel, service technicians and
machinists who meet the Company's standards of service to customers.
DEPENDENCE ON MANUFACTURERS
The success of the Company as a value-added distributor of new valves and
other process-system components depends on its relationships with the OEMs for
which it distributes products. In these relationships, the Company acts either
as a sales representative on a commission basis for direct sales by the
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OEM to the end user or purchases products on a discount basis for resale,
generally on a value-added basis. OEMs typically exercise a great deal of
control over their distributors. An OEM may assign a territory to a distributor
on an exclusive or nonexclusive basis, refuse to assign additional territories
to its distributors and reserve the right to sell directly to customers in an
assigned territory. The distribution agreement typically is terminable at will
on relatively short prior notice and restricts the ability of the distributor to
offer similar products made by another OEM. The Company's business strategy has
caused concern by some OEMs and could conflict with existing or future OEM
distributor policies or programs. Actions taken by OEMs to exploit their
bargaining positions with the Company could materially adversely affect the
Company's ability to implement its growth strategies and maintain its existing
distribution services business. See "Business -- Suppliers -- Relationships
With OEMs."
The success of the Company as a value-added distributor also depends on the
extent to which its OEMs are able to create demand for their products in the
markets the Company serves. Factors affecting this demand include, in addition
to price, product quality and performance (including durability and safety) and
delivery time, the relative strengths of the brand names and the marketing
abilities of the OEMs. See "Business -- Competition."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
When this Offering closes, 7,391,139 shares of Common Stock will be
outstanding (without giving effect to the potential conversion of convertible
subordinated notes issued in two Acquisitions (the "Convertible Notes") into
up to 393,793 shares of Common Stock). The 3,350,000 shares sold in this
Offering (other than shares purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption from the
registration requirements of the Securities Act, such as provided by Securities
Act Rule 144. Under Rule 144, all those shares will be eligible for Rule 144
sales, subject to certain volume limitations and other requirements, on the day
following the first anniversary of the date this Offering closes. In addition,
the holders of a substantial number of those remaining shares have certain
rights to cause the shares of Common Stock held by or issuable to them to be
registered in connection with certain future offerings pursuant to a
registration statement filed by Invatec with the Securities and Exchange
Commission (the "SEC").
When this Offering closes, Invatec also will have outstanding options to
purchase up to a total of 1,308,248 shares of Common Stock, of which options to
purchase 533,874 shares then will be exercisable. Invatec intends to file a
registration statement on Form S-8 to register those shares and the other shares
reserved or to be available for issuance pursuant to its 1997 Incentive Plan
(see "Management -- 1997 Incentive Plan"). After that registration statement
becomes effective, the shares registered thereby generally will become available
for sale in the open market by holders who are not affiliates of the Company
and, subject to the volume and other limitations of Rule 144, by holders who are
affiliates of the Company.
Invatec, its directors and executive officers, Philip, the Miller Interests
and the holders of the Convertible Notes issued in connection with two of the
Acquisitions have agreed not to offer or sell any shares for a period of 180
days following the date of this Prospectus (the "Lockup Period") without the
prior written consent of NationsBanc Montgomery Securities, Inc.; however,
Invatec may issue shares of Common Stock in connection with acquisitions,
pursuant to its 1997 Incentive Plan and pursuant to the conversion of the
Convertible Notes and the exercise of options outstanding when this Offering
closes. For information respecting additional restrictions on sales by Philip,
the Miller Interests, Invatec's management and others, see "Shares Eligible for
Future Sale."
Invatec intends to register 5,000,000 additional shares of Common Stock
under the Securities Act in the fourth quarter of 1997 or the first quarter of
1998 for its use in connection with future acquisitions. Pursuant to Securities
Act Rule 145, the volume limitations and certain other requirements of Rule 144
will apply to resales of these shares by affiliates of the businesses the
Company acquires for a period of one year from the date of their acquisition (or
such shorter period as the SEC may prescribe), but otherwise these shares will
be freely tradable by persons not affiliated with Invatec unless Invatec
restricts their resale by contract, and sales of these shares during the Lockup
Period would require the prior written consent of NationsBanc Montgomery
Securities, Inc.
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The availability for sale, or sale, of the shares of Common Stock eligible
for future sale could adversely affect the market price of the Common Stock
prevailing from time to time. See "Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which Invatec and representatives of the
Underwriters will negotiate, may not be indicative of the price at which the
Common Stock will trade after this Offering. See "Underwriting" for the
factors they will consider in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market, but
no assurance can be given an active trading market for the Common Stock will
develop or, if developed, will continue after this Offering. The market price of
the Common Stock after this Offering may fluctuate significantly from time to
time in response to numerous factors, including variations in the reported
financial results of the Company and changing conditions in the economy in
general or in the Company's industry in particular. In addition, the stock
markets experience significant price and volume volatility from time to time
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.
IMMEDIATE, SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $8.62 per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of shares of Common Stock in the future.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
Invatec's Certificate of Incorporation (the "Charter") authorizes Invatec
to issue, without stockholder approval, one or more classes or series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions) as the Board of Directors of Invatec may
determine. The terms of one or more classes or series of preferred stock could
adversely impact the rights of holders of shares of Common Stock or could have
anti-takeover effects. See "-- Potential Anti-takeover Effects" and
"Description of Capital Stock."
POTENTIAL ANTI-TAKEOVER EFFECTS
Invatec has adopted a stockholder rights plan. This plan and provisions of
the Charter, Invatec's Bylaws and the Delaware General Corporation Law (the
"DGCL") may delay, discourage, inhibit, prevent or render more difficult an
attempt to obtain control of Invatec, whether by means of a tender offer,
business combination, proxy contest or otherwise. These provisions include the
authorization of "blank check" preferred stock, classification of the Board of
Directors, a prohibition of stockholder action by less than unanimous written
consent and DGCL restrictions on business combinations with certain interested
parties. See "Description of Capital Stock."
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THE COMPANY
Invatec was formed 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 (collectively, "repair and distribution services") throughout North
America. Petrochemical and other chemical plants, petroleum refineries, pulp and
paper mills, electric and other utilities and other industrial process
facilities use industrial valves to direct and regulate the flow of feedstocks,
intermediates, products and fuels in their process systems. The Company intends
to be a leader in the consolidation of the highly fragmented repair and
distribution sectors of the North American industrial valve industry by
continuing to execute its aggressive acquisition strategy and to implement its
national operating strategy, which is designed to increase internal growth,
market share and profitability. When this Offering closes, Invatec will have
combined seven businesses with 32 locations whose revenues totaled approximately
$76.2 million on a pro forma combined basis during fiscal 1996. Invatec will
conduct its business through its principal operating subsidiaries -- Harley
Industries, Inc., Steam Supply & Rubber Co., Inc., Industrial Controls &
Equipment, Inc., GSV, Inc., Plant Specialties, Inc., Southern Valve Service,
Inc. and SSI.
Harley Industries, Inc. ("Harley"), the successor to a business founded
in 1937 and acquired by SSI in January 1997, provides repair and distribution
services to electric utilities, petroleum refineries, petrochemical and other
chemical plants, pulp and paper mills and other process industries in the
markets it serves from its 13 sales and service facilities in Arkansas, Florida,
Georgia, Indiana, Louisiana, Oklahoma, South Carolina, Texas, Virginia and
Washington. Harley has grown both internally and through its acquisition of
regional repair businesses, including the acquisition in June 1996 of five
operating locations and related assets from Henze Services, Inc. Harley performs
most of its repair services at on-site locations in connection with its
customers' scheduled shutdowns and turnarounds, and on-line repair services have
not been a material part of its business in recent years. The Company intends to
use Harley's network of service locations as a platform for introducing its
proprietary on-line valve restoration technology nationally. During fiscal 1996,
Harley's revenues from its continuing operations totaled approximately $21.4
million.
Steam Supply & Rubber Co., Inc. (together with three affiliated companies
having common ownership and management, "Steam Supply"), the successor to a
business established in 1915 and acquired by Invatec in July 1997, provides
repair and distribution services to petrochemical plants, petroleum refineries,
electric utilities, pulp and paper mills and oil producers in the western half
of the continental United States and Alaska from its six locations in
Washington, Oregon, California, Colorado and Alaska. Conducting business under
the names "Steam Supply" and the "Flickinger Company," it provides a
comprehensive variety of valve repair services for its customers both on-site at
the customer's location during shutdowns and turnarounds and in-house at its
facilities. During fiscal 1996, Steam Supply's combined revenues totaled
approximately $15.1 million.
Industrial Controls & Equipment, Inc. (together with three affiliated
companies having common ownership and management, "ICE/VARCO"), founded in
1981, will be acquired by Invatec when this Offering closes. From its
distribution and assembly and repair service facility near Parkersburg, West
Virginia, it provides repair and distribution services in Pennsylvania and West
Virginia. ICE/VARCO also provides value-added industrial valve and engineered
product distribution services and in-house repair services to a customer base
consisting principally of chemical plants. During fiscal 1996, its revenues
totaled $12.7 million.
GSV, Inc. ("GSV"), the successor to a business established in 1921 and
acquired by SSI in March 1997, provides repair and distribution services,
principally for high-pressure steam lines, valves, traps and other equipment, to
electric power plants and phosphate chemical plants in the Florida peninsula.
GSV markets its services and products under the names "Southern Valve Co." and
"Gould Machine and Fabrication." Its Southern Valve facility in Lakeland,
Florida distributes a wide variety of valves and valve packages, including
actuated valve packages it assembles, tests and calibrates, and provides in-shop
and on-site repair services. Its Gould Machine and Fabrication facility in
Tampa, Florida fabricates large process-
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system equipment for its customers. During fiscal 1996, GSV's revenues totaled
approximately $10.2 million.
Plant Specialties, Inc. ("Plant Specialties"), founded in 1972 and
acquired by SSI in June 1997, is located in Sulphur, Louisiana, a significant
center for petroleum refining and chemical production. Plant Specialties
provides comprehensive industrial valve repair services to petroleum refineries,
petrochemical plants and other process industries in southwestern Louisiana and
the Texas Golden Triangle (Beaumont, Orange and Port Arthur). Plant Specialties
operates one of the largest valve repair facilities in its area and routinely
services customer needs at customer locations throughout the southern United
States. It is an innovator in shop automation and work-in-process control and
documentation and quality and safety processes. Management believes the Company
can use many of the quality control processes and other productivity
enhancements developed by Plant Specialties throughout its operations. The
revenues of Plant Specialties totaled approximately $8.5 million during fiscal
1996.
Southern Valve Service, Inc. (together with an affiliate under common
management, "SVS"), founded in 1984 and located near Mobile, Alabama, will be
acquired by Invatec when this Offering closes. SVS provides comprehensive
industrial valve repair services to the pulp and paper, petrochemical and
electric power industries in Alabama, Mississippi and Georgia. It performs a
significant portion of its repair service at on-site locations in connection
with scheduled shutdowns and turnarounds of its customers. During fiscal 1996,
its revenues totaled approximately $4.4 million.
SSI, an on-line repair services company founded in 1991 and engaged in
research and development of new technologies for repairing valves and other
process-system equipment, will become a subsidiary of Invatec when this Offering
closes. SSI provides on-line leak sealing and valve-packing restoration services
for petrochemical plants, refineries and other process industries from service
facilities located along the Texas Gulf Coast (Beaumont, Freeport and LaPorte)
and in Baton Rouge, Louisiana, Pensacola, Florida and Sarnia, Ontario. SSI uses
its proprietary SafeSeal(TM)system to repair leaking rising stem valves ("RSVs")
on-line and under pressure by restoring the packing around their stems. The
Company believes this technology, which has proved to be successful in its
limited repair applications to date, is capable of wide commercialization
through an aggressive marketing program. During fiscal 1996, SSI's revenues
totaled approximately $3.9 million, of which conventional sealing of leaking
pipes and flanges accounted for approximately 92%.
SSI purchased Harley, GSV and Plant Specialties for a total consideration
of $28.8 million, consisting of (i) approximately $24.6 million in cash
(including $3.3 million aggregate principal amount of subordinated notes issued
by Philip) and assumed debt (including $1.0 million to be paid when this
Offering closes), (ii) $3.3 million aggregate principal amount of SSI's
five-year 5.0% convertible subordinated notes due 2002 and (iii) $0.9 million
principal amount of SSI's 9% secured note due 2002, which is secured by a
mortgage on a part of Plant Specialties' plant and land. Invatec has assumed all
SSI's obligations with respect to these notes, and the convertible notes will be
convertible at the holder's option into shares of Common Stock at a conversion
price per share equal to 130% of the initial per share price to the public in
this Offering.
Invatec purchased Steam Supply for total consideration of $10.6 million
consisting of $2.7 million in cash, $2.8 million aggregate principal amount of
Invatec's 5.5% convertible subordinated notes due 2004 and the assumption of
$5.1 million of debt and other long-term liabilities. The convertible notes are
convertible at the holder's option into shares of Common Stock at an initial
conversion price per share equal to 130% of the initial per share price to the
public in this Offering.
Invatec will acquire ICE/VARCO and SVS for a total consideration of $11.1
million consisting of $5.2 million in cash, $4.4 million in assumed debt and
shares of Common Stock having a calculated total value of $1.5 million using the
initial price to the public in this Offering, subject in each case to an
increase contingent on the operating results the Acquired Business achieves in
the first 12 months after its acquisition. The contingent payment for ICE/VARCO
would consist of options to acquire 40,000 shares of Common Stock at an exercise
price per share equal to the initial per share price to the public in this
Offering, while the contingent payment for SVS would be payable in a combination
of Common Stock
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(valued on the basis of then recent trading prices) and cash in the amount equal
to the product of (i) four multiplied by (ii) the amount, if any, by which the
earnings before interest, income taxes and extraordinary items of SVS during
that 12-month period exceeds $880,000. The actual amount, if any, of this
payment is not presently determinable.
When this Offering closes, SSI will become a subsidiary of Invatec by means
of a merger (the "SSI Merger") in which the outstanding SSI preferred stock
will be redeemed for approximately 166,667 shares of Common Stock (based on the
midpoint of the estimated initial public offering price range) and the
outstanding SSI common stock will be converted into 2,419,338 shares of Common
Stock. See "Certain Transactions -- The SSI Merger."
Invatec's executive offices are located at 14900 Woodham Drive, Suite
A-125, Houston, Texas 77073, and its telephone number at that address is (281)
821-9407.
15
<PAGE>
USE OF PROCEEDS
Invatec estimates its proceeds from this Offering, net of the underwriting
discount and $1.0 million of estimated offering expenses paid and payable by
Invatec (excluding approximately $1.0 million of offering expenses paid with
advances by Philip constituting part of the indebtedness referred to below which
will be repaid through the issuance of shares of Common Stock to Philip on the
closing of this Offering), will be approximately $36.4 million (approximately
$42.0 million if the Underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $12.00 per share (the midpoint of
the estimated initial public offering price range). The Company will use these
net proceeds to (i) pay the cash portion of the purchase price for ICE/VARCO and
SVS and the remaining purchase price for Harley (an aggregate of $6.3 million)
and (ii) repay $26.0 million of its existing indebtedness owed to third parties,
including $11.8 million guaranteed by Philip, and the remaining $3.2 million
owed to Philip (after giving effect to the issuance of 1,087,295 shares of
Common Stock to Philip in repayment of $8.7 million of indebtedness owed by the
Company to Philip, as described in "Certain Transactions -- Financing
Arrangements"). When this Offering closes, Invatec also will pay cash bonuses
totaling $330,000 to its chief executive officer (William E. Haynes), who is
also a director of Philip, and two of its other executive officers (John L. King
and Douglas R. Harrington, Jr.).
The indebtedness to be repaid from the proceeds of this Offering, which was
incurred in connection with the Acquisitions, bears interest at rates ranging
from 5.0% to 18.0%. That indebtedness would otherwise mature at various dates
through 2004. On a pro forma combined basis at June 30, 1997, after giving
effect to this Offering and the application of the estimated net proceeds
therefrom, the Company would have had approximately $6.1 million of long-term
debt (consisting of the Convertible Notes) and no short-term debt outstanding.
See the Unaudited Pro Forma Combined Financial Statements and the Notes thereto
included herein.
DIVIDEND POLICY
Invatec currently intends to retain earnings to finance its business
strategy. Any future dividends will be at the discretion of its Board of
Directors after taking into account various factors, including the Company's
financial condition and performance, cash needs and expansion plans, income tax
consequences and the restrictions Delaware and other applicable laws and its
credit facilities then impose. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Supplemental Unaudited Pro
Forma Combined Financial Information -- Liquidity and Capital Resources."
16
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization as of June 30, 1997 of: (i) the
Company on a pro forma combined basis after giving effect to the Acquisitions
and the financings thereof, the net incurrence of other indebtedness since June
30, 1997 and the issuance of 1,253,962 shares of Common Stock to Philip in
repayment of $8.7 million of indebtedness the Company owes to Philip and
redemption of $2.0 million of SSI preferred stock owned by Philip; and (ii) the
Company, on that pro forma basis, as adjusted to give effect to this Offering
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto included herein.
JUNE 30, 1997(1)
--------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Short-term debt and current maturities
of long-term obligations(2)........... $26,869 $--
========= ===========
Long-term debt, net of current
maturities............................ 7,588 --
Convertible subordinated notes.......... 6,143 6,143
Other long-term obligations............. 711 711
Stockholders' equity:
Preferred stock: $0.001 par value,
5,000,000 shares authorized; none
issued or outstanding............. -- --
Common stock: $0.001 par value,
30,000,000 shares authorized;
4,041,139 shares issued and
outstanding, pro forma; and
7,391,139 shares issued and
outstanding, pro forma, as
adjusted(3)....................... 4 7
Additional paid-in capital......... 22,779 58,162
Retained earnings (deficit)........ (8,756) (9,086)
--------- -----------
Total stockholders' equity.... 14,027 49,083
--------- -----------
Total capitalization..... $28,469 $55,937
========= ===========
- ------------
(1) Reflects: (i) the balance sheets of Invatec, SSI and ICE/VARCO at June 30,
1997; and (ii) the balance sheets of Steam Supply and SVS at July 31, 1997.
(2) The pro forma combined balance includes $4.4 million of cash consideration
due to former owners of Acquired Businesses.
(3) Excludes (i) an aggregate of 393,793 shares of Common Stock issuable on the
conversion of convertible subordinated notes that are convertible at an
initial conversion price equal to 130% of the initial per share price to the
public in this Offering (a) at the option of the holder in whole at any time
and (b) at the option of Invatec in whole at any time after the closing sale
prices of the Common Stock for a period of 20 consecutive trading days
beginning in 1999 exceed 150% of that initial per share price and (ii) an
aggregate of 1,308,248 shares of Common Stock subject to stock options that
will be outstanding when this Offering closes. See "Management -- Option
Grants."
17
<PAGE>
DILUTION
The pro forma net tangible book deficit of the Company as of June 30, 1997
was approximately $10.1 million, or approximately $2.49 per share of Common
Stock, after giving effect to the following events and transactions (the
"Transactions"): (i) the Acquisitions; (ii) the net indebtedness incurred by
the Company since June 30, 1997; (iii) the reverse stock splits of the Common
Stock and the SSI common stock effected in connection with this Offering; and
(iv) the issuance of 1,253,962 shares of Common Stock in repayment of $8.7
million of indebtedness the Company owes to Philip and redemption of $2.0
million of SSI preferred stock owned by Philip. The pro forma net tangible book
deficit per share represents the amount by which the Company's pro forma total
liabilities exceed the Company's pro forma tangible assets as of June 30, 1997,
divided by the number of shares of Common Stock to be outstanding after giving
effect to the Transactions. After giving effect to the sale of the 3,350,000
shares offered hereby and the estimated underwriting discount and estimated
offering expenses payable by the Company, the Company's pro forma net tangible
book value as of June 30, 1997 would have been approximately $25.0 million, or
approximately $3.38 per share of Common Stock, based on an assumed initial
public offering price of $12.00 (the midpoint of the estimated initial public
offering price range). This represents an immediate increase in pro forma net
tangible book value of approximately $5.87 per share to existing stockholders
and an immediate dilution of approximately $8.62 per share to new investors
purchasing shares in this Offering. The following table illustrates this pro
forma dilution:
Assumed initial public offering price
per share.......................... $ 12.00
Pro forma net tangible book value
(deficit) per share before this
Offering........................... $ (2.49)
Increase in pro forma net tangible
value per share attributable to new
investors.......................... 5.87
---------
Pro forma net tangible book value per
share after this Offering.......... 3.38
---------
Dilution per share to new
investors.......................... $ 8.62
=========
The dilution to new investors purchasing shares in this Offering will
increase if the initial public offering price is higher, and will decrease if
that price is lower, than $12.00 per share.
The following table sets forth, on a pro forma basis to give effect to the
Transactions and the closing of this Offering and the application of the
estimated net proceeds therefrom as of June 30, 1997, the number of shares of
Common Stock purchased from Invatec, the total consideration to Invatec and the
average price per share paid to Invatec by existing stockholders (including
persons who will acquire Common Stock in the Transactions) and the new investors
purchasing shares from Invatec in this Offering (before deducting the
underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
-------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 4,041,139 55% $ (10,060,000) (33)% $ (2.49)
New investors........................ 3,350,000 45 40,200,000 133 12.00
--------- ------- --------------- -------
7,391,139 100% $ 30,140,000 100%
========= ======= =============== =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the pro forma
stockholders' equity less pro forma goodwill, in each case before giving
effect to the post-merger adjustments set forth in the Unaudited Pro Forma
Combined Balance Sheet of the Company and the Acquired Businesses included
herein.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
SSI has been identified as the "accounting acquirer" for financial
statement presentation purposes. The following selected historical consolidated
financial information of the accounting acquirer has been derived from (i) the
audited financial statements of SSI included herein for the years ended December
31, 1994, 1995 and 1996 and as of December 31, 1995 and 1996 and (ii) the
unaudited financial statements of SSI for the years ended December 31, 1992 and
1993 and for the six months ended June 30, 1996 and 1997 and as of December 31,
1992, 1993 and 1994 and June 30, 1997 which have been prepared on the same basis
as the audited statements and, in the opinion of SSI, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
that information. The following summary unaudited pro forma combined financial
information represents historical information of the Company, as adjusted to
give effect to (i) the Acquisitions on a historical basis, (ii) the other pro
forma adjustments described below and (iii) the closing of this Offering and the
application of the estimated net proceeds therefrom. See the Unaudited Pro Forma
Combined Financial Statements and the Notes thereto included herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
INFORMATION FOR THE ACCOUNTING
ACQUIRER:
Revenues......................... $ 1,006 $ 1,787 $ 2,547 $ 2,852 $ 3,888 $ 1,606 $ 19,760
Gross profit..................... 544 959 1,276 1,268 1,512 706 6,265
Selling, general and
administrative expenses(1)..... 384 1,221 1,268 1,853 1,955 886 7,311
Income (loss) from operations.... 160 (262) 8 (585) (443) (180) (1,046)
Interest income (expense), net... -- (1) (7) 10 28 -- (998)
Other income (expense), net...... 2 -- (282) (930) -- -- 2
Income (loss) before income
taxes.......................... 162 (263) (281) (1,505) (415) (180) (2,042)
Net income (loss)................ $ 118 $ (263) $ (281) $ (1,505) $ (415) $ (180) $ (1,766)
========= ========= ========= ========= ========= ========= =========
<CAPTION>
FIRST SIX
MONTHS OF
FISCAL 1996 FISCAL 1997
------------ ------------
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS INFORMATION(2):
Revenues......................... $ 76,234 $ 45,276
Gross profit..................... 23,177 13,565
Selling, general and
administrative
expenses(3)(4)................. 19,314 11,499
Income from operations........... 3,863 2,066
Interest expense, net............ (332) (161)
Other income (expense), net...... 56 8
Income from continuing operations
before income taxes............ 3,587 1,913
Net income(5).................... $ 2,041 $ 1,090
============ ============
Net income per common share from
continuing operations.......... $ .28 $ .15
============ ============
Shares used in computing pro
forma net income per share from
continuing operations(6)....... 7,391 7,391
============ ============
JUNE 30, 1997
----------------------------
DECEMBER 31 PRO
----------------------------------------------------- FORMA
1992 1993 1994 1995 1996 ACTUAL COMBINED(2)
--------- --------- --------- --------- --------- -------- ----------------
BALANCE SHEET INFORMATION:
Working capital (deficit)........ $ 318 $ 163 $ (127) $ 823 $ (13) $ (9,046) $ (9,669)
Total assets..................... 490 623 812 2,109 2,288 43,430 68,462
Total debt, including current
portion(8)..................... -- 25 93 -- 589 22,725 40,600
Stockholders' equity (deficit)... 267 (121) (348) (1,075) (1,394) 3,740 14,027
</TABLE>
AS
ADJUSTED(7)
-----------
BALANCE SHEET INFORMATION:
Working capital (deficit)........ $17,799
Total assets..................... 67,561
Total debt, including current
portion(8)..................... 6,143
Stockholders' equity (deficit)... 49,083
(FOOTNOTES ON NEXT PAGE)
19
<PAGE>
- ------------
(1) Selling, general and administrative expenses in the first six months of
fiscal 1997 reflect a non-cash, non-recurring special compensation expense
of $2.4 million attributable to stock awards made by SSI as described under
"Management -- Executive Compensation" and "Certain Transactions -- The
SSI Merger."
(2) The pro forma combined statement of operations information assumes the
Transactions (see "Dilution") and this Offering all were closed, and the
estimated net proceeds from this Offering were applied, on January 1, 1996.
The pro forma balance sheet information assumes all the Transactions (other
than (i) SSI's acquisitions of Harley, GSV and Plant Specialties and related
financings and other borrowings prior to June 30, 1997 and (ii) the closing
of this Offering and the application of the estimated net proceeds
therefrom) occurred on June 30, 1997. The pro forma combined financial
information (i) is not necessarily indicative of the results of operations
the Company would have obtained had the Transactions and this Offering and
the application of the estimated net proceeds therefrom actually occurred
when assumed or of the Company's future financial position or results of
operations, (ii) is based on preliminary estimates, available information
and certain assumptions that management deems appropriate and (iii) should
be read in conjunction with the other financial statements and notes thereto
included herein. The pro forma combined statement of operations information
for fiscal 1996 and the first six months of fiscal 1997 includes: (i) the
year ended December 31, 1996 and the six months ended June 30, 1997 for
Invatec, SSI and GSV; (ii) the year ended October 31, 1996 and the six
months ended June 30, 1997 for Harley and Plant Specialties; (iii) the year
ended October 31, 1996 and the six months ended April 30, 1997 for Steam
Supply and SVS; and (iv) the year ended September 30, 1996 and the six
months ended March 31, 1997 for ICE/VARCO. The pro forma combined balance
sheet includes: (i) the balance sheets of Invatec, SSI and ICE/VARCO at June
30, 1997; and (ii) the balance sheets of Steam Supply and SVS at July 31,
1997.
(3) Does not include: (i) salaries and benefits of certain owners and managers
of the Acquired Businesses who were not or will not be employed by the
Company and will not be replaced and certain excess administrative support
service fees charged by ICE/VARCO's former parent company, as follows:
fiscal 1996, $1,674,000; and first six months of fiscal 1997, $937,000; or
(ii) $5.1 million of non-cash, non-recurring special compensation expenses
attributable to stock awards made by SSI in fiscal 1996 and in the first
six months of fiscal 1997 and sales of Common Stock by Invatec in the first
six months of fiscal 1997.
(4) Includes goodwill amortization to be recorded as a result of the
Acquisitions over a 40-year period, as follows: fiscal 1996, $602,000; and
first six months of fiscal 1997, $301,000.
(5) Assumes an effective tax rate of 43%.
(6) Computed on the basis described in the Notes to the Unaudited Pro Forma
Combined Financial Statements.
(7) Reflects the closing of this Offering and Invatec's application of the
estimated net proceeds therefrom as described under "Use of Proceeds."
(8) Pro forma combined total debt includes $4.4 million payable to former owners
of Acquired Businesses.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto and "Selected Financial Information" included
in this Prospectus.
OVERVIEW
The Company derives its revenues principally from (i) sales of industrial
valves and other process-system components to its process-industry customers and
commissions paid by the OEMs of these products in connection with their direct
sales of these products and (ii) performance of comprehensive, maintenance,
repair, replacement and value-added distribution services of industrial valves
and process-system components for these customers. Cost of operations consists
principally of direct costs of valves and components sold, coupled with labor
and overhead costs connected with the performance of repair services. Selling,
general and administrative expenses consist principally of compensation and
benefits payable to owners and to sales, management and administrative personnel
and insurance, depreciation and amortization and other related expenses.
The 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 or will not be employed by the Company
after the acquisition of their Acquired Businesses and will not be replaced and
(ii) the elimination of certain excess management fees charged by ICE/VARCO's
former parent company. 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 Invatec expects to incur, but also cannot currently
quantify accurately. These costs include those associated with corporate
management and administration, being a public company, systems integration and
facilities expansions and consolidations. The pro forma combined financial
information herein reflects neither unquantifiable expected savings nor
unquantifiable expected incremental costs.
In connection with certain issuances of SSI common stock and sales of
Common Stock by Invatec during 1996 and the six months ended June 30, 1997, the
Company recorded a non-cash, non-recurring compensation charge of $5.1 million,
representing the difference between the amount paid for the shares and the fair
value of the shares on the date of issuance or sale. This compensation charge is
not included in the pro forma combined financial statements. In the quarter
ended September 30, 1997, the Company will record a special non-cash,
non-recurring compensation expense (presently estimated at approximately $2.0
million) as a result of its grant to certain executive officers of Invatec of
options to purchase 202,589 shares of Common Stock at an exercise price of $1.00
per share.
SSI has been identified as the "accounting acquirer" for financial
statement presentation purposes.
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following supplemental unaudited pro forma combined financial
information gives effect to the Transactions (as defined in "Dilution") as if
they had taken place on January 1, 1996 and as restated to 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.
21
<PAGE>
The 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 other Acquired
Businesses were not under common control or management 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 "Selected Financial
Information" and the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto included herein.
SIX MONTHS ENDED
JUNE 30
------------------------------------------
1996 1997
-------------------- --------------------
(UNAUDITED AND IN THOUSANDS)
Revenues....................... $ 36,603 100% $ 46,701 100%
Cost of operations............. 25,116 69 32,191 69
--------- --- --------- ---
Gross profit................... 11,487 31 14,510 31
Selling, general and
administrative expenses...... 9,334 26 11,707 25
--------- --- --------- ---
Income from operations......... $ 2,153 5 $ 2,803 6
========= === ========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $10.1 million, or 28%, from $36.6 million in
the six months ended June 30, 1996 to $46.7 million in the six months ended June
30, 1997. This increase was primarily attributable to the following: (i) a $4.5
million increase in the revenues of Harley resulting from its acquisition of a
business in June 1996 and from strong sales of existing and new product lines,
(ii) a $1.6 million increase in ICE/VARCO's revenues associated with the
acquisition of a business in August 1996 and the continued penetration of
existing markets and (iii) a $1.3 million increase in Plant Specialties'
revenues attributable to a shift in management's emphasis to more aggressive
sales and marketing programs in 1997 and the performance of previously deferred
turnaround work.
GROSS PROFIT -- Gross profit increased $3.0 million, or 26%, from $11.5
million in the six months ended June 30, 1996 to $14.5 million in the six months
ended June 30, 1997. As a percentage of revenues, gross profit remained
consistent at 31% for both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $2.4 million, or 26%, from $9.3 million in the
six months ended June 30, 1996 to $11.7 million in the six months ended June 30,
1997. This increase primarily reflected expenses attributable to the business
Harley acquired in June 1996 and the building of the Company's corporate
management team in the first half of 1997. As a percentage of revenues, these
expenses decreased from 26% in the six months ended June 30, 1996 to 25% in the
six months ended June 30, 1997 as a result of being spread over a larger revenue
base.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to enter into the New Credit Facility effective
concurrently with the closing of this Offering. Chase Securities has agreed to
structure, arrange and syndicate the New Credit Facility subject to the terms
and conditions of a commitment letter. According to these terms, the New Credit
Facility will be a three-year revolving credit facility of up to $60.0 million
to be used for acquisitions and general corporate purposes. Invatec's present
and future subsidiaries will guarantee the repayment of all amounts due under
the facility and the facility will be secured by the capital stock of those
subsidiaries and the Company's accounts receivable and inventories. The Company
expects that the New Credit Facility will require the consent of the lenders for
acquisitions exceeding a certain level of cash consideration, prohibit the
payment of cash dividends by Invatec, restrict the ability of the Company to
incur other indebtedness and require the Company to comply with certain
financial covenants.
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 and the Acquired
22
<PAGE>
Businesses made capital expenditures of $1.9 million in fiscal 1996 and $0.5
million during the first six months of fiscal 1997. Invatec presently expects
that the Company's capital expenditures during the balance of fiscal 1997 will
total approximately $0.5 million (excluding acquisitions of businesses).
The Company intends to pursue attractive acquisition opportunities after
this Offering closes. 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 New Credit Facility.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for repair
and distribution services (particularly the demand attributable to scheduled
turnarounds in the power industry, which typically are scheduled for
mild-weather months) and competitive factors. Accordingly, quarterly comparisons
of the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
SSI
RESULTS OF OPERATIONS
The following table sets forth for SSI, the accounting acquirer, certain
selected financial data and data as a percentage of revenues for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 2,547 100% $ 2,852 100% $ 3,888 100% $ 1,606 100%
Cost of operations................... 1,271 50 1,584 56 2,376 61 900 56
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 1,276 50 1,268 44 1,512 39 706 44
Selling, general and administrative
expenses........................... 1,268 50 1,853 65 1,917 49 886 55
Special compensation expense on
common stock issuance.............. -- -- -- -- 38 1 -- --
--------- --- --------- --- --------- --- --------- ---
Income (loss) from operations........ $ 8 -- $ (585) (21) $ (443) (11) $ (180) (11)
========= === ========= === ========= === ========= ===
</TABLE>
SIX MONTHS ENDED
JUNE 30
--------------------
1997
--------------------
Revenues............................. $ 19,760 100%
Cost of operations................... 13,495 68
--------- ---
Gross profit......................... 6,265 32
Selling, general and administrative
expenses........................... 4,918 25
Special compensation expense on
common stock issuance.............. 2,393 12
--------- ---
Income (loss) from operations........ $ (1,046) (5)
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $18.2 million, or 1,138%, from $1.6 million
in the first six months of 1996 to $19.8 million in the first six months of
1997. This increase resulted from the inclusion of the results of Harley, GSV
and Plant Specialties from their respective dates of acquisition, February 1,
March 1, and June 1, 1997.
GROSS PROFIT -- Gross profit increased $5.6 million, or 800%, from $0.7
million in the first six months of 1996 to $6.3 million in the first six months
of 1997, principally as a result of the incremental gross margin generated by
Harley, GSV and Plant Specialties. As a percentage of revenues, gross profit
decreased from 44% in the first six months of 1996 to 32% in the first six
months of 1997. This decrease reflects the expansion of SSI's consolidated
operations to include the distribution and related services operations of Harley
and the on-site and in-shop repair services operations of Harley, GSV and Plant
Specialties, which historically generated lower gross margins than SSI's gross
margins attributable to its on-line repair services operations.
23
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $4.0 million, or 444%, from $0.9 million in
the first six months of fiscal 1996 to $4.9 million in the first six months of
1997. This increase reflects the building of SSI's corporate management team and
the incremental selling, general and administrative expenses of Harley, GSV and
Plant Specialties. As a percentage of revenues, these expenses decreased from
55% in the first six months of 1996 to 25% in the first six months of 1997 as a
result of being spread over a larger revenue base.
SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCE -- In connection with
the issuance of common stock to certain members of management and a management
services provider, SSI recorded a $2.4 million non-cash, non-recurring charge in
the six months ended June 30, 1997 as described under "Management -- Executive
Compensation" and "Certain Transactions -- The SSI Merger."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES -- Revenues increased $1.0 million, or 34%, from $2.9 million in
1995 to $3.9 million in 1996. This increase resulted primarily from SSI
obtaining, in early 1996, sole-source contracts to provide leak sealing and
related services to two significant petrochemical companies located in the
United States Gulf Coast region. An expansion of SSI's sales force during 1996
also contributed to the increase in revenues in fiscal 1996.
GROSS PROFIT -- Gross profit increased $0.2 million, or 15%, from $1.3
million in 1995 to $1.5 million in 1996. As a percentage of revenues, gross
profits decreased from 44% in 1995 to 39% in 1996, principally as a result of:
(i) aggressive pricing offered by SSI to obtain the sole-source contracts
referred to above; (ii) a marginal increase in the cost of certain raw materials
utilized in its leak sealing business; and (iii) increases in staffing levels in
1996 in preparation for higher future levels of business activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses remained consistent at $1.9 million in both 1995 and
1996. As a percentage of revenues, these expenses decreased from 65% in 1995 to
49% in 1996 as a result of being spread over a larger revenue base.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES -- Revenues increased $0.4 million, or 16%, from $2.5 million in
1994 to $2.9 million in 1995. This increase resulted primarily from increased
volumes of business resulting from an expansion of SSI's customer base which was
generated principally by three facilities opened in new geographic markets in
1993.
GROSS PROFIT -- Gross profit remained flat between 1994 and 1995, but
decreased as a percentage of revenues from 50% in 1994 to 44% in 1995. This
decrease resulted from an increase in the cost of raw materials utilized in the
leak sealing process and lower pricing offered by SSI in an effort to expand its
customer base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 46%, from $1.3 million in
1994 to $1.9 million in 1995. As a percentage of revenues, these expenses
increased from 50% in 1994 to 65% in 1995. This increase was principally the
result of significant legal costs incurred in securing various patents and
related agreements related to the SafeSeal(TM) system.
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LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from SSI's statements
of cash flows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash used in operating
activities......................... $ -- $ (1.1) $ (0.9) $ (0.7) $ (0.9)
Net cash used in investing
activities......................... -- -- (0.2) -- (19.4)
Net cash provided by (used in)
financing activities............... 0.1 2.5 -- (0.1) 20.3
--------- --------- --------- --------- ---------
Net change in cash................... $ 0.1 $ 1.4 $ (1.1) $ (0.8) $ --
========= ========= ========= ========= =========
</TABLE>
For the period from January 1, 1994 through June 30, 1997, SSI's operations
used $2.9 million of cash primarily as a result of its losses during that
period. Cash used in investing activities of $19.6 million in the same period
consisted primarily of $19.1 million used to acquire Harley, GSV and Plant
Specialties. Cash provided from financing activities in the same period of $22.9
million reflects net borrowings under credit facilities ($19.4 million) and
sales of SSI equity securities to Philip in 1995 and the first six months of
1997 ($3.8 million), less $0.2 million of dividends paid on preferred stock.
In the six months ended June 30, 1997, SSI utilized two credit facilities
(the "Facilities") to fund the acquisitions of Harley and GSV. One of the
Facilities provides for loans of approximately $17.5 million, comprised of $7.5
million of fixed-term loans, $4.8 million of which are guaranteed by Philip, and
up to $10.0 million of loans keyed to a borrowing base of, and secured by,
accounts receivable and inventories. The other Facility is a $7.0 million
advancing line of credit guaranteed by Philip.
FLUCTUATIONS IN OPERATING RESULTS
SSI's results of operations may fluctuate significantly from quarter to
quarter or year to year because of a number of factors, including seasonal
fluctuations in the demand for repair and distribution services (particularly
the demand attributable to scheduled turnarounds in the power industry, which
typically are scheduled for mild-weather months) and competitive factors.
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THE INDUSTRIAL VALVE INDUSTRY
OVERVIEW
Petrochemical and other chemical plants, petroleum refineries, pulp and
paper mills, electric and other utilities and other industrial process
facilities use industrial valves to direct and regulate the flow of feedstocks,
intermediates, products and fuels in their process systems. Industrial valves,
ranging in diameter from less than 1/2 3/4 to over 20 feet, serve as mechanical
control, blocking and pressure-relief devices in piping applications involving a
myriad of liquids, gases, dry materials, slurries and other substances. The
service environments for industrial valves range from relatively benign to
severe, and the useful life of an industrial valve can range from several hours
to 30 years or more depending on the severity of its service and other factors.
These factors include the materials comprising the valve, the quality of its
manufacture and the frequency and quality of its repair. Classified by how they
are powered, industrial valves may be divided into two broad categories: (i)
those powered manually ("standard" valves); and (ii) those operated by
actuators using electric, hydraulic or pneumatic power ("actuated" valves).
Actuated valves include those originally installed as such and standard valves
that have been upgraded. Valves of both types include rising stem valves
("RSVs"), such as globe, gate and diaphragm valves, and pressure safety,
relief and safety-relief valves ("PRVs"). Process industries use PRVs to
relieve excess pressure in process equipment, pressure vessels, boilers and
pipelines in order to prevent explosions or other system damage. PRVs typically
are designed to contain pressure up to a predetermined level (which is
individually set for each valve) and then to open and relieve excess pressure in
a controlled manner. Standard PRVs are self-operating and typically are spring
loaded, while actuated PRVs typically are operated by a pilot controller that
actuates the valve.
A recent industry study commissioned by the Company estimates that over 650
million industrial valves currently are installed in North America, including
more than 140 million RSVs in various process industries. This study also
estimates that more than 370 million RSVs are in use worldwide. The Company
believes substantially every RSV experiences at least one leak during its
operational life and estimates that between 4 million and 7 million of the RSVs
installed in North America are leaking at a rate requiring repair or replacement
at any one point in time.
Process systems consist of discrete units or trains of units which
generally operate continuously under pressure. In many process industries, these
systems handle corrosive substances and are subject to high cycling rates and
extremes of pressure and temperature. Leaks occur as a result, and a principal
source of leaks are valves using rising stems to direct their opening and
closing. OEMs use various packing materials to seal the stem area in RSVs, but
these seals are vulnerable to the effects of friction and pressure and, in many
cases, normal packing shrinkage and deterioration.
The process systems in the industries the Company serves generally require
emergency work and comprehensive scheduled periodic off-line repairs (called
"turnarounds"). Emergency work is performed, if practicable, while the
affected unit remains in operation and under pressure. On-line repairs
historically have consisted of sealing leaking pipes and flanges with various
enclosures and clamps and repacking leaking valves as interim measures pending
the next scheduled turnaround. Turnarounds typically involve the shutdown of an
entire process unit or trains of process units to permit the disassembly, repair
and/or replacement and reassembly of component parts (including industrial
valves), a process that can take from a few days to several months.
Three broad sectors comprise the industrial valve industry: (i)
manufacturing; (ii) distribution; and (iii) maintenance, repair and replacement
services (collectively, "repair services"). On the basis of available industry
data and management's assessments, the Company believes that the distribution
and repair sectors of the industrial valve industry represent a current
worldwide annual market in excess of $20.6 billion, of which North America
accounts for approximately $9.2 billion, including approximately $3.7 billion
attributable to repair services and $5.5 billion attributable to distribution
and related services.
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<PAGE>
MANUFACTURING
Because many types of industrial valves are commodity-like products,
designers and OEMs of these valves generally must offer favorable pricing and a
consistent selection of new, better-performing valves to gain or retain market
share, and many target individual markets, product segments and speciality
niches to obtain brand identity. More than 500 companies design and manufacture
industrial valves in the United States, and this sector is undergoing some
consolidation.
DISTRIBUTION AND REPAIR
OEMs of industrial valves generally sell their products through various
independent distribution channels. The Company believes independent distributors
and independent sales representatives selling directly to small retailers or to
end users account for approximately 75% of new industrial valve sales in the
United States, while direct sales by OEMs account for the balance. The types of
distributors include (i) wholesalers selling commodity-type valves primarily to
retailers, (ii) valve and pipefitting stocking distributors selling standard
RSVs and quarter-turn valves, (iii) speciality flow control distributors selling
actuated valves packaged with other control products as complete systems and
(iv) full-line distributors selling all types of valves and valve-control
systems. Value-added distribution services include the assembly, testing,
sealing and certification of PRVs and customizing original equipment to meet the
customer's specifications.
Repair services include "on-line" repairs of valves and other
process-system components that continue to operate under pressure while the
repair is made and "off-line" repairs involving the repair of valves and other
process-system components that have been temporarily removed from a process
system. Off-line repairs are made either at the customer's facility (an
"on-site" repair) or in the repair service company's facility (an "in-shop"
repair).
In the United States, end users, distributors and repair companies perform
most repair and distribution services, while OEMs generally offer these services
only on a limited basis. The Company believes, on the basis of available market
data, that (i) the independent repair and distribution services sectors include
approximately 1,200 companies, consisting predominantly of small businesses
operating in single geographic areas in proximity to their customers, and (ii)
most of these companies have limited access to capital for modernization and
expansion and limited exit strategies for their owners. The Company also
believes that, as part of an overall emphasis on reducing operating costs, many
end users are increasing their outsourcing of various non-revenue-producing
activities, such as plant maintenance (including outsourcing of entire valve
maintenance and management programs).
The Company believes significant opportunities are available in the repair
and distribution services sectors of its industry to a well-capitalized national
company employing professionally trained service technicians and machinists and
providing a full complement of on-line, on-site and in-shop repair services. It
also believes the fragmented nature of its industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing repair services businesses.
MARKET ENVIRONMENT AND TRENDS
The Company has targeted selected groups of end users in three categories
of process industries in the United States, Canada and Mexico as its initial
primary market for the expansion of its repair and distribution services: (i)
petrochemical and other chemical plants, petroleum refineries and pulp and paper
mills (process manufacturers); (ii) conventional and nuclear electric power
plants and cogenerators and water and wastewater utilities (utilities); and
(iii) crude oil and natural gas producers, gas processing plants and oil, gas
and products pipelines (resource industries). The Company believes these
targeted groups account for substantially all the approximately 140 million RSVs
the Company believes currently are in service in North America and are heavy
users of PRVs and other valves. These groups also are characterized by severe
service applications in their processes which require valves that can endure
corrosive substances, flammable and explosive materials, high cycling rates and
extremes of pressure and
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<PAGE>
temperature. The Company believes economic conditions (generally and in these
targeted groups), technological developments and health, safety and
environmental concerns drive the markets for repair services and value-added
distribution services in these groups.
The Company's targeted industries use industrial valves currently ranging
in cost from less than $10 to more than $100,000. Historically, the demand for
new industrial valves has been determined by the extent to which general and
specific industry economic conditions or forecasts spurred the construction of
new plants or expansions of existing plant capacities. The Company believes that
(i) for a number of years, many companies in these industries lengthened the
period of time between turnarounds to minimize the economic costs associated
with turnarounds and delayed construction of new plant facilities and outlays of
capital expenditures for improvements of existing facilities and, as a result,
(ii) they are using a large population of aged valves which will require
increasing levels of repair and replacement. In recent years, various factors
have led companies in these industries to undertake capital expenditure programs
to retool their existing process operations with new or improved labor-, time-
and other cost-reducing devices. The Company believes this trend has
strengthened both the replacement market for industrial valves and the market
for independent, comprehensive repair services.
Because the Company's targeted industries generally manufacture or produce
commodities, they compete generally on the basis of price with each other and,
in many cases, with overseas companies having lower-cost labor pools or raw
material or other competitive advantages. The downward pressure this competition
places on prices has led to the trend in these industries to attempt to achieve
operating efficiencies as a means of preserving or enhancing operating margins
while remaining competitive in their markets. Also contributing to this trend
are various technological developments that enable these industries to reduce
operating costs by modernizing existing process systems and other plant
operations or replacing existing process systems with new, more efficient
systems. For example, some industries have developed new process technologies
requiring equipment to operate under higher pressures and thus entailing the
replacement or pressure-resetting of installed PRVs. Similarly, automation of
valve and other process control devices and computerized information management
systems enable these industries to use a smaller work force to perform essential
non-revenue-producing services, while the emergence of reliable independent
service providers using new technologies in areas such as valve repair service,
inventory management and turnaround planning enables these industries
increasingly to outsource these services, typically at a net savings. The
Company believes that many companies in these industries have eliminated or
severely reduced the size of their own repair crews and engineering staffs. In
addition, in order to reduce the size of their purchasing departments and the
costs of contract administration, these companies are trending towards using
fewer in-house administrators overseeing a reduced number of vendors performing
an increasing amount of services.
The efforts of the Company's targeted industries to reduce their costs have
led OEMs to design and tool for the manufacture of more energy-efficient and
reliable valves. Because valve design and manufacture is capital intensive and
price is a primary competitive factor in the sale of new valves, the Company
believes that valve OEMs are under pressure to reduce their own costs and
increasingly will evaluate the potential cost savings from outsourcing their
assembly, sales and other functions and reducing the number of distributors they
utilize and are required to monitor.
Another factor driving certain of the Company's targeted industries towards
spending for new valves and related products and new valve repair service
technologies is the mandate of the federal Clean Air Act, as amended in 1990,
that various process industries, including most of those the Company serves, use
the maximum achievable control technology ("MACT") available (i) to minimize
the occurrences of fugitive emissions from their process systems of certain
volatile organic compounds ("VOCs") or other hazardous air pollutants and (ii)
to control the emissions that do occur. Regulations promulgated by the United
States Environmental Protection Agency currently require the phase-in (first in
newly constructed, reconstructed or modified process systems and then in
existing unmodified systems) of MACT performance standards for all major source
categories of hazardous air pollutants. Under these standards, a "leak," which
formerly was a measured reading of 10,000 parts per million ("ppm") or
greater, is being reduced to a measured
28
<PAGE>
reading of 500 ppm or greater. For certain synthetic organic chemical plants,
the change to a 500 ppm leak definition became effective in 1996. Other
industries have later phase-in dates. For example, existing petroleum refineries
must comply with the 500 ppm threshold beginning August 18, 1999. To achieve
compliance with the applicable performance standards, federal and state
regulations require the process industries covered thereby to establish leak
detection and repair programs incorporating specified protocols. For example,
pursuant to these regulations, a process plant that contains valves in gas,
vapor or light liquid service generally must use a portable VOC-monitoring
instrument at specified intervals (monthly, quarterly or yearly) to test each
valve subject to the regulations for fugitive VOC emissions. The regulations
generally require the plant to repair any leaking valve within 15 days, and to
make its first attempt at repair within five days, after the leak is detected,
unless the plant can show immediate repair is technically infeasible without a
"process unit shutdown" (as defined) or otherwise establish that delaying the
repair is justified. Under these regulations, an unscheduled practice or
procedure that stops production from a process unit or part of a process unit
for less than 24 hours while a valve is removed, repaired on site and
reinstalled is not a process unit shutdown. A first attempt at repair typically
involves tightening various bolts or nuts. The plant also can use the monitoring
instrument to determine whether a valve leak has been repaired. To encourage
plants to reduce their number of leaking valves, federal and state regulations
generally afford those plants that do so with longer intervals between required
monitorings. If businesses fail to adhere to these requirements, they may be
subject to stiff penalties. The Clean Air Act authorizes civil penalties up to
$25,000 per day per violation, administrative penalties up to $200,000 and field
citations up to $5,000 per violation.
The Company believes that increasingly stringent federal and state
regulations and performance standards will increase demand for the Company's
products and services. For example, industries subject to these standards now
can monitor valves to quantify the amount of feedstock, intermediates, products
or fuel which is being lost attributable to leaking valves and quantify the
costs associated with these leaks. The Company believes these industries
increasingly will seek to prevent and remedy leaking valves as efficiently and
expeditiously as possible. The Company believes that, with its SafeSeal(TM)
system and other repair and distribution services it provides on a national
basis, it is well positioned to address these needs. The SafeSeal(TM) system can
provide an efficient and expeditious means to perform on-line valve restoration
and is an attractive alternative to both on-line interim measures and off-line
repairs because it restores valves on line in conjunction with their required
monitoring, thereby reducing or eliminating shutdown time. The Company intends
to market the SafeSeal(TM) system as the feasible on-line repair alternative for
those leaking RSVs whose immediate repair otherwise either could be effected off
line and on site within 24 hours or would be technically infeasible.
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<PAGE>
BUSINESS
GENERAL
Invatec was formed 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 (collectively, "repair and distribution services") throughout North
America. The Company intends to be a leader in the consolidation of the highly
fragmented repair and distribution sectors of the North American industrial
valve industry by continuing to execute its aggressive acquisition strategy and
to implement its national operating strategy, which is designed to increase
internal growth, market share and profitability. When this Offering closes,
Invatec will have combined seven businesses with 32 locations whose revenues
totaled approximately $76.2 million on a pro forma combined basis during fiscal
1996.
The Company believes it is positioned to meet the growing demand for
outsourced management and maintenance programs for industrial valves and other
process-system components because the combination of its distribution and repair
services capabilities will allow it to become a single-source provider of these
services for many of its targeted customers. The Company also believes this
combination will (i) promote internal economies of scale, (ii) provide the
Company with valuable information that can be used to expand its future repair
services revenue base and (iii) better equip the Company to respond to problems
associated with the repair and upgrading of its customers' process-system valves
and other components.
Many of the Company's customers are large Fortune 500 industrial companies.
The Company provides them with both on-line and off-line repair services. It
believes its approach to making on-line repairs of leaking RSVs that were
manufactured with compressible packing material distinguishes it from other on-
line repair companies and is safer, more effective and more cost-efficient than
conventional on-line repair methods. An important part of the Company's business
strategy will be to roll out SSI's proprietary SafeSeal(TM) system through the
operations of the other Acquired Businesses and other businesses acquired in the
future. The Company performs both on-site and in-shop off-line repairs. It also
uses its facilities to (i) assemble, set, test, seal and certify new PRVs, (ii)
assemble other new valves, actuators and other components into packaged systems
for sale, rebuild previously used valves (other than PRVs) to their original
specifications for sale and fabricate other process-system components for sale
and (iii) test and certify new and rebuilt valves and systems as meeting the
specifications of its customers and OEMs and applicable industry standards.
BUSINESS STRATEGY
The Company intends to become the leading North American provider of
comprehensive valve repair and distribution services by emphasizing growth
through acquisitions of other repair and distribution services businesses and
implementing a national operating strategy aimed at increasing internal growth
and market share and enhancing profitability. The Company's growth strategy will
focus on capitalizing on certain trends in its targeted industries, including
increased outsourcing, increased focus on reducing economic losses attributable
to leaking valves and increased regulatory requirements applicable to process-
system facilities.
GROWTH THROUGH ACQUISITIONS. The Company intends to implement an
aggressive acquisition program targeting opportunities to enter new geographic
markets and expand within its existing markets.
o ENTERING NEW GEOGRAPHIC MARKETS. The Company currently conducts
operations through 32 facilities located in 17 states in the United
States and in Canada. It plans to broaden its base of operations by
seeking acquisitions in new markets throughout North America in order
to expand the Company's repair and distribution services capabilities.
In each new market, the Company initially will target companies with
historically successful operating results, superior operating
management and established customer relationships and brand
identities. The Company will generally seek to establish itself as a
provider of both repair and distribution services in each of its new
markets.
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o EXPANDING WITHIN EXISTING MARKETS. The Company intends to pursue
acquisitions within its existing markets as a primary means of
expanding its repair and distribution services capabilities within
those markets and as a means for gaining access to new
process-industry customers, specialized services, new products or
other strategic synergies.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The principal elements of
the Company's operating strategy are:
o CROSS-SELLING REPAIR AND DISTRIBUTION SERVICES. The Acquired
Businesses currently provide their respective customers with differing
levels of repair services and distribution services. For instance,
Plant Specialties provides extensive repair and remanufacturing
services and limited distribution services, while ICE/VARCO provides
extensive distribution services of both valves and related process
equipment and a growing valve repair service. In an effort to become a
single-source provider of repair and distribution services to its
customers, the Company plans to offer a full line of services through
most of its locations. The Company believes that this single-source
capability will allow it to become the repair services provider and
valve and related parts supplier of choice for its current and
prospective customers.
o INCREASING INTERNAL GROWTH THROUGH TECHNOLOGY ROLL-OUT. The Company
believes the SafeSeal(TM) system represents a significant improvement
over traditional valve packing restoration methods. This technology
offers customers the ability to (i) substantially reduce or eliminate
lost feedstock, product and fuel costs attributable to leaking valve
packing, (ii) safely bring leaking valves into compliance with
applicable emission standards without having to endure a shutdown and
(iii) establish an effective, on-line means of remediating any further
packing-related leaks. Because of the value-added nature of this
proprietary technology, the Company, through SSI, has been able to
achieve higher gross margins through the provision of this service
compared to most other services it provides. The Company believes the
Acquired Businesses will serve as a platform to aggressively market
this technology to many of their existing process-industry customers
in their respective markets. The Company's future acquisition efforts
will focus on additional opportunities to expand this service into new
geographic markets and to new segments of the process-industry market
within its existing geographic areas.
o CAPITALIZING ON GEOGRAPHIC DIVERSITY TO DEVELOP NATIONAL AND REGIONAL
CUSTOMER AND OEM RELATIONSHIPS. The Company's customers include many
large petrochemical and other chemical companies, petroleum refiners,
pulp and paper companies and power and other utilities, many of which
operate in numerous locations throughout North America. The Company
believes its ability to provide repair and distribution services on a
comprehensive basis throughout North America will enhance its
relationships with these customers and with OEMs and afford it greater
opportunities for new business. As the Company expands its regional
and North American presence, it will seek to capitalize on its
existing, and establish new, "national account," "blanket
approval" and "consolidated supply" relationships and expand
existing "regional" contracts with its large process-system
customers.
o ACHIEVING COST EFFICIENCIES AND STANDARDIZING AND IMPLEMENTING "BEST
PRACTICES." The Company believes it should be able to reduce the
total operating expenses of the Acquired Businesses and other
businesses acquired in the future by eliminating certain duplicative
administrative functions and operating facilities and consolidating
certain functions performed separately by each business prior to its
acquisition. The Company also believes that, as a large national
company, it should experience reduced costs (as a percentage of
revenues) in such areas as: purchasing, financing arrangements,
employee benefits, information management, insurance and other risk
management, and inventory control. In addition, the Acquired
Businesses have significant knowledge and experience in operating
industrial valve repair and distribution services businesses and
providing products and services ancillary to those operations. They
have continually refined their operating procedures in order to
improve customer service and operating efficiency. The Company intends
to formalize this approach of identifying "best practices" it will
adopt as Company
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<PAGE>
standards and implement throughout its operations. Management believes
the standardization of best practices will enable the Company to
provide superior customer service and be a low-cost operator in each
of its markets.
ACQUISITION STRATEGY
The Company intends to continue the aggressive acquisition program
initiated by SSI to expand into additional markets and enhance its position in
existing markets. Given the large size and fragmentation of the valve repair and
distribution services industry, the Company believes there are numerous
potential acquisition candidates both within the markets currently served by the
Company and in new markets. The Company currently has no binding agreements to
effect any such acquisition (other than the acquisitions of ICE/VARCO and SVS).
The timing, size and success of the Company's acquisition efforts and the
associated potential capital commitments cannot be readily predicted.
The Company's initial strategy will be to acquire well established repair
and distribution services companies in significant centers of its targeted
process industries in North American markets. The Company also intends to make
tuck-in acquisitions that provide access to additional customers, specialized
services, new products or other strategic synergies. The Company presently does
not intend to acquire any valve manufacturing operations.
The Company plans to acquire a leading company in each new geographical
market it enters. Each of the Company's acquisition candidates will be expected
to demonstrate the potential for substantial revenue and earnings growth when
combined with the Company's existing operations. The Company will evaluate not
only the equipment and facilities of each acquisition candidate, but also
certain subjective characteristics of each acquisition candidate, including its
reputation, customer base, quality of operating management and technical staff.
An important criterion for the Company's acquisition candidates
(particularly candidates in new markets) will be high-quality operating
management and the desire of those persons to remain in place and continue
running the acquired operations for an extended period of time. The Company will
employ a stock-based compensation program designed to help the Company retain
its operating management personnel and develop a sense of proprietorship of
those persons in the Company and align the interests of those persons with those
of the Company's stockholders generally. See "Management -- 1997 Incentive
Plan."
The Company believes it will be well positioned to implement its
acquisition strategy because of: (i) its ability to provide access to the
SafeSeal(TM) system, which is not otherwise available in the marketplace; (ii)
its decentralized operating strategy; (iii) its increased visibility and access
to financial resources as a public company; and (iv) its ability to provide
acquired companies and their shareholders with both liquidity and the
opportunity to participate in the Company's growth and expansion.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors being historical operating results, the future prospects of the business
to be acquired and the ability of that business to complement the services
offered by the Company. The Company intends to register 5,000,000 additional
shares of Common Stock under the Securities Act for use in connection with
future acquisitions. See "Risk Factors -- Dependence on Acquisitions for
Growth," " -- Capital Requirements" and " -- Potential Effect of Shares
Eligible for Future Sale on Price of Common Stock."
SERVICES PROVIDED
The Company believes that, in looking at potential providers of outsourced
repair services, industrial corporations and plant managers are increasingly
emphasizing the ability of a service provider to implement comprehensive
management and maintenance programs for their valves and other process-system
components. With its recently expanded repair and distribution services
capabilities and as part of its operating strategy, the Company is developing
programs to meet this demand.
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REPAIR SERVICES. The Company provides a variety of on-line repair services
and off-line repair services (including both on-site and in-shop repair
services) for valves and other process-system components. These services vary by
industry and by process applications within each industry.
OFF-LINE SERVICES. The Company's off-line services include: diagnosis and
testing of valve performance, including nondestructive examination using dye
penetrants and mag-particle testing; repair, rebuilding and replacement of RSVs,
PRVs and other valves; custom-designing, machining and plating of pressure-
sealed gaskets; repair and upgrading of standard valves of various types; repair
and replacement of actuators and positioners used with actuated valves; and
cleaning of valves used in chlorine, oxygen and other service applications.
Valve repair services include replacing broken stems and other components with
OEMs' parts or equivalent parts that the Company machines and fabricates,
blasting valve interiors with metal shot to remove process residue and corroded
material, welding overlays to refinish valve seats and other worn areas,
upgrading standard valves with actuators and related parts and modifying
existing components to meet OEMs' specifications for repacking with new, pliable
packing materials. In some locations, the Company also reconditions its
customers' used valves, and remanufactures used valves (other than PRVs) it has
purchased, typically at scrap metal value, to equal or exceed the original OEMs'
specifications. It typically sells its remanufactured valves under a one-year
warranty at a discount from the price of a comparable new valve. The Company
intends to expand those services throughout its operations. As part of the
repair process, the Company uses high-pressure air, steam and liquid lines and
related instrumentation to test and certify the performance capabilities of the
valves and other equipment it repairs.
An important part of the Company's repair services is providing detailed
documentation of the sources and types of the materials and components used to
make repairs, the repair methods applied, the design specifications adhered to
and test results. Customers can use this information in connection with their
planning for future turnarounds and repairs. In addition, customers subject to
federal and state fugitive emissions control regulations are required to
maintain this information in their corrective action files.
ON-LINE SERVICES. The Company's on-line services include (i) in the case of
RSVs leaking as a result of the deterioration of their stem-packing materials,
using the SafeSeal(TM) system to restore the packing materials generally to
their original performance capabilities, and (ii) using conventional
technologies to seal leaking pipes, flanges and valves as interim measures
pending the affected system's next scheduled shutdown and turnaround.
In SafeSeal(TM) valve restorations, the Company uses a valveless injection
fitting, which is a miniaturized, permanent injection port it attaches to the
leaking valve at or near an emission site, and a combination of specialized
emissionless injection tools to inject the appropriate pliable (or
"nonhardening") compound, usually one of the proprietary compounds the Company
has developed for use in the system, through the port and into the valve's
packing gland. The compound, by acting as a filler and lubricant, supplements
the existing packing to stop the leak and restore the sealing capability of the
packing. The injection port is left on the valve as a maintenance platform for
future servicing of the valve packing. Except in severe operating conditions, a
trained technician using the SafeSeal(TM) system can complete an on-line
restoration in less than one hour. In certain limited cases, two fittings and
injections are required to seal the leak. The Company believes the SafeSeal(TM)
system is safer, more effective and more cost-efficient than conventional
on-line valve-repacking methods.
The Company believes the following chart provides a useful comparison of
the SafeSeal(TM) system to other on-line valve repacking methods and
conventional off-line repacking:
<TABLE>
<CAPTION>
REPAIR
CONSIDERED REPAIR PERFORMED REPAIR PERFORMED REPAIR INCORPORATED
PROVIDES "PERMANENT" IN A CONTROLLED ON LINE WHILE IN LONG-TERM VALVE
IMMEDIATE REPAIR BY END USERS ENVIRONMENT UNDER PRESSURE MANAGEMENT PROGRAMS
---------------- ------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
SafeSeal(TM) system.................. x x x x x
Other on-line methods................ x x
Off-line repacking................... x x x
</TABLE>
33
<PAGE>
In performing interim on-line repairs, the Company designs line enclosures
and flange clamps to meet customer-specific technical and engineering objectives
and applicable industry and regulatory code requirements. SSI, which currently
performs substantially all the Company's on-line repair services, has used
independent contractors to fabricate its enclosures and clamps, and one element
of the Company's growth strategy is to use the existing machining and
fabrication facilities of the other Acquired Businesses as a platform for
increasing on-line repair services on a Company-wide basis.
DISTRIBUTION SERVICES. The Company currently sells new valves and related
instrumentation and other process-system components directly to its
process-industry customers from 17 of its 32 sales and service locations. In
addition to purchasing valves from OEMs for resale, the Company also acts as a
sales representative for a number of OEMs. In this capacity, it typically
promotes the sale and distribution of the OEMs' products in designated
territories for direct factory shipment to the customer and is compensated by
the OEMs on a commission basis.
At each sales location, the Company maintains inventories of valves and
other equipment typically used by the process industries it serves from that
location. GSV, for example, offers a complete line of high-and low-pressure
valves and related equipment designed specifically for use in severe service
steam-line applications and remote-controlled electric power generation. Because
customers place many of their orders in connection with new construction or
planned turnarounds, the Company often is able to arrange for just-in-time
deliveries of the original equipment required to fill these orders.
The Company's value-added valve distribution services primarily involve the
assembly, setting, testing and sealing of spring-loaded and pilot-operated PRVs
and also include: assembling other original valves with optional components
supplied by the same or different manufacturers; customizing the original
equipment for installation in the customer's process unit; combining two or more
valves in configurations designed for specific process applications; and testing
and calibrating, as applicable, individual components and accessories and
complete equipment packages. As a part of its standard quality assurance
program, the Company supplements the positive material identification
information the manufacturers furnish to trace all materials they use in making
their valves and other equipment with its own material certifications, testing
certificates and full-assembly and test reports. Compiling this information (i)
enables customers to comply with applicable internal and regulatory
recordkeeping requirements and to demonstrate compliance with applicable
industry and regulatory performance standards, (ii) facilitates the repair or
replacement of component parts, and the reconditioning of entire valve
assemblies, to the original design specifications and (iii) provides the initial
step in a predictive valve maintenance program that uses actual operating
histories to plan turnarounds and, by isolating the reasons for equipment
failures, spurs the use of different or new materials and technologies.
OPERATIONS
The Company intends to operate on a decentralized basis, giving the
management of each operating company or each regional operating group (which
will include "tuck-in" acquisitions) the responsibility for day-to-day
operations, growth and profitability. It will centralize its accounting,
auditing and internal control, cash management, employee benefits, financing,
financial reporting, risk management and business acquisition activities and
coordinate the sharing among its operating locations of financial resources for
improved systems and expansion of services, training programs, financial
controls, purchasing information and operating expertise. The Company's
executive management team will direct the development of the Company's marketing
strategies and programs and be responsible for key national supplier and
customer relationships, and it intends to establish a management information
system to enhance its ability to monitor each local or regional operation,
assimilate acquired businesses through standard reporting mechanisms and
implement performance-based incentive plans keyed to defined operational and
productivity measurements and benchmarks. It currently is reviewing the
operations of the Company and other repair and distribution services businesses
in order to identify the "best practices" the Company will implement
throughout its operations. In order to reduce traditional corporate headquarters
expenses (as a percentage of revenues) and increase efficiencies, the Company
intends to outsource various functions, including various personnel
34
<PAGE>
management and other human resource services, legal and tax services and
management information systems design and implementation.
The Company conducts its repair and distribution services operations
through its local sales and service centers. It typically staffs its service
centers with customer service and order entry personnel, repair coordinators and
inventory, shipping and receiving and office personnel. The Company currently
performs in-shop valve and other equipment assembly, testing and certification
at 17 of its 32 operating facilities. Sixteen of these locations are authorized
by various manufacturers as centers for the assembly, sale and repair of their
valves and other products and maintain various professional certifications by
organizations such as the American Society of Mechanical Engineers ("ASME")
and the National Board of Boiler & Professional Vessel Inspectors.
The Company performs most of its on-site repair services on a scheduled
basis in response to the customer's call. The Company also offers 24-hour
emergency on-line and on-site repair services from 30 of its service locations.
The Company operates approximately 28 mobile machine shops which allow its
technicians to perform repair and installation functions at the facilities of
its customers. These shops typically are self-contained trucks or trailers
ranging in size from 10 feet to 48 feet in length which the Company equips with
various combinations of lathes, milling machines, grinders, welding equipment,
drill presses, test stands, work benches and hand tools. The Company maintains
its mobile shops at various locations, and from time to time it will maintain a
shop indefinitely at a customer's facility if the work so warrants.
The Company utilizes its repair and maintenance personnel to remanufacture
valves for sale at times of decreased demand for repair and maintenance
activities. This incremental activity enables the Company to maintain sufficient
staff to meet the high level of activity associated with turnarounds and to
produce a valuable product in times of decreased activity. The Company has no
significant new manufacturing operations.
SALES AND MARKETING
The Company employs approximately 110 direct salespersons to conduct its
marketing and sales activities. Most product and service orders are awarded by
plant maintenance managers to a small number of pre-approved vendors, with
little direct bidding for each job. More recently, plant owners have begun
establishing sole-source relationships with large, well-insured vendors with
reputations for efficient response, safe technicians and comprehensive service.
The Company's sales and marketing efforts typically focus on one-on-one
relationships with plant maintenance managers and turnaround planners and
include regular visits to customer plants to ensure client satisfaction. Initial
visits also typically involve demonstration of the Company's technical abilities
at the plant or the Company's shop facilities. The Company regularly advertises
in trade journals, participates in trade shows and conducts customer
appreciation functions. The Company also has an organized national accounts
program which targets large multi-location industrial customers.
Many of the Company's customers are regional and national companies in the
petroleum refining, chemical, pulp and paper and power industries and utilities.
The following is a list (in alphabetical order) of the Company's 10 largest
customers during fiscal 1996, based on pro forma combined revenues:
Advanced Separation Technologies, Inc. E. I. Du Pont de Nemours & Co.
Amoco Corporation Florida Power Corporation
Chevron Corporation Florida Power & Light Company
Citgo Petroleum Corporation Union Carbide Corporation
Dow Chemical Company Valero Energy Corp.
For fiscal 1996, none of the Company's customers accounted for 5% or more
of the Company's pro forma combined revenues. While the Company is not dependent
on any one customer, the loss of one of its significant customers could, at
least on a short-term basis, have an adverse effect on the Company's results of
operations.
35
<PAGE>
The Company generally seeks to enter into national or regional "blanket"
contracts with its large customers. These contracts function to designate the
Company as an approved service provider for a customer and establish certain
standard terms and conditions for providing service to plants or other
facilities owned or operated by that customer. Although these blanket contracts
generally do not establish the Company as an exclusive provider of repair and
distribution services, the Company believes they are an important consideration
for plant managers and other decision makers in the usual process of selecting a
vendor for the services the Company provides.
SUPPLIERS
VALVES, PARTS AND FITTINGS. The Company purchases substantially all the
new valves and other process-system components it distributes from OEMs. Its
principal suppliers are Crosby Valve & Gauge Co., a unit of FMC Corporation, and
units of Dresser Industries, Inc. Other suppliers of valves and process-system
components to the Company include Anderson, Greenwood & Co. and Penberthy, Inc.
The success of the Company as a provider of value-added distribution services
depends on the extent to which the OEMs with which it has distribution
arrangements are able to create a demand for their products in the territories
they assign the Company. Factors affecting this demand include, in addition to
price, product quality and performance (including durability and safety),
delivery time and the relative strengths of the brand name and marketing ability
of the OEM.
RELATIONSHIPS WITH OEMS. The success of the Company as a value-added
distributor of new valves and other process-system components and as a
factory-authorized repair service provider depends on its relationships with the
OEMs of these products. Except for its distribution agreements with OEMs, the
Company generally has no contractual repair-services contracts with OEMs.
The typical distribution agreement in the Company's industry specifies the
territory or territories in which the distributor has the right and obligation
to sell the OEM's products and the services (sales, assembly or repair) the
distributor is authorized to, or must, perform. An OEM may (i) assign a
territory on an exclusive or a nonexclusive basis, (ii) limit the range of the
OEM's products the distributor may sell or service, (iii) authorize or restrict
sales or services by the distributor outside the assigned territory, (iv) refuse
to assign the distributor additional territories and (v) reserve to itself the
right to deal exclusively with specified customers or classes of customers (for
example, national accounts or engineering and construction companies) in the
assigned territory. The Company believes the current fragmentation of the
distribution sector of its industry reflects the traditional assignment by OEMs
of territories on generally a local basis to distributors operating from a
single facility.
The distribution agreement may limit the distributor's role to that of
sales representative acting on a commission basis or provide for purchases by
the distributor for resales to end users. It also may impose requirements on the
distributor concerning such matters as (i) minimum individual or annual purchase
orders, (ii) maintenance of minimum inventories, (iii) establishment and
maintenance of facilities and equipment to perform specified services and (iv)
training of sales personnel and service technicians. Many OEMs closely monitor
compliance with these requirements. The distribution agreement also typically
(i) grants the distributor the nonexclusive right to use and display the OEM's
trademarks and service marks in the form and manner approved by the OEM and (ii)
prohibits the distributor from offering products that compete with the OEM's
products the distibutor is authorized to sell.
The Company's distribution agreements generally have indefinite terms and
are subject to termination by either party on prior notice generally ranging
from 30 to 90 days.
The Company's business strategy has caused concern by some OEMs. Some of
the Acquired Businesses offer competitive product lines of major OEMs in certain
areas. As a result, the Company's strategy could conflict with existing or
future OEM distributor policies or programs. The Company believes, however,
that, as a national provider of repair and distribution services, it will offer
attractive benefits to OEMs. For large OEMs, it will offer a cost-effective
distribution alternative that promotes consistent quality and possesses
significant financial and human resources. For small and mid-sized OEMs, it will
offer access to broader markets and expertise in marketing. In addition, the
Company will offer to all
36
<PAGE>
OEMs (i) a central source of market and usage data, including complete life
histories of valves and other products, and (ii) a means of reducing their own
selling costs through additional outsourcing of their assembly, testing, repair
and certification services, reducing the number of distributors they are
required to monitor and eliminating transition problems associated with local
owner-operated distributorships. Although no assurance can be given that OEMs
will not take actions that could materially adversely affect the Company's
ability to implement its growth strategies and maintain its existing
distribution services business, the Company believes that the combination of (i)
the advantages it will offer to OEMs and (ii) the desire of end users to reduce
the number of their vendors should result in these issues being resolved on a
mutually satisfactory basis.
HIRING, TRAINING AND SAFETY
The Company will seek to ensure through its hiring procedures and
continuous training programs and the training programs offered by its OEMs that
(i) its product-assembly and service technicians and machinists meet the
performance and safety standards established by the Company and its OEMs,
professional and industry codes and federal, state and local laws and
regulations and possess the required ASME, factory or other certifications and
(ii) its sales personnel are trained thoroughly in the selection, applications
and adaptations and customizations of the products it distributes and types of
repair services it offers.
Because on-line and on-site repair services often are performed in
emergency situations under dangerous circumstances (see "Risk
Factors -- Operating Hazards"), the Company intends to provide its technicians
with extensive classroom and field training and supervision and to establish and
enforce strict safety and competency requirements, including physical exams and
periodic drug testing in some cases. The Company's training programs for its
on-site repair technicians must meet OSHA requirements respecting, among other
matters, release detection procedures, appropriate work practices, emergency
procedures and other measures these technicians can take to protect themselves
and the environment.
COMPETITION
The markets for the Company's repair and distribution services generally
are highly competitive. The Company believes the principal competitive factors
in a distributor's sale of new valves and other process-system parts directly to
industries in the distributor's market include price and the ability of the
distributor to offer on a timely basis a wide selection of the new,
better-performing valves and parts OEMs have designed to meet the needs of these
industries. Factors affecting delivery time include inventory size and
accessibility and whether, in the case of PRVs and certain other valves, the OEM
or the distributor assembles, sets, tests and seals, or otherwise customizes,
the valve. The Company believes its assembly and testing facilities enable it
generally to deliver valves ready for installation faster than the relevant OEM.
In the case of repair services, the Company believes the principal competitive
factors are quality and availability of service (including emergency service),
price, use of OEM-approved replacement parts, familiarity with the OEMs'
products and local brand equity of the repair business.
In its distribution operations, the Company competes with the direct sales
forces and distribution networks of OEMs offering the same or comparable lines
of products. It competes for repair services businesses with other repair
service businesses and, to a lesser extent, with OEMs. Some of its competitors
may have lower overhead cost structures and, consequently, may be able to
provide their services at lower rates than the Company. The Company's
competitors for on-line repairs include two national competitors (the Furmanite
Division of Kaneb Services, Inc. and Team, Inc.) and several regional
competitors. Competition in the market for off-line repair services is highly
fragmented, although certain competitors may have dominant positions in some of
the local markets they serve.
RESEARCH AND DEVELOPMENT
The Company conducts research and development to improve the quality and
efficiency of its services. Research and development activities include both
in-house and extensive field testing of new technology to
37
<PAGE>
be used in conjunction with the Company's repair service operations, as well as
assisting the Company's sales organization and customers with special projects.
Through its research and development efforts, the Company is developing an
air-driven friction welding device and related processes which it intends to
market as the SafeWeld(TM) system. This technology is designed to eliminate a
common source of fugitive emissions when using the SafeSeal(TM) system by making
attachments to bodies having contents under high pressure through a fusion or
friction weld. Currently, the industry standard is to make the attachment by
drill and tap or a threaded fitting. The SafeWeld(TM) system is in the final
stages of development, but the Company believes it will be available to deliver
high-quality fusion welds of different metals. Although there can be no
assurance the SafeWeld(TM) system will be commercially successful, the Company
believes this system will be a significant enhancement to the SafeSeal(TM)
system. The Company also believes that the SafeWeld(TM) system may have
additional potential commercial uses.
In addition to the development of the SafeWeld(TM) system, the Company's
research and development efforts are currently aimed at developing technology
for permanent repair of leaking flanges and developing new leak sealing
compounds.
INTELLECTUAL PROPERTY
The Company, through subsidiaries, owns three United States patents and has
two United States patent applications pending which relate primarily to the
SafeSeal(TM) system. The patents grant the Company the right to exclude others
from making, using, offering for sale and selling the inventions in the United
States. Foreign counterparts to one or more of these patents have issued
providing rights in Australia, Austria, Belgium, Denmark, France, Germany,
Greece, Italy, Luxembourg, the Netherlands, Spain, Sweden, Switzerland and the
United Kingdom. Additional foreign counterpart patent applications are pending
in Canada, India and Japan. An application is also pending under the Patent
Cooperation Treaty. The process of seeking patent protection can be long and
expensive, and no assurance can be given a patent will issue from the Company's
currently pending applications or future applications or that, if patents are
issued, they will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company. In addition, the laws of
certain foreign countries may not protect the Company's intellectual property
rights to the same extent as the laws of the United States. Litigation, which
could demand significant financial and management resources, may be necessary to
enforce patents or other intellectual property rights of the Company.
In October 1996, the Company settled litigation with Team Environmental
Services, Inc., one of the Company's competitors, relating to certain of the
Company's patents. One of the Company's customers has a license to certain of
the Company's technology under certain of its patents pertaining to the
SafeSeal(TM) system. Although, to the knowledge of the Company, that customer
has not pursued the development of technology that would compete with the
SafeSeal(TM) system (and instead has opted to continue outsourcing on-line valve
repair service work to the Company), there can be no assurance it will not elect
to do so in the future. Moreover, there can be no assurance others will not
independently develop substantially equivalent or better technology that would
be free of the Company's patents and other intellectual property rights.
Although in the aggregate the Company's patents are material to its
operations, the Company believes its future success will depend more on its
technological capabilities and the application of know-how (rather than on any
particular patent) in the conduct of its business. It enjoys service and product
name recognition, principally through various common law trademarks.
EMPLOYEES
At September 30, 1997, the Company had approximately 700 full-time
employees. Approximately 12 are members of the United Steelworkers of America,
AFL/CIO union. None of the Company's other employees are represented by a union.
Management believes the Company's relations with its employees are satisfactory.
The Company's future success will depend, in part, on its ability to attract,
retain and motivate highly qualified technical, marketing, engineering and
management personnel.
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<PAGE>
The repair services business is characterized by high turnover rates among
field service technicians. Although the Company believes its turnover rate for
field service technicians is below the industry average, the Company's turnover
rate for these employees is high relative to the Company's other employees. The
Company seeks to attract and retain qualified service technicians and other
technical field personnel by providing competitive compensation packages. It has
never experienced a prolonged shortage of qualified personnel in any of its
operations (and does not currently anticipate any such shortage), but if demand
for repair services were to increase rapidly, retention of qualified field
personnel might become more difficult without significant increases in
compensation.
FACILITIES
The Company owns or leases 32 sales and service facilities located in 17
states and Canada, as follows.
NO. OF NO. OF
STATE FACILITIES STATE FACILITIES
- ----- ---------- ----- ----------
Alabama.................. 1 Oklahoma................. 1
Alaska................... 1 Oregon................... 1
Arkansas................. 1 Pennsylvania............. 1
California............... 2 South Carolina........... 2
Colorado................. 1 Texas.................... 5
Florida.................. 4 Virginia................. 1
Georgia.................. 1 Washington............... 3
Indiana.................. 1 West Virginia............ 2
Louisiana................ 3 Ontario.................. 1
The Company owns seven of these facilities (totaling approximately 195,200
square feet) and leases the remainder (totaling approximately 278,300 square
feet) under leases having terms of up to 25 years on terms the Company believes
to be commercially reasonable. During fiscal 1996, total lease rentals were
approximately $1.1 million. The facilities consist principally of sales and
services, remanufacturing and administrative facilities, and the Company offers
in-house repair or assembly services at 17 of the facilities. Its principal
facilities include (i) an 82,000 square foot assembly, repair and
remanufacturing facility owned by Plant Specialties, (ii) a 46,000 square foot
machining and fabrication facility leased by GSV, (iii) 35,100 and 30,000 square
foot assembly and repair facilities leased by Harley, (iv) a 26,200 square foot
sales, service and administrative facility owned by Steam Supply and (v) a
25,000 square foot repair and remanufacturing facility owned by SVS. The Company
believes its facilities are adequately maintained and sufficient for its planned
operations at each location.
The Company's principal executive and administrative offices are located in
Houston, Texas.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
A wide range of federal, state and local regulations relating to health,
safety and environmental matters applies to the Company's business. The
Company's in-shop reconditioning and remanufacturing of used valves frequently
involves the use, handling, storage and contracting for the disposal or
recycling of a variety of substances or wastes considered hazardous or toxic.
Environmental laws are complex and subject to frequent change. These laws impose
"strict liability" in some cases without regard to negligence or fault.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition,
businesses may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to
natural resources. These laws and regulations also may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which complied with all applicable laws when performed. The Company
conducted Phase I (and, in two cases, Phase II) investigations to assess
environmental conditions on substantially all the real properties owned or
leased by the Acquired Businesses and engaged an independent environmental
consulting firm in that
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<PAGE>
connection. It has not identified any environmental concerns it believes are
likely to have a material adverse effect on the Company's financial condition or
results of operations, although no assurance can be given material liabilities
will not occur. No assurance can be given the Company's compliance with amended,
new or more stringent laws or regulations, stricter interpretations of existing
laws or the future discovery of environmental conditions will not require
additional, material expenditures by the Company. OSHA regulations establish
requirements the Company's training programs must meet. See "-- Hiring,
Training and Safety."
The Company believes it has all material permits and licenses required to
conduct its operations and is in substantial compliance with applicable
regulatory requirements relating to its operations. The Company's capital
expenditures relating to environmental matters were not material on a pro forma
combined basis in fiscal 1996. The Company does not currently anticipate any
material adverse effect on its business or financial position as a result of its
future compliance with existing environmental laws and regulations controlling
the discharge of materials into the environment.
LITIGATION AND INSURANCE
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 Beech
municipal court. The complaint arises from an in-shop repair Steam Supply
perfomed 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 its financial condition
or operating results.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. It currently is
not involved in any litigation it believes will have a material adverse effect
on its financial condition or results of operations.
The Company maintains insurance in such amounts and against such risks as
it deems prudent, although no assurance can be given that such insurance will be
sufficient under all circumstances to protect the Company against significant
claims for damages. The occurrence of a significant event not fully insured
against could materially and adversely affect the Company's financial condition
and results of operations. Moreover, no assurance can be given that the Company
will be able to maintain adequate insurance in the future at commercially
reasonable rates or on acceptable terms.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
When this Offering closes, Invatec's directors, executive officers and key
employees (ages are as of August 31, 1997) will be as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS
- --------------------------------- --- ---------------------------------------- --------
<S> <C> <C> <C>
William E. Haynes(1)(2)(3)....... 54 Director, Chairman of the Board, I
President and Chief Executive Officer
Charles F. Schugart.............. 37 Chief Financial Officer, Senior Vice
President -- Corporate Development,
Treasurer and Secretary
Denny A. Rigas................... 53 Senior Vice President -- Technology and
Marketing
Frank L. Lombard................. 55 Vice President -- Corporate Development
John L. King..................... 27 Vice President -- Corporate Development
Douglas R. Harrington, Jr........ 32 Vice President and Corporate Controller
Timothy M. LeFevre............... 35 Vice President -- Corporate Marketing
Programs
Curry B. Walker.................. 61 Vice President -- Quality, Safety and
Engineering, President of Plant
Specialties
Michael A. Baker(4)(5)........... 51 Director (6) III
Robert M. Chiste(1)(2)(5)........ 50 Director (6) III
Arthur L. French(2)(3)(4)........ 57 Director (6) I
Tommy E. Knight(1)(5)............ 58 Director (6) II
Dr. Pierre R. Latour(3)(4)....... 57 Director (6) II
T. Wayne Wren, Jr.(1)............ 48 Director (6) III
Joe Cheatham(7).................. 40 President and Chief Operating Officer of
Harley
Lee Roy Jordan(7)................ 56 President of SVS
Pliney Olivier(7)................ 51 President of GSV
Ed S. Ries(7).................... 54 President of Steam Supply
Thomas Santacroce(7)............. 50 President of ICE/VARCO
Kevin M. Stern(7)................ 32 President of SSI
</TABLE>
- ------------
(1) Member of Board Executive Committee.
(2) Member of Board Nominating Committee.
(3) Member of Board Technology Committee.
(4) Member of Board Audit Committee.
(5) Member of Board Compensation Committee.
(6) Appointment as a director will become effective when this Offering closes.
(7) Key employee.
WILLIAM E. HAYNES has been Chairman of the Board of Invatec since May 1997
and President and Chief Executive Officer of Invatec since March 1997. He also
has served as President and Chief Executive Officer of SSI since November 1996
and as a director of SSI since May 1997. From July 1992 through December 1995,
Mr. Haynes served as President and Chief Executive Officer of LYONDELL-CITGO
Refining Company Ltd. He served in various executive capacities for Lyondell
Petrochemical Company from 1985 to 1993 and in various technical, management and
executive positions with Atlantic Richfield commencing in 1967. Mr. Haynes is
also a director of Philip Services Corp., an industrial and environmental
services company.
CHARLES F. SCHUGART has been Chief Financial Officer of Invatec since March
1997 and has served in the same capacity for SSI since February 1997. He has
been Senior Vice President -- Corporate Development of Invatec since July 1997.
Prior to February 1997, he served for over 12 years in a variety of
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capacities with Arthur Andersen LLP, including most recently as Senior Manager.
Mr. Schugart is a Certified Public Accountant.
DENNY A. RIGAS has been Senior Vice President -- Technology and Marketing
of Invatec since June 1997. From 1993 to May 1997, Mr. Rigas served as an
executive vice president and general manager of the Triconex Corporation, a
manufacturer of integrated safety systems for process-system industries. Mr.
Rigas has a total of 30 years of domestic and international experience in the
oil and gas hydrocarbon processing, process, pipeline, power, marine and other
industries. He has served in executive and sales/marketing management positions
in the last 18 years with, among others, a subsidiary of Rockwell International
Corporation, Lummus Crest and Foster Wheeler. Mr. Rigas is a registered
professional engineer in the State of Texas.
FRANK L. LOMBARD has been Vice President -- Corporate Development of
Invatec since March 1997 and has served in the same capacity for SSI since
August 1993. From 1982 until joining SSI in 1993, he served as President of
Westheimer Financial Group, Inc., a privately held investment banking and
corporate finance advisory firm in Houston, Texas.
JOHN L. KING has been Vice President -- Corporate Development of Invatec
since March 1997. Prior to March 1997, he served for over five years in a
variety of capacities with Arthur Andersen LLP, including most recently as an
audit manager. Mr. King is a Certified Public Accountant.
DOUGLAS R. HARRINGTON, JR. has been Vice President and Corporate Controller
of Invatec since March 1997 and has served in the same capacities for SSI since
February 1997. Prior to February 1997, he served in various capacities,
including most recently as Controller -- U.S. Operations for Gundle/SLT
Environmental, Inc. from March 1992 through May 1995 and from January 1996 until
February 1997. From May 1995 through December 1995, Mr. Harrington served as
Senior Manager -- Accounting for BSG Consulting, Inc. Prior to March 1992, he
served for more than five years in a variety of capacities with Arthur Andersen
LLP, including most recently an an audit manager. Mr. Harrington is a Certified
Public Accountant.
TIMOTHY M. LEFEVRE has been Vice President -- Corporate Marketing Programs
of Invatec since June 1997. From 1994 through June 1997, he served as Vice
President -- Corporate Marketing of Triconex Corporation. From 1992 through
1994, Mr. LeFevre served in a variety of technical and marketing capacities for
Allen-Bradley Company, a subsidiary of Rockwell International Corporation.
CURRY B. WALKER has been Vice President -- Quality, Safety and Engineering
of Invatec since July 1997 and has been President of Plant Specialties for over
10 years.
MICHAEL A. BAKER was a founder of American Medical Response, Inc., a
Boston-based company engaged in the provision of a national ambulance service
network, and served on its board of directors from February 1992 until it was
acquired in February 1996.
ROBERT M. CHISTE has been President, Industrial Services Group, of Philip
Services Corp. since July 1997. He served as Vice Chairman of Allwaste, Inc.
("Allwaste"), a provider of industrial and environmental services, from May
1997 through July 1997, President and Chief Executive Officer of Allwaste from
October 1994 through July 1997 and a director of Allwaste from January 1995
through August 1997. Philip Services Corp. acquired Allwaste effective July 31,
1997. Mr. Chiste served as Chief Executive Officer and President of American
National Power, Inc., a successor company of Transco Energy Ventures Company,
from its creation in 1986 until October 1994. During the same period, he served
as Senior Vice President of Transco Energy Company. Mr. Chiste also serves as a
director of Franklin Credit Management Corp., a New York-based financial
services company.
ARTHUR L. FRENCH has served as Chairman of the Board, Chief Executive
Officer and President of Metals USA, Inc., a metals processor and manufacturer
of metal components, since December 1996. From 1989 through 1996, Mr. French
served as Executive Vice President and a director of Keystone International,
Inc. ("Keystone"), a manufacturer of industrial valves and controls, with
responsibility for domestic and international operations. From 1966 to 1989, Mr.
French held various positions with Fisher Controls
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International, Inc., a control valve and instrumentation manufacturer, and
served as its President and Chief Operating Officer and a director prior to
joining Keystone.
TOMMY E. KNIGHT was President and Chief Executive Officer of Brown & Root,
Inc., a subsidiary of Halliburton Company and one of the largest international
construction firms in the world, from June 1992 until his retirement in
September 1996. Prior to that time and since 1964, he served in a variety of
other capacities with Brown & Root, Inc. Mr. Knight is a director of Metals USA,
Inc.
PIERRE R. LATOUR, PH.D. is an independent consulting chemical engineer. Dr.
Latour co-founded Setpoint, Inc. and served as a director and a vice president
of consulting, oil refining, central marketing and business development until he
retired in January 1995. He then served as a vice president of business
development for Dynamic Matrix Control Corp. ("Dynamic") and then Aspen
Technology, Inc. after it acquired both Setpoint, Inc. and Dynamic in January
1996. He retired from Aspen Technology, Inc. in January 1997.
T. WAYNE WREN, JR. has served as Senior Vice President of PSC Enterprises,
Inc., a subsidiary of Philip Services Corp., since July 1997 and served as
Senior Vice President -- Chief Financial Officer and Treasurer of Allwaste from
March 1996 through July 1997, having served as its Vice President -- Chief
Financial Officer since November 1995. From January 1994 to November 1995, Mr.
Wren was an independent financial consultant. He previously served as Allwaste's
Vice President -- Chief Financial Officer from August 1991 to December 1993. He
also provided financial consulting services to Allwaste pursuant to a consulting
agreement from January 1994 to June 1994.
JOE CHEATHAM has been President and Chief Operating Officer of Harley since
August 1996. Prior to that time and since April 1993, he was Harley's Regional
Manager-Southeast. Mr. Cheatham joined Harley in 1990 as the Manager of its
Columbia, South Carolina operations.
LEE ROY JORDAN has been President of SVS since its inception in 1984. In
addition, Mr. Jordan serves on the board of directors of Cavalier Homes, Inc., a
publicly traded company.
PLINEY OLIVIER has been President of GSV since 1985 and was Chief Executive
Officer of GSV from 1985 until February 1997. Prior to 1985, he held positions
as plant manager with Farmland Industries and as a vice president of marketing
with a subsidiary of Raytheon Corp.
ED S. RIES has been President of Steam Supply since July 1997. Mr. Ries has
been employed by Steam Supply since 1972 and has served in numerous senior-level
management, marketing and administrative positions with Steam Supply.
THOMAS SANTACROCE will become President of ICE/VARCO when this Offering
closes. Mr. Santacroce has been employed by ICE/VARCO since 1982 and has served
in various management, marketing and administrative positions with ICE/VARCO.
KEVIN M. STERN will become President of SSI when this Offering closes. Mr.
Stern has served in various management capacities for SSI since 1992.
When this Offering closes, the Board of Directors (the "Board") will have
three director classes, each of which, following a transitional period, will
have a three-year term, with one class being elected each year at that year's
annual stockholders' meeting. The initial terms of the Class I directors, the
Class II directors and the Class III directors will expire at the 1998 meeting,
the 1999 meeting and the 2000 meeting, respectively.
DIRECTOR COMPENSATION
Invatec initially will pay each director who is not a Company employee (a
"Nonemployee Director") fees of $1,000 for each Board and each Board committee
meeting attended (except for committee meetings held on the same day as Board
meetings) and will periodically grant Nonemployee Directors options to purchase
shares of Common Stock pursuant to the Company's 1997 Incentive Plan (the
"Incentive Plan"). See " -- 1997 Incentive Plan -- Nonemployee Director
Awards." It will not pay any additional compensation to its employees for
serving as directors, but will reimburse all directors for out-of-pocket
expenses
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they incur in connection with attending Board or Board committee meetings or
otherwise in their capacity as directors.
EXECUTIVE COMPENSATION
Invatec anticipates that during 1997 its most highly compensated executive
officers and their annualized base salaries will be: William E.
Haynes -- $200,000; Charles F. Schugart -- $175,000; Denny A. Rigas -- $175,000;
and Curry B. Walker --$150,000. Each of these executive officers is eligible to
earn additional performance-based incentive compensation for 1997. See
" -- 1997 Incentive Plan." The Company did not pay Mr. Haynes any salary from
his employment by SSI in December 1996 through mid-May 1997. When this Offering
closes, the Company will pay him $300,000 as a hiring bonus. His base salary
began accruing on May 16, 1997. SSI paid a $50,000 hiring bonus to Mr. Schugart
earlier this year. In January 1997, SSI awarded Messrs. Haynes, Schugart and
Frank L. Lombard 144,398 shares, 34,000 shares and 31,804 shares, respectively,
of SSI common stock. For federal income tax purposes, these awards have been
treated as taxable compensation income to Messrs. Haynes, Schugart and Lombard
in the amounts of $424,700, $100,000 and $93,500, respectively. In August 1997,
Invatec awarded Messrs. Haynes, Schugart and Rigas options to purchase 97,966
shares, 38,608 shares and 22,710 shares, respectively, of Common Stock at an
exercise price of $1.00 per share.
EMPLOYMENT AGREEMENTS
When this Offering closes, Invatec will assume the employment agreements
SSI presently has with Messrs. Haynes and Schugart. Each of these agreements and
Invatec's employment agreement with Mr. Rigas (i) provides for an annual minimum
base salary, (ii) entitles the employee to participate in all the Company's
compensation plans (as defined) in which executive officers of Invatec
participate and (iii) has a continuous term of three (Mr. Haynes) or two
(Messrs. Schugart and Rigas) years, subject to the right of either party to
terminate the employee's employment at any time. If the employee's employment is
terminated by reason of the employee's death or disability (as defined), by the
Company without cause (as defined) or by the employee for good cause (as
defined), the employee or his estate will be entitled to a lump-sum payment
equal to a multiple (three for Mr. Haynes and two for Messrs. Schugart and
Rigas) of his highest annual salary and incentive bonuses. If a change of
control (as defined) of the Company occurs, the employee may terminate his
employment at any time during the 730-day period following that event and
receive the same lump-sum payment together with such amount as may be necessary
to hold him harmless from the consequences of any resulting excise or other
similar purpose tax relating to "parachute payments" under the Internal
Revenue Code of 1986, as amended (the "Code"). Each agreement contains a
covenant limiting competition with the Company for two years following
termination of employment. Copies of these agreements are included as exhibits
to the Registration Statement of which this Prospectus is a part (the
"Registration Statement").
In accordance with the employment agreements with Messrs. Haynes and
Schugart, the Company will make interest-free loans to Messrs. Haynes and
Schugart in the amounts of $174,338 and $41,050, respectively, to pay the
federal taxes they owe as a result of the awards of SSI stock to them in January
1997. See "-- Executive Compensation." These loans will mature three years
from the initial funding and may be repaid, at the borrower's option, in cash or
shares of Common Stock valued at its then market value. As provided in Mr.
Rigas' employment agreement, Invatec will make a $100,000 interest-free loan to
Mr. Rigas that will mature on May 6, 1999, will pay up to $130,000 of the actual
relocation costs and expenses Mr. Rigas incurs in relocating his household from
California to the Houston metropolitan area and will pay other compensation to
Mr. Rigas in 1997 of up to $30,000.
The Company also has entered into employment agreements with other
executive officers and key employees of the Company.
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OPTION GRANTS
When this Offering closes, the Company will have outstanding under the
Incentive Plan options to purchase 1,308,248 shares of Common Stock. SSI
originally granted most of the options with grant dates prior to August 1997,
and these options will convert into Incentive Plan options pursuant to the terms
of the SSI Merger. The following table sets forth certain information concerning
the Incentive Plan options:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES UNDERLYING TOTAL OPTIONS
NAME DATE OF GRANT OPTIONS OUTSTANDING EXERCISE PRICE
- ---------------------------------------- -------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
William E. Haynes....................... January 27, 1997 250,000 26.6% (1)
August 15, 1997 97,966 $ 1.00
Charles F. Schugart..................... January 27, 1997 100,000 10.6 (1)
August 15, 1997 38,608 $ 1.00
Denny A. Rigas.......................... June 15, 1997 100,000 9.4 (1)
August 15, 1997 22,710 $ 1.00
Certain other officers and employees.... January-June 1997 305,000 26.6 (2)
August 15, 1997 43,305 $ 1.00
SSI officers and employees.............. January-March 1997 7,700 0.6 $10.00
SSI officers and present or former
employees............................. 1995-1996 70,459 5.4 $10.00
All other officers, employees
and Nonemployee Directors
as a group............................ June-August 1997(4) 272,500 20.8 (3)
</TABLE>
- ------------
(1) The exercise price per share for options to purchase 50% of the shares shown
is the initial per share price to the public in this Offering (the "IPO
Price") and the exercise price per share for the options to purchase 50% of
the shares shown is the lesser of the IPO Price and $9.00.
(2) Includes options to purchase 165,000 shares at the IPO Price and options to
purchase 140,000 shares at the lesser of the IPO Price and $9.00.
(3) Includes options to purchase 193,750 shares at the IPO Price, options to
purchase 63,750 shares at the lesser of the IPO Price and $9.00 and an
option to purchase 15,000 shares at $10.00 which will be exchanged for a
warrant granted in 1995.
(4) Except for options to purchase 60,000 shares at the IPO price to be granted
to Nonemployee Directors when this Offering closes.
The Incentive Plan options granted in August 1997 to purchase a total of
202,589 shares at an exercise price of $1.00 per share have terms extending
seven years from the date this Offering closes and will become fully exercisable
on that date. The other Incentive Plan options granted to Messrs. Haynes,
Schugart, Rigas and others to purchase a total of 952,500 shares have terms
extending seven years from the date this Offering closes and will become
exercisable in 25% increments on that date and the first three anniversaries of
that date. Options to purchase a total of 60,000 shares have seven-year terms
and will become exercisable in 33 1/3% increments on the first three
anniversaries of that date. Options to purchase 93,159 shares have terms
extending until mid-2001 and are fully exercisable.
1997 INCENTIVE PLAN
The following summarizes the principal provisions of the Incentive Plan, a
copy of which is an exhibit to the Registration Statement.
GENERAL. The Incentive Plan, which has been approved by the Board and
Invatec's existing stockholders, aims to (i) attract and retain the services of
key employees and qualified independent directors and contractors and (ii)
encourage and stimulate in those persons the sense of proprietorship and self-
interest in the development and financial success of the Company by making
performance-based awards ("Awards") tied to the growth and performance of the
Company.
Invatec has reserved 1,500,000 shares of Common Stock for use under the
Plan. Beginning with the Company's first fiscal quarter after the closing of
this Offering and continuing each fiscal quarter thereafter, the number of
shares available for that use will be the greater of 1,500,000 shares or 15% of
the number of
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shares of Common Stock outstanding on the last day of the preceding fiscal
quarter. Awarded Shares that are not issued again will become available for
Awards.
Persons eligible for Awards are (i) employees holding positions of
responsibility with the Company or any of its subsidiaries and whose performance
can have a significant effect on the success of the Company as well as
individuals who have agreed to become employees within six months of the date of
grant ("Employees"), (ii) Nonemployee Directors and (iii) nonemployee
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries ("Independent
Contractors"). Awards to Employees ("Employee Awards") and Awards to
Independent Contractors ("Independent Contractor Awards") generally are
treated alike under the Incentive Plan, and the following discussion of Employee
Awards applies, except as noted, equally to Independent Contractor Awards. For
purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which could impose so-called short-swing trading
liabilities on the directors and executive officers of Invatec in connection
with their purchases and sales of Common Stock within any six-month period, the
Incentive Plan is intended to qualify for the exemptions from that Section which
are provided by Exchange Act Rule 16b-3 ("Rule 16b-3").
The Compensation Committee of the Board (the "Committee") administers the
Incentive Plan, except as it applies to Nonemployee Directors, and, to the
extent required for the Rule 16b-3 exemptions, the Committee will at all times
consist of at least two Nonemployee Directors. The Committee has the exclusive
power to administer the Incentive Plan and take all actions specifically
contemplated thereby or necessary or appropriate in connection with the
administration thereof. Except insofar as the Incentive Plan relates to
Nonemployee Directors, the Committee also has the exclusive power to interpret
the Incentive Plan and to adopt such rules, regulations and guidelines for
carrying out its purposes as the Committee may deem necessary or proper in
keeping with the objectives thereof. The Committee may, in its discretion,
extend or accelerate the exercisability of, accelerate the vesting of or
eliminate or make less restrictive any restrictions contained in any Employee
Award, waive any restriction or other provision of the Incentive Plan or in any
Employee Award or otherwise amend or modify any Employee Award in any manner
that is either (i) not adverse to that Employee holding the Employee Award or
(ii) consented to by that Employee. The Committee also may delegate to the chief
executive officer and other senior officers of the Company its duties under the
Incentive Plan, except that no such delegation may be made in the case of
actions respecting participants subject to Section 16 of the Exchange Act.
EMPLOYEE AWARDS. Employee Awards may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
("Options") which may be denominated in one or both of Common Stock or units
denominated in Common Stock, (ii) rights to receive a payment, in cash or Common
Stock, equal to the fair market value or other specified value of a number of
shares of Common Stock on the rights exercise date over a specified strike price
("SARs"), (iii) restricted or unrestricted grants of Common Stock or units
denominated in Common Stock ("Stock Awards"), (iv) grants denominated in cash
("Cash Awards") and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to the
attainment of one or more performance goals ("Performance Awards"). Subject to
the limitations described below, the Committee will determine the recipients of
Employee Awards and the terms, conditions and limitations applicable to each
Employee Award, which conditions may, but need not, include continuous service
with the Company, achievement of specific business objectives or goals,
increases in specified indices or other comparable measures of performance. The
Committee may grant Employee Awards (i) singly, (ii) in combination or tandem
with other Employee Awards, (iii) in replacement of or as alternatives to prior
Employee Awards or (iv) in combination or tandem with, in replacement of or as
alternatives to rights under any other employee plan of the Company or any
acquired entity. The exercise price of an Option may be paid with cash or,
according to methods determined by the Committee, with Common Stock or any other
Employee Award the exerciser has owned for at least six months. Performance
Awards may include more than one performance goal, and a performance goal may be
based on one or more business criteria applicable to the grantee, the Company as
a whole or one or more of the Company's business units and may include any of
the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity or assets or decreased costs or other
liabilities.
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The Incentive Plan parameters respecting Employee Awards include the
following:
(i) an Option may be either an incentive stock option ("ISO") that
meets, or a nonqualified stock option ("NSO") that does not meet, the
requirements of Section 422 of the Code, and, unless the Committee
specifies otherwise, must have an exercise price of not less than the fair
market value of a Common Stock share on the date of grant;
(ii) the Committee must establish the performance goal or goals for
each Performance Award prior to the earlier to occur of (a) 90 days after
the commencement of the performance measurement period for that Award and
(b) the lapse of 25% of that period, and in any event while it is
substantially uncertain whether the goal or goals will be met; and
(iii) the Committee may not grant any employee: (a) during any
one-year period, (1) Options or SARs covering more than 300,000 shares of
Common Stock or (2) Stock Awards covering or relating to more than 10,000
shares of Common Stock (the limitations referred to in this clause (a)
being the "Stock-based Awards Limitations"); or (b) Cash Awards
(including Performance Awards denominated in cash) having a value
determined on the date of grant in excess of $1 million.
Only the limitations described in clause (i) above apply to Independent
Contractor Awards. The limitations described in clause (iii)(a)(1) above do not
apply to Options into which SSI options will be converted as a result of the SSI
Merger.
Invatec currently is developing a performance-based annual cash bonus
program under the Incentive Plan the participants in which would be eligible to
earn bonuses equal to specified percentages of their annual base salaries
(actual base salaries for 1997).
NONEMPLOYEE DIRECTOR AWARDS. Nonemployee Director Awards will be granted
either automatically or at the option of Nonemployee Directors in lieu of
director's fees. When this Offering closes, each Nonemployee Director
automatically will be granted NSOs to purchase 10,000 shares of Common Stock. In
addition, on the first business day of the month following the date on which
each annual meeting of the Company's stockholders is held (each an "Annual
Director Award Date"), each Nonemployee Director automatically will be granted
NSOs to purchase 5,000 shares of Common Stock. The Board may increase subsequent
annual Director Awards to not more than 15,000 shares. Any person who first
becomes a Nonemployee Director after the date this Offering closes otherwise
than by election at an annual meeting of stockholders automatically will be
granted, on the date of his or her election, NSOs to purchase the number of
shares of Common Stock equal to the product of (i) 10,000 and (ii) a fraction,
the numerator of which is the number of days between the election of that
Nonemployee Director and the next scheduled Annual Director Award Date (or, if
that date then has not been scheduled, the date that is the first anniversary of
the then immediately preceding Annual Director Award Date, if any) and the
denominator of which is 365. For purposes of any Director Awards granted prior
to the scheduling of the 1998 annual meeting of stockholders, June 1, 1998 will
be deemed the initial Annual Director Award Date. Each NSO granted to
Nonemployee Directors will (i) have a seven-year term, (ii) have an exercise
price per share equal to the fair market value of a Common Stock share on the
date of grant (the initial public offering price in the case of NSOs granted on
the closing of this Offering) which must be paid in full in cash at the time of
exercise to the extent exercised and (iii) become exercisable in increments of
one-third of the total number of shares of Common Stock subject thereto on the
first, second and third anniversaries of the date of grant. If a Nonemployee
Director resigns from the Board without the consent of a majority of the other
directors, his or her NSOs may be exercised only to the extent they were
exercisable on the resignation date.
A Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer fees, if any, and meeting fees), a
restricted Stock Award covering a number of shares of Common Stock having a fair
market value equal to the quotient obtained by dividing (i) the dollar amount of
fees the Nonemployee Director elects to forego in the next year in exchange for
restricted Stock Awards by (ii) the fair market value of a Common Stock share on
the date of the election.
OTHER PROVISIONS. If the Committee approves, payments in respect of
Employee Awards may be deferred, either in the form of installments or a future
lump-sum payment, by any Employee. At the discretion of the Committee, an
Employee may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
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<PAGE>
The Company will have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under the Incentive Plan, an appropriate amount of
cash or number of shares of Common Stock, or combination thereof, for the
payment of taxes. The Committee may (i) permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock previously owned by the
holder of the Employee Award for which withholding is required and (ii) cause
the Company to make a short-term or demand loan to any Employee or Independent
Contractor to permit the payment of taxes required by law.
The Board may amend, modify, suspend or terminate the Incentive Plan for
the purpose of addressing any changes in legal requirements or for any other
lawful purpose, except that (i) no change that would impair the rights of any
holder of an Award with respect to that Award may be made without the consent of
that holder and (ii) no change requiring stockholder approval to maintain the
Rule 16b-3 exemptions will be effective until that approval has been obtained.
If any subdivision, split or consolidation of outstanding shares of Common
Stock, or any declaration of a stock dividend payable in shares of Common Stock,
occurs, the Board will make appropriate adjustments to (i) the number of shares
of Common Stock reserved under the Incentive Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect of
such Awards, (iv) the appropriate fair market value and other price
determinations for Awards in order to reflect such transactions, (v) the number
of shares of Common Stock covered by Options automatically granted to
Nonemployee Directors, (vi) the number of shares covered by restricted Stock
Awards automatically granted to Nonemployee Directors and (vii) the Stock-based
Awards Limitations.
If any recapitalization or capital reorganization of Invatec, any
consolidation or merger of Invatec with another corporation or entity, any
adoption by Invatec of any plan of exchange affecting the Common Stock or any
distribution to holders of Common Stock of securities or property (other than
normal cash dividends) occurs, the Board will make appropriate adjustments to
the amounts or other items referred to in clauses (ii), (iii), (iv), (v), (vi)
and (vii) above to give effect to such transactions, but only to the extent
necessary to maintain the proportionate interest of the holders of the Awards
and to preserve, without exceeding, the value thereof.
TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to Employees, Nonemployee Directors and the
Company as a result of the grant and exercise of Awards under the Incentive
Plan. It does not address the consequences of the Incentive Plan under any other
tax laws.
No grant of any Option or SAR will constitute realized taxable income to
the grantee. Each exerciser of an SAR or NSO will (i) recognize ordinary income
in an amount equal to the excess of (a) the amount of cash and the fair market
value of the Common Stock received over (b) the exercise price (if any) paid
therefor and (ii) generally have a tax basis in any shares of Common Stock
received pursuant to the exercise of an SAR or the cash exercise of an NSO which
equals the fair market value of those shares on the date of exercise.
An Employee will not have taxable income as a result of exercising an ISO,
but the excess of the fair market value of the shares of Common Stock received
on that exercise ("ISO Stock") over the exercise price may cause the Employee
to incur alternative minimum tax ("AMT"). The payment of AMT by an Employee
attributable to an ISO exercise would be allowed as a credit against his regular
tax liability in a later year to the extent his regular tax liability exceeds
his AMT for that year.
On the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee generally will
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. If an Employee disposes of ISO Stock he has not held for the
requisite holding period (a "disqualifying disposition"), he will (i)
recognize ordinary income to the extent that the fair market value of the ISO
Stock at the time of exercise of the ISO (or, if less, the amount realized in
the case of an arm's-length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Employee for such ISO Stock and (ii)
recognize capital gain to the extent the amount realized in the disqualifying
disposition exceeds the fair market value of the ISO Stock on the
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<PAGE>
exercise date. If the exercise price paid for the ISO Stock exceeds the amount
realized in the disqualifying disposition (in the case of an arm's-length
disposition to an unrelated party), that excess generally would constitute a
capital loss.
Under current rulings, if an Option holder uses shares of Common Stock he
already owns (other than ISO Stock he has not held for the requisite holding
period) to pay all or any part of the exercise price of that Option, (i) he will
recognize income respecting the Common Stock he receives as described above,
(ii) no additional gain will be recognized as a result of the transfer of shares
used as payment and (iii) shares so received, up to the number of shares so
used, will have a tax basis that equals, and a holding period that includes, the
tax basis and holding period of the shares of Common Stock surrendered in
satisfaction of that exercise price. Any additional shares of Common Stock
received on exercise will have a tax basis that equals the amount of cash (if
any) paid by the exerciser.
When cash is paid or first made available to the recipient of a Cash Award
or Performance Award, that cash will constitute ordinary compensation income to
the recipient which is taxable at that time. When Common Stock is delivered
pursuant to a Stock Award or a Performance Award, or when Common Stock or cash
is delivered pursuant to a Stock Award denominated in units of Common Stock, the
recipient generally will recognize ordinary compensation income at that time
which is equal to the amount received (that amount being, in the case of Common
Stock, its fair market value when received), except that: if an Incentive Plan
participant receives Common Stock pursuant to a Stock Award or Performance Award
and that stock then is both nontransferable and subject to a substantial risk of
forfeiture, the participant may elect to recognize ordinary compensation income
equal to the then fair market value of the stock received or to defer such
recognition until such time, if ever, as the stock received first becomes both
transferable and no longer subject to a substantial risk of forfeiture, at which
time the participant would recognize ordinary compensation income equal to the
fair market value at that time of the stock previously received. If dividends
are paid or accrued on Common Stock included in a Stock Award or Performance
Award prior to the time the recipient of that Award recognizes ordinary
compensation income in respect of that stock, those dividends will be taxable as
compensation income rather than as dividend income. The tax basis of Common
Stock received by an Incentive Plan participant pursuant to a Stock Award or
Performance Award will be the amount the participant recognizes as compensation
income in respect of that stock, and the holding period of that stock will begin
on the date of that recognition.
When an Employee recognizes compensation income from the exercise of an SAR
or NSO or in respect of Common Stock, cash or other property received pursuant
to a Cash Award, Performance Award or Stock Award, he will be subject to
withholding by the Company for federal (and generally for state and local)
income tax at that time.
Subject to the Code limitations described below, the Company (or a
subsidiary) generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing with the compensation income
realized by Incentive Plan participants in respect of Awards made to them. The
Code limits deductions to amounts constituting both reasonable compensation for
services rendered or to be rendered and ordinary, necessary business expenses.
Code Section 280G, which disallows deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer, and Code Section 162(m), which generally limits to $1 million the
deductibility of compensation paid to certain employees of the Company in any
one taxable year, could limit the ability of the Company (or a subsidiary) to
deduct amounts taxable as compensation income to Incentive Plan participants. In
the case of performance-based compensation, exceptions to Code Section 162(m)
currently apply if certain requirements are met. The Company intends generally
to satisfy these requirements in connection with the grant and payment of
performance-based Awards (including certain Options and SARs), but no assurance
can be given the Company will be able to satisfy these requirements in all cases
and the Company may, in its sole discretion, determine in one or more cases that
it is in its best interests not to satisfy these requirements even if it is able
to do so.
OTHER PLANS
The Company intends to adopt deferred compensation, supplemental
disability, supplemental life and retirement or other benefit or welfare plans
in which executive officers of the Company will be eligible to participate.
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CERTAIN TRANSACTIONS
FINANCING ARRANGEMENTS
Invatec was initially capitalized in March 1997 with $216.12 provided by
Messrs. Haynes, Schugart, and Lombard and CATS in exchange for 146,959 shares of
Common Stock. In June 1997, Messrs. Haynes, Schugart, Rigas, Lombard, King and
Harrington and CATS purchased an additional 95,880 shares of Common Stock for a
total purchase price of $141.00. Philip has advanced funds to Invatec pursuant
to a $6.0 million commitment to enable Invatec to pay various expenses incurred
in connection with its efforts to create the Company and effect this Offering. A
note (the "Philip Note") evidences these advances, and $3.2 million was
outstanding under this note on September 30, 1997. As part of its funding
arrangements with Invatec, Philip also has guaranteed the payment of the $6.1
million principal amount of Convertible Notes and provided $3.8 million of cash
to pay for Acquisitions.
Beginning in October 1995 and continuing through June 30, 1997, Philip
advanced funds to SSI, in the form of equity investments ($6.9 million,
including the Philip subordinated notes described below), loans ($2.5 million,
of which $0.4 million has been repaid and an additional $2.1 million of which is
evidenced by the Philip Note) and credit support for SSI's bank borrowings, to
pay costs related to the acquisitions of Harley, GSV and Plant Specialties and
this Offering. Invatec will owe Philip a guarantee fee that will equal the
amount accrued at the following rates per annum on the aggregate principal
amount guaranteed by Philip while its guarantees are outstanding: (i) 2% on the
aggregate principal amount guaranteed up to $4.8 million; and (ii) 10% on any
additional principal amounts guaranteed. At September 30, 1997, this guarantee
fee would have been $0.8 million. Concurrently with the closing of this
Offering, the Company will issue to Philip as payment of $8.7 million of
indebtedness it owes Philip (including the Philip Note) 1,087,295 shares of
Common Stock.
Philip entered into its funding arrangements with Invatec pursuant to a May
1997 agreement (as subsequently modified, the "1997 Agreement") among SSI,
Philip and the Miller Interests. Mr. Miller, who founded SSI in 1991 and was its
President until December 1996, was then Chairman of the Board of SSI and, as the
trustee of the Miller Trust and the owner of CATS, controlled approximately
47.3% of SSI's outstanding common stock. In the 1997 Agreement, (i) the parties
modified or superseded prior agreements pursuant to which Philip had been
providing financing and credit support for the expansion of SSI's business and
(ii) the Miller Interests agreed to (a) transfer the voting power of their SSI
common stock to a voting trustee (currently Mr. Haynes) pursuant to a voting
trust agreement, (b) cooperate with Invatec and SSI in facilitating the
completion of this Offering and (c) sell to Philip when this Offering closes at
least 25% of the shares of Common Stock they will own immediately following the
SSI Merger. As provided in the 1997 Agreement: (i) Mr. Miller will remain a
member of the three-member SSI board of directors until this Offering closes,
but has resigned from all other positions he held with SSI and has ceased to
participate in all SSI compensation and other benefit arrangements; (ii) CATS
has terminated all its arrangements with SSI including a management services
agreement under which it would have been paid $225,000 during the three-year
period ending December 31, 1999; and (iii) SSI has paid $300,000 in cash to CATS
in complete satisfaction of all claims CATS or Mr. Miller had or otherwise might
have for any services rendered or to be rendered for SSI or Invatec.
THE SSI MERGER
Before this Offering closes, Invatec will acquire all the outstanding
capital stock of SSI (consisting of 20,000 shares of preferred stock and
4,838,669 shares of common stock) by means of the SSI Merger and SSI will become
a wholly owned subsidiary of Invatec. As a result of the SSI Merger: (i) the
shares of SSI preferred stock will convert into the right to receive shares of
Common Stock having a total calculated value at the initial price to the public
in this Offering equal to the sum of $2.0 million plus dividends accrued since
June 30, 1997 on that amount at the rate of $190,000 per annum; and (ii) each
share of SSI common stock will convert into the right to receive 1/2 of a share
of Common Stock. In addition, presently outstanding options and a warrant to
purchase SSI common stock will be converted into 1997 Incentive Plan options.
See "Management -- Option Grants."
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At the date of this Prospectus, the Miller Interests owned 2,289,881 shares
of SSI common stock (47.3% of the total shares then outstanding), including
235,097 shares awarded to CATS in January 1997 and 14,784 shares purchased by
CATS in connection with the June 1997 exercise of an option granted in 1992 to a
former SSI employee to purchase 68,001 shares of SSI common stock at an exercise
price of $3.68 per share, for which the Miller Interests will receive a total of
1,144,941 shares of Common Stock as a result of the SSI Merger.
Also at the date of this Prospectus, Philip owned all the outstanding SSI
preferred stock (20,000 shares), for which it paid $2.0 million ($100 per share)
in October 1995, and 1,701,713 shares of SSI common stock, which it acquired as
follows: (i) in October 1995 it purchased 286,960 shares from SSI for $500,000
(approximately $1.74 per share); (ii) in January 1997 it exercised warrants it
had received in October 1995 and July 1996 to purchase 1,361,536 shares; and
(iii) in June 1997 it purchased 53,217 shares in connection with the exercise of
the 1992 employee stock option referred to above. It had purchased the 1995
warrant for $100,000 and guaranteed the repayment of a $2.0 million revolving
line of credit to SSI in exchange for the 1996 warrant. Together, the warrants
entitled Philip to purchase at $3.68 per share such number of shares as would be
necessary to afford it ownership, on a fully diluted basis, of 36.5% of the SSI
common stock outstanding after their exercise. To facilitate SSI's acquisition
of Harley, Philip and SSI agreed that Philip would exercise the warrants at an
exercise price of $3.16 per share. The total exercise price consisted of (i)
$3.3 million aggregate principal amount of subordinated 8% promissory notes
issued by Philip and paid as partial consideration in the Harley acquisition and
(ii) approximately $1.0 million in cash.
As a result of the SSI Merger, Philip will receive: (i) for the SSI
preferred stock it owns, shares of Common Stock having a total calculated value
at the initial price to the public in this Offering equal to the sum of $2.0
million plus dividends accrued on that stock since June 30, 1997 at the rate of
$9.50 per share per annum ($190,000 per annum on all shares); and (ii) for the
SSI common stock it owns, 850,857 shares of Common Stock.
Individuals who are or will become directors or executive officers of
Invatec will receive the following number of shares of Common Stock in the SSI
Merger for their shares of SSI common stock: Mr. Haynes -- 72,199; Mr.
Schugart -- 17,000; and Mr. Lombard -- 15,902. In addition, Messrs. Haynes and
Schugart will receive the 1997 Incentive Plan options shown for them in the
table under "Management -- Option Grants," Mr. Lombard will receive a 1997
Incentive Plan option to purchase 38,000 shares of Common Stock at an exercise
price of $10.00 per share and T. Wayne Wren, Jr., who will become a director of
Invatec, will receive a 1997 Incentive Plan option to purchase 15,000 shares of
Common Stock at an exercise price of $10.00 per share in exchange for a warrant
he acquired in 1995 to purchase SSI common stock.
CERTAIN MANAGEMENT FEES
The Company paid management fees of $119,000, $120,000 and $108,000 during
each of the years ended December 31, 1994, 1995 and 1996, respectively, to CATS.
CONSULTING AGREEMENT
On March 27, 1997, Invatec entered into a consulting agreement with Wasatch
Capital Corporation, an affiliate of Michael A. Baker, who will become a
director of Invatec when this Offering closes. The consulting agreement,
effective on September 1, 1997, provides for an initial three-year term (which
may be extended for successive one-year periods), during which acquisition
consulting and related services are to be provided by or under the direction of
Mr. Baker. The consulting agreement provides for annual consulting fees (payable
pro rata on a monthly basis) of $100,000 for the first year of the term, $80,000
for the second year of the term and $60,000 for the third year and any extension
year. The consulting agreement also provides for bonuses that may be granted at
the discretion of Invatec's President (subject to the approval of the Executive
Committee of the Board) and reimbursement of ordinary and necessary expenses
incurred in the performance of the consulting services.
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COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal, and will, in all cases,
be approved in advance by a majority of the disinterested members of the
Company's Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of September 30, 1997, the then "beneficial
owners" (as defined by the SEC) of the outstanding shares of Common Stock. This
table does not include any shares of Common Stock to which the persons named
will become entitled as a result of the SSI Merger.
SHARES BENEFICIALLY
OWNED
--------------------
NAME NUMBER PERCENT
- ------------------------------------- --------- -------
William E. Haynes (1)................ 242,839 100.0%
Roger L. Miller (2).................. 44,680 18.4%
Computerized Accounting & Tax
Services, Inc.(2).................. 44,680 18.4%
P.O. Box 572843
Houston, Texas 77257
Charles F. Schugart.................. 40,800 16.8%
Denny A. Rigas....................... 34,000 14.0%
John L. King......................... 17,000 7.0%
Douglas R. Harrington, Jr............ 17,000 7.0%
Frank L. Lombard..................... 14,893 6.1%
- ------------
(1) Mr. Haynes owns 74,466 of the shares shown (30.7% of the outstanding shares)
and, pursuant to voting trusts of which he is the voting trustee, has sole
voting power over (but no economic interest in) the remaining outstanding
shares, the beneficial owners of which are named in the above table. The
trusts will terminate when this Offering closes.
(2) Roger L. Miller owns CATS and is also the beneficial owner of the shares
CATS owns. He and CATS share the same address.
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The following table shows, after giving effect to the pending Acquisitions,
the beneficial ownership of the Common Stock immediately after this Offering
closes of: (i) Philip; (ii) each executive officer of Invatec; (iii) each person
who will be an Invatec director when this Offering closes; (iv) all directors
and officers of the Company as a group; and (v) certain key employees of the
Company as a group. The table assumes (i) the persons it lists will not acquire
shares directly from the Underwriters in connection with this Offering, except
as noted in the footnotes below, and (ii) no other person will acquire
beneficial ownership of more than 5% of the outstanding Common Stock as a result
of this Offering.
SHARES BENEFICIALLY
OWNED AFTER
THIS OFFERING
-----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
- ------------------------------------- --------- ----------
Philip Services Corp.(2)(3).......... 2,404,819 32.5%
100 King Street
P.O. Box 2440, LCD 1
Hamilton, Ontario Canada L8N 4J6
William E. Haynes(3)(4).............. 307,131 4.1
Charles F. Schugart(3)............... 121,408 1.6
Denny A. Rigas....................... 81,710 1.1
Frank L. Lombard(3).................. 88,388 1.2
John L. King(3)...................... 40,856 *
Douglas R. Harrington, Jr.(3)........ 40,856 *
Timothy M. LeFevre................... 11,000 *
Curry B. Walker...................... 5,000 *
T. Wayne Wren, Jr.(3)................ 15,000 *
Executive officers and directors as a
group (9 persons)(3................ 711,349 9.1
Certain key employees as a
group(3)........................... 74,926 1.0
Roger L. Miller(3)(5)................ 889,621 12.0
The Roger L. Miller Family
Trust(3)(5)........................ 694,000 9.4
Computerized Accounting & Tax
Services, Inc.(3)(5)............... 144,621 2.0
- ------------
* Less than 1%.
(1) Shares shown include shares subject to options that will be exercisable when
this Offering closes, as follows: Mr. Haynes -- 160,466; Mr. Schugart --
63,608; Mr. Rigas -- 47,710; Mr. Lombard -- 57,593; Mr. King -- 23,856; Mr.
Harrington -- 23,856; Mr. LeFevre -- 11,000; Mr. Walker -- 5,000; Mr. Wren
-- 15,000; all executive officers and directors as a group -- 407,789; and
certain key employees as a group -- 79,130.
(2) Shares shown are directly owned by wholly owned subsidiaries of Philip
Services Corp., a public company, as follows: Allwaste, Inc. -- 1,553,962
shares; and Allwaste Environmental Services, Inc. -- 850,858 shares. The
shares directly owned by Allwaste, Inc. include the 300,000 shares it will
purchase from The Roger L. Miller Family Trust (275,000 shares) and CATS
(25,000 shares) when this Offering closes at a cash purchase price per share
equal to 96.5% of the initial per share price to the public in this Offering
(the "Philip Per Share Price"). The address of both Philip Services Corp.
subsidiaries is 5151 San Felipe, Suite 1600, Houston, Texas 77056,3609.
Allen Fracassi, the president and chief executive officer of Philip Services
Corp., has sole voting and investment power respecting the shares of which
Philip Services Corp. is the "beneficial owner," subject to the direction
of that corporation's board of directors. Mr. Fracassi disclaims
"beneficial ownership" of those shares.
(3) Shares shown include shares to be received as a result of the SSI Merger, as
follows: Philip -- 850,858 shares; Mr. Haynes -- 134,699 shares (including
62,500 shares subject to exercisable options); Mr. Schugart -- 42,000 shares
(including 25,000 shares subject to exercisable options); Mr. Lombard --
53,902 shares (including 38,000 shares subject to exercisable options); Mr.
King -- 12,500 shares (all subject to exercisable options); Mr. Harrington
-- 12,500 shares (all subject to exercisable options); Mr. Wren -- 15,000
shares (all subject to exercisable options); executive officers and
directors as a group -- 270,601 shares (including 165,500 shares subject to
exercisable options);
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certain key employees as a group -- 64,926 shares (including 64,130 shares
subject to exercisable options); Mr. Miller -- 51,000 shares; The Roger L.
Miller Family Trust -- 694,000 shares (excluding 275,000 shares to be sold
to Philip); and CATS -- 99,941 shares (excluding 25,000 shares to be sold to
Philip).
(4) Does not include shares subject to voting trusts of which Mr. Haynes is
voting trustee and which will terminate when this Offering closes.
(5) Mr. Miller is the direct beneficial owner of 51,000 shares and, as the
trustee of The Miller Trust and the owner of CATS, is the "beneficial
owner" of the shares they own. The address of the Miller Interests is P.O.
Box 572843, Houston, Texas 77257.
Except as otherwise indicated, the address of each person listed in each of
the above tables is c/o Innovative Valve Technologies, Inc., 14900 Woodham
Drive, Suite A-125, Houston, Texas 77073. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
SHARES ELIGIBLE FOR FUTURE SALE
When this Offering closes, 7,391,139 shares of Common Stock will be
outstanding. The shares sold in this Offering (other than to affiliates of the
Company) will be freely tradable by the public. The remaining outstanding shares
of Common Stock (collectively, the "Restricted Shares") have not been
registered under the Securities Act and may be resold publicly only following
their effective registration under that act or pursuant to an available
exemption from the registration requirements of that act (such as Rule 144
thereunder).
Invatec intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
registration statement generally will be available for sale in the open market
by holders who are not affiliates of the Company and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of the Company.
In general, under Rule 144 if a minimum of one year has elapsed since the
later of the date of acquisition of the restricted securities from the issuer or
from an affiliate of the issuer, a person (or persons whose shares of Common
Stock are aggregated), including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (I.E., 73,911 shares immediately on closing
of this Offering) and (ii) the average weekly trading volume during a preceding
period of four calendar weeks. Sales under Rule 144 are also subject to certain
provisions as to the manner of sale, notice requirements and the availability of
current public information about the Company. In addition, under Rule 144(k), if
a period of at least two years has elapsed since the later of the date
restricted securities were acquired from the Company or the date they were
acquired from an affiliate of the Company, a stockholder who is not an affiliate
of the Company at the time of sale and has not been an affiliate for at least
three months prior to the sale would be entitled to sell shares of Common Stock
in the public market immediately without compliance with the foregoing
requirements under Rule 144. Rule 144 does not require the same person to have
held the securities for the applicable periods. The foregoing summary of Rule
144 is not intended to be a complete description thereof. The SEC has proposed
certain amendments to Rule 144 that would, among other things, eliminate the
manner of sale requirements and revise the notice provisions of that rule. The
SEC has also solicited comments on other possible changes to Rule 144, including
possible revisions to the one- and two-year holding periods and the volume
limitations referred to above.
Invatec has agreed not to offer or sell any shares of Common Stock for a
period of 180 days (the "Lockup Period") following the date of this Prospectus
without the prior written consent of NationsBanc Montgomery Securities, Inc.,
except that Invatec may issue shares of Common Stock in connection with
acquisitions or pursuant to the conversion of the Convertible Notes and the
exercise of options outstanding when this Offering closes. Philip and the Miller
Interests will be contractually prohibited from selling the shares of Common
Stock they own when this Offering closes for a period of two years following
that
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<PAGE>
closing (provided that the Miller Interests will be permitted to sell shares of
Common Stock owned by them after the expiration of 180 days following that
closing with the prior written consent of NationsBanc Montgomery Securities,
Inc.). In addition, the stockholders of SVS and the directors and executive
officers of Invatec will be contractually prohibited from selling the shares of
Common Stock they own when this Offering closes for a period of one year
following that closing. Invatec has agreed that it will not waive any of those
contractual prohibitions without the prior written consent of NationsBanc
Montgomery Securities, Inc.
Invatec has granted "piggyback" registration rights to Philip, Messrs.
Haynes, Schugart, Rigas and Wren and the holders of the Convertible Notes, such
that, following the applicable restricted period (generally two years following
the closing of the IPO), they may include any shares of Common Stock owned by
them in certain types of registrations by Invatec under the Securities Act of
any Common Stock for its own account for cash, subject to certain exceptions.
Invatec is generally required to pay the costs associated with any such offering
other than underwriting discounts and commissions and transfer taxes
attributable to the shares sold on behalf of the selling stockholders. The
registration rights agreements provide that the number of shares of Common Stock
that must be registered on behalf of the selling stockholders is subject to
limitation if the managing underwriter or Invatec's financial advisor, as the
case may be, determines that market conditions so require. Invatec will
indemnify the selling stockholders thereunder, and those stockholders will
indemnify Invatec, against certain liabilities in respect of any registration
statement or offering that includes shares pursuant to the registration rights
agreements.
Invatec intends to register 5,000,000 shares of Common Stock under the
Securities Act in the fourth quarter of 1997 or the first quarter of 1998 for
its use in connection with future acquisitions. Pursuant to Securities Act Rule
145, the volume limitations and certain other requirements of Rule 144 will
apply to resales of these shares by affiliates of the businesses the Company
acquires for a period of one year from the date of their acquisition (or such
shorter period as the SEC may prescribe), but otherwise these shares will be
freely tradable after their issuance by persons not affiliated with the Company
unless the Company contractually restricts their sale, and sales of these shares
during the Lockup Period would require the prior written consent of NationsBanc
Montgomery Securities, Inc.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Invatec's Charter authorizes Invatec to issue 30,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). At September 30, 1997, 242,839 shares of Common Stock were
issued and outstanding. When this Offering closes, 7,391,139 shares of Common
Stock will be issued, outstanding and nonassessable and 1,702,041 shares of
Common Stock then will be reserved for issuance pursuant to all then outstanding
options, warrants and other rights (consisting only of Incentive Plan options
and the Convertible Notes issued as part of the purchase price in two of the
Acquisitions). See "Prospectus Summary -- This Offering." No shares of
Preferred Stock will have been issued when this Offering closes. The Board does
not presently intend to seek stockholder approval prior to any issuance by
Invatec of its currently authorized stock, unless otherwise required by law or
the applicable rules of any stock exchange or market. The following summary is
qualified in its entirety by reference to the Charter, which is an exhibit to
the Registration Statement.
COMMON STOCK
Each share of Common Stock (i) has one vote in the election of each
director and on other corporate matters, (ii) affords no cumulative voting or
preemptive rights and (iii) is not convertible, redeemable, assessable or
entitled to the benefits of any sinking fund. Holders of Common Stock are
entitled to dividends in such amounts and at such times as the Board may in its
discretion declare out of funds legally available therefor.
PREFERRED STOCK
The Board may direct Invatec to issue shares of Preferred Stock from time
to time. Subject to certain Charter provisions and applicable law, it may,
without any action by holders of the Common Stock, (i) adopt resolutions to
issue the shares in one or more classes or series, (ii) fix the number of shares
and change the number of shares constituting any class or series and (iii)
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including dividend rights and rates, redemption terms
and prices, repurchase obligations, conversion rights and liquidation
preferences, of the shares constituting any class or series.
The Board could cause Invatec to issue shares of, or rights to purchase,
Preferred Stock the terms of which might (i) discourage an unsolicited proposal
to acquire the Company, (ii) facilitate a particular business combination
involving the Company or (iii) adversely affect the voting power of holders of
the Common Stock. Any such action could discourage a transaction that some or a
majority of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over its then market
price.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock offered hereby includes one right ("Right") to
purchase from Invatec a unit consisting of one one-hundredth of a share (a
"Fractional Share") of Series A Junior Participating Preferred Stock, par
value $.001 per share of Invatec (the "Junior Participating Preferred Stock"),
at a purchase price of $48.00 per Fractional Share, subject to adjustment in
certain events (the "Purchase Price"). The following summary description of
the Rights is qualified in its entirety by reference to the Rights Agreement
between Invatec and a Rights Agent (the "Rights Agreement"), the form of which
is filed as an exhibit to the Registration Statement.
Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock offered
hereby, and no separate certificates for the Rights ("Rights Certificates")
will be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will, with certain exceptions, occur on the earlier of (i)
10 days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the date of the announcement being the "Stock Acquisition Date")
or (ii) 10 business days following the
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<PAGE>
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
(including, for purposes of the Rights Agreement, its wholly owned
subsidiaries), together with all its affiliates and associates, remains the
beneficial owner of 15% or more of the outstanding shares of Common Stock,
Philip shall not be or become an Acquiring Person. In certain circumstances, the
Distribution Date may be deferred by the Board. Certain inadvertent acquisitions
will not result in a person's becoming an Acquiring Person if the person
promptly divests itself of sufficient Common Stock. Until the Distribution Date,
(i) the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with those certificates, (ii) Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificate for Common
Stock also will constitute the transfer of the Rights associated with the stock
represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 30, 2007, unless earlier redeemed or
exchanged by Invatec as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with Rights. Except as otherwise determined by the Board, no other shares of
Common Stock issued after the Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to a tender or exchange offer for all outstanding shares
of Common Stock at a price and on terms that a majority of the independent
members of the Board determines to be fair to and otherwise in the best
interests of Invatec and its stockholders (a "Permitted Offer")), each holder
of a Right will thereafter have the right to receive, on exercise of that Right,
a number of shares of Common Stock (or, in certain circumstances, cash, property
or other securities of Invatec) having a Current Market Price (as defined in the
Rights Agreement) equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of any Triggering Event
(as defined below), all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by an Acquiring
Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. Rights are not exercisable
following the occurrence of any Flip-In Event until such time as the Rights are
no longer redeemable by Invatec as set forth below.
In the event (a "Flip-Over Event") that, at any time from and after the
time an Acquiring Person becomes such, (i) Invatec is acquired in a merger or
other business combination transaction (other than certain mergers that follow a
Permitted Offer) or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights that previously have
been voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
The number of outstanding Rights associated with a share of Common Stock,
or the number of Fractional Shares of Junior Participating 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 Junior
Participating 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 Junior Participating
Preferred Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Junior Participating Preferred Stock that are not
integral multiples of a Fractional Share are required to be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Junior Participating Preferred
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<PAGE>
Stock on the last trading date prior to the date of exercise. Pursuant to the
Rights Agreement, Invatec reserves the right to require prior to the occurrence
of a Triggering Event that, on any exercise of Rights, a number of Rights be
exercised so that only whole shares of Junior Participating Preferred Stock will
be issued.
At any time until 10 days following the first date of public announcement
of the occurrence of a Flip-In Event, Invatec may redeem the Rights in whole,
but not in part, at a price of $.01 per Right, payable, at the option of
Invatec, in cash, shares of the Common Stock or such other consideration as the
Board may determine. Immediately on the effectiveness of the action of the Board
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding or the occurrence of a Flip-Over Event, Invatec may, at its option,
exchange the Rights (other than Rights owned by an Acquiring Person or an
affiliate or an associate of an Acquiring Person, which will have become void),
in whole or in part, at an exchange ratio of one share of Common Stock, and/or
other equity securities deemed to have the same value as one share of Common
Stock, per Right, subject to adjustment.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board as long as the Rights are redeemable.
Thereafter, the provisions of the Rights Agreement other than the redemption
price may be amended by the Board only in order to cure any ambiguity, defect or
inconsistency, to make changes that do not materially adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person), or to shorten or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to lengthen the time period governing
redemption shall be made at such time as the Rights are not redeemable. Until a
Right is exercised, the holder thereof, as such, will have no rights to vote or
receive dividends or any other rights as a stockholder of Invatec.
The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the Company
without the approval of the Board. As a result, the overall effect of the Rights
may be to render more difficult or discourage any attempt to acquire the
Company, even if such acquisition may be favorable to the interests of the
Company's stockholders. Because the Board can redeem the Rights or approve a
Permitted Offer, the Rights should not interfere with a merger or other business
combination approved by the Board. The Rights are being issued to protect
Invatec's stockholders from coercive or abusive takeover tactics, and to afford
the Board more negotiating leverage in dealing with prospective acquirers.
STATUTORY BUSINESS COMBINATION PROVISION
As a Delaware corporation, Invatec is subject to Section 203 of the DGCL.
In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a Delaware corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) with the
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) on consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination was approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above
58
<PAGE>
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to them and their stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors of Delaware corporations are accountable to those corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Delaware law enables Delaware
corporations to limit available relief to equitable remedies such as injunction
or rescission. The Charter limits the liability of directors of Invatec to
Invatec or its stockholders to the fullest extent permitted by Delaware law.
Specifically, no member of the Board will be personally liable for monetary
damages for breach of the member's fiduciary duty as a director, except for
liability (i) for any breach of the member's duty of loyalty to Invatec or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the member
derived an improper personal benefit. This Charter provision could have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefited Invatec and its stockholders.
Invatec's Bylaws (the "Bylaws") provide indemnification to Invatec's officers
and directors and certain other persons with respect to certain matters, and
Invatec has entered into agreements with each of its directors and executive
officers providing for indemnification with respect to certain matters.
The Charter provides that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Bylaws provide
that only the Chairman of the Board, the President or a majority of the Board
may call a special meeting of stockholders.
The Charter provides that the Board will consist of three classes of
directors serving for staggered terms, and Invatec currently contemplates that
approximately one-third of the Board will be elected each year. This Charter
provision could prevent a party who acquires control of a majority of the
outstanding voting stock of Invatec from obtaining control of the Board until
the second annual stockholders' meeting following the date that party obtains
that control.
The Charter provides that the number of directors will be as determined by
the Board from time to time, but will not be less than three. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders of at least a majority of all outstanding voting stock
entitled to vote. This provision, in conjunction with the Charter provisions
authorizing the Board to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
STOCKHOLDER PROPOSALS
The Bylaws contain advance-notice and other procedural requirements that
apply to stockholder nominations of persons for election to the Board at any
annual or special meeting of stockholders and to stockholder proposals that any
other action be taken at any annual meeting. In the case of any annual meeting,
a stockholder proposing to nominate a person for election to the Board or
proposing that any other action be taken must give the Secretary of Invatec
written notice of the proposal not less than 90 days before
59
<PAGE>
the anniversary date of the immediately preceding annual meeting (subject to
certain exceptions if the pending annual meeting date differs by more than
specified periods from that anniversary date). If a special meeting is called
for the election of directors, a stockholder proposing to nominate a person for
that election must give the Secretary of Invatec written notice of the proposal
no later than the close of business on the 10th day following the first to occur
of (i) the day on which notice of the date of the special meeting was mailed to
stockholders or (ii) the day public disclosure of the date of the special
meeting was made. The Bylaws prescribe the specific information any advance
written stockholder notice must contain. The foregoing summary is qualified in
its entirety by reference to the Bylaws, which are an exhibit to the
Registration Statement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase-Mellon
Shareholder Services L.L.C.
60
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities, Inc. and Furman Selz LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
in the underwriting agreement (the "Underwriting Agreement") by and between
Invatec and the Underwriters, to purchase from Invatec the aggregate number of
shares of Common Stock indicated below, opposite their respective names, at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent, and
that the Underwriters are committed to purchase all the shares of Common Stock,
if they purchase any.
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- ---------
NationsBanc Montgomery Securities,
Inc. .................................
Furman Selz LLC.........................
---------
Total.............................. 3,350,000
=========
The Representatives have advised Invatec that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
Invatec has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
502,500 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial 3,350,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
The Underwriting Agreement provides that Invatec will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Invatec, its officers and directors and certain other stockholders of
Invatec designated by the Representatives have agreed that, for a period of 180
days from the date of this Prospectus, they will not, without the prior written
consent of NationsBanc Montgomery Securities, Inc., offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock, except that
Invatec may issue shares of Common Stock (i) in connection with acquisitions and
(ii) pursuant to the conversion of the Convertible Notes and the exercise of
options outstanding as of the closing of this Offering. For information
respecting additional restrictions on sales by Philip, the Miller Interests,
Invatec's management and others, see "Shares Eligible for Future Sale."
61
<PAGE>
The Representatives have informed Invatec that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock will be determined by negotiations between Invatec and the
Representatives. Among the factors they will consider in such negotiations are
the history of, and the prospects for, the Company and the industry in which the
Company competes, an assessment of the Company's management, its financial
condition, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the economy and the securities markets at
the time of this Offering and the market prices of and demand for publicly
traded common stock of comparable companies in recent periods.
Until the distribution of the Common Stock is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Stock. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in connection
with this Offering, I.E., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representatives may reduce that
short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. The Representatives may also
impose a penalty bid on certain Underwriters and selling group members. This
means that if the Representatives purchase shares of Common Stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of this
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither Invatec nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither Invatec nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed on for Invatec by Baker & Botts, L.L.P.,
Houston, Texas, and for the Underwriters by Morgan, Lewis & Bockius LLP, New
York, New York.
EXPERTS
The audited financial statements of Invatec and each of the Acquired
Businesses (other than Harley and GSV) included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance on the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Harley as of October 31, 1995 and
1996 and for each of the three years in the period ended October 31, 1996 and
the financial statements of GSV as of December 31, 1995 and 1996 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
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ADDITIONAL INFORMATION
Invatec has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. It has filed the Registration
Statement on Form S-1 under the Securities Act with the SEC with respect to this
Offering. This Prospectus does not contain all the information set forth in the
Registration Statement, or the exhibits and schedules thereto, in accordance
with the rules and regulations of the SEC, and reference is hereby made to that
omitted information. The statements made in this Prospectus concerning documents
filed as exhibits to the Registration Statement accurately describe the material
provisions of those documents and are qualified in their entirety by reference
to those exhibits for complete statements of their provisions. Interested
persons may (i) inspect the Registration Statement and the exhibits and
schedules thereto, without charge, at the public reference facilities of the SEC
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
13th Floor, New York, New York 10048 and (ii) obtain copies of all or any
portion of the Registration Statement at prescribed rates from the Public
Reference Section of the SEC at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The SEC maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The
address of that site is http://www.sec.gov.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation .............................................. F-3
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 ..... F-4
Unaudited Pro Forma Combined Statement of Operations for Fiscal 1996 F-5
Unaudited Pro Forma Combined Statement of Operations for the First
Six Months of Fiscal 1997 ........................................ F-6
Unaudited Pro Forma Consolidated Statement of Operations of The Safe
Seal Company, Inc. and Subsidiaries for the Six Months Ended
June 30, 1997 .................................................... F-7
Notes to Unaudited Pro Forma Combined Financial Statements ......... F-8
Historical Financial Statements
Innovative Valve Technologies, Inc. ................................
Report of Independent Public Accountants ...................... F-12
Balance Sheet ................................................. F-13
Statement of Operations ....................................... F-14
Statement of Stockholders' Deficit ............................ F-15
Statement of Cash Flows ....................................... F-16
Notes to Financial Statements ................................. F-17
The Safe Seal Company, Inc. and Subsidiaries
Report of Independent Public Accountants ...................... F-20
Consolidated Balance Sheets ................................... F-21
Consolidated Statements of Operations ......................... F-22
Consolidated Statements of Stockholders' Equity (Deficit) ..... F-23
Consolidated Statements of Cash Flows ......................... F-24
Notes to Consolidated Financial Statements .................... F-25
Harley Industries, Inc. and Subsidiaries
Independent Auditors' Report .................................. F-33
Consolidated Balance Sheets ................................... F-34
Consolidated Statements of Operations ......................... F-35
Consolidated Statements of Stockholders' Equity ............... F-36
Consolidated Statements of Cash Flows ......................... F-37
Notes to Consolidated Financial Statements .................... F-38
Steam Supply Group
Report of Independent Public Accountants ...................... F-47
Combined Balance Sheets ....................................... F-48
Combined Statements of Operations ............................. F-49
Combined Statements of Stockholders' Equity (Deficit) ......... F-50
Combined Statements of Cash Flows ............................. F-51
Notes to Combined Financial Statements ........................ F-52
F-1
<PAGE>
PAGE
----
ICE/VARCO Group
Report of Independent Public Accountants .................. F-59
Combined Balance Sheets ................................... F-60
Combined Statements of Operations ......................... F-61
Combined Statements of Stockholders' Deficit .............. F-62
Combined Statements of Cash Flows ......................... F-63
Notes to Combined Financial Statements .................... F-64
GSV, Inc. ......................................................
Independent Auditors' Report .............................. F-70
Balance Sheets ............................................ F-71
Statements of Operations .................................. F-72
Statements of Stockholders' Equity ........................ F-73
Statements of Cash Flows .................................. F-74
Notes to Financial Statements ............................. F-75
Plant Specialties, Inc. ........................................
Report of Independent Public Accountants .................. F-79
Balance Sheets ............................................ F-80
Statements of Operations .................................. F-81
Statements of Stockholders' Equity ........................ F-82
Statements of Cash Flows .................................. F-83
Notes to Financial Statements ............................. F-84
Southern Valve Group
Report of Independent Public Accountants .................. F-89
Combined Balance Sheets ................................... F-90
Combined Statements of Operations ......................... F-91
Combined Statements of Stockholders' Equity ............... F-92
Combined Statements of Cash Flows ......................... F-93
Notes to Combined Financial Statements .................... F-94
F-2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the following events and transactions (the "Transactions"): (i) the
formation and organizational financing of Innovative Valve Technologies, Inc.
("Invatec"); (ii) the merger by means of which The Safe Seal Company, Inc.
("SSI"), which had previously acquired (a) Harley Industries, Inc.
("Harley"), (b) Plant Specialties, Inc. ("Plant Specialties") and (c) GSV,
Inc. ("GSV"), will become a subsidiary of Invatec; and (iii) Invatec's
acquisition of Steam Supply & Rubber Co., Inc. (together with three related
entities, "Steam Supply"), Industrial Controls & Equipment, Inc. (together
with three related entities, "ICE/VARCO") and Southern Valve Service, Inc.
(together with a related entity, "SVS") (collectively referred to, together
with SSI, Harley, Plant Specialties, GSV, Steam Supply and ICE/VARCO, as the
"Acquired Businesses"); (iv) the financing of the purchase prices paid for the
Acquired Businesses; (v) reverse stock splits of the outstanding shares of
common stock of Invatec ("Common Stock") and the SSI common stock effected in
connection with this initial public offering of Common Stock (the "Offering");
and (vi) the issuance of shares of Common Stock to repay indebtedness owed by
the Company to subsidiaries of Philip Services Corp. (collectively with its
subsidiaries, "Philip") and redeem SSI preferred stock owned by Philip.
Invatec and the Acquired Businesses are hereinafter referred to as the Company.
These statements are based on the historical financial statements of Invatec and
the Acquired Businesses included elsewhere in this Prospectus and the estimates
and assumptions set forth below and in the notes to the unaudited pro forma
combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the
Transactions and the closing of the Offering and the application of the
estimated net proceeds therefrom, as if they had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations give effect to the
Transactions and the closing of the Offering and the application of the
estimated net proceeds therefrom as if they had occurred on January 1, 1996. The
unaudited pro forma combined financial statements assume that the initial price
to the public in the Offering will be $12.00 per share of Common Stock.
The 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 or will not be employed by the
Company after the acquisition of their Acquired Businesses and will not be
replaced and (ii) the elimination of certain excess management fees charged by
ICE/VARCO's former parent company. 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 Invatec expects to incur, but also cannot
currently quantify accurately. These costs include those associated with
corporate management and administration, being a public company, systems
integration and facilities expansions and consolidations. The pro forma
financial information herein reflects neither unquantifiable expected savings
nor unquantifiable expected incremental costs.
SSI has been identified as the "accounting acquirer" for financial
statement presentation purposes.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma adjustments do not reflect amounts related to certain post closing
adjustments, which may affect goodwill and debt. In addition, the pro forma
combined statements of operations do not include adjustments for non-recurring
charges of approximately $2.0 million as a result of Invatec's grant, in August
1997, to certain executive officers of options to purchase 202,589 shares of
Common Stock at an exercise price of $1.00 per share, $330,000 of bonuses to be
paid to three executive officers of Invatec on completion of the Offering and
$620,000 of financing charges due to Philip to be recorded subsequent to June
30, 1997.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements of Invatec and the Acquired
Businesses and related notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
POST
STEAM ICE/ PRO FORMA PRO FORMA MERGER
INVATEC SSI SUPPLY VARCO SVS ADJUSTMENTS COMBINED ADJUSTMENTS
------- ------- ------ ------ ------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ -- $ 391 $-- $ 164 $ 121 $-- $ 676 $ 621
Accounts receivable, net........... -- 9,616 1,846 2,213 780 -- 14,455 --
Inventories........................ -- 6,314 1,612 1,370 1,517 615 11,428 --
Other current assets............... 3,522 1,762 359 11 98 (2,000) 3,752 (1,522)
------- ------- ------ ------ ------ ----------- --------- -----------
Total current assets............. 3,522 18,083 3,817 3,758 2,516 (1,385) 30,311 (901)
PROPERTY AND EQUIPMENT, net.......... 31 6,399 1,066 853 861 -- 9,210 --
GOODWILL, net........................ -- 14,596 -- 226 -- 9,265 24,087 --
OTHER NONCURRENT ASSETS.............. 5,323 4,352 895 -- -- (5,716) 4,854 --
------- ------- ------ ------ ------ ----------- --------- -----------
Total assets..................... $8,876 $43,430 $5,778 $4,837 $3,377 $ 2,164 $68,462 $ (901)
======= ======= ====== ====== ====== =========== ========= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $1,463 $ 9,039 $1,012 $1,236 $ 241 $ (483) $12,508 $ (1,500)
Short-term debt.................... 4,129 16,117 1,989 1,310 232 (3,340) 20,437 (20,437)
Current maturities of long-term
debt............................. 141 1,371 238 162 429 (329) 2,012 (2,012)
Cash consideration due to former
owners of Acquired Businesses.... -- -- -- -- -- 4,420 4,420 (4,420)
Other current liabilities.......... -- 603 -- -- -- -- 603 --
------- ------- ------ ------ ------ ----------- --------- -----------
Total current liabilities........ 5,733 27,130 3,239 2,708 902 268 39,980 (28,369)
LONG-TERM DEBT, net of current
maturities......................... 711 5,237 1,964 351 1,645 (2,320) 7,588 (7,588)
CONVERTIBLE NOTES.................... 3,295 -- -- -- -- 2,848 6,143 --
OTHER NONCURRENT LIABILITIES......... -- 5,323 -- 1,981 -- (6,593) 711 --
DEFERRED INCOME TAXES................ -- -- -- -- 13 -- 13 --
REDEEMABLE PREFERRED STOCK........... -- 2,000 711 -- -- (2,711) -- --
STOCKHOLDERS' EQUITY
Common stock....................... -- 48 -- -- 10 (54) 4 3
Additional paid-in capital......... 2,623 8,200 18 -- 6 11,932 22,779 35,383
Retained earnings (deficit)........ (3,486) (4,508) (154) (203) 801 (1,206) (8,756) (330)
------- ------- ------ ------ ------ ----------- --------- -----------
Total stockholders' equity
(deficit)...................... (863) 3,740 (136) (203) 817 10,672 14,027 35,056
------- ------- ------ ------ ------ ----------- --------- -----------
Total liabilities and
stockholders' equity........... $8,876 $43,430 $5,778 $4,837 $3,377 $ 2,164 $68,462 $ (901)
======= ======= ====== ====== ====== =========== ========= ===========
</TABLE>
AS ADJUSTED
-----------
ASSETS
CURRENT ASSETS:
Cash............................... $ 1,297
Accounts receivable, net........... 14,455
Inventories........................ 11,428
Other current assets............... 2,230
-----------
Total current assets............. 29,410
PROPERTY AND EQUIPMENT, net.......... 9,210
GOODWILL, net........................ 24,087
OTHER NONCURRENT ASSETS.............. 4,854
-----------
Total assets..................... $67,561
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $11,008
Short-term debt.................... --
Current maturities of long-term
debt............................. --
Cash consideration due to former
owners of Acquired Businesses.... --
Other current liabilities.......... 603
-----------
Total current liabilities........ 11,611
LONG-TERM DEBT, net of current
maturities......................... --
CONVERTIBLE NOTES.................... 6,143
OTHER NONCURRENT LIABILITIES......... 711
DEFERRED INCOME TAXES................ 13
REDEEMABLE PREFERRED STOCK........... --
STOCKHOLDERS' EQUITY
Common stock....................... 7
Additional paid-in capital......... 58,162
Retained earnings (deficit)........ (9,086)
-----------
Total stockholders' equity
(deficit)...................... 49,083
-----------
Total liabilities and
stockholders' equity........... $67,561
===========
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR FISCAL 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STEAM ICE/ PLANT
INVATEC SSI HARLEY SUPPLY VARCO GSV SPECIALTIES SVS
------- --------- ------- ------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $-- $ 3,888 $21,391 $15,079 $12,744 $ 10,227 $ 8,501 $ 4,404
COST OF OPERATIONS................... -- 2,376 15,448 9,574 9,453 7,688 5,620 2,962
------- --------- ------- ------- ------- --------- ----------- ---------
Gross profit..................... -- 1,512 5,943 5,505 3,291 2,539 2,881 1,442
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 1,917 5,563 5,107 2,859 1,276 2,489 1,175
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. -- 38 -- -- -- -- -- --
------- --------- ------- ------- ------- --------- ----------- ---------
Income (loss) from operations.... -- (443) 380 398 432 1,263 392 267
OTHER INCOME (EXPENSE):
Interest, net.................... -- 28 (527) (303) (112) (78) (188) (177)
Other............................ -- -- -- (10) (14) 6 29 45
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... -- (415) (147) 85 306 1,191 233 135
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- -- (57) 33 138 -- 124 29
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $-- $ (415) $ (90) $ 52 $ 168 $ 1,191 $ 109 $ 106
======= ========= ======= ======= ======= ========= =========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATIONS.........................
</TABLE>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
REVENUES............................. $-- $76,234
COST OF OPERATIONS................... (64)(aa) 53,057
----------- ---------
Gross profit..................... 64 23,177
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... (1,674)(bb) 19,314
602(cc)
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. (38)(ee) --
----------- ---------
Income (loss) from operations.... 1,174 3,863
OTHER INCOME (EXPENSE):
Interest, net.................... 1,025(dd) (332)
Other............................ -- 56
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 2,199 3,587
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 1,279(ff) 1,546
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ 920 $ 2,041
=========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING
OPERATIONS......................... $ .28
=========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATIONS......................... 7,391(gg)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FIRST SIX MONTHS OF FISCAL 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
PRO FORMA STEAM ICE/ PRO FORMA FORMA
INVATEC SSI(1) SUPPLY VARCO SVS ADJUSTMENTS COMBINED
------- --------- ------- ------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $ 28,337 $ 7,737 $7,104 $2,098 $-- $45,276
COST OF OPERATIONS................... -- 19,152 5,414 5,747 1,398 -- 31,711
------- --------- ------- ------- ------ ----------- --------
Gross profit..................... 9,185 2,323 1,357 700 -- 13,565
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 852 7,004 2,275 1,555 582 (937)(bb) 11,499
168(cc)
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. 2,623 2,393 -- -- -- (5,016)(ee) --
------- --------- ------- ------- ------ ----------- --------
Income (loss) from operations.... (3,475) (212) 48 (198) 118 5,785 2,066
OTHER INCOME (EXPENSE):
Interest, net.................... (11) (1,177) (167) (63) (74) 1,331(dd) (161)
Other............................ -- 11 (35) 32 -- -- 8
------- --------- ------- ------- ------ ----------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... (3,486) (1,378) (154) (229) 44 7,116 1,913
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- (72) (60) (103) 9 1,049(ff) 823
------- --------- ------- ------- ------ ----------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $(3,486) $ (1,306) $ (94) $ (126) $ 35 $ 6,067 $ 1,090
======= ========= ======= ======= ====== =========== ========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $ .15
========
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS......................... 7,391 (gg)
========
</TABLE>
- ------------
(1) SSI is presented on a pro forma basis on page F-7 to include Harley, GSV and
Plant Specialties from January 1, 1997 through their dates of acquisition by
SSI.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
OF THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PLANT
HARLEY GSV SPECIALTIES
JANUARY 1- JANUARY 1- JANUARY 1- PRO FORMA
SSI JANUARY 31 FEBRUARY 28 MAY 31 SSI
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 19,760 $ 1,853 $ 1,637 $ 5,087 $28,337
COST OF OPERATIONS...................... 13,495 1,338 1,258 3,061 19,152
--------- ----------- ----------- ----------- ---------
Gross Profit....................... 6,265 515 379 2,026 9,185
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,918 640 243 1,203 7,004
SPECIAL COMPENSATION EXPENSE ON COMMON
STOCK ISSUANCE........................ 2,393 -- -- -- 2,393
--------- ----------- ----------- ----------- ---------
Income (loss) from operations...... (1,046) (125) 136 823 (212)
OTHER INCOME (EXPENSE):
Interest, net...................... (998) (52) (17) (110) (1,177)
Other.............................. 2 -- (3) 12 11
--------- ----------- ----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................... (2,042) (177) 116 725 (1,378)
PROVISION (BENEFIT) FOR INCOME TAXES.... (275) (69) -- 272 (72)
--------- ----------- ----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ $ (1,767) $ (108) $ 116 $ 453 $(1,306)
========= =========== =========== =========== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. INNOVATIVE VALVE TECHNOLOGIES, INC. BACKGROUND:
Invatec was formed to create the leading provider of comprehensive valve
maintenance, repair and distribution services in North America. Before the
Offering closes, Invatec will become the sole stockholder of SSI by means of a
merger in which each outstanding share of SSI common stock will be converted
into 1/2 a share of Invatec common stock.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of Invatec and the Acquired Businesses and were derived
from the respective financial statements where indicated. SSI and GSV had
December 31 fiscal year-ends, Harley, Plant Specialties, Steam Supply and SVS
had October 31 fiscal year-ends and ICE/VARCO had a September 30 fiscal
year-end. The interim 1997 information includes results of operations as
follows: Invatec and Pro Forma SSI, for the six months ended June 30, 1997;
Steam Supply and SVS, for the six months ended April 30, 1997; and ICE/VARCO,
for the six months ended March 31, 1997. The pro forma combined balance sheet
includes: (i) the balance sheets of Invatec, SSI and ICE/VARCO as of June 30,
1997; and (ii) the balance sheets of Steam Supply and SVS as of July 31, 1997.
3. ACQUISITION OF ACQUIRED BUSINESSES:
Invatec and the Acquired Businesses are engaged in the industrial valve
repair, maintenance and distribution services business. The acquisition of the
Acquired Businesses has been accounted for under the purchase method of
accounting with SSI being treated as the accounting acquirer.
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 -- --
Plant Specialties........... 3,361 4,147 --
SVS......................... 4,310 -- 1,500
--------- --------------- -------------
$ 41,937 $ 6,995 $ 1,500
========= =============== =============
- ------------
(1) The cash consideration paid for Harley is net of approximately $3.8 million
in cash and notes received from the sale of Harley Equipment, Inc., subject
to adjustment, which was reflected as a discontinued operation in the
historical Harley financial statements included elsewhere herein.
Additionally, such amount includes the $1.0 million cash payment due to the
former owners of Harley on completion of the Offering. See Note 2 to the
Consolidated Financial Statements of Harley Industries, Inc. and
Subsidiaries included herein.
(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 owners and debt assumed by Invatec from the
Acquired Businesses.
(5) Includes (i) the issuance of convertible subordinated notes of $3.3 million
to the former owners of Plant Specialties and $2.8 million to the former
owners of Steam Supply that on completion of the Offering may be converted
into Common Stock at 130% of the initial price per share to the public in
the Offering at the option of the note holders and (ii) a $0.9 million SSI
Note issued to the former owners of Plant Specialties, which is secured by
real property.
F-8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Of the total purchase price paid and to be 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. Based on management's preliminary
analysis, Invatec anticipates that 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.
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following descriptions (a) through (j) correspond to the tables set
forth below which summarize the pro forma and post merger adjustments presented
on page F-4.
(a) Records (i) the consideration for the acquisitions of Steam Supply,
ICE/VARCO and SVS consisting of: $8.3 million in cash (including the
application of a $2.0 million escrow deposit), $2.8 million in
convertible notes and $1.5 million in Common Stock for a total
estimated purchase price of $21.6 million (including $9.0 million of
assumed debt, including $711,000 of Steam Supply preferred stock)
resulting in goodwill of $9.3 million, (ii) a $615,000 increase in
inventory representing the conversion of Steam Supply from the LIFO
basis to FIFO basis of accounting, (iii) the elimination of $393,000
of offsetting notes receivable from and payable to the former owners
of Steam Supply and (iv) the reclassification of the Steam Supply
preferred stock to other non-current liabilities.
(b) Records the elimination of the SSI common stock that will convert
into Common Stock in the SSI Merger and the elimination of an SSI
payable to Invatec of $5,323,000.
(c) Records the repayment of Steam Supply debt (including $2.1 million of
short-term debt) outstanding when Steam Supply was acquired with
other short-term debt.
(d) Records $1.9 million of additional utilization of a $6.0 million
Philip facility evidenced by an Invatec convertible note (the
"Philip Note") and the accrual of interest thereon. Through June
30, 1997, Invatec had received advances on the Philip Note totalling
$2.1 million. Management anticipates that approximately $4.0 million
of the Philip Note will be utilized through the closing of the
Offering.
(e) Records the conversion of $500,000 of the Philip Note and accrued
interest thereon into 420,629 shares of Common Stock and the
conversion of $10.0 million of indebtedness and other obligations
owed by the Company to Philip into 833,333 shares of Common Stock.
The $10.0 million of indebtedness and other obligations to Philip
includes $2.0 million of SSI preferred stock, $3.5 million of the
Philip Note, $3.5 million of other advances from Philip and $1.0
million of guaranty fees payable to Philip ($620,000 of which is
anticipated to be accrued between June 30, 1997 and the date on which
the Offering closes).
(f) Records the assumed proceeds to Invatec from the Offering of $40.2
million, net of estimated offering costs of $3.8 million ($4.8
million less $1.0 million of expenses paid with advances by Philip
constituting part of the indebtedness to Philip), assuming an initial
public offering price of $12.00 per share. Offering costs primarily
consist of the underwriting discount, accounting and legal fees and
printing expenses.
(g) Records the application of the net proceeds of the Offering to repay
outstanding indebtedness and pay cash consideration due to former
owners of Acquired Businesses.
(h) Records the payment of $1.0 million of additional purchase
consideration to the former owners of Harley pursuant to the terms of
the purchase agreement, which payment is contingent on the successful
completion of the Offering.
(i) Records the repayment of $3.2 million of the $6.7 million short-term
debt owed to Philip.
F-9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Records the payment of $330,000 of bonuses to three members of
executive management on the completion of the Offering.
The following tables summarize the unaudited pro forma and post merger
combined balance sheet adjustments (in thousands).
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inventories.......................... $ 615 $ $ $ $ $ 615
Other current assets................. (2,000) (2,000)
Goodwill, net........................ 9,265 9,265
Other noncurrent assets.............. (393) (5,323) (5,716)
Accounts payable and accrued
expenses........................... (142) 625 483
Short-term debt...................... (2,256) (1,871) 7,467 3,340
Current maturities of long-term
debt............................... 329 329
Cash consideration due to former
owners of Acquired Businesses...... (6,291) 1,871 (4,420)
Long-term debt, net of current
maturities......................... 393 1,927 2,320
Convertible notes.................... (2,848) (2,848)
Other noncurrent liabilities......... 1,270 5,323 6,593
Redeemable preferred stock........... 711 2,000 2,711
Common stock......................... 10 45 (1) 54
Additional paid-in capital........... (1,176) (45) (10,711) (11,932)
Retained earnings (deficit).......... 444 142 620 1,206
--------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= ========= ===========
POST MERGER
(F) (G) (H) (I) (J) ADJUSTMENTS
--------- --------- --------- --------- --------- -----------
Cash................................. $ 36,408 $ (31,224) $ (1,000) $ (3,233) $ (330) $ 621
Other current assets................. (1,522) (1,522)
Accounts payable and accrued
expenses........................... 500 1,000 1,500
Short-term debt...................... 17,204 3,233 20,437
Current maturities of long-term
debt............................... 2,012 2,012
Cash consideration due to former
owners of Acquired Businesses...... 4,420 4,420
Long-term debt, net of current
maturities......................... 7,588 7,588
Common stock......................... (3) (3)
Additional paid-in capital........... (35,383) (35,383)
Retained earnings (deficit).......... 330 330
--------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= ========= ===========
</TABLE>
5. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(aa) Records the income statement effect of recording inventories on a
FIFO basis, rather than a LIFO basis, at Plant Specialties and Steam
Supply.
(bb) Adjusts selling, general and administrative expenses to reflect the
decrease in salaries and benefits associated with certain owners and
managers of the Acquired Businesses who were not or will not be
employed subsequent to the acquisition of their Acquired Businesses
and
F-10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
who will not be replaced. Additionally, records the reversal of
certain excess administrative support service fees charged by
ICE/VARCO's former parent company. The amount of such excess
administrative support service fees represents the difference
between the historical fees charged by ICE/VARCO's former parent
company for certain administrative support services and the future
costs of the services which were provided by the former parent
company prior to ICE/VARCO's acquisition by Invatec, as determined
through arm's-length negotiated agreements which will be in effect
at the closing of the ICE/VARCO transaction.
(cc) Records pro forma goodwill amortization expense over 40 years.
(dd) Records the elimination of interest expense resultant from the
application of the net proceeds of the Offering to retire
outstanding indebtedness.
(ee) Records the elimination of the special non-cash, non-recurring
compensation expense attributable to stock awards made by SSI and
sales of Common Stock. See "Management -- Executive Compensation"
and "Certain Transactions -- The SSI Merger."
(ff) Records the incremental provision for federal and state income taxes
relating to S corporation income and other pro forma adjustments to
reflect an effective tax rate of 43%. In its assumption of the
effective tax rate, management has not considered the utilization of
net operating losses or other tax attributes previously generated by
or existent at certain of the Acquired Businesses.
(gg) The number of shares of Common Stock estimated to be outstanding on
completion of the Offering includes the following, but excludes an
aggregate of 1,308,248 shares subject to options that will be
outstanding when the Offering closes under Invatec's 1997 Incentive
Plan, as the number of common stock equivalents determined using the
treasury stock method is less than three percent of the total number
of shares estimated to be outstanding.
Issued prior to Offering............. 242,839
Issued in Offering................... 3,350,000
Issued in the SSI Merger............. 2,419,338
Conversion of SSI redeemable
preferred stock, Philip Note,
Philip advances and Philip finance
charges............................ 1,253,962
Issued to acquire SVS................ 125,000
-----------
Shares estimated to be outstanding... 7,391,139
===========
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Innovative Valve Technologies, Inc.:
We have audited the accompanying balance sheet of Innovative Valve
Technologies, Inc. (a Delaware corporation), as of June 30, 1997, and the
related statements of operations, stockholders' deficit and cash flows for the
period from inception (March 16, 1997) through June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Valve
Technologies, Inc., as of June 30, 1997, and the results of its operations and
its cash flows for the period from inception (March 16, 1997) through June 30,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 29, 1997
F-12
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
BALANCE SHEET -- JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Escrow deposit..................... $ 2,000,000
Deferred offering costs............ 1,522,616
--------------
Total current assets.......... 3,522,616
PROPERTY AND EQUIPMENT, net............. 30,717
RECEIVABLE FROM THE SAFE SEAL COMPANY,
INC................................... 5,323,351
--------------
$ 8,876,684
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term debt.................... $ 4,128,935
Current maturities of long-term
debt.............................. 141,478
Accounts payable and accrued
expenses.......................... 1,462,985
--------------
Total current liabilities..... 5,733,398
LONG TERM DEBT, net of current
maturities............................ 711,708
CONVERTIBLE SUBORDINATED NOTES
PAYABLE............................... 3,295,127
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value,
30,000,000 shares authorized,
242,839 shares issued and
outstanding....................... 243
Additional paid-in capital......... 2,622,418
Retained deficit................... (3,486,210)
--------------
Total stockholders' deficit... (863,549)
--------------
$ 8,876,684
==============
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH JUNE 30, 1997
REVENUES............................. $ --
COST OF OPERATIONS................... --
--------------
Gross profit.................... --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 852,205
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. 2,622,304
--------------
LOSS FROM OPERATIONS................. (3,474,509)
INTEREST EXPENSE..................... 11,701
--------------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES.............................. (3,486,210)
PROVISION FOR INCOME TAXES........... --
--------------
NET LOSS............................. $ (3,486,210)
==============
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, March 16, 1997.............. -- $ -- $ -- $ -- $ --
Issuance of Common Stock........ 242,839 243 2,622,418 -- 2,622,661
Net loss........................ -- -- -- (3,486,210) (3,486,210)
------- ------- ----------- ----------- -----------
BALANCE, June 30, 1997............... 242,839 $ 243 $ 2,622,418 $(3,486,210) $ (863,549)
======= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-15
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH JUNE 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (3,486,210)
Special compensation expense on
common stock issuance.......... 2,622,304
Decrease in receivable from The
Safe Seal Company, Inc. ....... 1,453,897
Increase in escrow deposit...... (2,000,000)
Increase in accounts payable and
accrued expenses............... 962,985
--------------
Net cash provided by
operating activities...... (447,024)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (30,717)
--------------
Net cash used in investing
activities................ (30,717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt... 2,000,000
Proceeds from the issuance of
common stock................... 357
Funding of deferred offering
costs.......................... (1,522,616)
--------------
Net cash provided by
financing activities...... 477,741
--------------
NET INCREASE IN CASH................. --
CASH, beginning of period............ --
--------------
CASH, end of period.................. $ --
==============
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
BACKGROUND
Innovative Valve Technologies, Inc. (the "Company" or "Invatec") was
established as a Delaware corporation on March 16, 1997, for the purpose of
creating the leading provider of comprehensive maintenance, repair and
value-added distribution services for industrial valves and other process-system
components in North America. Pursuant to a May 1997 agreement among The Safe
Seal Company, Inc. ("SSI"), subsidiaries of Philip Service Corp.
(collectively, "Philip") and a SSI shareholder and his affiliates, voting
control of SSI and the Company was transferred to a voting trustee who has
approved a reorganization of the capital structure of SSI and the Company such
that Invatec will become the sole stockholder of SSI by means of a merger (the
"SSI Merger") pursuant to which each outstanding share of SSI common stock
will be converted into 1/2 of a share of Invatec common stock ("Common Stock")
and the outstanding shares of SSI preferred stock, which are redeemable for a
total of $2.0 million plus accrued dividends, will be redeemed for shares of
Common Stock valued for this purpose at the initial offering price to the public
in the Company's initial public offering of Common Stock (the "Offering"). As
discussed in Note 9, Invatec has signed definitive agreements to acquire two
valve repair and distribution services companies concurrently with the closing
of the Offering.
INITIAL PUBLIC OFFERING
On July 18, 1997, Invatec filed a registration statement on Form S-1 with
the Securities and Exchange Commission relating to the Offering. An investment
in shares of Common Stock involves a high degree of risk, including, among
others, history of losses, absence of combined operating history, risks relating
to the Company's acquisition strategy and financing, reliance on customers in
cyclical industries, operating hazards and dependence on manufacturers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of 3 to 5 years.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
Invatec follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled. Invatec has recorded
a full valuation allowance against all deferred tax assets due to the
uncertainty of ultimate realizability. Accordingly, no income tax benefit has
been recorded for current year losses.
SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCE
The Company recorded a special non-cash compensation expense of
approximately $2.6 million related to the issuance of 242,839 shares of Common
Stock to six members of executive management and a related party to attract such
individuals and that party to effect the Offering (see Note 1). For financial
statement presentation purposes, these shares were valued at approximately
$10.80 per share.
SUPPLEMENTAL CASH FLOW INFORMATION
During the period from inception (March 16, 1997) through June 30, 1997,
the Company had non-cash activities consisting of the assumption of
approximately $6,777,000 of notes issued by SSI in connection with SSI's
acquisition of Plant Specialties, Inc. ("Plant Specialties") and assumption of
the indebtedness (including accrued interest) owed to Philip.
The Company did not pay taxes or interest during the period from inception
through June 30, 1997.
F-17
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses at June 30, 1997 consist of the
following:
Accrued offering costs............... $ 500,000
Accrued interest..................... 484,000
Accounts payable, trade.............. 246,854
Accrued compensation and benefits.... 150,000
Accrued insurance.................... 54,787
Other accrued expenses............... 27,344
------------
$ 1,462,985
============
4. DEBT:
In June 1997, Invatec entered into a funding arrangement with Philip
pursuant to which Philip has advanced funds to Invatec (the "Philip Advances")
to pay costs related to the Offering and Invatec has assumed SSI's obligation to
repay the Philip Advances and the related deferred offering costs funded with
the Philip Advances. Pursuant to this arrangement, $2,128,935 of short-term debt
and $484,000 of accrued financing charges incurred by SSI prior to the funding
arrangement were transferred to Invatec. The Philip Advances have been included
in short-term debt and bear interest at 8% per annum and may be converted into
Common Stock. The Philip Advances are due at the earliest of the closing of the
Offering, the abandonment of the Offering or May 31, 1998.
Long-term debt consists of a $853,186 note payable to a former stockholder
of Plant Specialties issued in connection with SSI's acquisition of Plant
Specialties. The note was assumed from SSI by Invatec in June 1997. The note
bears interest at 9.0% per annum and is secured by real estate. Principal and
interest is payable monthly and the note matures June 13, 2002.
5. CONVERTIBLE SUBORDINATED NOTES PAYABLE:
In June 1997, Invatec assumed the obligations of SSI respecting unsecured
convertible subordinated notes issued to former stockholders of Plant
Specialties in connection with SSI's acquisition of Plant Specialties. The notes
bear interest at 5.0% per annum and interest is payable quarterly. The principal
and any unpaid interest will mature and become due and payable on March 31,
2002. At the option of the holders, the notes may be converted into shares of
Common Stock at a price equal to 130% of the initial public offering price per
share in the Offering. The notes also are convertible into shares of Common
Stock at the option of the Company at the same price if the closing sale prices
of the Common Stock for a period of time beginning in 1999 exceed 150% of the
Offering per share price. The convertible subordinated notes issued by the
Company in the acquisition described in Note 7 have the same conversion terms.
6. CAPITAL STOCK AND STOCK OPTIONS:
COMMON STOCK
In connection with the organization and initial capitalization of Invatec,
Invatec issued and sold 242,839 shares of Common Stock in March and June 1997 to
certain members of its management and a related party for $357. For financial
statement presentation purposes, this Common Stock was valued at $10.80 per
share, resulting in a special non-cash compensation expense of $2,622,304.
PREFERRED STOCK
Invatec's charter authorizes the issuance of up to 5,000,000 shares of
preferred stock. As of June 30, 1997, no shares of preferred stock had been
issued.
F-18
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 INCENTIVE PLAN
The Company has adopted an incentive plan (the "Plan") that provides for
the granting or awarding of stock options and other performance-based awards to
key employees, nonemployee directors and independent contractors of the Company
and its subsidiaries. In general, the terms of the options awards (including
vesting schedules) granted after the Offering will be established by the
Compensation Committee of the Company's board of directors. In August 1997,
options to purchase 202,589 shares of Common Stock were granted to certain
members of management at an exercise price of $1.00 per share. The Company will
record a special non-cash non-recurring charge (presently estimated at
approximately $2.0 million) in the fiscal quarter ended September 30, 1997. As
of the Offering date, the Company anticipates that options to purchase
approximately 1.3 million shares of Common Stock will then be outstanding.
7. ACQUISITION OF STEAM SUPPLY:
In July 1997, Invatec acquired Steam Supply & Rubber Co., Inc. and three of
its affiliated companies (collectively, "Steam Supply") for total
consideration of $10.6 million, comprised of $2.7 million of cash, $2.8 million
aggregate principal amount of Invatec's seven-year 5.5% convertible subordinated
notes and the assumption of $5.1 million of debt and other non-current
liabilities.
On June 29, 1997, in connection with the acquisition of Steam Supply, the
Company borrowed $2.0 million from Philip and paid the proceeds into escrow
pursuant to the definitive agreement to purchase Steam Supply. The $2.0 million
is recorded as a current asset in the balance sheet as of June 30, 1997. The
note due to Philip bears interest at Philip's borrowing rate plus 10.0%
(approximately 18% at June 30, 1997) and is due at the date the Offering closes
or by May 31, 1998 if the Offering does not close earlier.
8. NEW ACCOUNTING PRONOUNCEMENT :
SFAS No. 123, "Accounting for Stock-Based Compensation," allows entities
to choose between a new fair-value-based method of accounting for employee stock
options or similar equity instruments and the current intrinsic-value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"). Entities electing to remain with the accounting in APB Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair value method of accounting had been applied. The Company will
provide pro forma disclosure of net income and earnings per share, as
applicable, in the notes to future consolidated financial statements.
9. ACQUISITIONS:
The Company has signed definitive agreements to acquire Industrial Controls
& Equipment, Inc. and three affiliated companies (collectively, "ICE/VARCO")
and Southern Valve Service, Inc. and one affiliated company (collectively,
"SVS"). The aggregate consideration the Company will pay in these acquisitions
is $11.1 million, comprised of $9.6 million in cash and assumed debt and $1.5
million in Common Stock valued for this purpose at the initial public offering
price per share in the Offering. The closings of these acquisitions are
conditioned on the completion of the Offering. The total consideration payable
in each acquisition is subject to an increase in total consideration contingent
on the operating results achieved in the first 12 months after acquisition. The
contingent payment for ICE/VARCO would consist of options to purchase 40,000
shares of Common Stock at an exercise price per share equal to the initial price
to the public in the Offering, while the contingent payment for SVS would be
payable in a combination of Common Stock and cash in an amount that is not
presently determinable.
10. SUBSEQUENT EVENT (UNAUDITED):
REVERSE STOCK SPLIT
In October 1997, Invatec effected a 0.68-for-one reverse stock split of
each share of Common Stock then outstanding. The accompanying financial
statements have been prepared as if such reverse split had been effected at
inception (March 16, 1997).
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Safe Seal Company, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Safe
Seal Company, Inc. (a Texas corporation) and subsidiaries, as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Safe Seal Company, Inc. and subsidiaries, as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 14, 1997
F-20
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------ JUNE 30,
1995 1996 1997
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 1,458,096 $ 396,637 $ 391,292
Accounts receivable, net of
allowance of $25,000, $25,000 and
$380,000......................... 485,911 535,647 9,616,538
Inventories........................ 17,480 36,140 6,313,959
Prepaid expenses and other current
assets........................... 45,477 111,638 1,761,186
-------------- -------------- -----------
Total current assets..... 2,006,964 1,080,062 18,082,975
PROPERTY AND EQUIPMENT, net............. 32,502 140,449 6,398,926
GOODWILL, net........................... -- -- 14,595,993
PATENT COSTS, net....................... 56,833 741,611 711,255
OTHER NONCURRENT ASSETS, net............ 12,346 325,993 3,640,605
-------------- -------------- -----------
$ 2,108,645 $ 2,288,115 $43,429,754
============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Short-term debt.................... $ -- $ -- $16,116,620
Current maturities of long-term
debt............................. -- -- 1,371,170
Accounts payable and accrued
expenses......................... 1,184,086 1,092,891 9,037,858
Other current liabilities.......... -- -- 602,959
-------------- -------------- -----------
Total current
liabilities........... 1,184,086 1,092,891 27,128,607
LONG TERM DEBT, net of current
maturities............................ -- 588,970 5,237,262
PAYABLE TO INNOVATIVE VALVE
TECHNOLOGIES, INC..................... -- -- 5,323,351
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 2,000,000 2,000,000 2,000,000
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value,
10,000,000 shares authorized,
2,865,902 shares, 2,963,838
shares and 4,838,669 issued and
outstanding...................... 28,659 29,638 48,386
Additional paid-in capital......... 983,246 1,270,315 8,199,643
Retained deficit................... (2,087,346) (2,693,699) (4,507,495)
-------------- -------------- -----------
Total stockholders'
equity (deficit)...... (1,075,441) (1,393,746) 3,740,534
-------------- -------------- -----------
$ 2,108,645 $ 2,288,115 $43,429,754
============== ============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 2,547,360 $ 2,852,356 $ 3,887,761 $ 1,606,068 $ 19,759,635
COST OF OPERATIONS...................... 1,270,788 1,583,940 2,375,245 900,546 13,494,613
----------- ------------ ----------- ----------- ------------
Gross profit................... 1,276,572 1,268,416 1,512,516 705,522 6,265,022
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,267,899 1,852,895 1,917,063 885,699 4,917,324
SPECIAL COMPENSATION EXPENSE ON COMMON
STOCK ISSUANCE........................ -- -- 38,048 -- 2,393,221
----------- ------------ ----------- ----------- ------------
Income (loss) from
operations................... 8,673 (584,479) (442,595) (180,177) (1,045,523)
OTHER INCOME (EXPENSE):
Patent defense costs................ (168,705) (880,068) -- -- --
Interest income (expense), net...... (7,048) 10,181 27,703 -- (998,111)
Other............................... (113,635) (50,126) 393 -- 2,243
----------- ------------ ----------- ----------- ------------
(289,388) (920,013) 28,096 -- (995,868)
----------- ------------ ----------- ----------- ------------
LOSS BEFORE INCOME TAXES................ (280,715) (1,504,492) (414,499) (180,177) (2,041,391)
PROVISION (BENEFIT) FOR INCOME TAXES.... -- -- -- -- (275,095)
----------- ------------ ----------- ----------- ------------
NET LOSS................................ $ (280,715) $ (1,504,492) $ (414,499) $ (180,177) $ (1,766,296)
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 2,463,424 $24,634 $ 268,801 $ (249,016) $ 44,419
Preferred stock dividends....... -- -- -- (12,000) (12,000)
Issuance of common stock........ 62,478 625 22,345 -- 22,970
Conversion of redeemable
preferred stock to common
stock......................... 51,000 510 149,490 -- 150,000
Net loss........................ -- -- -- (280,715) (280,715)
--------- ------- ----------- ----------- --------------
BALANCE, December 31, 1994........... 2,576,902 25,769 440,636 (541,731) (75,326)
Preferred stock dividends....... -- -- -- (41,123) (41,123)
Sale of common stock warrant.... -- -- 100,000 -- 100,000
Issuance of common stock........ 289,000 2,890 442,610 -- 445,500
Net loss........................ -- -- -- (1,504,492) (1,504,492)
--------- ------- ----------- ----------- --------------
BALANCE, December 31, 1995........... 2,865,902 28,659 983,246 (2,087,346) (1,075,441)
Preferred stock dividends....... -- -- -- (191,854) (191,854)
Issuances of common stock....... 121,736 1,217 356,831 -- 358,048
Retirement of stock............. (23,800) (238) (69,762) -- (70,000)
Net loss........................ -- -- -- (414,499) (414,499)
--------- ------- ----------- ----------- --------------
BALANCE, December 31, 1996........... 2,963,838 29,638 1,270,315 (2,693,699) (1,393,746)
Preferred stock dividend
(unaudited)................... -- -- -- (47,500) (47,500)
Issuances of common stock
(unaudited)................... 445,300 4,453 2,388,768 -- 2,393,221
Exercise of common stock
warrants (unaudited).......... 1,429,531 14,295 4,540,560 -- 4,554,855
Net loss (unaudited)............ -- -- -- (1,766,296) (1,766,296)
--------- ------- ----------- ----------- --------------
BALANCE, June 30, 1997 (unaudited)... 4,838,669 $48,386 $ 8,199,643 $(4,507,495) $ 3,740,534
========= ======= =========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (280,715) $ (1,504,492) $ (414,499) $ (180,177) $ (1,766,296)
Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities --
Depreciation and
amortization................ 27,179 28,525 31,183 22,364 469,200
Special compensation expense on
issuance of common stock.... -- -- 38,048 -- 2,393,221
(Gain) loss on sale of property
and equipment............... 13,196 (1,879) -- -- --
(Increase) decrease in --
Accounts receivable......... (87,683) (145,835) (49,736) (114,648) (1,741,839)
Inventories................. -- -- (13,660) 3,240 (761,987)
Prepaid expenses and other
current assets............ (23,767) 35,402 (66,161) (1,129) 1,186,376
Other noncurrent assets..... (39,544) -- (324,246) (1,773) (2,667,005)
Increase (decrease) --
Accounts payable and accrued
expenses.................. 399,318 493,084 (91,195) (437,293) 3,458,788
Payable to Innovative Valve
Technologies, Inc......... -- -- -- -- (1,453,897)
----------- ------------ ----------- ----------- ------------
Net cash provided by (used
in) operating
activities.............. 7,984 (1,095,195) (890,266) (709,416) (883,439)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (28,593) (7,530) (128,309) (18,430) (275,161)
Additions to patent costs.......... (75,570) (3,384) (46,030) -- --
Proceeds from sale of property and
equipment........................ 40,000 10,500 -- -- --
Proceeds from sale of
investments...................... 53,107 -- -- -- --
Business acquisitions, net of cash
acquired of $135,109............. -- -- -- -- (19,109,479)
----------- ------------ ----------- ----------- ------------
Net cash used in investing
activities.............. (11,056) (414) (174,339) (18,430) (19,384,640)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt................. 100,000 -- 265,000 -- 19,598,566
Repayments of debt................. (31,667) (93,333) -- -- (505,187)
Proceeds from sale/exercise of
common stock warrant............. -- 100,000 -- -- 1,216,855
Proceeds from sale of common
stock............................ -- 445,500 -- -- --
Stock repurchases.................. -- -- (70,000) -- --
Proceeds from sale of redeemable
preferred stock.................. -- 2,000,000 -- -- --
Preferred stock dividends.......... (12,000) -- (191,854) (49,300) (47,500)
----------- ------------ ----------- ----------- ------------
Net cash provided by (used
in) financing
activities.............. 56,333 2,452,167 3,146 (49,300) 20,262,734
----------- ------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH...... 53,261 1,356,558 (1,061,459) (777,146) (5,345)
CASH, beginning of period............ 48,277 101,538 1,458,096 1,458,096 396,637
----------- ------------ ----------- ----------- ------------
CASH, end of period.................. $ 101,538 $ 1,458,096 $ 396,637 $ 680,950 $ 391,292
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Safe Seal Company, Inc. (the "Company" or "SSI") was incorporated
in the State of Texas in January 1991 and is principally engaged in the business
of providing on-line leak sealing and valve maintenance and repair services to
industrial customers in the Gulf Coast area of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
REVENUE RECOGNITION
Revenue is recognized as products are sold and as services are performed.
CASH
Cash payments for interest during 1994, 1995 and 1996 were approximately
$7,000, $8,000 and $4,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM INFORMATION
The financial information for the six months ended June 30, 1996 and 1997
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
F-25
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCE
In 1996, the Company recorded a special compensation expense of $38,048
related to the issuance of its common stock, $0.01 par value (the "Common
Stock"), and options to purchase Common Stock under employee benefit programs.
See Note 8 for further discussion.
In the six months ended June 30, 1997, the Company recorded a special
non-cash compensation expense of approximately $2.4 million on common stock
issuance related to the issuance of 443,190 shares of Common Stock to three
members of executive management and to Computerized Accounting & Tax Services,
Inc. ("CATS"), a related party owned by Roger L. Miller (see Note 11), to
attract such individuals and CATS to effect the Offering (see Note 13). For
financial statement presentation purposes, these shares were valued at
approximately $5.40 per share.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. ACQUISITION OF THE SPIN SAFE CORPORATION, INC.:
In November 1996, the Company acquired The Spin Safe Corporation, Inc.
("Spin Safe") in exchange for 108,800 shares of Common Stock, valued at $2.94
per share, and noninterest-bearing notes payable of $400,000. The notes are due
in four equal annual installments beginning January 15, 1998. Additionally, the
Company entered into an agreement with the former stockholders of Spin Safe,
pursuant to which the Company will make royalty payments to them based on the
number of times in excess of a specified base the Safe SealE system is used by
the Company through 2011. The cost of this acquisition is recorded as patent
costs.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31
ESTIMATED ----------------------
USEFUL LIVES 1995 1996
------------ ---------- ----------
Vehicles............................. 5 years $ -- $ 5,904
Furniture and fixtures............... 3-5 years 41,423 126,262
Machinery and equipment.............. 5 years 17,180 54,746
---------- ----------
58,603 186,912
Less -- Accumulated
depreciation.................. (26,101) (46,463)
---------- ----------
Property and equipment, net..... $ 32,502 $ 140,449
========== ==========
F-26
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Balance, at beginning of year........ $ 25,000 $ 25,000 $ 25,000
Additions............................ -- -- --
Deductions........................... -- -- --
--------- --------- ---------
Balance, at end of year.............. $ 25,000 $ 25,000 $ 25,000
========= ========= =========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
--------------------------
1995 1996
------------ ------------
Accounts payable, trade.............. $ 278,457 $ 287,165
Accrued compensation and benefits.... 74,583 120,567
Accrued legal fees................... 593,311 170,696
Accrued dividends.................... 65,123 47,500
Accrued royalties.................... 56,833 70,117
Due to Philip Services Corp.
subsidiary ........................ -- 287,195
Other accrued expenses............... 115,779 109,651
------------ ------------
$ 1,184,086 $ 1,092,891
============ ============
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1996:
Revolving line of credit payable to a
bank, due June 30, 2002, with
interest due monthly at 1.25% over
cost (as defined) (6.75% at
December 31, 1996), secured by
assignment of all assets. The
available borrowing capacity at
December 31, 1996 was
$1,735,000......................... $ 265,000
Notes payable to former stockholders
of Spin Safe, with annual
installments of $100,000 beginning
January 15, 1998, non-interest
bearing, due January 15, 2001,
unsecured.......................... 323,970
----------
$ 588,970
==========
7. INCOME TAXES:
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1995 1996
----------- ----------- -----------
Statutory federal income tax
benefit............................ (34)% (34)% (34)%
Valuation allowance.................. 34 34 34
--- --- ---
Effective income tax rate............ 0% 0% 0%
=== === ===
F-27
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred tax assets consist of the following:
DECEMBER 31
--------------------------
1995 1996
------------ ------------
Current deferred tax assets.......... $ 135,741 $ 160,910
Noncurrent deferred tax assets....... 581,536 686,316
Valuation allowance.................. (717,277) (847,226)
------------ ------------
Total deferred tax
assets.................. $ -- $ --
============ ============
The Company records a valuation allowance for deferred tax assets when
management believes it is more likely than not the asset will not be realized.
Because of the Company's history of generating significant taxable losses, a
valuation allowance equal to its deferred tax assets has been established.
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
YEAR ENDED DECEMBER 31
--------------------------------------
1994 1995 1996
---------- ------------ ------------
Depreciation and amortization........ $ (15,235) $ 53,093 $ (2,520)
Net operating loss................... 74,051 304,600 107,301
Accrued expenses not deducted for
tax................................ -- 95,065 25,168
Change in valuation allowance........ (58,816) (452,758) (129,949)
---------- ------------ ------------
$ -- $ -- $ --
========== ============ ============
8. STOCKHOLDERS' EQUITY:
COMMON STOCK
In 1995, the Company implemented an employee benefit award program. Under
this program, the Company awarded 9,452 shares of Common Stock to employees. The
shares vested 50 percent at December 31, 1996, and the remainder were to become
fully vested on December 31, 1997. The Company recorded compensation expense,
equal to the fair value of the shares, on the date the shares vested. During
1996, 1,632 shares were forfeited by employees. In 1996, the Company recorded
non-cash compensation expense of $11,500 for the 3,910 shares that vested
related to this program, which was discontinued in 1997, and all remaining
unvested shares were cancelled.
STOCK OPTIONS
In 1996, the Company began a management stock option program that was
discontinued in 1997. Under this program, the Company granted both shares of
Common Stock and options to purchase shares of Common Stock to certain members
of management. The options vested monthly and were exercisable at any time
following the six-month period ending June 30 or December 31 in which the
options were earned. The Company had reserved 400,000 shares of Common Stock for
issuance in this program. During 1996, the Company granted 9,026 shares of
Common Stock and options to purchase 143,798 shares of Common Stock. The options
had an exercise price of $5.00 per share and are exercisable through July 1,
2001. In 1996, the Company recorded non-cash compensation expense of $26,548 for
the 9,026 shares issued with a fair market value of $2.94 per share. No
compensation expense was recorded for the options granted in 1996 because their
exercise price exceeded the fair market value of the underlying shares ($2.94
per share). Prior to 1996, the Company had, from time to time, granted options
to key employees at or above the market value
F-28
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Common Stock. The options granted had exercise prices ranging from $2.50
to $10.00 per share. All but 100,000 options expired in 1996. The remaining
options were exercised in June 1997.
The Company accounts for options by applying APB Opinion No. 25, under
which no compensation expense has been recognized. The Company's pro forma
compensation expense is zero as options were determined to be without value
under SFAS No. 123, "Accounting for Stock-Based Compensation," using the
minimum value option method with the following assumptions, as prescribed by
SFAS No. 123:
Remaining life.......................... 4.5 years
Exercise price.......................... $5.00/share
Risk-free rate of return................ 7%
A summary of the stock options at December 31, 1996 and changes during the
three years then ended is presented in the table and narrative below:
WEIGHTED-
SHARES UNDER AVERAGE
OPTION EXERCISE PRICE
------------- ---------------
Balance at December 31, 1993......... 27,000 $ 10.00
Granted......................... 215,000 6.16
-------------
Balance at December 31, 1994......... 242,000 6.59
Granted......................... -- --
Exercised....................... -- --
-------------
Balance at December 31, 1995......... 242,000 6.59
Granted......................... 143,798 5.00
Exercised....................... -- --
Cancelled....................... (142,000) 9.47
-------------
Balance at December 31, 1996......... 243,798 3.97
=============
Available for grant at December 31,
1996................................. 256,202
=============
Shares exercisable at December 31,
1996................................. 243,798 3.97
=============
The options outstanding at December 31, 1996 have exercise prices from
$2.50 to $5.00 per share, with a weighted average exercise price of $3.97 and a
weighted average remaining contractual life of three years. All these options
are exercisable.
WARRANTS
In 1995, the Company sold to a subsidiary of Philip Services Corp.
(collectively with its subsidiaries, "Philip") a warrant entitling Philip to
purchase newly issued shares of Common Stock in such number as would equal 35
percent of the outstanding Common Stock, on a fully diluted basis, at $3.68 per
share. During 1996, the Company granted Philip a warrant to purchase additional
newly issued shares of Common Stock in such number as would equal 1.5 percent of
outstanding Common Stock, on a fully diluted basis, at $3.68 per share. The
warrants were exercisable, at Philip's discretion, through January 8, 1999. The
Company agreed to adjust the warrants' exercise price to $3.16 in return for
accelerated exercise and on January 31, 1997, Philip exercised the warrants.
Consideration for the exercise of the warrants consisted of the issuance of
approximately $3.3 million of promissory notes issued by Philip (the "Philip
Notes") and cash of approximately $1,216,855 paid during the six months ended
June 30, 1997. The exercise of these warrants and issuance of the promissory
notes occurred concurrently with the Company's purchase of Harley (see Note 12),
in connection with which the Company assigned the Philip Notes to the sellers of
Harley.
F-29
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company granted a consultant a warrant entitling its holder to
purchase 15,000 shares of Common Stock at $10.00 per share. The warrant is
exercisable, at the option of its holder, through the year 2000. The consultant
subsequently became an officer of Philip and a director of the Company.
STOCK REPURCHASES
In December 1996, the Company purchased 23,800 shares of Common Stock from
certain stockholders for total cash consideration of $70,000 ($2.94 per share).
The shares repurchased by the Company were subsequently canceled.
9. REDEEMABLE PREFERRED STOCK:
In 1995, the Company authorized the issuance of 1,000,000 shares of
preferred stock with a par value of $0.01 per share. Of the authorized shares,
20,000 were designated as Class A redeemable preferred stock (the "Class A
Preferred Stock"). Holders of Class A Preferred Stock are entitled to receive
preferential dividends, in cash or Common Stock (with an agreed value of $1.84
per common share), at an annual rate of $9.50 per share. The Company is required
to redeem the Class A Preferred Stock at $100 per share by October 12, 1999. The
Company sold the Class A Preferred Stock in 1995 for $2,000,000 to Philip.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse space, office facilities and vehicles under
noncancelable leases. Rental expense for 1994, 1995 and 1996 was approximately
$91,700, $90,300 and $162,400, respectively. The following represents future
minimum rental payments under noncancelable operating leases:
Year ending December 31 --
1997............................... $ 133,900
1998............................... 102,300
1999............................... 52,400
2000............................... 28,800
2001............................... 24,000
Thereafter......................... --
----------
$ 341,400
==========
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal actions. Management does not believe that the outcome of these
legal actions will have a material effect on the Company's financial position or
results of operations.
11. CERTAIN TRANSACTIONS:
The Company has had a management agreement with CATS, an entity related by
common ownership. Management fee expense for 1994, 1995 and 1996 was
approximately $119,000, $120,000 and $108,000, respectively. This agreement was
terminated in 1997.
12. ACQUISITION OF HARLEY:
Effective January 31, 1997, the Company acquired all the outstanding stock
of Harley Industries, Inc. ("Harley") in a purchase transaction. Concurrent
with the purchase of Harley, the Company sold a division of Harley ("Harley
Equipment") for $1.9 million in cash and a receivable of $1.9 million, subject
to final adjustment. The total purchase price for Harley was $14.0 million of
cash and assumed debt, including a contingent cash payment of $1.0 million due
upon the completion of the Offering and $3.3 million of notes
F-30
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued by Philip (see Note 8) and excluding $3.8 million in cash and notes
received from the sale of Harley Equipment. Harley is principally engaged in the
repair and distribution of valves, gauges, measurement instruments and related
parts for chemical manufacturing and power industries located primarily in the
midwestern and southeastern United States.
13. SUBSEQUENT EVENTS (UNAUDITED):
REVERSE STOCK SPLIT
In October 1997, the Company effected a 0.68-for-one reverse stock split of
the outstanding Common Stock. The accompanying financial statements have been
prepared as if such reverse split had been effected as of the beginning of the
earliest period presented.
ACQUISITIONS
Effective February 28, 1997, SSI acquired all the outstanding stock of GSV,
Inc. ("GSV") in a purchase transaction for approximately $7.3 million of cash
and debt assumed. GSV machines, repairs and sells valves and valve components in
Florida.
Effective May 31, 1997, SSI acquired all the outstanding stock of Plant
Specialties, Inc. ("Plant Specialties") and certain assets and real estate
owned by a former stockholder of Plant Specialties in a purchase transaction for
total consideration of $7.6 million, which consisted of $3.4 million in cash and
assumed debt, the issuance of $3.3 million of convertible notes and the issuance
of a $0.9 million note secured by real property. In June 1997, Innovative Valve
Technologies, Inc. ("Invatec"), a related party (see below), assumed the
Company's obligations on these notes. Plant Specialties sells and repairs valves
and instrumentation and provides engineering services to petrochemical and
oilfield industries in Louisiana and the Gulf Coast area.
The following table reflects, on an unaudited pro forma basis, the combined
operations of SSI, Harley, GSV and Plant Specialties, as if the acquisition of
these companies (the "Acquisitions") had taken place on January 1, 1996.
Adjustments have been made to reflect the accounting basis used in recording the
Acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have resulted had the Acquisitions taken effect on January 1, 1996,
that have resulted since the date of acquisition or that may result in the
future.
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
------------ --------------
(UNAUDITED AND IN THOUSANDS)
Revenues............................. $ 45,670 $ 28,337
Income before income taxes........... 2,551 1,884
Net income........................... 1,036 1,074
To partially fund the Acquisitions, the Company entered into two separate
credit facilities (the "Facilities"). One of the Facilities provides for loans
of approximately $17.5 million, consisting of $7.5 million of fixed-term loans
($4.8 million of which have been guaranteed by Philip) and up to $10.0 million
of revolving credit loans keyed to a borrowing base of, and secured by, accounts
receivable and inventories. The other Facility is a $7.0 million advancing line
of credit which has been guaranteed by Philip. As of June 30, 1997,
approximately $19.1 million was outstanding under the Facilities, including
approximately $1.4 million of current maturities. The Company anticipates that
the Facilities will be replaced with a new credit facility after the Merger and
Offering described below.
RELATIONSHIP WITH INVATEC
In March 1997, certain holders of the outstanding Common Stock organized
Invatec to become the Company's parent corporation by means of a merger (the
"Merger") to be effected concurrently with the
F-31
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
closing by Invatec of an initial public offering (the "Offering") of its
common stock (the "Invatec Common Stock"). As a result of the Merger, the
outstanding Class A Preferred Stock and Common Stock will be converted into the
right to receive shares of Invatec Common Stock.
Since May 1997, the Company and Invatec have been under the common control
of a voting trustee pursuant to voting trust agreements covering a majority of
the outstanding Common Stock and most outstanding shares of Invatec Common
Stock.
RELATIONSHIP WITH PHILIP
In 1996, Philip agreed to make certain advances (the "Philip Advances")
to the Company to enable the Company, or its successors, to pursue a possible
initial public offering. At December 31, 1996, the Company owed Philip $287,195
under this agreement, and the Company's other noncurrent assets included
$259,929 representing deferred offering costs funded with the Philip Advances.
As a result of Philip's financial support of the Company'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 has advanced funds to Invatec to pay costs related to
the Offering and Invatec has assumed the Company's obligation to repay the
Philip Advances and the related deferred offering costs funded with the Philip
Advances. Pursuant to that agreement, $2,128,935 of short-term debt and $484,000
of accrued financing charges were transferred to Invatec.
14. SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION:
Concurrently with the Merger and the closing of the Offering, Invatec will
acquire in separate purchase transactions (i) Industrial Controls & Equipment,
Inc. and three affiliated companies (collectively, "ICE/VARCO") and (ii)
Southern Valve Service, Inc. and one affiliated company (collectively, "SVS").
In July 1997, Invatec acquired in a purchase transaction Steam Supply & Rubber
Co., Inc. and three of its affiliates (collectively, "Steam Supply" and,
together with ICE/VARCO, SVS, Harley, GSV and Plant Specialties, the "Acquired
Businesses"). For financial statement presentation purposes, the Company will
be the "accounting acquirer" of the Acquired Businesses, and the following
supplemental unaudited pro forma combined financial information gives effect to
the Transactions (as defined in "Basis of Presentation" in the Unaudited Pro
Forma Combined Financial Statements elsewhere in this Prospectus) as if they had
taken place on January 1, 1996 and as restated to 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 combined results of operations
for the 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
and (ii) a new basis of accounting was established to record the purchase of the
Acquired Businesses under the purchase method of accounting.
SIX MONTHS ENDED
JUNE 30
YEAR ENDED --------------------
DECEMBER 31, 1996 1996 1997
----------------- --------- ---------
(UNAUDITED AND IN THOUSANDS)
Revenues............................. $77,508 $ 36,603 $ 46,701
Cost of operations................... 54,613 25,116 32,191
----------------- --------- ---------
Gross profit......................... 22,895 11,487 14,510
Selling, general and administrative
expenses........................... 19,307 9,334 11,707
----------------- --------- ---------
Income from operations............... $ 3,588 $ 2,153 $ 2,803
================= ========= =========
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harley Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Harley
Industries, Inc. and subsidiaries as of October 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended October 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Harley Industries, Inc. and
subsidiaries as of October 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2, in December 1996 the Company's stockholders entered
into agreements for the sale of the Company's outstanding common stock.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 17, 1997
(January 31, 1997 as to Notes 2 and 7)
F-33
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
------------------------------ JANUARY 31
1995 1996 1997
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 21,738 $ 37,250 $ 39,250
Accounts receivable, less allowance
for doubtful accounts of
$100,000, $117,000 and
$172,000......................... 3,394,506 4,391,442 3,487,283
Inventories........................ 3,612,653 3,258,243 3,602,686
Prepaid expenses and other current
assets........................... 40,141 33,358 172,266
Deferred income tax assets......... 151,000 315,000 314,000
-------------- -------------- -----------
Total current assets.......... 7,220,038 8,035,293 7,615,485
NET ASSETS OF DISCONTINUED OPERATIONS... 3,876,294 3,114,979 3,832,303
PROPERTY, PLANT AND EQUIPMENT -- Net.... 1,731,368 2,630,489 2,511,864
OTHER ASSETS............................ 1,710,279 1,825,809 1,823,937
-------------- -------------- -----------
$ 14,537,979 $ 15,606,570 $15,783,589
============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,731,291 $ 2,424,408 $ 1,556,354
Current portion of long-term
debt............................. 445,528 477,309 480,166
Current portion of non-compete
obligations...................... 142,617 151,504 141,650
-------------- -------------- -----------
Total current liabilities..... 2,319,436 3,053,221 2,178,170
LONG-TERM DEBT.......................... 7,653,798 8,245,087 9,597,179
OBLIGATIONS UNDER NON-COMPETE
AGREEMENTS............................ 267,490 112,809 84,969
-------------- -------------- -----------
Total liabilities............. 10,240,724 11,411,117 11,860,318
-------------- -------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 stated value:
Authorized, 3,000,000 shares;
issued and outstanding,
780,428 shares................ 7,804 7,804 7,804
Additional paid-in capital......... 5,555,273 5,555,273 5,555,273
Accumulated deficit................ (1,265,822) (1,367,624) (1,639,806)
-------------- -------------- -----------
Total stockholders' equity.... 4,297,255 4,195,453 3,923,271
-------------- -------------- -----------
$ 14,537,979 $ 15,606,570 $15,783,589
============== ============== ===========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31 JANUARY 31
---------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 16,621,198 $ 18,990,013 $ 21,391,102 $ 4,245,384 $ 5,987,992
COST OF OPERATIONS...................... 12,325,705 14,024,693 15,447,669 3,246,598 4,415,807
------------ ------------ ------------ ----------- -----------
Gross profit........................ 4,295,493 4,965,320 5,943,433 998,786 1,572,185
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,530,176 4,383,840 5,563,334 1,138,037 1,857,531
------------ ------------ ------------ ----------- -----------
Income (loss) from operations....... (234,683) 581,480 380,099 (139,251) (285,346)
INTEREST EXPENSE........................ 408,518 539,215 527,188 127,464 152,660
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................... (643,201) 42,265 (147,089) (266,715) (438,006)
PROVISION (CREDIT) FOR INCOME TAXES..... (270,000) 15,000 (57,000) (104,000) (170,800)
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ (373,201) 27,265 (90,089) (162,715) (267,206)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF PROVISION (BENEFIT)
FOR TAXES OF $180,800, $35,000,
$(9,000), $4,145 and $(3,181)......... 265,044 58,719 (11,713) 5,495 (4,976)
------------ ------------ ------------ ----------- -----------
NET INCOME (LOSS)....................... $ (108,157) $ 85,984 $ (101,802) $ (157,220) $ (272,182)
============ ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1993............ 786,428 $7,864 $ 5,781,034 $ (1,243,649) $ 4,545,249
Purchase and retirement of
treasury stock................ (6,000) (60) (30,761) -- (30,821)
Capital distributions........... -- -- (60,000) -- (60,000)
Net loss........................ -- -- -- (108,157) (108,157)
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1994............ 780,428 7,804 5,690,273 (1,351,806) 4,346,271
Capital distributions........... -- -- (135,000) -- (135,000)
Net income...................... -- -- -- 85,984 85,984
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1995............ 780,428 7,804 5,555,273 (1,265,822) 4,297,255
Net loss........................ -- -- -- (101,802) (101,802)
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1996............ 780,428 7,804 5,555,273 (1,367,624) 4,195,453
Net loss (Unaudited)............ -- -- -- (272,182) (272,182)
--------- ------ ------------ -------------- -------------
BALANCE, JANUARY 31, 1997
(Unaudited)........................ 780,428 $7,804 $ 5,555,273 $ (1,639,806) $ 3,923,271
========= ====== ============ ============== =============
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31 JANUARY 31
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
------------ ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ (108,157) $ 85,984 $ (101,802) $ (157,220) $ (272,182)
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Discontinued operations........... (265,044) (58,719) 11,713 (5,495) 4,976
Depreciation and amortization..... 493,708 519,793 535,212 119,042 156,135
(Gain) loss on sale of property,
plant and equipment............ -- 610 (15,187) -- --
Deferred taxes.................... (214,000) 15,000 (166,000) -- 1,000
Changes in operating assets and
liabilities:
Accounts receivable............ (558,983) (465,426) (996,936) 1,176,760 904,159
Inventories.................... (80,862) 120,375 322,954 182,579 (344,443)
Prepaid expenses and other
current assets............... 35,680 31,060 6,783 (100,565) (138,908)
Other non-current assets....... -- (22,620) 7,870 1,166 (37,961)
Accounts payable and accrued
expenses..................... 44,271 237,673 693,117 (918,162) (868,054)
------------ ------------- ------------- ------------ ------------
Net cash provided by (used
in) operating activities
of:
Continuing operations...... (653,387) 463,730 297,724 298,105 (595,278)
Discontinued operations.... (150,395) (264,084) 669,702 (11,007) (722,301)
------------ ------------- ------------- ------------ ------------
Net cash provided by
(used in) operating
activities............ (803,782) 199,646 967,426 287,098 (1,317,579)
------------ ------------- ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business................ -- -- (1,382,470) -- --
Capital expenditures................ (488,195) (156,373) (73,694) (6,894) (1,275)
Proceeds from sale of property,
plant, and equipment.............. -- 23,952 26,974 4,871 3,599
------------ ------------- ------------- ------------ ------------
Net cash used in investing
activities................... (488,195) (132,421) (1,429,190) (2,023) 2,324
------------ ------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreements....... 1,126,050 168,233 1,071,827 (250,000) 1,354,949
Principal payments on other
long-term debt.................... (1,595,682) (363,045) (448,757) -- --
Borrowings under term loan
agreements........................ 1,988,573 400,000 -- -- --
Principal payments on non-compete
obligations....................... (131,001) (138,175) (145,794) (35,656) (37,694)
Purchase and retirement of treasury
stock............................. (30,821) -- -- -- --
Capital distributions............... (60,000) (135,000) -- -- --
------------ ------------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities......... 1,297,119 (67,987) 477,276 (285,656) 1,317,255
------------ ------------- ------------- ------------ ------------
INCREASE (DECREASE) IN CASH............. 5,142 (762) 15,512 (581) 2,000
CASH, BEGINNING OF PERIOD............... 17,358 22,500 21,738 21,738 37,250
------------ ------------- ------------- ------------ ------------
CASH, END OF PERIOD..................... $ 22,500 $ 21,738 $ 37,250 $ 21,157 $ 39,250
============ ============= ============= ============ ============
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994, 1995, AND 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Harley
Industries, Inc. (the "Company") and its operative divisions, Harley Equipment
and Harley Valve and Instrument Company ("Harley Valve"), and other minor
subsidiaries. All material intercompany profits, transactions and balances have
been eliminated.
DESCRIPTION OF BUSINESS
The Company conducts its business activities through two operating
divisions, Harley Equipment and Harley Valve. Harley Equipment sells, customizes
and repairs engines, industrial vehicles, pumps and related parts. Harley Valve
customizes, repairs, tests and sells valves, gauges, measurement instruments and
related parts. The Company's principal customers are in the aircraft, chemical
manufacturing and power industries located primarily in the midwestern and
southeastern United States. The majority of sales of products and service
billings are made on account to customers based on pre-approved unsecured credit
terms determined by the Company. Allowances for uncollectible accounts are
established based on several factors which include, but are not limited to,
analysis of specific customers, historical trends, current economic conditions
and other information.
BASIS OF PRESENTATION
Due to the transactions described in Note 2, the accompanying consolidated
financial statements reflect the Company's Harley Equipment division as a
discontinued operation.
CASH
Cash consists of cash on hand and on deposit in banks.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories not expected to be sold or utilized within one year are
recorded at estimated net realizable values and are included in the financial
statements as non-current assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are reported at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method based on
the estimated useful lives of the related assets, which are 15 to 30 years for
buildings, 7 years for machinery and equipment, 3 to 5 years for furniture and
fixtures and 3 years for other assets. During 1996 the Company determined the
estimated useful lives of certain of its buildings should be extended from 15
years to 30 years. The effect of this change in estimate was to decrease
depreciation expense and the net loss for the year ended October 31, 1996 by
approximately $52,000 and $31,200, respectively.
INTANGIBLE ASSETS
Intangible assets are reported at cost, net of accumulated amortization.
The costs of non-compete agreements entered into in connection with acquisitions
of businesses are amortized on the straight-line basis over their ten- and
five-year terms. Other intangible assets consist of the excess of cost over the
fair value of the net assets of acquired businesses, which is amortized on the
straight-line basis over 40 years. Management periodically evaluates the
recoverability of intangible asset carrying values based on projected operations
and other relevant factors of the acquired businesses. No valuation reserves
have been provided as a result of these evaluations. Amortization expense was
$171,720, $179,220, and $172,426 for the years ended October 31, 1994, 1995, and
1996, respectively.
F-38
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARD
The Company has adopted, effective November 1, 1995, the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Accordingly, in the event that facts and circumstances indicate that property
and equipment, and intangible or other assets, may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is necessary. Adoption of this standard did not have
a material effect on the financial position or results of operations of the
Company.
REVENUE RECOGNITION
Revenue on sales of products is recognized upon shipment to customers.
Revenue on service work is recognized upon completion of the service.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Under FAS 109, deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenue and expenses during the reporting period. Actual
results will be determined based on the outcome of future events and could
differ from the estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the three months ended January 31, 1996 and
1997 has not been audited by independent auditors. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
2. SUBSEQUENT EVENTS AND DISCONTINUED OPERATIONS
In December 1996, the Company's stockholders entered into agreements with
The Safe Seal Company, Inc. ("Safe Seal") under which Safe Seal acquired 100%
of the outstanding common stock of the Company effective January 31, 1997 for
cash and notes of approximately $8,600,000, including a $1,000,000 cash payment
due upon the successful completion of a public stock offering by Safe Seal or
its successor company. Concurrent with the acquisition, Safe Seal entered into
an agreement to transfer certain assets and certain liabilities to Harley
Equipment and sell the stock of Harley Equipment for cash and notes to an
employee/minority stockholder of the Company. The Company's primary bank debt,
which was recorded on the records of Harley Equipment, was transferred to Harley
Valve and refinanced by Safe Seal (Note 7) in conjunction with the sale and
purchase transactions described above. The ultimate Harley Equipment purchase
price, estimated to be $3,100,000 to $3,800,000, will be based on the historical
carrying values of such assets and liabilities as of January 31, 1997 and is
subject to adjustment by the parties. For financial
F-39
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting purposes, the net assets, results of operations and cash flows of
Harley Equipment are included in the Company's consolidated financial statements
as discontinued operations. Harley Equipment had revenues of $10,240,000,
$10,318,000, and $11,301,000 for the years ended October 31, 1994, 1995, and
1996, respectively. Net assets of these discontinued operations at October 31,
1995 and 1996 are as follows:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Current assets.......................... $ 3,245,417 $ 3,581,497
Property, plant and equipment -- net.... 630,563 583,052
Other assets............................ 751,241 635,227
------------ ------------
Total assets.................. 4,627,221 4,799,776
Current liabilities..................... 750,927 1,684,797
------------ ------------
Net assets.................... $ 3,876,294 $ 3,114,979
============ ============
This historical financial information may not necessarily be indicative of
the conditions that would have existed if Harley Equipment had been operated as
an unaffiliated entity.
Interest expense has been allocated to discontinued operations based on the
ratio of net assets of discontinued operations to consolidated net assets.
Interest expense of $163,431, $245,057, and $208,491 has been allocated to
discontinued operations in 1994, 1995, and 1996, respectively. Interest payments
for the Company were $552,095, $787,795, and $735,632 in 1994, 1995, and 1996,
respectively. In addition, certain additional compensation of $475,000 (Note
13), which will be paid from the assets of Harley Equipment, has been allocated
to discontinued operations.
The Company's stockholders have indemnified Safe Seal for various
contingencies, including environmental and income tax matters. The stockholders
have also entered into agreements not-to-compete with Safe Seal.
3. PURCHASE OF VALVE BUSINESS
Effective June 4, 1996, the Company acquired certain assets of Henze
Services, Inc. for cash and direct acquisition costs of $1,382,470. The assets
acquired consisted of six branches primarily engaged in repair and servicing of
used valves and related products. Management subsequently consolidated two
locations into the operations of existing Harley Valve facilities. The
acquisition was accounted for using purchase accounting. The purchase price was
allocated to equipment acquired based on independent appraisals. In conjunction
with the acquisition, an escrow fund of $150,000 has been established pending
resolution of certain matters. The escrow fund is included in other noncurrent
assets pending its resolution. The results of operations of the Henze locations
are included in the accompanying consolidated statement of operations from the
acquisition date. The following pro forma information has been prepared assuming
that this acquisition had taken place as of November 1, 1994. The pro forma
information includes adjustments for interest expense that would have been
incurred to finance the purchase, depreciation based on the purchase price
allocation, and related income tax effects. The pro forma financial information
is not necessarily indicative of the results of operations that would have been
reported had the transaction been effected on November 1, 1994 (000's omitted).
YEAR ENDED OCTOBER 31
---------------------
1995 1996
--------- ---------
Revenues................................ $ 33,557 $ 27,382
Loss from continuing operations......... (396) (381)
Net loss................................ (337) (393)
F-40
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Gauges, valves, measurement instruments
and related parts..................... $ 3,883,361 $ 3,461,662
Work in process......................... -- 98,745
------------ ------------
3,883,361 3,560,407
Less: amount classified as non-current
assets................................ 270,708 302,164
------------ ------------
Inventories classified as current
assets................................ $ 3,612,653 $ 3,258,243
============ ============
Inventories are stated net of valuation reserves of $295,000 and $374,000
at October 31, 1995 and 1996, respectively. Management estimates that
inventories of $270,708 and $302,164 at October 31, 1995 and 1996, respectively,
are in excess of Harley Valve's current sales and service work requirements.
Such inventories include used valves, replacement parts and other items which
are reported as non-current assets. Management has developed programs to reduce
these inventories to desired levels over the near term and believes the carrying
values of such inventories, net of valuation reserves, will ultimately be
recovered.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
OCTOBER 31
------------------------------
1995 1996
-------------- --------------
Land.................................... $ 347,625 $ 347,625
Buildings............................... 1,027,956 1,008,375
Machinery and equipment................. 1,726,616 3,017,651
Furniture and fixtures.................. 361,957 328,169
Other................................... 282,398 282,264
-------------- --------------
3,746,552 4,984,084
Less accumulated depreciation........... (2,015,184) (2,353,595)
-------------- --------------
$ 1,731,368 $ 2,630,489
============== ==============
Depreciation expense was $321,988, $340,573, and $362,786 for the years
ended October 31, 1994, 1995, and 1996, respectively.
F-41
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
Other assets consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Non-current inventories, net............ $ 270,708 $ 302,164
Non-compete agreements, net of
accumulated amortization of $389,097
and $542,510.......................... 385,918 232,505
Other intangible assets, net of
accumulated amortization of $192,398
and $211,411.......................... 733,033 714,020
Escrow fund............................. -- 150,000
Other non-current assets................ 22,620 47,120
Deferred income tax assets.............. 298,000 380,000
------------ ------------
$ 1,710,279 $ 1,825,809
============ ============
7. DEBT
Debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Revolving credit agreement.............. $ 5,889,000 $ 6,960,827
Term note agreement; interest at New
York prime rate plus .75% (9% at
October 31, 1996), payable in monthly
installments of $40,821 through April
1, 2000 when the remaining balance is
due................................... 1,493,806 1,127,719
Term note agreement; interest at New
York prime rate plus .75% (9% at
October 31, 1996), payable in monthly
installments of $7,734 through June 1,
1996 and $5,067 through April 1, 2000
when the remaining balance is due..... 447,566 407,695
Note payable to bank; interest at the
bank's base rate plus 1.5% (9.75% at
October 31, 1996), payable in monthly
installments of $2,020 through October
2000 when the remaining balance is
due; secured by first mortgage on land
and building with a carrying value of
$316,000.............................. 186,380 154,452
Note payable to individual; interest at
9%, payable in monthly installments
through October 2001; secured by real
estate with a carrying value of
$177,000.............................. 82,574 71,703
------------ ------------
8,099,326 8,722,396
Less current portion of long-term
debt.................................. (445,528) (477,309)
------------ ------------
Long-term debt.......................... $ 7,653,798 $ 8,245,087
============ ============
REVOLVING CREDIT AND TERM NOTE AGREEMENT
In May 1995, the Company restructured its borrowing facilities and executed
an amendment to its revolving credit and term note agreement (the "Agreement")
with a bank. The amended Agreement provides for two term notes, original
principal amounts totaling $2,102,356, and borrowings under a revolving facility
to the lesser of $7,000,000 or the Company's borrowing base (as defined) of
qualified accounts receivable and inventories. In July 1996, the Company
increased the borrowings under the revolving facility up to the lesser of
$7,500,000 or the Company's borrowing base. At October 31, 1996, remaining
borrowing capacity under the revolving facility was $539,000. The revolving
facility provides for
F-42
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest at the New York prime rate plus .625% (8.875% at October 31, 1996), and
is due for renewal on March 1, 1997. The assets of the Company and 681,506
shares of Company common stock are pledged as collateral under the Agreement.
The Agreement contains various restrictive financial covenants including
maintaining net worth of $4.1 million, working capital of $3 million, a current
ratio of 1.25 to 1.0, maximum liabilities to tangible net worth of 3.25 to 1.0,
and minimum cash flow, as defined, of 1.4 to 1.0. In addition, the agreement
prohibits dividends, limits salaries and bonuses and requires bank consent on
ownership changes. As of October 31, 1996, the Company was not in compliance
with the working capital, current ratio, liabilities to net worth or cash flow
financial covenants, exceeded the salary and bonus limits and had entered into
agreements for ownership changes as described in Note 2. The bank has
temporarily waived these covenant violations contingent upon the transfer of
ownership.
The borrowings under the Company's revolving credit agreement and term
notes were repaid on January 31, 1997 in conjunction with the transfer of
ownership and replaced with bank debt issued by The Safe Seal Company, Inc. (See
Note 2). The borrowings under the Company's revolving credit agreement and term
notes have been classified based on their original maturities as of October 31,
1996 in the accompanying consolidated financial statements.
Principal payments on long-term debt (based on the original maturities) and
non-compete obligations (Note 8) are as follows:
YEAR ENDING LONG-TERM NON-COMPETE
OCTOBER 31 DEBT OBLIGATIONS TOTAL
- --------------------------------- ---------- ------------- ------------
1997........................... $ 477,309 $ 151,504 $ 628,813
1998........................... 7,482,904 86,537 7,569,441
1999........................... 366,957 15,255 382,212
2000........................... 379,872 11,017 390,889
2001........................... 15,354 -- 15,354
---------- ------------- ------------
$8,722,396 $ 264,313 $ 8,986,709
========== ============= ============
8. OBLIGATIONS UNDER NON-COMPETE AGREEMENTS
In connection with the acquisitions of businesses, Harley Valve assumed
certain obligations under non-compete agreements and entered into additional
agreements whereby the former owners agreed not to compete with Harley Valve for
a five-year period. The agreements require monthly payments totaling $13,508 at
various maturities through 2000. At October 31, 1995 and 1996, the obligations
consist of the following:
1995 1996
------------ ------------
Total obligations, net of imputed
interest of $22,608 and $13,577
at 6% at October 31, 1995 and 1996,
respectively.......................... $ 410,107 $ 264,313
Current portion......................... (142,617) (151,504)
------------ ------------
Long-term portion....................... $ 267,490 $ 112,809
============ ============
F-43
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes associated with continuing
operations consists of the following:
YEAR ENDED OCTOBER 31
-----------------------------------
1994 1995 1996
------------ --------- ----------
Current:
Federal............................ $ (42,000) $ -- $ 29,000
State.............................. (14,000) -- 7,000
------------ --------- ----------
(56,000) -- 36,000
Deferred expense (benefit).............. (214,000) 15,000 (93,000)
------------ --------- ----------
Provision (benefit) for income taxes.... $ (270,000) $ 15,000 $ (57,000)
============ ========= ==========
The provisions (benefits) for income taxes vary from federal statutory
rates on earnings before income taxes due to the following:
YEAR ENDED OCTOBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Income tax provision (benefit) at U.S.
Federal statutory rate, considering
surtax exemptions..................... (34.0)% 34.0% (34.0)%
State taxes, net of Federal tax
benefit............................... (5.0)% 5.0% (5.0)%
Amortization of goodwill................ 1.0% -- --
Other, net.............................. (4.0)% (3.5)% --
------- ------- -------
Effective tax rate...................... (42.0)% 35.5% (39.0)%
======= ======= =======
The sources of deferred income tax assets consist of available net
operating loss carryforwards and temporary differences between the financial and
tax bases of assets and liabilities, as follows:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Loss carryforwards................... $ 72,000 $ --
Accounts receivable reserves......... 39,000 46,000
Inventories.......................... 100,000 170,000
Property, plant and equipment........ 78,000 80,000
Intangible assets.................... 126,000 155,000
Accrued expenses and other........... 34,000 244,000
---------- ----------
Deferred tax assets.................. $ 449,000 $ 695,000
========== ==========
Classified as:
Current......................... $ 151,000 $ 315,000
Non-current..................... 298,000 380,000
---------- ----------
$ 449,000 $ 695,000
========== ==========
At October 31, 1995 and 1996, there are no material deferred tax
liabilities. Realization of the deferred tax assets is dependent on generating
sufficient taxable income in the future. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced or should tax
authorities disallow tax deductions.
F-44
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company utilized $326,000, $326,000, and $254,000 of net operating loss
carryforwards in 1994, 1995, and 1996, respectively, to reduce taxable income
and current income tax liabilities. Utilization of net operating loss
carryforwards was limited to $326,000 annually due to the purchase of the
Company's preferred stock in 1991. The Company made income tax payments of
$31,840, $3,531, and $16,488 in 1994, 1995, and 1996, respectively.
The Company's 1993 and 1994 Federal income tax returns are currently being
examined by the Internal Revenue Service (the "IRS"). The Company and the IRS
are disputing certain purchase price allocations related to a 1993 acquisition.
The Company believes its positions are sustainable and additional taxes,
penalties or interest, if any, should not be material.
10. STOCKHOLDERS' EQUITY
The Company has authorized 1,950,000 shares of preferred stock, none of
which is issued or outstanding.
Options for the purchase of 20,000 shares of common stock at $4.45 have
been granted to a key employee. As of October 31, 1996, none of these options
have been exercised. The effects of these options are not material. These
options were terminated in conjunction with the transfers of ownership described
in Note 2.
In 1994, the Company purchased 6,000 shares of the Company's common stock
from an officer for approximately $31,000 and retired the shares.
11. RETIREMENT PLAN
The Company has a defined contribution retirement savings plan (the
"Retirement Plan") covering substantially all employees who meet certain
eligibility requirements as to age and length of service. The Retirement Plan
incorporates the salary reduction provisions of Section 401(k) of the Internal
Revenue Code and employees may contribute up to 15% of their compensation. The
Company may elect to match a percentage of the employees' contributions. There
were no Company contributions for the years ended October 31, 1996 and 1994.
Contributions charged to operations were $8,180 for the year ended October 31,
1995.
12. SERVICE AND DISTRIBUTION AGREEMENTS
Harley Valve purchases, sells and services various products under service
and distribution agreements with its major suppliers. The agreement with one key
supplier has a five-year term through April 1998. Approximately 50% of revenues
during each of the years ended October 31, 1994, 1995, and 1996 were derived
from sales of products purchased or services rendered under the agreement with
this supplier. Other agreements with major suppliers are generally cancelable by
the suppliers upon thirty to sixty days' notice. Management does not anticipate
cancellation of these agreements.
13. RELATED PARTY TRANSACTIONS
At October 31, 1995 and 1996, other assets of Harley Equipment include
notes receivable of $150,000 from the Company's president/majority stockholder.
The President's notes bear interest at the statutory rate required by the
Internal Revenue Service and are payable on demand. Interest income on the
President's notes totaled $9,375, $10,200, and $10,200 for the years ended
October 31, 1994, 1995, and 1996, respectively.
In conjunction with the sale of the Company described in Note 2, additional
compensation totaling approximately $475,000 for various employees and fees
related to the sale of $150,000 charged to the Company by a stockholder were
incurred. The additional compensation is to be paid from the assets of Harley
Equipment and has been allocated to discontinued operations. In November 1996,
certain assets of
F-45
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Harley Equipment were sold to a stockholder for $150,000, which represented
their carrying values at October 31, 1996.
The Company has also entered into a contingent incentive award agreement
with a key Harley Valve employee which provides for a $50,000 payment upon
consummation of the sale of the Company and $50,000 payable ratably over the
following six months. No amounts related to this agreement were recorded by the
Company as of October 31, 1996.
14. LEASES
Harley Valve leases certain equipment and office and warehouse facilities.
Minimum rental commitments for Harley Valve under all operating leases with
noncancelable terms in excess of one year at October 31, 1996 were payable as
follows:
YEAR ENDING OCTOBER 31,
- -----------------------
1997............................... $ 450,564
1998............................... 140,528
1999............................... 56,756
2000............................... 51,286
2001............................... 36,000
----------
$ 735,134
==========
Commencing in the year ended October 31, 1996, Harley Valve subleased
certain of its facilities to a third party under short-term leases.
Total rental expense amounted to approximately $281,000, $216,000, and
$274,000 for the years ended October 31, 1994, 1995, and 1996, respectively.
Sublease income was approximately $44,000 for the year ended October 31, 1996.
15. ENVIRONMENTAL CONTINGENCIES
The Company is investigating various of its facilities for potential
environmental contamination and remediation, including an underground storage
tank at its Norfolk, Virginia location. Based on soil samples completed through
January 10, 1997, minimal contamination is indicated. Management believes costs,
if any, for environmental remediation at the Norfolk or other facilities will
not be material.
* * * * * *
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Steam Supply Group:
We have audited the accompanying combined balance sheets of Steam Supply
Group (as defined in Note 1) as of October 31, 1995 and 1996, and the related
combined statements of operations, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended October 31, 1996. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Steam
Supply Group as of October 31, 1995 and 1996, and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended October 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 3, 1997
F-47
<PAGE>
STEAM SUPPLY GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- JULY 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ -- $ -- $ --
Accounts receivable, net of
allowance of $15,000, $9,080 and
$0, respectively................. 1,854,097 2,007,558 1,846,046
Inventories........................ 1,843,530 2,083,181 1,611,782
Prepaid expenses................... 241,574 277,174 337,800
Current portion of related-party
notes receivable................. 22,266 25,500 21,141
------------ ------------ -----------
Total current assets.......... 3,961,467 4,393,413 3,816,769
PROPERTY AND EQUIPMENT, net............. 787,592 1,123,146 1,066,604
RELATED-PARTY NOTES RECEIVABLE, net of
current portion....................... 587,731 647,871 580,164
OTHER NONCURRENT ASSETS, net............ 329,465 379,490 314,631
------------ ------------ -----------
$ 5,666,255 $ 6,543,920 $ 5,778,168
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt.................... $ 2,432,000 $ 2,062,683 $ 1,988,582
Current maturities of long-term
debt............................. 148,000 245,400 237,841
Accounts payable and accrued
expenses......................... 1,409,478 1,341,730 1,012,247
------------ ------------ -----------
Total current liabilities..... 3,989,478 3,649,813 3,238,670
LONG-TERM DEBT, net of current
maturities............................ 916,160 2,131,891 1,964,370
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 710,528 710,528 710,528
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock....................... 173 173 173
Additional paid-in capital......... 17,958 17,958 17,958
Retained earnings (deficit)........ 31,958 33,557 (153,531)
------------ ------------ -----------
Total stockholders' equity
(deficit).................. 50,089 51,688 (135,400)
------------ ------------ -----------
$ 5,666,255 $ 6,543,920 $ 5,778,168
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31 ENDED JULY 31
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 14,777,360 $ 15,407,681 $ 15,078,741 $ 11,255,661 $ 11,790,649
COST OF OPERATIONS................... 9,702,561 10,092,443 9,573,560 7,707,689 8,218,844
-------------- -------------- -------------- -------------- --------------
Gross profit.................... 5,074,799 5,315,238 5,505,181 3,547,972 3,571,805
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,022,066 4,825,535 5,107,379 3,135,828 3,475,888
-------------- -------------- -------------- -------------- --------------
Income from operations.......... 52,733 489,703 397,802 412,144 95,917
OTHER INCOME (EXPENSE):
Interest, net................... (244,611) (282,004) (303,482) (219,823) (245,997)
Other........................... (52,512) 7,121 (9,881) (54,198) (72,982)
-------------- -------------- -------------- -------------- --------------
(297,123) (274,883) (313,363) (274,021) (318,979)
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES.... (244,390) 214,820 84,439 138,123 (223,062)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 2,185 97,900 33,100 53,868 (85,711)
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS).................... $ (246,575) $ 116,920 $ 51,339 $ 84,255 $ (137,351)
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS (DEFICIT) TOTAL
------ --------- ------------------- ------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1993............... $ 173 $ 17,958 $ 261,167 $ 279,298
Preferred dividends................ -- -- (49,817) (49,817)
Net loss........................... -- -- (246,575) (246,575)
------ --------- ------------------- ------------
BALANCE, October 31, 1994............... 173 17,958 (35,225) (17,094)
Preferred dividends................ -- -- (49,737) (49,737)
Net income......................... -- -- 116,920 116,920
------ --------- ------------------- ------------
BALANCE, October 31, 1995............... 173 17,958 31,958 50,089
Preferred dividends................ -- -- (49,740) (49,740)
Net income......................... -- -- 51,339 51,339
------ --------- ------------------- ------------
BALANCE, October 31, 1996............... 173 17,958 33,557 51,688
Preferred dividends (unaudited).... -- -- (49,737) (49,737)
Net loss (unaudited)............... -- -- (137,351) (137,351)
------ --------- ------------------- ------------
BALANCE, July 31, 1997 (unaudited)...... $ 173 $ 17,958 $(153,531) $ (135,400)
====== ========= =================== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31 ENDED JULY 31
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................ $ (246,575) $ 116,920 $ 51,339 $ 84,255 $ (137,351)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Depreciation and
amortization.............. 278,954 270,111 208,304 113,752 125,448
(Increase) decrease in --
Accounts receivable....... (173,560) (138,995) (153,461) 125,825 161,512
Inventories............... 175,605 56,528 (239,651) (156,843) 471,399
Prepaid expenses and other
assets.................. (79,395) 81,422 (85,625) (284,203) 4,233
Accounts payable and accrued
expenses.................. 165,685 123,792 (67,748) (145,263) (329,483)
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) operating
activities......... 120,714 509,778 (286,842) (262,477) 295,758
---------- ------------ ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (133,067) (117,445) (543,852) (435,162) (68,906)
Advances on notes receivable..... (16,044) (138,334) (60,000) -- --
Collections on notes
receivable..................... 119,416 24,207 23,221 10,398 72,066
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) investing
activities......... (29,695) (231,572) (580,631) (424,764) 3,160
---------- ------------ ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt............... 819,633 831,681 1,215,683 976,000 --
Repayments of debt............... (848,570) (1,072,415) (298,470) (239,020) (249,181)
Preferred dividends paid......... (49,817) (49,737) (49,740) (49,739) (49,737)
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) financing
activities......... (78,754) (290,471) 867,473 687,241 (298,918)
---------- ------------ ---------- ---------- ----------
NET CHANGE IN CASH................... 12,265 (12,265) -- -- --
CASH, beginning of period............ -- 12,265 -- -- --
---------- ------------ ---------- ---------- ----------
CASH, end of period.................. $ 12,265 $ -- $ -- $ -- $ --
========== ============ ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-51
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholders' equity and cash flows include Puget Investments, Inc.
("Puget"), Steam Supply & Rubber Co., Inc. ("Steam Supply"), Flickinger
Company and Flickinger-Benicia, Inc. ("Benicia"). Steam Supply and Flickinger
Company are wholly owned subsidiaries of Puget and are consolidated with the
accounts of Puget. Benicia is owned directly by the stockholders of Puget. As
Puget and Benicia (together, "Steam Supply Group" or the "Company") have
common ownership and management, the financial statements of each entity have
been combined for financial reporting reasons. All intercompany balances and
transactions have been eliminated.
Steam Supply Group services, repairs, sells and distributes industrial
valves and instruments. Steam Supply Group's customers primarily are
petrochemical, electric power and pulp and paper industries located in the
western continental United States and Alaska.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Cash payments for interest during fiscal 1994, 1995 and 1996 were
approximately $272,878, $312,643 and $336,432, respectively. Cash payments for
taxes during fiscal 1995 and 1996 were approximately $65,286 and $107,310,
respectively. During fiscal 1994, the Company received $86,157 in income tax
refunds.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
last-in, first-out method ("LIFO") and primarily consist of industrial valves,
valve parts and instrumentation. The excess of current costs determined using
the first-in, first-out method basis over the carrying values of LIFO
inventories was approximately $559,963 and $614,769 at October 31, 1995 and
1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
OTHER NONCURRENT ASSETS
Other noncurrent assets primarily consist of a noncompete covenant with a
former stockholder, which is being amortized on a straight-line basis over 10
years. Accumulated amortization as of October 31, 1995 and 1996 was $130,625 and
$159,125, respectively.
REVENUE RECOGNITION
Service revenue is recognized upon performance of the service, and product
sales revenue is recognized as products are shipped or delivered.
INCOME TAXES
Puget files a consolidated income tax return and follows the liability
method of accounting for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109. Under this method, deferred income
taxes are recorded based upon differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets or liabilities are
recovered or settled. Benicia is an S Corporation for federal
F-52
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
income tax purposes and, in accordance with the S Corporation provisions of the
Internal Revenue Code, the earnings of Benicia are included in the personal tax
returns of its stockholders. Accordingly, no federal income tax expense is
recorded in the financial statements relative to Benicia. Benicia does record
California state income tax expense.
STOCKHOLDERS' EQUITY
The common stock ownership of the Company as of October 31, 1995 and 1996
includes the following:
PAR VALUE SHARES SHARES
PER SHARE AUTHORIZED OUTSTANDING
---------- ---------- -----------
Puget................................ $ 1.00 500 173
Benicia.............................. -- 50,000 20,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the nine months ended July 31, 1996 and 1997
has not been audited by independent accountants. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation of an asset is
required, the estimated future undiscounted cash flows associated with the asset
are compared to the asset's carrying amount to determine if a writedown to
market value or discounted cash flow value is necessary. Adoption of this
standard did not have a material effect on the combined financial position or
results of operations of the Company.
F-53
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
OCTOBER 31
ESTIMATED --------------------------
USEFUL LIVES 1995 1996
------------ ------------ ------------
Land............................... $ 167,095 $ 167,095
Buildings.......................... 30 years 609,949 609,949
Office and shop equipment.......... 7 years 1,105,165 1,128,581
Computer equipment................. 5 years 338,578 698,583
Vehicles........................... 5 years 301,212 384,970
Furniture and fixtures............. 7 years 185,340 186,572
Leasehold improvements............. 20 years 10,410 50,481
------------ ------------
2,717,749 3,226,231
Less -- Accumulated depreciation... 1,930,157 2,103,085
------------ ------------
Property and equipment, net........ $ 787,592 $ 1,123,146
============ ============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for fiscal 1994,
1995 and 1996 consists of the following:
1994 1995 1996
--------- --------- ---------
Balance at beginning of fiscal
year................................. $ 15,000 $ 15,000 $ 15,000
Amounts charged (credited) to results
of operations...................... -- -- (5,920)
--------- --------- ---------
Balance at end of fiscal year........ $ 15,000 $ 15,000 $ 9,080
========= ========= =========
Accounts payable and accrued expenses as of October 31, 1995 and 1996
consist of the following:
1995 1996
------------ ------------
Accounts payable..................... $ 1,167,042 $ 1,170,774
Bank overdraft....................... 167,710 106,332
Accrued expenses..................... 74,726 64,624
------------ ------------
$ 1,409,478 $ 1,341,730
============ ============
F-54
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED-PARTY NOTES RECEIVABLE:
The Company's related-party notes receivable consist of the following:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Unsecured notes receivable from
stockholders, balloon payment,
including accrued interest at prime
(8.25% at October 31, 1996), due
October 1999.......................... $ 306,842 $ 393,440
Note receivable from King-Ries
Partnership ("KRP"), an affiliate
related through common ownership, due
in monthly installments of $2,800
including interest at 12.5%,
collateralized by a second mortgage on
certain real estate, due November
1998.................................. 209,822 202,012
Unsecured note receivable from KRP, due
in monthly installments of $1,370
including interest at prime, due April
2002.................................. 81,876 72,019
Unsecured note receivable from KRP due
in monthly installments of $508
including interest at 6%, due October
1997.................................. 11,457 5,900
---------- ----------
609,997 673,371
Less -- Current portion................. 22,266 25,500
---------- ----------
$ 587,731 $ 647,871
========== ==========
Interest income on these related-party notes totaled $44,000, $54,000 and
$60,000 for fiscal 1994, 1995 and 1996, respectively.
6. PREFERRED STOCK:
Puget has 896 shares of $793 par value cumulative preferred stock
outstanding. The preferred shares yield a 7 percent dividend. The shares are
callable and redeemable at a 10 percent premium over par value. The shares can
be called or redeemed at any time by Puget. The preferred shares have no voting
rights, except in the event of nonpayment of dividends for two years, in which
case the preferred stock shall vote with the common stock on a one share, one
vote basis.
7. DEBT:
SHORT-TERM DEBT
The Company's short-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Revolving line of credit with Union Bank
of California, N.A. ("Union Bank"),
bearing interest at prime plus 0.50%
(8.75% at October 31, 1996), $2.2
million facility, collateralized by
substantially all the Company's assets
and guaranteed by stockholders,
expired April 1997 (See Note 11)...... $ 1,532,000 $ 2,062,683
Note payable to Union Bank with interest
payable monthly at prime plus 0.75%
(9.00% at October 31, 1996),
collateralized
by real estate and guaranteed by
stockholders, refinanced as
long-term debt during 1996............ 900,000 --
------------ ------------
$ 2,432,000 $ 2,062,683
============ ============
F-55
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's long-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Note payable to Union Bank in monthly
installments of $9,640 including
interest at prime plus 0.75% (9.00% at
October 31, 1996), collateralized by
real estate and guaranteed by
stockholders, due May 2003............ $ -- $ 1,094,907
Note payable to Union Bank in monthly
installments of $8,860 plus interest
at prime plus 0.75% (9.00% at October
31, 1996), collateralized by computer
equipment and guaranteed by
stockholders, due July 1, 2000........ -- 398,420
Note payable to Union Bank in monthly
installments of $4,200 plus interest
at prime plus 0.50% (8.75% at October
31, 1996), collateralized by
substantially all assets and
guaranteed by stockholders, due April
1998.................................. 124,800 74,400
Note payable to West One Bank, due in
monthly installments of $3,425
including interest at 9.25%,
collateralized by real estate,
refinanced with Union Bank during
1996.................................. 148,204 --
Note payable to former stockholder in
monthly installments of $9,463
including interest at 10%,
collateralized by common stock,
subordinated to notes payable to Union
Bank, due June 2001................... 484,314 416,124
Unsecured notes payable to stockholders,
subordinated to notes payable to Union
Bank, balloon payment including
interest at prime, due October 1999... 306,842 393,440
------------ ------------
1,064,160 2,377,291
Less -- Current portion................. 148,000 245,400
------------ ------------
$ 916,160 $ 2,131,891
============ ============
Maturities of the Company's long-term debt are as follows:
Year ending October 31 --
1997............................... $ 245,400
1998............................... 228,200
1999............................... 607,800
2000............................... 197,840
2001............................... 84,300
Thereafter......................... 1,013,751
------------
$ 2,377,291
============
Interest expense totaled $288,922, $336,041 and $363,030 in fiscal 1994,
1995 and 1996, respectively. Management estimates that the fair value of its
debt obligations approximates the carrying value at October 31, 1996.
At October 31, 1996, the Company's debt with Union Bank was subject to a
credit agreement that included certain restrictive covenants relating to such
matters as dividends and capital expenditures. This credit agreement also
required the Company to maintain minimum levels of profitability, net worth and
working capital ratios. At October 31, 1996, the Company was in compliance with
or had received waivers of noncompliance with respect to all restrictive
covenants.
F-56
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On May 1, 1997, the Company and Union Bank entered into an amended and
restated credit agreement. The amended and restated credit agreement modified
the repayment terms and covenants of the Company's debt. See Note 11 for
additional information respecting the amended and restated credit agreement.
8. INCOME TAXES:
The Company's income tax provision included the following:
YEAR ENDED OCTOBER 31
---------------------------------
1994 1995 1996
---------- ---------- ---------
Federal, current........................ $ -- $ 88,100 $ 25,900
State, current.......................... 2,185 9,800 7,200
---------- ---------- ---------
$ 2,185 $ 97,900 $ 33,100
========== ========== =========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED OCTOBER 31
------------------------
1994 1995 1996
---- ---- ----
Statutory federal income tax rate....... (34)% 34 % 34 %
Valuation allowance..................... 34 -- --
Effect of federal graduated tax rate.... -- (5) (5)
State and local taxes................... (1) 3 5
Effect of nondeductible meals and
entertainment......................... -- 4 11
Effect of excluding S Corporation....... -- 11 (8)
Other................................... -- (1) 2
---- ---- ----
Effective income tax rate............... (1)% 46 % 39 %
==== ==== ====
Deferred income taxes consist of the following:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Current deferred tax assets.......... $ 24,400 $ 29,600
Noncurrent deferred tax assets....... 36,800 33,800
Valuation allowance.................. (52,200) (52,200)
---------- ----------
Total deferred tax
assets.................. 9,000 11,200
---------- ----------
Current deferred tax liabilities..... -- (3,100)
Noncurrent deferred tax
liabilities.......................... (9,000) (8,100)
---------- ----------
Total deferred tax
liabilities............. (9,000) (11,200)
---------- ----------
Net deferred tax
liabilities............. $ -- $ --
========== ==========
F-57
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse space, office facilities and vehicles under
noncancelable operating leases which expire at various dates. Future minimum
lease payments at October 31, 1996 are as follows:
1997................................. $ 247,200
1998................................. 214,700
1999................................. 121,600
2000................................. 114,000
2001................................. 114,000
Rent expense for fiscal 1994, 1995 and 1996 was $247,600, $240,300 and
$259,200, respectively.
The Company leases certain facilities from stockholders and KRP under
operating leases. Rental expense related to these leases was $138,800 for fiscal
1994 and 1995 and $139,200 for fiscal 1996.
EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. The plan allows employee contributions, whereby eligible employees
may elect to defer a portion of their annual compensation. The Company matches
50 percent of each employee's contribution up to 4 percent of employee
compensation. Additional contributions by the Company are discretionary. The
Company contributed approximately $50,600, $28,400 and $28,800 for fiscal 1994,
1995 and 1996, respectively.
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's combined financial
position or results of operations.
10. DISTRIBUTION AGREEMENTS:
The Company purchases, sells and services various products under service
and distribution agreements with its major suppliers. Approximately 39 percent
of revenues during each of fiscal 1994, 1995 and 1996 was derived from sales of
products purchased or services rendered under the agreement with one supplier.
The agreements with major suppliers are generally cancelable by the suppliers
upon 30 to 60 days' notice. Management does not anticipate cancellation of these
agreements.
11. SUBSEQUENT EVENTS:
DEBT REFINANCING
On May 1, 1997, the Company entered an agreement to amend and restate its
credit agreement with Union Bank. This new credit facility provides a line of
credit due November 1, 1997, which is subject to a borrowing base with maximum
borrowings of $2,500,000. Interest accrues at Union Bank's reference rate. This
new credit facility has certain restrictive covenants similar to the previous
credit facility.
SALE OF COMMON SHARES
Effective August 1, 1997, the stockholders of the Company sold the common
equity ownership of the Company to Innovative Valve Technologies, Inc. for total
consideration in excess of the recorded amounts of the Company's net assets.
F-58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ICE/VARCO Group:
We have audited the accompanying combined balance sheets of ICE/VARCO Group
(as defined in Note 1) as of September 30, 1995 and 1996 and the related
combined statements of operations, stockholder's deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of ICE/VARCO
Group as of September 30, 1995 and 1996, and the combined results of their
operations and their combined cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
(except as discussed
in Note 6, as to which
the date is July 10, 1997)
F-59
<PAGE>
ICE/VARCO GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 19,561 $ 46,117 $ 164,008
Accounts receivable, net of
allowance of $40,000, $47,713
and $33,995................... 1,653,485 1,747,859 2,213,041
Inventories..................... 1,062,951 1,275,325 1,370,165
Prepaid expenses and other
current assets.................. 28,336 16,350 10,691
------------ ------------ -----------
Total current assets....... 2,764,333 3,085,651 3,757,905
PROPERTY AND EQUIPMENT, net.......... 850,485 979,926 852,458
INTANGIBLES AND OTHER NONCURRENT
ASSETS, net........................ 24,817 238,450 226,396
------------ ------------ -----------
$ 3,639,635 $ 4,304,027 $ 4,836,759
============ ============ ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Short-term debt................. $ 733,440 $ 769,300 $ 1,309,808
Current maturities of long-term
debt............................ 116,155 203,961 162,349
Accounts payable and accrued
expenses........................ 1,577,570 1,695,637 1,235,717
------------ ------------ -----------
Total current
liabilities................ 2,427,165 2,668,898 2,707,874
AMOUNTS DUE TO AFFILIATES, net....... 1,031,958 1,284,288 1,981,066
LONG-TERM DEBT, net of current
maturities......................... 455,355 457,229 350,600
STOCKHOLDER'S DEFICIT................ (274,843) (106,388) (202,781)
------------ ------------ -----------
$ 3,639,635 $ 4,304,027 $ 4,836,759
============ ============ ===========
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30 ENDED JUNE 30
---------------------------- ----------------------------
1995 1996 1996 1997
------------ -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................ $ 9,128,032 $ 12,744,465 $ 8,717,315 $ 10,902,367
COST OF OPERATIONS...................... 6,517,438 9,452,991 6,421,795 8,704,715
------------ -------------- ------------ --------------
Gross profit....................... 2,610,594 3,291,474 2,295,520 2,197,652
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,346,117 2,858,694 2,112,745 2,352,838
------------ -------------- ------------ --------------
Income (loss) from operations...... 264,477 432,780 182,775 (155,186)
OTHER INCOME (EXPENSE):
Interest, net...................... (117,886) (112,105) (75,546) (96,686)
Other.............................. 11,123 (13,861) (16,918) 78,457
------------ -------------- ------------ --------------
(106,763) (125,966) (92,464) (18,229)
------------ -------------- ------------ --------------
INCOME (LOSS) BEFORE INCOME TAXES....... 157,714 306,814 90,311 (173,415)
PROVISION (BENEFIT) FOR INCOME TAXES.... 70,100 138,359 22,093 (77,022)
------------ -------------- ------------ --------------
NET INCOME (LOSS)....................... $ 87,614 $ 168,455 $ 68,218 $ (96,393)
============ ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIT
BALANCE, September 30, 1994............. $ (362,457)
Net income......................... 87,614
------------
BALANCE, September 30, 1995............. (274,843)
Net income......................... 168,455
------------
BALANCE, September 30, 1996............. (106,388)
Net loss (unaudited)............... (96,393)
------------
BALANCE, June 30, 1997 (unaudited)...... $ (202,781)
============
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30 ENDED JUNE 30
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 87,614 $ 168,455 $ 68,218 $ (96,393)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization.... 131,635 147,011 108,203 152,859
(Increase) decrease in --
Accounts receivable........... (376,087) 60,629 299,659 (465,182)
Inventories................... (433,685) (212,374) (368,986) (94,840)
Prepaid expenses and other
assets..................... (29,490) 2,435 (17,655) 3,459
Increase (decrease) in --
Accounts payable and accrued
expenses................... 446,100 (35,671) (222,080) (459,920)
Amounts due to affiliates,
net........................ (254,719) 259,758 (165,526) 696,778
------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities............... (428,632) 390,243 (298,167) (263,239)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (99,181) (214,915) (221,172) (11,137)
Business acquisition, net of cash
acquired........................... -- 45,516 -- --
------------ ------------ ------------ ------------
Net cash used in investing
activities............... (99,181) (169,399) (221,172) (11,137)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt.................... 552,940 3,856 672,370 540,508
Repayments of debt.................... (47,721) (198,144) (171,572) (148,241)
------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities............... 505,219 (194,288) 500,798 392,267
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......... (22,594) 26,556 (18,541) 117,891
CASH, beginning of period............... 42,155 19,561 19,561 46,117
------------ ------------ ------------ ------------
CASH, end of period..................... $ 19,561 $ 46,117 $ 1,020 $ 164,008
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholder's deficit and cash flows include Industrial Controls &
Equipment, Inc. ("ICE"), Valve Actuation & Repair Company, Inc. ("VARCO")
and BAS Technical Services Inc. ("BAS"). ICE, VARCO and BAS (collectively,
"ICE/VARCO Group" or the "Company") are wholly owned subsidiaries of
Synergistic Partners Inc. ("SPI"), a Pennsylvania corporation. As ICE/VARCO
Group has common ownership and management, the financial statements of these
entities have been combined for financial reporting purposes. All significant
intercompany transactions and balances have been eliminated in combination.
ICE (a Pennsylvania corporation) and VARCO (a West Virginia corporation)
are principally engaged in the business of repairing, testing and distributing
manual, control and safety relief valves, related parts and instrumentation to
the pulp and paper, chemical, power generation and petrochemical industries in
Pennsylvania and West Virginia. BAS (a West Virginia corporation), acquired in
August 1996 in a purchase transaction, provides value-added electrical and
mechanical engineering services and electrical panel construction, primarily to
the same customer base served by ICE and VARCO.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Cash payments for interest during fiscal 1995 and 1996 were approximately
$108,000 and $96,000, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
average-cost method applied on a first-in, first-out ("FIFO") basis and
primarily consist of valves, valve parts and related instrumentation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company was included in SPI's consolidated federal income tax returns
for fiscal 1995 and 1996. The Company follows the liability method of accounting
for income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred
income taxes are recorded based upon differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the underlying assets or liabilities
are recovered or settled.
INTANGIBLES AND OTHER NONCURRENT ASSETS
Intangibles and other noncurrent assets primarily consists of goodwill and
is amortized using the straight-line method over 15 years. Accumulated
amortization at September 30, 1996 was $7,883. There was no accumulated
amortization at September 30, 1995.
REVENUE RECOGNITION
Service revenue is recognized upon performance, and sales revenue is
recognized as products are shipped or delivered.
F-64
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the nine months ended June 30, 1996 and 1997
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other noncurrent assets, may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to market value or discounted cash flow value is necessary. Adoption of this
standard did not have a material effect on the combined financial position or
results of operations of the Company.
3. ACQUISITION OF BAS:
In August 1996, SPI acquired BAS in a purchase transaction. The financial
results of the acquisition have been included in the combined financial
statements of the Company from the date of acquisition. The pro forma effect of
the acquisition was not material to the results of operations or financial
position of the Company. The fair value of assets acquired is summarized as
follows:
Cash.................................... $ 45,516
Accounts receivable..................... 144,869
Property and equipment.................. 57,593
Intangible assets....................... 223,926
Accounts payable........................ (67,707)
Accrued liabilities..................... (86,031)
Debt assumed............................ (218,166)
------------
Net assets acquired................ 100,000
Less -- Debt issued..................... (100,000)
------------
Cash paid for acquisition.......... $ --
============
F-65
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
SEPTEMBER 30
ESTIMATED --------------------------
USEFUL LIVES 1995 1996
------------ ------------ ------------
Buildings.......................... 31 years $ 193,047 $ 193,047
Vehicles........................... 3-5 years 129,295 162,797
Furniture and fixtures............. 5-7 years 129,573 148,007
Office equipment................... 5-7 years 237,757 344,993
Machinery and equipment............ 5-7 years 299,163 325,798
Leasehold improvements............. 7-31 years 317,456 385,900
------------ ------------
1,306,291 1,560,542
Less -- Accumulated depreciation... (455,806) (580,616)
------------ ------------
Property and equipment, net........ $ 850,485 $ 979,926
============ ============
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for the years
ended September 30, 1995 and 1996 consists of the following:
1995 1996
--------- ---------
Balance at beginning of year......... $ 17,000 $ 40,000
Additions charged to results of
operations......................... 23,000 7,713
--------- ---------
Balance at end of year............... $ 40,000 $ 47,713
========= =========
Accounts payable and accrued expenses as of September 30, 1995 and 1996
consist of the following:
1995 1996
------------ ------------
Accounts payable..................... $ 1,243,559 $ 1,252,390
Accrued salaries, bonuses and
profit-sharing..................... 297,344 335,292
Income and other taxes payable....... 36,667 107,955
------------ ------------
$ 1,577,570 $ 1,695,637
============ ============
6. SHORT-TERM DEBT:
The Company had three revolving credit arrangements. ICE and VARCO had
revolving credit facilities with a bank which was secured by accounts receivable
and inventory. These facilities bore interest, payable monthly, at a rate of
prime plus 0.50% (9.25% at September 30, 1996). A total of approximately
$733,000 and $594,000 was drawn for the two facilities at September 30, 1995 and
1996, respectively. BAS was party to a $200,000 commercial revolving note
agreement, which was secured by accounts receivable and bore interest, due
monthly, at prime plus 1.50% (9.75% at September 30, 1996). At September 30,
1996, approximately $175,000 was drawn on the line.
In July 1997, SPI refinanced its revolving credit arrangements, including
the Company's revolving facilities. The new facilities have terms similar to the
previous revolving credit agreements. The new facilities mature in July 1999,
bear interest at prime plus 0.25% (8.75% at July 10, 1997) and are secured by
accounts receivable and inventory.
F-66
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
SEPTEMBER 30
--------------------------
1995 1996
------------ ------------
Note payable to former SPI
stockholder, monthly installments
of principal and interest in the
amount of $4,805, bearing interest
at 9.50%, secured by general
Company assets..................... $ 150,000 $ 127,861
Note payable to a bank, monthly
principal installments of $3,300,
bearing interest at 7.75% secured
by general Company assets.......... 192,500 152,900
Note payable to a government agency,
monthly installments of principal
and interest of $1,592, bearing
interest at 5.01% secured by
general Company assets............. 139,702 128,643
Notes payable, due in monthly
installments, bearing interest from
8.00% to 9.50%, secured by certain
vehicles and certain equipment..... 89,308 146,786
Unsecured note payable to
employee-consultant and former
owner of BAS, annual installments
of principal and interest in the
amount of $13,011, bearing interest
at 8.00%........................... -- 75,000
Unsecured note payable to former
employee, noninterest-bearing...... -- 30,000
------------ ------------
571,510 661,190
Less -- Current maturities........... (116,155) (203,961)
------------ ------------
Total long-term debt............ $ 455,355 $ 457,229
============ ============
Management estimates that the fair value of its debt obligations
approximates the historical value at September 30, 1996 and 1995.
Maturities of long-term debt are as follows:
Year ending September 30 --
1997............................ $ 203,961
1998............................ 221,681
1999............................ 82,184
2000............................ 38,409
2001............................ 25,452
Thereafter...................... 89,503
----------
$ 661,190
==========
8. INCOME TAXES:
The Company is included in the consolidated federal income tax return of
SPI. SPI pays the federal income tax liability for all its subsidiaries for any
period in which an amount is due. Each subsidiary, including each company within
ICE/VARCO Group, pays to SPI the amount of federal income tax liability it would
have owed on a stand-alone basis, and SPI pays to each subsidiary the amount of
any federal income tax benefit attributable to each such subsidiary.
F-67
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax provision (benefit) are as follows:
YEAR ENDED SEPTEMBER 30
-----------------------
1995 1996
---------- ----------
Federal --
Current............................ $ 69,500 $ 108,592
Deferred........................... (13,200) 3,157
State --
Current............................ 16,600 26,053
Deferred........................... (2,800) 557
---------- ----------
$ 70,100 $ 138,359
========== ==========
Actual income tax provision differs from income tax provision computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED
SEPTEMBER 30
--------------------
1995 1996
--------- ---------
Statutory federal income tax rate....... 34% 34%
State and local taxes................... 6 6
Effect of nondeductible meals and
entertainment......................... 4 5
--------- ---------
Effective income tax rate............... 44% 45%
========= =========
Deferred income taxes consist of the following:
YEAR ENDED SEPTEMBER 30
-----------------------
1995 1996
---------- ----------
Current deferred tax assets............. $ 16,000 $ 12,286
Noncurrent deferred tax assets.......... -- --
---------- ----------
Net deferred tax assets............ $ 16,000 $ 12,286
========== ==========
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's combined financial
position or results of operations.
GUARANTEES OF AFFILIATED COMPANIES' DEBT
The Company's assets are pledged as collateral under certain credit
arrangements entered into by SPI and certain of its other subsidiaries, and the
Company is jointly and severally liable for any defaults under those
arrangements. SPI's new credit facilities include covenants requiring that
certain financial ratios be maintained. Management does not believe, if the
Company were required to perform under such guarantees, any losses from these
agreements would be material. To date, the Company has not been required to
perform under these guarantees. See Note 12 for further discussion.
F-68
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
Aggregate minimum rental commitments under significant noncancelable
operating leases with lease terms in excess of one year as of September 30, 1996
are as follows:
Year ending September 30 --
1997............................... $ 88,818
1998............................... 87,144
1999............................... 87,144
2000............................... 87,144
2001............................... 87,144
Thereafter......................... 429,010
----------
$ 866,404
==========
The Company incurred total rental expense of approximately $132,000 and
$131,000 for fiscal 1995 and 1996, respectively.
EMPLOYEE BENEFITS
The Company participates in a profit sharing plan offered by SPI to all
salaried employees who have met certain length-of-service requirements.
Employees can contribute up to 4 percent of their salary, which is matched 100
percent by the Company. For fiscal 1995 and 1996, the Company also made
discretionary contributions. The Company's total contributions for fiscal 1995
and 1996 were $92,000 and $133,000, respectively.
10. RELATED-PARTY TRANSACTIONS:
As described in Note 1, the Company is a wholly owned part of an affiliated
group of companies owned by SPI operating in the valve repair and distribution
services business. Certain selling, general and administrative expenses incurred
by SPI have been allocated to the Company for fiscal 1995 and 1996 in the
amounts of approximately $228,000 and $263,000, respectively. The Company also
purchases and sells valve and valve repair parts, materials and services from
other subsidiaries of SPI. During fiscal 1996, its total purchases from the
other SPI subsidiaries approximated $311,000 and its total sales by the Company
to the other SPI subsidiaries approximated $1,527,000.
11. SIGNIFICANT CUSTOMER:
During fiscal 1995 and 1996, the Company had one customer that accounted
for approximately 13% and 19%, respectively, of the Company's combined revenues.
12. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
In July 1997, pursuant to a definitive agreement, SPI agreed to sell the
entire equity ownership of the Company to Innovative Valve Technologies, Inc.
("Invatec"), for total consideration in excess of the recorded amounts of the
Company's net assets. Among other customary matters, the definitive agreement
provides for the removal of the Company's guarantees of debt obligations of SPI,
its affiliates and subsidiaries. The closing of the transaction is conditioned
on the successful consummation of Invatec's initial public offering.
F-69
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
GSV, Inc.:
We have audited the accompanying balance sheets of GSV, Inc. (the Company)
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Orlando, Florida
April 11, 1997
F-70
<PAGE>
GSV, INC.
BALANCE SHEETS
DECEMBER 31
-------------------------- FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash........................... $ 11,059 $ 10,084 $ 3,347
Accounts receivable............ 1,509,218 1,612,693 1,345,555
Inventories.................... 833,332 1,079,493 1,472,916
Prepaid expenses and other
current assets............... 27,883 32,213 78,881
------------ ------------ ------------
Total current assets...... 2,381,492 2,734,483 2,900,699
------------ ------------ ------------
PROPERTY AND EQUIPMENT -- Net....... 1,058,170 1,177,044 1,192,977
------------ ------------ ------------
OTHER NONCURRENT ASSETS............. 43,976 27,869 28,970
------------ ------------ ------------
$ 3,483,638 $ 3,939,396 $ 4,122,646
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank........... $ 362,000 $ 426,000 $ 340,000
Accounts payable............... 615,484 494,688 988,158
Accrued expenses and other
current liabilities.......... 402,669 253,444 195,203
Stockholders' distributions
payable...................... -- 200,500 --
Current maturities of
long-term debt............... 183,378 193,372 183,340
------------ ------------ ------------
Total current
liabilities............. 1,563,531 1,568,004 1,706,701
------------ ------------ ------------
LONG-TERM DEBT -- Less current
portion............................. 384,214 267,899 241,905
------------ ------------ ------------
Total liabilities......... 1,947,745 1,835,903 1,948,606
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
5,000,000 shares authorized,
3,865,489 shares issued...... 386,549 386,549 386,549
Additional paid-in capital..... 765,211 765,211 765,211
Retained earnings.............. 384,133 951,733 1,042,280
Treasury stock -- at cost,
10,000 shares................ -- -- (20,000)
------------ ------------ ------------
Total stockholders'
equity.................. 1,535,893 2,103,493 2,174,040
------------ ------------ ------------
$ 3,483,638 $ 3,939,396 $ 4,122,646
============ ============ ============
See notes to financial statements.
F-71
<PAGE>
GSV, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
------------ ------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,922,688 $ 8,653,737 $ 10,227,117 $ 1,412,628 $ 1,636,716
COST OF OPERATIONS................... 7,190,890 6,661,559 7,688,077 1,105,993 1,258,288
------------ ------------ -------------- ------------ ------------
Gross profit............... 1,731,798 1,992,178 2,539,040 306,635 378,428
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,521,956 1,481,704 1,276,112 206,575 243,132
------------ ------------ -------------- ------------ ------------
INCOME FROM OPERATIONS............... 209,842 510,474 1,262,928 100,060 135,296
OTHER INCOME (EXPENSES):
Interest expense................ (92,558) (98,073) (78,365) (10,194) (17,040)
Other, net...................... 9,740 (31,130) 5,817 192 (3,209)
------------ ------------ -------------- ------------ ------------
Other income (expenses),
net...................... (82,818) (129,203) (72,548) (10,002) (20,249)
------------ ------------ -------------- ------------ ------------
NET INCOME........................... $ 127,024 $ 381,271 $ 1,190,380 $ 90,058 $ 115,047
============ ============ ============== ============ ============
</TABLE>
See notes to financial statements.
F-72
<PAGE>
GSV, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
---------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................ $ 386,549 $ 765,211 $ 1,162 $ -- $ 1,152,922
Net income......................... -- -- 127,024 -- 127,024
Distributions to stockholders...... -- -- (125,324) -- (125,324)
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1994.............. 386,549 765,211 2,862 -- 1,154,622
Net income......................... -- -- 381,271 -- 381,271
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1995.............. 386,549 765,211 384,133 -- 1,535,893
Net income......................... -- -- 1,190,380 -- 1,190,380
Distributions to stockholders...... -- -- (622,780) -- (622,780)
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1996.............. $ 386,549 $ 765,211 $ 951,733 -- 2,103,493
Net income (unaudited)............. -- -- 115,047 -- 115,047
Distributions to stockholders
(unaudited)...................... -- -- (24,500) -- (24,500)
Purchase of treasury stock
(unaudited)...................... -- -- -- (20,000) (20,000)
---------- ---------- ------------ -------- -------------
BALANCE, FEBRUARY 28, 1997
(unaudited)........................... $ 386,549 $ 765,211 $ 1,042,280 $(20,000) $ 2,174,040
========== ========== ============ ======== =============
</TABLE>
See notes to financial statements.
F-73
<PAGE>
GSV, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
----------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 127,024 $ 381,271 $ 1,190,380 $ 90,058 $ 115,047
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 419,723 433,441 186,986 30,206 34,106
(Gain) loss on sale of property
and equipment............... 3,504 -- (789) -- 4,873
(Increase) decrease in accounts
receivable.................. (287,517) 136,231 (103,475) 494,271 267,138
(Increase) decrease in
inventories................. 65,160 (58,546) (246,161) (131,860) (393,423)
(Increase) decrease in prepaid
expenses and other current
assets...................... 9,770 10,700 (4,330) 19,184 (46,668)
Increase (decrease) in accounts
payable..................... 422,422 (351,578) (2,539) 78,100 328,227
Increase (decrease) in accrued
expenses and other current
liabilities................. 85,247 (26,427) 68 (6,323) 24,703
---------- ---------- ----------- ---------- ----------
Net cash provided by
operating activities...... 845,333 525,092 1,020,140 573,636 334,003
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment...................... (616,772) (143,234) (292,414) (14,574) (53,003)
Proceeds from sale of property
and equipment.................. 3,596 -- 3,450 -- --
Purchase of intangible assets.... (32,062) -- -- -- (3,010)
---------- ---------- ----------- ---------- ----------
Net cash used in investing
activities................ (645,238) (143,234) (288,964) (14,574) (56,013)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash
overdrafts..................... (255,355) 232,375 (118,257) (316,907) 165,243
Loan proceeds.................... 463,115 -- 83,704 -- --
Principal payments on long-term
debt........................... (165,263) (201,776) (190,025) (32,794) (36,026)
Payments under covenant
obligations.................... (348,354) (116,118) (149,293) (116,118) (82,944)
Net change in demand note payable
to bank........................ 181,000 (164,000) 64,000 (84,000) (86,000)
Stockholder distributions........ (75,194) (125,324) (422,280) -- (225,000)
Purchase of treasury stock....... -- -- -- -- (20,000)
---------- ---------- ----------- ---------- ----------
Net cash used in financing
activities................ (200,051) (374,843) (732,151) (549,819) (284,727)
---------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 44 7,015 (975) 9,243 (6,737)
CASH, BEGINNING OF PERIOD............ 4,000 4,044 11,059 11,059 10,084
---------- ---------- ----------- ---------- ----------
CASH, END OF PERIOD.................. $ 4,044 $ 11,059 $ 10,084 $ 20,302 $ 3,347
========== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Cash paid during the
period for interest................ $ 87,465 $ 102,711 $ 78,573 $ 10,789 $ 15,008
========== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING AND INVESTING
ACTIVITIES -- Accrual of
distributions payable to
stockholders....................... $ 125,324 $ -- $ 200,500 $ -- $ --
========== ========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-74
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
GSV, Inc. (the "Company") is incorporated in the State of Florida and is
comprised of three operating divisions: Gould Machine, Southern Valve, and Ash
Tool. Gould Machine provides contract machining, Southern Valve repairs and
sells valves, and Ash Tool sells certain parts primarily associated with the
industries serviced by the other divisions. All interdivisional transactions and
balances have been eliminated from the financial statements. The Company's main
office is located in Tampa, Florida. On April 26, 1994, the Company purchased a
new facility and moved the Southern Valve Division to this facility in September
of 1994. Costs incurred in moving this division were charged to operations and
amounted to $60,931 for the year ended December 31, 1994. Each division's
business activity is primarily in the State of Florida.
ACCOUNTS RECEIVABLE
There is no allowance for doubtful accounts at December 31, 1995 or 1996.
INVENTORIES
Inventories at December 31, 1995 and 1996 consist of the following:
1995 1996
---------- ------------
Raw materials........................... $ 691,950 $ 791,056
Work-in-process......................... 51,792 206,206
Tool division supplies.................. 89,590 82,231
---------- ------------
Total.............................. $ 833,332 $ 1,079,493
========== ============
Inventories are valued at the lower of cost (first-in, first-out) or
market. Work-in-process inventories are comprised of direct materials, direct
labor, and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
both accelerated and straight-line methods, using useful lives ranging from 3 to
40 years.
CASH OVERDRAFTS
Accounts payable in the accompanying balance sheets are inclusive of cash
overdrafts of approximately $316,900, $198,700 and $363,900 as of December 31,
1995, December 31, 1996 and February 28, 1997, respectively.
REVENUE RECOGNITION
Revenue is recognized as services are performed and products are shipped.
INCOME TAXES
The stockholders of the Company elected in 1990 to be taxed under the
Subchapter S provisions of the Internal Revenue Code. Under this section,
taxable income and applicable tax credits are deemed to flow to the individual
stockholders, and no state or federal income taxes are imposed on the Company.
Accordingly, no provision has been made for income taxes.
Under current tax law, whenever an enterprise converts from a taxable C
corporation status to S status, the enterprise may be subject to a corporate
level tax if certain built-in gains present at the date of conversion are
realized within a ten-year period following the conversion elections. The
built-in gain remaining as of December 31, 1996 from the Company's conversion to
S status was approximately $907,000. Management does not presently anticipate
that the assets subject to built-in gains tax will be sold or disposed of within
the ten-year period.
F-75
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management of the Company believes that the carrying value of its financial
instruments is a reasonable estimate of their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the two months ended February 28, 1996 and
1997 has not been audited by independent auditors. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Accordingly, in the event that
facts and circumstances indicate that property and equipment, and intangible or
other assets, may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undisclosed cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
necessary. Adoption of Statement 121 did not have an effect on the financial
position or results of operations of the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and
1996:
1995 1996
-------------- --------------
Land and building.................... $ 384,634 $ 521,918
Machinery and equipment.............. 2,105,916 2,160,202
Vehicles............................. 505,767 536,012
Leasehold improvements............... 349,976 349,976
Office furniture and equipment....... 168,705 175,735
-------------- --------------
Total cost........................... 3,514,998 3,743,843
Less accumulated depreciation........ (2,456,828) (2,566,799)
-------------- --------------
Total........................... $ 1,058,170 $ 1,177,044
============== ==============
Property and equipment depreciation and amortization expense for the years
ended December 31, 1994, 1995 and 1996 amounted to $164,631, $180,311 and
$170,879, respectively.
3. OTHER ASSETS
COVENANTS NOT-TO-COMPETE
On December 19, 1990, the Company entered into four covenants
not-to-compete with four former shareholders, who are also current employees.
Under the terms of the agreements, total noncompete
F-76
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
payments amounting to $1,161,181 are payable to the employees under a cash
available formula. Each agreement was for a sixty-month period which expired
December 31, 1995. Amortization of the covenants, which is included in selling,
general, and administrative expenses in the statements of operations, is
computed on the straight-line method over the covenant period, and amounted to
$232,236, $232,237 and $-0- for December 31, 1994, 1995 and 1996, respectively.
4. NOTE PAYABLE TO BANK
The Company has available two lines of credit from a financial institution
in the total maximum amount of $600,000, payable on demand and renewable
annually. Draws under the lines are limited to the lesser of 75% of accounts
receivable with balances outstanding less than 90 days or $600,000. The lines
bear interest at the prime rate plus 1% (9.25% at December 31, 1996), with
interest payable monthly. The lines are collateralized by accounts receivable,
inventory, and an unconditional guarantee from the Company's president. The
balances outstanding at December 31, 1995 and 1996 amounted to $362,000 and
$426,000, respectively.
5. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
1995 1996
---------- ----------
Note payable in the original amount
of $535,000, interest at prime plus
.5% (8.75% at December 31, 1996),
collateralized by all equipment,
inventory, a life insurance policy,
and a cross-collateralization which
was secured in favor of the line of
credit, payable in monthly
principal installments of $8,925
plus interest, final principal
payment due in full on or before
February 15, 1999.................. $ 339,150 $ 232,050
Mortgage note payable in the original
amount of $168,000, interest at 7%,
collateralized by land and
buildings with a carrying amount of
approximately $503,000 at December
31, 1996, payable in monthly
installments of principal and
interest of $3,327 through May
1999............................... 120,994 88,516
Installment loans, interest at
varying rates of 7.5% to 11.3%
collateralized by vehicles with a
carrying amount of approximately
$159,000 at December 31, 1996,
payable in monthly installments of
principal and interest totaling
$7,891 through October 2000, when
final payment is due on the last
instalment note.................... 107,448 140,705
---------- ----------
567,592 461,271
Less current maturities.............. 183,378 193,372
---------- ----------
$ 384,214 $ 267,899
========== ==========
Maturities of long-term debt are as follows:
1997............................ $ 193,372
1998............................ 193,033
1999............................ 64,158
2000............................ 10,708
----------
Total........................... $ 461,271
==========
F-77
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASE COMMITMENTS
The Company is obligated under an operating lease agreement for its
facility in Tampa which expires in June 2001. The Company is obligated on
various equipment leases which expire from 1997 to 2000. At December 31, 1996,
the future minimum rental payments required under the leases are as follows:
YEAR ENDING
DECEMBER 31,
---------------
1997.................................. $ 67,711
1998.................................. 68,028
1999.................................. 69,433
2000.................................. 70,006
2001.................................. 34,000
----------
$ 309,178
==========
Total rent expense charged to operations under these agreements amounted to
$64,172, $61,786 and $62,634 during 1994, 1995 and 1996, respectively.
7. EMPLOYEE BENEFIT PLANS
401(K) SAVINGS PLAN
The Company sponsors a participant directed cash deferred 401(k) plan (the
Plan). Employees who are employed for one full year and complete 1,000 hours of
service may elect to participate in the Plan. The Company elected to match
employee deferrals at a rate of 40% on the first 6% during 1994, 33 1/3% on the
first 6% during 1995 and 50% on the first 6% deferred during 1996, which
amounted to $38,553, $27,046 and $45,288 during 1994, 1995 and 1996,
respectively.
HEALTH INSURANCE PLAN
On November 1, 1995, the Company began providing certain benefits to
employees under a health insurance plan. Prior to November 1, 1995, the Company
provided healthcare benefits under a plan that was primarily self-funded except
for two reinsurance policies. Healthcare expenses incurred under these plans
amounted to $173,254, $234,019 and $116,175 during 1994, 1995 and 1996,
respectively.
8. COMMITMENTS AND CONTINGENCIES
On November 20, 1992, the Company was notified by the EPA of its potential
liability for the generation of potentially hazardous waste under the Bay Drum
Superfund Site. Management believes that the Company is a de micromis potential
responsible party at the site, and any liability of the Company related to this
matter is insignificant. The Company is one of hundreds of parties which have
been identified with the site. The Company received no correspondence from any
parties regarding this matter during 1994, 1995 or 1996.
9. SIGNIFICANT CUSTOMERS
No customers generated greater than 10% of the Company's revenue for the
years ended December 31, 1994 and 1995. Two customers generated revenue to the
Company representing 11% and 10%, respectively, of total revenues for the year
ended December 31, 1996.
10. SUBSEQUENT EVENT
Effective March 1, 1997, the entire equity ownership of the Company was
acquired by The Safe Seal Company for total consideration in excess of the
recorded amounts of the Company's net assets.
* * * * * *
F-78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Plant Specialties, Inc.:
We have audited the accompanying balance sheets of Plant Specialties, Inc.
(a Louisiana corporation), as of October 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended October 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Plant Specialties, Inc., as
of October 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 5, 1997
F-79
<PAGE>
PLANT SPECIALTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- MAY 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 6,019 $ 18,811 $ 135,109
Accounts receivable, net of
allowance of $24,924, $21,168 and
$27,873.......................... 2,484,846 2,111,448 2,765,473
Inventories........................ 1,485,546 1,681,887 1,890,224
Prepaid expenses and other current
assets........................... 76,220 87,291 289,246
------------ ------------ -----------
Total current assets.......... 4,052,631 3,899,437 5,080,052
PROPERTY AND EQUIPMENT, net............. 2,102,708 2,003,345 1,931,753
OTHER NONCURRENT ASSETS................. 147,917 160,960 148,051
------------ ------------ -----------
$ 6,303,256 $ 6,063,742 $ 7,159,856
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,300,821 $ 1,061,771 $ 941,872
Short-term debt.................... 1,809,984 1,428,453 2,081,859
Current maturities of long-term
debt............................. 163,230 112,392 137,231
------------ ------------ -----------
Total current liabilities..... 3,274,035 2,602,616 3,160,962
LONG-TERM DEBT, net of current
maturities............................ 579,149 916,332 898,264
DEFERRED INCOME TAXES................... 102,830 89,233 115,460
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value,
2,000,000 shares authorized,
1,000,000 shares issued and
outstanding...................... 8,500 8,500 8,500
Retained earnings.................. 2,338,742 2,447,061 2,976,670
------------ ------------ -----------
Total stockholders' equity.... 2,347,242 2,455,561 2,985,170
------------ ------------ -----------
$ 6,303,256 $ 6,063,742 $ 7,159,856
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED OCTOBER 31 MAY 31
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 9,687,963 $ 11,526,424 $ 8,500,741 $ 4,576,570 $ 6,699,460
COST OF OPERATIONS...................... 6,429,080 7,377,424 5,620,159 3,142,500 4,058,814
----------- ------------ ----------- ----------- -----------
Gross profit................... 3,258,883 4,149,000 2,880,582 1,434,070 2,640,646
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,590,125 2,991,155 2,489,494 1,480,100 1,659,679
----------- ------------ ----------- ----------- -----------
Income (loss) from
operations................... 668,758 1,157,845 391,088 (46,030) 980,967
OTHER INCOME (EXPENSE):
Interest, net....................... (149,556) (186,706) (188,116) (117,608) (143,638)
Other............................... 22,010 23,768 29,622 17,004 13,892
----------- ------------ ----------- ----------- -----------
(127,546) (162,938) (158,494) (100,604) (129,746)
----------- ------------ ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES....... 541,212 994,907 232,594 (146,634) 851,221
PROVISION FOR INCOME TAXES.............. 202,590 374,605 124,275 63,496 321,612
----------- ------------ ----------- ----------- -----------
NET INCOME (LOSS)....................... $ 338,622 $ 620,302 $ 108,319 $ (210,130) $ 529,609
=========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1993............... 1,000 $8,500 $1,379,818 $ 1,388,318
Net income......................... -- -- 338,622 338,622
------ ------ ---------- ------------
BALANCE, October 31, 1994............... 1,000 8,500 1,718,440 1,726,940
Net income......................... -- -- 620,302 620,302
------ ------ ---------- ------------
BALANCE, October 31, 1995............... 1,000 8,500 2,338,742 2,347,242
Net income......................... -- -- 108,319 108,319
------ ------ ---------- ------------
BALANCE, October 31, 1996............... 1,000 8,500 2,447,061 2,455,561
Net income (unaudited)............. -- -- 529,609 529,609
------ ------ ---------- ------------
BALANCE, May 31, 1997 (unaudited)....... 1,000 $8,500 $2,976,670 $ 2,985,170
====== ====== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
SEVEN MONTHS ENDED
YEAR ENDED OCTOBER 31 MAY 31
----------------------------------------- ----------------------
1994 1995 1996 1996 1997
------------ ------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 338,622 $ 620,302 $ 108,319 $ (210,130) $ 529,609
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Depreciation and amortization..... 351,000 384,430 412,725 213,097 237,721
(Increase) decrease in --
Accounts receivable, net....... (438,502) (453,231) 373,398 906,665 (654,025)
Inventories.................... 3,142 (222,584) (196,341) (358,075) (208,337)
Prepaid expenses and other
assets....................... (151,791) 141,405 (24,114) 64,889 (189,046)
Increase (decrease) in accounts
payable, accrued expenses and
deferred income taxes.......... (42,259) 190,620 (252,647) (194,063) (93,672)
------------ ------------- ------------ ---------- ----------
Net cash provided by (used in)
operating activities......... 60,212 660,942 421,340 422,383 (377,750)
------------ ------------- ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (571,036) (993,985) (313,564) (225,635) (166,129)
------------ ------------- ------------ ---------- ----------
Net cash used in investing
activities................... (571,036) (993,985) (313,564) (225,635) (166,129)
------------ ------------- ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt.................... 220,618 651,231 947,966 733,410 72,333
Repayments of debt.................... (278,202) (424,756) (661,620) (385,945) (65,562)
Borrowings (repayments) on line of
credit facility..................... 566,953 107,586 (381,330) (550,232) 653,406
------------ ------------- ------------ ---------- ----------
Net cash provided by (used in)
financing activities......... 509,369 334,061 (94,984) (202,767) 660,177
------------ ------------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH......... (1,455) 1,018 12,792 (6,019) 116,298
CASH, beginning of period............... 6,456 5,001 6,019 6,019 18,811
------------ ------------- ------------ ---------- ----------
CASH, end of period..................... $ 5,001 $ 6,019 $ 18,811 $ -- $ 135,109
============ ============= ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Plant Specialties, Inc. (the "Company"), was incorporated in the State of
Louisiana in 1972 and is principally engaged in the business of selling new
valves, instrumentation automation, engineering services and repair services for
valves and instrumentation to the petrochemical and oil field industries. The
Company's fiscal year-end is October 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations. The
Company capitalized interest related to construction-in-progress projects which
amounted to approximately $39,000 and $21,000 in fiscal 1995 and 1996,
respectively.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are realized or settled.
REVENUE RECOGNITION
Revenue is recognized as services are completed and products are shipped.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
last-in, first-out method and primarily consist of raw materials and finished
goods. If the first-in, first-out method had been used for costing inventories,
the valuation assigned to inventories would have been approximately $1,700,000
and $1,902,000 as of October 31, 1995 and 1996, respectively.
CASH
Cash payments for interest during fiscal 1994, 1995 and 1996 were
approximately $155,000, $231,000 and $208,000, respectively. Cash payments for
taxes during fiscal 1994, 1995 and 1996 were approximately $172,000, $206,000
and $159,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM RESULTS
The financial information for the seven months ended May 31, 1996 and 1997,
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company,
F-84
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the unaudited interim financial information includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation. Results
of operations for the interim periods are not necessarily indicative of the
results of operations for the respective full fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED OCTOBER 31
USEFUL ------------------------------
LIVES 1995 1996
----------- -------------- --------------
Buildings........................ 15-30 years $ 381,056 $ 896,422
Vehicles......................... 5 years 405,073 411,527
Furniture and fixtures........... 3-5 years 22,957 22,957
Machinery and equipment.......... 5 years 1,872,871 2,554,336
Leasehold improvements........... 20 years 614,615 649,508
Construction in progress......... -- 925,114 --
-------------- --------------
4,221,686 4,534,750
Less -- Accumulated depreciation. (2,118,978) (2,531,405)
-------------- --------------
Property and equipment, net...... $ 2,102,708 $ 2,003,345
============== ==============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
OCTOBER 31
--------------------------------
1994 1995 1996
--------- ---------- ---------
Balance at beginning of year............ $ 16,022 $ 19,728 $ 24,924
Additions (recovery) charged (credited)
to results of operations.............. 3,706 89,654 (1,019)
Deductions for uncollectible accounts
written off........................... -- (84,458) (2,737)
--------- ---------- ---------
$ 19,728 $ 24,924 $ 21,168
========= ========== =========
Inventories at LIFO consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Raw material and work in process........ $ 1,422,617 $ 850,733
Finished goods.......................... 62,929 831,154
------------ ------------
$ 1,485,546 $ 1,681,887
============ ============
F-85
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Accounts payable, trade................. $ 603,877 $ 484,945
Accrued compensation and benefits....... 137,575 69,329
Accrued insurance....................... 49,963 56,463
Income taxes............................ 262,210 195,410
Other accrued expenses.................. 247,196 255,624
------------ ------------
$ 1,300,821 $ 1,061,771
============ ============
5. SHORT- AND LONG-TERM DEBT:
Short-term debt consists of a revolving credit facility with a bank, due
May 20, 1997, with interest due monthly at prime (8.25% at October 31, 1996).
The revolving debt is secured by accounts receivable and inventory. The
available borrowing capacity at October 31, 1996 was $2,000,000.
Long-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Notes payable, monthly installments of
principal and interest of $34,000,
bearing interest at 7.50% to 11.00%,
collateralized by land, vehicles and
equipment............................. $ 742,379 $ 1,028,724
Less -- Current maturities......... (163,230) (112,392)
------------ ------------
Long-term debt.......................... $ 579,149 $ 916,332
============ ============
Pursuant to the revolving credit facility agreement, the Company is subject
to financial covenants relating to net worth, leverage ratios and debt service
coverage. At October 31, 1995 and 1996, the Company was in compliance with these
covenants.
The aggregate maturities of the long-term debt as of October 31, 1996 are
as follows:
1997................................. $ 112,392
1998................................. 108,358
1999................................. 110,997
2000................................. 86,527
2001................................. 610,450
Thereafter........................... --
------------
$ 1,028,724
============
Interest expense recorded pursuant to these debt agreements totaled
approximately $155,000, $192,000 and $213,000 in fiscal 1994, 1995 and 1996,
respectively. Management estimates that the fair value of its debt obligations
approximates historical value at October 31, 1996.
F-86
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The Company's provision (benefit) for income taxes is as follows:
YEAR ENDED OCTOBER 31
----------------------------------
1994 1995 1996
---------- ---------- ----------
Federal --
Current......................... $ 190,004 $ 362,993 $ 112,912
Deferred........................ (1,810) (15,138) (11,252)
State --
Current......................... 14,534 27,758 23,679
Deferred........................ (138) (1,008) (1,064)
---------- ---------- ----------
$ 202,590 $ 374,605 $ 124,275
========== ========== ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
tax as follows:
YEAR ENDED OCTOBER 31
-------------------------------
1994 1995 1996
--- --- ---
Statutory federal income tax rate.... 34% 34% 34%
State and local taxes................ 3 3 3
Effect of nondeductible meals and
entertainment...................... -- -- 10
Other................................ -- 1 6
--- --- ---
Effective income tax rate............ 37% 38% 53%
=== === ===
Deferred income taxes consist of the following:
OCTOBER 31
---------------------
1995 1996
---------- ---------
Current deferred tax assets............. $ 8,000 $ 6,403
Noncurrent deferred tax assets.......... -- --
---------- ---------
Total deferred tax assets..... 8,000 6,403
---------- ---------
Current deferred tax liabilities........ -- --
Noncurrent deferred tax liabilities..... 102,830 89,233
---------- ---------
Total deferred tax
liabilities................ 102,830 89,233
---------- ---------
Net deferred tax
liabilities................ $ 94,830 $ 82,830
========== =========
7. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. The plan allows employee contributions under Section 401(k) of the
Internal Revenue Code. Eligible employees may elect to contribute up to 20
percent of eligible compensation on a pretax basis, subject to IRS limits. The
Company provides matching contributions of 50 percent of employee contributions
up to 6 percent of employee compensation. The Company contributed approximately
$36,000, $39,000 and $38,000 for fiscal 1994, 1995 and 1996, respectively.
F-87
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse, office facilities and vehicles under
operating leases which expire at various dates through 1999. Future minimum
lease payments at October 31, 1996 are as follows:
1997.................................... $ 140,943
1998.................................... 42,535
1999.................................... 24,813
Rent expense for fiscal 1994, 1995 and 1996 was approximately $289,000,
$361,000 and $240,000, respectively.
The Company leases its facilities from its president and majority
stockholder under an operating lease requiring monthly payments of approximately
$16,000 expiring April 30, 1997. The Company is responsible for all taxes,
insurance and maintenance. Rent expense pursuant to this lease for fiscal 1994,
1995 and 1996 was $191,000, $197,000 and $197,000, respectively.
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's financial position or
results of operations.
9. RELATED-PARTY TRANSACTIONS:
As of October 31, 1995 and 1996, the Company had a note receivable from the
president and majority stockholder of the Company in the amount of $80,080 and
$82,237, respectively. The note bears interest at 7 percent, payable in monthly
installments of $1,000.
10. REVENUES FROM SIGNIFICANT CUSTOMERS:
During fiscal 1996, five customers accounted for approximately 54 percent
of the Company's revenues. During fiscal 1995, five customers accounted for
approximately 67 percent of the Company's revenues. During fiscal 1994, four
customers accounted for approximately 77 percent of the Company's revenues.
11. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
On June 16, 1997, the stockholders of the Company sold the entire equity
ownership of the Company to Innovative Valve Technologies, Inc. for total
consideration in excess of the recorded amounts of the Company's net assets.
F-88
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Valve Group:
We have audited the accompanying combined balance sheet of Southern Valve
Group (as defined in Note 1) as of October 31, 1996, and the related combined
statements of operations, stockholders' equity and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Southern
Valve Group as of October 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 18, 1997
F-89
<PAGE>
SOUTHERN VALVE GROUP
COMBINED BALANCE SHEETS
OCTOBER 31, JULY 31,
1996 1997
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 21,874 $ 121,104
Accounts receivable, net of
allowance of $11,861 and
$27,850........................... 473,581 780,264
Inventories........................ 1,301,987 1,516,294
Notes receivable................... 168,779 50,048
Prepaid expenses and other current
assets............................ 22,362 47,953
----------- -----------
Total current assets.......... 1,988,583 2,515,663
PROPERTY AND EQUIPMENT, net............. 1,055,716 861,304
----------- -----------
$ 3,044,299 $ 3,376,967
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. $ 517,105 $ 428,657
Accounts payable and accrued
expenses.......................... 309,570 241,315
Note payable to stockholder........ 76,994 231,994
----------- -----------
Total current liabilities..... 903,669 901,966
LONG-TERM DEBT, net of current
maturities............................ 1,363,166 1,644,797
DEFERRED INCOME TAXES................... 12,913 12,913
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value,
1,000 shares authorized, 1,000
shares issued and outstanding..... 10,000 10,000
Additional paid-in capital......... 5,860 5,860
Retained earnings.................. 748,691 801,431
----------- -----------
Total stockholders' equity.... 764,551 817,291
----------- -----------
$ 3,044,299 $ 3,376,967
=========== ===========
The accompanying notes are an integral part of these combined financial
statements.
F-90
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS
YEAR ENDED ENDED JULY 31
OCTOBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
REVENUES............................. $ 4,404,717 $ 3,595,578 $ 3,326,927
COST OF OPERATIONS................... 2,962,337 2,326,946 2,186,737
------------ ------------ ------------
Gross profit.................... 1,442,380 1,268,632 1,140,190
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,175,487 882,795 915,643
------------ ------------ ------------
Income from operations.......... 266,893 385,837 224,547
OTHER INCOME (EXPENSE), net:
Interest........................... (177,123) (121,473) (119,288)
Other.............................. 45,571 -- (38,500)
------------ ------------ ------------
(131,552) (121,473) (157,788)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........... 135,341 264,364 66,759
PROVISION FOR INCOME TAXES........... 29,056 55,517 14,019
------------ ------------ ------------
NET INCOME........................... $ 106,285 $ 208,847 $ 52,740
============ ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-91
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1995............ 1,000 $10,000 $5,860 $ 642,406 $ 658,266
Net income...................... -- -- -- 106,285 106,285
------ ------- ---------- --------- ----------
BALANCE, October 31, 1996............ 1,000 10,000 5,860 748,691 764,551
Net income (unaudited).......... -- -- -- 52,740 52,740
------ ------- ---------- --------- ----------
BALANCE, July 31, 1997 (unaudited)... 1,000 $10,000 $5,860 $ 801,431 $ 817,291
====== ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-92
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS
YEAR ENDED ENDED JULY 31
OCTOBER 31, ------------------------
1996 1996 1997
--------- ------------ ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 106,285 $ 208,847 $ 52,740
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization.... 155,874 117,000 116,900
Loss on disposal of assets....... -- -- 38,500
Change in deferred income
taxes......................... 2,589 -- --
(Increase) decrease in --
Accounts receivable........... (188,676) (534,069) (306,683)
Inventories................... 60,920 96,679 (214,307)
Notes receivable.............. (10,957) (1,207) 118,731
Prepaid expenses and other
current assets............. 17,094 21,483 (25,591)
Increase (decrease) in --
Accounts payable and accrued
expenses................... 96,166 134,016 (68,255)
--------- ------------ ----------
Net cash provided by (used in)
operating activities.......... 239,295 42,749 (287,965)
--------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (308,362) (189,777) (5,988)
--------- ------------ ----------
Net cash used in investing
activities.................... (308,362) (189,777) (5,988)
--------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt.................... 738,512 663,093 481,631
Repayments of debt.................... (752,633) (564,413) (88,448)
--------- ------------ ----------
Net cash provided by (used in)
financing activities.......... (14,121) 98,680 393,183
--------- ------------ ----------
NET INCREASE (DECREASE) IN CASH......... (83,188) (48,348) 99,230
CASH, beginning of period............... 105,062 105,062 21,874
--------- ------------ ----------
CASH, end of period..................... $ 21,874 $ 56,714 $ 121,104
========= ============ ==========
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholders' equity and cash flows include Southern Valve Service,
Inc. ("Southern Valve") and 55 Leasing and Sales Company, Inc. ("55
Leasing"). As Southern Valve and 55 Leasing (together, "Southern Valve Group"
or the "Company") have common ownership and management, the financial
statements of each entity have been consolidated for financial reporting
purposes. All intercompany transactions and balances have been eliminated.
Southern Valve was incorporated in the State of Alabama in 1984 and is
principally engaged in the business of repairing, testing and selling manual,
control and safety relief valves to customers in the pulp and paper, chemical,
power generation and petrochemical industries in Alabama, Mississippi and
Georgia.
55 Leasing is an Alabama S Corporation organized in 1995 primarily to lease
equipment to Southern Valve.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment is sold or retired, the cost and related accumulated depreciation is
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled. 55 Leasing is an S
Corporation for federal income tax purposes and, in accordance with the S
Corporation provisions of the Internal Revenue Code, the earnings of 55 Leasing
are included in the personal tax returns of its stockholders. Accordingly, no
federal or state income tax expense is recorded in the accompanying consolidated
financial statements for 55 Leasing.
REVENUE RECOGNITION
Service revenue is recognized upon completion of the service, and product
sales revenue is recognized as products are shipped or delivered.
CASH
Cash payments for interest during fiscal 1996 were approximately $178,000.
Cash payments for taxes during fiscal 1996 were approximately $15,000.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
first-in, first-out method and primarily consist of valves and valve parts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-94
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
UNAUDITED INTERIM INFORMATION
The financial information for the nine months ended July 31, 1996 and 1997,
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a writedown to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED OCTOBER 31,
USEFUL LIVES 1996
------------ -----------
Land.................................... -- $ 171,682
Buildings and improvements.............. 18-40 years 533,015
Vehicles................................ 5 years 433,900
Furniture and fixtures.................. 5-10 years 180,782
Machinery and equipment................. 5-10 years 688,398
-----------
2,007,777
Less -- Accumulated depreciation........ (952,061)
-----------
$ 1,055,716
===========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for the year
ended October 31, 1996, consists of the following:
Balance at beginning of year....... $ 8,759
Additions charged to results of
operations........................ 3,102
---------
Balance at end of year............. $ 11,861
=========
F-95
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses as of October 31, 1996, consist of
the following:
Accounts payable................... $ 177,383
Customer deposits.................. 30,943
Accrued employee compensation and
benefits......................... 27,447
Other accrued expenses............. 73,797
----------
$ 309,570
==========
5. DEBT:
As of October 31, 1996, debt consists of the following:
Lines of credit, aggregate borrowing
capacity of $350,000 with a commercial
bank, bearing interest at prime plus
1.00% (9.25% at October 31, 1996),
collateralized by inventory and
accounts receivable................... $ 190,000
Notes payable to banks, monthly
installments of principal and interest
in the amount of $34,264, bearing
interest at 7.00% to 10.00%,
collateralized by accounts receivable,
inventory, land, equipment and
vehicles.............................. 1,690,271
Unsecured demand note, payable to
stockholder, bearing interest at
8.00%................................. 76,994
------------
1,957,265
Less -- Current maturities.............. (594,099)
------------
Total long-term debt, net of
current maturities................ $ 1,363,166
============
In January 1997, the Company refinanced its notes payable to banks. The
refinanced debt is payable to one bank, bearing interest of 8.50% with monthly
installments of principal and interest. There was no significant change in
amount of the debt financed and no gain or loss on debt extinguishment to be
recognized. In addition, the Company's lines of credit have been replaced by a
$300,000 line of credit; as of April 18, 1997, there was no outstanding balance
due under the line of credit.
The aggregate maturities of the refinanced debt and unsecured demand note
are as follows:
For the Year Ending October 31 --
1997............................... $ 105,064
1998............................... 151,856
1999............................... 993,226
2000............................... 92,545
2001............................... 46,637
Thereafter......................... 465,145
------------
$ 1,854,473
============
Interest expense recorded pursuant to these debt agreements totaled
approximately $177,000 in fiscal 1996. Management estimates that the fair value
of its debt obligations approximates the historical value at October 31, 1996.
F-96
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The income tax provision for fiscal 1996 is as follows:
Federal --
Current............................ $ 22,366
Deferred........................... 2,243
State --
Current............................ 4,101
Deferred........................... 346
---------
$ 29,056
=========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes for fiscal 1996, as follows:
Statutory federal income tax rate....... 34%
Effect of federal graduated tax rate.... (12)
State and local taxes................... 3
Effect of S Corporation election........ (7)
Effect of nondeductible meals and
entertainment......................... 2
Other................................... 2
---
Effective income tax rate............... 22%
===
Deferred income taxes as of October 31, 1996, consist of the following:
Current deferred tax assets.......... $ 7,143
----------
Total deferred tax
assets.............. 7,143
----------
Noncurrent deferred tax
liabilities.......................... (12,913)
----------
Total deferred tax
liabilities......... (12,913)
----------
Net deferred tax
liabilities......... $ (5,770)
==========
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's consolidated
financial position or results of operations.
8. RELATED-PARTY TRANSACTIONS:
As of October 31, 1996, the Company had a note receivable from a
stockholder in the amount of $161,279. The note receivable bears interest
equivalent to the short-term federal treasury rate and is payable on demand.
9. SIGNIFICANT CUSTOMERS:
For fiscal 1996, the Company had two customers that comprised approximately
19% and 12%, respectively, of total revenues.
F-97
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
In June 1997, pursuant to a definitive agreement, the stockholders of the
Company agreed to sell the entire equity ownership of the Company to Innovative
Valve Technologies, Inc. (Invatec), for total consideration in excess of the
recorded amounts of the Company's net assets. The closing of the transaction is
conditioned on the successful consummation of Invatec's initial public offering.
F-98
<PAGE>
Invatec provides industrial valve repair and value-added distribution
services to a variety of process industries throughout North America, including
the hydrocarbon processing (refining, petrochemical, chemical, oil and gas
production, pipeline and storage), power and utility, and pulp and paper
industries.
HYDROCARBON PROCESSING
POWER AND UTILITY PULP AND PAPER
[Graphic: Three blended photographs of process
manufacturing facility, electric power plant and a segment of a paper mill.]
SINGLE-SOURCE PROVIDER OF
REPAIR AND VALUE-ADDED DISTRIBUTION SERVICES FOR INDUSTRIAL VALVES
ON-LINE REPAIR VALUE-ADDED DISTRIBUTION SERVICES
SERVICES
Valve Component Inspection and Diagnosis
Repair Design and Customization
Valve Packing Re-Conditioning, Assembly and Calibration
Restoration
Process-System
Leak Repair
- -------------------------------------------------------------------------------
OFF-LINE REPAIR NEW PRODUCT DISTRIBUTION
SERVICES
Diagnosis and New Valve Sales
Testing Process-System Component Sales
Comprehensive Delivery and Installation
Valve Repair
Plant Turnaround
Maintenance
<PAGE>
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME, SUBSEQUENT TO THE DATE HEREOF.
----------------------------
TABLE OF CONTENTS
----------------------------
PAGE
----
PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 7
THE COMPANY.......................... 13
USE OF PROCEEDS...................... 16
DIVIDEND POLICY...................... 16
CAPITALIZATION....................... 17
DILUTION............................. 18
SELECTED FINANCIAL INFORMATION....... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 21
THE INDUSTRIAL VALVE INDUSTRY........ 26
BUSINESS............................. 30
MANAGEMENT........................... 41
CERTAIN TRANSACTIONS................. 50
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT... 52
SHARES ELIGIBLE FOR FUTURE SALE...... 54
DESCRIPTION OF CAPITAL STOCK......... 56
UNDERWRITING......................... 61
LEGAL MATTERS........................ 62
EXPERTS.............................. 62
ADDITIONAL INFORMATION............... 63
INDEX TO FINANCIAL STATEMENTS........ F-1
----------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,350,000 SHARES
INVATEC
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NATIONSBANC
MONTGOMERY
SECURITIES, INC.
FURMAN SELZ
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by Innovative Valve
Technologies, Inc. (the " Company"). All these amounts (except the SEC
Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee) are estimated.
SEC Registration Fee................. $ 17,996
NASD Filing Fee...................... 6,439
Nasdaq National Market Listing Fee... 36,000
Blue Sky Fees and Expenses........... 10,000
Printing and Engraving Costs......... 250,000
Legal Fees and Expenses.............. 600,000
Accounting Fees and Expenses......... 1,000,000
Transfer Agent and Registrar Fees and
Expenses............................. 50,000
Miscellaneous........................ 29,565
------------
Total...................... $ 2,000,000
============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
" DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the
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adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by a
majority vote of the directors who were not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such repeal or modification.
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BYLAWS
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent permitted
by applicable law, as in effect as of the date of the adoption of the Bylaws or
to such greater extent as applicable law may thereafter permit, from and against
all losses, liabilities, claims, damages, judgments, penalties, fines, amounts
paid in settlement and expenses (including attorneys' fees) whatsoever arising
out of any event or occurrence related to the fact that such person is or was a
director or officer of the Company and further provide that the Company may, but
is not required to, indemnify and hold harmless any employee or agent of the
Company or a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise who
is or was serving in such capacity at the written request of the Company;
provided, however, that the Company is only required to indemnify persons
serving as directors, officers, employees or agents of the Company for the
expenses incurred in a proceeding if such person is a party to and is
successful, on the merits or otherwise, in such proceeding, or if unsuccessful
in the proceeding, but successful as to a matter in such proceeding, the
expenses attributable to such matter and provided further that the Company may,
but is not required to, indemnify such persons who are serving as a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise at the written request of the
Company for the expenses incurred in a proceeding if such person is a party to
and is successful, on the merits or otherwise, in such proceeding. The Bylaws
further provide that, in the event of any threatened, or pending action, suit or
proceeding in which any of the persons referred to above is a party or is
involved and that may give rise to a right of indemnification under the Bylaws,
following written request by such person, the Company will promptly pay to such
person amounts to cover expenses reasonably incurred by such person in such
proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written undertaking executed by or on behalf of such person providing
that such person will repay the advance if it is ultimately determined that such
person is not entitled to be indemnified by the Company as provided in the
Bylaws and (ii) satisfactory evidence as to the amount of such expenses.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors and executive officers. The Indemnification Agreements generally are
to the same effect as the Bylaw provisions described above.
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1997, the Company sold a total of 146,959 shares of its Common
Stock to certain of its executive officers (William E. Haynes, Charles F.
Schugart and Frank L. Lombard) and Computerized Accounting and Tax Services,
Inc. ("CATS"), a related party, for a total purchase price of $216.12. In June
1997, the Company sold a total of 95,880 shares of its Common Stock to its
executive officers (Messrs. Haynes, Schugart, Denny A. Rigas, Lombard, John L.
King and Douglas R. Harrington, Jr.) and CATS for a total purchase price of
$141.00. These sales were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering. The share figures in this paragraph give effect to a
reverse stock split of the Common Stock.
In June 1997, The Safe Seal Company, Inc. ("SSI") issued $3.3 million
aggregate principal amount of its 5.0% convertible subordinated notes to the
former owners of Plant Specialties, Inc. ("PSI") as partial payment of the
purchase price for the stock of PSI. When the offering made by this Registration
Statement (the "Offering") closes, the Company will succeed SSI as the obligor
on these notes and these notes will be convertible into shares of the Company's
Common Stock at an initial conversion price equal to 130% of the initial price
to the public in the Offering (the "IPO Price"). The sale of these notes (and
the underlying rights to shares of the Company's Common Stock) was exempt, and
the Company's succession as the
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obligor thereon will be exempt, from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering. The issuance of the Company's Common Stock on conversion of
these notes will be exempt from those requirements pursuant to Section 3(a)(9)
of the Securities Act.
In July 1997, the Company issued $2.8 million aggregate principal amount of
its 5.5% convertible subordinated notes to the former owners of Steam Supply &
Rubber Co., Inc. and affiliated companies ("Steam Supply") as partial payment
of the purchase price for the stock of Steam Supply. When the Offering closes,
these notes will be convertible into shares of the Company's Common Stock at an
initial conversion price equal to 130% of the IPO Price. The sale of these notes
(and the underlying rights to shares of the Company's Common Stock) was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof as transactions not involving any public offering. The issuance of
the Company's Common Stock on conversion of these notes will be exempt from
those requirements pursuant to Section 3(a)(9) of the Securities Act.
Concurrently with the closing of the Offering, the Company will issue to
subsidiaries of Philip Services Corp. (collectively with its subsidiaries,
"Philip") (i) an aggregate of 1,087,294 shares of its Common Stock in
repayment of an aggregate of $8.0 million of indebtedness owed by the Company to
Philip and (ii) 166,667 shares of its Common Stock in redemption of 20,000
shares of SSI preferred stock issued by SSI to Philip. These conversions will be
(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.
Before the completion of the Offering, the Company will issue shares of its
Common Stock in connection with the merger transaction in which SSI will become
a subsidiary of the Company. Concurrently with the completion of the Offering,
the Company will issue such number of shares of its Common Stock as shall equal
$1,500,000 divided by the IPO Price in connection with its acquisition of
Southern Valve Service, Inc. and an affiliated company. These transactions will
be exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
1.1 -- Form of Underwriting Agreement.
2.1* -- Stock Purchase Agreement dated as of December 28, 1996 by
and among The Safe Seal Company, Inc. ("SSI"), certain
stockholders of Harley Industries, Inc. and Harley Industries,
Inc.
2.2* -- Stock Transfer Agreement dated as of January 24, 1997 by
and among SSI, an individual stockholder of Harley Industries,
Inc., Harley Industries, Inc. and Harley Equipment
Corporation.
2.3* -- Stock Purchase Agreement entered into on June 23, 1997 by
and among the Company, Puget Investments, Inc.,
Flickinger-Benicia Inc. (collectively, "Steam Supply"), and
the stockholders named therein.
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by and
among the Company, Industrial Controls & Equipment, Inc.,
Valve Actuation & Repair Co., Rickco Acquisition, Inc., BAS
Technical Employment Placement Company and the stockholders
named therein.
2.5* -- Stock Purchase Agreement dated as of February 26, 1997 by
and among SSI and the stockholders of GSV, Inc.
2.6* -- Stock and Real Estate Purchase Agreement dated as of May
22, 1997 by and among SSI, Plant Specialties, Inc. ("PSI"),
and the stockholders named therein.
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EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
2.7* -- Agreement and Plan of Reorganization dated as of June 27,
1997 by and among the Company, SVSI Acquisition, Inc.,
Southern Valve Service, Inc. and the stockholders named
therein.
2.8* -- Stock Redemption and Purchase Agreement dated as of June
27, 1997 by and among the Company, Lee Roy Jordan, Ralph
Buffkin and 55 Leasing and Sales, Inc.
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997 by
and among the Company, IVT Acquisition, Inc. and SSI and the
amendment thereto dated as of August 15, 1997.
2.10* -- Uniform Provisions for Acquisitions (incorporated into the
agreements filed as Exhibits 2.3, 2.4 and 2.7 hereto).
3.1* -- Certificate of Incorporation of the Company.
3.2* -- Bylaws of the Company.
4.1* -- Form of Certificate representing Common Stock.
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.
4.3* -- Registration Rights Agreement dated as of June 12, 1997 by
and among the Company and the persons listed on the signature
pages thereto.
4.4 -- Addendum to Registration Rights Agreement dated as of July
28, 1997 by and among the Company and the holders listed on
the signature pages thereto.
4.5* -- Form of Convertible Subordinated Promissory Note issued in
the acquisition of PSI.
4.6* -- Form of Convertible Subordinated Promissory Note issued in
the acquisition of Steam Supply.
4.7 -- Second Amended and Restated Credit Agreement dated as of
July 28, 1997 among SSI and The Chase Manhattan Bank and the
other parties designated therein.
4.8 -- Credit Agreement dated as of March 6, 1997 among SSI and
Texas Commerce Bank, National Association and the other
parties designated therein and the amendment thereto dated as
of August 8, 1997.
4.9* -- Funding Agreement dated as of June 9, 1997, as amended and
restated as of August 15, 1997, by and between the Company and
Philip.
4.10 -- Form of Rights Agreement by and between the Company and
ChaseMellon Shareholder Services, L.L.C., including form of
Rights Certificate attached as Exhibit B thereto.
The Company and certain of its subsidiaries are parties to
certain debt instruments under which the total amount of
securities authorized does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis.
Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments
to the Commission on request.
5.1 -- Opinion of Baker & Botts, L.L.P.
10.1 -- 1997 Incentive Plan of Innovative Valve Technologies, Inc.
10.2 -- Form of Employment Agreement dated as of January 27, 1997,
between SSI and William E. Haynes.
10.3 -- Form of Employment Agreement dated as of January 27, 1997,
between SSI and Charles F. Schugart.
10.4 -- Form of Employment Agreement dated as of May 6, 1997,
between the Company and Denny A. Rigas.
10.5* -- Consulting Agreement dated as of March 27, 1997 by and
between Wasatch Capital Corporation and the Company.
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------
10.6 -- Form of Indemnification Agreement between the Company and
each of its directors and officers.
21.1* -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consents of Deloitte & Touche LLP.
23.3 -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1
hereto).
23.4* -- Consent of Michael A. Baker, as a nominee for directorship.
23.5* -- Consent of Arthur L. French, as a nominee for directorship.
23.6* -- Consent of Tommy E. Knight, as a nominee for directorship.
23.7* -- Consent of Pierre R. Latour, as a nominee for directorship.
23.8* -- Consent of T. Wayne Wren, Jr., as a nominee for directorship.
23.9* -- Consent of Robert M. Chiste, as a nominee for directorship.
24.1* -- Power of Attorney.
27.1 -- Financial Data Schedule.
- ------------
* Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Purchase Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as a part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON OCTOBER 17, 1997.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: /s/ WILLIAM E. HAYNES
WILLIAM E. HAYNES
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES CAPACITY IN WHICH SIGNED DATE
---------- ------------------------ ----
/s/ WILLIAM E. HAYNES Chairman of the Board, October 17, 1997
WILLIAM E. HAYNES President, Chief Executive Officer
and Sole Director (Principal
Executive Officer)
/s/ CHARLES F. SCHUGART Senior Vice President -- Chief October 17, 1997
CHARLES F. SCHUGART Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT 1.1
3,350,000 SHARES
INNOVATIVE VALVE TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
OCTOBER [ ], 1997
<PAGE>
TABLE OF CONTENTS
Section 1. Representations and Warranties of the Company.................2
Section 2. Purchase, Sale and Delivery of the Common Shares.............10
Section 3. Additional Covenants.........................................12
Section 4. Payment of Expenses..........................................16
Section 5. Conditions of the Obligations of the Underwriters............16
Section 6. Reimbursement of Underwriters' Expenses......................18
Section 7. Effectiveness of this Agreement..............................19
Section 8. Indemnification..............................................19
Section 9. Contribution.................................................21
Section 10. Default of One or More of the Several Underwriters...........22
Section 11. Termination of this Agreement................................23
Section 12. Representations and Indemnities to Survive Delivery..........23
Section 13. Notices.....................................................24
Section 14. Successors..................................................25
Section 15. Partial Unenforceability....................................25
Section 16. General Provisions..........................................25
Exhibit A...............................................................A-1
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Underwriting Agreement
October [ ], 1997
NATIONSBANC MONTGOMERY SECURITIES, INC.
FURMAN SELZ LLC
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Innovative Valve Technologies, Inc., a Delaware
corporation (the "Company), proposes to issue and sell to the several
underwriters named in SCHEDULE A (the "Underwriters") an aggregate of 3,350,000
shares (the "Firm Common Shares") of its Common Stock, par value $0.001 per
share (the "Common Stock"). In addition, the Company has granted to the
Underwriters an option to purchase up to an additional 502,500 shares (the
"Optional Common Shares") of Common Stock, as provided in Section 2. The Firm
Common Shares and, if and to the extent such option is exercised, the Optional
Common Shares are collectively called the "Common Shares". NationsBanc
Montgomery Securities, Inc. ("Montgomery Securities") and Furman Selz LLC have
agreed to act as representatives of the several Underwriters (in such capacity,
the "Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-31617), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A under the Securities Act, is called the
"Registration Statement". Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b)
Registration Statement", and from and after the date and time of filing of the
Rule 462(b) Registration Statement the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. Such prospectus,
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<PAGE>
in the form first used by the Underwriters to confirm sales of the Common
Shares, is called the "Prospectus". All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus or the Prospectus, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied, to the Commission's satisfaction, with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed with the
Commission complied in all material respects with the Securities Act and,
if filed with the Commission by electronic transmission pursuant to
EDGAR, was identical to the copy thereof delivered to the Underwriters
for use in connection with the offer and sale of the Common Shares,
except as permitted by Regulation S-T under the Securities Act. Each of
the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective,
complied in all material respects with the applicable requirements of the
Securities Act and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
as amended or supplemented, as of its date and at all subsequent times,
did not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts, agreements, instruments or other documents required to be
described in the Prospectus or to be filed as exhibits to the
Registration Statement which have not been described or filed as
required.
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(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives two complete manually signed copies of
the Registration Statement and of each consent of experts filed as a part
thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company
has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable against the Company in accordance
with its terms, except as that enforceability may be subject to the
effect of (i) any applicable bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, (ii) general principles of equity (regardless of
whether that enforceability is considered in a proceeding in equity or at
law) and (iii) any implied covenant of good faith or fair dealing, and
except as rights to indemnity and contribution hereunder may be limited
by Federal or state laws.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable and free of and will not have been
issued in violation of any preemptive or similar rights that have not
been duly and effectively waived.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are
no persons with registration or other similar rights to have any equity
or debt securities registered for sale under the Registration Statement
or included in the offering contemplated by this Agreement, except for
such rights as have been duly waived.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed in
the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations, properties, net
worth or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its Subsidiaries (as
defined below), considered as one entity (any such
3
<PAGE>
change is called a "Material Adverse Change"); (ii) the Company and its
Subsidiaries, considered as one entity, have not incurred any material
liability or obligation, indirect, direct or contingent, not in the
ordinary course of business or entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has
been no dividend or distribution of any kind declared, paid or made by
the Company or, except for dividends paid to the Company or other
Subsidiaries, any of its Subsidiaries, on any class of capital stock or
repurchase or redemption by the Company or any of its Subsidiaries of any
class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. The accountants, (i) Arthur Andersen
LLP, who have certified the financial statements of the Company, The
Safe-Seal Company, Inc. and subsidiaries ("Safe-Seal"), Plant
Specialties, Inc. ("Plant Specialties"), the Steam Supply Group ("Steam
Supply"), the ICE/VARCO Group ("ICE/VARCO") and the Southern Valve Group
("Southern Valve") included in the Registration Statement and the
Prospectus, and (ii) Deloitte & Touche LLP, who have certified the
financial statements of Harley Industries, Inc. and subsidiaries
("Harley") and GSV, Inc. ("GSV") included in the Registration Statement
and the Prospectus, are independent public accountants as required by the
Securities Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The historical
financial statements, together with the related notes, included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly in all material respects the separate
financial position, results of operations, shareholders' equity (and
deficit) and cash flows of each of the Company, Safe-Seal, Harley, Plant
Specialties, GSV, Steam Supply, ICE/VARCO and Southern Value on the basis
stated in the Registration Statement at the respective dates or for the
respective periods to which they apply; such financial statements and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except
as disclosed therein; and the summary and selected financial and
statistical information and data included in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) present
fairly the information shown therein and such data have been compiled on
a basis consistent with the financial statements presented therein and
the books and records of the Company, Safe-Seal, Harley, Plant
Specialities, Steam Supply, ICE/VARCO and Southern Valve, as applicable.
The pro forma combined financial statements of the Company and its
Subsidiaries, together with the related notes, as set forth in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the information shown therein, have
been prepared in accordance with the applicable provisions of Article 11
of Regulation S-X promulgated by the Commission with respect to pro forma
financial statements and have been properly compiled on the pro forma
bases described therein and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein; and the other
financial and statistical information and data included in the
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Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company and its Subsidiaries.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. All of the Company's subsidiaries (collectively, its
"Subsidiaries") are listed on SCHEDULE B hereto. Each of the Company and
each of its Subsidiaries and the companies to be acquired on the Closing
Date (as defined below) as identified in the Registration Statement (the
"Additional Companies") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and, in the case of the Company,
to enter into and perform its obligations under this Agreement. Each of
the Company and its Subsidiaries (and the Additional Companies) is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except for such jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change. All of the issued and
outstanding capital stock of each Subsidiary and Additional Company has
been duly authorized and validly issued, is fully paid and nonassessable
and is or, with respect to the Additional Companies, on the Closing Date
will be owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
claim, except for those granted by the Company in connection with the New
Credit Facility (as defined in the Prospectus) and disclosed in the
Prospectus. The Company does not own or control, directly or indirectly,
any corporation, partnership, joint venture, association or other
business organization or entity other than its Subsidiaries listed on
SCHEDULE B hereto.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. As of the date
of this Agreement, the Company has authorized capital stock consisting of
30,000,000 shares of Common Stock and 5,000,000 shares of its Preferred
Stock, par value $0.001 per share (the "Preferred Stock"). Prior to the
issuances of shares of Common Stock described in clauses (ii), (iii) and
(iv) of the first sentence in Note (1) to the table under the caption
"Prospectus Summary--This Offering" in the Prospectus ("Note(1)"), the
Company will have issued and outstanding 242,839 shares of Common Stock
and no shares of Preferred Stock. After the issuances of shares of Common
Stock described in clauses (ii), (iii) and (iv) of Note (1) and prior to
the issuance and sale of the Common Shares, the Company will have issued
and outstanding 4,041,139 shares of Common Stock and no shares of
Preferred Stock. As of the First Closing Date (as defined in Section
2(b)below), (i) all those 4,041,139 shares of Common Stock will have been
duly authorized and validly issued in compliance with the applicable
federal and state securities laws and will be fully paid and
nonassessable and (ii) none of those shares will have been issued in
violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or
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purchase securities of the Company. The Common Shares have been duly
authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. The capital stock of the Company
(including the Common Shares) conforms in all material respects to the
description thereof contained in the Prospectus. Except as described in
the Prospectus, (i) there are no authorized or outstanding, and there are
no commitments to issue or grant, options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its Subsidiaries and (ii) there is
no holder of any securities of the Company or any other person who has
the right, contractual or otherwise, to cause the Company to sell or
otherwise issue to him, her or it, or permit him, her or it to underwrite
the sale of, any of the Common Shares. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the
options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Shares have been approved
for inclusion on the Nasdaq National Market, subject only to official
notice of issuance.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its
Subsidiaries (or any of the Additional Companies) is in violation of its
charter or by-laws (or similar organizational document) or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement,
bond, debenture, note or other evidence of indebtedness, contract,
agreement, franchise, lease or other instrument to which the Company or
any of its Subsidiaries (or any of the Additional Companies) is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of its Subsidiaries (or any of
the Additional Companies) is subject (each, an "Existing Instrument"),
except for such Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change. The Company's execution, delivery
and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (i) have been duly authorized
by all necessary corporate action and will not result in any violation of
the provisions of the charter or by-laws (or similar organizational
document) of the Company or any of its Subsidiaries (or any Additional
Company), (ii) will not conflict with or constitute a breach of, or
Default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its Subsidiaries (or any Additional Company) pursuant to, or require
the consent of any other party to, any Existing Instrument, except for
such conflicts, breaches, Defaults, liens, charges and encumbrances as
would not, individually or in the aggregate, result in a Material Adverse
Change and (iii) will not result in any violation of any material
statute, law, administrative
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regulation or any administrative or court judgment, order or decree
applicable to the Company or any of its Subsidiaries (or any Additional
Company) or their respective properties, except for such violations as
would not, individually or in the aggregate, result in a Material Adverse
Change. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus, except such as
have been obtained or made by the Company and are in full force and
effect under the Securities Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act"), applicable state securities or blue
sky laws and from the National Association of Securities Dealers, Inc.
(the "NASD").
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or
any of its Subsidiaries (or any Additional Company), (ii) which has as
the subject thereof any officer or director of, or property owned or
leased by, the Company or any of its Subsidiaries (or any Additional
Company) or (iii) relating to environmental or discrimination matters,
except such that would not reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement and the Prospectus. No labor dispute with
the employees of the Company or any of its Subsidiaries (or any
Additional Company), or, to the Company's knowledge, with the employees
of any principal supplier of the Company or any of its Subsidiaries (or
any Additional Company), exists or, to the best of the Company's
knowledge, is threatened or imminent, except for such disputes as would
not, individually or in the aggregate, result in a Material Adverse
Change.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
(and the Additional Companies) own or possess valid and enforceable
rights to use all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being
owned by them or any of them or material to the conduct of their
respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person or entity to the rights of
the Company and its Subsidiaries (and the Additional Companies) with
respect to the foregoing or of any infringement by any other person or
entity with respect to the foregoing. Except for such matters as have
been finally resolved, neither the Company nor any of its Subsidiaries
(or the Additional Companies) has received any notice of infringement or
conflict with asserted intellectual property rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
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(p) ALL NECESSARY PERMITS, ETC. The Company and each of its
Subsidiaries (and each Additional Company) possess such valid and current
certificates, authorizations or permits issued by the appropriate local,
state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, except for any such permits the
absence or lapse of which would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Change; and neither
the Company nor any to its Subsidiaries (or any Additional Company) has
received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, reasonably could be
expected to result in a Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company and each of its Subsidiaries
(and each Additional Company) has good and indefeasible title to all the
properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above (or elsewhere in the Prospectus), in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims, easements and other defects and
impairments, except such as (i) are disclosed in the Prospectus or (ii)
do not materially and adversely affect the value of such property and do
not materially interfere with the use made or proposed to be made of such
property by the Company or such Subsidiary (or any Additional Company).
The real property, improvements, equipment and personal property held
under lease by the Company or any of its Subsidiaries (or any Additional
Company) are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the
use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company or such Subsidiary (or any
Additional Company).
(r) TAX LAW COMPLIANCE. The Company and its Subsidiaries (and each
Additional Company) have filed all necessary federal, state, local and
foreign income and franchise tax returns or have properly requested
extensions thereof and have paid all taxes required to be paid by any of
them and, if due and payable, any related or similar assessment, fine or
penalty levied against any of them, except where the failure to do so
would not, individually or in the aggregate, result in a Material Adverse
Change. The Company has made adequate charges, accruals and reserves in
the applicable financial statements referred to in Section 1(i) above in
respect of all federal, state, local and foreign income and franchise
taxes for all periods as to which the tax liability of the Company or any
of its Subsidiaries (and each Additional Company) has not been finally
determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY". The Company is not, and
after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act of
1940, as amended.
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(t) INSURANCE. Each of the Company and its Subsidiaries (and the
Additional Companies) are insured by recognized, financially sound and
reputable institutions with policies in such amounts and with such
deductibles and covering such risks as management of the Company
reasonably believes are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its Subsidiaries
(and the Additional Companies) against theft, damage, destruction, acts
of vandalism and earthquakes. The Company has no reason to believe that
it or any Subsidiary (or any Additional Company) will not be able (i) to
renew its existing insurance coverage as and when such policies expire or
(ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at
a cost that would not result in a Material Adverse Change. Neither of the
Company nor any Subsidiary (or any Additional Company) has been denied
any insurance coverage which it has sought or for which it has applied
during the past five years.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has not
taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization
or manipulation of the price of the Common Stock to facilitate the sale
or resale of the Common Shares.
(v) RELATED PARTY TRANSACTIONS. There are no related-party
transactions involving the Company or any of its Subsidiaries (or any
Additional Company) or any other person required to be described in the
Prospectus which have not been described as required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its Subsidiaries (or any Additional Company) nor, to
the best of the Company's knowledge, any employee or agent of the
Company or any of its Subsidiaries (or any Additional Company), has made
any contribution or other payment to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system
of accounting controls sufficient to provide reasonable assurances that
(i) its transactions and those of its Subsidiaries are executed in
accordance with management's general or specific authorization; (ii) its
transactions and those of its Subsidiaries are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to its assets and those
of its Subsidiaries is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for its assets and those of its Subsidiaries is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(y) The Company and each of the Subsidiaries have conducted their
respective businesses in compliance with all applicable Federal, state
and local laws and regulations including, without limitation, those
promulgated under the Occupational Safety and Health Act ("OSHA Laws")
and those applicable to emissions into the environment, waste management
and waste disposal ("Environmental Laws") and, to the Company's best
knowledge, under current law there are no existing circumstances that
would prevent, interfere with, or materially increase the cost of the
Company's compliance with such OSHA Laws or Environmental Laws in the
future, except for any lack of compliance or the existence of any such
circumstance as would not result in, individually or in the aggregate, a
Material Adverse Change. Except as set forth in the Prospectus, there is
no material claim under any OSHA Law or Environmental Law pending or
threatened against the Company or any of its Subsidiaries (or any
Additional Company) (an "OSHA Claim" or an "Environmental Claim", as
applicable) and, to the Company's best knowledge, there are no past or
present actions, activities, circumstances, events or incidents,
including, without limitation, releases of any material into the
environment, that would reasonably be expected to form the basis of any
material claim against the Company or any of its Subsidiaries (or any
Additional Company).
(z) ERISA COMPLIANCE. The Company and its Subsidiaries (and the
Additional Companies) and any "employee benefit plan" (as defined under
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company, its Subsidiaries
(and the Additional Companies) or their "ERISA Affiliates" (as defined
below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or any of its Subsidiaries
(or any Additional Company) any member of any group of organizations
described in Section 414(b),(c),(m) or (o) of the Internal Revenue Code
of 1986, as amended, and the regulations and published interpretations
thereunder (the "Code") of which the Company or such Subsidiary (or any
Additional Company) is a member. No "reportable event" (as defined under
ERISA) has occurred or is reasonably expected to occur with respect to
any "employee benefit plan" established or maintained by the Company,
its Subsidiaries (and the Additional Companies) or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its Subsidiaries (or any Additional Company) or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would
have any "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company, its Subsidiaries (or any Additional
Company) nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee
benefit plan" established or maintained by the Company, its Subsidiaries
(and the Additional Companies) or any of their ERISA Affiliates that is
intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification, except for such
failures to
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qualify which would not, individually or in the aggregate, result in a
Material Adverse Change.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) THE FIRM COMMON SHARES. The Company agrees to issue and sell
to the several Underwriters the Firm Common Shares upon the terms herein
set forth. On the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the
conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company the respective number of Firm
Common Shares set forth opposite their names on SCHEDULE A. The purchase
price per Firm Common Share to be paid by the several Underwriters to
the Company shall be $[___] per share.
(b) THE FIRST CLOSING DATE. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor
shall be made at the offices of Baker & Botts, L.L.P., 3000 One Shell
Plaza, Houston, Texas (or such other place as may be agreed to by the
Company and the Representatives) at [8:00] a.m. Houston time, on October
__, 1997, or such other time and date not later than 10:30 a.m. Houston
time, on [___] as the Representatives shall designate by notice to the
Company (the time and date of such closing are called the "First Closing
Date"). The Company hereby acknowledges that circumstances under which
the Representatives may provide notice to postpone the First Closing
Date as originally scheduled include, but are in no way limited to, any
determination by the Company or the Representatives to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.
(C) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In
addition, on the basis of the representations, warranties and agreements
herein contained, and upon the terms but subject to the conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate
of 502,500 Optional Common Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Common Shares. The
option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may
be exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time
within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations
in which the certificates for the Optional Common Shares are to be
registered and (iii) the time, date and place at which such certificates
will be delivered (which time and date may be simultaneous with, but not
earlier than, the First Closing Date; and in such case the term "First
Closing Date" shall refer to the time and date of
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delivery of certificates for the Firm Common Shares and the Optional
Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be
determined by the Representatives and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be
purchased as the number of Firm Common Shares set forth on SCHEDULE A
opposite the name of such Underwriter bears to the total number of Firm
Common Shares. The Representatives may cancel the option at any time
prior to its expiration by giving written notice of such cancellation to
the Company.
(d) PUBLIC OFFERING OF THE COMMON SHARES. The Representatives
hereby advise the Company that the Underwriters intend to offer for sale
to the public, as described in the Prospectus, their respective portions
of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the
Representatives, in their sole judgment, have determined is advisable
and practicable.
(e) PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares
shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to
the order of the Company. It is understood that the Representatives have
been authorized, for their own account and the accounts of the several
Underwriters, to accept delivery of and receipt for, and make payment of
the purchase price for, the Firm Common Shares and any Optional Common
Shares the Underwriters have agreed to purchase. Montgomery Securities,
individually and not as the Representative of the Underwriters, may (but
shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by
the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
(f) DELIVERY OF THE COMMON SHARES. The Company shall deliver, or
cause to be delivered, to the Representatives for the accounts of the
several Underwriters certificates for the Firm Common Shares at the
First Closing Date, against the irrevocable release of a wire transfer
of immediately available funds for the amount of the purchase price
therefor. The Company shall also deliver, or cause to be delivered, to
the Representatives for the accounts of the several Underwriters,
certificates for the Optional Common Shares the Underwriters have agreed
to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive
form and registered in such
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names and denominations as the Representatives shall have requested at
least two full business days prior to the First Closing Date (or the
Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the
Second Closing Date, as the case may be) at such location in New York
City as the Representatives may designate. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than
12:00 p.m. on the second business day following the date the Common
Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be delivered copies of the Prospectus
in such quantities and at such places as the Representatives shall
request.
SECTION 3. ADDITIONAL COVENANTS.
The Company further covenants and agrees with each
Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and
ending on the later of the First Closing Date or such date, in
the opinion of counsel for the Underwriters, the Prospectus is no
longer required by law to be delivered in connection with sales
by an Underwriter or dealer (the "Prospectus Delivery Period"),
prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall
furnish to the Representatives for review a copy of each such
proposed amendment or supplement, and the Company shall not file
any such proposed amendment or supplement to which the
Representatives reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives
in writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii)
of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii)
of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, or of any proceedings
to remove, suspend or terminate from listing or quotation the
Common Stock from any securities exchange upon which it is listed
for trading or included or designated for quotation, or of the
threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop
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order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the
provisions of Rules 424(b) and 430A, as applicable, under the
Securities Act and will use its reasonable efforts to confirm
that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND
OTHER SECURITIES ACT MATTERS. If, during the Prospectus Delivery
Period, any event shall occur or condition shall exist as a
result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if in the opinion of the
Representatives or counsel for the Underwriters it is otherwise
necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section
3(a) above), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or
supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light
of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d)COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE
PROSPECTUS. The Company agrees to furnish the Representatives,
without charge, during the Prospectus Delivery Period, as many
copies of the Prospectus and any amendments and supplements
thereto as the Representatives may reasonably request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate
with the Representatives and counsel for the Underwriters to
qualify or register the Common Shares for sale under (or obtain
exemptions from the application of) the Blue Sky or state
securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue
such qualifications, registrations and exemptions in effect so
long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation
or to take any action that would subject it to general service of
process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise the Representatives promptly
of the suspension of the qualification or registration of (or any
such exemption relating to) the Common Shares for offering, sale
or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or
exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net
proceeds from the sale of the Common Shares sold by it in the
manner described under the caption "Use of Proceeds" in the
Prospectus.
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(g) TRANSFER AGENT. The Company shall engage and maintain,
at its expense, a registrar and transfer agent for the Common
Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the
Company will make generally available to its security holders and
to the Representatives an earnings statement (which need not be
audited) covering the twelve-month period ending December 31,
1998 that satisfies the provisions of Section 11(a) of the
Securities Act.
(j) PERIODIC REPORTING OBLIGATIONS. During the
Prospectus Delivery Period the Company shall file, on a timely
basis, with the Commission and the Nasdaq National Market all
reports and documents required to be filed under the Exchange
Act.
(k) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Except
as provided in this Agreement, the Company will not sell, contract to
sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or
grant any options or warrants to purchase Common Stock, for a period of
180 days after the date of the Prospectus (the "Lock-Up Period"),
without the prior written consent of Montgomery Securities, except that
the Company may (i) issue (a) 2,419,338 shares of Common Stock (the
"Merger Shares") on or prior to the First Closing Date in exchange for
shares of capital stock of Safe-Seal in connection with the merger of
Safe-Seal and the Company as described in the Prospectus, (b) up to
5,000,000 shares of Common Stock (the "Acquisition Shares") during the
Lock-Up Period in connection with additional acquisitions, (c) the
shares of Common Stock (the "Philip Shares") on or prior to the First
Closing Date to subsidiaries of Philip Services Corp. ("Philip") in
repayment of $8.7 million of indebtedness of the Company owed to Philip
and the redemption of $2.0 million of Safe-Seal preferred stock held by
Philip as described in the Prospectus, and (d) on the Closing Date, the
shares of Common Stock ("the Southern Valve Shares") to be issued in
connection with the closing of the acquisition of Southern Valve as
described in the Prospectus, in each case so long as the purchaser or
recipient of such Merger Shares, Acquisition Shares, Philip Shares and
Southern Valve Shares agrees to be bound by a lock-up letter in form and
substance reasonably satisfactory to you pursuant to which such
purchaser or recipient agrees with the Company not to sell, offer to
sell, solicit an offer to buy, contract to sell, grant any option to
purchase, or otherwise transfer or dispose of, any such Merger Shares,
Acquisition Shares, Philip Shares and Southern Valve Shares at any time
before the expiration of the Lock-Up Period, (ii) issue shares of Common
Stock during the Lock-Up Period pursuant to the exercise of options,
warrants or convertible notes granted or issued by the Company prior to
the date hereof so long as the recipients of shares of Common Stock
received pursuant to any such exercises agree to be bound by a lock-up
letter in form and substance reasonably satisfactory to you pursuant to
which such recipients agree with the Company not to sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase,
or otherwise transfer or dispose of, any such shares of Common Stock at
any time before the expiration of the Lock-Up Period and (iii) grant
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awards and permit the exercise of awards granted pursuant to the
Company's 1997 Incentive Plan during the Lock-Up Period. The Company
further agrees for the express benefit of the Underwriters that, during
the Lock-Up Period, it will not, without the prior written consent of
Montgomery Securities, waive any provision of any registration rights
agreement, stockholders agreement or any reorganization agreement in
each case relating to any restriction imposed on the subsequent transfer
or other disposition of shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock and will take
reasonable steps to cause its transfer agent to enforce any such
provision so as to limit the transfer or other disposition of those
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock during the Lock-Up Period.
(l) The Company has furnished or will furnish to you "lock-up"
letters in the form previously provided by you, signed by each of its
current officers and directors and each of its stockholders previously
designated by you who holds 5,000 or more shares of Common Stock.
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of
five years hereafter the Company will furnish to the Representatives, in
care of NationsBanc Montgomery Securities, Inc. at 600 Montgomery
Street, San Francisco, CA 94111 Attention [_________]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon of
the Company's independent certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale of the Common Shares to the Underwriters, (iv) all
fees and expenses of the Company's counsel, independent public or certified
public accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and
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supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the Common
Stock on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 7, Section 8 and Section 9
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, if any, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder and to each of the
following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from Arthur Andersen LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and information
of the type ordinarily included in accountant's "comfort letters" to
underwriters, delivered according to Statement of Auditing Standards No. 72
(or any successor bulletin), with respect to the audited and unaudited
financial statements and certain financial information contained in the
Registration Statement and the Prospectus (and the Representatives shall
have received [___] additional conformed copies of such accountants' letter
for each of the several Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule 430A under
the Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement
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containing the information required by such Rule 430A, and such
post-effective amendment shall have become effective;
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement or any
post-effective amendment to the Registration Statement shall be in
effect, and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements
applicable to the transactions contemplated hereby.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and
after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing
Date, if any, in the judgment of the Representatives there shall not
have occurred any Material Adverse Change.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the
First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinions of
Baker & Botts, L.L.P., special securities counsel for the Company
and Boyer, Ewing & Harris Incorporated, counsel to the Company,
each dated as of such Closing Date, the forms of which are
attached as, respectively, EXHIBIT A and EXHIBIT B (and the
Representatives shall have received an additional [___] conformed
copies of such counsels' legal opinions for each of the several
Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of
the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of
Morgan, Lewis & Bockius LLP, counsel for the Underwriters, dated
as of such Closing Date, with respect to the matters set forth in
paragraphs (ii), (viii), (ix), (xi), (xii), and the next-to-last
paragraph of EXHIBIT A (and the Representatives shall have
received an additional [___] conformed copies of such counsel's
legal opinion for each of the several Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received a written certificate executed by the Chairman of the
Board, Chief Executive Officer or President of the Company and
the Chief Financial Officer or Chief Accounting Officer of the
Company, dated as of such Closing Date, to the effect set forth
in subsection (b)(ii) of this Section 5, and further to the
effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred
any Material Adverse Change;
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(ii) the representations, warranties and covenants of
the Company set forth in Section 1 of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the agreements
herein and satisfied all the conditions hereunder on its part to be
performed or satisfied at or prior to such Closing Date including,
without limitation, the delivery of the lock-up letters to be delivered
pursuant to Section 3(l) above.
(g) BRING-DOWN COMFORT LETTER. On each of the First
Closing Date and the Second Closing Date the Representatives
shall have received from Arthur Andersen LLP independent public
or certified public accountants for the Company, a letter dated
such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements
made in the letter furnished by them pursuant to subsection (a)
of this Section 5, except that the specified date referred to
therein for the carrying out of procedures shall be no more than
three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and the Representatives shall
have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(h) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and
counsel for the Underwriters shall have received such
information, documents and opinions as they may reasonably
require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations
and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10 or Section 11 (i), (iv) or (v), or if the sale to the Underwriters of
the Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representatives and the other Underwriters (or such Underwriters
as have not improperly terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the
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Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i)
the execution of this Agreement by the parties hereto and (ii) notification by
the Commission to the Company and the Representatives of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by
any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, or (b) any Underwriter to the Company; provided, however, that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive any such termination pursuant to (a) or (b).
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act or the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including, without limitation, in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
(i) upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto, including
any information deemed to be a part thereof pursuant to Rule 430A under the
Securities Act, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and to reimburse each Underwriter, its officers and
employees and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such Underwriter,
its officers and employees or such controlling person in connection with
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investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; PROVIDED, HOWEVER, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of
or based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for
use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased
Common Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the
sale of the Common Shares to such person, and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage, liability or expense. The indemnity agreement set forth
in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors and officers who signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, against any
loss, claim, damage, liability or expense, as incurred, to which the
Company, or any such director, officer or controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives relating to the Underwriters
and expressly for use therein; and to reimburse the Company, or any such
director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The Company hereby acknowledges that the
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only information that the Underwriters have furnished to the Company
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last paragraph on the inside front cover
page of the Prospectus concerning stabilization and passive market making by
the Underwriters and (B) in the table in the first paragraph and in the
second, sixth, eighth and ninth paragraphs under the caption "Underwriting"
in the Prospectus; and the Underwriters confirm that such statements are
correct. The indemnity agreement set forth in this Section 8(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party for
contribution or otherwise under the indemnity agreement contained in this
Section 8 to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party
and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate
in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded, based on
the opinion of counsel, that a conflict may arise between the positions of
the indemnifying party and the indemnified party in conducting the defense
of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall
not be liable for the expenses of more than one separate counsel (together
with local counsel), approved by the indemnifying party (Montgomery
Securities in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
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(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Underwriters, on the other hand, in connection with the
offering of the Common Shares pursuant to this Agreement shall be deemed to be
in the same respective proportions as the total net proceeds from the offering
of the Common Shares pursuant to this Agreement (before deducting expenses)
received by the Company, and the total underwriting discount received by the
Underwriters, in each case as set forth on the front cover page of the
Prospectus bear to the aggregate initial public offering price of the Common
Shares as set forth on such cover. The relative fault of the Company, on the one
hand, and the Underwriters, on the other hand, shall be
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determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, on the one
hand, or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount received by such Underwriter in connection with the Common Shares
underwritten by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
SCHEDULE A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director and officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act shall have
the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Second Closing Date, as the case may be,
any one or more of the several Underwriters shall fail or refuse to purchase
Common Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on SCHEDULE A
bears to the aggregate number of
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Firm Common Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If, on the First Closing Date or the
Second Closing Date, as the case may be, any one or more of the Underwriters
shall fail or refuse to purchase Common Shares and the aggregate number of
Common Shares with respect to which such default occurs exceeds 10% of the
aggregate number of Common Shares to be purchased on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares are not made within 48 hours after such default, this Agreement
shall terminate without liability of any party (other than a defaulting
underwriter or underwriters) to any other party except that the provisions of
Section 4, Section 6, Section 7, Section 8 and Section 9 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission or
by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
the Nasdaq Stock Market or the New York Stock Exchange by the Commission or the
NASD; (ii) a general banking moratorium shall have been declared by any of
federal, New York, or California authorities; (iii) there shall have occurred
any outbreak or escalation of national or international hostilities or any
crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective substantial change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable to market the Common Shares in
the manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company and
its Subsidiaries (and the Additional Companies) takes as a whole regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability
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on the part of (i) the Company to any Underwriter, except to the extent that the
Company may be obligated to reimburse the expenses of the Representatives and
the Underwriters pursuant to Section 4 and Section 6 hereof, (ii) any
Underwriter to the Company, or (iii) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers, directors, agents or
any controlling person, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
c/o: NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with copies to:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
Furman Selz LLC
230 Park Avenue
New York, New York 10169
Facsimile: (212) 309-6428
Attention: [_________________]
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If to the Company:
Innovative Valve Technologies, Inc.
14900 Woodham Drive
Suite A-125
Houston, Texas 77073
Facsimile: (281) 821-1123
Attention: William E. Haynes
with copies to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002-4995
Facsimile: (713) 229-1522
Attention: James L. Leader
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit
of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and no other person
will have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the
27
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parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party for whom the condition is meant to
benefit. The Section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation,
the indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:__________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
FURMAN SELZ LLC
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES, INC.
By: _________________________________
Name:
Title:
29
<PAGE>
SCHEDULE A
NUMBER OF FIRM COMMON
UNDERWRITERS SHARES TO BE PURCHASED
NationsBanc Montgomery Securities, Inc. [___]
Furman Selz LLC [___]
[___]
[___]
[___]
Total [___]
EXHIBIT 4.4
ADDENDUM TO REGISTRATION RIGHTS AGREEMENT
THIS ADDENDUM TO REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of July 28, 1997 by and among Innovative Valve Technologies, Inc., a Delaware
corporation ("INVATEC"), and the Holders listed on the signature pages hereof
(the "Puget Holders") and any Holder hereafter becoming a party hereto in
accordance with the provisions hereof.
WHEREAS, a Registration Rights Agreement was entered into as of June ____,
1997 (the "Initial Agreement") by and among INVATEC and the Holders listed on
the signature pages thereof (the "Initial Holders"), and any Holder thereafter
becoming a party to such agreement by entering into one or more addenda thereto;
WHEREAS, each Puget Holder has received convertible subordinated notes
convertible into shares of common stock, par value $.001 per share, of INVATEC
pursuant to an agreement with INVATEC, and INVATEC, in order to induce that
Puget Holder to enter into that agreement, has agreed to designate those shares
as Registrable Common (as hereinafter defined) and to provide Registration
rights on the terms set forth in this Agreement for the benefit of that Puget
Holder and to enter into this Addendum to the Initial Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, and intending to be legally bound hereby, the
parties to this Agreement agree as follows:
1. DEFINED TERMS. As used in this Agreement, the following terms have the
meanings assigned to them below:
"AFFILIATE" means, as to any specified Person, any other Person
that, directly or indirectly through one or more intermediaries or
otherwise, controls, is controlled by or is under common control with the
specified Person. As used in this definition, "Acontrol"@ means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through
ownership of capital stock of that Person, by contract or otherwise).
"BLUE SKY LAWS" has the meaning specified in Section 4(a).
"CLAIMS" has the meaning specified in Section 10(a).
"COMMON STOCK" means the common stock, par value $.001 per share, of
INVATEC.
"ELIGIBLE OFFERING" has the meaning specified in Section 3(a).
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and any successor thereto and the rules and regulations
thereunder.
"EXEMPT OFFERING" means any offering by INVATEC of shares of Common
Stock (i) in connection with or pursuant to any benefit, compensation,
incentive or savings plan or program in which any of the officers,
directors, employees or independent contractors of INVATEC or any of its
subsidiaries participate, (ii) as consideration in any business
combination or other acquisition transaction, (iii) as the securities into
or for which other equity or debt securities are convertible or
exchangeable, or as the securities that may be acquired by the exercise of
options, warrants or other rights, in each case at a conversion, exchange
or exercise price representing a premium over the trading price of the
Common Stock at the time of the offering, (iv) made pursuant to Regulation
S under the Securities Act (or any similar provision then in force) or (v)
made only to existing holders of securities issued by INVATEC.
"HOLDER" means at any time any Person then owning Registrable Common
and having the rights and obligations of a Holder and which (i) is in an
Puget Holder, (ii) has been assigned those rights and obligations pursuant
to Section 9(a) or (iii) has become a Holder pursuant to Section 9(b),
including the Puget Holders.
"INDEMNIFIED PARTY" has the meaning specified in Section 10(b).
"INITIAL AGREEMENT" has the meaning specified in the first recital
hereto.
"INITIAL HOLDER" has the meaning specified in the first recital
hereto.
"IPO" means the first time a Registration statement filed by INVATEC
under the Securities Act and respecting an underwritten primary offering
by INVATEC of shares of Common Stock is declared effective under the
Securities Act, and any of those registered shares are issued and sold by
INVATEC (otherwise than pursuant to the exercise of any over-allotment
option).
"IPO CLOSING DATE" means the date on which INVATEC first receives
payment for shares of Common Stock it sells in the IPO.
"INSPECTOR" has the meaning specified in Section 4(a).
"LOCKUP PERIOD" has the meaning specified in Section 7.
"PERSON" means any natural person, sole proprietorship, corporation,
partnership, limited liability company, business trust, unincorporated
organization or association, estate or trust.
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"PROCEEDING has the meaning specified in Section 10(b).
"RECORDS has the meaning specified in Section 4(a).
"RED HERRING PROSPECTUS" means, as applied to any Registration
statement INVATEC files under the Securities Act to register unissued
shares of Common Stock for a public offering by it of those shares (other
than an Exempt Offering), the prospectus included in that Registration
statement which is labeled "subject to completion" and is first used in
"roadshow" presentations by INVATEC to potential investors in connection
with that offering.
"REGISTRABLE COMMON" means (i) the Common Stock issued to the
Initial Holders on or before the IPO Closing Date and (ii) the Common
Stock designated by INVATEC in writing as Registrable Common and issued to
Persons who become Holders pursuant to Section 9(b), including the Puget
Holders. For purposes of this Agreement, a share of Registrable Common
will cease to be Registrable Common when (i) a Registration statement
covering that share has been filed and become effective under the
Securities Act and its Holder distributes it by means of that effective
Registration statement, (ii) its Holder distributes it to the public
pursuant to Rule 144 or (iii) it may be distributed to the public in the
United States without being registered for resale under the Securities Act
or subject to the volume limitations of Rule 144.
"REGISTRATION NOTICE" has the meaning specified in Section 3(b).
"RELATED PARTY" means, as to any specified Person, any other Person
who is an officer, director or agent of the specified Person or who
controls the specified Person within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
"REQUESTING HOLDER" has the meaning specified in Section 3(d).
"REQUEST NOTICE" has the meaning specified in Section 3(c).
'RESTRICTED PERIOD" means (i) the period from and including the IPO
Closing Date through and including the second anniversary of the IPO
Closing Date and, as applied to Persons who become Holders pursuant to
Section 9(b), (ii) the period designated by Invatec in writing as their
"Restricted Period."
"RULE 144" means Rule 144 (or any similar or successor provision)
under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
any successor thereto and the rules and regulations thereunder.
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"SEC" means the Securities and Exchange Commission and any successor
thereto as the agency administering the Securities Act.
"SELLING HOLDER" has the meaning specified in Section 4(a).
"SELLERS' REGISTRATION STATEMENT" means a Registration statement
filed by INVATEC under the Securities Act to register shares of
Registrable Common for resale by Holders.
2. OTHER DEFINITIONAL PROVISIONS. (a) when used in this Agreement, the
words "herein," "hereof," "hereto" and "hereunder" and words of similar import
refer to this Agreement as a whole and not to any provision of this Agreement.
(b) Whenever the context so requires, the singular number includes the
plural and vice versa, and a reference to one gender includes the other genders.
(c) The word "including" (and, with correlative meaning, the word
"include") means including without limiting the generality of any description
preceding that word, and the verbs "shall" and "will" are used interchangeably
and have the same meaning.
(d) The term "underwriter," as used herein, does not include any Holder.
3. REGISTRATION RIGHTS. (a) If INVATEC proposes to register any shares of
Common Stock for its own account under the Securities Act at any time or times
after the Restricted Period and before December 31, 2002 for a public offering,
other than an Exempt Offering, in the United States, of those shares for cash
(each such public offering, other than an Exempt Offering, being an "Eligible
Offering"), then, at each of those times, each then Holder will, subject to the
terms and conditions hereof, be entitled to have such number of shares of that
Holder's Registrable Common as that Holder may request in accordance with
Section 3(c) registered under the Securities Act for disposition by means of the
Registration statement relating to that Eligible Offering.
(b) In the case of each Eligible Offering, INVATEC will deliver to each
then Holder a written notice of that offering (a "Registration Notice") at least
15 days prior to its filing with the SEC of the Registration statement, or the
amendment thereto, which includes the Red Herring Prospectus for that offering.
INVATEC will briefly describe in each Registration Notice the Eligible Offering
to which that notice relates and inform the addressee that it has 10 days within
which to request to include shares of its Registrable Common in the Registration
statement for that offering.
(c) Any Holder desiring to participate in any Eligible Offering must
deliver to INVATEC within 10 days after the Holder receives the Registration
Notice for that offering a written notice to that effect (a "Request Notice"),
specifying the number of shares of the Holder's Registrable Common the Holder
desires to have registered under the Securities Act for inclusion in that
offering. Any Holder that does not deliver a Request Notice for an Eligible
Offering within that 10-day period
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will be deemed to have waived its right to participate in that offering unless
INVATEC agrees otherwise in writing.
(d) Any holder that delivers a Request Notice relating to an Eligible
Offering on a timely basis, or as otherwise agreed by INVATEC, pursuant to
Section 3(c) (each such Holder being a "Requesting Holder") will be entitled to
offer and sell shares of its Registrable Common in that offering on the terms
and conditions on which INVATEC offers and sells shares of Common Stock in that
offering if the Requesting Holder complies with the applicable provisions of
Sections 4, 5 and 10; provided, however, that: (i) INVATEC may reserve to itself
the right to be the exclusive grantor of any underwriter's overallotment option;
and (ii) the shares of Registrable Common any Requesting Holder will be entitled
to offer and sell will be subject to reduction as provided in Section 3(e).
(e) INVATEC will have the right to determine the aggregate size of each
Eligible Offering and to limit the number of shares of Registrable Common to be
included in that offering without reducing the number of shares of Common Stock
to be offered by INVATEC in that offering, as follows: (i) if the lead managing
underwriter selected by INVATEC for an Eligible Offering (or, if that offering
will not be underwritten, a financial advisor to INVATEC) determines that
marketing factors render necessary or advisable a limitation on the number of
shares of Registrable Common to be included in that offering, INVATEC will be
required to include in that offering only such number of shares of Registrable
Common, if any, as that lead managing underwriter (or financial advisor, as the
case may be) believes (as evidenced by its written advice to INVATEC) will not
jeopardize the success of the primary offering by INVATEC; and (ii) if INVATEC
limits the number of shares of Registrable Common that Requesting Holders may
have included in any Eligible Offering pursuant to clause (i), but does not
exclude all shares of Registrable Common from that offering, the maximum number
of shares of Registrable Common to be included in that offering on behalf of
each of those Requesting Holders will be the product of (A) the number of shares
of Registrable Common that Requesting Holder has specified in its Request Notice
relating to that offering multiplied by (B) the fraction the numerator of which
is the number of shares of Registrable Common that Requesting Holder has
specified in its Request Notice relating to that offering and the denominator of
which is the aggregate number of shares of Registrable Common all those
Requesting Holders have specified in their Request Notices relating to that
offering. If INVATEC determines, on the basis of advice of its tax counsel or
independent accountants, that the inclusion of a Requesting Holder's shares of
Registrable Common in any Eligible Offering likely would jeopardize the
nonrecognition status under the Internal Revenue Code of 1986, as amended, of
any acquisition transaction effected by INVATEC, INVATEC will be entitled to
limit the number of shares that Requesting Holder may have included in that
offering to such number, if any, as INVATEC determines will not jeopardize that
status.
4. REGISTRATION PROCEDURES. (a) Whenever INVATEC is required by Section 3
to include shares of Registrable Common in a Registration statement relating to
an Eligible Offering, it will, subject to the applicable terms and conditions
hereof:
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(i) cause those shares to be registered under the Securities Act by
means of a Seller's Registration Statement, in either the original filing
thereof or in a pre-effective amendment to a previously filed Registration
statement;
(ii) prior to the first to occur of (A) the sale by the Holders
thereof, by means of the Sellers' Registration Statement after it becomes
effective under the Securities Act, of all the shares of Registrable
Common covered by the Sellers' Registration Statement when it becomes
effective under the Securities Act and the elapse of the period in which a
dealer is required by the Securities Act to deliver a prospectus in
connection with its offer and sale of any of those shares and (B) the
withdrawal by INVATEC of the Sellers' Registration Statement pursuant to
Securities Act Rule 477, prepare and file with the SEC under the
Securities Act such amendments (including post-effective amendments) to
the Sellers' Registration Statement and supplements to the related
prospectus as are necessary (A) to reflect the plan of distribution
contemplated by the Sellers' Registration Statement and (B) so that (1)
neither the Sellers' Registration Statement nor that prospectus contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (2) both the Sellers' Registration Statement and that
prospectus comply in all material respects with all other applicable legal
requirements;
(iii) provide to each Requesting Holder named as a selling
stockholder in the Sellers' Registration Statement (each a "Selling
Holder") such number of prospectuses (including preliminary prospectuses)
and other documents incident to the offering and sale of that Selling
Holder's Registrable Common by means of the Sellers' Registration
Statement as that Selling Holder from time to time reasonably may request;
(iv) prior to the time the Seller's Registration Statement or any
post-effective amendment thereto becomes effective under the Securities
Act, provide an opportunity to review and comment with respect to that
document to one counsel selected by Selling Holders holding a majority of
the shares of Registrable Common covered by that document and reasonably
satisfactory to INVATEC;
(v) provide to each Selling Holder, any managing underwriter
participating in the distribution of the shares of Registrable Common
covered by the Sellers' Registration Statement and any accountant, lawyer
or other professional retained by that Selling Holder or managing
underwriter (each an "Inspector") reasonable access to appropriate
officers and employees of INVATEC to ask questions and obtain information
reasonably requested by that Inspector in connection with that Sellers'
Registration Statement; provided, however, that in connection with any
such access or request, each Selling Holder will and will cause each of
its representative Inspectors to, and INVATEC may require each other
Inspector to, (A) cooperate to the extent reasonably practicable to
minimize any disruption in the operation by INVATEC of its business, (B)
keep confidential all records, documents and information INVATEC advises
are confidential or of a proprietary nature (collectively, the
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"Records") and (C) not use the information it obtains from the records as
a basis for any market transactions in the securities of INVATEC unless
and until that information is in the public domain or otherwise becomes
publicly available;
(vi) use its good-faith efforts to register and qualify the
Registrable Common covered by the Sellers' Registration Statement under
the applicable securities or "blue sky" laws (collectively, "Blue Sky
Laws") of such jurisdictions as any Selling Holder reasonably may request;
provided that it will not be required to (A) qualify generally to do
business in any jurisdiction where it otherwise would not be required to
qualify but for this paragraph (vi), (B) subject itself to taxation in any
such jurisdiction or (C) consent to general service of process in any such
jurisdiction;
(vii) notify each Selling Holder promptly (A) when it is informed
that the Sellers' Registration Statement or any post-effective amendment
thereto becomes effective under the Securities Act, (B) of any request by
the SEC for an amendment to the Sellers' Registration Statement or a
supplement to any related prospectus, (C) of the issuance by the SEC of
any stop order suspending the effectiveness of the Sellers' Registration
Statement or any order preventing or suspending the use of any related
prospectus or the initiation or threat by the SEC of any proceeding for
any of those purposes, (D) of the suspension of the qualification of any
shares of Registrable Common covered by the Sellers' Registration
Statement for sale in any jurisdiction or the initiation or threat of any
proceeding for that purpose and (E) of any determination by it that any
event has occurred or fact exists which makes untrue any statement of a
material fact included in the Seller's Registration Statement or any
related then current prospectus or which requires the making of a change
in the Sellers' Registration Statement or that prospectus in order that
the same will not contain any untrue statement of a material fact or omit
to state a material fact required to be contained therein or necessary to
make the statements therein not misleading;
(viii)if any order is issued which (A) suspends the effectiveness of
the Sellers' Registration Statement, (B) suspends or prevents the use of
any related then-current prospectus or (C) suspends the qualification of
any shares of Registrable Common covered by the Sellers' Registration
Statement for sale in any jurisdiction, use its reasonable best efforts to
obtain the withdrawal of that order;
(ix) if the Eligible Offering to which the Sellers' Registration
Statement relates is being underwritten by underwriters, (A) enter into
agreements customary at the time (including an underwriting or purchase
agreement in then-customary form) as those underwriters reasonably may
request in order to facilitate the disposition of the shares of
Registrable Common in that offering, (B) use reasonable diligence to
obtain an opinion of legal counsel (who may be its general counsel)
covering such matters as are then customarily covered by opinions
addressed to those underwriters by an issuer's counsel and (C) use
reasonable diligence to obtain a "comfort" letter or letters from its
independent public
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accountants in their customary form and covering such matters of the type
then customarily covered by "comfort" letters as those underwriters
reasonably may request; and
(x) otherwise use its good-faith efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings statement
that (A) covers a period of at least 12 months beginning within three
months after the effective date of the Sellers' Registration Statement and
(B) satisfies the provisions of Section 11(a) of the Securities Act;
(b) In connection with each Eligible Offering, INVATEC, in its sole
discretion, will determine whether to proceed with or terminate that offering
and to select any underwriter or underwriters to administer that offering.
5. UNDERWRITING ARRANGEMENTS. No Holder will be permitted to participate
in any Registration hereunder of securities being underwritten and offered for
resale by underwriters unless the Holder (i) agrees to sell the Holder's
Registrable Common on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve those arrangements, (ii)
enters into a written agreement with the managing underwriter or the
representative of the underwriters in such form and containing such provisions
as are then customary in the securities business for such an arrangement between
those underwriters and issuers of INVATEC's size and investment stature and
(iii) completes and executes all questionnaires, powers of attorney, indemnities
and other documents, and obtains such spousal or other consents, as are
reasonably required under the terms of those arrangements and this Agreement.
6. RULE 144 REPORTING. INVATEC will:
(i) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after 90 days
following the IPO Closing Date;
(ii) use its good-faith efforts to file with the SEC in a timely
manner all reports and other documents Section 13 or 15(d) of the Exchange
Act, as applicable, requires it to file with the SEC; and
(iii) so long as a Holder owns shares of Registrable Common, deliver
to the Holder, on Holder's request, a written statement as to whether it
is in compliance with the requirements referred to in clause (ii) above
(if it is then subject to those requirements).
7. MARKET STANDOFF. Each Holder agrees, to the extent permitted by
applicable law, that, for so long as the Holder holds shares of Registrable
Common, the Holder will not, except as permitted by Section 2, sell, transfer or
otherwise dispose of in a public transaction (including through put or
short-sale arrangements) shares of Common Stock in the period (i) beginning 10
days prior to the effectiveness under the Securities Act of any Registration
statement covering shares of Common Stock being publicly offered in an Eligible
Offering or in an Exempt Offering of the type
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specified in clause (iii) of the definition of Exempt Offering and (ii) ending
90 days following the date of that effectiveness (each such period being a
"Lockup Period"). INVATEC will provide each Holder written notice of any Lockup
Period.
8. REGISTRATION EXPENSES. (a) Except as provided in Section 8(b), INVATEC
will pay or otherwise bear all the expense attributable to the Registration of
Registrable Common under the Securities Act for sale pursuant to Section 2,
including all the following: (i) Registration and filing fees payable under the
Securities Act or Blue Sky Laws; (ii) fees and expenses incurred in complying
with Blue Sky Laws, including the reasonable fees and disbursements of counsel
incurred in that connection; (iii) printing expenses; (iv) messenger and
delivery expenses; (v) the Company's internal expenses, including the salaries
and expenses of its employees; (vi) fees and expenses attributable to the
listing of the Registrable Common on each securities exchange (including, for
this purpose, the NASDAQ national market) on which the Common Stock is then
listed at INVATEC's initiation; (vii) registrar and transfer agents' fees;
(viii) fees and disbursements of INVATEC's counsel and independent certified
public accountants; (ix) securities act liability insurance premiums (if INVATEC
elects to obtain that insurance); and (x) fees and expenses of any special
experts or other Persons retained by INVATEC in connection with its compliance
with this Agreement.
(b) Each Selling Holder will pay or otherwise bear all underwriting
commissions and discounts and transfer taxes attributable to that Selling
Holder's sale or other disposition of shares of Registrable Common, and each
Holder will pay or otherwise bear (i) the fees and expenses of that Holder's
counsel and any other special experts or Persons retained by that Holder in
connection with any Seller's Registration statement or the sale or other
disposition of that Holder's Registrable Common and (ii) that Holder's internal
expenses, including the salaries and expenses of that Holder's employees.
9. TRANSFERS AND ADDITIONAL GRANTS OF REGISTRATION RIGHTS. (a) A Holder
may not transfer the Registration rights this Agreement affords the Holder to
any other Person except as provided in this Section 9: (i) a Holder who is a
natural person may transfer those rights to a member of his immediate family or
a trust for the benefit of one or more members of his immediate family; (ii) a
Holder that is a corporation or other entity may transfer those rights to an
Affiliate of the Holder which also is a corporation or other entity; and (iii) a
Holder may transfer those rights to any other Holder; provided, that any such
transfer will be permitted only if the transferee executes an addendum to this
Agreement, in a form satisfactory to INVATEC, in which that transferee agrees to
comply with and otherwise be bound by all the terms and conditions hereof.
(b) INVATEC may, without the consent of any Holder, extend the
Registration rights this Agreement provides to additional persons who become
holders of Common Stock after the date hereof by entering into one or more
addenda to this Agreement with those Persons pursuant to which, for all purposes
hereof, those Persons will become Holders and any shares of Common Stock
referred to in those addenda will become Registrable Common. Nothing herein will
limit or otherwise restrict the ability or right of INVATEC to grant to any
Person any Registration or similar
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rights in the future respecting shares of Common Stock or any other securities
INVATEC may issue, whether pursuant to the provisions of this Section 9 or
otherwise.
10. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY INVATEC. INVATEC
will, to the extent permitted by applicable law, indemnify each Selling Holder
who sells shares of REGISTRABLE Common by means of a Sellers' Registration
Statement and each of that Selling Holder's Related Parties against, and hold
each of those Persons harmless from and in respect of, any and all claims,
damages, losses, liabilities and expenses (including reasonable legal expenses)
whatsoever (collectively, "Claims") that arise from or are based on any untrue
statement or alleged untrue statement of a material fact contained in that
Sellers' Registration Statement or any prospectus (including any preliminary
prospectus) forming a part thereof, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, except
insofar as those Claims arise out of or are based on any such untrue statement
or omission or allegation thereof based on information furnished in writing to
INVATEC by or on behalf of that Selling Holder expressly for use therein. In
connection with any underwritten offering of shares of Registrable Common,
INVATEC will indemnify and hold harmless each participating underwriter and each
of that underwriter's Related Parties on either (i) substantially the same basis
on which it will indemnify each Selling Holder and that Selling Holder's Related
Parties pursuant to this Section 10(a) or (ii) such other basis as is
customarily obtained by underwriters from issuers at the time of that offering.
Notwithstanding the foregoing, INVATEC's obligations to indemnify and hold
harmless pursuant to this Section 10(a) with respect to any Claim (or action or
proceeding in respect thereof) that arises from or is based on any untrue or
alleged untrue statement contained in, or any omission or alleged omission from,
any preliminary prospectus will not inure to the benefit of any Selling Holder
or underwriter or its Related parties if it is determined that (i) a copy of the
prospectus used to confirm the sale of shares of Registrable Common to the
Person asserting that claim was not sent or given to that Person at or prior to
the written confirmation of that sale, (ii) the untrue statement or alleged
untrue statement or the omission or alleged omission was corrected by that
prospectus and (iii) it was the responsibility of that Selling Holder or that
underwriter (or any dealer acquiring those shares directly or indirectly from
that underwriter) to send or give that prospectus to that Person.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Each Person claiming
indemnification from INVATEC pursuant to this Section 10 (an "Indemnified
Party") will, promptly after that Indemnified Party becomes aware of any
assertion or commencement of any action or proceeding against that Indemnified
Party in respect of which indemnity may be sought from INVATEC (a "Proceeding"),
promptly notify INVATEC in writing of the Proceeding; provided, that an
Indemnified Party's failure to so notify INVATEC will not relieve INVATEC from
any liability it may have to that Indemnified Party otherwise than pursuant to
the provisions of this Section 10. If any Proceeding is brought against any
Indemnified Party and that Indemnified Party duly notifies INVATEC thereof: (i)
INVATEC will have the right, at its expense, to assume the defense thereof,
including the employment of counsel; and (ii) the Indemnified Party will have
the right to employ separate counsel in the Proceeding and participate in the
defense thereof, but the Indemnified Party
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will pay the fees and expenses of that separate counsel unless (A) INVATEC has
agreed in writing to pay those fees and expenses or (B) the named parties to the
Proceeding (including any impleaded parties) include both the Indemnified Party
and INVATEC, and counsel advises the Indemnified Party in writing that one or
more legal defenses may be available to the Indemnified Party which is or are
different from or additional to those available to INVATEC (in which case, if
the Indemnified Party notifies INVATEC in writing that the Indemnified Party
elects to employ separate counsel at the expense of INVATEC, INVATEC will not
have the right to assume the defense of the Proceeding on behalf of the
Indemnified Party; it being understood, however, that INVATEC will not, in
connection with any one Proceeding or separate but substantially similar or
related Proceedings in the same jurisdiction and arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate law firm (together with appropriate local counsel) at any time for
all Indemnified Parties). INVATEC will not be liable for any settlement of any
Proceeds which any Indemnified Party effects without INVATEC's written consent.
(c) INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder will, to
the extent permitted by applicable law, indemnify INVATEC and each of its
Related Parties against, and hold each of those Persons harmless from and in
respect of, Claims to the same extent as the indemnity from INVATEC to that
Selling Holder in Section 10(a), but only with respect to information that is
furnished by or on behalf of that Selling Holder expressly for use in a Sellers'
Registration Statement or any prospectus (including any preliminary prospectus)
forming a part thereof, or any amendment thereof or supplement thereto. If any
action or proceeding is brought against INVATEC or any of its Related Parties in
respect of which any of those Persons may seek indemnity from a Selling Holder
pursuant to this Section 10(c), that Selling Holder will have the rights and
duties given to INVATEC and each of those Persons will have the rights and
duties given to that Selling Holder and that Selling Holder's Related Parties,
by Section 10(b). Each Selling Holder also will, to the extent permitted by
applicable law, indemnify and hold harmless the underwriters of the shares of
Registrable Common offered by that Selling Holder on substantially the same
basis on which INVATEC will indemnify and hold harmless those Persons pursuant
to Section 10(a).
(d) CONTRIBUTION. If the indemnification this Section 10 provides
for is unavailable to any partner intended to be indemnified pursuant to this
Section 10 in respect of any Claims referred to herein, the parties who would
have indemnified that party in the contemplation of this Section 10 will, in
lieu of providing that indemnification, contribute to the amount paid or payable
by that party as a result of those Claims, as follows:
(i) as between INVATEC and the Selling Holders, on the one hand, and
the underwriters of shares of Registrable Common on the other hand, (A) in
such proportion as is appropriate to reflect the relative benefits
received by INVATEC and the Selling Holders and by those underwriters from
the offering of those shares or, if that allocation is not permitted by
applicable law, (B) in such proportion as is appropriate to reflect not
only those relative benefits, but also the relative faults of INVATEC and
the Selling Holders and of
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those underwriters in connection with the statements or omissions that
resulted in those Claims, as well as any other relevant equitable
considerations; and
(ii) as between INVATEC, on the one hand, and each Selling Holders
on the other hand, in such proportion as is appropriate to reflect the
relative faults of INVATEC and of that Selling Holder in connection with
those statements or omissions, as well as any other relevant equitable
considerations.
The relative benefits received by INVATEC and the Selling Holders, on the one
hand, and the underwriters participating in the underwritten offering of shares
of Registrable Common, on the other hand, will be deemed to be in the same
proportion as the total proceeds from that offering (including shares of Common
Stock being offered by INVATEC), net of underwriting discounts and commissions,
but before deducing expenses, bear to the total amount of underwriting discounts
and commissions received by those underwriters in that offering, while (i)
relative faults of INVATEC and the Selling Holders and of those underwriters
will be determined by reference to, among other facts, whether the statements or
omissions that resulted in the Claims in respect of which contribution is being
made are or relate to information supplied by INVATEC and the Selling Holders or
by those underwriters and (ii) the relative fault of INVATEC and of the Selling
Holders will be determined by reference to, among other facts, (A) whether those
statements or omissions are or relate to information supplied by INVATEC or by
the Selling Holders and (B) those Persons' relative intent, knowledge, access to
information and opportunity to correct those statements or omissions or prevent
them from being made. INVATEC and the Selling Holders agree it would not be just
or equitable if contribution pursuant to this Section 10(d) were to be
determined by pro rata allocation (even if the underwriters, if any, were to be
treated as one entity for this purpose) or by any other allocation method that
does not take into account the equitable considerations referred to in this
Section 10(d).
(e) LIMITATIONS ON CONTRIBUTION. No underwriter will be required to
contribute to INVATEC or the Selling Holders, pursuant to Section 10(d) or
otherwise, any amount in excess of the amount by which (i) the total price at
which the shares of Registrable Common underwritten by it and distributed to the
public were offered to the public exceeds (ii) the amount of any damages it
otherwise has been required to pay by reason of the statements or omissions that
resulted in the Claims in respect of which contribution is being made, and no
Selling Holder will be required to contribute to INVATEC or any underwriter,
pursuant to Section 10(d) or otherwise, any amount in excess of the amount by
which (i) the total price at which that Selling Holder's shares of Registrable
Common were offered to the public exceeds (ii) the amount of any damages that
Selling Holder otherwise has been required to pay by reason of those statements
or omissions. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 10, the indemnifying parties
will indemnify each indemnified party to the extent provided in Sections 10(a)
and (c) without regard to the relative fault of any Person or any other
equitable consideration referred to in Section 10(d).
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11. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless INVATEC has obtained the written consent of
Holders of at least 51% of the shares of Registrable Common then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder must be in writing and will be deemed delivered and received
(i) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom the notice or
communication is sent, or (ii) if delivered by mail (whether actually received
or not), at the close of business on the third Houston, Texas business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties at the address of that
party set forth or referred to below (or at such other address as that party may
designate by written notice to each other party in accordance herewith):
(A) if to a Holder, at the most current address given by that Holder
to INVATEC in a writing making specific reference to this Agreement, with
a copy (which will not constitute notice for purposes of this Agreement)
to such legal counsel, if any, as that Holder may designate in that
writing; and
(B) if to INVATEC, at the following address:
Innovative Valve Technologies, Inc.
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
Attn: Corporate Secretary
Telecopy: (281)821-1123
with copies to:
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza
#3100
Houston, Texas 77046
Attn: John R. Boyer, Jr.
Telecopy: (713) 871-2024
(c) SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit
of and be binding on the heirs, executors, administrators, successors and
assigns of each of the parties hereto.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will
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be deemed to be an original and all of which taken together will constitute one
and the same agreement.
(e) HEADINGS AND REFERENCES. The headings in this Agreement are for
convenience of reference only and will not limit or otherwise affect the meaning
hereof. References herein to "Sections" are to Sections of this Agreement unless
otherwise indicated.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(g) SEVERABILITY. If any one or more of the provisions contained
herein or the application thereof in any circumstances, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of that provision in every other respect and of the remaining
provisions contained herein will not be in anyway impaired thereby, it being
intended by each partner hereto that all the rights and privileges of all
parties hereto will be enforceable to the fullest extent permitted by law.
(h) ENTIRE AGREEMENT; TERMINATION. The parties hereto intend that
this agreement will be considered for all purposes as the final expression, and
a complete and exclusive statement, of their mutual agreement and understanding
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties to this Agreement with
respect to that subject matter. This Agreement, except for the provisions of
Sections 1 and 10 (which will survive until the expiration of the applicable
statutes of limitations) and this Section 11, will terminate and be of no
further force or effect on December 31, 2002; provided, that if INVATEC delivers
a Registration Notice relating to an Eligible Offering that is pending on
December 31, 2002, all the provisions of this Agreement will survive until that
Eligible Offering is closed or abandoned by INVATEC.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, Senior Vice President
PUGET HOLDERS:
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/s/ D. BOWEN KING
D. Bowen King
/s/ E. S. RIES
E.S. Ries
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EXHIBIT 4.7
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
HARLEY INDUSTRIES, INC., THE SAFE SEAL
COMPANY, INC., VALVE REPAIR OF SOUTH
CAROLINA, INC., SPINSAFE CORPORATION,
THE SAFE SEAL COMPANY (CANADA), INC.,
GSV, INC. and PLANT SPECIALTIES, INC.
BORROWERS
THE CHASE MANHATTAN BANK
AGENT FOR
THE CHASE MANHATTAN BANK
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
LENDERS
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................. 1
1.1 DEFINITIONS.................................................. 1
1.2 OTHER DEFINITIONS............................................ 23
ARTICLE II REVOLVING CREDIT LOANS AND LETTERS OF CREDIT................. 24
2.1 REVOLVING LOAN COMMITMENTS................................... 24
2.2 LETTERS OF CREDIT............................................ 24
2.3 BORROWING BASE............................................... 25
2.4 LOAN VALUE OF ELIGIBLE INVENTORY............................. 26
2.5 BORROWING PROCEDURE.......................................... 26
2.6 USE OF PROCEEDS.............................................. 28
2.7 REDUCTION OF REVOLVING CREDIT COMMITMENT..................... 28
2.8 REQUIRED PAYMENTS............................................ 29
ARTICLE III TERM LOANS................................................... 29
3.1 TERM LOANS................................................... 29
3.2 USE OF PROCEEDS.............................................. 29
ARTICLE IV STEAM SUPPLY LOANS........................................... 29
4.1 STEAM SUPPLY LOANS........................................... 29
4.2 BORROWING BASE............................................... 29
4.3 LOAN VALUE OF STEAM SUPPLY ELIGIBLE INVENTORY................ 30
4.4 BORROWING PROCEDURE.......................................... 30
4.5 USE OF PROCEEDS.............................................. 32
4.6 REDUCTION OF STEAM SUPPLY COMMITMENT......................... 32
4.7 REQUIRED PAYMENTS............................................ 33
ARTICLE V NOTES........................................................ 33
5.1 REVOLVING CREDIT NOTES....................................... 33
5.2 TERM NOTES................................................... 33
5.3 STEAM SUPPLY NOTES........................................... 33
5.5 APPLICABLE MARGIN............................................ 36
5.6 INTEREST RECAPTURE........................................... 37
5.7 DEFAULT RATE................................................. 38
5.8 MAXIMUM INTEREST............................................. 38
5.9 PAYMENTS ON THE NOTES........................................ 38
5.10 CALCULATION OF INTEREST RATES................................ 42
5.11 PREPAYMENTS.................................................. 42
5.12 MANNER OF PAYMENTS........................................... 43
5.13 PRO RATA TREATMENT........................................... 43
5.14 LENDING OFFICE............................................... 44
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5.15 RENEWALS OF NOTES............................................ 44
5.16 TAXES........................................................ 44
5.17 SHARING OF PAYMENTS.......................................... 45
5.18 SHARING OF SETOFFS........................................... 45
5.19 COMMITMENT FEES.............................................. 46
5.20 LETTERS OF CREDIT FEES....................................... 46
5.21 CONSEQUENTIAL LOSS........................................... 46
5.22 PAYMENTS IN RESPECT OF INCREASED COSTS....................... 47
ARTICLE VI SPECIAL PROVISIONS FOR EURODOLLAR LOANS...................... 48
6.1 INADEQUACY OF EURODOLLAR LOAN PRICING........................ 48
6.2 ILLEGALITY................................................... 49
6.3 EFFECT ON INTEREST OPTIONS................................... 49
6.4 PAYMENTS NOT AT END OF INTEREST PERIOD....................... 49
6.5 SURVIVAL OF OBLIGATIONS...................................... 50
ARTICLE VII COLLATERAL FOR LOANS......................................... 50
7.1 COLLATERAL FOR LOANS......................................... 50
7.2 COLLATERAL DOCUMENTS......................................... 51
7.3 FURTHER ASSURANCES........................................... 51
7.4 OTHER LOANS.................................................. 52
ARTICLE VIII CUSTODY, INSPECTION, COLLECTION AND MAINTENANCE OF
COLLATERAL................................................... 52
8.1 CASH COLLATERAL ACCOUNT...................................... 52
8.2 COLLECTION OF ACCOUNTS....................................... 52
8.3 VERIFICATION OF ACCOUNTS..................................... 54
8.4 SALES OF INVENTORY........................................... 54
8.5 INSPECTIONS AND FIELD EXAMINATIONS........................... 54
8.6 REPORTS...................................................... 55
8.7 COMPLIANCE WITH LAW.......................................... 55
8.8 ACCESS....................................................... 55
8.9 PROTECTION................................................... 55
8.10 RIGHT TO RECEIVE............................................. 56
8.11 STEAM SUPPLY CASH COLLATERAL ACCOUNT......................... 56
ARTICLE IX COVENANTS.................................................... 56
9.1 AFFIRMATIVE COVENANTS........................................ 56
9.2 FINANCIAL COVENANTS.......................................... 60
9.3 OTHER COVENANTS.............................................. 61
9.4 ERISA COMPLIANCE............................................. 63
9.5 INDEMNITY.................................................... 64
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ARTICLE X CONDITIONS PRECEDENT......................................... 65
10.1 INITIAL ADVANCES OF LOANS.................................... 65
10.2 SUBSEQUENT ADVANCES.......................................... 69
ARTICLE XI REPRESENTATIONS AND WARRANTIES............................... 69
11.1 REPRESENTATIONS AND WARRANTIES CONCERNING THE BORROWERS...... 69
11.2 REGULATORY MATTERS........................................... 73
11.3 REPRESENTATIONS REGARDING ACCOUNTS........................... 75
11.4 REPRESENTATIONS REGARDING INVENTORY.......................... 76
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES................... 76
ARTICLE XII DEFAULTS AND REMEDIES........................................ 77
12.1 EVENTS OF DEFAULT............................................ 77
12.2 REMEDIES..................................................... 80
12.3 NOTICES OF DEFAULT........................................... 80
ARTICLE XIII AGENT........................................................ 80
13.1 APPOINTMENT.................................................. 80
13.2 AUTHORIZATION................................................ 80
13.3 RESPONSIBILITIES OF AGENT.................................... 81
13.4 RESIGNATION AND SUCCESSOR.................................... 82
13.5 NOTEHOLDERS.................................................. 82
13.6 CONSULTATION WITH COUNSEL.................................... 82
13.7 INDEPENDENT INVESTIGATION.................................... 83
13.8 EXPENSES AND INDEMNIFICATION................................. 83
13.9 INDEPENDENT STATUS........................................... 83
13.10 BENEFIT AND APPLICABILITY OF ARTICLE......................... 83
ARTICLE XIV MISCELLANEOUS................................................ 83
14.1 NOTICES...................................................... 83
14.2 SEVERABILITY................................................. 84
14.3 CAPTIONS..................................................... 84
14.4 SUCCESSORS AND ASSIGNS....................................... 84
14.5 SYNDICATIONS................................................. 84
14.6 PARTICIPATIONS............................................... 84
14.7 NON-LIABILITY OF THE AGENT AND THE LENDERS................... 86
14.8 FINANCING STATEMENTS......................................... 87
14.9 LIST OF EXHIBITS AND SCHEDULES............................... 87
14.10 MODIFICATION................................................. 87
14.11 WAIVER....................................................... 87
14.12 GOVERNING LAW................................................ 87
14.13 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION......... 88
14.14 WAIVER OF JURY TRIAL. ...................................... 88
14.15 NO THIRD PARTY BENEFICIARY................................... 88
14.16 PAYMENT OF EXPENSES.......................................... 88
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14.17 CONFLICTS.................................................... 89
14.18 ENTIRETY..................................................... 89
14.19 RIGHT OF SETOFF.............................................. 89
14.20 JOINT AND SEVERAL OBLIGATIONS................................ 89
14.21 MULTIPLE COUNTERPARTS........................................ 90
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SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amended and Restated Credit Agreement (the "SECOND RESTATED
AGREEMENT") is made and entered into effective July 28, 1997 (the "EFFECTIVE
DATE OF THIS SECOND RESTATED AGREEMENT"), by and among:
HARLEY INDUSTRIES, INC. ("HARLEY"), THE SAFE SEAL COMPANY, INC. ("SAFE
SEAL"), VALVE REPAIR OF SOUTH CAROLINA, INC. ("VALVE"), SPINSAFE CORPORATION
("SPINSAFE"), THE SAFE SEAL COMPANY (Canada), INC. ("SAFE SEAL CANADA"),
GSV, INC. ("GSV") and PLANT SPECIALTIES, INC. ("PSI," sometimes with Harley,
Safe Seal, Valve and Spinsafe, Safe Seal Canada and GSV being herein
collectively called the "BORROWERS," and singly called a "BORROWER"); and,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TEXAS COMMERCE") and THE CHASE
MANHATTAN BANK ("CHASE" and Texas Commerce and Chase being herein sometimes
collectively, the "LENDERS", and individually, a "LENDER"); and,
THE CHASE MANHATTAN BANK (the "AGENT"), as Agent for the Lenders as set out
herein.
RECITALS
Harley, Safe Seal, Valve, Spinsafe, Safe Seal Canada, the Agent and the
Lenders entered into a Credit Agreement dated January 31, 1997, as amended in
First Amendment to Credit Agreement dated January 31, 1997 (collectively, the
"PRIOR AGREEMENT"). The Borrowers, the Agent and the Lenders modified the terms
of the Prior Agreement and entered into an Amended and Restated Credit Agreement
(the "RESTATED AGREEMENT") dated June 12, 1997. The Prior Agreement and the
Restated Agreement are sometimes collectively herein referred to as the "PRIOR
CREDIT AGREEMENTS." The Borrowers, the Agent and the Lenders desire to further
amend and restate the provisions of the Prior Credit Agreements as herein set
out. Subject to the terms hereof, the Lenders agree to make the Loans available
for the purposes herein set out to the Borrowers.
In consideration of the premises, for other good, fair and valuable
considerations, the receipt, adequacy and reasonable equivalency of which are
acknowledged, and for other valuable consideration, the parties agree as set out
herein.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Second Restated Agreement and the
other Loan Documents, unless the context requires otherwise, the following terms
shall have the respective meanings ascribed to them in this Article or in the
Sections referred to below:
"ACCOUNT DEBTORS" means all, and "ACCOUNT DEBTOR" means any account debtor,
customer or other obligor with respect to any of the Accounts.
"ACCOUNTS", "CHATTEL PAPER", "CONTRACTS", "CONTRACT RIGHTS", "DOCUMENTS",
"EQUIPMENT", "FIXTURES", "GENERAL INTANGIBLES", "GOODS", and "INSTRUMENTS" shall
have the meanings ascribed to such terms in the UCC, and shall mean the
Accounts, Chattel Paper, Contracts, Contract Rights, Docu-
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ments, Equipment, Fixtures, General Intangibles, Goods, and Instruments of each
of the Borrowers in which the Agent is granted security interests for the
benefit of the Lenders pursuant to the Loan Documents.
"ACT OF COLLATERAL MORTGAGE" means the first priority Act of Collateral Mortgage
and Collateral Assignment of Proceeds executed and delivered pursuant to the
Prior Agreement.
"ADJUSTED LIBOR RATE LOANS" means all, and "ADJUSTED LIBOR RATE LOAN" means any,
of the Loans, with respect to any Interest Period, which bears interest at a
rate of interest determined by reference to the LIBOR Rate for such Interest
Period.
"ADJUSTED LIBOR RATE" means, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the product of (i) the LIBOR Rate in effect for
such Interest Period, and (ii) Statutory Reserves.
"ADVANCES" means all, and "ADVANCE" means any, of the disbursements by the
Lenders of the sums loaned to the Borrowers pursuant to this Second Restated
Agreement.
"AFFILIATE" of any Person means any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person and,
without limiting the generality of the foregoing, includes (i) any Person which
beneficially owns or holds five per cent or more of any class of Voting Shares
of such Person or five per cent or more of the equity interest in such Person,
(ii) any Person of which such Person beneficially owns or holds five per cent or
more of any class of Voting Shares or in which such Person beneficially owns or
holds five per cent or more of the equity interest in such Person and (iii) any
director, officer, member, manager or employee of such Person. For the purposes
of this definition, the term "CONTROL" (including, with correlative meanings,
the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect
to any Person, 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 Shares or by contract or otherwise.
"AGENT" shall have the meaning ascribed to such term in the preamble hereof.
"AGREEMENT" means this Second Restated Agreement and the Prior Credit
Agreements, as amended and restated herein, and as it may, from time to time, be
further amended and restated.
"ALLWASTE GUARANTY AGREEMENT" means the limited guaranty agreement executed by
Allwaste pursuant to the Prior Agreement for the benefit of the Lenders, the
Guaranty Confirmation Letter executed by Allwaste pursuant to the terms of the
Restated Agreement and the Guaranty Confirmation Letter executed by Allwaste
pursuant to the terms of this Second Restated Agreement
"ALLWASTE" means Allwaste, Inc., a Delaware corporation.
"ALTERNATE BASE RATE LOANS" means that portion of any Loan which bears interest
at a rate of interest determined by reference to the Alternate Base Rate.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater
of (i) the Base Rate in effect on such day, (ii) the Base CD Rate in effect on
such day PLUS one (1) per cent, or (iii) the Federal Funds Effective Rate in
effect on such day PLUS one-half (1/2) of one (1) per cent. If the
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Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Base CD Rate or the Federal
Funds Effective Rate, or both, for any reason, including the inability or
failure of the Agent to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (ii) or (iii), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Base Rate,
the Base CD Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Base Rate, the Three-Month Secondary CD
Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE LENDING OFFICE" means, with respect to each Lender, such Lender's
Domestic Lending Office in the case of an Alternate Base Rate Loan and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Loan.
"APPLICABLE MARGIN" shall have the meaning ascribed to such term in Section 5.5.
"APPRAISAL" means the appraisals rendered in connection with the Prior Credit
Agreements.
"ASSESSMENT RATE" means the annual assessment rate (net of refunds) estimated by
the Agent (in good faith, but in no event in excess of statutory or regulatory
maximums) to be payable by the Agent to the Federal Deposit Insurance
Corporation (or any successor) for insurance to such Governmental Authority (or
such successor) of time deposits made in Dollars at the Agent's U.S. offices
during the current calendar year.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a
Lender and an assignee and accepted by the Agent, in substantially the form
attached to the Restated Agreement.
"ASSIGNMENT OF LEASES" means all, and "ASSIGNMENT OF LEASE" means any, of the
Assignment of Leases and Rents executed pursuant to the Prior Credit Agreements.
"AVAILABILITY" means, at any time, with respect to the Revolving Credit Loans,
the Revolving Credit Commitment (as such amount may be reduced or increased in
accordance with the provisions of this Second Restated Agreement), MINUS the
sum, at such time, of (i) the unpaid principal balance of, and accrued interest
and fees on, the Revolving Credit Loans, (ii) the amounts of outstanding Letters
of Credit and Letters of Credit fees, and (iii) the Reserves established by the
Agent pursuant to Section 2.3.B.
"BASE CD RATE" means the sum of (i) the product of (a) the Three-Month Secondary
CD Rate, and (b) Statutory Reserves, and (ii) the Assessment Rate.
"BASE RATE" means the variable rate of interest announced from time to time by
Chase as the prime rate, and used by Chase as a general reference rate of
interest, but which rate of interest may not be the lowest rate charged by Chase
on similar loans. If Chase shall, during the term of this Second Restated
Agreement, abolish or abandon the practice of announcing or publishing a "PRIME
RATE", then the "BASE RATE" used during the remaining term of this Second
Restated Agreement shall be that interest rate or other general reference rate
then in effect and used by Chase, which, from time to time, in the judgment of
Chase, most effectively approximates the initial definition of the "BASE RATE".
"BOARD" means the Board of Governors of the Federal Reserve System of the U.S.
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"BORROWERS" means all, and "BORROWER" means any, of Safe Seal, Harley, Valve,
Spinsafe, Safe Seal Canada, GSV, PSI and any other Consolidated Subsidiary of
Safe Seal which the Lenders may, at the time of its acquisition or formation by
a Borrower, or at any subsequent time, require to be a Borrower hereunder.
"BORROWING BASE CERTIFICATE" means any of the certificates attached to a
Certificate of Compliance and delivered by Borrowers to the Agent calculating
the Borrowing Base pursuant to Section 9.1.A.(6).
"BORROWING BASE" means the total amounts calculated pursuant to Section 2.3 to
determine Availability.
"BORROWING DATE" means the date (which must be a Business Day) specified in (i)
any Notice of Revolving Credit Advance, (ii) a Notice of Term Loan Advance,
(iii) Letter of Credit Agreement, or (iv) any Notice of Steam Supply Advance, as
a date on which the Borrowers request the Agent make an Advance or issue a
Letter of Credit.
"BORROWING" means any amount disbursed by the Agent, (i) to or on behalf of the
Borrowers under the Loan Documents, whether such amount advanced constitutes an
original disbursement of funds, the continuation of an amount outstanding, (ii)
amounts advanced and outstanding under a Letter of Credit (until such payment is
reimbursed in accordance with the applicable Letter of Credit Agreement or the
Letter of Credit is returned to the Agent), or (iii) a disbursement of funds in
accordance with and to satisfy the Obligations.
"BUILDINGS" shall have the meaning ascribed to such term in the Mortgages.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or legal holiday in
the State of New York, on which banks are open for substantially all their
banking business in New York, New York except that, if any determination of a
"BUSINESS DAY" shall relate to a Eurodollar Loan, the term "BUSINESS DAY" shall,
in addition, exclude any day on which banks are not open for dealings in Dollar
deposits in the London interbank market.
"CAPITAL EXPENDITURE" means any expenditure by a Person for an asset which will
be used in a year or years subsequent to the year in which the expenditure is
made and which asset is properly classifiable in relevant financial statements
of such Person as equipment, real property, improvements, fixed assets, or a
similar type of capitalized asset in accordance with GAAP.
"CAPITAL LEASE" means, as of any date, any lease of property, real or personal,
which would be capitalized on a balance sheet of the lessee prepared as of such
date in accordance with GAAP, together with any other lease by such lessee which
is in substance a financing lease, including, without limitation, any lease
under which (i) such lessee has or will have an option to purchase the property
subject thereto at a nominal amount or at an amount less than a reasonable
estimate of the fair market value of such property as of the date such lease is
entered into, or (ii) the term of the lease approximates or exceeds the expected
useful life of the property leased thereunder.
"CASH COLLATERAL ACCOUNT" means the non-interest bearing cash collateral account
maintained by the Borrowers with Texas Commerce in the names of the Borrowers
pursuant to Section 8.1, and the Lockbox Agreement.
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"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended from time to time, and all regulations and
rulings issued thereunder.
"CERTIFICATE OF COMPLIANCE" means any of the certificates delivered by the
Borrowers pursuant to Section 9.1.A.(6).
"CHANGE OF CONTROL" means (i) if any Person, or group of Persons acting together
shall acquire sufficient stock ownership of any of the Borrowers or any of the
Steam Supply Group to permit such Person or group to elect a majority of the
Board of Directors of any Borrower or member of the Steam Supply Group or
otherwise control any Borrower or member of the Steam Supply Group, (ii) if
there shall occur any merger, consolidation or dissolution of any Borrower or
any member of the Steam Supply Group with any other Person, or (iii) if there
shall occur any sale, lease or other disposition of all or substantially all of
the assets or capital stock of any Borrower or any member of the Steam Supply
Group to any other Person.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COLLATERAL ASSIGNMENT OF LEASES AND RENTS" means the first priority Collateral
Assignment of Leases and Rents executed and delivered pursuant to the Prior
Agreement.
"COLLATERAL DOCUMENTS" means all mortgages, acts of collateral mortgage and
collateral assignment of proceeds, assignments of leases, collateral assignments
of leases, security agreements, collateral pledge and security agreements,
pledge agreements, guaranty agreements, security agreement-collateral
assignments of notes, and any other agreements or documents executed or
delivered to secure the repayment of the Obligations or any part thereof.
"COLLATERAL MORTGAGE NOTE" means that one certain promissory note in the
original principal sum of $300,000.00, dated January 31, 1997, executed by
Harley payable to the order of Bearer pursuant to the Prior Agreement.
"COLLATERAL PLEDGE AND SECURITY AGREEMENT" means the first priority Collateral
Pledge and Security Agreement executed and delivered pursuant to the Prior
Agreement.
"COLLATERAL" means and includes all of each Borrower's assets now owned or
hereafter acquired, except for the interests owned by Valve in a real property
tract in Charleston, South Carolina, the interests owned by GSV in real property
tract in Florida and the interests owned by PSI in a real property tract in
Sulphur, Louisiana.
"COMMITMENT LETTER" means the commitment letter dated January 17, 1997, from
Chase and Texas Commerce addressed to the Safe Seal and Allwaste, as the same
may be amended, modified or supplemented from time to time.
"COMMITMENT TERMINATION DATE" means January 30, 2000, or if such date is not a
Business Day, then the Business Day preceding such date.
"COMMITMENT" means, with respect to each Lender, the obligation of the Lender to
extend credit to the Borrowers in an amount equal to its respective Percentage
of the Revolving Credit Commitment, the
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Total Term Loan Commitment, and the Steam Supply Commitment, as each such
Commitment may be adjusted from time to time pursuant to the terms of this
Second Restated Agreement.
"CONSEQUENTIAL LOSS" shall have the meaning set forth in Section 5.21.
"CONSOLIDATED SUBSIDIARIES" means Spinsafe, Safe Seal Canada, GSV and PSI as to
Safe Seal, and Valve as to Harley, and any other entity acquired by Safe Seal or
Harley, the capital stock of which is owned in its entirety by Safe Seal, Harley
or a wholly owned direct subsidiary of either of them, and "CONSOLIDATED
SUBSIDIARY" means any of them.
"CONTRACT RATE" means each, as applicable, of the rates of interest described in
Section 5.4.
"CONTROLLED GROUP" means (i) the controlled group of corporations as defined in
ss.1563 of the Code, or (ii) the group of trades or businesses under common
control as defined in ss.414(c) of the Code, of which a Borrower is or may
become a part.
"CONVERSION DATE" shall have the meaning ascribed to such term in Section
5.4.A.(4) or Section 5.4.B.(3), as applicable.
"DEBT SERVICE COVERAGE RATIO" shall have the meaning ascribed to such term in
Section 9.2.B.
"DEBT SERVICE EXPENSE" means, with respect to any Person for any period, the
aggregate of regularly scheduled principal payments of all long-term
Indebtedness (including, without limitation, Subordinated Indebtedness) made or
to be made by such Person during such period in accordance with GAAP.
"DEBTOR LAWS" means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization or similar
laws, from time to time in effect, affecting the rights of creditors generally.
"DEFAULT RATE" shall have the meaning ascribed to such term in Section 5.7.
"DEFAULT" shall have the meaning ascribed to such term in Section 12.1.
"DIVIDENDS" means in respect of any Person, (i) cash distributions or any other
distributions (including distributions by tax-option corporations) on, or in
respect of, any class of capital stock of such Person, whether in cash,
property, securities or a combination thereof (whether by reduction of capital
or otherwise), except for distributions made solely in shares of stock of the
same class, and (ii) any and all funds, cash or other payments (or the setting
aside of any amounts for any such purpose) made in respect of the redemp tion,
repurchase or acquisition of such stock, unless such stock shall be redeemed or
acquired through the exchange of such stock with stock of the same class.
"DOLLARS" and the symbol "$" shall refer to currency of the U.S.
"DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such
Lender specified as its "DOMESTIC LENDING OFFICE" opposite its name as set out
in the Prior Agreement, or such other office of such Lender as such Lender may,
from time to time, specify to the Borrowers and the Agent.
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"EBITDA" means for any fiscal period of the Borrowers, the sum of the following
which would be reflected on the consolidated income statement of the Borrowers
prepared in accordance with GAAP, (i) net income; PLUS, (ii) income taxes; PLUS
(iii) Interest Expense; PLUS, (iv) non-cash charges in respect of depreciation
and amortization.
"EFFECTIVE DATE OF THE PRIOR AGREEMENT" shall mean January 31, 1997.
"EFFECTIVE DATE OF THE RESTATED AGREEMENT" shall mean June 12, 1997.
"EFFECTIVE DATE OF THIS SECOND RESTATED AGREEMENT" shall mean July 28, 1997.
"EFFECTIVE DATES OF THE PRIOR CREDIT AGREEMENTS" shall mean, respectively, the
effective dates of the execution and delivery of the Prior Credit Agreements.
"ELIGIBLE ACCOUNTS" means, at the time of any determination thereof, each
Account of Harley (and for the purposes of the term "ELIGIBLE ACCOUNTS" as it
relates to Harley shall mean and include Harley and Valve) or Safe Seal (and for
the purposes of the term "ELIGIBLE ACCOUNTS" as it relates to Safe Seal shall
mean and include Safe Seal, Spinsafe, GSV and PSI) as to which the following
requirements have been fulfilled to the satisfaction of the Agent. Standards of
eligibility may be fixed and revised from time to time solely by the Agent in
the Agent's judgment. In general, without limiting the foregoing, an Account
shall in no event be deemed to be an Eligible Account unless:
A. Harley or Safe Seal has lawful and absolute title to the Account and
the Account constitutes an "ACCOUNT" within the meaning of the UCC.
B. All payments due on the Account have been invoiced and the Account is
not evidenced by any Chattel Paper, promissory note, or other
Instrument.
C. The Account is a valid, legally enforceable obligation of an Account
Debtor who is obligated under the Account for goods or services
previously delivered or rendered to the Person and the Account has not
been outstanding for more than ninety (90) days from invoice date.
D. There has been excluded from the Account any portion that is subject to
any dispute, setoff, counterclaim, contras, chargebacks, net-out
contract, deduction, credits, returns, discounts, and allowances of any
nature at any time issued, owing, granted, outstanding, available or
claimed, and other claim or defense on the part of the Account Debtor
or any claim on the part of the Account Debtor denying liability for
the Account.
E. The Account Debtor has finally accepted the goods or services from the
sale out of which the Account arose and has not objected to goods or
services or returned any of such goods, except for complaints made or
goods returned in the ordinary course of business for which, in the
case of goods returned, goods of equal or greater value have been
shipped in return.
F. Harley or Safe Seal has the full and unqualified right to assign and
grant a security interest in the Account to the Agent as security for
the Obligations.
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G. The Account is subject to a fully perfected first priority security
interest and Lien in favor of the Agent for the benefit of the Lenders
pursuant to the Loan Documents, prior to the rights of, and enforceable
as such, against any other Person.
H. The Account is not subject to any Lien in favor of any Person other
than the Lien of the Agent pursuant to the Loan Documents.
I. The Account arose from a transaction in the ordinary course of business
of Harley or Safe Seal from a completed, outright and lawful sale of
goods to which title (subject to any security interests retained by
Harley or Safe Seal or created by an Account Debtor in favor of Harley
or Safe Seal) has passed to the Account Debtor, or for the rendering of
services by or on behalf of Harley or Safe Seal to the Account Debtor.
J. The Account Debtor has not asserted that the Account, and neither
Harley nor Safe Seal is aware that the Account, arises out of a bill
and hold, consignment or progress billing arrangement.
K. An Eligible Account shall not include any Account from an Account
Debtor who is obligated to Harley or Safe Seal on any Account
whatsoever if more than fifty (50) per cent of the Accounts of that
Account Debtor has been due and payable for more than ninety (90) days
from the invoice date.
L. The Account Debtor is a U.S. Person and no Account Debtor in respect of
the Account is, (i) primarily conducting business in any jurisdiction
located outside the U.S., except those Accounts secured by letters of
credit specifically approved by the Agent, (ii) an Affiliate of a
Borrower or a Consolidated Subsidiary, (iii) any Governmental
Authority, domestic or foreign, unless secured by an assignment of
claims in form and content satisfactory to the Agent, and duly
confirmed by the Governmental Authority, or (iv) the subject of a
proceeding under any Debtor Laws.
M. An Eligible Account shall not include an Account from or among any
Affiliates of the Borrowers or an Account which arises out of a
transaction in which any Borrower or Consoli dated Subsidiary shall
have provided any surety or guaranty bond to the Account Debtor or
other Person.
N. The Account complies with all material requirements of all applicable
laws and regulations, whether Federal, state or local.
O. The Account is denominated in and provides for payment by the Account
Debtor in Dollars.
P. The Account has not been and is not required to be charged off or
written off as uncollectible in accordance with GAAP or the customary
business practice of Harley or Safe Seal.
Q. The Agent shall have the right to approve, in the Agent's business
judgment, the credit-worthiness of the Account Debtor.
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"ELIGIBLE INVENTORY" shall mean the Inventory described in Section 2.4, however,
there shall be excluded from Eligible Inventory any item in which the Lenders do
not have a perfected first priority Lien except as permitted in Section 2.4.
"EMPLOYEE PLAN" means any, and "EMPLOYEE PLANS" means all, employee benefit or
other plans maintained, in whole or in part, for the employees of the Borrowers
and the Consolidated Subsidiaries or any ERISA Affiliate, and covered by Title
IV of ERISA, or subject to the minimum funding standards under ss.412 of the
Code.
"ENVIRONMENTAL LAWS" means all Requirements relating to pollution or protection
of the environment (including, but not limited to, ambient air, surface water,
groundwater, land surface, and subsurface strata), including, but not limited
to, CERCLA/SARA, RCRA/HSWA, and other laws relating to (i) Hazardous Materials,
or (ii) the generation, manufacture, processing distribution, use treatment,
handling, storage, disposal or transportation of Hazardous Materials.
"ENVIRONMENTAL SITE ASSESSMENTS" means the Phase I Environmental Site Assessment
and a Phase II Environmental Site Assessment of the Mortgaged Property in Tulsa,
Oklahoma performed pursuant to the Prior Agreement.
"ERISA AFFILIATE" means any Person which, together with a Borrower or any
Subsidiary, would be treated as a single employer under the provisions of Title
I or Title IV of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
together with all regulations issued pursuant thereto.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the office of
such Lender specified as its "EURODOLLAR LENDING OFFICE" opposite its name as
set out in the Prior Agreement (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender as such Lender may, from
time to time, specify to the Borrowers and the Agent.
"EURODOLLAR LOANS" means all, and "EURODOLLAR LOAN" means any, of the Loans,
with respect to any Interest Period, which bears interest at a rate of interest
determined by reference to the Adjusted LIBOR Rate for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in Section 12.1.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means, with respect to any Person, the chairman, the
president, the chief executive officer, or the chief financial officer of such
Person.
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"FINANCIAL STATEMENTS" means all, and "FINANCIAL STATEMENT" means any, of the
balance sheets, income statements stockholders statements and statements of cash
flow and contingent liabilities of, (i) the Borrowers and the Consolidated
Subsidiaries, and (ii) the members of the Steam Supply Group.
"FINANCING STATEMENT" means each UCC-1 financing statement sufficient for
purposes of perfecting the Agent's security interest for the benefit of the
Lenders in the Collateral pursuant to the UCC.
"FISCAL YEAR" means the fiscal year of Safe Seal for accounting purposes ending
each December 31.
"FREE CASH FLOW" means, with respect to any Person for any period, the amount,
if any, by which Funds Flow From Operations of such Person and its Subsidiaries
for such period exceeds the sum of (i) Capital Expenditures, PLUS (ii)
Dividends, PLUS (iii) the Debt Service Expense of such Persons and its
Subsidiaries for such period, and PLUS (iv) Capital Lease payments of such
Person during such period.
"FUNDED DEBT RATIO" means Funded Debt divided by EBITDA.
"FUNDED DEBT" means interest bearing Indebtedness (including Subordinated
Indebtedness) and preferred stock.
"FUNDING ACCOUNT" means the non-interest bearing account maintained by the
Borrowers at Texas Commerce pursuant to Section 2.5.
"FUNDS FLOW FROM OPERATIONS" means Net Income PLUS depreciation, amortization,
and changes in deferred taxes.
"GAAP" means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board ("FASB") or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the Effective
Date of the Prior Agreement so as to properly reflect the financial condition,
and the results of operations and cash flows, of the Borrowers, except that any
accounting principle or practice required to be changed by the Accounting
Principles Board or FASB (or other appropriate board or committee of the boards)
in order to continue as a generally accepted accounting principle or practice,
may be so changed. In the event of a change in GAAP, the Agent and the Borrowers
will thereafter negotiate in good faith to revise any covenants of this Second
Restated Agreement affected thereby in order to make such covenants consistent
with GAAP then in effect. If no agreement is reached, the financial covenants
shall be calculated based on GAAP before any change in GAAP.
"GOVERNMENTAL AUTHORITY" means any government (or any political subdivision or
jurisdiction thereof), court, bureau, agency or other governmental authority,
domestic or foreign, having jurisdiction over any Borrower or Guarantor or any
Borrower's business or properties.
"GUARANTORS" means all, and "GUARANTOR" means each Subsidiary of a Borrower or a
Consolidated Subsidiary which the Lenders may, at the time of its acquisition or
formation by a Borrower or any time subsequent thereto, require to be a
guarantor of the Obligations after the Effective Date of the Prior Agreement.
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"GUARANTY AGREEMENTS" means each of the guaranty agreements executed by the
Guarantors and any other Person pursuant to Section 10.1.E for the benefit of
the Lenders.
"GUARANTY" means any contract, agreement or understanding of any Person pursuant
to which such Person guarantees, or in effect guarantees, in writing any
Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, agreements: (i) To
purchase such Indebtedness or any property constituting security therefor; (ii)
to advance or supply funds (a) for the purchase or payment of such Indebtedness,
or (b) to maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness; (iii) to purchase property, securities or service
primarily for the purpose of assuring the holder of such Indebtedness of the
ability of the Primary Obligor to make payment of the Indebtedness; or, (iv)
otherwise to assure the holder of the Indebtedness of the Primary Obligor
against loss in respect thereof. "GUARANTY" shall not include, however, the
indorsement of negotiable instruments or documents for deposit or collection by
a Borrower or Guarantor in the ordinary course of business.
"HARLEY STOCK" means all of the outstanding and issued capital stock of Harley.
"HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT" means the agreement executed
pursuant to the Restated Agreement.
"HAZARDOUS MATERIALS" means hazardous substances (as defined in CERCLA/SARA and
regulations promulgated thereunder), hazardous wastes (as defined in RCRA/HSWA
and regulations promulgated thereunder), Class I Industrial Solid Wastes,
asbestos or asbestos-containing materials or polychlorinated biphenyl, and any
material quantities of any other pollutants or contaminants, including, but not
limited to, any material quantities of any flammable material, explosive
materials, radioactive materials, waste oil, or used oil. In the event that
either CERCLA/SARA or RCRA/HSWA is ever amended to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment. To the extent the Environmental Laws in effect
in any State wherein any of the Mortgaged Property or the Premises are located
establish a meaning of "HAZARDOUS SUBSTANCES" or "HAZARDOUS WASTES" which is
broader than that specified in either CERCLA/SARA or RCRA/HSWA, such broader
meaning shall apply.
"HSWA" means the Hazardous and Solid Waste Amendments of 1984, as amended from
time to time, and all regulations and rulings issued thereunder.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including, without limitation: (i) All
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP; (ii) all obligations of such Person in respect of any
Guaranty; (iii) all obligations, indebtedness and liabilities secured by any
Lien or any security interest on any property or assets of such Person; and,
(iv) all issued and outstanding preferred stock, which is redeemable by the
holder of such stock, of such Person valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends.
"INTANGIBLE ASSETS" means those assets of any Person which are (i) deferred
assets, other than prepaid insurance and prepaid taxes, (ii) patents,
copyrights, trademarks, trade names, franchises, goodwill, experimental
expenses, covenants not to compete and other similar assets which would be
classified as intangible assets on a balance sheet of such Person, prepared in
accordance with GAAP, (iii) unamor-
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tized debt discount and expense, and (iv) assets located, and notes and
receivables due from obligors domiciled, outside of the U.S. unless same are
backed fully by negotiable Letters of Credit issued or confirmed by U.S. banks
which are satisfactory to Agent.
"INTEREST OPTION" shall have the meaning ascribed to such term in Section 5.4.
"INTEREST PAYMENT DATE" means (i) as to any Adjusted Base Rate Loan, (a) the
last day of each month commencing on the first of such days to occur after such
Loan is made or any Adjusted Libor Rate Loan is converted to a Base Rate Loan,
and (b) the Commitment Termination Date, and (ii) as to any Eurodollar Loan, (a)
the last day of each month commencing on the first of such days to occur after
such Loan is made and the last day of the Interest Period for such Loan, and (b)
the Commitment Termination Date.
"INTEREST PERIOD" means, with respect to any Eurodollar Loan, the period
commencing on the Borrowing Date and ending on the Commitment Termination Date,
consistent with the following provisions. The duration of each Interest Period
shall be selected by the Borrowers in a Notice of Revolving Credit Advance as
provided in Section 2.1 or the Notice of Term Loan Advance as provided in
Section 3.1, or a Rollover Notice as provided in Section 5.4.A.(3):
A. With respect to Eurodollar Loans requested by the Borrowers:
(1) Initially, the period commencing on the Borrowing Date or
Conversion Date with respect to such Eurodollar Loan and ending one
(1), two (2), three (3) or six (6) months thereafter; and,
(2) Thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Eurodollar
Loan and ending one (1), two (2), three (3) or six (6) months
thereafter, as selected by the Borrowers in a Rollover Notice.
B. Each Interest Period shall be as selected by the Borrowers, subject to
the Agent's consent, at the Agent's sole discretion. The Borrowers'
choice of Interest Period is also subject to the following limitations:
(1) No Interest Period shall end on a date after the Commitment
Termination Date; and,
(2) If the last day of an Interest Period would be a day other than a
Business Day, the Interest Period shall end on the next succeeding
Business Day (unless the Interest Period relates to a Eurodollar Loan
and the next succeeding Business Day is in a different calendar month
than the day on which the Interest Period would otherwise end, in which
event the Interest Period shall end on the preceding Business Day).
"INTEREST RATE PROTECTION AGREEMENT" means the agreement entered into pursuant
to the Prior Agreement.
"INVATEC STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated July
, 1996, among Invatec, D. Bowen King and E. S. Ries.
"INVATEC" means Innovative Valve Technologies, Inc., a Delaware corporation.
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"INVENTORY DESIGNATION REPORT" means each written report delivered to the Agent
pursuant to Section 9.1.A.(5) designating the Inventory of Harley, Valve, GSV or
PSI which is intended to be included in Eligible Inventory.
"INVENTORY" means, as of any date, (i) the inventory which would be reflected on
the balance sheet of the Borrowers as of such date prepared in accordance with
GAAP, and (ii) the assets of the Borrowers held for sale, and (iii) in all
instances inventory in which the Agent is granted security interests pursuant to
the Loan Documents.
"INVESTMENT" means any investment in any period, whether by means of share
purchase, loan, advance, extension of credit, capital contribution or otherwise,
in or to a Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person.
"IPO" means the consummation of the sale or issuance in a public or private
offering of any debt or equity securities of the Borrowers.
"IRS" means the Internal Revenue Service, Department of the U.S. Treasury, an
agency of the U.S.
"LANDLORD AGREEMENTS" means all, and "LANDLORD AGREEMENT" means any, of the
agreements executed pursuant to the provisions Section 10.1.C.
"LAND" means the real estate in Tulsa, Oklahoma and Gonzales, Louisiana owned by
Harley and each described in the Real Property Exhibit attached to the Prior
Agreement.
"LEASEHOLDS" means all, and "LEASEHOLD" means any, (i) of the leases described
in the Schedule to the Prior Credit Agreements by which a Borrower is entitled
to occupy and use the Premises, and (ii) any and all other leases, subleases,
licenses, concessions or other agreements, written or verbal, now or hereafter
in effect, which grant a possessory interest in and to, or the right to use, all
or any portion of the Premises and any other leased real property.
"LEASES" means any and all leases, subleases, licenses, concessions or other
agreements, written or verbal, now or hereafter in effect, which grant a
possessory interest in and to, or the right to use, all or any portion of the
Mortgaged Property, and all other agreements and contracts, which, in any
manner, relate to the use, occupancy, enjoyment or ownership of all or any
portion of the Mortgaged Property.
"LENDERS" means all, and "LENDER" means any, of the Lenders described in the
preamble hereof.
"LETTER OF CREDIT AGREEMENT" shall have the meaning ascribed to such term in
Section 2.2.A.
"LETTERS OF CREDIT" means all, and "LETTER OF CREDIT" means any, of the standby
or documentary letters of credit issued by the Agent for Lenders for the benefit
of a Borrower pursuant to Section 2.2.
"LIBOR RATE" means, with respect to any Eurodollar Loan for any Interest Period,
an interest rate per annum equal to the rate at which Dollar deposits
approximately equal in principal amount to the Euro- dollar Loan requested and
for a maturity equal to the applicable Interest Period are offered for Euro-
dollars in immediately available funds to the London branch of the Agent by
leading banks in whatever
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Eurodollar interbank market may be selected by the Agent, in its sole
discretion, at approximately 11:00 A.M., London time, two (2) Business Days
prior to the first day of such Interest Period.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement, under any statute or law, or otherwise.
"LOAN DOCUMENTS" means the Prior Credit Agreements, this Second Restated
Agreement, the Notes, including any renewals, extensions and modifications
thereof, the Guaranty Agreements, the Allwaste Guaranty Agreement, the Allwaste
Guaranty Confirmation Letter, the Collateral Documents and any agreements or
documents executed or delivered pursuant to the terms of the Prior Credit
Agreements or this Second Restated Agreement, and with respect to the Prior
Credit Agreements or this Second Restated Agreement, and such other agreements
and documents, any amendments or supplements thereto or modifications thereof.
"LOAN PARTIES" means the Borrowers and any Person who becomes a Borrower or a
Guarantor after the Effective Date of the Prior Agreement, and the term "LOAN
PARTY" means any of them.
"LOANS" means the Revolving Credit Loans, the Term Loans, and the Steam Supply
Loans and the term "LOAN" means any of them.
"LOCKBOX AGREEMENT" means the agreement executed pursuant to the Restated
Agreement.
"MACHINERY AND EQUIPMENT" means all machinery and equipment of Harley, exclusive
of office equipment and furniture.
"MANDATORY PREPAYMENT" means an amount equal to seventy-five (75) per cent of
Free Cash Flow, if any, of the Borrowers for each Fiscal Year.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on, (i) the
validity, performance, or enforceability of any of the Loan Documents, (ii) the
financial condition or business operations of any Loan Party or Allwaste, (iii)
the ability of any the Borrowers or the Guarantors to fulfill the Obligations,
and/or (iv) the value of the Collateral.
"MAXIMUM RATE" and "MAXIMUM AMOUNT" respectively mean the maximum non-usurious
rate and the maximum non-usurious amount of interest permitted by applicable
laws that at any time, or from time to time, may be contracted for, taken,
reserved, charged or received on the Obligations under the laws which are
presently in effect of the U.S. and the State of New York, applicable to the
holders of the Notes or, to the extent permitted by law, under such applicable
laws of the U.S. and the State of New York which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws now
allow.
"MORTGAGED PROPERTY" means the Buildings, Land and other property described in
the Mortgages.
"MORTGAGES" means both, and "MORTGAGE" means each, of the Oklahoma Mortgage and
the Act of Collateral Mortgage.
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"NET INCOME" or "NET LOSS" means, with respect to any Person other than an
individual for any period, the aggregate income (or loss) of such Person for
such period which shall be an amount equal to net revenues and other proper
items of income for such Person less the aggregate for such Person of any and
all expenses, and less Federal, state and local income taxes, but excluding any
extraordinary gains or losses or any gains or losses from the sale or
disposition of assets other than in the ordinary course of business, all of the
foregoing being computed and calculated in accordance with GAAP.
"NET WORTH" means, with respect to any Person at any time, the sum of such
Person's capital stock, other than mandatorily redeemable preferred stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings, and any other account which, in accordance with GAAP
constitutes stockholders' equity.
"NOTEMAKER ESTOPPEL CERTIFICATE" shall have the meaning set out in Section
10.1.B.
"NOTES" means all, and "NOTE" means any of the Revolving Credit Notes and Term
Notes, together with any renewals, extensions or modifications thereof.
"NOTICE OF REVOLVING CREDIT ADVANCE" shall have the meaning ascribed to such
term in Section 2.1.
"NOTICE OF STEAM SUPPLY ADVANCE" shall have the meaning set out in Section 4.1.
"NOTICE OF TERM LOAN ADVANCE" shall have the meaning ascribed to such term in
Section 3.1.
"OBLIGATIONS" mean:
A. All present and future indebtedness, obligations and liabilities of any
Loan Party to any of the Lenders arising pursuant to any of the Loan
Documents, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, joint, several, or
joint and several;
B. All costs incurred by the Agent or any of the Lenders to obtain,
preserve, perfect and enforce the Liens and security interests securing
payment of such indebtedness, liabilities and obligations, and to
maintain, preserve and collect the property in which any of the Lenders
has been granted a Lien to secure payment of the Loans, or any part
thereof, including but not limited to, taxes, assessments, insurance
premiums, repairs, attorneys' fees and legal expenses, rent, storage
charges, advertising costs, brokerage fees and expenses of sale; and,
C. Any other Indebtedness of any Loan Party owing, or which may hereafter
become owing, by any Loan Party to the Agent or any of the Lenders,
arising out of any overdraft or pursuant to any agreement directly
among any Loan Party with the Agent or any of the Lenders; and,
D. All renewals, extensions and modifications of the Indebtedness referred
to in the foregoing clauses, or any part thereof.
"OKLAHOMA MORTGAGE" means the first priority Mortgage executed and delivered
pursuant to the Prior Agreement.
"OPERATIONS AND MAINTENANCE PLAN" shall have the meaning set out in Section
9.1.T.
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"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to all
or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
"PENSION PLAN" means any Employee Plan which is subject to the provisions of
Title IV of ERISA.
"PERCENTAGE" shall mean, with respect to each Lender, the percentage set forth
opposite the name of such Lender on Schedule 2.1 to this Second Restated
Agreement, of the Total Commitment.
"PERMITS" shall have the meaning ascribed in Section 11.1.U.
"PERMITTED LIENS" means: (i) Liens granted to the Agent for the benefit of the
Lenders to secure the Obligations; and, (ii) pledges or deposits made to secure
payment of worker's compensation insurance (or to participate in any fund in
connection with worker's compensation insurance), unemployment insurance,
pensions or social security programs; and, (iii) Liens imposed by mandatory
provisions of law such as for materialmen's, mechanics', warehousemen's and
other like Liens arising in the ordinary course of business securing
Indebtedness the payment for which is not yet due, or if same is due, it is
being contested in good faith and as to which a bond has been provided; and,
(iv) Liens for taxes, assessments and governmental charges or levies imposed
upon a Person or upon such Person's income or profits or property, if the same
are not yet due and payable or if the same are being contested in good faith and
as to which adequate cash reserves have been provided; and, (v) Liens arising
from good faith deposits in connection with tenders, leases, real estate bids or
contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or in
lieu of) surety, stay, appearance or customs bonds and deposits to secure the
payment of taxes, assessments, customs duties or other similar charges; and,
(vi) encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, provided that such items do not impair
the use of such property for the purposes intended, and none of which is
violated by existing or proposed structures or land use; and, (vi) Scheduled
Liens.
"PERSON" shall include an individual, a corporation, non-profit corporation, a
professional association, a joint venture, a general partnership, a limited
partnership, a limited liability company, a limited liability partnership, a
trust, an unincorporated organization or a government or any agency or political
subdivision thereof.
"PLEDGED NOTE" shall have the meaning ascribed to such term in Section 7.1.C.
"PLEDGED STOCK" shall have the meaning ascribed to such term in Section 7.1.B.
"PREMISES" collectively means the leased properties or demised premises
described in each of the Leaseholds.
"PREPAYMENT CHARGE" means a prepayment charge on, as applicable, (i) the
outstanding principal amount of any of the Term Loans being prepaid, or (ii) the
amount of the reduction in the Revolving Credit Commitment made pursuant to
Section 2.7 or the Steam Supply Commitment made pursuant to Section 4.6 and
equal, in either instance, to (a) one and one-half (1 1/2) per cent if such
prepayment or reduction occurs after July 31, 1997, but on or before January 31,
1998, (b) one (1) per cent if such prepayment or reduction occurs after January
31, 1998, but on or before July 31, 1998, or (c) one-half (1/2) of one (1) per
cent if such optional prepayment or reduction occurs after July 31, 1998, but on
or before January 31, 1999. No Prepayment Charge shall be due and owing by the
Borrowers for any
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optional prepayment or reduction after January 31, 1999. No Prepayment Charge
shall be payable on Mandatory Prepayments or if the there is a refinancing of
the Obligations by either of the Lenders.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as amended from
time to time, and all regulations and rulings issued thereunder.
"REGISTER" shall have the meaning ascribed to such term in Section 14.6.C.
"REGULATION D" means Regulation D of the Board, 12 C.F.R. Part 204, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION G" means Regulation G of the Board, 12 C.F.R. Part 207, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION T" means Regulation T of the Board, 12 C.F.R. Part 220, as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"REGULATION U" means Regulation U promulgated by the Board, 12 C.F.R. Part 221,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation U and having substantially the same function.
"REGULATION X" means Regulation X promulgated by the Board, 12 C.F.R. Part 224,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation X and having substantially the same function.
"REGULATORY DEFECTS" means the failure by any Borrower, the Guarantor or member
of the Steam Supply Group to comply with all laws, statutes, orders, rules and
regulations of any Governmental Authority, and such failure to comply has a
Material Adverse Effect.
"RENTALS" of any Person means, as of any date, the aggregate amount of the
obligations and liabilities, including future obligations and liabilities not
yet due and payable, of such Person to make payments under leases, subleases and
similar arrangements for the use of real, personal or mixed property, other than
leases which are Capital Leases.
"REPORTABLE EVENT" shall have the meaning ascribed to such term in Title IV of
ERISA.
"REQUIREMENTS" means (i) any and all present and future judicial decisions,
statutes, rulings, rules, regulations, orders, permits, certificates or
ordinances of any Governmental Authority in any manner applicable to any Loan
Party or any of their respective properties, and (ii) any and all contracts,
written or oral, of any nature to which any Loan Party or any of their
respective properties may be bound.
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive
officer, the president, the chief financial officer or the controller, of such
Person.
"REVOLVING CREDIT ALTERNATE BASE RATE LOAN" means that portion of any Revolving
Credit Loan which bears interest at a rate of interest determined by reference
to the Alternate Base Rate.
"REVOLVING CREDIT COMMITMENT FEE" shall have the meaning set forth in Section
5.19.
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"REVOLVING CREDIT COMMITMENT PERIOD" means the period beginning on the Effective
Date of the Prior Agreement and ending on the earlier of (i) the Commitment
Termination Date, or (ii) the date on which the obligations of the Lenders to
fund Advances hereunder terminates after the occurrence of an Event of Default.
"REVOLVING CREDIT COMMITMENT" means the sum of $10,000,000.00, and with respect
to any Lender, the Revolving Credit Commitment of such Lender as set forth in
Schedule 2.1, as the same may be reduced from time to time pursuant to Section
2.7.
"REVOLVING CREDIT EURODOLLAR LOAN" means that portion of any Revolving Credit
Loan which bears interest at a rate of interest determined by reference to the
Adjusted LIBOR Rate.
"REVOLVING CREDIT LOANS" means the aggregate unpaid principal balance of all
Borrowing made under Section 2.1.
"REVOLVING CREDIT NOTES" means all, and "REVOLVING CREDIT NOTE" means any of the
Notes executed pursuant to the Prior Credit Agreements.
"REVOLVING LOAN CONTRACT RATE" means the rates of interest on the Loans
calculated as set out in Section 5.4.A.
"SARA" means the Superfund Amendments and Reauthorization Act of 1986, as
amended from time to time, and all regulations and rulings issued thereunder.
"SECURITY AGREEMENT-COLLATERAL ASSIGNMENT OF NOTE" means the first priority
Security Agreement-Collateral Assignment of Note executed pursuant to the Prior
Agreement.
"SECURITY AGREEMENT-PLEDGES" means all, and "SECURITY AGREEMENT-PLEDGE" means
each first priority Security Agreement-Pledge executed pursuant to the Prior
Credit Agreements.
"SECURITY AGREEMENTS" means all, and "SECURITY AGREEMENT" means each first
priority Security Agreement executed pursuant to the Prior Credit Agreements.
"SOLVENT" means, with respect to any Person on a particular date, that on such
date (i) the fair value of the property of such Person is greater than the total
amount of liabilities, including, without limitation, contingent liabilities, of
such Person, (ii) the present fair salable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on the Person's debts as they become absolute and matured, (iii)
such Person is able to realize upon the Person's assets and pay the Person's
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
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"STATUTORY RESERVES" shall, on any day, mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any basic, marginal, special,
emergency, or supplemental reserves) expressed as a decimal established by the
Board (or any successor governmental body) and any other banking authority to
which any Lender is subject, however:
A. With respect to the Base CD Rate for new negotiable non-personal time
deposits in Dollars of over $100,000.00 and with maturities
approximately equal to three (3) months, the actual reserves
established by the Board; and,
B. With respect to the Adjusted LIBOR Rate for Eurocurrency Liabilities,
as defined in Regu- lation D, such reserve percentages ("EURODOLLAR
RESERVE REQUIREMENT") shall include, with- out limitation, those
imposed under Regulation D or under any similar or successor regula-
tion with respect to Eurocurrency Liabilities or Eurocurrency funding.
Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities
and as such shall be deemed to be subject to such reserve requirements
without benefit of or credit for proration, exceptions or setoffs which
may be available from time to time to any bank under Regulation D. Each
determination by the Agent of the Eurodollar Reserve Requirement shall,
in the absence of manifest error, be conclusive and binding.
C. Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"STEAM SUPPLY ADVANCES" means all, and "STEAM SUPPLY ADVANCE" means any, of the
disbursements by the Lenders of the sums loaned to the Borrowers pursuant to
this Second Restated Agreement for the purposes of permitting the Borrowers to
make loans to the Steam Supply Group.
"STEAM SUPPLY ALTERNATE BASE RATE LOAN" means that portion of any Steam Supply
Loan which bears interest at a rate of interest determined by reference to the
Alternate Base Rate.
"STEAM SUPPLY AVAILABILITY" means, at any time, with respect to the Steam Supply
Loans, the Steam Supply Commitment (as such amount may be reduced or increased
in accordance with the provisions of this Second Restated Agreement), MINUS the
sum, at such time, of (i) the unpaid principal balance of, and accrued interest
on, the Steam Supply Loans, and (ii) the Steam Supply Reserves established by
the Agent pursuant to Section 4.2.B.
"STEAM SUPPLY BORROWING BASE CERTIFICATE" means any of the certificates attached
to a Steam Supply Certificate of Compliance and delivered by Borrowers to the
Agent calculating the Steam Supply Borrowing Base pursuant to the Steam Supply
Credit Agreement.
"STEAM SUPPLY BORROWING BASE" means the total amounts calculated pursuant to
Section 4.2 to determine the Steam Supply Availability.
"STEAM SUPPLY CASH COLLATERAL ACCOUNT" means the non-interest bearing cash
collateral account maintained by the Steam Supply Group with Texas Commerce in
the names of the Steam Supply Group pursuant to the Steam Supply Credit
Agreement and the Steam Supply Lockbox Agreement.
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"STEAM SUPPLY CERTIFICATE OF COMPLIANCE" means any of the certificates of
compliance delivered by the Steam Supply Group pursuant to the Steam Supply
Credit Agreement.
"STEAM SUPPLY COMMITMENT FEES" shall have the meaning set forth in Section 5.19.
"STEAM SUPPLY COMMITMENT PERIOD" means the period beginning on the Effective
Date of this Second Restated Agreement and ending on the earlier of (i) the
Commitment Termination Date, or (ii) the date on which the obligations of the
Lenders to fund Steam Supply Advances hereunder terminate after the occurrence
of an Event of Default.
"STEAM SUPPLY COMMITMENT" means the sum of $5,000,000.00, and with respect to
any Lender, the obligation of the Lender to extend credit to the Borrowers in an
amount equal to its respective Percentage of the Steam Supply Commitment, as set
forth in Schedule 2.1, and as the same may be reduced from time to time pursuant
to Section 4.6 of this Second Restated Agreement.
"STEAM SUPPLY CONTRACT RATE" means the rates of interest on the Loans calculated
as set out in Section 5.4.A.
"STEAM SUPPLY CREDIT AGREEMENT" means the agreement dated July 28, 1997, among
the Steam Supply Group, as borrowers, and the Borrowers, pursuant to the terms
of which the Borrowers will loan sums to the Steam Supply Group.
"STEAM SUPPLY ELIGIBLE ACCOUNTS" shall have the meaning set therefore in the
Steam Supply Credit Agreement, provided further, the Agent may fix, revise and
modify the standards of eligibility from time to time solely in the Agent's
judgment.
"STEAM SUPPLY ELIGIBLE INVENTORY" shall mean the Eligible Inventory described in
the Steam Supply Credit Agreement, however, there shall be excluded from Steam
Supply Eligible Inventory any item in which the Lenders do not have a perfected
first priority Lien.
"STEAM SUPPLY EURODOLLAR LOAN" means that portion of any Steam Supply Loan which
bears interest at a rate of interest determined by reference to the Adjusted
LIBOR Rate.
"STEAM SUPPLY FUNDING ACCOUNT" means the non-interest bearing account maintained
by the Borrowers at Texas Commerce pursuant to Section 4.4.
"STEAM SUPPLY GROUP" means Invatec, Puget Investments, Inc., Flickinger-Benicia,
Inc, Steam Supply & Rubber Co., Inc., and Flickinger Company.
"STEAM SUPPLY LOAN DOCUMENTS" means the Steam Supply Credit Agreement, the Steam
Supply Note Receivable, including any renewals, extensions and modifications
thereof, the Steam Supply Security Agreement, and any other agreements or
documents executed or delivered pursuant to the terms of the Steam Supply Credit
Agreement and all amendments or supplements thereto or modifications thereof.
"STEAM SUPPLY LOANS" means the aggregate unpaid principal balance of all
Borrowing made under Section 4.1.
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"STEAM SUPPLY NOTE RECEIVABLE" means the promissory note dated July 28, 1997, in
the original principal sum of $5,000,000.00, executed by the Steam Supply Group,
as borrowers, bearing interest and being payable as therein set out to the order
of the Borrowers, and which, pursuant to the terms of this Second Restated
Agreement and the Steam Supply Security Agreement-Collateral Assignment of Note,
has been collaterally assigned and pledged to the Agent for the benefit of the
Lenders.
"STEAM SUPPLY NOTES" means all, and "STEAM SUPPLY NOTE" means any of the Notes
executed pursuant to Section 5.3 of this Second Restated Agreement.
"STEAM SUPPLY PLEDGED STOCK" shall have the meaning ascribed to such term in the
Steam Supply Credit Agreement.
"STEAM SUPPLY SECURITY AGREEMENT-COLLATERAL ASSIGNMENT OF NOTE" means the first
priority Security Agreement-Collateral Assignment of Note executed pursuant to
Section 7.1.I of this Second Restated Agreement.
"STEAM SUPPLY SECURITY AGREEMENTS" means all, and "STEAM SUPPLY SECURITY
AGREEMENT" means any first priority Security Agreement executed pursuant to the
Steam Supply Credit Agreement creating first priority security interests in and
to all of the assets of each member of the Steam Supply Group.
"STEAM SUPPLY SUBORDINATION AGREEMENT" means each subordination agreement
executed pursuant to the Steam Supply Credit Agreement.
"STOCK AND REAL ESTATE PURCHASE AGREEMENT" means the Stock and Real Estate
Purchase Agreement dated May 22, 1997, among Safe Seal, Curry B. Walker, Jr.,
Nollie J. Walker, Deborah Elaine Renfroe, Curry B. Walker, III, Cheryl Lynn
Mouton, Laura Ann Thomas and PSI.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated December 28,
1996, among Safe Seal, Gene Maxon, Kenneth Grounds, Hub Associates and Harley.
"STOCK TRANSFER AGREEMENT" means the Stock Transfer Agreement dated January 24,
1997, among Safe Seal, Kirk Nellis, Harley, Harley Equipment Corporation and
Dennis Noyes.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of a Borrower or Consolidated
Subsidiary which expressly contains in the instruments evidencing the
Indebtedness or in the indenture or other similar instrument under which
Indebtedness is issued (which indenture or other similar instrument shall be
binding on all holders of the Indebtedness), reference to a Subordination
Agreement (in form and substance satisfactory to the Lenders) substantially to
the effect that the holders agree that the Indebtedness evidenced by such
instrument, any renewals or extensions thereof, shall at all times and in all
respects be subject to a Subordination Agreement and subordinate and junior in
right of payment to the Obligations.
"SUBSIDIARY" means, with respect to any Person, the parent of such Person, any
corporation, association or other business entity of which securities or other
ownership interests representing more than fifty (50) per cent of the Voting
Shares or the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled, directly or indirectly, by the
parent or one or more Subsidiaries of the parent.
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"SURVEY" means the ALTA survey of the Land and all improvements located in
Tulsa, Oklahoma, prepared pursuant to the Prior Agreement.
"TANGIBLE NET WORTH" means, with respect to any Person at any time, the sum of
such Person's capital stock, capital in excess of par or stated value of shares
of its capital stock, retained earnings, and any other account which, in
accordance with GAAP constitutes stockholders' equity, LESS treasury stock, LESS
the amount of any write-up subsequent to the Effective Date of the Prior
Agreement in the value of any asset above the cost or depreciated cost thereof
to such Person, LESS the book value of all Intangible Assets which would be
treated as intangibles under GAAP, including, without limitation, good-will,
trademarks, tradenames, patents, copyrights and licenses, covenants not to
compete, and LESS the amounts outstanding on the Pledged Note.
"TEMPORARY CASH INVESTMENT" shall mean any Investment maturing within one (1)
year of the date of acquisition thereof, (i) in direct, readily marketable
obligations of the U.S. or obligations fully guaranteed by the U.S., (ii)
commercial paper rated in the highest grade by Standard & Poor's Corporation or
Moody's Investor Service, Inc. (collectively, the "RATING AGENCIES"), and (iii)
Dollar time deposits with, and certificates of deposit and banker's acceptances
issued by, Chase, Texas Commerce or any domestic U.S. bank having capital
surplus and undivided profits aggregating at least $5,000,000,000.00 and whose
long-term debt rating is at least investment grade as determined by the Rating
Agencies.
"TERM EURODOLLAR LOAN" means that portion of any Term Loan which bears interest
at a rate of interest determined by reference to the Adjusted LIBOR Rate.
"TERM LOAN COMMITMENT" means with respect to any Lender, the Term Loan
Commitment of such Lender as set forth in Schedule 2.1.
"TERM LOAN CONTRACT RATE" means the rates of interest on the Loans calculated as
set out in Section 5.4.B.
"TERM LOANS" means the aggregate unpaid principal balance of all Borrowing made
under Section 3.1.
"TERM NOTES" means all, and "TERM NOTE" means any of the Term A Notes or the
Term B Notes executed pursuant to the Prior Credit Agreements.
"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding Business Day)
by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York, New York, received at approximately 10:00 a.m., New York, New York,
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Agent from three New York, New York negotiable
certificate of deposit dealers of recognized standing selected by it.
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"TITLE COMPANY" means Commonwealth Land Title Insurance Company, whose agent is
Tulsa Abstract & Title Company, Inc.
"TITLE DOCUMENTS" means any all warehouse receipts, bills of lading or similar
documents of title relating to goods in which any of the Borrowers at any time
has an interest, whether now, or at any time or times hereafter, issued to the
Borrowers or the Agent by any Person, and whether covering Inventory or
otherwise.
"TITLE POLICY" means the ALTA title insurance policy issued by the Title Company
pursuant to the Prior Agreement.
"TOTAL COMMITMENT" means the sum of the Revolving Credit Commitment, as the same
may be reduced from time to time pursuant hereto, the Total Term Loan Commitment
and the Steam Supply Commitment.
"TOTAL TERM LOAN COMMITMENT" means the sum of $7,500,000.00 and shall refer to
the Lenders' Term Loan Commitments.
"TRANSACTIONS" shall have the meaning ascribed to such term in Section 11.1.B.
"UCC" means the Uniform Commercial Code in effect in the applicable jurisdiction
in which any of the Collateral is located and includes the Texas Business and
Commerce Code Annotated ss.ss.1.101- 11.108 (Vernon Supp. 1992), as amended.
"UNITED STATES" and "U.S." each means the United States of America.
"VOTING SHARES" of any corporation or limited liability company means shares,
membership certificates or interests of any class or classes, however
designated, having ordinary voting power for the election of at least a majority
of the members of the Board of Directors, or other governing bodies, of such
corporation or limited liability company.
1.2 OTHER DEFINITIONS.
A. All terms defined in this Second Restated Agreement shall have the
above-defined meanings when used in any of the Loan Documents,
certificates, reports or other documents made or delivered pursuant to
this Second Restated Agreement, unless the context therein shall
require otherwise. Defined terms used herein in the singular shall
import the plural and vice versa.
B. As appropriate, terms used herein and defined in the Prior Credit
Agreements will have the meanings ascribed to them in the Prior Credit
Agreements. To the extent required, references to the Effective Dates
of the Prior Credit Agreements shall be the appropriate dates for
performance of the Transactions. References to Exhibits herein include
the Exhibits to the Prior Credit Agreements.
C. As appropriate, terms used herein and defined in the Steam Supply Loan
Documents will have the meanings ascribed to them in the Steam Supply
Loan Documents.
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D. The words "HEREOF", "HEREIN", "HEREUNDER" and similar terms when used
in this Second Restated Agreement shall refer to this Second Restated
Agreement as a whole and not to any particular provision of this Second
Restated Agreement.
E. Unless specifically otherwise noted, references to statutes by Popular
Names are reference to the United States Code Annotated and Vernon's
Annotated Texas Statutes, including the regulations promulgated
thereunder, and all amendments thereof.
F. References to any obligations or liabilities of "THE BORROWERS AND
GUARANTOR" or "THE BORROWERS OR THE GUARANTORS" shall refer to the
joint and several obligations of such Persons.
ARTICLE II
REVOLVING CREDIT LOANS AND LETTERS OF CREDIT
2.1 REVOLVING LOAN COMMITMENTS. Subject to the terms and conditions of the
Prior Credit Agreements, as amended by this Second Restated Agreement, each
Lender agrees, severally, but not jointly, to lend to the Borrowers on a
revolving basis, in one or more Advances from time to time during the Revolving
Credit Commitment Period, an amount equal to such Lender's Percentage set out in
Schedule 2.1 of the amounts requested by the Borrowers in each Notice of
Revolving Credit Advance in the form of Exhibit attached to the Restated
Agreement. The Lenders shall not be obligated to make Advances, however, (i) in
excess of the Lender's Percentage of the Revolving Credit Commitment, (ii) if an
Event of Default or a Default shall exist, and/or, (iii) if the amount of the
Advance exceeds the Availability at such time. Within the limits of this Section
and subject to Section 2.3, the Borrowers may borrow, repay and re-borrow in
accordance with the terms and conditions of this Second Restated Agreement.
2.2 LETTERS OF CREDIT. Subject to the terms and conditions of the Prior
Credit Agreements, as amended by this Second Restated Agreement, each Lender
agrees, severally, but not jointly, to have the Agent issue, from time to time,
during the Revolving Credit Commitment Period, documentary and standby Letters
of Credit on behalf of Safe Seal in amounts equal to the amounts requested by
Safe Seal in a Letter of Credit Agreement. The Agent shall not be obligated to
issue Letters of Credit, however, (i) if the aggregate amount of outstanding
Letters of Credit and the Advances made on the Revolving Credit Loans are in
excess of the lesser of (a) the Availability, or (b) the Revolving Credit
Commitment, (ii) if the total amounts of outstanding Letters of Credit exceed or
would exceed $750,000.00, and/or, (iii) if an Event of Default or a Default
shall exist.
A. The Borrowers shall execute and deliver the Agent's then current form
of Application and Agreement for Letter of Credit ("LETTER OF CREDIT
AGREEMENT"). Stand-by Letters of Credit shall be issued for periods not
in excess of one (1) year and shall have an expiry date not later than
thirty days prior to the Commitment Termination Date. Documentary
Letters of Credit shall have an expiry date not later than one hundred
twenty days after issuance, and in any event not later than thirty days
prior to the Commitment Termination Date.
B. The Borrowers agree to pay or reimburse the Agent the amount paid or to
be paid by the Agent on the date when any draft or draw request is
presented under any Letter of Credit. If the Borrowers have not
reimbursed the Agent for any drafts or draws paid or to be paid within
twenty-four (24) hours following the Agent's demand for reimbursement,
the Agent is irrevocably authorized to fund the Borrowers'
reimbursement obligations as an Advance
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pursuant to Section 2.1 if there is availability and the proceeds of
such Borrowing shall be in payment of the Borrowers' unpaid
reimbursement obligations. If an Advance cannot be made, then the
Borrowers' reimbursement obligation shall constitute a demand
obligation. The Borrowers' obligations under this Section are absolute
and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim, or defense to payment that any Loan Party
may have at any time against the Agent or any of the Lenders. From the
date that a draw has occurred to the date paid, unpaid reimbursement
amounts shall accrue interest as set out in Section 5.4.A.
C. The Agent shall notify the Borrowers of the date and amount of any
draft or draw request presented for honor under any Letter of Credit,
but failure to give notice will not affect the Obligations of the Loan
Parties. The Agent shall pay the requested amount upon present- ment of
a draft or draw request unless presentment on its face does not comply
with the terms of the applicable Letter of Credit. When making payment,
the Agent may disregard (i) any Default or Event of Default that has
occurred, and (ii) obligations under any other agreement that have or
have not been performed by the beneficiary of the Letter of Credit or
any other Person. The Agent is not responsible for, and the Borrowers'
reimbursement obligations for honored drafts and draws will not be
affected by, any matter or event what- soever, including, without
limitation, the validity or genuineness of documents or endorse- ments,
even if the documents should in fact prove to be in any respect
invalid, fraudulent, or forged, or any dispute among a Borrower and the
beneficiary of any Letter of Credit, or any other Person to whom any
Letter of Credit may be transferred, or any claims whatso- ever of a
Borrower against any beneficiary of any Letter of Credit or its
transferee.
D. The Loan Parties acknowledge that each Letter of Credit is deemed
issued upon delivery to the beneficiary or a Borrower. If a Borrower
requests any Letter of Credit be delivered to the Borrower rather than
the beneficiary, and the Borrower subsequently cancels that Letter of
Credit, the Borrower agrees to return the Letter of Credit to Agent
together with the Borrower's certification that the Letter of Credit
has never been delivered to its beneficiary. If any Letter of Credit is
delivered to its beneficiary under a Borrower's instructions, the
Borrower's cancellation shall be ineffective without the Agent's
receipt of the beneficiary's written consent and the Letter of Credit.
E. Although this Second Restated Agreement may be referenced in any Letter
of Credit, the terms of an agreement related thereto or other
obligation to the beneficiary of the Letter of Credit, such other
agreements are not incorporated into this Second Restated Agreement in
any manner.
2.3 BORROWING BASE. The aggregate principal amount at any time remaining
unpaid on the Revolving Credit Loans will not be in excess of the amounts
arrived at by the computation provided for in the following formula not to
exceed, however, the Revolving Credit Commitment.
A. Availability will be computed daily and the aggregate principal amount
at any time remaining unpaid on the Revolving Credit Loans will be the
lesser of the Revolving Credit Commitment and the sum of the following
(the "BORROWING BASE"):
(i) Up to eighty-five (85) per cent of the Eligible Accounts; and,
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(ii) Up to sixty-five (65) per cent of the Loan Value of Eligible
Inventory, not to exceed, however, $4,000,000.00.
B. The Agent retains the right to establish reasonable reserves
("RESERVES") as it deems appropriate under the Revolving Credit
Commitment, based on such factors as the Agent deems appropriate,
including, but not limited to, increases in dilution of Accounts, the
value of Eligible Inventory or if the Borrowers shall fail to obtain
Landlord Agreements. The Borrowers acknowledge that the establishment
of Reserves will have the effect of limiting or restricting Advances.
2.4 LOAN VALUE OF ELIGIBLE INVENTORY. The "LOAN VALUE OF ELIGIBLE INVENTORY"
means the lowest of (i) Harley's or Safe Seal's, as applicable, (and for the
purposes of the term "LOAN VALUE OF ELIGIBLE INVENTORY" as it relates to Harley
shall mean and include Harley and Valve and as it relates to Safe Seal shall
mean and include GSV and PSI) net purchase cost or manufacturing cost of
domestic finished goods Inventory (on a first-in/first-out basis), and (ii) the
lowest bulk market price of Inventory minus estimated expenses for packing,
selling and delivery. The Agent shall have the sole right, in the Agent's
judgment, to determine which Inventory is marketable and saleable at any
particular time for inclusion in the Borrowing Base. Without limiting the
Agent's judgment, work-in-progress, obsolete or out of condition Inventory,
Inventory classified as long term assets, used Inventory, remanufactured
Inventory, returned Inventory, foreign Inventory, Inventory in transit, damaged
Inventory, supplied Inventory and slow moving Inventory shall not be included in
the Borrowing Base. Inventory in the possession of third parties shall not be
included in the Borrowing Base. In the event that Inventory previously included
in an Inventory Designation Report ceases to be Eligible Inventory, the
Borrowers shall promptly pay to the Lenders an amount sufficient to continue to
be in compliance with Section 2.3.
2.5 BORROWING PROCEDURE. The Borrowers will maintain a bank account (the
"FUNDING ACCOUNT") with Texas Commerce into which account all Advances on the
Revolving Credit Loans will be deposited. No other deposits will be made to the
Funding Account.
A. Advances on the Revolving Credit Loan shall be made pursuant to a
Notice of Revolving Credit Advance signed by a Responsible Officer of
Safe Seal, which shall specify (i) the aggregate amount of such
Borrowing, (ii) the requested Borrowing Date of such Borrowing, and
(iii) the Interest Option selected in accordance with Section 5.4. If
Safe Seal shall specify a Eurodollar Loan, the Notice of Revolving
Credit Advance shall also specify the length of the Interest Period
selected by Safe Seal for such Borrowing. Safe Seal shall give the
Agent the Notice of Revolving Credit Advance not later than 12:00 noon
(New York, New York time), (i) at least three (3) Business Days prior
to a proposed Eurodollar Loan Advance or conversion, and (ii) one (1)
Business Day prior to a proposed Alternate Base Rate Loan Advance or
conversion. If no election as to the type of Loan is specified in any
such notice, all such Loans shall be Alternate Base Rate Loans. If no
Interest Period with respect to any Eurodollar Loan is specified in any
such notice, then an Interest Period of three (3) months duration shall
be deemed to have been selected (subject to the provisions of the
definition of "INTEREST PERIOD").
B. The Agent shall be entitled to rely and act upon requests made or
purportedly made by any Responsible Officer of Safe Seal and each
Notice of Revolving Credit Advance shall be irrevocable and binding on
the Borrowers. The Borrowers shall be unconditionally and
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absolutely estopped from denying (i) the authenticity and validity of
any transaction so acted upon by the Agent once the Agent has made an
Advance and has deposited or transferred such funds as requested in any
such Notice of Revolving Credit Advance, and (ii) the Borrowers'
liability and responsibility therefor. The Borrowers covenant and agree
to assume liability for and to protect, indemnify and save the Agent
and the Lenders harmless from any and all liabilities, obligations,
damages, penalties, claims, causes of action, costs, charges and
expenses, including attorneys' fees, which may be imposed upon,
incurred by or asserted against the Agent or any of the Lenders by
reason of any loss, damage or claim howsoever arising or incurred
because of, out of or in connection with the transfer of funds pursuant
to a Notice of Revolving Credit Advance.
C. After receiving a properly completed Notice of Revolving Credit
Advance, the Agent shall promptly notify each Lender by telephone
(confirmed immediately by telex or cable), telex or cable of the terms
of such notice and such Lender's Percentage of such Borrowing. Each
Lender shall, before 12:00 noon (New York, New York time), on the date
a Borrowing is requested as specified in a Notice of Revolving Credit
Advance, deposit with the Agent such Lender's ratable Percentage of
such Borrowing in immediately available funds. The failure of any
Lender to make any Advance required to be made by it hereunder shall
not relieve any other Lender of its obligation to make its Advance
hereunder. Each Lender may fulfill its obligations under this Second
Restated Agreement by causing its Applicable Lending Office to make
such Loan; provided, however, that the exercise of such option shall
not affect the Obligation of the Borrowers to repay such Loan in
accordance with the term of the applicable Note. If any Lender fails to
provide its Percentage of any Borrowing and if all conditions to such
Borrowing have apparently been satisfied, the Agent may make available
to the Borrowers the funds received by it from the other Lenders.
Neither the Agent nor any Lender shall be, however, responsible for the
performance by any other Lender of its obligations hereunder. Upon the
failure of a Lender to make an Advance required to be made by it
hereunder, the Agent shall use reasonable efforts to obtain one or more
financial institutions, acceptable to the Lenders, to replace such
Lender, but neither the Agent nor any other Lender shall have any
liability or obligation whatsoever as a result of the failure to obtain
a replacement for such Lender.
D. After receiving a Notice of Revolving Credit Advance in the manner
provided herein, the fulfillment of all applicable conditions set forth
herein and after receipt by the Agent of such funds, the Agent will, as
soon as practicable, but in no event later than 5:00 p.m. (New York,
New York time) on the third Business Day, in the case of a Eurodollar
Loan, and on the first Business Day, in the case of an Alternate Base
Rate Loan, deposit the Advance in immediately available funds in the
Funding Account. If Loans are not made on such date because any
condition precedent to a Borrowing herein specified is not met, the
Agent will return the amounts so received to the respective Lenders.
E. Unless the Agent shall have received notice from a Lender prior to the
date of any Borrowing that the Lender will not make the Lender's
Percentage of such Advance available to the Agent, the Agent may assume
that the Lender has made such amount available to the Agent on the date
of such Borrowing in accordance with Section 2.5.C and the Agent may,
in reliance upon such assumption, make available a corresponding amount
to or on behalf of the Borrowers on such date. If and to the extent any
Lender shall not have so made its Percentage of any Advance available
to the Agent, the Borrowers agree to repay to the
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Agent forthwith on demand such corresponding amount together with
interest thereon for each day from the date such amount is made
available to or on behalf of the Borrowers until the date such amount
is repaid to the Agent at the rate per annum equal to the applicable
Contract Rate to the Borrowing in question.
F. The initial funding of the Revolving Credit Loans shall be an Alternate
Base Rate Loan. At any time after the Effective Date of the Prior
Agreement, the Borrowers may convert to Alternate Base Rate Loans or
Eurodollar Loans, subject to and pursuant to the provisions of Section
5.4.
G. If the Agent shall receive a Letter of Credit Agreement in the manner
provided herein before 12:00 noon (New York, New York time), the Agent
shall, subject to availability and the limit on the amounts of Letters
of Credit, on the third Business Day after receipt, issue the Letter of
Credit as specified by the Borrowers and deliver same as directed by
the Borrowers.
2.6 USE OF PROCEEDS. All proceeds of each Borrowing under the Revolving
Credit Commitment after the Effective Date of this Second Restated Agreement
shall be solely used to provide for working capital requirements of the
Borrowers.
2.7 REDUCTION OF REVOLVING CREDIT COMMITMENT. The Borrowers may at any time,
or from time to time, upon not less than thirty (30) Business Days' prior notice
to the Agent, in whole permanently and irrevocably terminate, or from time to
time, in part permanently and irrevocably reduce the Revolving Credit Commitment
ratably among the Lenders in accordance with the amounts of their respective
Revolving Credit Commitment. The Revolving Credit Commitment shall not, however,
be reduced at any time to an amount less than the Revolving Credit Loans
outstanding under the Revolving Credit Commitment at such time.
A. Each partial reduction of the Revolving Credit Commitment shall be in a
minimum of $100,000.00, or integral multiples thereof.
B. Each reduction must be accompanied by prepayment of each Revolving
Credit Note to the extent that the aggregate principal amount of the
Revolving Credit Note then outstanding exceeds the Lender's Revolving
Credit Commitment, as so reduced, together with interest on the
principal sum so prepaid.
C. Simultaneously with any termination or reduction of the Revolving
Credit Commitment pursuant to this Section (not including, however,
Section 2.7.D), the Borrowers shall pay to each Lender, through the
Agent, (i) the Revolving Credit Commitment Fee due and owing through
and including the date of such termination or reduction on the amount
of the Re- volving Credit Commitment of such Lender so terminated or
reduced, and (ii) the Prepay- ment Charge on the amount of the
Revolving Credit Commitment of such Lender so termi- nated or reduced.
In any instance, the Borrowers shall pay to each Lender, through the
Agent the Consequential Loss if applicable. No Prepayment Charge shall,
however, be due and owing by the Borrowers pursuant to this Section for
any termination or reduction of the Revolving Credit Commitment after
the second annual anniversary of the Effective Date of the Prior
Agreement.
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D. The Revolving Credit Commitment shall be permanently reduced on each
date that a prepayment of principal of the Revolving Credit Loans is
required pursuant to Section 5.9.E.(2) or Section 5.9.E.(3) by the
amount of each such required prepayment. In any event, the Revolving
Credit Commitment of each Lender shall automatically and permanently
terminate on the Commitment Termination Date, and all Revolving Credit
Loans still outstanding on such date shall be due and payable in full
together with accrued interest thereon.
2.8 REQUIRED PAYMENTS. If any time during the term of this Second Restated
Agreement, the outstanding amount of the Advances made pursuant to Section 2.1
and the amount of Letters of Credit issued pursuant to Section 2.2 shall exceed
the Borrowing Base, the Borrowers will immediately pay to the Agent an amount
equal to the excess, including any unpaid interest on the principal sum paid.
ARTICLE III
TERM LOANS
3.1 TERM LOANS. Each Lender has, severally, but not jointly, lent to the
Borrowers, in one Advance on the Effective Date of the Prior Agreement, an
amount equal to such Lender's Percentage of the amounts requested by the
Borrowers in a Notice of Term Loan Advance for Term A Loans and Term B Loans in
the form of Exhibit attached to the Prior Agreement. Term A Loans are in the
amount of $2,750,000.00, and Term B Loans are in the amount of $4,750,000.00.
3.2 USE OF PROCEEDS. The Borrowers represent and warrant that all proceeds
of the Borrowing under the Total Term Loan Commitment have been used and may be
used solely to pay transaction costs and fees in connection herewith, to pay a
portion of the acquisition costs of the Harley Stock, to payoff and discharge
Liens on portions of the Collateral held by Boatman's National Bank of Oklahoma,
to payoff and discharge Liens on portions of the Collateral held by Bank of
Oklahoma National Association, to payoff and discharge Liens on portions of the
Collateral held by Texas Commerce and for no other purposes.
ARTICLE IV
STEAM SUPPLY LOANS
4.1 STEAM SUPPLY LOANS. Subject to the terms and conditions of this Second
Restated Agreement, each Lender agrees, severally, but not jointly, to lend to
the Borrowers on a revolving basis, in one or more Advances from time to time
during the Steam Supply Commitment Period, an amount equal to such Lender's
Percentage set out in Schedule 2.1 of the amounts requested by the Borrowers in
each Notice of Steam Supply Advance in the form of Exhibit 4.1 attached to this
Second Restated Agreement. The Lenders shall not be obligated to make Advances,
however, (i) in excess of the Lender's Percentage of the Steam Supply
Commitment, (ii) if an Event of Default or a Default shall exist, and/or, (iii)
if the amount of the Steam Supply Advance exceeds the Steam Supply Availability
at such time. Within the limits of this Section and subject to Section 4.2, the
Borrowers may borrow, repay and re-borrow in accordance with the terms and
conditions of this Second Restated Agreement.
4.2 BORROWING BASE. The aggregate principal amount at any time remaining
unpaid on the Steam Supply Loans will not be in excess of the amounts arrived at
by the computation provided for in the following formula not to exceed, however,
the Steam Supply Commitment.
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A. Steam Supply Availability will be computed daily and the aggregate
principal amount at any time remaining unpaid on the Steam Supply Loans
will be the lesser of the Steam Supply Commitment and the sum of the
following (the "STEAM SUPPLY BORROWING BASE"):
(i) Up to eighty-five (85) per cent of the Steam Supply Eligible
Accounts; and,
(ii) Up to sixty-five (65) per cent of the Loan Value of the Steam
Supply Eligible Inventory, not to exceed, however, $2,500,000.00.
B. The Agent retains the right to establish reasonable reserves ("STEAM
SUPPLY RESERVES") as it deems appropriate under the Steam Supply
Commitment, based on such factors as the Agent deems appropriate,
including, but not limited to, increases in dilution of Steam Supply
Accounts, the value of Steam Supply Eligible Inventory or if the Steam
Supply Group shall fail to obtain Landlord Agreements. The Borrowers
acknowledge that the establishment of Steam Supply Reserves will have
the effect of limiting or restricting Steam Supply Advances.
4.3 LOAN VALUE OF STEAM SUPPLY ELIGIBLE INVENTORY. The "LOAN VALUE OF STEAM
SUPPLY ELIGIBLE INVENTORY" means the lowest of (i) the Steam Supply Group's net
purchase cost or manufacturing cost of domestic finished goods Inventory (on a
first-in/first-out basis), and (ii) the lowest bulk market price of Inventory
minus estimated expenses for packing, selling and delivery. The Agent shall have
the sole right, in the Agent's judgment, to determine which Inventory is
marketable and saleable at any particular time for inclusion in the Borrowing
Base. Without limiting the Agent's judgment, work-in-progress, obsolete or out
of condition Inventory, Inventory classified as long term assets, used
Inventory, remanufactured Inventory, returned Inventory, foreign Inventory,
Inventory in transit, damaged Inventory, supplied Inventory and slow moving
Inventory shall not be included in the Steam Supply Borrowing Base. Inventory in
the possession of third parties shall not be included in the Steam Supply
Borrowing Base. In the event that Inventory previously included in a Steam
Supply Inventory Designation Report ceases to be Steam Supply Eligible
Inventory, the Borrowers shall promptly pay to the Lenders an amount sufficient
to continue to be in compliance with Section 2.3.
4.4 BORROWING PROCEDURE. The Borrowers will maintain a bank account (the
"STEAM SUPPLY FUNDING ACCOUNT") with Texas Commerce into which account all
Advances on the Steam Supply Loans will be deposited. No other deposits will be
made to the Steam Supply Funding Account.
A. Advances on the Steam Supply Loans shall be made pursuant to a Notice
of Steam Supply Advance signed by a Responsible Officer of Safe Seal,
which shall specify (i) the aggregate amount of such Borrowing, (ii)
the requested Borrowing Date of such Borrowing, and (iii) the Interest
Option selected in accordance with Section 5.4. If Safe Seal shall
specify a Eurodollar Loan, the Notice of Steam Supply Advance shall
also specify the length of the Interest Period selected by Safe Seal
for such Borrowing. Safe Seal shall give the Agent the Notice of Steam
Supply Advance not later than 12:00 noon (New York, New York time), (i)
at least three (3) Business Days prior to a proposed Eurodollar Loan
Advance or conversion, and (ii) one (1) Business Day prior to a
proposed Alternate Base Rate Loan Advance or conversion. If no election
as to the type of Loan is specified in any such notice, all such Loans
shall be Alternate Base Rate Loans. If no Interest Period with respect
to any Eurodollar Loan is specified in any such notice, then an
Interest Period of three (3)
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months duration shall be deemed to have been selected (subject to the
provisions of the definition of "INTEREST PERIOD").
B. The Agent shall be entitled to rely and act upon requests made or
purportedly made by any Responsible Officer of Safe Seal and each
Notice of Steam Supply Advance shall be irrevocable and binding on the
Borrowers. The Borrowers shall be unconditionally and absolutely
estopped from denying (i) the authenticity and validity of any
transaction so acted upon by the Agent once the Agent has made an
Advance and has deposited or transferred such funds as requested in any
such Notice of Steam Supply Advance, and (ii) the Borrowers' liability
and responsibility therefor. The Borrowers covenant and agree to as-
sume liability for and to protect, indemnify and save the Agent and the
Lenders harmless from any and all liabilities, obligations, damages,
penalties, claims, causes of action, costs, charges and expenses,
including attorneys' fees, which may be imposed upon, incurred by or
asserted against the Agent or any of the Lenders by reason of any loss,
damage or claim howsoever arising or incurred because of, out of or in
connection with the transfer of funds pursuant to a Notice of Steam
Supply Advance.
C. After receiving a properly completed Notice of Steam Supply Advance,
the Agent shall promptly notify each Lender by telephone (confirmed
immediately by telex or cable), telex or cable of the terms of such
notice and such Lender's Percentage of such Borrowing. Each Lender
shall, before 12:00 noon (New York, New York time), on the date a
Borrowing is requested as specified in a Notice of Steam Supply
Advance, deposit with the Agent such Lender's ratable Percentage of
such Borrowing in immediately available funds. The failure of any
Lender to make any Advance required to be made by it hereunder shall
not relieve any other Lender of its obligation to make its Advance
hereunder. Each Lender may fulfill its obligations under this Second
Restated Agreement by causing its Applicable Lending Office to make
such Loan; provided, however, that the exercise of such option shall
not affect the Obligation of the Borrowers to repay such Loan in
accordance with the term of the applicable Note. If any Lender fails to
provide its Percentage of any Borrowing and if all conditions to such
Borrowing have apparently been satisfied, the Agent may make available
to the Borrowers the funds received by it from the other Lenders.
Neither the Agent nor any Lender shall be, however, responsible for the
performance by any other Lender of its obligations hereunder. Upon the
failure of a Lender to make an Advance required to be made by it
hereunder, the Agent shall use reasonable efforts to obtain one or more
financial institutions, acceptable to the Lenders, to replace such
Lender, but neither the Agent nor any other Lender shall have any
liability or obligation whatsoever as a result of the failure to obtain
a replacement for such Lender.
D. After receiving a Notice of Steam Supply Advance in the manner provided
herein, the fulfillment of all applicable conditions set forth herein
and after receipt by the Agent of such funds, the Agent will, as soon
as practicable, but in no event later than 5:00 p.m. (New York, New
York time) on the third Business Day, in the case of a Eurodollar Loan,
and on the first Business Day, in the case of an Alternate Base Rate
Loan, deposit the Steam Supply Advance in immediately available funds
in the Steam Supply Funding Account. If Loans are not made on such date
because any condition precedent to a Borrowing herein specified is not
met, the Agent will return the amounts so received to the respective
Lenders.
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E. Unless the Agent shall have received notice from a Lender prior to the
date of any Borrow- ing that the Lender will not make the Lender's
Percentage of such Steam Supply Advance available to the Agent, the
Agent may assume that the Lender has made such amount available to the
Agent on the date of such Borrowing in accordance with Section 4.4.C
and the Agent may, in reliance upon such assumption, make available a
corresponding amount to or on behalf of the Borrowers on such date. If
and to the extent any Lender shall not have so made its Percentage of
any Steam Supply Advance available to the Agent, the Borrowers agree to
repay to the Agent forthwith on demand such corresponding amount
together with interest thereon for each day from the date such amount
is made available to or on behalf of the Borrowers until the date such
amount is repaid to the Agent at the rate per annum equal to the
applicable Contract Rate to the Borrowing in question.
F. The initial funding of the Steam Supply Loans shall be an Alternate
Base Rate Loan. At any time after the Effective Date of this Second
Restated Agreement, the Borrowers may convert to Alternate Base Rate
Loans or Eurodollar Loans, subject to and pursuant to the provisions of
Section 5.4.
4.5 USE OF PROCEEDS. The proceeds, if any, of a Borrowing under the Steam
Supply Commitment on the Effective Date of this Second Restated Agreement shall
be solely used to loan such proceeds to the Steam Supply Group pursuant to the
terms of the Steam Supply Credit Agreement and used by the Steam Supply Group
solely for working capital purposes and to payoff and discharge existing
Indebtedness of Steam Supply & Rubber Co., Inc. All proceeds of each subsequent
Borrowing under the Steam Supply Commitment after the Effective Date of this
Second Restated Agreement shall be solely used to loan such proceeds to the
Steam Supply Group pursuant to the terms of the Steam Supply Credit Agreement
and used by the Steam Supply Group solely for working capital purposes of the
Steam Supply Group.
4.6 REDUCTION OF STEAM SUPPLY COMMITMENT. The Borrowers may at any time, or
from time to time, upon not less than thirty (30) Business Days' prior notice to
the Agent, in whole permanently and irrevocably terminate, or from time to time,
in part permanently and irrevocably reduce the Steam Supply Commitment ratably
among the Lenders in accordance with the amounts of their respective Steam
Supply Commitment. The Steam Supply Commitment shall not, however, be reduced at
any time to an amount less than the Steam Supply Loans outstanding under the
Steam Supply Commitment at such time.
A. Each partial reduction of the Steam Supply Commitment shall be in a
minimum of $100,000.00, or integral multiples thereof.
B. Each reduction must be accompanied by prepayment of each Steam Supply
Note to the extent that the aggregate principal amount of the Steam
Supply Note then outstanding exceeds the Lender's Steam Supply
Commitment, as so reduced, together with interest on the principal sum
so prepaid.
C. Simultaneously with any termination or reduction of the Steam Supply
Commitment pursuant to this Section (not including, however, Section
4.6.D), the Borrowers shall pay to each Lender, through the Agent, (i)
the Steam Supply Commitment Fees due and owing through and including
the date of such termination or reduction on the amount of the Steam
Supply Commitment of such Lender so terminated or reduced, and (ii) the
Prepayment
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Charge on the amount of the Steam Supply Commitment of such Lender so
terminated or reduced. In any instance, the Borrowers shall pay to each
Lender, through the Agent the Consequential Loss if applicable. No
Prepayment Charge shall, however, be due and owing by the Borrowers
pursuant to this Section for any termination or reduction of the Steam
Supply Commitment after the second annual anniversary of the Effective
Date of the Prior Agreement.
D. The Steam Supply Commitment shall be permanently reduced on each date
that a prepayment of principal of the Steam Supply Loans is required
pursuant to Section 5.9.E.(3) or Section 5.9.F by the amount of each
such required prepayment. In any event, the Steam Supply Commitment of
each Lender shall automatically and permanently terminate on the
Commitment Termination Date, and all Steam Supply Loans still out
standing on such date shall be due and payable in full together with
accrued interest thereon.
4.7 REQUIRED PAYMENTS. If any time during the term of this Second Restated
Agreement, the outstanding amount of the Steam Supply Advances made pursuant to
Section 4.1 shall exceed the Steam Supply Borrowing Base, the Borrowers will
immediately pay to the Agent an amount equal to the excess, including any unpaid
interest on the principal sum paid.
ARTICLE V
NOTES
5.1 REVOLVING CREDIT NOTES. The Advances made under Section 2.1 by a Lender
is evidenced by a Revolving Credit Note payable to each such Lender, which (i)
is dated the Effective Date of the Restated Agreement, (ii) is in the amount of
such Lender's Percentage of the Revolving Credit Commitment, (iii) bears
interest in accordance with Section 5.4, and (iv) is substantially in the form
of Exhibit attached to the Restated Agreement with all blanks appropriately
completed in conformity therewith. Notwithstanding the principal amount of any
Revolving Credit Note as stated on the face thereof, the amount of principal
actually owing on a Revolving Credit Note, at any given time, shall be the
aggregate of all Advances made by the Lender to the Borrowers, less all payments
of principal actually received by the Lender. The records of the Lender
evidencing the date and amount of each Advance, as well as the amount of each
payment made by the Borrowers, shall be rebuttably presumptive evidence of the
amounts owing and unpaid on the Revolving Credit Note. The Borrowers shall
repay, and shall pay interest on, the unpaid principal amount of the Revolving
Credit Loans in accordance with the terms of the Revolving Credit Notes and this
Second Restated Agreement.
5.2 TERM NOTES. The Advances made under Section 3.1 by a Lender shall be
evidenced by a Term A Note or a Term B Note payable to each such Lender, which
(i) are dated the Effective Date of the Restated Agreement, (ii) are in the
amount of such Lender's Percentage of the Total Term Loan Commitment, (iii) bear
interest in accordance with Section 5.4, and (iv) are in the form of Exhibit
attached to the to the Restated Agreement in the case of a Term A Note and
Exhibit attached to the Restated Agreement in the case of a Term B Note with all
blanks appropriately completed in conformity therewith. The Borrowers shall
repay, and shall pay interest on, the unpaid principal amount of the Term Loans
in accordance with the terms of the Term Notes, the Prior Credit Agreements and
this Second Restated Agreement.
5.3 STEAM SUPPLY NOTES. The Advances made under Section 4.1 by a Lender
shall be evidenced by a Steam Supply Note payable to each such Lender, which
shall (i) be dated the Effective
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Date of this Second Restated Agreement, (ii) be in the amount of such Lender's
Percentage of the Steam Supply Commitment, (iii) bear interest in accordance
with Section 5.4, and (iv) be substantially in the form of Exhibit 5.3 to this
Second Restated Agreement with all blanks appropriately completed in conformity
herewith. Notwithstanding the principal amount of any Steam Supply Note as
stated on the face thereof, the amount of principal actually owing on a Steam
Supply Note, at any given time, shall be the aggregate of all Steam Supply
Advances made by the Lender to the Borrowers, less all payments of principal
actually received by the Lender. The records of the Lender evidencing the date
and amount of each Advance, as well as the amount of each payment made by the
Borrowers, shall be rebuttably presumptive evidence of the amounts owing and
unpaid on the Steam Supply Note. The Borrowers shall repay, and shall pay
interest on, the unpaid principal amount of the Steam Supply Loans in accordance
with the terms of the Steam Supply Notes and this Second Restated Agreement.
5.4 INTEREST RATE OPTIONS. Subject to the provisions of this Section, the
Borrowers shall elect an option (an "INTEREST OPTION") of having all or any
portion of the Loans bear interest at rates determined as follows:
A. The Borrowers shall elect to have Revolving Credit Loans and Steam
Supply Loans bear interest at a rate based upon the Alternate Base Rate
or at the Adjusted LIBOR Rate. Each change in an Interest Option made
pursuant to this Section shall be deemed both a payment of the
Alternate Base Rate Loan or Adjusted LIBOR Rate Loan from which such
change was made and a Borrowing (notwithstanding that the unpaid
principal amount of the Loan is not thereby changed) as an Alternate
Base Rate Loan or an Adjusted LIBOR Rate Loan into which such change
was made on the Date of such change.
(1) Prior to Default, the unpaid principal of the Revolving Credit
Loans and the Steam Supply Loans shall bear interest from the date of
Advance as follows:
(a) If an Alternate Base Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Alternate Base Rate in effect from day to day, plus the
Applicable Margin (a "REVOLVING LOAN CONTRACT RATE" or a "STEAM
SUPPLY CONTRACT RATE"); or, (ii) the Maximum Rate; or,
(b) If an Adjusted LIBOR Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Adjusted LIBOR Rate in effect from day to day, plus the
Applicable Margin (also a "REVOLVING LOAN CONTRACT RATE" or a
"STEAM SUPPLY CONTRACT RATE"); or, (ii) the Maximum Rate.
(2) Safe Seal shall, for the Borrowers, in each Notice of Revolving
Credit Advance or Notice of Steam Supply Advance, give the Agent notice
of the Interest Option selected and the term thereof with respect to
each Borrowing made hereunder.
(3) Prior to the termination of each Interest Period with respect to
each Adjusted LIBOR Rate Loan, Safe Seal shall, for the Borrowers, give
notice (a "ROLLOVER NOTICE") to the Agent of the Interest Option which
shall be applicable to such portion of the Loan upon the expiration of
such Interest Period. The Rollover Notice shall be given to the Agent
at least one (1) Business Day, in the case of an Alternate Base Rate
selection, or three (3) Business Days, in the case of an Adjusted LIBOR
Rate selection, prior to the termination of the Interest Period. If the
Borrowers shall specify an Adjusted LIBOR Rate, the Rollover No-
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tice shall also specify the length of the succeeding Interest Period
(subject to the provisions of the definitions of such term), selected
by the Borrowers with respect to such portion of the Loan. Each
rollover notice shall be irrevocable and effective upon notification
thereof to the Agent. If the required Rollover Notice shall not have
been timely received by the Agent (in accordance with the above
provisions of this Section) prior to the expiration of the then
relevant Interest Period in effect when such Notice was required to be
given, the Borrowers shall be deemed to have selected the rate set
forth in Section 5.4.A.(1)(a) to be applicable to such portion of the
Loan upon expiration of such Interest Period and the Borrowers shall be
deemed to have given the Agent notice of such selection.
(4) With respect to an Alternate Base Rate Loan, the Borrowers shall
have the right, on any Business Day (a "CONVERSION DATE"), to convert
such Alternate Base Rate Loan to an Adjusted LIBOR Rate Loan by giving
the Agent a Rollover Notice of such election at least three (3)
Business Days prior to such Conversion Date.
(5) Notwithstanding anything in this Section to the contrary, no
Alternate Base Rate Loan may be converted to an Adjusted LIBOR Rate
Loan and no Adjusted LIBOR Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but each
such Loan shall be automatically converted to an Alternate Base Rate
Loan on the last day of its applicable Interest Period.
B. The Borrowers shall elect to have Term Loans bear interest at a rate
based upon the Alternate Base Rate or at the Adjusted LIBOR Rate. Each
change in an Interest Option made pursuant to this Section shall be
deemed both a payment of the Alternate Base Rate Loan or the Adjusted
LIBOR Rate Loan from which such change was made and a Borrowing
(notwithstanding that the unpaid principal amount of the Loan is not
thereby changed) as an Alternate Base Rate Loan or an Adjusted LIBOR
Rate Loan into which such change was made on the Date of such change.
(1) Prior to Default, the unpaid principal of the Term Loans shall bear
interest from the date of Advance as follows:
(a) If an Alternate Base Rate Loan is chosen at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Alternate Base Rate in effect from day to day, plus the
Applicable Margin (a "TERM LOAN CONTRACT RATE"); or, (ii) the
Maximum Rate; or,
(b) If an Adjusted LIBOR Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Adjusted LIBOR Rate in effect from day to day, plus the
Applicable Margin (also a "TERM LOAN CONTRACT RATE"); or, (ii) the
Maximum Rate.
(2) Prior to the termination of each Interest Period with respect to
each Adjusted LIBOR Rate Loan, Safe Seal, for the Borrowers, shall give
notice, also a "ROLLOVER NOTICE," to the Agent of the Interest Option
which shall be applicable to such portion of the Loan upon the
expiration of such Interest Period. Such Rollover Notice shall be given
to the Agent at least one (1) Business Day, in the case of an Alternate
Base Rate selection, or three (3) Business Days, in the case of an
Adjusted LIBOR Rate selection, prior to the termination of such
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Interest Period. If the Borrowers shall specify an Adjusted LIBOR Rate,
such Rollover Notice shall also specify the length of the succeeding
Interest Period (subject to the provisions of the definitions of such
term), selected by the Borrowers with respect to such portion of the
Loan. Each rollover notice shall be irrevocable and effective upon
notification thereof to the Agent. If the required Rollover Notice
shall not have been timely received by the Agent (in accordance with
the above provisions of this Section) prior to the expiration of the
then relevant Interest Period in effect when such Notice was required
to be given, the Borrowers shall be deemed to have selected the rate
set forth in Section 5.4.B.(1)(a) to be applicable to such portion of
the Loan upon expiration of such Interest Period and the Borrowers
shall be deemed to have given the Agent notice of such selection.
(3) With respect to an Alternate Base Rate Loan, the Borrowers shall
have the right, on any Business Day, also a "CONVERSION DATE," to
convert such Alternate Base Rate Loan to an Adjusted LIBOR Rate Loan by
giving the Agent a Rollover Notice of such election at least three (3)
Business Days prior to such Conversion Date.
(4) Notwithstanding anything in this Section to the contrary, no
Alternate Base Rate Loan may be converted to an Adjusted LIBOR Loan and
no Adjusted LIBOR Rate Loan may be continued as such when any Default
or Event of Default has occurred and is continuing, but each such Loan
shall be automatically converted to an Alternate Base Rate Loan on the
last day of each applicable Interest Period.
C. No more than five (5) Eurodollar Loans shall be outstanding and
Eurodollar Loans made on any date shall be in a minimum aggregate
principal amount of $1,000,000.00, and an integral multiples of
$100,000.00 for amounts in excess thereof.
5.5 APPLICABLE MARGIN. With respect to any Loan, the Applicable Margin shall
be determined as a function of the Funded Debt Ratio and shall be calculated as
set forth below.
A. For Revolving Credit Loans and Steam Supply Loans, the Applicable
Margin for Adjusted LIBOR Rate Loans and Alternate Base Rate Loans
shall be as follows:
<TABLE>
<CAPTION>
ADJUSTED LIBOR RATE LOANS ALTERNATE BASE RATE LOANS
FUNDED DEBT RATIO APPLICABLE MARGIN APPLICABLE MARGIN
-------------------- ------------------------- --------------------------
<S> <C> <C>
Equal to or greater
than 4.00:1.00 3.00 % 0.50 %
Equal to or greater
than 3.50:1.00, but
less than 4.00:1.00 2.75 % 0.25 %
Equal to or greater
than 2.75:1.00, but
less than 3.50:1.00 2.50 % 0.00 %
Less than 2.75:1.00 2.25 % 0.00 %
</TABLE>
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B. For Term A Loans, the Applicable Margin for Adjusted LIBOR Rate Loans
and Alternate Base Rate Loans shall be as follows:
<TABLE>
<CAPTION>
ADJUSTED LIBOR RATE LOANS ALTERNATE BASE RATE LOANS
FUNDED DEBT RATIO APPLICABLE MARGIN APPLICABLE MARGIN
-------------------- ------------------------- --------------------------
<S> <C> <C>
Equal to or greater
than 4.00:1.00 3.50 % 1.00 %
Equal to or greater
than 3.50:1.00, but
less than 4.00:1.00 3.25 % 0.75 %
Equal to or greater
than 2.75:1.00, but
less than 3.50:1.00 3.00 % 0.50 %
Less than 2.75:1.00 2.75 % 0.50 %
</TABLE>
C. For Term B Loans, the Applicable Margin for Adjusted LIBOR Rate Loans
shall be 1.25 % and for Alternate Base Rate Loans, the Applicable
Margin shall be 0.00 %
D. The Funded Debt Ratio shall be deemed to be 4.00:1.00 from the
Effective Date of the Prior Agreement to and including December 31,
1997. Any change in the Applicable Mar- gin after December 31, 1997,
shall be effective upon the date of delivery of (i) the annual audited
Financial Statements to be delivered pursuant to Section 9.1.A.(1), and
(ii) thereaf- ter shall be determined quarterly from the Financial
Statements of the Borrowers most re- cently delivered pursuant to
Section 9.1.A.(3) at the end of each fiscal quarter for the pre- ceding
consecutive twelve (12) month period; provided, further, for the first
ensuing Fiscal Year, the Funded Debt Ratio will be determined
quarterly, at the end of each fiscal quarter, for the Fiscal Year to
date. If the Borrowers shall fail to deliver any such Financial State-
ments within the times specified in Section 9.1.A.(1) or Section
9.1.A.(3), the Funded Debt Ratio shall be deemed to be 4.00:1.00 until
the Borrowers deliver such Financial Statements to the Agent.
Notwithstanding the foregoing, the Borrowers may, at the Borrowers'
elec- tion, provide to the Agent reviewed Financial Statements as of
June 30, 1997, and have the initial determination of the Applicable
Margin as of such date. The Funded Debt Ratio will be determined by
using actual Funded Debt divided by EBITDA annualized to the end of the
Borrowers' Fiscal Year. Thereafter, the Funded Debt Ratio will be
determined on September 30, 1997, by using actual year to date Funded
Debt divided by EBITDA annual- ized to the end of the Borrowers' Fiscal
Year.
5.6 INTEREST RECAPTURE. Notwithstanding the terms of Section 5.4.A.(1) or
Section 5.4.B.(1), if on any Interest Payment Date, a Lender does not receive
interest on the Loans at the applicable Contract Rate because the applicable
Contract Rate exceeds or has exceeded the Maximum Rate, then the Borrowers
shall, upon the demand of the Lender, pay to the Lender, in addition to interest
otherwise required hereunder on each Interest Payment Date thereafter, interest
at the Maximum Rate until the cumulative interest received by the Lender equals
the interest which would have been received at the applicable Contract Rate. In
no event shall, however, the Borrowers be required to pay, for any
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appropriate computation period, interest at a rate exceeding the Maximum Rate
effective during such period.
5.7 DEFAULT RATE. If a Default or an Event of Default shall occur and be
continuing and not be waived, the Borrowers shall on demand from time to time
pay interest, to the extent permitted by law, on all Loans outstanding up to the
date such Default or Event of Default is cured at a rate per annum equal to two
(2) per cent in excess of the Alternate Base Rate (the "DEFAULT RATE"), but
never in excess of the Maximum Rate.
5.8 MAXIMUM INTEREST. It is the intention of the parties to comply with all
applicable usury laws. Accordingly, it is agreed that notwithstanding any
provision apparently to the contrary in the Loan Documents, no such provision
shall require the payment or permit the collection of interest in excess of the
Maximum Amount or the Maximum Rate. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, in the Loan
Documents, then in such event the provisions of this Section shall govern and
control and (i) no Loan Party liable for the payment of any sums to become due
under the Loan Documents shall be obligated to pay the amount of such interest
to the extent that it is in excess of the Maximum Amount or the Maximum Rate,
and (ii) any such excess which may have been collected shall be first applied as
a credit against the then unpaid principal amount on the Notes and the excess,
if any, refunded to the Borrowers or the Guarantors and the effective rate of
interest shall be automatically reduced to the Maximum Rate. Without limitation
of the foregoing, all calculations of the rate of interest contracted for,
charged or received under the Loan Documents which are made for the purpose of
determining whether such rate exceeds the Maximum Rate, shall be made, to the
extent permitted by applicable usury laws, by amortizing, prorating, allocating
and spreading in equal parts during the period of the full stated term of the
Loans, all interest at any time contracted for, charged or received by the
holder or holders of the Notes in connection with the Loans.
5.9 PAYMENTS ON THE NOTES. The Notes will be paid and prepaid in accordance
with the terms set out in this Section.
A. The unpaid principal amount of each Revolving Credit Note, together
with all accrued but unpaid interest thereon, unpaid Revolving Credit
Commitment Fees and unpaid Letters of Credit Fees, shall be due and
payable on the Commitment Termination Date. Interest on each Revolving
Credit Note shall be due and payable monthly as it accrues, on the
Interest Payment Dates.
(1) The Borrowers shall make prepayments of the Revolving Credit Loans
from time to time such that the Availability equals or exceeds zero at
all times. Any prepayments required by this Section shall be applied to
outstanding Revolving Credit Alternate Base Rate Loans up to the full
amount thereof before they are applied to outstanding Revolving Credit
Eurodollar Loans. The Borrowers shall not, however, be required to make
any prepayment of any Eurodollar Loan pursuant to this Section until
the last day of the Interest Period with respect thereto so long as an
amount equal to such required prepayment is deposited by the Borrowers
in a cash collateral account with the Agent to be held in such account
on terms satisfactory to the Agent.
(2) On the date of any termination or reduction of the Revolving Credit
Commitment pursuant to Section 2.7, the Borrowers shall pay or prepay
so much of the Revolving Credit
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Loans as shall be necessary in order that the Availability equals or
exceeds zero following such termination or reduction. Any prepayments
required by this Section shall be applied to outstanding Revolving
Credit Alternate Base Rate Loans up to the full amount thereof before
they are applied to outstanding Revolving Credit Eurodollar Loans. The
Borrowers shall not, however, be required to make any prepayment of any
Eurodollar Loan pursuant to this Section until the last day of the
Interest Period with respect thereto so long as an amount equal to such
required prepayment is deposited by the Borrowers in a cash collateral
account with the Agent to be held in such account on terms satisfactory
to the Agent.
B. The unpaid principal amount of each Term Note shall be due and payable
in quarterly in- stallments in the amounts and on the dates set out
below and in one final installment on the Commitment Termination Date,
when the balance of all principal of each Term Note shall be payable in
full. Interest on each Term Note shall be due and payable monthly as
interest accrues on the Interest Payment Dates and in addition to the
installments of principal. No scheduled payment of principal in respect
of a Term Loan shall be made to the extent that a lesser principal
payment would result in the payment in full of the outstanding amount
of the Term Loans, and such lesser amount is paid.
TERM A NOTES
DATE QUARTERLY PRINCIPAL PAYMENTS
April 30, 1997 $375,000.00
July 31, 1997 and October 31, 1997 $250,000.00
On each January 31, April 30,
July 31 and October 31 thereafter $125,000.00
Commitment Termination Date Unpaid balance
TERM B NOTES
DATE QUARTERLY PRINCIPAL PAYMENTS
October 31, 1997, $125,000.00
On each January 31, April 30,
July 31 and October 31 thereafter $250,000.00
Commitment Termination Date Unpaid balance
C. The unpaid principal amount of each Steam Supply Note, together with
all accrued but unpaid interest thereon and unpaid Steam Supply
Commitment Fees, shall be due and payable on the Commitment Termination
Date. Interest on each Steam Supply Note shall be due and payable
monthly as it accrues, on the Interest Payment Dates.
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(1) The Borrowers shall make prepayments of the Steam Supply Loans from
time to time such that the Steam Supply Availability equals or exceeds
zero at all times. Any prepayments required by this Section shall be
applied to outstanding Steam Supply Alternate Base Rate Loans up to the
full amount thereof before they are applied to outstanding Steam Supply
Eurodollar Loans. The Borrowers shall not, however, be required to make
any prepayment of any Eurodollar Loan pursuant to this Section until
the last day of the Interest Period with respect thereto so long as an
amount equal to such required prepayment is deposited by the Borrowers
in a cash collateral account with the Agent to be held in such account
on terms satisfactory to the Agent.
(2) On the date of any termination or reduction of the Steam Supply
Commitment pursuant to Section 4.6, the Borrowers shall pay or prepay
so much of the Steam Supply Loans as shall be necessary in order that
the Steam Supply Availability equals or exceeds zero following such
termination or reduction. Any prepayments required by this Section
shall be applied to outstanding Steam Supply Alternate Base Rate Loans
up to the full amount thereof before they are applied to outstanding
Steam Supply Eurodollar Loans. The Borrowers shall not, however, be
required to make any prepayment of any Eurodollar Loan pursuant to this
Section until the last day of the Interest Period with respect thereto
so long as an amount equal to such required prepayment is deposited by
the Borrowers in a cash collateral account with the Agent to be held in
such account on terms satisfactory to the Agent.
D. On the Commitment Termination Date or upon the occurrence of any
Default, the Borrowers shall provide to the Agent cash collateral in an
amount equal to the then-existing outstanding amounts of Letters of
Credit. The Agent agrees to return the cash collateral to the Borrowers
upon the subsequent payment in full of all Obligations related to such
Letters of Credit.
E. The Borrowers shall make the below enumerated prepayments on the Loans:
(1) Within one hundred twenty (120) days of the end of each Fiscal Year
of the Borrowers, commencing with the Fiscal Year ending December 31,
1997, the Borrowers shall make a prepayment of the Term Loans in an
amount equal to the Mandatory Prepayment for the Fiscal Year then
ended, such prepayment to be applied as set forth in Section 5.11.D.
(2) Within three (3) days of (i) the sale of any assets of the
Borrowers (excluding sales of assets in the ordinary course of business
subject, however, to Section 8.4), (ii) the completion of an IPO; or
(ii) there shall occur a Change of Control, the Borrowers shall make a
mandatory prepayment of the Loans in an amount equal to one hundred
(100) per cent of the proceeds received or realized (net of taxes due
and any expenses of sale) by the Borrowers or in the case of a Change
of Control, by the sellers of any Borrowers' stock, which proceeds
shall be applied as set forth in Section 5.11.D.
(3) Except as provided in Subsection 5.9.E.(3)(a), not later than the
third day following the receipt by the Agent, the Borrowers or any
Subsidiary of a Borrower of (i) any proceeds of any insurance required
to be maintained pursuant to Section 9.1.G on account of each separate
loss, damage or injury in excess of $25,000.00 (or, if there shall be a
Default or an Event of Default shall be continuing, the full amount of
proceeds) to any asset of the Bor-
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rowers or such Subsidiary of a Borrower (including, without limitation,
any Collateral), or (ii) any proceeds of any business interruption
insurance required to be maintained pursuant to Section 9.1.G in excess
of $50,000.00 (or, if there shall be a Default or a continuing Event of
Default, the full amount of proceeds), the Borrowers or the Subsidiary
shall notify the Agent of such receipt, in writing or by telephone,
promptly confirmed in writing. Not later than the day following receipt
by the Agent, the Borrowers or the Subsidiary of any such proceeds,
there shall become due and payable a prepayment of the Loans in an
amount equal to one hundred (100) per cent of such proceeds, and
prepayments from such proceeds shall be applied as set forth in Section
5.11.D.
(a) In the case of the receipt of proceeds described above with
respect to the loss, damage or injury to any asset of the
Borrowers or any Subsidiary of a Borrower (other than proceeds of
any business interruption insurance), the Borrowers may elect, by
written notice delivered to the Agent not later than the day on
which a prepayment would otherwise be required as above set out,
to apply all or a portion of such proceeds for the purpose of
replacing, repairing, restoring or rebuilding the relevant
tangible property, and, in such event, any required prepayment as
set out above shall be reduced Dollar for Dollar by the amount of
such election. An election under this Subsection shall not be
effective unless: (i) at the time of such election there is no
Default or continuing Event of Default; (ii) the Borrowers shall
have certified to the Agent that: {1} the proceeds of the
insurance adjustment for such loss, damage or injury, together
with other funds available to the Borrowers, shall be sufficient
to complete such replacement, repair, restoration or rebuilding in
accordance with all applicable laws, regulations and ordinances;
and, {2} to the best knowledge of the Borrowers, no Default or
Event of Default has arisen or will arise as a result of such
loss, damage, injury, replacement, repair or rebuilding; and,
(iii) if the amount of proceeds in question exceeds $250,000.00,
the Borrowers shall have obtained the written consent of the
Lenders to such election.
(b) In the event of an election under Subsection 5.9.E.(3)(a),
pending application of the proceeds to the required replacement,
repairs, restoration or rebuilding, the Borrowers shall, not later
than the time at which prepayment would have been in the absence
of such election required as set out above, apply such proceeds to
the prepayment of the outstanding principal balance, if any, of
the Revolving Credit Loans (not in permanent reduction of the
Revolving Credit Commitment), and deposit (the "SPECIAL DEPOSIT")
with the Agent, the balance, if any, of such proceeds remaining
after such application, pursuant to agreements in form, scope and
substance satisfactory to the Agent. The Special Deposit, together
with all earnings on such Special Deposit, shall be available to
the Borrowers solely for the replacement, repair, rebuilding or
restoration of the tangible property suffering the injury, loss or
damage in respect of which such prepayment and Special Deposit
were made or to such other purpose as to which the Lenders may
consent in writing. If a Default or Event of Default shall
thereafter occur, the balance of the Special Deposit and earnings
thereon may be applied by the Agent to repay the Obligations in
such order as the Agent shall elect. The Agent shall be entitled
to require proof, as a condition to the making of any withdrawal
from the Special Deposit, that the proceeds of such withdrawal are
being applied for the purposes permitted hereunder.
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F. If, the Borrowers shall receive or become entitled to receive any
prepayments on the Steam Supply Loans, the Borrowers shall pay all such
prepayments over the Agent for the benefit of the Lenders.
G. The Agent may charge, when due and payable, any Borrowers' account with
the Agent for all interest, principal and Revolving Credit Commitment
Fees or other fees owing to the Agent or any of the Lenders on or with
respect to this Second Restated Agreement and/or the Loans and other
Loan Documents.
5.10 CALCULATION OF INTEREST RATES. Interest on the unpaid principal of the
Notes and the Revolving Credit Commitment Fees shall be calculated on the basis
of the actual days elapsed in a year consisting of three hundred sixty (360)
days. The Agent shall determine each Contract Rate applicable to the Loans and
shall promptly advise the Borrowers and the Lenders of the Contract Rates so
determined.
5.11 PREPAYMENTS. Subject to the terms and conditions contained in this
Section and elsewhere in this Second Restated Agreement and upon five (5)
Business Days prior notice to the Agent, the Borrowers shall have the right to
prepay any Loan at any time in whole or from time to time in part (except in the
case of a Eurodollar Loan which may be prepaid only on the last day the Interest
Period applicable to such Eurodollar Loan) without penalty, except as otherwise
provided for herein.
A. Partial prepayments shall be in an aggregate principal amount of
$2,000,000.00, or a greater integral multiple of $500,000.00.
B. Simultaneously with any optional prepayment of any Loan, the Borrowers
shall pay to the Agent for the pro rata benefit of the Lenders in
accordance with their respective Revolving Loan Commitments, Total Term
Loan Commitments or Steam Supply Commitments, as applicable, the
Prepayment Charge.
C. Each Contract Rate has been determined, in part, based on the
respective Lender's cost of funds. Therefore, the Borrowers shall pay a
prepayment charge in an amount equal to the Consequential Loss if the
Borrowers shall, in any manner, prepay any Adjusted LIBOR Rate Loan.
Additionally, the Borrowers indemnify and agree to hold the Lenders
harmless against, and reimburse the Lenders on demand for, any loss,
cost or expense incurred or sustained by any Lender (including without
limitation any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a
Lender to fund or maintain an Adjusted LIBOR Rate Loan) as a result of:
(i) Any payment or prepayment, whether required hereunder or otherwise,
of any Adjusted LIBOR Rate Loan made after the delivery of a Notice of
Revolving Credit Advance, Notice of Term Loan Advance or Notice of
Steam Supply Advance, as applicable, but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan
from becoming fully effective; or, (ii) the failure of any Adjusted
LIBOR Rate Loan to be made by a Lender due to any action or inaction of
the Borrowers. A certificate of a Lender setting forth any amount or
amounts which the Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrowers and shall be conclusive, if
made in good faith, absent manifest error. Notwithstanding the
foregoing, in no event shall any Lender be permitted to receive any
compensation hereunder constituting interest in excess of the Maximum
Rate or the Maximum Amount. Without prejudice to the survival of any
other obligations of the
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Borrowers hereunder, the obligations of the Borrowers under this
Section shall survive the payment of the Loans.
D. If no Default shall have occurred, prepayments shall be applied (i)
first to the discharge of any expenses for which the Agent or any of
the Lenders may be entitled to receive reim- bursement under any
agreement with any of the Borrowers, (ii) next, to the Prepayment
Charge, (iii) next, to the Consequential Loss, if applicable, (iv)
next, to accrued interest on the Notes, (v) next, to the reduction of
principal installments, in the inverse order of matu- rity, on Term A
Notes up to $1,000,000.00, and in such instance first to the Alternate
Base Rate Loans, and secondly to the Eurodollar Loans, and (vi) the
balance remaining, if any, shall be applied equally to the reduction of
principal installments, in the inverse order of maturity, on Term A
Notes and Term B Notes, and in such instance first to the Alternate
Base Rate Loans, and secondly to the Eurodollar Loans. Prepayments
shall be applied to the Eurodollar Loans as the Borrowers shall select;
provided, however, the Borrowers shall select Eurodollar Loans to be
prepaid in a manner designed to minimize the Consequential Loss
resulting from such prepayments. If, however, the Borrowers shall fail
to select the Eurodollar Loan to which such prepayments are to be
applied, the Lenders shall be entitled to apply the prepayment in any
manner the Lenders shall deem appropriate.
E. If, however, a Default has occurred and is continuing at the time of a
prepayment, the Lenders shall be entitled to apply the prepayment in
any manner the Lenders shall deem appropriate.
5.12 MANNER OF PAYMENTS. All payments and prepayments of principal of, and
interest on, the Notes shall be made by the Borrowers to the Agent before 12:00
noon (New York, New York time) in lawful money of the U.S. in immediately
available funds at the office of the Agent set forth in Section 14.1. Any
payment or prepayment received by the Agent after 12:00 noon (New York, New York
time), shall be deemed to have been received by the Agent on the next succeeding
Business Day. Should the principal of or interest on the Notes or any fee or
other amount payable hereunder become due and payable on other than a Business
Day, payment in respect thereof may be made on the next succeeding Business Day
(except as otherwise specified in the definition of "INTEREST PERIOD"), and such
extension of time shall in such case be included in computing interest, if any,
in connection with such payment.
5.13 PRO RATA TREATMENT. Except as permitted under Section 5.22 or Section
6.2, or as specified in Section 8.2, each Borrowing, each payment and each
prepayment of principal of the Notes, each payment of interest on the Notes,
each payment of any fee or other amount payable hereunder and each reduction of
the Revolving Credit Commitment, Total Term Loan Commitment and Steam Supply
Commitment shall be made pro rata among the Lenders in the proportions that
their Revolving Credit Commitment bears to the total Revolving Credit
Commitment, that their Term Loan Commitment bears to the Total Term Loan
Commitment, or that their Steam Supply Commitment bears to the total Steam
Supply Commitment, as the case may be. Unless the Agent shall have received
notice from the Borrowers prior to the date on which any payment is due to the
Lenders that the Borrowers will not make such payment in full, the Agent may
assume that the Borrowers have made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrowers shall not have so made such
payment in full to the Agent, each Lender shall repay to the Agent forthwith, on
demand, such amount distributed to such Lender together with inter-
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est thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Agent, at the
applicable Contract Rate to such portion of the Revolving Credit Loans, the Term
Loans, or the Steam Supply Loans, as appropriate.
5.14 LENDING OFFICE. Each Lender may (i) designate its principal office or a
foreign branch, subsidiary or affiliate of such Lender as its lending office
(and the office to whose accounts payments are to be credited) for Eurodollar
Loans, (ii) designate its principal office or a domestic branch, subsidiary or
affiliate as its lending office (and the office to whose account payments are to
be credited) for any Alternate Base Rate Loan, and (iii) change its lending
offices from time to time by notice to the Agent and the Borrowers. In such
event, such Lender shall continue to hold each Note evidencing its Loans for the
benefit and account of such foreign branch, subsidiary or affiliate. Each Lender
shall be entitled to fund all or any portion of its Revolving Credit Loans, Term
Loans or Steam Supply Loans in any manner that it deems appropriate, but for the
purposes of this Second Restated Agreement such Lender shall, regardless of such
Lender's actual means of funding, be deemed to have funded its portion of the
Loan in accordance with the Interest Option from time to time selected by
Borrowers.
5.15 RENEWALS OF NOTES. All renewals and rearrangements, if any, of the
Notes shall be deemed to be made pursuant to the Prior Credit Agreements and
this Second Restated Agreement, and accordingly, shall be subject to the terms
and provisions thereof and hereof. The Borrowers shall be deemed to have
ratified, as of the date of such renewal or rearrangement, all of the
representations, covenants and agreements set forth in the Loan Documents.
5.16 TAXES.
A. Any and all payments by Borrowers hereunder or under the Notes shall be
made free and clear of, and without deduction for, any and all present
or future taxes (including, but not limited to, excise taxes), levies,
imposts, deductions, charges or withholdings, and all liabil- ities
with respect thereto ("TAXES"), imposed by any Governmental Authority,
excluding in the case of each Lender and the Agent, taxes imposed upon
its income, assets or operations, and franchise taxes imposed upon it
by any Governmental Authority. If the Borrowers shall be required by
law to deduct any Taxes for which the Borrowers are responsible under
the preceding sentence from or in respect of any sum payable hereunder
or under any Note to any Lender or Agent, (i) the sum payable shall be
increased as may be necessary so that af- ter making all required
deductions (including deductions applicable to additional sums pay-
able under this Section) each Lender and the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrow- ers shall make such deductions,
and (iii) the Borrowers shall pay the full amount deducted to the
relevant Governmental Authority or other authority in ac cordance with
applicable law.
B. The Borrowers shall pay any present or future stamp or documentary
taxes, or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or under the Loan Documents
or from the execution, delivery or registration of, or otherwise with
respect to, this Second Restated Agreement or the other Loan Documents
("OTHER TAXES").
C. The Borrowers and the Guarantors indemnify and agree to hold the Agent
and the Lenders harmless for the full amount of Taxes and Other Taxes
paid by the Agent or any of the
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Lenders or any liability, including penalties and interest, arising
therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted.
D. Without prejudice to the survival of any other agreement, the
agreements and obligations of the Borrowers and the Guarantors
contained in this Section shall survive the payment in full of the
Obligations.
E. Each Lender and the Agent shall use reasonable efforts to avoid or
minimize any amounts which might otherwise be payable pursuant to this
Section (including seeking refunds of any amounts that are reasonably
believed not to have been correctly or legally asserted). Such efforts
shall not, however, require or include the taking of any actions by
such Lender or the Agent that would result in any tax, costs or other
expense to such Lender or the Agent (other than a tax, cost or other
expense for which such Lender or the Agent shall have been reimbursed
or indemnified by the Borrowers pursuant to this Second Restated
Agreement or otherwise) or any action which would or might in the
opinion of such Lender or the Agent have an adverse effect upon its
business, operations or financial condition or otherwise be
disadvantageous to such Lender or the Agent.
5.17 SHARING OF PAYMENTS. If any Lender shall obtain any payment (whether
voluntary or involuntary) in excess of such Lender's Percentage of payments
shared pro rata by all Lenders, such Lender shall forthwith purchase from the
other Lenders such participations in the Loans made by them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them. If all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from the other Lenders
shall be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price to the extent of such recovery, together with an amount equal
to such Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment, to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount recovered. The Borrowers agree
that any Lender purchasing a participation from another Lender pursuant to this
Section may, to the fullest extent permitted by law, exercise all of its rights
of payment (including the right of setoff) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrowers in the amount
of such participation.
5.18 SHARING OF SETOFFS. Each Lender agrees that if it shall, through the
exercise of a right of lien, setoff or counterclaim against the Borrowers,
including, but not limited to, a secured claim under ss.506 of Title 11 of the
U.S. Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable Debtor Law or
otherwise, obtain payment (voluntary or involuntary) in respect of a Note held
by it as a result of which the unpaid principal portion of the Notes held by it
shall be proportionately less than the unpaid principal portion of the Notes
held by any other Lender, it shall be deemed to have simultaneously purchased
from such other Lender a participation in the Notes held by such other Lender,
so that the aggregate unpaid principal amount of the Notes and participations in
Notes held by it shall be in the same proportion to the aggregate unpaid
principal amount of all Notes then outstanding as the principal amount of the
Notes held by it prior to such exercise of lien, setoff or counterclaim was to
the principal amount of all Notes outstanding prior to such exercise of lien,
setoff or counterclaim. If any such purchase or purchases or adjustments shall
be made pursuant to this Section and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest. The Borrowers expressly consent to
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the foregoing arrangements and agree that any Lender holding a participation in
a Note deemed to have been so purchased may exercise any and all rights of lien,
setoff or counterclaim with respect to any and all moneys owing by the Borrowers
to such Lender as fully as if such Lender held a Note in the amount of such
participation.
5.19 COMMITMENT FEES. The Borrowers agree to pay to the Agent for the
account of the Lenders a commitment fee (the "REVOLVING CREDIT COMMITMENT FEE")
for the granting of the Loans computed at a rate per annum equal to one-fourth
(1/4) of one (1) per cent on the average daily un-borrowed amount of the
Revolving Credit Commitment in effect during the period for which payment is
made. Commencing on March 31, 1997, the Revolving Credit Commitment Fee shall be
payable quarterly, in arrears, on (i) the last day of each March, June,
September and December during the Revolving Credit Commitment Period, (ii) the
date of each reduction or termination of the Revolving Credit Commitment of
Lenders hereunder, and (iii) the Commitment Termination Date. After any
reduction of the Revolving Credit Commitment pursuant to Section 2.7, the
Revolving Credit Commitment Fee shall be computed on the Revolving Credit
Commitment of Lenders as so reduced. The Borrowers shall pay to the Agent, for
its sole benefit, a collateral monitoring and administration fee in the amount
of $51,000.00 for the year 1997, of which sum the amount of $35,000.00 was paid
on the Effective Date of the Prior Agreement and there shall be due the amount
of $16,000.00 on the Effective Date of this Second Restated Agreement.
Thereafter, the collateral monitoring and administration fee shall be in the
amount of $60,000.00 per annum payable in advance, on the annual anniversary of
the Effective Date of the Prior Agreement. The Borrowers have paid to the Agent
for the benefit of the Lenders the fees set out and described in the letter
agreement dated January 17, 1997, among Lenders, Safe Seal and Allwaste. For the
entering into of this Second Restated Agreement and the permitting the loans to
the Steam Supply Group, the Borrowers shall pay to the Agent, for the benefit of
the Lenders a commitment fee of $50,000.00 one half of which shall be due and
payable on the Effective Date of this Second Restated Agreement and the balance
of which will be due and payable on the earlier of the IPO and October 31, 1997.
Additionally, the Borrowers agree to pay to the Agent for the account of the
Lenders a commitment fee (the "STEAM SUPPLY COMMITMENT FEE") for the granting of
the Steam Supply Loans computed at a rate per annum equal to one-fourth (1/4) of
one (1) per cent on the average daily un-borrowed amount of the Steam Supply
Commitment in effect during the period for which payment is made. Commencing on
September 30, 1997, the Steam Supply Commitment Fee shall be payable quarterly,
in arrears, on (i) the last day of each March, June, September and December
during the Steam Supply Commitment Period, (ii) the date of each reduction or
termination of the Steam Supply Commitment of Lenders hereunder, and (iii) the
Commitment Termination Date. After any reduction of the Steam Supply Commitment
pursuant to Section 4.6, the Steam Supply Commitment Fee shall be computed on
the Steam Supply Commitment of Lenders as so reduced.
5.20 LETTERS OF CREDIT FEES. At the time a Letter of Credit is issued, the
Borrowers agree to pay to the Agent, for the benefit of the Lenders, Letter of
Credit fees equal to the Applicable Margin for Adjusted LIBOR Rate Loans set out
in Section 5.5.A for the issuing of Letters of Credit. The Borrowers
additionally agree to pay promptly upon demand the amount of any customary fees
and expenses Agent charges for amending Letter of Credit Agreements, for
honoring drafts and draw requests, and taking similar action in connection with
letters of credit.
5.21 CONSEQUENTIAL LOSS. The Borrowers agree to reimburse each Lender for
and against any loss or reasonable expense (including, but not limited to, any
loss or expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to affect or
maintain any Loan or part thereof as a Eurodollar Loan) which such Lender may
sustain or incur as a consequence of any of the following events (regardless of
whether such events occur as a result of the
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occurrence of an Event of Default or the exercise of any right or remedy of the
Agent or the Lenders under this Second Restated Agreement or any other Loan
Document, or at law): (i) any failure of the Borrowers to fulfill on the date of
any Borrowing hereunder the applicable conditions set forth in Article X
applicable to it; (ii) any failure of the Borrowers to borrow hereunder after an
irrevocable Notice of Revolving Credit Advance or Notice of Steam Supply Advance
has been given; (iii) any payment, prepayment or conversion of a Eurodollar Loan
on a date other than the last day of the relevant Interest Period; (iv) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, by notice of prepayment or otherwise); or, (v) the occurrence of
an Event of Default (collectively, "CONSEQUENTIAL LOSS"). Such loss or expense
shall include, without limitation, an amount equal to the excess, if any, of (i)
the amount of interest which would have accrued on the principal amount so paid,
prepaid or converted or not borrowed for the period from the date of such
payment, prepayment or conversion or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow), at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest (as determined by such Lender) that
would be realized by such Lender in reemploying the funds so paid, prepaid or
converted or not borrowed in U.S. Treasury obligations with comparable
maturities for comparable periods. Any such Lender shall provide to the
Borrowers a statement, signed by an officer of such Lender, explaining any loss
or expense and setting forth, if applicable, the computation pursuant to the
preceding sentence, and such statement shall be conclusive absent manifest
error. The Borrowers shall pay such Lender the amount shown as due on any such
statement within ten (10) days after the receipt of the same.
5.22 PAYMENTS IN RESPECT OF INCREASED COSTS.
A. Notwithstanding any other provision hereof, if after the Effective Date
of this Second Restated Agreement any change in applicable law or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) or any
change in GAAP or regulatory accounting principles applicable to the
Agent or any Lender shall (i) impose, modify or make applicable to the
Agent or any Lender any reserve, special deposit or similar requirement
with respect to its obligations hereunder, (ii) impose on the Agent or
any Lender any other condition with respect to its obligations
hereunder, or (iii) subject the Agent or any Lender to any tax (other
than {a} taxes imposed on the overall net income of the Agent or such
Lender, and {b} franchise taxes imposed on the Agent or such Lender, in
either case by the jurisdiction in which the Agent or such Lender has
its principal office or lending office or any political subdivision or
taxing authority of any such jurisdiction), charge, fee, deduction or
withholding of any kind whatsoever, and the result of any of the
foregoing shall be to increase the cost to the Agent hereunder or to
reduce the amount of principal, interest or any fee or compensation
receivable by the Agent or such Lender hereunder, then such additional
amount or amounts as will compensate the Agent or such Lender for such
additional costs or reduction shall be paid to the Agent or such Lender
by the Borrowers. Each Lender agrees to give notice to the Borrowers
and the Agent of any such change in law, regulation, interpretation or
administration with promptness after becoming actually aware thereof
and of the applicability thereof to the Transactions.
B. If, after the Effective Date of this Second Restated Agreement, any
Lender shall have determined that the adoption of any applicable law,
rule, regulation or guideline regarding
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capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its lending
office) with any request or directive 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 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) then from time to time, the Borrowers
shall pay to such Lender such additional amount or amounts as will
compensate the Agent or such Lender for such reduction. Each Lender
agrees to give notice to the Borrowers and the Agent of any adoption
of, change in, or change in interpretation or administration of, any
such law, rule, regulation or guideline with promptness after becoming
actually aware thereof and of the applicability thereof to the
Transactions.
C. A certificate of the Agent or a Lender setting forth such amount or
amounts, supported by calculations as shall be necessary to compensate
the Agent or such Lender as specified in Section 5.22.A and Section
5.22.B shall be delivered to the Borrowers and shall be conclusive and
binding upon the Borrowers absent manifest error. The Borrowers shall
pay the Agent or such Lender the amount shown as due on any such
certificate within ten (10) Business Days after its receipt of the
same.
D. Failure on the part of any Lender or the Agent to demand compensation
for any increased costs, reduction in amounts received or receivable
hereunder or reduction in the rate of return earned on such Lender's
capital, in each case pursuant to Section 5.22.A or Section 5.22.B,
shall not constitute a waiver of the Agent's or such Lender's rights to
demand com- pensation for any increased costs or reduction in amounts
received or receivable or reduc- tion in rate of return pursuant to
Section 5.22.A and Section 5.22.B. The protection under this Section
shall be available to each Lender and the Agent regardless of any
possible con- tention of the invalidity or inapplicability of any law,
regulation or other condition which shall give rise to any demand by
such Lender or the Agent for compensation (but if such law, regulation
or other condition is finally determined to be invalid or inapplicable,
the Agent or Lenders shall promptly refund (without interest) all
amounts paid under this Sec- tion arising from such invalid or
inapplicable law, regulation or other condition).
ARTICLE VI
SPECIAL PROVISIONS FOR EURODOLLAR LOANS
6.1 INADEQUACY OF EURODOLLAR LOAN PRICING. If with respect to any Interest
Period for any Euro- dollar Loan:
A. A Lender determines in good faith (which determination shall be
conclusive absent manifest error) that, by reason of circumstances
affecting the Eurodollar interbank market generally, deposits in
Dollars (in the applicable amounts) are not being offered to the Lender
in the Eurodollar interbank market for such Interest Period; or,
B. A Lender determines in good faith (which determination shall be
conclusive absent manifest error) that (i) the Adjusted LIBOR Rate will
not adequately and fairly reflect the cost to the
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Lender of maintaining or funding such Eurodollar Loan for such Interest
Period, or (ii) reasonable means do not exist for ascertaining the
Adjusted LIBOR Rate, then, such Lender shall so notify the Agent and
the Agent shall forthwith give notice thereof to the Lenders and the
Borrowers. Thereafter, until the Agent notifies the Borrowers that the
circumstances giving rise to such suspension no longer exist, (i) the
obligation of the Lender to make Eurodollar Loans shall be suspended,
and (ii) the Borrowers shall either (a) repay in full the then
outstanding principal amount of the Eurodollar Loans, together with
accrued interest thereon on the last day of the then current Interest
Period applicable to such Eurodollar Loans, or (b) convert such
Eurodollar Loans to Alternate Base Rate Loans in accordance with
Section 5.4.A.(3) and Section 5.4.B.(2) on the last day of the then
current Interest Period applicable to each such Eurodollar Loan.
6.2 ILLEGALITY. If with respect to any Interest Period for any Eurodollar
Loan:
A. A Lender determines in good faith (which determination shall be
conclusive absent manifest error) that any change in any applicable
law, rule or regulation or in the interpretation, application or
administration thereof makes it unlawful, or any central bank or other
Gov- ernmental Authority asserts that it is unlawful for the Lender to
maintain or fund any Loan by means of Dollar deposits obtained in any
Eurodollar interbank market (any of the above being described as a
"EURODOLLAR EVENT"), then, such Lender shall so notify the Agent and
the Agent shall forthwith give notice thereof to the Lenders and the
Borrowers. Upon re- ceipt of such notice, the Borrowers shall either
(i) prepay in full the then outstanding princi- pal amount of the
affected Eurodollar Loans, together with accrued interest thereon, or
(ii) convert the affected Eurodollar Loans to Alternate Base Rate Loans
on either (a) the last day of the then current Interest Period
applicable to each affected Eurodollar Loan if such Lend- er may
lawfully continue to maintain and fund such Eurodollar Loan to such
day, or (b) immediately, if such Lender may not lawfully continue to
fund and maintain such Eurodollar Loans to such day. Upon the
occurrence of any Eurodollar Event, and at any time thereaf- ter so
long as such Eurodollar Event shall continue, the Lender may exercise
the aforesaid option by giving notice thereof to the Agent and the
Borrowers.
B. Any prepayment of any Eurodollar Loan which is required under the
preceding Section shall be made, together with accrued and unpaid
interest and all other amounts payable to the Lender under this Second
Restated Agreement with respect to such prepaid Eurodollar Loan on the
date stated in the notice to the Borrowers referred to above, which
date ("REQUIRED PREPAYMENT DATE") shall be not less than fifteen (15)
days from the date of such notice.
6.3 EFFECT ON INTEREST OPTIONS. If notice has been given pursuant to Section
6.1 or Section 6.2 requiring a type of Eurodollar Loan to be repaid or
converted, then unless and until the Agent notifies the Borrowers that the
circumstances giving rise to such repayment no longer apply requiring such
repayment or conversion, all Loans shall thereafter be Alternate Base Rate
Loans. If the Agent notifies the Borrowers that the circumstances giving rise to
such repayment no longer apply, the Borrowers may thereafter select Loans to be
Eurodollar Loans in accordance with Section 5.4.A.(1) or Section 5.4.B.(1).
6.4 PAYMENTS NOT AT END OF INTEREST PERIOD. If the Borrowers make any
payment of principal with respect to any Adjusted LIBOR Rate Loan on any day
other than the last day of the Interest Period applicable to such Adjusted LIBOR
Rate Loan, the Borrowers shall reimburse the Lenders on
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demand the Consequential Loss incurred by the Lenders as a result of the timing
of such payment. A certificate of a Lender setting forth the basis for the
determination of the amount of Consequential Loss shall be delivered to the
Borrowers and shall, in the absence of manifest error, be conclusive and
binding. Any conversion of an Adjusted LIBOR Rate Loan to a different Interest
Option on any day other than the last day of the Interest Period for such
Adjusted LIBOR Rate shall be deemed a payment for purposes of this Section.
6.5 SURVIVAL OF OBLIGATIONS. Failure on the part of any Lender or the Agent
to demand compensation pursuant to this Article for any increased costs or
reduction in amounts received or receivable with respect to any Interest Period,
shall not constitute a waiver of such Lender's or the Agent's rights to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in rate of return in such Interest Period or in any
other Interest Period. The protection under this Article shall be available to
each Lender and the Agent regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by such Lender or the Agent for compensation. Any
Lender claiming any additional amounts payable pursuant to this Section agrees
to use reasonable efforts (consistent with legal and regulatory restrictions) to
designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, any such
additional amounts and would not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender.
ARTICLE VII
COLLATERAL FOR LOANS
7.1 COLLATERAL FOR LOANS. The Loans are and shall continue to be secured by
the following property (collectively, the "COLLATERAL") and Liens in the
Collateral shall be created by or in the Collateral Documents, including, but
not limited to, those described as follows:
A. Security Agreement in the form of Exhibit attached to the Prior
Agreement duly executed by each Borrower, creating a first priority
lien, mortgage and security interest in and upon all of the Borrower's
present and future Accounts, Inventory, Equipment, furniture, Goods,
Fixtures, General Intangibles, Instruments, margin accounts, tax
refunds, Chattel Paper, drafts, acceptances, Contracts and Contract
Rights, Documents, Title Documents, notes, re- turned and repossessed
Goods and all other personal property or interests in personal prop-
erty, together with all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing (including,
without limitation, proceeds of insurance policies in- suring any of
the foregoing), all books and records (including, without limitation,
customer lists, credit files, computer programs, printouts and other
computer materials and records) pertaining to any of the foregoing, and
all insurance policies insuring any of the foregoing, whether now owned
or hereafter acquired, and wherever located.
B. Security Agreement-Pledge in the form of Exhibit attached to the Prior
Credit Agreements duly executed by Safe Seal and Harley, as applicable,
creating a first priority lien, mortgage and security interest in and
upon all of the outstanding and issued capital stock of Harley, Valve,
Spinsafe, Safe Seal Canada, GSV and PSI (collectively, the "PLEDGED
STOCK").
C. Security Agreement-Collateral Assignment of Note in the form of Exhibit
attached to the Prior Agreement, creating a first priority lien,
mortgage and security interest in the promissory note (the "PLEDGED
NOTE") in the original principal sum of $1,254,566.00, dated
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January 31, 1997, executed by Kirk Nellis payable to the order of
Harley, and all of the Lien Documents described therein.
D. The Oklahoma Mortgage in the form of Exhibit attached to the Prior
Agreement, creating a first priority lien in and upon all interests in
the Mortgaged Property in the State of Oklahoma.
E. Assignment of Leases in the form of Exhibit attached to the Prior
Agreement, creating a first priority lien in and upon all interests in
the Leases in the State of Oklahoma.
F. Act of Collateral Mortgage in the form of Exhibit attached to the Prior
Agreement, creating a first priority lien in and upon all interests in
the Mortgaged Property in the State of Louisiana.
G. Collateral Assignment of Leases and Rents in the form of Exhibit
attached to the Prior Agreement, creating a first priority lien in and
upon all interests in the Leases in the State of Louisiana.
H. Collateral Pledge and Security Agreement in the form of Exhibit
attached to the Prior Agreement, creating a first priority lien in and
upon all interests in the Collateral Mortgage Note.
I. Steam Supply Security Agreement-Collateral Assignment of Note in the
form of Exhibit 7.1.I to this Second Restated Agreement, creating a
first priority lien in and upon all interests in the Steam Supply Note
Receivable and the Steam Supply Loan Documents.
7.2 COLLATERAL DOCUMENTS. Each of the Collateral Documents will be duly
executed by the parties thereto. Each document, including, without limitation,
any Financing Statement, required by the Collateral Documents, under law or
requested by the Agent to be filed, registered or recorded in order to create,
in favor of the Agent for the benefit of the Lenders, a perfected first Lien on
the Collateral described therein, shall be properly filed, registered or
recorded in each jurisdiction in which the filing, registration or recordation
thereof is so required or requested. The Agent shall receive an acknowledgment
copy, or other evidence satisfactory to the Agent, of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
7.3 FURTHER ASSURANCES. The Collateral Documents will contain a description
of the Collateral sufficient to grant to the Agent for the benefit of the
Lenders perfected Liens pursuant to applicable law in all Collateral. Upon the
filing by the Agent of the Financing Statements, the recording of the Mortgages,
and the delivery to the Agent of the Pledged Note and the Pledged Stock, the
Agent will have, for the benefit of the Lenders, perfected first priority Liens
in all Collateral. The Borrowers shall make, execute or endorse, and acknowledge
and deliver or file or cause the same to be done, all vouchers, invoices,
notices, certifications and additional agreements, undertakings, conveyances,
transfers, assignments, Financing Statements or other assurances, and take any
and all such other action, as the Agent may, from time to time, deem necessary
or proper in connection with any of the Loan Documents, or for better assuring
and confirming unto the Agent for the benefit of the Lenders creation of Liens
in all Collateral, or for granting to the Agent for the benefit of the Lenders
any security for the Obligations which the Agent may reasonably request from
time to time.
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7.4 OTHER LOANS. It is agreed that the Collateral and the Collateral
Documents given to secure the Loans shall secure all Obligations, regardless of
how same may arise and all collateral given to secure any other obligations of
any of the Borrowers shall additionally secure the Obligations. Any Default
shall constitute an event of default in all Obligations and the collateral
documents securing the payment of same.
ARTICLE VIII
CUSTODY, INSPECTION, COLLECTION
AND MAINTENANCE OF COLLATERAL
8.1 CASH COLLATERAL ACCOUNT. The Borrowers will maintain the collection
account (the "CASH COLLATERAL ACCOUNT") with Texas Commerce into which account
all payments made on Safe Seal's Accounts will be deposited. The Cash Collateral
Account will be maintained pursuant to the terms of this Second Restated
Agreement and the Lockbox Agreement in the form of Exhibit attached to the Prior
Agreement among the Borrowers, the Agent and Texas Commerce. The Borrowers will
provide written notification to each Account Debtor to remit all payments to the
Cash Collateral Account.
8.2 COLLECTION OF ACCOUNTS. So long as the procedures set forth in this
Article remain in effect, the arrangements between the Agent and the Lenders
with respect to making of Revolving Credit Loans shall be handled in the manner
set out herein.
A. The Borrowers will, at Borrowers' cost and expense, (i) arrange for
remittances on Ac- counts to be made directly to the Cash Collateral
Account or in such other manner as the Agent may direct, (ii) except
for disputed items, promptly deposit all payments received by the
Borrowers on account of Accounts, whether in the form of cash, checks,
notes, drafts, bills of exchange, money orders or otherwise, into the
Cash Collateral Account in original form received (but with any
endorsements of the Borrowers necessary for deposit or collec- tion),
and on the date of receipt thereof, and (iii) deposit or cause to be
deposited into the Cash Collateral Account all other sums paid or
payable to the Borrowers from any source, including, but not limited
to, insurance proceeds and condemnation awards. The deposits into the
Cash Collateral Account will be subject to withdrawal only by the Agent
as herein- after provided. Until such payments are deposited, such
payments shall be deemed to be held in trust by the Borrowers for and
as the Lenders' property and shall not be commingled with the
Borrowers' other accounts, all of which will be maintained in
accordance with Section 9.1.O.
B. All remittances and payments that are deposited in accordance with the
foregoing will be immediately applied by the Agent to reduce the
outstanding balance of the Revolving Credit Loans, subject to the
continued accrual of interest on such remittances and payments for two
(2) Business Days (or three {3} Business Days in the case of
remittances and payments received after 12:00 noon, New York, New York
time) and in any event subject to final collection in cash of the item
deposited.
C. The Agent shall not, however, be required to credit Borrowers' account
for the amount of any instrument which is unsatisfactory to the Agent
and the Agent may charge the Borrowers' account for the amount of any
instrument which is returned to the Agent unpaid.
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D. On each Wednesday that is a Business Day (or on the next Business Day
if a Wednesday is not a Business Day) during the term of this Second
Restated Agreement, the Agent will provide each Lender with a weekly
statement setting out, for the period since the last statement, the
aggregate principal amount of new Revolving Credit Loans made to the
Borrowers, the amount of remittances and payments actually collected
and applied by the Agent to reduce the outstanding principal balance of
the Revolving Credit Loans during such period and the outstanding
principal balance of the Revolving Credit Loans at the end of such
period. If a Lender's pro rata share (based on such Lender's Revolving
Credit Commitment) of Revolving Credit Loans made during such weekly
period exceeds such Lender's pro rata share of remittances and payments
applied to reduce the Revolving Credit Loans during such weekly period,
the difference will be paid in same day funds by such Lender to the
Agent, and if such Lender's pro rata share of remittances and payments
applied to reduce the Revolving Credit Loans during such weekly period
exceeds such Lender's pro rata share of Revolving Credit Loans made
during such period, the difference will be paid in same day funds by
the Agent to such Lender. Payments required hereunder will be due and
payable on the same Business Day.
E. Each month the Agent shall render to the Borrowers a statement of the
Borrowers' account, which shall constitute an account stated and shall
be deemed to be correct and accepted by and be binding upon the
Borrowers unless the Agent receives a written statement of the
Borrowers' exceptions within thirty (30) days after such statement was
rendered to the Borrowers.
F. The Borrowers shall not, without the Agent's prior written consent,
which the Agent may withhold in the Agent's business judgment, with
respect to any single Account in excess of $2,500.00 or any combination
of Accounts in excess of $50,000.00 in any Fiscal Year, grant any
extension of the time of payment of any Accounts, compromise, adjust or
settle any Accounts for less than the full amount thereof, release, in
whole or in part, any Person or property liable for the payment
thereof, extend the time for payment thereof, or allow any credit or
discount whatsoever thereon except as permitted under Section 9.3.P.
G. If at anytime during the term of this Second Restated Agreement, the
Agent permits the Borrowers to collect any of the proceeds of the
Collateral, then until the authority of the Borrowers to collect the
proceeds of the Collateral is terminated by the Agent, the Borrowers
will, at the Borrowers' sole cost and expense, but on the Agent's
behalf and for the Agent's account, collect as the Lenders' property
and hold in trust for the Lenders, all amounts unpaid on Collateral,
and shall not commingle such collections with funds of the Borrowers,
except to pay the Obligations.
H. Upon the occurrence and continuance of an Event of Default, the Agent
may (and upon the determination of the Lenders, shall) send a notice of
assignment and/or notice of the Lenders' security interest to any and
all Account Debtors or any third party holding or otherwise concerned
with any of the Collateral, and thereafter the Agent shall have the
sole right to collect the Accounts and/or take possession of the
Collateral and the books and records relating thereto.
I. At any time after the occurrence and during the continuance of an Event
of Default, the Agent may, without notice to or consent from the
Borrowers sue upon or otherwise collect,
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extend the time of payment of, or compromise or settle for cash, credit
or otherwise upon any terms, any of the Accounts or any securities,
instruments or insurance applicable thereto and/or release the Account
Debtor thereon. The Agent is authorized and empowered to accept the
return of the goods represented by any of the Accounts. The Agent and
the Lenders shall not, under any circumstances or in any event
whatsoever, have any liability for any error, omission or delay of any
kind occurring in the settlement, collection or payment of any of the
Accounts or any instrument received in payment thereof, or for any
damage resulting therefrom.
8.3 VERIFICATION OF ACCOUNTS. At the Agent's request, the Borrowers will,
upon the creation of Accounts, or at such intervals as the Agent may require,
provide the Agent with (i) confirmatory assignment schedules, (ii) copies of
Account Debtor's invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Accounts as the
Agent may reasonably require. The Agent shall have the right to confirm and
verify all Accounts and do whatever the Agent may reasonably deem necessary to
protect the Lenders' interests. The items to be provided under this Section are
to be in forms satisfactory to the Agent and executed by the Borrowers and
delivered to the Agent, from time to time, solely for the Agent's convenience in
maintaining records of the Collateral. The failure to deliver any of such items
to the Agent shall not affect, terminate, modify or otherwise limit the Liens in
favor of the Agent for the benefit of the Lenders.
8.4 SALES OF INVENTORY. So long as there exists no Default, Inventory
subject to the Liens in favor of the Agent for the benefit of the Lenders may be
sold by the Borrowers in the ordinary course of business, but shall not
otherwise be taken or removed from the Premises or the Mortgaged Property. If
there shall occur a Default, the then Inventory shall not be sold, taken or
removed, except with the Agent's prior consent and upon substitution of other
Collateral in form and amount satisfactory to the Agent, in the Agent's business
judgment or upon payment of an amount satisfactory to the Agent to be applied to
the Obligations in such order as the Agent, in the Agent's sole discretion, may
determine.
8.5 INSPECTIONS AND FIELD EXAMINATIONS. At all times, the Agent and any of
the Lenders shall have full access to, and the right to examine, check, inspect
and make abstracts and copies from the books, records, audits, correspondence
and all other papers relating to the Collateral. The Agent or any of the
Lenders, and their respective agents, may enter upon any of the Premises or the
Mortgaged Property at any time during business hours and at any other reasonable
time, and from time to time, for the purpose of inspecting the Collateral and
any and all records pertaining thereto. The Agent shall have the right to make
field examinations, as often as it may request (but initially scheduled for
three (3) times in each Fiscal Year) the existence and condition of the
Accounts, Inventory, books and records of the Borrowers and to review compliance
with the terms and conditions of this Second Restated Agreement and the other
Loan Documents. If there shall occur an Event of Default, the Agent is
authorized to make as many field examinations, as it may reasonably require. The
Borrowers shall permit any authorized representative designated by the Agent to
discuss the affairs, finances and condition of the Borrowers with the
appropriate Financial Officer and such other officers of the Borrowers as the
Agent shall deem appropriate and the Borrowers' independent public accountants,
as applicable. The Agent agrees that it shall schedule any meeting with any such
independent public accountant through a Responsible Officer of Safe Seal who
shall have the right to be present at any such meeting. The Borrowers
irrevocably authorize and direct all accountants and auditors employed by the
Borrowers to exhibit and deliver to the Agent at any time during the term of
this Second Restated Agreement copies of any of the Financial Statements, trial
balances or other accounting
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records of any sort of the Borrowers in the accountant's or auditor's
possession, and to disclose to the Agent any information they may have
concerning the financial status and business operations. The Borrowers authorize
all Governmental Authority to furnish to the Agent copies of reports or
examinations relating to a Borrower, whether made by the Borrowers or otherwise.
8.6 REPORTS. The Borrowers will, daily on each Business Day, deliver to the
Agent, in form and detail satisfactory to the Agent, (i) confirmatory assignment
schedules, (ii) the Borrowers' daily invoice register with respect to sales for
the preceding day, (iii) a collections report for the preceding day, (iv) the
Borrowers' daily debit and credit adjustments journal, and (v) with any
supporting documentation reasonably requested by the Agent relating to the
foregoing. The Borrowers will, immediately upon learning thereof, report to the
Agent all matters materially affecting the value, enforceability or
collectibility of any of the Collateral such as the reclamation, repossession or
return to the Borrowers of goods and claims or disputes asserted by any Account
Debtor. In addition, the Borrowers shall notify the Agent of any noncompliance
in respect of the representations, warranties and covenants contained in Section
11.3.
8.7 COMPLIANCE WITH LAW. The Borrowers shall comply with all actions, rules,
regulations and orders of any Governmental Authority applicable to the
Collateral or any part thereof or to the operation of the businesses of the
Borrowers. The Borrowers may, however, contest or dispute any actions, rules,
regulations, orders and directions of a Governmental Authority in any reasonable
manner, provided the Agent is satisfied that the contest or dispute does not
affect the Agent's Liens or have a Material Adverse Effect. Upon the occurrence
and during the continuance of an Event of Default: (i) if any of the Accounts
includes a charge for any Tax, the Agent is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the Governmental
Authority for the account of the Borrowers and to charge the Borrowers' account
therefor; and, (ii) the Borrowers shall notify the Agent if any Accounts include
any Tax and, in the absence of such notice, the Agent shall have the right to
retain the full proceeds of such Accounts and shall not be liable for any taxes
that may be due from the Borrowers by reason of the sale and delivery creating
such Accounts.
8.8 ACCESS. So long as amounts are owing under the Obligations, the Agent:
A. May use any owned or leased lifts, hoists, trucks and other facilities
or equipment for han- dling or removing the Collateral; and,
B. Shall have, and is hereby granted, a right of ingress and egress to and
through any owned or leased property, including the Premises and the
Mortgaged Property.
8.9 PROTECTION. At any time there shall be an Event of Default, the Agent
may, at any time, take such steps as the Agent deems necessary to protect the
Agent's interest in and to preserve the Collateral, including the hiring of
security guards or the placing of other security protection measures as the
Agent may deem appropriate. The Agent may elect to employ and maintain at the
Premises or the Mortgaged Property a custodian who shall have full authority to
do all acts necessary to protect the Agent's interest in the Collateral. The
Agent may lease warehouse facilities to which the Agent may move all or part of
the Collateral. The Borrowers agree to cooperate fully with all of the Agent's
efforts to preserve the Collateral and will take such actions necessary to
preserve the Collateral as the Agent may direct. All of the Agent's reasonable
expenses of preserving the Collateral, including any expenses relating to the
bonding of a custodian, shall be charged to the Borrowers' account and added to
the Obligations. The Agent shall not be responsible or liable for any shortage,
discrepancy, dam-
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age, loss or destruction of any part of the Collateral wherever the same may be
located and regardless of the cause thereof.
8.10 RIGHT TO RECEIVE. The Agent shall have the right to receive, endorse,
assign and/or deliver in the names of the Agent and the Borrowers, any and all
checks, drafts and other instruments for the payment of money relating to the
Accounts. The Borrowers waive notice of presentment, protest and of non-payment
of any instrument so endorsed. The Borrowers constitute the Agent or the Agent's
designee as Borrowers' attorney-in-fact with power to: (i) endorse Borrowers'
names upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral that may come into its possession; (ii) sign
Borrowers' names on any invoice or bill of lading relating to any Accounts,
drafts against Account Debtors, assignments and verifications of Accounts and
notices to Account Debtors; (iii) send verifications of Accounts to any Account
Debtor; (iv) upon the occurrence of an Event of Default, notify the U.S. Postal
Service to change the address for delivery of mail addressed to the Borrowers to
such address as the Agent may designate; and, (v) do all other acts and things
necessary to preserve, collect, or perfect the Agent's interest in the
Collateral and carry out this Second Restated Agreement. All acts of said
attorney or designee are hereby ratified and approved and said attorney or
designee shall not be liable for any acts of omission or commission, for any
error of judgment or for any mistake of fact or law. This power of attorney is
coupled with an interest and is irrevocable until all of the Obligations are
paid in full and this Second Restated Agreement and the Total Commitment is
terminated.
8.11 STEAM SUPPLY CASH COLLATERAL ACCOUNT. The Borrowers will cause the
Steam Supply Group to maintain a collection account (the "STEAM SUPPLY CASH
COLLATERAL ACCOUNT") with Texas Commerce into which account all payments made on
the Steam Supply Group's Accounts will be deposited. The Steam Supply Cash
Collateral Account will be maintained pursuant to the terms of the Steam Supply
Credit Agreement and the Steam Supply Lockbox Agreement as set out in the Steam
Supply Credit Agreement. The Borrowers will cause the Steam Supply Group to
provide written notification to each Account Debtor of the Steam Supply Group to
remit all payments to the Steam Supply Cash Collateral Account. The Borrowers
will comply and cause the Steam Supply Group to comply with all provisions of
the Steam Supply Credit Agreement.
ARTICLE IX
COVENANTS
9.1 AFFIRMATIVE COVENANTS. Until the fulfillment of all Obligations, unless
the Agent and the Lenders shall otherwise consent in writing, the Borrowers will
perform and comply with the following covenants:
A. The Borrowers shall furnish to the Agent and each of the Lenders:
(1) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, audited, consolidated
Financial Statements of the Borrowers and the Consolidated Subsidiaries
consisting of statements of income, stockholder's equity and cash flow
for such Fiscal Year and a balance sheet as of the end of such Fiscal
Year, setting forth, in each case, in comparative form, corresponding
figures from the immediately preceding annual audit, accompanied by
supporting schedules required by GAAP, all in reasonable detail and
satisfactory in scope to the Agent, as fairly presenting the financial
position of the Borrowers and the Consolidated Subsidiaries as of the
dates indicated in accordance
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with GAAP, together with an opinion thereon, without material
qualifications or exceptions certified by independent certified public
accountants selected by the Borrowers and satisfactory to the Agent,
and the consolidating Financial Statements of each Consolidated
Subsidiary;
(2) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, the auditors' management
report, and promptly upon receipt thereof, each written report
submitted to the Borrowers by independent accountants made in any
annual, quarterly or special audit.
(3) Within thirty (30) days after the end of each calendar month, an
unaudited balance sheet as of the end of such calendar month and the
related statements of income, and stockholder's equity and setting
forth, the amounts for such calendar month and the Fiscal Year to date,
prepared in accordance with GAAP, and certified by the Financial
Officer of Safe Seal as fairly presenting the financial position of the
Borrowers as of the dates indicated, subject to changes resulting from
audit and normal year-end adjustment, and (i) commencing on September
30, 1997, and for each quarter-annual period thereafter until the
anniversary date of the Effective Date of the Prior Agreement and
monthly after such date, the Financial Statements shall include
statements of cash flows, and (ii) commencing on the anniversary date
of the Effective Date of the Prior Agreement, the Financial Statements
shall set forth amounts for the corresponding periods in the prior
Fiscal Year, in comparative form;
(4) As soon as possible, but in any event within fifteen (15) days
after the end of each calendar month, a consolidated aging and listing
of all Accounts, Eligible Accounts and all accounts payable for such
month certified as being true and correct by the Financial Officer of
Safe Seal.
(5) Within fifteen (15) days after the end of each calendar month, an
Inventory Designation Report;
(6) On the Effective Date of the Prior Agreement and within thirty (30)
days after the end of each calendar month, Safe Seal will provide to
the Agent (i) a Certificate of Compliance (with an attached Borrowing
Base Certificate) in the form of Exhibit attached to the Restated
Agreement, signed by the Financial Officer of Safe Seal certifying that
no Events of Default have occurred and the Borrowers are in compliance
with the covenants set out in Section 9.2 (which annual Certificate of
Compliance with respect to the calculation of the covenants set out in
Section 9.2 shall be signed by the Borrowers' accountants), calculating
the Borrowing Base and demonstrating compliance as at the end of such
month with the Availability requirements, and (ii) together with such
payment, if any, as may be necessary to bring the Availability to zero;
(7) Within thirty (30) days prior to the end of each Fiscal Year, a
summary of business plans and financial operation projections
(including, without limitation, with respect to Capital Expenditures)
for the Borrowers for the next Fiscal Year (including quarterly balance
sheets, statements of income and of cash flow) and annual projections
for the next following Fiscal Year prepared by management and in form,
substance and detail (including, without limitation, principal
assumptions) satisfactory to the Agent;
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(8) As soon as practicable, copies of all reports, forms, filings,
documents and financial information submitted to any Governmental
Authority and/or the Borrowers' shareholders;
(9) As soon as possible, copies of the Federal income tax return and
all extensions thereof of the Borrowers for the current Fiscal Year
then ended, certified as being true and correct by the Financial
Officer of Safe Seal; and,
(10) From time to time, such further information regarding the
business, affairs and financial condition of the Borrowers as the Agent
may reasonably request.
B. The Borrowers shall cause the Steam Supply Group to comply with the
reporting requirements set out in the Steam Supply Credit Agreement
comparable to the provisions of Section 9.1.A, and the Borrowers will
deliver all of same to the Agent within the time periods required
therein.
C. The Borrowers shall, promptly upon learning thereof: (i) inform the
Agent, in writing, of any material delay in the Borrowers' performance
of any Borrowers' obligations to any Account Debtor or of any assertion
of any claims, setoffs or counterclaims by any Account Debtor; and,
(ii) furnish to and inform the Agent of all material adverse
information relating to the financial condition of any Account Debtor.
D. The Borrowers shall comply with all Requirements of any Governmental
Authority, including, but expressly not limited to Environmental Laws
applicable to the Premises, the Mortgaged Property, any other property
owned by the Borrowers, or any parts thereof, and the Occupational
Safety and Health Act of 1970 ("OSHA"), if the failure to be in
compliance would have a Material Adverse Effect.
E. Each Borrowers will, at all times, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect, all
Permits, franchises, patents, copyrights, trademarks and trade names
material to the conduct of their businesses.
F. The Borrowers shall act prudently and in accordance with customary
industry standards in managing or operating any Borrowers' assets,
properties, business and investments. The Borrowers shall keep in good
working order and condition, ordinary wear and tear excepted, all of
their assets and properties which are necessary to the conduct of their
businesses. The Borrowers shall maintain and operate their business in
the same general manner in which presently conducted and operated.
G. The Borrowers will maintain with financially sound, responsible and
reputable insurance companies insurance against such risks, and in such
amounts and with co-insurance and deductibles as are satisfactory to
the Agent and as otherwise are usually carried by owners of similar
businesses and properties in the same general areas in which a Borrower
operates, and at least in the amounts and types presently carried by
the Borrowers. All insurance covering tangible personal property
subject to Liens in favor of the Agent for the benefit of the Lenders
granted pursuant to the Collateral Documents shall provide that, in the
case of each separate loss, the full amount of insurance proceeds shall
be payable to the Agent and shall further provide for at least thirty
(30) days prior written notice to the Agent of the cancellation or
substantial modification thereof. The Borrowers shall cause the
insurance
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policies or proper certificates evidencing the same to be delivered to
the Agent. If the Borrowers shall fail to obtain insurance as herein
provided, or to keep the same in force, the Agent may obtain such
insurance and pay the premiums therefor and charge the Borrowers'
accounts therefor, and such expenses so paid shall be part of the
Obligations.
H. Each Borrower will continue to be a corporation duly incorporated and
existing in good standing under the laws of the state of its
incorporation and will continue to be duly licensed or qualified in all
jurisdictions wherein the character of the property owned or leased by
it or the nature of the business transacted by it makes licensing or
qualification necessary, and the failure to do so would have a Material
Adverse Effect.
I. Each Borrower will promptly inform the Agent of the creation or
acquisition of any direct or indirect Subsidiary. The Borrowers shall
cause each (i) Subsidiary not in existence on the Effective Date of the
Prior Agreement, or (ii) inactive Subsidiary existing on the Effec-
tive Date of the Prior Agreement which becomes active with the consent
of the Lenders, to become a Borrower or a Guarantor, and to execute the
Collateral Documents or execute a Guaranty Agreement, as applicable,
and cause the direct parent of each such Subsidiary to pledge all of
the capital stock of such Subsidiary pursuant to a Security
Agreement-Pledge in the form attached to the Restated Agreement and
cause each such Subsidiary to pledge its accounts receivable and all
other assets pursuant to the Collateral Documents.
J. The Borrowers shall pay and discharge all taxes, assessments and
governmental charges or levies including, but expressly not limited to,
Taxes, prior to the date on which penalties or liens attach thereto and
become of public record, except such Taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. The Borrowers shall pay all lawful claims for labor,
materials and supplies, unless such claims are being contested in good
faith, and which, if unpaid and in excess of $25,000.00 in the
aggregate, might become a Lien or charge on such Person's properties.
K. The Borrowers shall give the Agent prompt written notice of (i) any IRS
audit of any of the Borrowers, (ii) of the filing or commencement of
any action, suit, or administrative pro- ceeding against any of the
Borrowers, whether at law or in equity or by or before any Gov-
ernmental Authority, (iii) any Reportable Event, or (iv) violations of
any Requirement (any of which (a) is material and is brought by or on
behalf of any Person, or in which injunctive or other equitable relief
is sought, and (b) it is probable (within the meaning of Statement of
Financial Accounting Standards No. 5 promulgated by FASB) that there
will be an adverse determination and which, if adversely determined,
would (x) reasonably be expected to result in liability in an aggregate
amount of $25,000.00 or more, not reimbursable by insur- ance, or (y)
materially impair the ability of such Person to perform its obligations
under any of the Loan Documents to which it is a party.
L. The Borrowers will furnish to the Agent prompt notice of any
development in the business, affairs or financial condition of the
Borrowers which has had or which is likely, in the judgment of any
Responsible Officer of the Borrowers, to have, a Material Adverse
Effect.
M. The Borrowers will, within one hundred twenty (120) days of the
Effective Date of the Prior Agreement, enter into an Interest Rate
Protection Agreement for no less than
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$6,500,000.00 for a tenure and at a spread on the Adjusted LIBOR Rate,
on terms and conditions and within a party acceptable to the Agent.
N. The Borrowers will furnish to the Agent prompt notice of the issuance
by any Governmental Authority of any injunction, order, decision or
other restraint prohibiting, or having the effect of prohibiting, the
making of the Loans or occurrence of other Advances, or invalidating,
or having the effect of invalidating, any provision of the Loan
Documents, or the initiation of any litigation or similar proceeding
seeking any such injunction, order, decision or other restraint.
O. The Borrowers will maintain all operating accounts (other than accounts
maintained at other business locations provided that aggregate balances
in all such other accounts do not exceed $25,000.00 at any time
outstanding but no more than $10,000.00 in any one account) and cash
management arrangements with the Agent or Texas Commerce.
P. The Borrowers will pay in full all reasonable and necessary expenses,
including legal expenses and attorney's fees, of the Agent or any of
the Lenders which have been or may be incurred by the Agent or any of
the Lenders in connection with the preparation of the Loan Documents,
the lending hereunder, the collection or enforcement of the Obligations
and the recording and filing and re-recording and re-filing of any such
document and the release of any of the Collateral.
Q. Except for the filing of continuation statements and the making of
other filings by the Agent as secured party or assignee, at all times
take all actions necessary to maintain the Liens and security interests
provided for under or pursuant to this Second Restated Agreement and
the Collateral Documents as valid and perfected first priority Liens on
the Collateral intended to be covered thereby (subject only to the
Permitted Liens) and supply all information to the Agent necessary for
such maintenance.
R. The Borrowers will make full and timely payment of the Obligations
whether now existing or hereafter arising, and duly comply with all the
terms and covenants contained in this Second Restated Agreement
(including, without limitation, the Borrowing limitations and Mandatory
Prepayments) and in each of the other Loan Documents, all at the times
and places and in the manner set forth therein.
S. The Borrowers confirm the obligations of the Borrowers contained in the
Hazardous Materials Indemnification Agreement pursuant to the Prior
Agreement.
T. Harley confirms that it has entered into an Operations and Maintenance
Plan, a true and correct copy of which has been provided to the Agent,
as required by the Prior Agreement and that Harley has and is
continuing to perform the terms and conditions of the Operations and
Maintenance Plan.
9.2 FINANCIAL COVENANTS. Until the fulfillment of all Obligations unless the
Lenders shall otherwise consent in writing, Borrowers shall maintain the
following financial covenants.
A. The Borrowers shall have on a consolidated basis, and shall maintain a
Net Worth in the following amounts during the following periods:
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PERIOD AMOUNT
------ ------
Effective Date through December 30, 1997 $2,300,000.00
December 31, 1997 through June 29, 1998 $4,130,000.00
June 30, 1998 through December 30, 1998 $4,830,000.00
December 31, 1999 through June 29, 1999 $5,730,000.00
June 30, 1999 through December 30, 1999 $6,930,000.00
On and after December 31, 1999 $8,230,000.00
It is understood that Safe Seal has granted to certain employees
warrants and options to purchase shares in Safe Seal. Safe Seal has
proposed to redeem the warrants and options and in connection
therewith, will have to take a current charge on Net Income.
Notwithstanding the foregoing Net Worth requirements, Safe Seal may
redeem the warrants and options provided that the charge is not in
excess of $1,500,000.00 in the aggregate, and further expressly
provided that Safe Seal's obligations to fund the redemption is
contingent upon a successful initial public offering of Safe Seal's
stock. If Safe Seal enters into agreements to redeem its stock as
herein provided, the Net Worth requirements will be reduced by the
amount of the current charge required to be recognized, not to exceed
however, $1,500,000.00. If at any time all or any portion of the charge
is reversed, the Net Worth requirements will be increased by the amount
of the current charge which is reversed. Defaults, if any, of the
Borrowers in the foregoing covenant required in the Prior Credit
Agreements are waived by the Lenders.
B. The Borrowers shall not permit the ratio ("DEBT SERVICE COVERAGE
RATIO") of (i) Funds Flow From Operations MINUS Capital Expenditures
for each period consisting of four (4) ----- consecutive fiscal
quarters to (ii) the sum of (a) the aggregate payments made or
scheduled to be made during such period on Indebtedness, (b) the
aggregate payments made or scheduled to be made during such period on
Capital Leases, and (c) Dividends, to be less 1.25:1.00 for any fiscal
quarter period. The Debt Service Coverage Ratio will be determined
quarterly from the Financial Statements of the Borrowers most recently
delivered pursuant to Section 9.1.A.(3) at the end of each fiscal
quarter for the preceding consecutive twelve (12) month period;
provided, further, for the first Fiscal Year, the Debt Service Coverage
Ratio will be determined quarterly, at the end of each fiscal quarter,
for the Fiscal Year to date.
C. Each of the Borrowers shall not permit Availability to be less than zero
at any time.
9.3 OTHER COVENANTS. Until the fulfillment of all Obligations, unless the
Agent and the Lenders shall otherwise consent in writing, Borrowers will perform
and comply with the following covenants:
A. The Borrowers will not create, incur, assume or suffer to exist
Indebtedness, except (i) the Indebtedness ("SCHEDULED INDEBTEDNESS")
described in the Restated Agreement, (ii) the Loans; (iii) current
accounts payable and other current obligations (other than for borrowed
money) arising out of transactions in the ordinary course of business;
and, (iv) subject to Section 9.3.D and Section 8.3.E, (a) Indebtedness
incurred in connection with the acquisition of Equipment or other
assets, or (b) Rentals.
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B. The Borrowers will not incur, create, assume or permit to exist any
Lien on any of its property or assets (including the stock of any
direct or indirect Subsidiary), whether owned at the date hereof or
hereafter acquired, or assign or convey any rights to or security
interests in any future revenues, except for (i) the Liens ("SCHEDULED
LIENS") described in Schedule 9.3.B and Section 9.3.E, and (ii) the
Permitted Liens.
C. The Borrowers will not (i) pay or modify, amend or otherwise alter the
terms and provisions of any Subordinated Indebtedness, (ii) directly or
indirectly prepay, redeem, purchase or retire any Indebtedness other
than Indebtedness incurred hereunder and Scheduled Indebtedness (except
as otherwise permitted hereunder), (iii) execute a Guaranty (except in
favor of the Lenders), or (iv) otherwise in any manner directly or
indirectly become or be responsible for Indebtedness (including, but
not limited to, working capital maintenance and take or pay contracts)
of any other Person.
D. For each Fiscal Year, the Borrowers will not expend or enter into the
commitment to expend, whether by Capital Lease (but only with respect
to the obligations under the Capital Lease accruing in such Fiscal
Year) or Capital Expenditure, an amount in the aggregate exceeding
$800,000.00.
E. For each Fiscal Year, the Borrowers will not expend or enter into the
commitment to expend by Capital Lease an amount in the aggregate
exceeding $100,000.00.
F. The Borrowers will not (i) lend or advance any money, credit or
property to any Person, or (ii) make or have outstanding any
Investments in any Person, except Temporary Cash Investments and such
other "CASH EQUIVALENT" investments as the Lenders may, from time to
time, approve.
G. The Borrowers will not, and will not permit any Subsidiary to, (i)
declare or pay any Dividends, (ii) dissolve or liquidate, or (iii)
become a party of any merger or consolidation, or purchase, lease or
otherwise acquire all or substantially all of the assets or capital
stock of any Person, except that Safe Seal may pay to Allwaste a
Dividend on preferred stock of Safe Seal owned by Allwaste in amounts
not exceeding $50,000.00 per fiscal quarter of Safe Seal and in any
Fiscal Year, a total of $200,000.00.
H. None of the Borrowers will issue, sell or otherwise dispose of any
shares of its capital stock or other securities, or rights, warrants or
options to purchase or acquire any shares or securities.
I. None of the Borrowers will amend its organizational documents,
including but not limited to, Articles or Certificate of Incorporation
and bylaws.
J. None of the Borrowers will change its name, fiscal year (except to the
Fiscal Year), current tax status or method of accounting except as
required by GAAP. A Borrower may change its name if the Borrowers have
given the Agent sixty (60) days prior notice of such name change and
there shall have been taken such action as the Agent deems necessary to
continue the perfection of the Liens securing payment of the
Obligations.
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K. None of the Borrowers will pay any management fees to or enter into any
transaction with any Affiliates, other than transactions in the
ordinary course of business and upon fair and reasonable terms not
materially less favorable than could be obtained in an arm's-length
transaction with a Person that was not an Affiliate.
L. None of the Borrowers will engage in any other line of business or
business venture, including, but expressly not limited to, any joint
ventures, partnerships or other ventures, other than those presently
engaged or those which are directly related thereto, or change any
method of operation or manner of doing business in any material
respect.
M. None of the Borrowers will (i) use proceeds of any Loan to acquire any
security in any transaction which is subject to ss.13 or ss.14 of the
Securities Exchange Act of 1934, including particularly (but without
limitation) ss.13(d) and ss.14(d) thereof, or (ii) permit the proceeds
of any Advance to be used for any purpose which is or could become a
violation of, or is inconsistent with, Regulation G, T, U or X of the
Board.
N. None of the Borrowers will sell, assign, convey, exchange, lease or
otherwise dispose of any of its properties, rights, assets or business,
whether now owned or hereafter acquired, except in the ordinary course
of business and for a fair consideration.
O. None of the Borrowers will enter into any arrangement, directly or
indirectly, with any Person whereby the Borrowers shall sell or
transfer any property, real or personal, and used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent
or lease such property or other property which the Borrowers intends to
use for substantially the same purpose or purposes as the property
being sold or transferred.
P. None of the Borrowers will sell, assign, discount, transfer, or
otherwise dispose of any Accounts, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or
without recourse, except (i) for the purpose of collection or
settlement in the ordinary course of business, or (ii) the sale of any
such accounts to the Agent or any of the Lenders.
9.4 ERISA COMPLIANCE. Borrowers shall, and shall cause each ERISA Affiliate
to:
A. At all times, make prompt payment of all contributions required under
all Employee Plans and required to meet the minimum funding standard
set forth in ERISA with respect to all Employee Plans;
B. With respect to any Pension Plan, not permit to exist any material
"ACCUMULATED FUNDING DEFICIENCY" (within the meaning of ss.302 of ERISA
and ss.412 of the Code), whether or not waived, with respect thereto;
C. Not engage in any transaction in connection with which the Borrowers or
any ERISA Affiliate could be subject to either a material civil penalty
assessed pursuant to the provisions of ss.502 of ERISA or a material
tax imposed under the provisions of ss.4975 of the Code;
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D. Not terminate any Pension Plan in a "DISTRESS TERMINATION" under
ss.4041 of ERISA, or take any other action which could result in a
material liability of the Borrowers or any ERISA Affiliate to the PBGC;
E. Not adopt an amendment to any Pension Plan requiring the provision of
security under ss.307 of ERISA or ss.40(a)(29) of the Code;
F. Within thirty (30) days after the filing thereof, furnish to the Agent
each annual report/return (Form 5500 Series), as well as all schedules
and attachments required to be filed with the Department of Labor
and/or the IRS pursuant to ERISA, and the regulations promulgated
thereunder, in connection with each Employee Plan for each Employee
Plan year;
G. Notify the Agent immediately of any fact, including, but not limited
to, any Reportable Event arising in connection with any Employee Plan,
which might constitute grounds for termination thereof by the PBGC or
for the appointment by the appropriate U.S. District Court of a trustee
to administer an Employee Plan, together with a statement, if requested
by the Agent, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto; and,
H. Furnish to the Agent, upon request, such additional information
concerning any Employee Plan as may be requested.
9.5 INDEMNITY. EACH LOAN PARTY, JOINTLY AND SEVERALLY, INDEMNIFY AND SHALL
SAVE, AND HOLD THE AGENT AND THE LENDERS (INDIVIDUALLY, AN "INDEMNITEE" AND
COLLECTIVELY, THE "INDEMNITEES") FROM AND AGAINST THE FOLLOWING (EACH A
"CLAIM"): (I) ANY AND ALL CLAIMS, DEMANDS, ACTIONS, OR CAUSES OF ACTION THAT ARE
ASSERTED AGAINST ANY INDEMNITEE BY ANY PERSON IF THE CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION DIRECTLY OR INDIRECTLY RELATES TO A CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION THAT THE PERSON ASSERTS OR MAY ASSERT AGAINST A LOAN PARTY (II)
ANY AND ALL CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION THAT ARE ASSERTED
AGAINST ANY INDEMNITEE IF THE CLAIM, DEMAND, ACTION OR CAUSE OF ACTION DIRECTLY
OR INDIRECTLY RELATES TO THE COMMITMENT, THE USE OF PROCEEDS OF THE LOANS, OR
THE RELATIONSHIP OF A LOAN PARTY AND THE AGENT OR ANY OF THE LENDERS UNDER THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED PURSUANT TO THIS AGREEMENT; (III) ANY
ADMINISTRATIVE OR INVESTIGATIVE PROCEEDING BY ANY GOVERNMENTAL AUTHORITY
DIRECTLY OR INDIRECTLY RELATED TO A CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
DESCRIBED IN CLAUSES (I) OR (II) ABOVE; AND, (IV) ANY AND ALL LIABILITIES,
LOSSES, REASONABLE AND NECESSARY COSTS OR EXPENSES (INCLUDING ATTORNEYS' FEES
AND DISBURSEMENTS) THAT ANY INDEMNITEE SUFFERS OR INCURS AS A RESULT OF ANY OF
THE FOREGOING. If any claim is asserted against any Indemnitee, the Indemnitee
shall promptly notify the Borrowers, but the failure to so promptly notify the
Borrowers shall not affect the Loan Parties' obligations under this Section
unless such failure materially prejudices the Loan Parties' right to participate
in the contest of the Claim. The obligations and liabilities of the Loan Parties
to any Indemnitee under this Section shall survive the expiration or termination
of this Second Restated Agreement and the repayment of the Obligations.
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ARTICLE X
CONDITIONS PRECEDENT
10.1 INITIAL ADVANCES OF LOANS. The obligation of each Lender to make any
Advance or continue the Loans after the Effective Date of this Second Restated
Agreement is subject to the conditions precedent that, on or before the date of
the initial Advance after the Effective Date of this Second Restated Agreement,
the Agent shall have received for each Lender the following:
A. As to the Steam Supply Loans, the Borrowers shall have delivered to the
Agent, the following items or performed the following matters to the
satisfaction of the Agent:
(1) Each Lender shall have received its duly executed Steam Supply
Note;
(2) A duly executed Notice of Steam Supply Advance;
(3) The Steam Supply Security Agreement-Collateral Assignment of Note,
duly executed by the Borrowers;
(4) A true and correct copy of the Steam Supply Credit Agreement, duly
executed by all parties thereto, together with all supporting documents
executed, delivered or required thereunder;
(5) The Steam Supply Note Receivable, duly executed by the Steam Supply
Group, endorsed "PAY TO THE ORDER OF THE CHASE MANHATTAN BANK, AGENT,
AS AGENT FOR THE CHASE MANHATTAN BANK AND TEXAS COMMERCE BANK NATIONAL
ASSOCIATION";
(6) A true and correct copy of the final, duly executed copy of the
Invatec Stock Purchase Agreement;
(7) The Borrowers must evidence in a manner satisfactory to the Agent
that Invatec shall have successfully completed the acquisition of the
stock of all members of the Steam Supply Group (other than Invatec),
that Invatec owns all of the capital stock of all of the members of the
Steam Supply Group (other than Invatec), that no more than
$10,700,000.00 was paid therefor, and that existing Indebtedness of the
Steam Supply Group (other than Scheduled Indebtedness) has been paid;
(8) Each of the seller parties to the Invatec Stock Purchase Agreement
shall have executed and delivered a Steam Supply Subordination
Agreement in form satisfactory to the Agent in favor of the Borrowers
and on which the Lenders are entitled to the benefits and rights
thereunder;
(9) True and correct copies of all final documentation with respect to
the Invatec Stock Purchase Agreement;
(10) Evidence satisfactory to the Agent that the Steam Supply Group has
a minimum net worth of $10,000,000.00 as of the Effective Date of this
Second Restated Agreement;
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(11) Evidence satisfactory to the Agent of the Solvency of each member
of the Steam Supply Group; and,
(12) All material contracts of the Steam Supply Group shall be
satisfactory to the Agent.
B. Each of the Collateral Documents duly executed by the parties thereto.
Each document, including, without limitation, any Mortgages and
Financing Statements, required by the Collateral Documents, under law
or requested by the Agent to be filed, registered or re- corded in
order to create, in favor of the Agent for the benefit of the Lenders,
a perfected first priority Lien on the Collateral described therein
shall have been properly filed, regis- tered or recorded in each
jurisdiction in which the filing, registration or recordation thereof
is so required or requested, the Agent shall have received an
acknowledgment copy, or other evidence satisfactory to the Agent, of
each such filing, registration or recordation and satisfactory evidence
of the payment of any necessary fee, tax or expense relating thereto.
The Agent shall have received the possession of the certificates
representing all of the Pledged Stock, together with undated stock
powers executed in blank.
C. The Landlord Agreements in the form prescribed under the Prior
Agreement, duly executed by each landlord under each Leasehold pursuant
to which any of the Borrowers possess any leasehold interest in real
property on which any portion of that Borrower's business is operated.
All of the Leaseholds are described in the Restated Agreement.
Notwithstanding the foregoing, Borrowers did not obtain all Landlord
Agreements on or before the Effective Date of the Prior Agreement, and
the condition was waived as to the initial fundings of the Loans,
however, the Borrowers covenant to obtain the Landlord Agreements. To
the extent that the Borrowers have not obtained all Landlord
Agreements, there will be established a Reserve equal to the rental
which will accrue over a ninety (90) day period for each of the
Leaseholds for which a Landlord Agreement has not been obtained.
D. A Guaranty Confirmation Letter duly executed by Allwaste in the form of
Exhibit 10.1.D to this Second Restated Agreement that the Allwaste
Guaranty Agreement executed pursuant to the Prior Credit Agreements in
favor of each Lender is in full force and effect and has not been and
will not be affected or impaired by this Second Restated Agreement or
the Loan Documents executed and delivered in connection herewith.
E. A Guaranty Agreement in the form of Exhibit attached to the Prior
Credit Agreements, if and to the extent, any Consolidated Subsidiary is
designated by the Agent to be a Guarantor.
F. Favorable opinions of legal counsel for the Borrowers in form and
substance satisfactory to the Agent subject to reasonable assumptions,
qualifications and limitations, together with copies of the legal
opinions rendered by legal counsel for the sellers in the Invatec Stock
Purchase Agreement, and letter from each such legal counsel stating
that the Agent and the Lenders are entitled to rely thereon.
G. The Agent shall have received and determined to be in form and
substance satisfactory to the Agent:
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(1) The most recent, dated not earlier than thirty (30) days prior
to the Effective Date of this Second Restated Agreement, schedule and
aging of accounts receivable of the Borrowers;
(2) Evidence that the Borrowers have not less than $350,000.00 of
Availability on the Effective Date of this Second Restated Agreement;
(3) Copies of a field examinations of the books and records of the
Steam Supply Group and the results of such field examinations shall be
satisfactory to the Agent in all respects;
(4) The Financial Statements described in Section 11.1.D, together
with management letters received for the last Fiscal Year;
(5) Evidence that Safe Seal's tax loss carry forward can be
applied to the Borrowers' consolidated total Net Income and Net Loss.
(6) Evidence that the Transactions are in compliance with all
Requirements;
(7) Evidence that all requisite third party consents (including,
without limitation, consents with respect to the Borrowers) to the
Transactions have been received;
(8) Copies of all contracts between the Borrowers and Borrowers'
major customers and suppliers and all material leases and franchise
agreements of the Borrowers;
(9) Copies of all contracts between each member of the Steam
Supply Group and each member of the Steam Supply Group's major
customers and suppliers and all material leases and franchise
agreements of each member of the Steam Supply Group.
(10) Evidence that the Borrowers and the Steam Supply Group have
cash management and management information systems satisfactory to the
Agent;
(11) Evidence that there has occurred no event which would have a
Material Adverse Effect on the business, assets, operations or
financial condition of the Borrowers or any member of the Steam Supply
Group since the date of the last Financial Statements provided to the
Agent; and,
(12) Evidence that there are no actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending
or threatened against or affecting any of the Borrowers, and of the
members of the Steam Supply Group or of their respective businesses,
assets or rights which involve any of the Transactions.
H. The Agent shall have had the opportunity, if the Agent so chooses, to
examine the books of account and other records and files of the
Borrowers and the Steam Supply Group and to make copies thereof, and to
conduct a pre-closing field examination which shall include, without
limitation, verification of Eligible Accounts, Steam Supply Eligible
Accounts, payment of payroll taxes and accounts payable and formulation
of an opening Steam Supply
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Borrowing Base, and the results of such examinations and audits shall
have been satisfactory to the Agent in all respects.
I. The corporate structure and capitalization of the Borrowers and the
Steam Supply Group shall be satisfactory to the Lenders in all
respects.
J. All legal matters in connection with the Transactions shall be
satisfactory to the Agent, the Lenders and their respective counsel, in
their sole discretion.
K. Safe Seal, for and on behalf of the Borrowers, shall have executed and
delivered to the Agent a disbursement authorization letter with respect
to the disbursement of the proceeds of the Advances made on the
Effective Date of this Second Restated Agreement, in form and substance
satisfactory to the Agent, and Invatec, for and on behalf of the Steam
Supply Group, shall have executed and delivered to the Borrowers a
disbursement authorization letter with respect to the disbursement of
the proceeds of the Steam Supply Advances made on the Effective Date of
this Second Restated Agreement, in form and substance satisfactory to
the Agent.
L. The Agent and the Lenders shall have received from the Borrowers and
the Steam Supply Group, and their respective counsel where appropriate,
a letter stating that there are no material violations of ERISA, OSHA
or Environmental Laws which would have a Material Adverse Effect.
M. The Agent and the Lenders shall have received from the Borrowers and
shall be satisfied with management prepared income statements, balance
sheets and cash flow projections for the Borrowers for Fiscal Years
1997, 1998, and 1999, including a pro forma balance sheet as of the
Effective Date of this Second Restated Agreement.
N. Evidence satisfactory to the Agent that the insurance policies required
by this Second Restated Agreement, the Collateral Documents and the
Steam Supply Credit Agreement are in force and effect, the originals of
all such policies, or copies of the policies with certificates of
insurance, where required, and receipts showing that the premiums
therefor have been paid.
O. The Borrowers shall have paid in full (i) all fees owed to the Agent
and the Lenders by the Borrowers under this Second Restated Agreement,
the Commitment Letter or otherwise; and, (ii) all legal fees charged,
and all costs and expenses incurred, by legal counsel to the Agent
through the Effective Date of this Second Restated Agreement in
connection with the Transactions.
P. Upon the fulfillment of all applicable conditions set forth herein, the
Agent will, as soon as practicable, but in no event later than 5:00
p.m. (New York, New York time) on the first Business Day after the
Effective Date of this Second Restated Agreement, fund the proceeds of
the Steam Supply Loan Advance to Union Bank of California to payoff and
discharge Liens held by it on the assets of one or more members of the
Steam Supply Group, and upon receipt of and such other instruments as
the Agent shall require. The balance, if any, of the proceeds of the
Steam Supply Loan Advance, if any, will be deposited in the Steam
Supply Funding Account. If Loans are not to be made on such date
because any condition
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precedent to the Steam Supply Advance herein specified is not met, the
Agent will return the amounts received to the respective Lenders.
10.2 SUBSEQUENT ADVANCES. The obligation of any Lender to make any
subsequent Advance or to issue Letters of Credit under this Second Restated
Agreement shall be subject to the following additional conditions precedent:
A. As of the date of the making of such Advance or the issuing of a Letter
of Credit, there shall not exist any Default or Event of Default.
B. Borrowers and the Guarantors shall have performed and complied with all
agreements and conditions contained herein and in each of the Loan
Documents which are required to be performed or complied with before or
on the date of such Advance.
C. As of the date of making such Advance or the issuing of a Letter of
Credit, no change that would cause a Material Adverse Effect shall have
occurred.
D. In the case of any Borrowing representing Revolving Credit Loans, the
Agent shall have received an appropriate Notice of Revolving Credit
Advance or Letter of Credit Agreement dated as of the date of a
Borrowing signed by a Responsible Officer of Borrowers. All of the
statements contained in such Notice of Revolving Credit Advance shall
be true and correct, and such Notice of Revolving Credit Advance shall
contain a certification by such officer that, as of the date thereof,
(i) all of the representations and warranties of Borrowers contained in
this Second Restated Agreement and each of the Loan Documents executed
by Borrowers are true and correct, (ii) no event has occurred and is
continuing, or would result from the Borrowing, which constitutes a
Default or an Event of Default, and (iii) such other facts as Lenders
may request. As to Advances of Steam Supply Loans after the Effective
Date of this Second Restated Agreement, a duly executed Notice of Steam
Supply Advance dated as of the date of a Borrowing signed by a
Responsible Officer of Borrowers, together with all supporting
documents executed, delivered or required under the terms of the Steam
Supply Credit Agreement for the Borrowers to fund the Steam Supply
Loans to the Steam Supply Group. All of the statements contained in
such Notice of Steam Supply Advance shall be true and correct, and such
Notice of Steam Supply Advance shall contain a certification by such
officer that, as of the date thereof, (i) all of the representations
and warranties of Borrowers contained in this Second Restated Agreement
and each of the Loan Documents executed by Borrowers are true and
correct, (ii) no event has occurred and is continuing, or would result
from the Borrowing, which constitutes a Default or an Event of Default,
and (iii) such other facts as Lenders may request.
E. The representations and warranties contained in each of the Loan
Documents shall be true in all material respects on the date of making
of such Advance or the issuing of a Letter of Credit, with the same
force and effect as though made on and as of that date.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 REPRESENTATIONS AND WARRANTIES CONCERNING THE BORROWERS. The Borrowers
represent and warrant to the Agent and each of the Lenders the following matters
concerning the Borrowers.
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A. Each Borrower is a corporation duly incorporated and existing in good
standing under the laws of the State shown in its Certificate of
Resolution. Each Borrower is duly licensed or qualified in all
jurisdictions wherein the character of the property owned or leased by
it or the nature of the business transacted by it makes licensing or
qualification necessary by foreign corporations and where failure to
become so licensed or qualified would have a Material Adverse Effect.
B. Each Borrower has the corporate power and requisite authority to
execute, deliver and perform the Loan Documents executed or to be
executed by it. The execution, delivery and performance by each
Borrower of this Second Restated Agreement and each of the other Loan
Documents to which it is a party, the Borrowing hereunder by the
Borrower, the execution and delivery by the Borrower of the Prior
Credit Agreements, Notes, the grant of security interests in the
Collateral created by the Collateral Documents, the making of the loans
to the Steam Supply Group and the performance by the Borrower of the
Obligations hereunder and thereunder (collectively, the "TRANSACTIONS")
have been duly authorized by all necessary corporate action. Such
actions will not (i) violate any provision of law, the Borrower's
Articles of Incorporation or bylaws, or (ii) except for the failure of
the Borrower to obtain the consent of all of the owners of the Premises
to the transfer of the Leaseholds, result in the breach of or
constitute a default under other agreement or instru- ment to which the
Borrower is a party. No consent of the Borrower's shareholders or any
holder of Indebtedness of the Borrower is required as a condition to
the validity of the Transactions.
C. The Loan Documents, when duly executed and delivered in accordance with
the Prior Credit Agreements and this Second Restated Agreement, were
and will constitute legal, valid and binding obligations of each
Borrower in accordance with their respective terms.
D. Safe Seal has furnished to the Agent and each of the Lenders (i) an
audited Fiscal Year-end balance sheet and the income and surplus
statements as of December 31, 1995, and related statements of income,
retained earnings and changes in financial condition as of such date,
and an interim, year-to-date balance sheet and the income and surplus
statements as of May 31, 1997, and related statements of income,
retained earnings and changes in financial con- dition as of such date,
as to Safe Seal and each of the Consolidated Subsidiaries. The Fi-
nancial Statements are true and correct and have been prepared in
accordance with GAAP throughout the periods involved. The balance
sheets fairly present the financial condition of Safe Seal and the
Consolidated Subsidiaries as of the dates thereof, and the income and
sur- plus statements fairly present the results of the operations of
Safe Seal and the Consolidated Subsidiaries for the periods indicated.
There have been no changes in the condition, finan- cial or otherwise,
of any of the Borrowers since the dates of such Financial Statements
which would have a Material Adverse Effect.
E. Except as disclosed in the Financial Statements referenced in Section
11.1.D, none of the Borrowers has any (i) Investment in any other
Person, or (ii) agreements in effect providing for or relating to
extensions of credit in respect of which it is or may become directly
or contingently obligated.
F. There is no material fact that Borrowers have failed to disclose to the
Agent or the Lenders which could have a Material Adverse Effect.
Neither the Financial Statements referenced in
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Section 11.1.D, nor any certificate or statement delivered herewith or
heretofore by Borrowers to the Agent or any of the Lenders in
connection with negotiations of the Loan Documents, contains any untrue
statement of a material fact or omits to state any material fact
necessary to keep the statements contained herein or therein from being
misleading.
G. The Borrowers have good title to the assets pledged or given as
Collateral to secure the Loans, free and clear of all Liens except the
Permitted Liens. None of the Borrowers is aware of any reason why each
of the Collateral Documents to which it is a party would not create and
grant to the Agent, for the benefit of the Lenders, a legal, valid and
perfected first priority security interest in the Collateral identified
therein, subject to the Permitted Liens.
H. Each Borrower has good and marketable title to, or valid leasehold
interest in, all of its respective properties and assets shown on the
most recent balance sheet referred to in Sec- tion 11.1.D and all
assets and properties acquired since the date of such balance sheet,
except for (i) such properties as are no longer used or useful in the
conduct of its business or as have been disposed of in the ordinary
course of business, (ii) the payment of the bonus set out in the Stock
Purchase Agreement, (iii) the conveyance of the stock in Harley Equip-
ment Corporation and the transfer of assets to Harley Equipment
Corporation as set out and described in the Stock Transfer Agreement,
and (iv) minor defects in title that do not inter- fere with the
ability of the Borrower to conduct its business as now conducted. All
such assets and properties are free and clear of all Liens other than
Permitted Liens.
I. The Stock and Real Estate Purchase Agreement delivered to the Agent are
true and correct copies of the Stock and Real Estate Purchase
Agreement, and it includes all exhibits, schedules and addenda
referenced therein.
J. The Invatec Stock Purchase Agreement delivered to the Agent are true
and correct copies of the Invatec Stock Purchase Agreement, and it
includes all exhibits, schedules and addenda referenced therein.
K. Each Borrower has complied in all material respects with all
obligations under all Leaseholds to which it is a party and under which
it is in occupancy, except for the failure of the Borrower to obtain
the consent of all of the owners of the Premises to the transfer of the
Leaseholds or where noncompliance does not affect the Borrower's use or
occupancy, and all such leases are in full force and effect and the
Borrower enjoys peaceful and undisturbed possession under all such
leases.
L. Each Borrower owns or controls or has the right to use all material
trademarks, trademark rights, trade names, trade name rights,
copyrights, patents, patent rights and licenses which are necessary for
the conduct of its business. No Borrower is infringing upon or
otherwise acting adversely to any of such trademarks, trademark rights,
trade names, trade name rights, copyrights, patent rights or licenses
owned by any other Person or Persons. There is no claim or action by
any such other Person pending, or to the knowledge of any Responsi- ble
Officer of any of the Borrowers, threatened, against any of the
Borrowers with respect to any of the rights or property referred to in
this Section.
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M. Safe Seal is the sole shareholder of Harley, Spinsafe, Safe Seal
Canada, GSV and PSI. Harley is the sole shareholder of Valve. The sole
shareholders of Safe Seal as set out in the Schedule attached to the
Restated Agreement, which sets out the authorized and the issued
capital stock of Safe Seal. There are no outstanding warrants or
options to purchase any of the capital stock of any of Borrowers except
as disclosed to the Lenders with respect to options granted to certain
employees of Safe Seal. All outstanding capital stock of each Borrower
has been validly issued, is fully paid and non-assessable and is owned
by the shareholder free and clear of all Liens, except for the Liens in
favor of the Lenders.
N. Each of Harley and Safe Seal is and, after consummation of this Second
Restated Agreement and after giving effect to all Indebtedness incurred
and the Liens in connection herewith, will be Solvent.
O. Except as disclosed in writing to the Agent and the Lenders, no
Borrower is a party to a transaction with any Affiliate. All such
transactions are in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than could be obtained
in an arm's-length transaction with a Person that was not an Affiliate.
P. None of the Borrowers is in default in any material respect under any
contract, lease, loan agreement, indenture, mortgage, security
agreement or other material agreement or obligation to which the
Borrower is a party or by which any of the Borrower's property is bound
except for the failure of the Borrower to obtain the consent of all of
the owners of the Premises to the transfer of the Leaseholds.
Q. Neither the business nor the property of any Borrower are, affected by
any fire, explosion, accident, strike, lockout or other labor dispute,
storm, hail, earthquake, embargo, act of God or other casualty (whether
or not covered by insurance), which could have a Material Adverse
Effect.
R. The proceeds of the Revolving Credit Loans and the Steam Supply Loans
will be used and proceeds of the Term Loans have been used by the
Borrowers solely for the purposes specified herein. None of such
proceeds will be used for the purpose of purchasing or carrying any
"MARGIN STOCK" as defined in Regulation U, Regulation X, or Regulation
G, or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry margin stock or for any
other purpose which might constitute this transaction a "PURPOSE
CREDIT" within the meaning of such Regulation U, Regulation X, or
Regulation G. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock. Neither
any of the Borrowers nor any Person acting on behalf of any Borrower
has taken or will take any action which might cause the Notes or any of
the other Loan Documents, including this Second Restated Agreement, to
violate Regulation U, Regulation X, or Regulation G or any other
regulations of the Board or to violatess.8 of the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as now
in effect or as the same may hereinafter be in effect. No Borrower owns
margin stock except for that described in the Financial Statements
referred to in Section 11.1.D and, as of the Effective Date of this
Second Restated Agreement, the aggregate value of all margin stock
owned by any Borrower does not exceed twenty-five (25) per cent of the
value of all of the Borrower's assets. If requested by any Lender, each
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Borrower shall furnish to such Lender a statement on Federal Reserve
Form U-1 referred to in Regulation U.
S. No Borrower owns any Subsidiary, except as set out in the Restated
Agreement.
T. No Borrower has during the preceding five (5) years, been known as or
used any fictitious, assumed or trade names except for the assumed
names enumerated in the Restated Agreement, or as otherwise disclosed
in writing to the Agent. The principal office, chief executive office
and principal place of business of each Borrower is at the address set
out in Section 14.1. Each Borrower maintains its principal records and
books at such address.
U. Each Borrower possesses all licenses, permits, approvals and consents,
including, without limitation, all environmental, health and safety
licenses and permits, approvals and consents (collectively, the
"PERMITS") of all Governmental Authority as required to conduct its
business. Each such Permit is and will be in full force and effect.
Each Borrower is in compliance in all material respects with all
Permits, and to its knowledge no event, including, without limitation,
any violation of any law, rule or regulation, has occurred which allows
the revocation or termination of any Permit or any restriction thereon.
V. All employment agreements, compensation agreements or management
agreements of any of the Borrowers is terminable with not more than
thirty (30) days notice.
11.2 REGULATORY MATTERS. Borrowers represent and warrant that as of the
Effective Dates of the Prior Credit Agreements and the Effective Date of this
Second Restated Agreement, no Regulatory Defects exist, and specifically the
following matters.
A. No Borrower or any Person having "CONTROL" (as that term is defined in
12 U.S.C. ss.375(b)(5) or in regulations promulgated pursuant thereto)
of any Borrower, is an "EXEC- UTIVE OFFICER", "DIRECTOR", or "PRINCIPAL
SHAREHOLDER" (as those terms are defined in 12 U.S.C.ss.375(b) or in
regulations promulgated pursuant thereto) of any of the Lenders, of a
bank holding company of which any of the Lenders is a subsidiary, or of
any subsidiary of a bank holding company of which any of the Lenders is
a subsidiary, or of any bank at which any of the Lenders maintains a
"CORRESPONDENT ACCOUNT" (as such term is defined in such statute or
regulations), or of any bank which maintains a correspondent account
with any of the Lenders.
B. Except as disclosed in the Financial Statements of the Borrowers and
the summary and analysis of litigation in which the Borrowers are
involved, there are no actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to
the knowledge of any Responsible Officer of any of the Borrowers
threatened against or affecting any Borrower or the business, assets or
rights of any of the Borrowers (i) which involve any of the
Transactions, or (ii) as to which it is probable (within the meaning of
Statement of Financial Accounting Standards No. 5 promulgated by FASB)
that there will be an adverse determination and which, if adversely
determined, would, individually or in the aggregate, materially impair
the ability of any Borrower to conduct business substantial- ly as now
conducted, or have a Material Adverse Effect.
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C. The Borrowers have filed all U.S. tax returns and all state and foreign
tax returns which are required to be filed. The returns properly
reflect the U.S. income tax, foreign tax and/or state taxes of each
Borrower for the period covered thereby. The Borrowers have paid, or
made provisions for the payment of, all Taxes which have become due
pursuant to the re- turns or pursuant to any assessment received by the
Borrower, except such Taxes, if any, as are being contested in good
faith and as to which, adequate cash reserves have been provid- ed. No
Federal income tax returns of any Borrower have been audited by the
IRS. None of the Borrowers has, as of the Effective Date of this Second
Restated Agreement, requested or been granted any extension of time to
file any Federal, state, local or foreign tax return. None of the
Borrowers is a party to or has any obligation under any tax sharing
agreement.
D. (i) No Reportable Event has occurred and is continuing with respect to
any Employee Plan; (ii) PBGC has not instituted proceedings to
terminate any Employee Plan; (iii) neither the Borrowers, any ERISA
Affiliate, any member of the Controlled Group, nor any duly-ap- pointed
administrator of an Employee Plan has (a) incurred any liability to
PBGC with respect to any Employee Plan other than for premiums not yet
due or payable, or (b) insti- tuted or intends to institute proceedings
to terminate any Employee Plan underss.4041 or ss.4041A of ERISA or
withdraw from any Multi-Employer Plan (as that term is defined in
ss.3(37) of ERISA); and, (iv) each Employee Plan has been maintained
and funded in all material respects in accordance with its terms and
with all provisions of ERISA applicable thereto.
E. No Borrower is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, the Interstate Commerce Act (as any of the preceding acts have
been amended), or any other law (other than Regulation X) which
regulates the incurring by Borrowers of Indebtedness, including but not
limited to laws relating to common contract carriers or the sale of
electricity, gas, steam, water, or other public utility services.
F. The Borrowers have complied with, and will continue to comply with, the
provisions of the Fair Labor Standards Act of 1938, 29 U.S.C.ss.ss.200
et.seq., as amended from time to time (the "FLSA"), including
specifically, but without limitation, 29 U.S.C.ss.215(a). This repre-
sentation and warranty, and each re-confirmation thereof, shall
constitute assurance from Borrowers, given as of the Effective Dates of
the Prior Credit Agreements, as of the Effective Date of this Second
Restated Agreement and as of the date of each re- confirmation, that
Borrowers have complied with the requirements of the FLSA, in general,
and 29 U.S.C.ss.215(a)(1), thereof, in particular.
G. Except as disclosed to the Lenders in writing, the Borrowers are
compliance with all laws, rules, regulations, orders and decrees which
are applicable to the Borrowers or their properties.
H. None of the Borrowers has been accused of being in violation of Title
IX, of the Organized Crime Control Act of 1970, entitled "RACKETEER
INFLUENCED AND CORRUPT ORGANIZATIONS" (RICO), 18 U.S.C. ss.ss.1961
et.seq.
I. The operations of the Borrowers comply in all material respects with
all applicable Environ- mental Laws (except as disclosed in writing to
the Lenders) and with OSHA. The Borrow-
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ers and all of Borrowers' present facilities or operations, as well as,
to the knowledge of the Borrowers, Borrowers' past facilities or
operations, are not subject to any judicial or administrative
proceeding or any outstanding written order or agreement with any
Governmental Authority or private party respecting (i) Environmental
Laws, (ii) any remedial work (except as disclosed in writing to the
Lenders), or (iii) any environmental claims arising from the release of
Hazardous Materials into the environment. To the best of the knowledge
of the Borrowers, none of Borrowers' operations is the subject of any
Federal or state investigation evaluating whether any remedial work is
needed to respond to a release of any Hazardous Materials into the
environment in violation of Environmental Laws. Borrowers have not
filed any notice under Environmental Laws indicating past or present
treatment, storage, or disposal of Hazardous Materials or reporting a
spill or release of Hazardous Materials into the environment in
violation of Environmental Laws. To the best of the knowledge of the
Borrowers, Borrowers do not have any contingent liability in connection
with any release of any Hazardous Materials and none of Borrowers'
operations involve the generation, transportation, treatment or
disposal of Hazardous Materials.
11.3 REPRESENTATIONS REGARDING ACCOUNTS. The Borrowers make the following
representations and warranties which shall be deemed to be incorporated by
reference in each Notice of Revolving Credit Advance and shall be deemed
repeated and confirmed with respect to each item of the Accounts as it is
created or otherwise acquired by the Borrowers.
A. Each Account Debtor named in an Eligible Account or on an invoice is,
to the best of Borrowers' knowledge, Solvent and will continue to be
fully able to pay in full when due all Accounts on which the Account
Debtor is obligated in full when due.
B. Each Eligible Account shall be a good and valid account representing an
undisputed bona fide indebtedness incurred or an amount indisputably
owed by the Account Debtor therein named, for a fixed sum as set forth
in the invoice relating thereto with respect to an absolute sale and
delivery upon the specified terms of goods sold by the Borrowers, or
work, labor and/or services theretofore rendered by the Borrowers.
C. No Eligible Account is or shall be subject to any defense, setoff,
counterclaim, discount or allowances except as may be stated in the
copy of the invoice delivered to the Agent.
D. No note, trade acceptance, draft or other instrument or chattel paper
has been or will be received with respect to merchandise giving rise to
any Eligible Account unless the same is assigned and delivered to the
Agent.
E. There has been no material change in credit criteria or collection
policies concerning Accounts of the Borrowers since October 30, 1995.
F. A Borrowers shall be the sole owner, free and clear of all Liens except
in favor of the Agent or otherwise permitted hereunder, of and fully
authorized to sell, transfer, pledge and/or grant a security interest
in each and every item of Collateral owned by it;
G. To the best of Borrowers' knowledge, none of the transactions
underlying or giving rise to any Eligible Accounts shall violate any
applicable state or federal laws or regulations, and all documents
relating to any Accounts shall be legally sufficient under such laws or
regula-
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tions and shall be legally enforceable in accordance with their terms,
subject, as to enforceability, to the effect of applicable Debtor Laws.
H. All documents and agreements relating to Eligible Accounts shall be
true and correct and in all respects what they purport to be.
I. To the best of Borrowers' knowledge, all signatures and endorsements
that appear on all documents and agreements relating to Eligible
Accounts shall be genuine and all signatories and endorsers with
respect thereto shall have full capacity to contract.
J. Borrowers shall maintain books and records pertaining to the Accounts
in such detail, form and scope as the Agent shall require.
K. Borrowers will immediately notify the Agent if any Accounts arise out
of contracts with any Governmental Authority, and will execute any
instruments and take any steps required by the Agent in order that all
monies due or to become due under any such contract shall be assigned
to the Agent and notice thereof given to the Governmental Authority
under the Assignment of Claims Act.
L. Borrowers shall not redate any invoice or sale or make sales on
extended dating beyond that customary in the industry.
11.4 REPRESENTATIONS REGARDING INVENTORY. The Borrowers make the following
representations and warranties regarding the Inventory which shall be deemed to
be incorporated by reference in each Notice of Revolving Credit Advance and
shall be deemed repeated and confirmed with respect to each item of Inventory as
it is acquired by Borrowers.
A. No part of the Inventory is subject to any Lien or security interest
whatsoever except for the security interest granted to the Agent in the
Loan Documents.
B. All Inventory is located on the Mortgaged Property, other property
owned by the Borrowers or the Premises.
C. Except as promptly disclosed to the Agent from time to time in writing,
all Inventory shall be of good merchantable quality, free from any
defects which would affect the market value of the Inventory.
D. Borrowers will, immediately upon learning thereof, report to the Agent
any material loss or destruction of, or substantial damage to, any of
the Inventory, and any other matters affect ing the value of the
Inventory.
E. Borrowers shall conduct a physical count of the Inventory at such
intervals as the Agent may request and promptly supply the Agent with a
copy of such counts accompanied by a report of the value (based on the
lower of cost {on a FIFO basis} or market value) of such Inventory.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by Borrowers shall survive delivery of the Loan Documents and the
making of the Loans. Any investigation at
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any time made by or on behalf of the Agent or any of the Lenders shall not
diminish the Agent's or any Lender's right to rely on the representations and
warranties made by Borrowers.
ARTICLE XII
DEFAULTS AND REMEDIES
12.1 EVENTS OF DEFAULT. The Borrowers shall be in Default hereunder if any
one of the following shall occur:
A. If any installment of principal on any of the Notes shall not be paid
when and as due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or
otherwise;
B. If there shall occur any default under the terms of any of the Steam
Supply Loan Documents, including, but specifically not limited to, a
termination of all or any portion of any Material Contract, as defined
therein.
C. If any installment of interest on any of the Notes, any fee or any
other amounts payable hereunder, or any other Loan Document or in
connection with any Advance or the Transactions shall not be paid when
and as due and payable, or if there shall occur a failure to pay any
Obligations owed to the Lenders when and as the same shall become due
and payable;
D. If any representation, statement, warranty or certification made by any
Loan Party in the Loan Documents, or furnished to the Agent or any of
the Lenders in connection with the Loans, shall prove to have been
incorrect in any material respect at the time of making or issuance
thereof.
E. If there shall occur any one of the following events (an "EVENT OF
DEFAULT"), and if the event can be cured by affirmative action on the
part of Borrowers but shall continue uncured after five (5) days from
the earlier to occur of (i) the date such event becomes known to a Loan
Party, or (ii) the date the Agent shall have given notice to Borrowers
that such event has occurred; provided, however, the Agent shall not be
required to give notice of any such failure or event; provided,
further, if an Event of Default cannot be cured within time above
specified because of causes beyond Borrowers' control, Borrowers must
timely commence and continue the curing of the Event of Default with
due diligence to completion:
(1) If the Borrowers or the Guarantors shall fail to comply with any of
the covenants and agreements set forth in Section 9.1.A.(3) or Section
9.1.A.(7); and/or,
(2) Both the following events shall occur: (i) Either (a) process shall
have been instituted to terminate, or a notice of termination shall
have been filed with respect to, any Employee Plan (other than a
Multi-Employer Plan as that term is defined in ss.3(37) of ERISA) by
Borrowers, any ERISA Affiliate, any Subsidiary, any member of the
Controlled Group, PBGC or any representative of any thereof, or any
such Employee Plan shall be terminated in any such case under ss.4041
or ss.4042 of ERISA, or (b) a Reportable Event, the occurrence of which
would cause the imposition of a lien under ss.4068 of ERISA, shall have
occurred with respect to any Employee Plan (other than a Multi-Employer
Plan as that term is defined in ss.3(37) of ERISA) and be continuing
for a period of sixty (60) days; and, (ii) the sum of the
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estimated liability to PBGC under ss.4062 of ERISA and the currently
payable obligations of Borrowers or any ERISA Affiliate to fund
liabilities (in excess of amounts required to be paid to satisfy the
minimum funding standard of ss.412 of the Code) under the Employee Plan
or Employee Plans subject to such event shall exceed ten (10) per cent
of Tangible Net Worth at such time; and/or,
(3) Any or all of the following events shall occur with respect to any
Multi-Employer Plan (as that term is defined in ss.3(37) of ERISA) to
which Borrowers or any ERISA Affiliate contributes or contributed on
behalf of its employees: (i) Borrowers or any ERISA Affiliate incurs a
withdrawal liability under ss.4201 of ERISA; (ii) any such plan is "IN
REORGANIZATION" as that term is defined in ss.4241 of ERISA; or, (iii)
any such Employee Plan iS terminated under ss.4041A of ERISA and the
Agent determines in good faith that the aggregate liability likely to
be incurred by Borrowers or any ERISA Affiliate, as a result of all or
any of the events specified in subsections (i), (ii) and (iii) above
occurring, shall have a Material Adverse Effect.
F. If there shall occur any change in the condition (financial or
otherwise) of the Borrowers, the Guarantors, Allwaste or the Steam
Supply Group which, in the opinion of the Agent or the Lenders, has a
Material Adverse Effect.
G. If the Borrowers shall not complete an IPO by October 31, 1997, from
which the Borrowers derive not less than $45,000,000.00 in net proceeds
available to the Borrowers.
H. If any of the Loan Documents shall, for any reason, (i) cease to be, or
shall be asserted by the Borrowers or Guarantors not to be, legal,
valid and binding agreements enforceable against the Borrowers or the
Guarantors executing the same in accordance with the respective terms
thereof, (ii) in any manner be terminated or become or be declared
ineffective or inoperative, or (iii) in any manner whatsoever cease to
give or provide the Liens, security interests, rights, titles,
interests, remedies, powers or privileges intended to be created
thereby.
I. If there shall occur a failure by the Borrowers or the Guarantors in
the observance or performance of any other provision of the Loan
Documents. The provisions of this Second Restated Agreement shall
control in the event that any provision of any other Loan Document is
in conflict with the provisions of any other instrument executed
pursuant hereto and all of such provisions in such other instruments
shall be deemed to be cumulative of the provisions hereof to the extent
such provisions are not inconsistent herewith.
J. If there shall occur a failure beyond any period of grace, if any, by
the Borrowers, the Guarantors or Allwaste in the payment, when due, of
(i) the interest on or the principal of any Indebtedness in excess of
$10,000.00, other than accounts payable incurred in the ordinary course
of business, or (ii) any other Indebtedness and if the effect of any
such default shall be to accelerate, or to permit the holder or obligee
of any such Indebtedness, at its option to accelerate, the maturity of
such Indebtedness.
K. If a judgment (not reimbursed by insurance) or decree for the payment
of money, a fine or penalty which when taken together with all other
such judgments, decrees, fines and penalties shall exceed $10,000.00
shall be rendered by a court or other tribunal against a Loan Party,
and (i) shall remain undischarged or un-bonded for a period of thirty
(30) consecutive
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days during which the execution of such judgment, decree, fine or
penalty shall not have been stayed effectively, or (ii) any judgment
creditor or other Person shall legally commence actions to collect on
or enforce such judgment, decree, fine or penalty.
L. If there shall be any Change of Control of any of the Borrowers, any
Guarantor or any of the members of Steam Supply Group.
M. If a Lien in excess of $10,000.00 arising from unpaid Taxes shall be
filed against any of the Borrowers' or Guarantors' properties or
assets.
N. If any Borrower, Guarantor, Allwaste or any member of the Steam Supply
Group shall:
(1) Apply for, consent to or acquiesce in the appointment of a
receiver, trustee or liquidator of such Person, or of such Person's
property; and/or,
(2) Admit in writing such Person's inability to pay debts as they
mature; and/or,
(3) Make a general assignment for the benefit of creditors; and/or,
(4) Be adjudicated to be bankrupt or insolvent by any court having
jurisdiction; and/or,
(5) File a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, composition, readjustment, an arrangement or
similar relief with creditors under any present or future Debtor Laws
or file an answer admitting the material allegations of a petition
filed against such Person in bankruptcy, reorganization or insolvency
proceeding, or corporate action shall be taken for the purpose of
effecting any of the foregoing; and/or,
(6) Have a receiver or trustee or assignee in bankruptcy or insolvency
appointed for such Person or such Person's property without such
Person's application or consent.
O. If an involuntary petition or complaint shall be filed against any of
the Borrowers, Guar- antors or Allwaste seeking bankruptcy or
reorganization of such Person or the appointment of a receiver,
custodian, trustee, intervenor or liquidator of such Person, or of all
or sub- stantially all of such Person's assets, and such petition or
complaint shall not have been dismissed within thirty (30) days of the
filing thereof; or, if an order, order for relief, judg- ment or decree
shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking
reorganization of any of the Borrowers or the Guarantors or appointing
a receiver, custodian, trustee, intervenor or liquidator of such
Person, or of all or substantially all of such Person's assets.
P. If Agent or any Lender is served with, or becomes subject to, a court
order, injunction or other process or decree restraining or seeking to
restrain the Agent or any Lender from paying any amount under any
Letter of Credit and (i) either (a) a drawing has occurred under the
Letter of Credit for which any of the Borrowers has refused to
reimburse the Agent for payment, or (b) the expiration date of the
Letter of Credit has occurred but the right of any beneficiary
thereunder to draw under the Letter of Credit has been extended past
the expiration date in connection with the pendency of the related
court action or pro- ceeding, and (ii) Borrowers have failed to deposit
with the Agent cash collateral in an amount equal to the Agent's and
the Lenders' obligations under the Letter of Credit.
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12.2 REMEDIES. Upon the occurrence of an Event of Default, the obligation of
the Lenders to extend Advances to Borrowers pursuant hereto shall immediately
terminate. If a Default shall occur, the Lenders may, at their option, without
notice to any Person, declare the principal of and interest accrued on the
Obligations to be forthwith due and payable, whereupon the same shall become due
and payable without any presentment, demand, protest, notice of protest, notice
of intent to accelerate the maturity of the Obligations, notice of acceleration
of the maturity of the Obligations or notice of any kind, all of which are
hereby waived. Notwithstanding the foregoing, if the Default is a default set
out in Section 12.1.N or Section 12.1.O, the Total Commitment shall
automatically terminate and the principal of the Notes, together with accrued
interest and fees thereon and any other liabilities of the Borrowers accrued
hereunder shall automatically become due and payable, both as to principal and
interest, without any presentment, demand, protest, notice of protest, notice of
intent to accelerate the maturity of the Obligations, notice of acceleration of
the maturity of the Obligations or notice of any kind, all of which are hereby
waived. Thereafter, the Agent, for and on behalf of the Lenders, may exercise
all remedies available to the Agent as provided in any of the Loan Documents,
and at law or in equity. None of the provisions contained in any of the Loan
Documents shall, or shall be deemed to, give the Agent or any of the Lenders the
right to exercise control over the assets, including, without limitation, real
property, affairs, or management of Borrowers or Guarantors. The rights of the
Agent and the Lenders are limited to the exercise the remedies provided in this
Second Restated Agreement and the other Loan Documents.
12.3 NOTICES OF DEFAULT. Upon becoming aware of the existence of any
condition or event which constitutes a Default or an Event of Default, the
Borrowers and the Guarantors shall immediately furnish to the Agent notice
specifying the nature and period of existence thereof and the action taken or
proposed to be taken with respect thereto.
ARTICLE XIII
AGENT
13.1 APPOINTMENT. In order to expedite the transactions contemplated by this
Second Restated Agreement, the Agent is appointed to act as agent on behalf of
the Lenders. Each of the Lenders (which term "LENDER" or "LENDERS" shall, unless
otherwise expressly indicated, include the Agent in its capacity as a Lender)
and each subsequent holder of any Note, by its acceptance thereof, irrevocably
authorizes the Agent to take such action on its behalf and to exercise such
powers hereunder and under the other Loan Documents as are specifically
delegated to or required of the Agent by the terms hereof and the terms thereof
together with such powers as are reasonably incidental thereto. No other agent
or co-agent will be appointed without to consent of Chase.
13.2 AUTHORIZATION. The Agent is hereby expressly authorized on behalf of
the Lenders, without hereby limiting any implied authority to:
A. Receive on behalf of each of the Lenders any payment of principal of or
interest on the Notes outstanding hereunder and all other amounts
accrued hereunder paid to the Agent and, pursuant to the terms hereof,
distribute to each Lender its proper share of all payments so received;
B. Give notice to the Lenders of the receipt or sending of any notice,
schedule, report, projection, financial statement or other document or
information pursuant to this Second Restated Agreement or any of the
other Loan Documents and shall promptly forward a copy thereof to each
Lender;
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C. Take all actions with respect to this Second Restated Agreement and the
other Loan Documents as are specifically delegated to the Agent; and,
D. In the event that (i) the Borrowers fail to pay any of the Obligations
when due, or (ii) the Agent receives written notice of the occurrence
of a Default or an Event of Default, the Agent shall, within a
reasonable time, give written notice thereof to the Lenders, and shall
take such action with respect to such Default, Event of Default or
other condition or event as it shall be directed to take by the
Lenders; provided, however, that, unless and until the Agent shall have
received such directions, the Agent may take such action or refrain
from taking such action under the Loan Documents with respect to a
Default or Event of Default as it shall deem advisable in the best
interests of all of the Lenders.
13.3 RESPONSIBILITIES OF AGENT. It is expressly understood and agreed that
the obligations of the Agent under the Loan Documents are only those expressly
set forth in the Loan Documents.
A. The Agent shall be entitled to assume that no Default or Event of
Default has occurred and is continuing, unless the Agent has actual
knowledge of such fact or has received notice from a Lender that such
Lender considers that a Default or an Event of Default has occurred and
is continuing and specifying the nature thereof.
B. In the event that the Agent shall acquire actual knowledge of any Event
of Default or of an event which, with the giving of notice or the lapse
of time, or both, would constitute an Event of Default, the Agent shall
promptly give notice thereof to the Lenders.
C. Lenders recognize and agree, that for purposes of Section 2.1 hereof,
the Agent shall not be required to independently determine whether the
conditions described in Section 10.2 have been satisfied and, in
disbursing funds to the Borrowers, may rely fully upon statements
contained in the relevant Notice of Revolving Credit Advance.
D. Neither the Agent nor any of its directors, officers, employees or
agents shall be liable as such for any action taken or omitted to be
taken by it or them hereunder or under any of the other Loan Documents
or in connection herewith or therewith at the request or with the
approval of the Lenders (or, if otherwise specifically required
hereunder or thereunder, the consent of all the Lenders).
E. Neither the Agent nor any of its directors, officers, employees or
agents shall have any responsibility to the Borrowers on account of the
failure or delay in performance or breach by any Lender, other than the
Agent, of any of its obligations hereunder or to any Lender on account
of the failure of or delay in performance or breach by any other Lender
or the Borrowers of any of their respective obligations hereunder or in
connection herewith.
F. The Agent shall, in the absence of knowledge to the contrary, be
entitled to accept any certificate furnished pursuant to this Second
Restated Agreement or any of the other Loan Documents as conclusive
evidence of the facts stated therein. The Agent shall incur no
liability under or in respect of any of the Loan Documents by acting
upon any such notice, consent, certificate, warranty or other paper or
instrument believed by it to be genuine or authentic or to be signed by
the proper party or parties, or with respect to anything which it may
do or refrain from doing in the exercise of its judgment, or which may
appear to it to be necessary or desirable in the circumstances.
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G. The Agent shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Second
Restated Agreement, or in any certificate or other document referred to
or provided for in, or received by any Lender under, this Second
Restated Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Second Restated
Agreement or any document referred to or provided for herein or for any
failure by Borrowers to perform any of its obligations hereunder.
H. Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it.
I. The relationship between the Agent and each of the Lenders is only that
of principal and agent and has no fiduciary aspects, and the Agent's
duties hereunder are acknowledged to be only ministerial and not
involving the exercise of discretion on its part. Nothing in this
Second Restated Agreement or elsewhere contained shall be construed to
impose on the Agent any duties or responsibilities other than those for
which express provision is herein made. In performing its duties and
functions hereunder, the Agent does not assume and shall not be deemed
to have assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or
for the Borrowers. As to any matters not expressly provided for by this
Second Restated Agreement (including, without limitation, enforcement
or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Lenders
and such instructions shall be binding upon all the Lenders and all
holders of Notes; provided, however, that Agent shall not be required
to take any action which exposes Agent to personal liability or which
is contrary to this Second Restated Agreement or applicable law.
13.4 RESIGNATION AND SUCCESSOR. Subject to the appointment and acceptance of
a successor Agent as provided below, the Agent may resign at any time by giving
written notice thereof to the Lenders and Borrowers and the Agent may be removed
at any time with or without cause by the Lenders. Upon any such resignation or
removal, the Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Lenders and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation or the Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent. 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 each of the other Loan Documents. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Article shall continue in
effect for its benefit in respect to any actions taken or omitted to be taken by
it while it was acting as the Agent.
13.5 NOTEHOLDERS. The Agent may treat the payee of any Note as the holder
thereof until written notice of transfer shall have been filed with it signed by
such payee and in form satisfactory to the Agent.
13.6 CONSULTATION WITH COUNSEL. The Agent may consult with legal counsel
selected by it in connection with matters arising under this Second Restated
Agreement or any of the other Loan
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Documents and any action taken or suffered in good faith by it in accordance
with the opinion of such counsel shall be full justification and protection to
it.
13.7 INDEPENDENT INVESTIGATION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Second Restated Agreement and
any other Loan Document to which such Lender is party. Each Lender also
acknowledges that it will, independently and without reliance on the 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 decisions in taking or not
taking action under or based upon this Second Restated Agreement, any other Loan
Document, any related agreement or any document furnished hereunder.
13.8 EXPENSES AND INDEMNIFICATION. Each Lender agrees to reimburse the Agent
in the amount of such Lender's pro rata share (based on its Total Commitment
hereunder) of any expenses incurred for the benefit of the Lenders by the Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, not reimbursed by the Borrowers.
Each Lender agrees to indemnify and hold harmless the Agent and any of its
directors, officers, employees or agents, on demand, in the amount of its pro
rata share, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against it in its capacity as the Agent or any of them in any manner
relating to or arising out of this Second Restated Agreement or any of the other
Loan Documents or any action taken or omitted by it or any of them under this
Second Restated Agreement or any of the other Loan Documents, to the extent not
reimbursed by the Borrowers. No Lender shall, however, be liable to the Agent
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Agent or any of its directors,
officers, employees or agents.
13.9 INDEPENDENT STATUS. With respect to the Loans made hereunder, the Notes
issued to it and any other Advance applicable to it, the Agent, in its
individual capacity and not as an Agent, shall have the same rights, powers and
duties hereunder and under any other Agreement executed in connection herewith
as any other Lender and may exercise the same as though it were not the Agent.
The Agent and its Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any manner of business
with, the Borrowers, and any Person which may do business with the Borrowers,
all as if the Agent were not the Agent hereunder and without any duty to account
therefor to the Lenders.
13.10 BENEFIT AND APPLICABILITY OF ARTICLE. The agreements contained in this
Article are applicable to and solely for the benefit of the Agent and the
Lenders, and are not applicable to or for the benefit of, or shall the
provisions of this Article be relied upon by the Borrowers, the Guarantors or
any other Person, and no Loan Party assumes or shall have any duties, covenants,
obligations or other liabilities of any kind whatever by reason or in
consequence of any provisions contained in this Article.
ARTICLE XIV
MISCELLANEOUS
14.1 NOTICES. All notices and other communications given to any party hereto
in accordance with the provisions of this Second Restated Agreement shall be
deemed to have been given (i) on the date of receipt, if hand delivered, (ii)
three (3) days after being deposited with the U.S. Postal Service,
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postage prepaid, certified mail, return receipt requested, or (iii) upon receipt
(promptly confirmed in writing) if by any telex, facsimile or other
telecommunications equipment, in each case addressed to such party as provided
in this Section or in accordance with the latest revoked direction from such
party. Notices to be provided to any of the Borrowers shall be given to Safe
Seal. Notices, consents and other communications provided for herein shall be in
writing and shall be addressed:
If to any of the Borrowers: THE SAFE SEAL COMPANY, INC.
14900 Woodham Drive, A-125
Houston, Texas 77073
If to the Agent: THE CHASE MANHATTAN BANK
Asset Based Lending
633 Third Avenue, 7th Floor
New York, New York 10017
Attention: Credit Deputy
If to any Lender: At the Domestic Lending Office
address set forth beside its name in Schedule
5.14 to the Restated Agreement.
14.2 SEVERABILITY. In the event any one or more of the provisions contained
in the Loan Documents should be held to be invalid, illegal or unenforceable in
any respect, the validity, enforceability and legality of the remaining
provisions contained in the Loan Documents shall not in any manner be affected
thereby and shall be enforceable in accordance with their terms. The parties
shall endeavor, in good faith negotiation, to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as nearly as possible to that of the invalid, illegal or unenforceable
provision.
14.3 CAPTIONS. The Article, Section, Subsection captions, headings, and
arrangements, the Schedules, Exhibits and the Table of Contents used in this
Second Restated Agreement are for convenience of reference only and do not in
any manner affect, limit, amplify, or modify the terms and provisions hereof.
14.4 SUCCESSORS AND ASSIGNS. This Second Restated Agreement shall be binding
upon Borrowers, any Subsidiary of Borrowers, Guarantors, any ERISA Affiliate,
the Agent and the Lenders and shall inure to the benefit of Borrowers, any
Subsidiary of Borrowers, Guarantors, any ERISA Affiliate, Agent, Lenders and the
successors and assigns of the Agent and the Lenders. No Loan Party may, without
the prior consent of the Lenders, assign any rights, powers, duties or
obligations hereunder. Without limiting the generality of the foregoing, the
Borrowers specifically confirms that any Lender may at any time and from time to
time pledge or otherwise grant a security interest in any Loan or any Note (or
any part thereof) to any Federal Reserve Bank.
14.5 SYNDICATIONS. In the event that Chase shall elect to further syndicate
the credit facility provided under this Second Restated Agreement, the Borrowers
agree to use their best efforts to assist Chase in same, including, but not
limited to, the providing of such information and confirmations of the
Obligations to proposed syndicate members as shall be necessary to permit the
proposed syndicate members to evaluate the credit facility provided hereunder.
14.6 PARTICIPATIONS. Each Lender may sell participations to one or more
financial institutions in all or any portion of its rights and obligations under
this Second Restated Agreement, including,
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without limitation, all or a portion of its Revolving Credit Commitment or Term
Loan Commitment) and the Loans owing to it and the Notes held by it. Neither the
Agent nor any Lender, without prior written consent of the Borrowers, may
syndicate all or any portion of its rights and obligations under this Second
Restated Agreement, including, without limitation, all or a portion of its
Revolving Credit Commitment or Term Loan Commitment) and the Loans owing to it
and the Notes held by it.
A. Notwithstanding the foregoing, (i) such assigning Lender's obligations
under this Second Restated Agreement (including, without limitation,
its Revolving Credit Commitment and Term Loan Commitment shall remain
unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
Person or Persons buying participations or syndications shall be
entitled to the cost protection provisions contained in Section 5.22.A
(except to the extent that application of such Section to such Persons
would cause the Borrowers to make duplicate payments thereunder),
Section 5.22.B and Section 6.2, but only to the extent any of such
Sections would be available to the Lender which sold such
participations or syndications, and (iv) the Borrowers, the Agent and
the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under
this Second Restated Agreement. Each Lender shall, however, retain the
sole right and responsibility to enforce the obligations of the
Borrowers and the Guarantors relating to the Loans, including, without
limitation, the right to approve any amendment, modification or waiver
of any provision of this Second Restated Agreement, other than
amendments, modifications or waivers with respect to any fees payable
hereunder or the amount of principal or the rate of interest payable
on, or the dates fixed for any payment of principal of or interest on,
the Loans or the release of all Collateral.
B. By executing and delivering an Assignment and Acceptance, the Lender
which is the as- signor 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 thereunder free and
clear of any adverse claim, such Lender makes no representation or
warranty and assumes no responsi- bility with respect to any
statements, warranties or representations made in or in connection with
this Second Restated Agreement or the execution, legality, validity,
enforceability, perfection, genuineness, sufficiency or value of this
Second Restated Agreement, the other Loan Documents or any Collateral
or any other instrument or document furnished pursuant hereto or
thereto; (ii) such Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Borrowers, or Guarantors or the performance or observance by the
Borrowers or the Guarantors of any of their respective obligations
under this Second Restated Agreement, any Guaranty Agreement or any of
the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee confirms that it has
received a copy of this Second Restated Agreement, any Guaranty
Agreement and of the other Loan Documents, together with copies of
Financial Statements 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 the Agent, such Lender 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 Second Restated Agreement;
(v) such assignee appoints and authorizes the Agent to take such action
as the Agent on its behalf and to exercise such powers under this
Second Restated Agreement as are delegated to the Agent by the terms
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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 of the obligations which by the terms of this Second
Restated Agreement are required to be performed by it as a Lender.
C. The Agent shall maintain at its address referred to in Section 14.1 a
copy of each Assign- ment and Acceptance delivered to it and a register
(the "REGISTER") for the recordation of the names and addresses of the
Lenders and the Revolving Credit Commitment or Term Loan Commitment, as
the case may be, of, and principal amount of the Loans owing to, each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error. The Borrowers, the Agent
and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Second Restated
Agreement. The Register shall be available for inspection by the
Borrowers or any Lender at any reasonable time and from time to time
upon prior notice.
D. Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee together with any Note or Notes
subject to such assignment and the written consent to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed
and is in the form of Exhibit attached to the Restated Agreement, (i)
accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt notice thereof
to the Lenders and the Borrowers. Within five (5) Business Days after
receipt of such notice, the Borrowers, at Borrowers' own expense,
shall, if the assignment is an assignment of a syndicated portion of
the Loans, execute and deliver to the Agent in exchange for each
surrendered Note or Notes, a new Note or Notes to the order of such
assignee in an amount equal to its portion of the Term Loan Commitment
and/or Revolving Credit Commitment, as the case may be, assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender
has retained any Term Loan Commitment or Revolving Credit Commitment
hereunder, a new Note or Notes to the order of the assigning Lender in
an amount equal to the Term Loan Commitment and/or Revolving Credit
Commitment, as the case may be, retained by it hereunder. Such new Note
or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be
dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit referenced above.
Notes surrendered to the Borrowers shall be canceled by the Borrowers.
E. Notwithstanding any other provision herein, any Lender may, in
connection with any assignment or participation or proposed assignment
or participation pursuant to this Section, disclose to the assignee or
participant or proposed assignee or participant, any information,
including, without limitation, any information furnished to such Lender
by or on behalf of the Borrowers in connection with this Second
Restated Agreement.
F. Borrowers agree to provide promptly to each Lender copies of any and
all documents, reports, information and other such matters as are
provided to Agent pursuant to the terms hereof upon the request of any
such Lender.
14.7 NON-LIABILITY OF THE AGENT AND THE LENDERS. The relationship among the
Borrowers, the Guarantors, the Agent and the Lenders is, and shall at all times
remain, solely that of debtors and creditors. Neither the Agent nor any of the
Lenders undertakes or assumes any responsibility or duty to any Person to
review, inspect, supervise, pass judgment upon, or inform any Person of any
matter
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in connection with any phase of such Person's business, operations, or
condition, financial or otherwise. Each Person shall rely entirely upon such
Person's own judgment with respect to such matters. Any review, inspection,
supervision, exercise of judgment, or information supplied to any Person by the
Agent or any of the Lenders in connection with any such matter is for the
protection of the Agent and the Lenders, and no Person is entitled to rely
thereon.
14.8 FINANCING STATEMENTS. Any carbon, photographic or other reproduction of
any Financing Statement signed by the Borrowers or the Guarantors is sufficient
as a financing statement for all purposes, including, without limitation, filing
in any state pursuant to the provisions of the UCC.
14.9 LIST OF EXHIBITS AND SCHEDULES. The following Exhibits and Schedules
are attached to this Second Restated Agreement and made a part hereof for all
purposes:
Exhibit 4.1 Notice of Steam Supply Advance
Exhibit 5.3 Steam Supply Note
Exhibit 7.1.I Steam Supply Security Agreement-Collateral
Assignment of Note
Exhibit 10.1.D Allwaste Guaranty Confirmation Letter
Schedule 2.1 Lender's Percentages
14.10 MODIFICATION. All modifications, consents, amendments or waivers of
any provision of any Loan Document, or consent to any departure by the Borrowers
or the Guarantors therefrom, shall be effective only if the same shall be in
writing and agreed to by the Lenders and then shall be effective only in the
specific instance and for the purpose for which given.
14.11 WAIVER. The acceptance by the Agent or any of the Lenders of any
partial payment on the Obligations shall not be deemed to be a waiver of any
Event of Default then existing. No waiver by the Agent or any of the Lenders of
any Event of Default shall be deemed to be a waiver of any other then existing
or subsequent Event of Default, or Default. No delay or omission by the Agent or
any of the Lenders in exercising any right under the Loan Documents shall impair
that right or be construed as a waiver thereof or any acquiescence therein, or
shall any single or partial exercise of any right preclude other or further
exercise thereof or the exercise of any other right under the Loan Documents or
otherwise. Any waiver of any provision of this Second Restated Agreement or the
Notes or consent to any departure by the Borrowers therefrom must be authorized
as provided in Section 13.2, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on the Borrowers in any case shall entitle it to any other or further
notice or demand in similar or other circumstances. Each holder of any of the
Notes shall be bound by any amendment, modification, waiver or consent
authorized as provided herein, whether or not such Note shall have been marked
to indicate such amendment, modification, waiver or consent. The rights of the
Agent and the Lenders hereunder and under the Loan Documents shall be in
addition to all other rights provided by law.
14.12 GOVERNING LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN
NEGOTIATED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF NEW
YORK, AND THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT
TO THE CONFLICTS-OF-LAW RULES AND PRINCIPALS OF THE STATE OF NEW YORK, AND THE
APPLICABLE LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF THIS AGREEMENT AND ALL OF THE LOAN DOCUMENTS EXCEPT AS
SPECIFICALLY SET OUT IN ANY SUCH LOAN DOCUMENT.
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14.13 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION. Any suit, action
or proceeding against any Loan Party with respect to the Loan Documents, or the
enforcement of any judgment entered by any court in respect thereof, shall be
brought in the courts of the State of New York, or in the U.S. courts located in
State of New York, as the Agent, in the Agent's sole discretion, may elect. The
Agent, each Lender, and each Loan Party submit to the non-exclusive jurisdiction
of such courts for the purpose of any such suit, action or proceeding.
A. All parties irrevocably waive, in connection with any such suit,
action or proceeding, any objection, including, without limitation,
any objection to the laying of venue or based on the grounds of forum
non conveniens, which it may now or hereafter have to the bringing of
any such action or proceeding in such respective jurisdictions.
B. All parties irrevocably consent to the service of process of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to each such Person, as the case may be, at its address set
forth in Section 14.1.
C. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by law.
14.14 WAIVER OF JURY TRIAL. Each party hereto hereby waives any right it may
have to a trial by jury in respect of any in any legal proceeding directly or
indirectly arising out of, under or in connection with or relating to any of the
Loan Documents or the Transactions. Except as prohibited by law, each party
hereto hereby waives any right it may have to claim or recover in any litigation
referred to in this Section any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Each party
hereto (i) certifies that no representative, agent or attorney of the Agent or
any Lender has represented, expressly or otherwise, that such Lender would not,
in the event of litigation, seek to enforce the foregoing waivers, and (ii)
acknowledges that it has been induced to enter into this Second Restated
Agreement, the Notes and the other Loan Documents, as applicable, by, among
other things, the mutual waivers and certifications herein.
14.15 NO THIRD PARTY BENEFICIARY. Except as otherwise expressly set out
herein, the parties do not intend for the this Second Restated Agreement to
inure to the benefit of any third party, or for this Second Restated Agreement
to be construed to make or render the Agent or any of the Lenders liable to any
mechanic, materialman, supplier, contractor, subcontractor, purchaser or lessee
of any property owned by Borrowers or the Guarantors for debts or claims
accruing to any such Persons against Borrowers or the Guarantors. Neither the
Agent nor any of the Lenders, by anything herein or in any of the other Loan
Documents, assumes any Indebtedness of Borrowers or the Guarantors under any
contract or agreement assigned to the Agent or any of the Lenders, and neither
the Agent nor any of the Lenders shall be responsible in any manner for the
performance by the Borrowers or the Guarantors of any of the terms and
conditions thereof.
14.16 PAYMENT OF EXPENSES. The Borrowers shall pay all necessary and
reasonable expenses, charges, costs and fees provided for in this Second
Restated Agreement or relating to the Loans or the Collateral, including fees,
charges, and taxes in connection with recording or filing any of the Loan
Documents, charges, fees of any consultants, fees and expenses of the Agent's
counsel (which attorneys may be employees of the Agent), fees and expenses of
the Agent's special counsel, which may include fees billed for law clerks,
paralegals and other persons not admitted to the Bar but performing services
under the supervision of an attorney, printing, photocopying and duplicating
expenses, air
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freight charges, escrow fees, costs of surveys, premiums of insurance policies
and surety bonds, fees for any appraisal, market or feasibility study required
by the Agent fees for the preparation or review of any releases of any of the
Liens. All such expenses, charges, costs and fees shall be the Borrowers'
obligations regardless of whether or not the Borrowers have requested and met
the conditions for the Loans. This obligation on the part of the Borrowers shall
survive the execution and delivery of the Loan Documents and the repayment of
the Obligations. The Borrowers authorize the Agent to pay such expenses,
charges, costs and fees at any time by a disbursement of the Loans.
14.17 CONFLICTS. If there shall exist any conflict among this Second
Restated Agreement and any of the other Loan Documents, the provisions of this
Second Restated Agreement shall control.
14.18 ENTIRETY. The Loan Documents embody the entire agreement among the
parties and, except as expressly set out herein, supersede all prior agreements
and understandings, if any, relating to the subject matter hereof and thereof.
Except as expressly provided herein or the Loan Documents (other than this
Second Restated Agreement), nothing in this Second Restated Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any
party, other than the parties hereto, any rights, remedies, obligations or
liabilities under or by reason of this Second Restated Agreement or the other
Loan Documents. Notwithstanding the foregoing provisions, this Second Restated
Agreement amends, modifies, supplements and extends the provisions of the prior
Credit Agreement. The Borrowers and the Agent, for the benefit of the Lenders,
agree that the Loan Documents, as amended pursuant hereto and hereby, shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms. The Borrowers agree with the Agent, for the benefit of the
Lenders, that the extension of the Obligations pursuant to this Second Restated
Agreement do not constitute a novation or discharge of the prior Obligations
described in the prior Credit Agreement, and all Liens, security interests,
claims, conveyances, rights, and privileges described, granted, or made to or
for the Agent, for the benefit of the Lenders, by the Borrowers, or any of them,
shall be carried forward and shall continue in full force and effect to secure
the payment of all Obligations under the Loan Documents, as amended hereby. Any
and all other agreements to pay, secure or guarantee payment of the Obligations
by the Borrowers, or any of them, shall remain in full force and effect and
shall be carried forward to secure payment of the Obligations, as they have been
modified pursuant hereto.
14.19 RIGHT OF SETOFF. If an Event of Default shall have occurred and be
continuing, upon the request of the Lenders each Lender shall and is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to setoff and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of the Borrowers
against any and all of the obligations of the Borrowers now or hereafter
existing under this Second Restated Agreement and the Notes held by such Lender,
irrespective of whether or not such Lender shall have made any demand under this
Second Restated Agreement or the Notes and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Agent and the Borrowers
after any such setoff and application made by such Lender, but the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of each Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which may be
available to such Lender.
14.20 JOINT AND SEVERAL OBLIGATIONS. The Borrowers and the Guarantors are
jointly and severally responsible for their respective agreements, covenants,
representations and warranties and obligations contained in this Second Restated
Agreement.
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14.21 MULTIPLE COUNTERPARTS. This Second Restated 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 Second
Restated Agreement by signing any such counterpart.
THIS WRITTEN CREDIT AGREEMENT AND THE LOAN DOCUMENTS DESCRIBED HEREIN REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
In witness whereof, the parties have duly executed this Second Restated
Agreement on the day and year hereinabove first set forth.
HARLEY INDUSTRIES, INC. THE SAFE SEAL COMPANY, INC.
BY:/s/CHARLES F. SCHUGART BY:/s/CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
VALVE REPAIR OF SOUTH SPINSAFE CORPORATION
CAROLINA, INC.
BY:/s/CHARLES F. SCHUGART BY:/s/CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
THE SAFE SEAL COMPANY GSV, INC.
(CANADA), INC.
BY:/s/CHARLES F. SCHUGART BY:/s/CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
PLANT SPECIALTIES, INC.
BY:/s/CHARLES F. SCHUGART
CHARLES F. SCHUGART
SENIOR VICE PRESIDENT
THE CHASE MANHATTAN BANK, AGENT
BY:/s/JEFFREY S. ACKERMAN
JEFFREY S. ACKERMAN
VICE PRESIDENT
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Exhibit 10.1.D
Allwaste Guaranty Confirmation Letter
Allwaste Guaranty Agreement
July 28, 1997
The Chase Manhattan Bank, Agent for
The Chase Manhattan Bank and
Texas Commerce Bank National Association
New York, New York
Re: Guaranty Agreement (the "Guaranty Agreement") dated January 31, 1997,
executed by ALLWASTE, INC. to The Chase Manhattan Bank, as Agent for
The Chase Manhattan Bank and Texas Commerce Bank National Association
(the "Lenders") of loans (the "Loans") by the Lenders to The Safe Seal
Company, Inc., ET.EL. (the "Borrowers")
Gentlemen:
Reference is made to the Guaranty Agreement pursuant to which the Guarantor
guaranteed the performance and payment of certain of the Obligations therein
described. It is understood and agreed that the Borrowers, the Agent and the
Lenders are entering into a Second Amended and Restated Credit Agreement (the
"Second Restated Agreement").
The Borrowers have executed and delivered to the Lenders and, the Agent and the
Lenders, in reliance upon the terms of the Guaranty Agreement, have accepted
promissory notes (the "Steam Supply Notes") dated July 28, 1997. Pursuant to and
in accordance with the terms of the Guaranty Agreement, ALLWASTE, INC. confirms
and agrees that the Guaranty Agreement applies and shall continue to apply to
all Obligations of the Borrowers in connection with the Loans, as modified in
the Second Restated Agreement and the Steam Supply Notes, limited only as set
out in the Guaranty Agreement.
Respectfully,
ALLWASTE, INC.
BY:
WILLIAM L. FIEDLER
VICE PRESIDENT
<PAGE>
Schedule 2.1
Lenders' Percentages,
Lenders' Revolving Credit Commitment,
Lenders' Term Loan Commitment
Lenders' Steam Supply Commitment
NAME OF LENDER PERCENTAGE
The Chase Manhattan Bank 50.00 %
Texas Commerce Bank National Association 50.00 %
****************************************
LENDERS' RESPECTIVE REVOLVING CREDIT COMMITMENT
$10,000,000.00 Total Revolving Credit Commitment
NAME OF LENDER REVOLVING CREDIT COMMITMENT
The Chase Manhattan Bank $5,000,000.00
Texas Commerce Bank National Association $5,000,000.00
****************************************
LENDERS' RESPECTIVE TERM A LOAN COMMITMENT
$2,750,000.00 Total Term A Loan Commitment
NAME OF LENDER TERM A LOAN COMMITMENT
The Chase Manhattan Bank $1,350,000.00
Texas Commerce Bank National Association $1,350,000.00
****************************************
LENDERS' RESPECTIVE TERM B LOAN COMMITMENT
$4,750,000.00 Total Term B Loan Commitment
NAME OF LENDER TERM A LOAN COMMITMENT
The Chase Manhattan Bank $2,375,000.00
Texas Commerce Bank National Association $2,375,000.00
****************************************
LENDERS' RESPECTIVE STEAM SUPPLY COMMITMENT
<PAGE>
$5,000,000.00 Total Steam Supply Commitment
NAME OF LENDER REVOLVING CREDIT COMMITMENT
The Chase Manhattan Bank $2,500,000.00
Texas Commerce Bank National Association $2,500,000.00
<PAGE>
CREDIT AGREEMENT
INNOVATIVE VALVE TECHNOLOGIES, INC.
("INVATEC"), PUGET INVESTMENTS, INC.,
FLICKINGER-BENICIA, INC., STEAM SUPPLY &
RUBBER CO., INC., AND FLICKINGER COMPANY
BORROWERS
THE SAFE SEAL COMPANY, INC.
AGENT FOR
THE SAFE SEAL COMPANY, INC., HARLEY
INDUSTRIES, INC., VALVE REPAIR OF SOUTH
CAROLINA, INC., SPINSAFE CORPORATION,
THE SAFE SEAL COMPANY (CANADA), INC.,
GSV, INC. and PLANT SPECIALTIES, INC.
LENDERS
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................. 1
1.1 DEFINITIONS.................................................. 1
1.2 OTHER DEFINITIONS............................................ 16
ARTICLE II LOANS........................................................ 17
2.1 REVOLVING COMMITMENTS........................................ 17
2.2 BORROWING BASE............................................... 17
2.3 LOAN VALUE OF ELIGIBLE INVENTORY............................. 18
2.4 BORROWING PROCEDURE.......................................... 18
2.5 USE OF PROCEEDS.............................................. 19
2.6 REDUCTION OF COMMITMENT...................................... 19
2.7 REQUIRED PAYMENTS............................................ 20
ARTICLE III NOTE......................................................... 20
3.1 NOTE......................................................... 20
3.2 INTEREST RATE OPTIONS........................................ 20
3.3 APPLICABLE MARGIN............................................ 21
3.4 INTEREST RECAPTURE........................................... 22
3.5 DEFAULT RATE................................................. 22
3.6 MAXIMUM INTEREST............................................. 22
3.7 PAYMENTS ON THE NOTE......................................... 23
3.8 CALCULATION OF INTEREST RATES................................ 25
3.9 PREPAYMENTS.................................................. 25
3.10 MANNER OF PAYMENTS........................................... 26
3.11 RENEWALS OF NOTE............................................. 26
3.12 TAXES........................................................ 26
3.13 COMMITMENT FEES.............................................. 27
3.14 CONSEQUENTIAL LOSS........................................... 27
3.15 PAYMENTS IN RESPECT OF INCREASED COSTS....................... 28
ARTICLE IV SPECIAL PROVISIONS FOR EURODOLLAR LOANS...................... 29
4.1 INADEQUACY OF EURODOLLAR LOAN PRICING........................ 29
4.2 ILLEGALITY................................................... 29
4.3 EFFECT ON INTEREST OPTIONS................................... 30
4.4 PAYMENTS NOT AT END OF INTEREST PERIOD....................... 30
4.5 SURVIVAL OF OBLIGATIONS...................................... 30
ARTICLE V COLLATERAL FOR LOANS......................................... 30
5.1 COLLATERAL FOR LOANS......................................... 30
5.2 COLLATERAL DOCUMENTS......................................... 31
5.3 FURTHER ASSURANCES........................................... 31
5.4 OTHER LOANS.................................................. 31
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ARTICLE VI CUSTODY, INSPECTION, COLLECTION AND MAINTENANCE OF
COLLATERAL................................................... 31
6.1 CASH COLLATERAL ACCOUNT...................................... 31
6.2 COLLECTION OF ACCOUNTS....................................... 32
6.3 VERIFICATION OF ACCOUNTS..................................... 33
6.4 SALES OF INVENTORY........................................... 33
6.5 INSPECTIONS AND FIELD EXAMINATIONS........................... 33
6.6 REPORTS...................................................... 34
6.7 MATERIAL CONTRACTS........................................... 34
6.8 COMPLIANCE WITH LAW.......................................... 34
6.9 ACCESS....................................................... 35
6.10 PROTECTION................................................... 35
6.11 RIGHT TO RECEIVE............................................. 35
ARTICLE VII COVENANTS.................................................... 35
7.1 AFFIRMATIVE COVENANTS........................................ 35
7.2 FINANCIAL COVENANTS.......................................... 39
7.3 OTHER COVENANTS.............................................. 39
7.4 ERISA COMPLIANCE............................................. 41
7.5 INDEMNITY.................................................... 42
ARTICLE VIII CONDITIONS PRECEDENT......................................... 43
8.1 INITIAL ADVANCES............................................. 43
8.2 SUBSEQUENT ADVANCES.......................................... 46
ARTICLE IX REPRESENTATIONS AND WARRANTIES............................... 47
9.1 REPRESENTATIONS AND WARRANTIES CONCERNING THE BORROWERS...... 47
9.2 REGULATORY MATTERS........................................... 50
9.3 REPRESENTATIONS REGARDING ACCOUNTS........................... 52
9.4 REPRESENTATIONS REGARDING INVENTORY.......................... 53
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES................... 53
ARTICLE X DEFAULTS AND REMEDIES........................................ 53
10.1 EVENTS OF DEFAULT............................................ 53
10.2 REMEDIES..................................................... 56
10.3 NOTICES OF DEFAULT........................................... 56
ARTICLE XI AGENT........................................................ 57
11.1 APPOINTMENT.................................................. 57
11.2 AUTHORIZATION................................................ 57
11.3 RESPONSIBILITIES OF AGENT.................................... 57
11.4 RESIGNATION AND SUCCESSOR.................................... 59
11.5 NOTEHOLDERS.................................................. 59
11.6 CONSULTATION WITH COUNSEL.................................... 59
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11.7 EXPENSES AND INDEMNIFICATION................................. 59
11.8 BENEFIT AND APPLICABILITY OF ARTICLE......................... 59
ARTICLE XII ASSIGNMENT OF NOTE AND LIENS................................. 60
12.1 ASSIGNMENT OF NOTE AND LIENS................................. 60
12.2 NOTEMAKER ESTOPPEL CERTIFICATE............................... 60
ARTICLE XIII MISCELLANEOUS................................................ 60
13.1 NOTICES...................................................... 60
13.2 SEVERABILITY................................................. 61
13.3 CAPTIONS..................................................... 61
13.4 SUCCESSORS AND ASSIGNS....................................... 61
13.5 SYNDICATIONS................................................. 61
13.6 NON-LIABILITY OF THE AGENT AND THE LENDERS................... 61
13.7 FINANCING STATEMENTS......................................... 61
13.8 LIST OF EXHIBITS AND SCHEDULES............................... 61
13.9 MODIFICATION................................................. 62
13.10 WAIVER....................................................... 62
13.11 APPLICABLE LAW............................................... 62
13.12 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION......... 62
13.13 WAIVER OF JURY TRIAL. ...................................... 63
13.14 NO THIRD PARTY BENEFICIARY................................... 63
13.15 PAYMENT OF EXPENSES.......................................... 63
13.16 CONFLICTS.................................................... 64
13.17 ENTIRETY..................................................... 64
13.18 RIGHT OF SETOFF.............................................. 64
13.19 JOINT AND SEVERAL OBLIGATIONS................................ 64
13.20 ENTIRETY..................................................... 64
13.21 MULTIPLE COUNTERPARTS........................................ 64
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CREDIT AGREEMENT
This Credit Agreement (the "AGREEMENT") is made and entered into effective
July 28, 1997 (the "EFFECTIVE DATE") by and among:
INNOVATIVE VALVE TECHNOLOGIES, INC. ("INVATEC"), PUGET INVESTMENTS, INC.
("PUGET"), FLICKINGER-BENICIA, INC. ("BENICIA"), STEAM SUPPLY & RUBBER CO.,
INC. ("STEAM"), AND FLICKINGER COMPANY ("FLICKINGER" which with Invatec,
Puget, Benicia and Steam being sometimes herein collectively called the
"BORROWERS," and singly called a "BORROWER"); and,
THE SAFE SEAL COMPANY, INC. (the "AGENT"), as agent for THE SAFE SEAL
COMPANY, INC., HARLEY INDUSTRIES, INC., VALVE REPAIR OF SOUTH CAROLINA,
INC., SPINSAFE CORPORATION, THE SAFE SEAL COMPANY (CANADA), INC., GSV, INC.
and PLANT SPECIALTIES, INC. (collectively, the "LENDERS").
RECITALS
In consideration of the premises, for other good, fair and valuable
considerations, the receipt, adequacy and reasonable equivalency of which are
acknowledged, and for other valuable consideration, the parties agree as set out
herein.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement and the other Loan
Documents, unless the context requires otherwise, the following terms shall have
the respective meanings ascribed to them in this Article or in the Sections
referred to below:
"ACCOUNT DEBTORS" means all, and "ACCOUNT DEBTOR" means any account debtor,
customer or other obligor with respect to any of the Accounts.
"ACCOUNTS", "CHATTEL PAPER", "CONTRACTS", "CONTRACT RIGHTS", "DOCUMENTS",
"EQUIPMENT", "FIXTURES", "GENERAL INTANGIBLES", "GOODS", and "INSTRUMENTS" shall
have the meanings ascribed to such terms in the UCC, and shall mean the
Accounts, Chattel Paper, Contracts, Contract Rights, Documents, Equipment,
Fixtures, General Intangibles, Goods, and Instruments of each of the Borrowers
in which the Agent is granted security interests for the benefit of the Lenders
pursuant to the Loan Documents.
"ADJUSTED LIBOR RATE LOANS" means all, and "ADJUSTED LIBOR RATE LOAN" means any,
of the Loans, with respect to any Interest Period, which bears interest at a
rate of interest determined by reference to the LIBOR Rate for such Interest
Period.
"ADJUSTED LIBOR RATE" means, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the product of (i) the LIBOR Rate in effect for
such Interest Period, and (ii) Statutory Reserves.
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"ADVANCES" means all, and "ADVANCE" means any, of the disbursements by the
Lenders of the sums loaned to the Borrowers pursuant to this Agreement.
"AFFILIATE" of any Person means any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person and,
without limiting the generality of the foregoing, includes (i) any Person which
beneficially owns or holds five per cent or more of any class of Voting Shares
of such Person or five per cent or more of the equity interest in such Person,
(ii) any Person of which such Person beneficially owns or holds five per cent or
more of any class of Voting Shares or in which such Person beneficially owns or
holds five per cent or more of the equity interest in such Person and (iii) any
director, officer, member, manager or employee of such Person. For the purposes
of this definition, the term "CONTROL" (including, with correlative meanings,
the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect
to any Person, 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 Shares or by contract or otherwise.
"AGENT" shall have the meaning ascribed to such term in the preamble hereof.
"AGREEMENT" means this Agreement, as it may, from time to time, be amended.
"ALTERNATE BASE RATE LOANS" means that portion of any Loan which bears interest
at a rate of interest determined by reference to the Alternate Base Rate.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater
of (i) the Base Rate in effect on such day, (ii) the Base CD Rate in effect on
such day PLUS one (1) per cent, or (iii) the Federal Funds Effective Rate in
effect on such day PLUS one-half (1/2) of one (1) per cent. If Chase shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate,
or both, for any reason, including the inability or failure of Chase to obtain
sufficient quotations in accordance with the terms hereof, the Alternate Base
Rate shall be determined without regard to clause (ii) or (iii), or both, of the
first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Base Rate, the Base CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Base Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"APPLICABLE MARGIN" shall have the meaning ascribed to such term in Section 3.3.
"ASSESSMENT RATE" means the annual assessment rate (net of refunds) estimated by
Chase (in good faith, but in no event in excess of statutory or regulatory
maximums) to be payable by Chase to the Federal Deposit Insurance Corporation
(or any successor) for insurance to such Governmental Authority (or such
successor) of time deposits made in Dollars at the U.S. offices of Chase during
the current calendar year.
"AVAILABILITY" means, at any time, with respect to the Loans, the lesser, at
such time, of the Commitment (as such amount may be reduced or increased in
accordance with the provisions of this Agreement), and the Borrowing Base, MINUS
the sum, at such time, of (i) the unpaid principal balance of, and accrued
interest and fees on, the Loans, and (ii) the Reserves established by the Agent
pursuant to Section 2.2.B.
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"BASE CD RATE" means the sum of (i) the product of (a) the Three-Month Secondary
CD Rate, and (b) Statutory Reserves, and (ii) the Assessment Rate.
"BASE RATE" means the variable rate of interest announced from time to time by
Chase as the prime rate, and used by Chase as a general reference rate of
interest, but which rate of interest may not be the lowest rate charged by Chase
on similar loans. If Chase shall, during the term of this Agreement, abolish or
abandon the practice of announcing or publishing a "PRIME RATE", then the "BASE
RATE" used during the remaining term of this Agreement shall be that interest
rate or other general reference rate then in effect and used by Chase, which,
from time to time, in the judgment of Chase, most effectively approximates the
initial definition of the "BASE RATE".
"BOARD" means the Board of Governors of the Federal Reserve System of the U.S.
"BORROWERS" means all, and "BORROWER" means any, of Invatec, Puget, Benicia,
Steam, Flickinger and any other Consolidated Subsidiary of any of them which the
Lenders may, at the time of its acquisition or formation by a Borrower, require
to become a Borrower hereunder.
"BORROWING BASE CERTIFICATE" means any of the certificates attached to a
Certificate of Compliance and delivered by Borrowers to the Agent calculating
the Borrowing Base pursuant to Section 7.1.A.(6).
"BORROWING BASE" means the amounts calculated pursuant to Section 2.2 to
determine the Availability.
"BORROWING DATE" means the date (which must be a Business Day) specified in any
Notice of Borrowing, as a date on which the Borrowers request the Agent make an
Advance.
"BORROWING" means any amount disbursed by the Agent, (i) to or on behalf of the
Borrowers under the Loan Documents, whether such amount advanced constitutes an
original disbursement of funds, the continuation of an amount outstanding, or
(ii) a disbursement of funds in accordance with and to satisfy the Obligations.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or legal holiday in
the State of New York, on which banks are open for substantially all their
banking business in New York, New York except that, if any determination of a
"BUSINESS DAY" shall relate to a Eurodollar Loan, the term "BUSINESS DAY" shall,
in addition, exclude any day on which banks are not open for dealings in Dollar
deposits in the London interbank market.
"CAPITAL EXPENDITURE" means any expenditure by a Person for an asset which will
be used in a year or years subsequent to the year in which the expenditure is
made and which asset is properly classifiable in relevant financial statements
of such Person as equipment, real property, improvements, fixed assets, or a
similar type of capitalized asset in accordance with GAAP.
"CAPITAL LEASE" means, as of any date, any lease of property, real or personal,
which would be capitalized on a balance sheet of the lessee prepared as of such
date in accordance with GAAP, together with any other lease by such lessee which
is in substance a financing lease, including, without limitation, any lease
under which (i) such lessee has or will have an option to purchase the property
subject thereto at a nominal amount or at an amount less than a reasonable
estimate of the fair market value of such property as of the date such lease is
entered into, or (ii) the term of the lease approximates or exceeds the expected
useful life of the property leased thereunder.
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"CASH COLLATERAL ACCOUNT" means the non-interest bearing cash collateral account
established with Chase in the names of the Borrowers pursuant to Section 6.1,
and the Lockbox Agreement.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended from time to time, and all regulations and
rulings issued thereunder.
"CERTIFICATE OF COMPLIANCE" means any of the certificates delivered by the
Borrowers pursuant to Section 7.1.A.(6).
"CHANGE OF CONTROL" means (i) if any Person, or group of Persons acting together
shall acquire sufficient stock ownership of any of the Borrowers to permit such
Person or group to elect a majority of the Board of Directors of any Borrower or
otherwise control any Borrower, (ii) if there shall occur any merger,
consolidation or dissolution of any Borrower with any other Person, or (iii) if
there shall occur any sale, lease or other disposition of all or substantially
all of the assets or capital stock of any Borrower to any other Person.
"CHASE" means The Chase Manhattan Bank, whose address, for the purposes of this
Agreement, is Asset Based Lending, 633 Third Avenue, 7th Floor, New York, New
York 10017, Attention: Credit Deputy.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COLLATERAL DOCUMENTS" means all security agreements, security agreement-pledges
and any other agreements or documents executed or delivered to secure the
repayment of the Obligations or any part thereof.
"COLLATERAL" means and includes all of each Borrower's assets now owned or
hereafter acquired.
"COMMITMENT FEE" shall have the meaning set forth in Section 3.13.
"COMMITMENT PERIOD" means the period beginning on the Effective Date and ending
on the earlier of (i) the Commitment Termination Date, or (ii) the date on which
the obligations of the Lenders to fund Advances hereunder terminates after the
occurrence of an Event of Default.
"COMMITMENT TERMINATION DATE" means January 30, 2000, or if such date is not a
Business Day, then the Business Day preceding such date.
"COMMITMENT" means obligations of the Lenders to extend credit to the Borrowers
in the amount of $5,000,000.00, as same may be adjusted from time to time
pursuant to the terms of Section 2.6.
"CONSEQUENTIAL LOSS" shall have the meaning set forth in Section 3.14.
"CONSOLIDATED SUBSIDIARIES" means Puget and Benicia as to Invatec, and Steam and
Flickinger as to Puget, and any other entity acquired by any of the Borrowers,
the capital stock of which is owned in its entirety by a Borrower or a wholly
owned direct subsidiary of a Borrower, and "CONSOLIDATED SUBSIDIARY" means any
of them.
"CONTRACT RATE" means the rates of interest on the Loans calculated as set out
in Section 3.2.A.
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"CONTROLLED GROUP" means (i) the controlled group of corporations as defined in
ss.1563 of the Code, or (ii) the group of trades or businesses under common
control as defined in ss.414(c) of the Code, of which a Borrower is or may
become a part.
"CONVERSION DATE" shall have the meaning ascribed to such term in Section
3.2.A.(4).
"DEBTOR LAWS" means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization or similar
laws, from time to time in effect, affecting the rights of creditors generally.
"DEFAULT RATE" shall have the meaning ascribed to such term in Section 3.5.
"DEFAULT" shall have the meaning ascribed to such term in Section 10.1.
"DIVIDENDS" means in respect of any Person, (i) cash distributions or any other
distributions (including distributions by tax-option corporations) on, or in
respect of, any class of capital stock of such Person, whether in cash,
property, securities or a combination thereof (whether by reduction of capital
or otherwise), except for distributions made solely in shares of stock of the
same class, and (ii) any and all funds, cash or other payments (or the setting
aside of any amounts for any such purpose) made in respect of the redemption,
repurchase or acquisition of such stock, unless such stock shall be redeemed or
acquired through the exchange of such stock with stock of the same class.
"DOLLARS" and the symbol "$" shall refer to currency of the U.S.
"EBITDA" means for any fiscal period of the Borrowers, the sum of the following
which would be reflected on the consolidated income statement of the Borrowers
prepared in accordance with GAAP, (i) net income; PLUS, (ii) income taxes; PLUS
(iii) Interest Expense; PLUS, (iv) non-cash charges in respect of depreciation
and amortization.
"EFFECTIVE DATE" has the meaning ascribed to such term in the preamble hereof.
"ELIGIBLE ACCOUNTS" means, at the time of any determination thereof, each
Account of a Borrower as to which the following requirements have been fulfilled
to the satisfaction of the Agent. Standards of eligibility may be fixed and
revised from time to time solely by the Agent in the Agent's judgment. In
general, without limiting the foregoing, an Account shall in no event be deemed
to be an Eligible Account unless:
A. A Borrower has lawful and absolute title to the Account and the Account
constitutes an "ACCOUNT" within the meaning of the UCC.
B. All payments due on the Account have been invoiced and the Account is
not evidenced by any Chattel Paper, promissory note, or other
Instrument.
C. The Account is a valid, legally enforceable obligation of an Account
Debtor who is obligated under the Account for goods or services
previously delivered or rendered to the Person and the Account has not
been outstanding for more than ninety (90) days from invoice date.
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D. There has been excluded from the Account any portion that is subject to
any dispute, setoff, counterclaim, contras, chargebacks, net-out
contract, deduction, credits, returns, discounts, and allowances of any
nature at any time issued, owing, granted, outstanding, available or
claimed, and other claim or defense on the part of the Account Debtor
or any claim on the part of the Account Debtor denying liability for
the Account.
E. The Account Debtor has finally accepted the goods or services from the
sale out of which the Account arose and has not objected to goods or
services or returned any of such goods, except for complaints made or
goods returned in the ordinary course of business for which, in the
case of goods returned, goods of equal or greater value have been
shipped in return.
F. A Borrower has the full and unqualified right to assign and grant a
security interest in the Account to the Agent as security for the
Obligations.
G. The Account is subject to a fully perfected first priority security
interest and Lien in favor of the Agent for the benefit of the Lenders
pursuant to the Loan Documents, prior to the rights of, and enforceable
as such, against any other Person.
H. The Account is not subject to any Lien in favor of any Person other
than the Lien of the Agent pursuant to the Loan Documents.
I. The Account arose from a transaction in the ordinary course of business
of the Borrower from a completed, outright and lawful sale of goods to
which title (subject to any security interests retained by the Borrower
or created by an Account Debtor in favor of the Borrower) has passed to
the Account Debtor, or for the rendering of services by or on behalf of
the Borrower to the Account Debtor.
J. The Account Debtor has not asserted that the Account, and the Borrower
is not aware that the Account, arises out of a bill and hold,
consignment or progress billing arrangement.
K. An Eligible Account shall not include any Account from an Account
Debtor who is obligated to a Borrower on any Account whatsoever if more
than fifty (50) per cent of the Accounts of that Account Debtor has
been due and payable for more than ninety (90) days from the invoice
date.
L. The Account Debtor is a U.S. Person and no Account Debtor in respect of
the Account is, (i) primarily conducting business in any jurisdiction
located outside the U.S., except those Accounts secured by letters of
credit specifically approved by the Agent, (ii) an Affiliate of a
Borrower or a Consolidated Subsidiary, (iii) any Governmental
Authority, domestic or foreign, unless secured by an assignment of
claims in form and content satisfactory to the Agent, and duly
confirmed by the Governmental Authority, or (iv) the subject of a
proceeding under any Debtor Laws.
M. An Eligible Account shall not include an Account from or among any
Affiliates of the Borrowers or an Account which arises out of a
transaction in which any Borrower or Consolidated Subsidiary shall have
provided any surety or guaranty bond to the Account Debtor or other
Person.
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N. The Account complies with all material requirements of all applicable
laws and regulations, whether Federal, state or local.
O. The Account is denominated in and provides for payment by the Account
Debtor in Dollars.
P. The Account has not been and is not required to be charged off or
written off as uncollect-ible in accordance with GAAP or the customary
business practice a Borrower.
Q. The Agent shall have the right to approve, in the Agent's business
judgment, the credit-worthiness of the Account Debtor.
"ELIGIBLE INVENTORY" shall mean the Inventory described in Section 2.3, however,
there shall be excluded from Eligible Inventory any item in which the Lenders do
not have a perfected first priority Lien except as permitted in Section 2.3.
"EMPLOYEE PLAN" means any, and "EMPLOYEE PLANS" means all, employee benefit or
other plans maintained, in whole or in part, for the employees of the Borrowers
and the Consolidated Subsidiaries or any ERISA Affiliate, and covered by Title
IV of ERISA, or subject to the minimum funding standards under ss.412 of the
Code.
"ENVIRONMENTAL LAWS" means all Requirements relating to pollution or protection
of the environment (including, but not limited to, ambient air, surface water,
groundwater, land surface, and subsurface strata), including, but not limited
to, CERCLA/SARA, RCRA/HSWA, and other laws relating to (i) Hazardous Materials,
or (ii) the generation, manufacture, processing distribution, use treatment,
handling, storage, disposal or transportation of Hazardous Materials.
"ERISA AFFILIATE" means any Person which, together with a Borrower or any
Subsidiary, would be treated as a single employer under the provisions of Title
I or Title IV of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
together with all regulations issued pursuant thereto.
"EURODOLLAR LOANS" means all, and "EURODOLLAR LOAN" means any, of the Loans,
with respect to any Interest Period, which bears interest at a rate of interest
determined by reference to the Adjusted LIBOR Rate for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in Section 10.1.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by Chase from three Federal
funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means, with respect to any Person, the chairman, the
president, the chief executive officer, or the chief financial officer of such
Person.
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"FINANCIAL STATEMENTS" means all, and "FINANCIAL STATEMENT" means any, of the
balance sheets, income statements stockholders statements and statements of cash
flow and contingent liabilities of the Borrowers and the Consolidated
Subsidiaries.
"FINANCING STATEMENT" means each UCC-1 financing statement sufficient for
purposes of perfecting the Agent's security interest for the benefit of the
Lenders in the Collateral pursuant to the UCC.
"FISCAL YEAR" means the fiscal year of Invatec for accounting purposes ending
each December 31.
"FUNDED DEBT RATIO" means Funded Debt divided by EBITDA.
"FUNDED DEBT" means interest bearing Indebtedness (including Subordinated
Indebtedness) and preferred stock.
"FUNDING ACCOUNT" means the non-interest bearing account established pursuant to
Section 2.4.
"GAAP" means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board ("FASB") or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the Effective
Date so as to properly reflect the financial condition, and the results of
operations and cash flows, of the Borrowers, except that any accounting
principle or practice required to be changed by the Accounting Principles Board
or FASB (or other appropriate board or committee of the boards) in order to
continue as a generally accepted accounting principle or practice, may be so
changed. In the event of a change in GAAP, the Agent and the Borrowers will
thereafter negotiate in good faith to revise any covenants of this Agreement
affected thereby in order to make such covenants consistent with GAAP then in
effect. If no agreement is reached, the financial covenants shall be calculated
based on GAAP before any change in GAAP.
"GOVERNMENTAL AUTHORITY" means any government (or any political subdivision or
jurisdiction thereof), court, bureau, agency or other governmental authority,
domestic or foreign, having jurisdiction over any Borrower or any Borrower's
business or properties.
"GUARANTY" means any contract, agreement or understanding of any Person pursuant
to which such Person guarantees, or in effect guarantees, in writing any
Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, agreements: (i) To
purchase such Indebtedness or any property constituting security therefor; (ii)
to advance or supply funds (a) for the purchase or payment of such Indebtedness,
or (b) to maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the purchase or
payment of such Indebtedness; (iii) to purchase property, securities or service
primarily for the purpose of assuring the holder of such Indebtedness of the
ability of the Primary Obligor to make payment of the Indebtedness; or, (iv)
otherwise to assure the holder of the Indebtedness of the Primary Obligor
against loss in respect thereof. "GUARANTY" shall not include, however, the
indorsement of negotiable instruments or documents for deposit or collection by
a Borrower in the ordinary course of business.
"HAZARDOUS MATERIALS INDEMNIFICATION AGREEMENT" means the agreement executed
pursuant to Section 7.1.Q.
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"HAZARDOUS MATERIALS" means hazardous substances (as defined in CERCLA/SARA and
regulations promulgated thereunder), hazardous wastes (as defined in RCRA/HSWA
and regulations promulgated thereunder), Class I Industrial Solid Wastes,
asbestos or asbestos-containing materials or poly-chlorinated biphenyl, and any
material quantities of any other pollutants or contaminants, including, but not
limited to, any material quantities of any flammable material, explosive
materials, radioactive materials, waste oil, or used oil. In the event that
either CERCLA/SARA or RCRA/HSWA is ever amended to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment. To the extent the Environmental Laws in effect
in any State wherein any of the Premises are located establish a meaning of
"HAZARDOUS SUBSTANCES" or "HAZARDOUS WASTES" which is broader than that
specified in either CERCLA/SARA or RCRA/HSWA, such broader meaning shall apply.
"HSWA" means the Hazardous and Solid Waste Amendments of 1984, as amended from
time to time, and all regulations and rulings issued thereunder.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including, without limitation: (i) All
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP; (ii) all obligations of such Person in respect of any
Guaranty; (iii) all obligations, indebtedness and liabilities secured by any
Lien or any security interest on any property or assets of such Person; and,
(iv) all issued and outstanding preferred stock, which is redeemable by the
holder of such stock, of such Person valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends.
"INTANGIBLE ASSETS" means those assets of any Person which are (i) deferred
assets, other than prepaid insurance and prepaid taxes, (ii) patents,
copyrights, trademarks, trade names, franchises, goodwill, experimental
expenses, covenants not to compete and other similar assets which would be
classified as intangible assets on a balance sheet of such Person, prepared in
accordance with GAAP, (iii) unamortized debt discount and expense, and (iv)
assets located, and notes and receivables due from obligors domiciled, outside
of the U.S. unless same are backed fully by negotiable letters of credit issued
or confirmed by U.S. banks which are satisfactory to Agent.
"INTEREST OPTION" shall have the meaning ascribed to such term in Section 3.2.
"INTEREST PAYMENT DATE" means (i) as to any Adjusted Base Rate Loan, (a) the
last day of each month commencing on the first of such days to occur after such
Loan is made or any Adjusted Libor Rate Loan is converted to a Base Rate Loan,
and (b) the Commitment Termination Date, and (ii) as to any Eurodollar Loan, (a)
the last day of each month commencing on the first of such days to occur after
such Loan is made and the last day of the Interest Period for such Loan, and (b)
the Commitment Termination Date.
"INTEREST PERIOD" means, with respect to any Eurodollar Loan, the period
commencing on the Borrowing Date and ending on the Commitment Termination Date,
consistent with the following provisions. The duration of each Interest Period
shall be selected by the Borrowers in a Notice of Borrowing as provided in
Section 2.1 or a Rollover Notice as provided in Section 3.2.A.(3):
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A. With respect to Eurodollar requested by Borrowers:
(1) Initially, the period commencing on the Borrowing Date or
Conversion Date with respect to such Eurodollar Loan and ending one
(1), two (2), three (3) or six (6) months thereafter; and,
(2) Thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Eurodollar
Loan and ending one (1), two (2), three (3) or six (6) months
thereafter, as selected by the Borrowers in a Rollover Notice.
B. Each Interest Period shall be as selected by the Borrowers, subject to
the Agent's consent, at the Agent's sole discretion. The Borrowers'
choice of Interest Period is also subject to the following limitations:
(1) No Interest Period shall end on a date after the Commitment
Termination Date; and,
(2) If the last day of an Interest Period would be a day other than a
Business Day, the Interest Period shall end on the next succeeding
Business Day (unless the Interest Period relates to a Eurodollar Loan
and the next succeeding Business Day is in a different calendar month
than the day on which the Interest Period would otherwise end, in which
event the Interest Period shall end on the preceding Business Day).
"INVENTORY DESIGNATION REPORT" means each written report delivered to the Agent
pursuant to Section 7.1.A.(5) designating the Inventory which is intended to be
included in Eligible Inventory.
"INVENTORY" means, as of any date, (i) the inventory which would be reflected on
the balance sheet of the Borrowers as of such date prepared in accordance with
GAAP, and (ii) the assets of the Borrowers held for sale, and (iii) in all
instances inventory in which the Agent is granted security interests pursuant to
the Loan Documents.
"INVESTMENT" means any investment in any period, whether by means of share
purchase, loan, advance, extension of credit, capital contribution or otherwise,
in or to a Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person.
"IRS" means the Internal Revenue Service, Department of the U.S. Treasury, an
agency of the U.S. government.
"LANDLORD AGREEMENTS" means all, and "LANDLORD AGREEMENT" means any, of the
agreements executed pursuant to the provisions Section 8.1.E.
"LEASEHOLDS" means all, and "LEASEHOLD" means any, (i) of the leases described
in Schedule 8.1.E by which a Borrower is entitled to occupy and use the
Premises, and (ii) any and all other leases, sub-leases, licenses, concessions
or other agreements, written or verbal, now or hereafter in effect, which grant
a possessory interest in and to, or the right to use, all or any portion of the
Premises and any other leased real property.
"LENDERS" means all, and "LENDER" means any, of the Lenders described in the
preamble hereof.
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"LIBOR RATE" means, with respect to any Eurodollar Loan for any Interest Period,
an interest rate per annum equal to the rate at which Dollar deposits
approximately equal in principal amount to the Euro-dollar Loan requested and
for a maturity equal to the applicable Interest Period are offered for
Eurodollars in immediately available funds to the London branch of Chase by
leading banks in whatever Eurodollar interbank market may be selected by Chase,
in its sole discretion, at approximately 11:00 A.M., London time, two (2)
Business Days prior to the first day of such Interest Period.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement, under any statute or law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Note, including any renewals,
extensions and modifications thereof, the Collateral Documents and any
agreements or documents executed or delivered pursuant to the terms of this
Agreement, and with respect to this Agreement, and such other agreements and
documents, any amendments or supplements thereto or modifications thereof.
"LOAN PARTIES" means the Borrowers and any Person who becomes a Borrower after
the Effective Date, and the term "LOAN PARTY" means any of them.
"LOANS" means the aggregate unpaid principal balance of all Borrowing made under
Section 2.1.
"LOCKBOX AGREEMENT" means the agreement executed pursuant to Section 6.1.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on, (i) the
validity, performance, or enforceability of any of the Loan Documents, (ii) the
financial condition or business operations of any Loan Party, (iii) the ability
of any of the Borrowers to fulfill the Obligations, and/or (iv) the value of the
Collateral.
"MATERIAL CONTRACTS" shall have the meaning set out in Section 6.7.
"MAXIMUM RATE" and "MAXIMUM AMOUNT" respectively mean the maximum non-usurious
rate and the maximum non-usurious amount of interest permitted by applicable
laws that at any time, or from time to time, may be contracted for, taken,
reserved, charged or received on the Obligations under the laws which are
presently in effect of the U.S. and the State of New York, applicable to the
holders of the Note or, to the extent permitted by law, under such applicable
laws of the U.S. and the State of New York which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws now
allow.
"NET INCOME" or "NET LOSS" means, with respect to any Person other than an
individual for any period, the aggregate income (or loss) of such Person for
such period which shall be an amount equal to net revenues and other proper
items of income for such Person less the aggregate for such Person of any and
all expenses, and less Federal, state and local income taxes, but excluding any
extraordinary gains or losses or any gains or losses from the sale or
disposition of assets other than in the ordinary course of business, all of the
foregoing being computed and calculated in accordance with GAAP.
"NET WORTH" means, with respect to any Person at any time, the sum of such
Person's capital stock, capital in excess of par or stated value of shares of
its capital stock, retained earnings, and any other account which, in accordance
with GAAP constitutes stockholders' equity.
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"NOTEMAKER ESTOPPEL CERTIFICATE" shall have the meaning set out in Section
8.1.C.
"NOTES" means all, and "NOTE" means the Note executed and delivered pursuant to
Section 3.1, together with any renewals, extensions or modifications thereof.
"NOTICE OF BORROWING" shall have the meaning ascribed to such term in Section
2.1.
"OBLIGATIONS" mean:
A. All present and future indebtedness, obligations and liabilities of any
Loan Party to any of the Lenders arising pursuant to any of the Loan
Documents, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, joint, several, or
joint and several;
B. All costs incurred by the Agent or any of the Lenders to obtain,
preserve, perfect and enforce the Liens and security interests securing
payment of such indebtedness, liabilities and obligations, and to
maintain, preserve and collect the property in which any of the Lenders
has been granted a Lien to secure payment of the Loans, or any part
thereof, including but not limited to, taxes, assessments, insurance
premiums, repairs, attorneys' fees and legal expenses, rent, storage
charges, advertising costs, brokerage fees and expenses of sale; and,
C. Any other Indebtedness of any Loan Party owing, or which may hereafter
become owing, by any Loan Party to the Agent or any of the Lenders,
arising out of any overdraft or pursuant to any agreement directly
among any Loan Party with the Agent or any of the Lenders; and,
D. All renewals, extensions and modifications of the Indebtedness referred
to in the foregoing clauses, or any part thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to all
or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
"PENSION PLAN" means any Employee Plan which is subject to the provisions of
Title IV of ERISA.
"PERMITS" shall have the meaning ascribed in Section 9.1.R.
"PERMITTED LIENS" means: (i) Liens granted to the Agent for the benefit of the
Lenders to secure the Obligations; and, (ii) pledges or deposits made to secure
payment of worker's compensation insurance (or to participate in any fund in
connection with worker's compensation insurance), unemployment insurance,
pensions or social security programs; and, (iii) Liens imposed by mandatory
provisions of law such as for materialmen's, mechanics', warehousemen's and
other like Liens arising in the ordinary course of business securing
Indebtedness the payment for which is not yet due, or if same is due, it is
being contested in good faith and as to which a bond has been provided; and,
(iv) Liens for taxes, assessments and governmental charges or levies imposed
upon a Person or upon such Person's income or profits or property, if the same
are not yet due and payable or if the same are being contested in good faith and
as to which adequate cash reserves have been provided; and, (v) Liens arising
from good faith deposits in connection with tenders, leases, real estate bids or
contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and
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deposits to secure the payment of taxes, assessments, customs duties or other
similar charges; and, (vi) encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, provided that such
items do not impair the use of such property for the purposes intended, and none
of which is violated by existing or proposed structures or land use; and, (vi)
Scheduled Liens.
"PERSON" shall include an individual, a corporation, non-profit corporation, a
professional association, a joint venture, a general partnership, a limited
partnership, a limited liability company, a limited liability partnership, a
trust, an unincorporated organization or a government or any agency or political
subdivision thereof.
"PLEDGED STOCK" shall have the meaning ascribed to such term in Section 5.1.B
but shall not include the presently outstanding preferred stock (the "Preferred
Stock") of Puget.
"PREMISES" collectively means the leased properties or demised premises
described in each of the Leaseholds.
"PREPAYMENT CHARGE" means a prepayment charge on, as applicable, the amount of
the reduction in the Commitment made pursuant to Section 2.6 and equal to (a)
one and one-half (1 1/2) per cent if such prepayment or reduction occurs after
July 31, 1997, but on or before January 31, 1998, (b) one (1) per cent if such
prepayment or reduction occurs after January 31, 1998, but on or before July 31,
1998, or (c) one-half (1/2) of one (1) per cent if such optional prepayment or
reduction occurs after July 31, 1998, but on or before January 31, 1999. No
Prepayment Charge shall be due and owing by the Borrowers for any optional
prepayment or reduction after January 31, 1999.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as amended from
time to time, and all regulations and rulings issued thereunder.
"REGULATION D" means Regulation D of the Board, 12 C.F.R. Part 204, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION G" means Regulation G of the Board, 12 C.F.R. Part 207, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION T" means Regulation T of the Board, 12 C.F.R. Part 220, as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"REGULATION U" means Regulation U promulgated by the Board, 12 C.F.R. Part 221,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation U and having substantially the same function.
"REGULATION X" means Regulation X promulgated by the Board, 12 C.F.R. Part 224,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation X and having substantially the same function.
"REGULATORY DEFECTS" means the failure by any Borrower to comply with all laws,
statutes, orders, rules and regulations of any Governmental Authority, and such
failure to comply has a Material Adverse Effect.
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"RENTALS" of any Person means, as of any date, the aggregate amount of the
obligations and liabilities, including future obligations and liabilities not
yet due and payable, of such Person to make payments under leases, subleases and
similar arrangements for the use of real, personal or mixed property, other than
leases which are Capital Leases.
"REPORTABLE EVENT" shall have the meaning ascribed to such term in Title IV of
ERISA.
"REQUIREMENTS" means (i) any and all present and future judicial decisions,
statutes, rulings, rules, regulations, orders, permits, certificates or
ordinances of any Governmental Authority in any manner applicable to any Loan
Party or any of their respective properties, and (ii) any and all contracts,
written or oral, of any nature to which any Loan Party or any of their
respective properties may be bound.
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive
officer, the president, the chief financial officer or the controller, of such
Person.
"SARA" means the Superfund Amendments and Reauthorization Act of 1986, as
amended from time to time, and all regulations and rulings issued thereunder.
"SECURITY AGREEMENT-PLEDGES" means all, and "SECURITY AGREEMENT-PLEDGE" means
each first priority Security Agreement-Pledge executed pursuant to Section
5.1.B.
"SECURITY AGREEMENTS" means all, and "SECURITY AGREEMENT" means each first
priority Security Agreement executed pursuant to Section 5.1.A.
"SOLVENT" means, with respect to any Person on a particular date, that on such
date (i) the fair value of the property of such Person is greater than the total
amount of liabilities, including, without limitation, contingent liabilities, of
such Person, (ii) the present fair salable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on the Person's debts as they become absolute and matured, (iii)
such Person is able to realize upon the Person's assets and pay the Person's
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"STATUTORY RESERVES" shall, on any day, mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any basic, marginal, special,
emergency, or supplemental reserves) expressed as a decimal established by the
Board (or any successor governmental body) and any other banking authority to
which Chase is subject, however:
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A. With respect to the Base CD Rate for new negotiable non-personal time
deposits in Dollars of over $100,000.00 and with maturities
approximately equal to three (3) months, the actual reserves
established by the Board; and,
B. With respect to the Adjusted LIBOR Rate for Eurocurrency Liabilities,
as defined in Regu- lation D, such reserve percentages ("EURODOLLAR
RESERVE REQUIREMENT") shall include, without limitation, those imposed
under Regulation D or under any similar or successor regulation with
respect to Eurocurrency Liabilities or Eurocurrency funding. Eurodollar
Loans shall be deemed to constitute Eurocurrency Liabilities and as
such shall be deemed to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or setoffs which may be
available from time to time to any bank under Regulation D. Each
determination by Chase of the Eurodollar Reserve Requirement shall, in
the absence of manifest error, be conclusive and binding.
C. Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of a Borrower or a
Consolidated Subsidiary which expressly contains in the instruments evidencing
the Indebtedness or in the indenture or other similar instrument under which
Indebtedness is issued (which indenture or other similar instrument shall be
binding on all holders of the Indebtedness), subordination provisions (in form
and substance satisfactory to the Lenders) substantially to the effect that the
holders agree that the Indebtedness evidenced by such instrument, any renewals
or extensions thereof, shall at all times and in all respects be subordinate and
junior in right of payment to the Obligations and subject to a Subordination
Agreement.
"SUBORDINATION AGREEMENT" means each Subordination Agreement executed pursuant
to Section 8.1.D.
"SUBSIDIARY" means, with respect to any Person, the parent of such Person, any
corporation, association or other business entity of which securities or other
ownership interests representing more than fifty (50) per cent of the Voting
Shares or the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled, directly or indirectly, by the
parent or one or more Subsidiaries of the parent.
"TANGIBLE NET WORTH" means, with respect to any Person at any time, the sum of
such Person's capital stock, capital in excess of par or stated value of shares
of its capital stock, retained earnings, and any other account which, in
accordance with GAAP constitutes stockholders' equity, LESS treasury stock, LESS
the amount of any write-up subsequent to the Effective Date in the value of any
asset above the cost or depreciated cost thereof to such Person, LESS the book
value of all Intangible Assets which would be treated as intangibles under GAAP,
including, without limitation, goodwill, trademarks, tradenames, patents,
copyrights and licenses, covenants not to compete.
"TEMPORARY CASH INVESTMENT" shall mean any Investment maturing within one (1)
year of the date of acquisition thereof, (i) in direct, readily marketable
obligations of the U.S. or obligations fully guaranteed by the U.S., (ii)
commercial paper rated in the highest grade by Standard & Poor's Corporation or
Moody's Investor Service, Inc. (collectively, the "RATING AGENCIES"), and (iii)
Dollar time deposits with, and certificates of deposit and banker's acceptances
issued by, Chase, Texas Commerce or any domestic U.S. bank having capital
surplus and undivided profits aggregating at least
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$5,000,000.00 and whose long-term debt rating is at least investment grade
determined by the Rating Agencies.
"TEXAS COMMERCE" mean Texas Commerce Bank National Association, whose address,
for the purposes of this Agreement, is 712 Main Street, P.O. Box 2558, Houston,
Texas 77252-2558.
"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding Business Day)
by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York, New York, received at approximately 10:00 a.m., New York, New York,
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by Chase from three New York, New York negotiable
certificate of deposit dealers of recognized standing selected by it.
"TITLE DOCUMENTS" means any all warehouse receipts, bills of lading or similar
documents of title relating to goods in which any of the Borrowers at any time
has an interest, whether now, or at any time or times hereafter, issued to the
Borrowers or the Agent by any Person, and whether covering Inventory or
otherwise.
"TRANSACTIONS" shall have the meaning ascribed to such term in Section 9.1.B.
"UCC" means the Uniform Commercial Code in effect in the applicable jurisdiction
in which any of the Collateral is located.
"UNITED STATES" and "U.S." each means the United States of America.
"VOTING SHARES" of any corporation or limited liability company means shares,
membership certificates or interests of any class or classes, however
designated, having ordinary voting power for the election of at least a majority
of the members of the Board of Directors, or other governing bodies, of such
corporation or limited liability company.
1.2 OTHER DEFINITIONS.
A. All terms defined in this Agreement shall have the above-defined
meanings when used in any of the Loan Documents, certificates, reports
or other documents made or delivered pursuant to this Agreement, unless
the context therein shall require otherwise.
B. Defined terms used herein in the singular shall import the plural and
vice versa.
C. The words "HEREOF", "HEREIN", "HEREUNDER" and similar terms when used
in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement.
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<PAGE>
D. Unless specifically otherwise notedreferences to statutes by Popular
Names are reference to the United States Code Annotated including the
regulations promulgated thereunder, and all amendments thereof.
E. References to any obligations or liabilities of "THE BORROWERS" or "A
BORROWER" shall refer to the joint and several obligations of all such
Persons.
ARTICLE II
LOANS
2.1 REVOLVING COMMITMENTS. Subject to the terms and conditions of this
Agreement, the Lenders agree to lend to the Borrowers on a revolving basis, in
one or more Advances from time to time during the Commitment Period, an amount
equal to the amounts requested by the Borrowers in each Notice of Borrowing in
the form of Exhibit 2.1 attached hereto. The Lenders shall not be obligated to
make Advances, however, (i) in excess of the Commitment, (ii) if an Event of
Default or a Default shall exist, and/or, (iii) if the amount of the Advance
exceeds Availability. Within the limits of this Section and subject to Section
2.2, the Borrowers may borrow, repay and re-borrow in accordance with the terms
and conditions of this Agreement.
2.2 BORROWING BASE. The aggregate principal amount at any time remaining
unpaid on the Loans will not be in excess of the amounts arrived at by the
computation provided for in the following formulas not to exceed, however, the
Commitment.
A. Availability will be computed daily and the aggregate principal amount
at any time remaining unpaid on the Loans will be the lesser of the
Commitment and sum of the following:
(i) Up to eighty-five (85) per cent of Eligible Accounts; and,
(ii) Up to sixty-five (65) per cent of the Loan Value of Eligible
Inventory, not to exceed, however, $2,500,000.00.
B. The Agent retains the right to establish reasonable reserves
("RESERVES") as it deems appro- priate under the Commitment, based on
such factors as the Agent deems appropriate, including, but not limited
to, increases in dilution of Accounts, the value of Eligible Inven-
tory and if the Borrowers shall fail to obtain Landlord Agreements
within forty-five (45) days of the Effective Date. The Borrowers
acknowledge that the establishment of Reserves will have the effect of
limiting or restricting Advances. As of the Effective Date, the Agent
has established a Reserve of $700,000.00 because the Borrowers are not
acquiring the Preferred Stock. The Lenders agree that the Lenders will
terminate the Reserve at such time as the Borrowers shall have
delivered to the Agent (i) share certificates representing the
Preferred Stock evidencing that a Borrower has acquired the Preferred
Stock, together with a Security Agreement-Pledge of the Preferred Stock
to the Agent for the benefit of the Lenders, (ii) a subordination
agreement in form and content satisfactory to the Agent executed by the
holders of the Preferred Stock subordinating all rights of the holders
to the Obligations, or (iii) evidence satisfactory to the Agent of the
payment of dividends on the Preferred Stock, together with an opinion
of legal counsel to the Borrowers (a) that the holders of the Preferred
Stock do not have any rights to compel Puget to acquire the Preferred
Stock and cannot convert the Preferred Stock to common or other class
of shares
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of Puget, and (b) no consent or approval of the holders of the
Preferred Stock is required for the validity of the Transactions.
2.3 LOAN VALUE OF ELIGIBLE INVENTORY. The "LOAN VALUE OF ELIGIBLE INVENTORY"
means the lowest of (i) the Borrowers' net purchase cost or manufacturing cost
of domestic finished goods Inventory (on a first-in/first-out basis), and (ii)
the lowest bulk market price of Inventory minus estimated expenses for packing,
selling and delivery. The Agent shall have the sole right, in the Agent's
judgment, to determine which Inventory is marketable and saleable at any
particular time for inclusion in the Borrowing Base. Without limiting the
Agent's judgment, work-in-progress, obsolete or out of condition Inventory,
Inventory classified as long term assets, used Inventory, remanufactured
Inventory, returned Inventory, foreign Inventory, Inventory in transit, damaged
Inventory, supplied Inventory and slow moving Inventory shall not be included in
the Borrowing Base. Inventory in the possession of third parties shall not be
included in the Borrowing Base. In the event that Inventory previously included
in an Inventory Designation Report ceases to be Eligible Inventory, the
Borrowers shall promptly pay to the Lenders an amount sufficient to continue to
be in compliance with Section 2.2.
2.4 BORROWING PROCEDURE. The Borrowers will open a bank account (the
"FUNDING ACCOUNT") with Chase into which account all Advances on the Loans will
be deposited. No other deposits will be made to the Funding Account.
A. Advances on the Loans shall be made pursuant to a Notice of Borrowing
signed by a Responsible Officer of Invatec, which shall specify (i) the
aggregate amount of such Bor- rowing, (ii) the requested Borrowing Date
of such Borrowing, and (iii) the Interest Option selected in accordance
with Section 3.2. If Invatec shall specify a Eurodollar Loan, the
Notice of Borrowing shall also specify the length of the Interest
Period selected by Invatec for such Borrowing. Invatec shall give the
Agent the Notice of Borrowing not later than 12:00 noon (New York, New
York time), (i) at least three (3) Business Days prior to a proposed
Eurodollar Loan Advance or conversion, and (ii) one (1) Business Day
prior to a proposed Alternate Base Rate Loan Advance or conversion. If
no election as to the type of Loan is specified in any such notice, all
such Loans shall be Alternate Base Rate Loans. If no Interest Period
with respect to any Eurodollar Loan is specified in any such notice,
then an Interest Period of three (3) months duration shall be deemed to
have been selected (subject to the provisions of the definition of
"INTEREST PERIOD").
B. The Agent shall be entitled to rely and act upon requests made or
purportedly made by any Responsible Officer of Invatec and each Notice
of Borrowing shall be irrevocable and binding on the Borrowers. The
Borrowers shall be unconditionally and absolutely estopped from denying
(i) the authenticity and validity of any transaction so acted upon by
the Agent once the Agent has made an Advance and has deposited or
transferred such funds as requested in any such Notice of Borrowing,
and (ii) the Borrowers' liability and responsibility therefor. The
Borrowers covenant and agree to assume liability for and to protect,
indemnify and save the Agent and the Lenders harmless from any and all
liabilities, obligations, damages, penalties, claims, causes of action,
costs, charges and expenses, including attorneys' fees, which may be
imposed upon, incurred by or asserted against the Agent or any of the
Lenders by reason of any loss, damage or claim howsoever arising or
incurred because of, out of or in connection with the transfer of funds
pursuant to a Notice of Borrowing.
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C. After receiving a Notice of Borrowing in the manner provided herein,
the fulfillment of all applicable conditions set forth herein and after
receipt by the Agent of such funds, the Agent will, as soon as
practicable, but in no event later than 5:00 p.m. (New York, New York
time) on the third Business Day, in the case of a Eurodollar Loan, and
on the first Business Day, in the case of an Alternate Base Rate Loan,
deposit the Advance in immediately available funds in the Funding
Account.
D. The initial funding of the Loans shall be an Alternate Base Rate Loan.
At any time after the Effective Date, the Borrowers may convert to
Alternate Base Rate Loans or Eurodollar Loans, subject to and pursuant
to the provisions of Section 3.2.
2.5 USE OF PROCEEDS. The proceeds, if any, of a Borrowing under the
Commitment on the Effective Date shall be solely used to refinance existing
Indebtedness of Steam Supply and to provide for working capital requirements of
the Borrowers. All proceeds of each subsequent Borrowing under the Commitment
after the Effective Date shall be solely used to provide for working capital
requirements of the Borrowers.
2.6 REDUCTION OF COMMITMENT. The Borrowers may at any time, or from time to
time, upon not less than thirty (30) Business Days' prior notice to the Agent,
in whole permanently and irrevocably terminate, or from time to time, in part
permanently and irrevocably reduce the Credit Commitment ratably among the
Lenders in accordance with the amounts of their respective Commitment. The
Commitment shall not, however, be reduced at any time to an amount less than the
Loans outstanding under the Commitment at such time.
A. Each partial reduction of the Commitment shall be in a minimum of
$100,000.00, or integral multiples thereof.
B. Each reduction must be accompanied by prepayment of the Note to the
extent that the aggregate principal amount of the Note then outstanding
exceeds the Commitment, as so reduced, together with interest on the
principal sum so prepaid.
C. Simultaneously with any termination or reduction of the Commitment
pursuant to this Section (not including, however, Section 2.6.D), the
Borrowers shall pay to the Lenders, (i) the Commitment Fee due and
owing through and including the date of such termination or reduction
on the amount of the Commitment so terminated or reduced, and (ii) the
Pre- payment Charge on the amount of the Commitment so terminated or
reduced. In any instance, the Borrowers shall pay the Consequential
Loss if applicable. No Prepayment Charge shall, however, be due and
owing by the Borrowers pursuant to this Section for any termination or
reduction of the Commitment after January 31, 1999.
D. The Commitment shall be permanently reduced on each date that a
prepayment of principal of the Loans is required pursuant to Section
3.7.A.(3) or Section 3.7.A.(4) by the amount of each such required
prepayment. In any event, the Commitment of the Lenders shall
automatically and permanently terminate on the Commitment Termination
Date, and all Loans still outstanding on such date shall be due and
payable in full together with accrued interest thereon.
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2.7 REQUIRED PAYMENTS. If any time during the term of this Agreement, the
outstanding amount of the Advances made pursuant to Section 2.1 shall exceed the
Borrowing Base, the Borrowers will immediately pay to the Lenders an amount
equal to the excess, including any unpaid interest on the principal sum paid.
ARTICLE III
NOTE
3.1 NOTE. The Advances made under Section 2.1 shall be evidenced by the Note
which shall (i) be dated the Effective Date, (ii) be in the amount of the
Commitment, (iii) bear interest in accordance with Section 3.2, and (iv) be in
the form of Exhibit 3.1. Notwithstanding the principal amount of the Note as
stated on the face thereof, the amount of principal actually owing on the Note,
at any given time, shall be the aggregate of all Advances made by the Lenders to
the Borrowers, less all payments of principal actually received by the Lenders.
The records of the Agent evidencing the date and amount of each Advance, as well
as the amount of each payment made by the Borrowers, shall be rebuttably
presumptive evidence of the amounts owing and unpaid on the Note. The Borrowers
shall repay, and shall pay interest on, the unpaid principal amount of the Loans
in accordance with the terms of the Note and this Agreement.
3.2 INTEREST RATE OPTIONS. Subject to the provisions of this Section, the
Borrowers shall elect an option (an "INTEREST OPTION") of having all or any
portion of the Loans bear interest at rates determined as follows:
A. After the initial funding, Invatec for the Borrowers shall elect to
have Loans bear interest at a rate based upon the Alternate Base Rate
or at the Adjusted LIBOR Rate. Each change in an Interest Option made
pursuant to this Section shall be deemed both a payment of the
Alternate Base Rate Loan or Adjusted LIBOR Rate Loan from which such
change was made and a Borrowing (notwithstanding that the unpaid
principal amount of the Loan is not thereby changed) as an Alternate
Base Rate Loan or an Adjusted LIBOR Rate Loan into which such change
was made on the Date of such change.
(1) Prior to Default, the unpaid principal of the Loans shall bear
interest from the date of Advance as follows:
(a) If an Alternate Base Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Alternate Base Rate in effect from day to day, plus the
Applicable Margin (a "CONTRACT RATE"); or, (ii) the Maximum Rate;
or,
(b) If an Adjusted LIBOR Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Adjusted LIBOR Rate in effect from day to day, plus the
Applicable Margin (also a "CONTRACT RATE"); or, (ii) the Maximum
Rate.
(2) Invatec shall, for the Borrowers, in each Notice of Borrowing, give
the Agent notice of the Interest Option selected and the term thereof
with respect to each Borrowing made hereunder.
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(3) Prior to the termination of each Interest Period with respect to
each Adjusted LIBOR Rate Loan, Invatec shall, for the Borrowers, give
notice (a "ROLLOVER NOTICE") to the Agent of the Interest Option which
shall be applicable to such portion of the Loan upon the expiration of
such Interest Period. The Rollover Notice shall be given to the Agent
at least one (1) Business Day, in the case of an Alternate Base Rate
selection, or three (3) Business Days, in the case of an Adjusted LIBOR
Rate selection, prior to the termination of the Interest Period. If the
Borrowers shall specify an Adjusted LIBOR Rate, the Rollover Notice
shall also specify the length of the succeeding Interest Period
(subject to the provisions of the definitions of such term), selected
by the Borrowers with respect to such portion of the Loan. Each
rollover notice shall be irrevocable and effective upon notification
thereof to the Agent. If the required Rollover Notice shall not have
been timely received by the Agent (in accordance with the above
provisions of this Section) prior to the expiration of the then
relevant Interest Period in effect when such Notice was required to be
given, the Borrowers shall be deemed to have selected the rate set
forth in Section 3.2.A.(1)(a) to be applicable to such portion of the
Loan upon expiration of such Interest Period and the Borrowers shall be
deemed to have given the Agent notice of such selection.
(4) With respect to an Alternate Base Rate Loan, Invatec for the
Borrowers shall have the right, on any Business Day (a "CONVERSION
DATE"), to convert such Alternate Base Rate Loan to an Adjusted LIBOR
Rate Loan by giving the Agent a Rollover Notice of such election at
least three (3) Business Days prior to such Conversion Date.
(5) Notwithstanding anything in this Section to the contrary, no
Alternate Base Rate Loan may be converted to an Adjusted LIBOR Rate
Loan and no Adjusted LIBOR Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but each
such Loan shall be automatically converted to an Alternate Base Rate
Loan on the last day of its applicable Interest Period.
B. No more than five (5) Eurodollar Loans shall be outstanding and
Eurodollar Loans made on any date shall be in a minimum aggregate
principal amount of $1,000,000.00, and an integral multiples of
$100,000.00 for amounts in excess thereof.
3.3 APPLICABLE MARGIN. With respect to any Loan, the Applicable Margin shall
be determined as a function of the Funded Debt Ratio and shall be calculated as
set forth below.
A. The Applicable Margin for Adjusted LIBOR Rate Loans and Alternate Base
Rate Loans shall be as follows:
<TABLE>
<CAPTION>
ADJUSTED LIBOR RATE LOANS ALTERNATE BASE RATE LOANS
FUNDED DEBT RATIO APPLICABLE MARGIN APPLICABLE MARGIN
------------------- ------------------- -------------------------------
<S> <C> <C>
Equal to or greater
than 4.00:1.00 3.00 % 0.50 %
Equal to or greater
than 3.50:1.00, but
less than 4.00:1.00 2.75 % 0.25 %
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Equal to or greater
than 2.75:1.00, but
less than 3.50:1.00 2.50 % 0.00 %
Less than 2.75:1.00 2.25 % 0.00 %
</TABLE>
B. The Funded Debt Ratio shall be deemed to be 4.00:1.00 from the
Effective Date to and including December 31, 1997. Any change in the
Applicable Margin after December 31, 1997, shall be effective upon the
date of delivery of (i) the annual audited Financial State- ments to be
delivered pursuant to Section 7.1.A.(1), and (ii) thereafter shall be
determined quarterly from the Financial Statements of the Borrowers
most recently delivered pursuant to Section 7.1.A.(3) at the end of
each fiscal quarter for the preceding consecutive twelve (12) month
period; provided, further, for the first ensuing Fiscal Year, the
Funded Debt Ratio will be determined quarterly, at the end of each
fiscal quarter, for the Fiscal Year to date. If the Borrowers shall
fail to deliver any such Financial Statements within the times
specified in Section 7.1.A.(1) or Section 7.1.A.(3), the Funded Debt
Ratio shall be deemed to be 4.00:1.00 until the Borrowers deliver such
Financial Statements to the Agent. The Funded Debt Ratio will be
determined by using actual Funded Debt divided by EBITDA annualized to
the end of the Fiscal Year.
3.4 INTEREST RECAPTURE. Notwithstanding the terms of Section 3.2.A.(1), if
on any Interest Payment Date, the Lenders do not receive interest on the Loans
at the applicable Contract Rate because the applicable Contract Rate exceeds or
has exceeded the Maximum Rate, then the Borrowers shall, upon the demand of
Invatec, pay to the Lenders, in addition to interest otherwise required
hereunder on each Interest Payment Date thereafter, interest at the Maximum Rate
until the cumulative interest received by the Lenders equals the interest which
would have been received at the applicable Contract Rate. In no event shall,
however, the Borrowers be required to pay, for any appropriate computation
period, interest at a rate exceeding the Maximum Rate effective during such
period.
3.5 DEFAULT RATE. If a Default or an Event of Default shall occur and be
continuing and not be waived, the Borrowers shall on demand from time to time
pay interest, to the extent permitted by law, on all Loans outstanding up to the
date such Default or Event of Default is cured at a rate per annum equal to two
(2) per cent in excess of the Alternate Base Rate (the "DEFAULT RATE"), but
never in excess of the Maximum Rate.
3.6 MAXIMUM INTEREST. It is the intention of the parties to comply with all
applicable usury laws. Accordingly, it is agreed that notwithstanding any
provision apparently to the contrary in the Loan Documents, no such provision
shall require the payment or permit the collection of interest in excess of the
Maximum Amount or the Maximum Rate. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, in the Loan
Documents, then in such event the provisions of this Section shall govern and
control and (i) no Loan Party liable for the payment of any sums to become due
under the Loan Documents shall be obligated to pay the amount of such interest
to the extent that it is in excess of the Maximum Amount or the Maximum Rate,
and (ii) any such excess which may have been collected shall be first applied as
a credit against the then unpaid principal amount on the Note and the excess, if
any, refunded to the Borrowers and the effective rate of interest shall be
automatically reduced to the Maximum Rate. Without limitation of the foregoing,
all calculations of the rate of interest contracted for, charged or received
under the Loan Documents which are made for the purpose of determining whether
such rate exceeds the Maximum Rate, shall be
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made, to the extent permitted by applicable usury laws, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the Loans, all interest at any time contracted for, charged or
received by the holder or holders of the Note in connection with the Loans.
3.7 PAYMENTS ON THE NOTE. The Note will be paid and prepaid in accordance
with the terms set out in this Section.
A. The unpaid principal amount of the Note, together with all accrued but
unpaid interest thereon, and unpaid Commitment Fees, shall be due and
payable on the Commitment Termination Date. Interest on the Note shall
be due and payable monthly as it accrues, on the Interest Payment
Dates.
(1) The Borrowers shall make prepayments of the Loans from time to time
such that the Availability equals or exceeds zero at all times. Any
prepayments required by this Section shall be applied to outstanding
Alternate Base Rate Loans up to the full amount thereof before they are
applied to outstanding Eurodollar Loans. The Borrowers shall not,
however, be required to make any prepayment of any Eurodollar Loan
pursuant to this Section until the last day of the Interest Period with
respect thereto so long as an amount equal to such required prepayment
is deposited by the Borrowers in a cash collateral account with the
Agent to be held in such account on terms satisfactory to the Agent.
(2) On the date of any termination or reduction of the Commitment
pursuant to Section 2.6, the Borrowers shall pay or prepay so much of
the Loans as shall be necessary in order that the Availability equals
or exceeds zero following such termination or reduction. Any
prepayments required by this Section shall be applied to outstanding
Alternate Base Rate Loans up to the full amount thereof before they are
applied to outstanding Eurodollar Loans. The Borrowers shall not,
however, be required to make any prepayment of any Eurodollar Loan
pursuant to this Section until the last day of the Interest Period with
respect thereto so long as an amount equal to such required prepayment
is deposited by the Borrowers in a cash collateral account with the
Agent to be held in such account on terms satisfactory to the Agent.
(3) Within three (3) days of (i) the sale of any assets of the
Borrowers (excluding sales of assets in the ordinary course of business
subject, however, to Section 6.4), (ii) the consummation of the sale or
issuance in a public or private offering of any debt or equity
securities of the Borrowers, or (ii) there shall occur a Change of
Control, the Borrowers shall make a mandatory prepayment of the Loans
in an amount equal to one hundred (100) per cent of the proceeds
received or realized (net of taxes due and any expenses of sale) by the
Borrowers or in the case of a Change of Control, by the sellers of any
Borrower's stock, which proceeds shall be applied as set forth in
Section 3.9.D.
(4) Except as provided in Subsection 3.7.A.(4)(a), not later than the
third day following the receipt by the Agent, the Borrowers or any
Subsidiary of a Borrower of, (i) any proceeds of any insurance required
to be maintained pursuant to Section 7.1.F on account of each separate
loss, damage or injury in excess of $25,000.00 (or, if there shall be a
Default or an Event of Default shall be continuing, the full amount of
proceeds) to any asset of the Borrowers or such Subsidiary of a
Borrower (including, without limitation, any Collateral), or (ii) any
proceeds of any business interruption insurance required to be
maintained pursuant
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to Section 7.1.F in excess of $50,000.00 (or, if there shall be
continuing a Default or Event of Default, the full amount of proceeds),
the Borrowers or the Subsidiary shall notify the Agent of such receipt,
in writing or by telephone, promptly confirmed in writing. Not later
than the day following receipt by the Agent, the Borrowers or the
Subsidiary of any such proceeds, there shall become due and payable a
prepayment of the Loans in an amount equal to one hundred (100) per
cent of such proceeds, and prepayments from such proceeds shall be
applied as set forth in Section 3.9.D.
(a) In the case of the receipt of proceeds described above with
respect to the loss, damage or injury to any asset of the
Borrowers or any Subsidiary of a Borrower (other than proceeds of
any business interruption insurance), the Borrowers may elect, by
written notice delivered to the Agent not later than the day on
which a prepayment would otherwise be required as above set out,
to apply all or a portion of such proceeds for the purpose of
replacing, repairing, restoring or rebuilding the relevant
tangible property, and, in such event, any required prepayment as
set out above shall be reduced Dollar for Dollar by the amount of
such election. An election under this Subsection shall not be
effective unless: (i) at the time of such election there is no
Default or continuing Event of Default; (ii) the Borrowers shall
have certified to the Agent that: {1} the proceeds of the
insurance adjustment for such loss, damage or injury, together
with other funds available to the Borrowers, shall be sufficient
to complete such replacement, repair, restoration or rebuilding in
accordance with all applicable laws, regulations and ordinances;
and, {2} to the best knowledge of the Borrowers, no Default or
Event of Default has arisen or will arise as a result of such
loss, damage, injury, replacement, repair or rebuilding; and,
(iii) if the amount of proceeds in question exceeds $250,000.00,
the Borrowers shall have obtained the written consent of the
Lenders to such election.
(b) In the event of an election under Subsection 3.7.A.(4)(a),
pending application of the proceeds to the required replacement,
repairs, restoration or rebuilding, the Borrowers shall, not later
than the time at which prepayment would have been in the absence
of such election required as set out above, apply such proceeds to
the prepayment of the outstanding principal balance, if any, of
the Loans (not in permanent reduction of the Commitment), and
deposit (the "SPECIAL DEPOSIT") with the Agent, the balance, if
any, of such proceeds remaining after such application, pursuant
to agreements in form, scope and substance satisfactory to the
Agent. The Special Deposit, together with all earnings on such
Special Deposit, shall be available to the Borrowers solely for
the replacement, repair, rebuilding or restoration of the tangible
property suffering the injury, loss or damage in respect of which
such prepayment and Special Deposit were made or to such other
purpose as to which the Lenders may consent in writing. If a
Default or Event of Default shall thereafter occur, the balance of
the Special Deposit and earnings thereon may be applied by the
Agent to repay the Obligations in such order as the Agent shall
elect. The Agent shall be entitled to require proof, as a
condition to the making of any withdrawal from the Special
Deposit, that the proceeds of such withdrawal are being applied
for the purposes permitted hereunder.
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B. The Agent may charge, when due payable, any Borrowers' account with the
Agent for all interest, principal and Commitment Fees or other fees
owing to the Agent or any of the Lenders on or with respect to this
Agreement and/or the Loans and other Loan Documents.
3.8 CALCULATION OF INTEREST RATES. Interest on the unpaid principal of the
Note and the Commitment Fees shall be calculated on the basis of the actual days
elapsed in a year consisting of three hundred sixty (360) days. The Agent shall
determine each Contract Rate applicable to the Loans and shall promptly advise
the Borrowers of the Contract Rates so determined.
3.9 PREPAYMENTS. Subject to the terms and conditions contained in this
Section and elsewhere in this Agreement and upon five (5) Business Days prior
notice to the Agent, the Borrowers shall have the right to prepay any Loan at
any time in whole or from time to time in part (except in the case of a
Eurodollar Loan which may be prepaid only on the last day the Interest Period
applicable to such Eurodollar Loan) without penalty, except as otherwise
provided for herein.
A. Partial prepayments shall be in an aggregate principal amount of
$2,000,000.00, or a greater integral multiple of $500,000.00.
B. Simultaneously with any optional prepayment of any Loan, the Borrowers
shall pay to the Agent for the benefit of the Lenders, the Prepayment
Charge.
C. Each Contract Rate has been determined, in part, based on the Lenders'
cost of funds. Therefore, the Borrowers shall pay a prepayment charge
in an amount equal to the Consequential Loss if the Borrowers shall, in
any manner, prepay any Adjusted LIBOR Rate Loan. Additionally, the
Borrowers indemnify and agree to hold the Lenders harmless against, and
reimburse the Lenders on demand for, any loss, cost or expense incurred
or sustained by the Lenders (including without limitation any loss,
cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by the Lenders to fund or maintain
an Adjusted LIBOR Rate Loan) as a result of: (i) Any payment or
prepayment, whether required hereunder or otherwise, of any Adjusted
LIBOR Rate Loan made after the delivery of a Notice of Borrowing, but
before the applicable Borrowing Date if such payment or prepayment
prevents the proposed Loan from becoming fully effective; or, (ii) the
failure of any Adjusted LIBOR Rate Loan to be made by the Lenders due
to any action or inaction of the Borrowers. A certificate of the Agent
setting forth any amount or amounts which the Lenders are entitled to
receive pursuant to this Section shall be delivered to the Borrowers
and shall be conclusive, if made in good faith, absent manifest error.
Notwithstanding the foregoing, in no event shall the Lenders be
permitted to receive any compensation hereunder constituting interest
in excess of the Maximum Rate or the Maximum Amount. Without prejudice
to the survival of any other obligations of the Borrowers hereunder,
the obligations of the Borrowers under this Section shall survive the
payment of the Loans.
D. If no Default shall have occurred, prepayments shall be applied (i)
first to the discharge of any expenses for which the Agent or any of
the Lenders may be entitled to receive reimbursement under any
agreement with any of the Borrowers, (ii) next, to the Prepayment
Charge, (iii) next, to the Consequential Loss, if applicable, (iv)
next, to accrued interest on the Note, (v) the balance remaining, if
any, shall be applied to the reduction of principal, and in such
instance first to the Alternate Base Rate Loans, and secondly to the
Eurodollar
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Loans. Prepayments shall be applied to the Eurodollar Loans as the
Borrowers shall select; provided, however, the Borrowers shall select
Eurodollar Loans to be prepaid in a manner designed to minimize the
Consequential Loss resulting from such prepayments. If, however, the
Borrowers shall fail to select the Eurodollar Loan to which such
prepayments are to be applied, the Lenders shall be entitled to apply
the prepayment in any manner the Lenders shall deem appropriate.
E. If, however, a Default has occurred and is continuing at the time of a
prepayment, the Lenders shall be entitled to apply the prepayment in
any manner the Lenders shall deem appropriate.
3.10 MANNER OF PAYMENTS. All payments and prepayments of principal of, and
interest on, the Note shall be made by the Borrowers to the Agent before 12:00
noon (New York, New York time) in lawful money of the U.S. in immediately
available funds at the office of Chase. Any payment or prepayment received by
the Agent after 12:00 noon (New York, New York time), shall be deemed to have
been received by the Agent on the next succeeding Business Day. Should the
principal of or interest on the Note or any fee or other amount payable
hereunder become due and payable on other than a Business Day, payment in
respect thereof may be made on the next succeeding Business Day (except as
otherwise specified in the definition of "INTEREST PERIOD"), and such extension
of time shall in such case be included in computing interest, if any, in
connection with such payment.
3.11 RENEWALS OF NOTE. All renewals and rearrangements, if any, of the Note
shall be deemed to be made pursuant to this Agreement, and accordingly, shall be
subject to the terms and provisions hereof. The Borrowers shall be deemed to
have ratified, as of the date of such renewal or rearrangement, all of the
representations, covenants and agreements herein and in the Loan Documents set
forth.
3.12 TAXES.
A. Any and all payments by Borrowers hereunder or under the Note shall be
made free and clear of, and without deduction for, any and all present
or future taxes (including, but not limited to, excise taxes), levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto ("TAXES"), imposed by any Governmental Authority,
exclud- ing in the case of each Lender and the Agent, taxes imposed
upon its income, assets or operations, and franchise taxes imposed upon
it by any Governmental Authority. If the Borrowers shall be required by
law to deduct any Taxes for which the Borrowers are re- sponsible under
the preceding sentence from or in respect of any sum payable hereunder
or under the Note, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section)
the Lenders receives an amount equal to the sum which would have been
received had no such deductions been made, (ii) the Borrowers shall
make such deductions, and (iii) the Borrowers shall pay the full amount
deducted to the relevant Governmental Au- thority or other authority in
accordance with applicable law.
B. The Borrowers shall pay any present or future stamp or documentary
taxes, or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or under the Loan Documents
or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or the other Loan Documents ("OTHER TAXES").
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C. The Borrowers indemnify and agree to hold the Agent and the Lenders
harmless for the full amount of Taxes and Other Taxes paid by the Agent
or any of the Lenders or any liability, including penalties and
interest, arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted.
D. Without prejudice to the survival of any other agreement, the
agreements and obligations of the Borrowers contained in this Section
shall survive the payment in full of the Obligations.
3.13 COMMITMENT FEES. The Borrowers agree to pay to the Agent for the
account of the Lenders a commitment fee (the "COMMITMENT FEE") for the granting
of the Loans computed at a rate per annum equal to one-fourth (1/4) of one (1)
per cent on the average daily un-borrowed amount of the Commitment in effect
during the period for which payment is made. Commencing on September 30, 1997,
the Commitment Fee shall be payable quarterly, in arrears, on (i) the last day
of each March, June, September and December during the Commitment Period, (ii)
the date of each reduction or termination of the Commitment of Lenders
hereunder, and (iii) the Commitment Termination Date. After any reduction of the
Commitment pursuant to Section 2.6, the Commitment Fee shall be computed on the
Commitment, as so reduced.
3.14 CONSEQUENTIAL LOSS. The Borrowers agree to reimburse the Lenders for
and against any loss or reasonable expense (including, but not limited to, any
loss or expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to affect or
maintain any Loan or part thereof as a Eurodollar Loan) which the Lenders may
sustain or incur as a consequence of any of the following events (regardless of
whether such events occur as a result of the occurrence of an Event of Default
or the exercise of any right or remedy of the Agent or the Lenders under this
Agreement or any other Loan Document, or at law): (i) any failure of the
Borrowers to fulfill on the date of any Borrowing hereunder the applicable
conditions set forth in Article VIII applicable to it; (ii) any failure of the
Borrowers to borrow hereunder after irrevocable Notice of Borrowing pursuant to
Section 2.4.A has been given; (iii) any payment, prepayment or conversion of a
Eurodollar Loan on a date other than the last day of the relevant Interest
Period; (iv) any default in payment or prepayment of the principal amount of any
Loan or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, by notice of prepayment or otherwise); or, (v)
the occurrence of an Event of Default (collectively, "CONSEQUENTIAL LOSS"). Such
loss or expense shall include, without limitation, an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not borrowed for the period
from the date of such payment, prepayment or conversion or failure to borrow to
the last day of the Interest Period for such Loan (or, in the case of a failure
to borrow, the Interest Period for such Loan which would have commenced on the
date of such failure to borrow), at the applicable rate of interest for such
Loan provided for herein over (ii) the amount of interest (as determined by such
Lender) that would be realized by such Lender in reemploying the funds so paid,
prepaid or converted or not borrowed in U.S. Treasury obligations with
comparable maturities for comparable periods. The Agent shall provide to the
Borrowers a statement explaining any loss or expense and setting forth, if
applicable, the computation pursuant to the preceding sentence, and such
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statement shall be conclusive absent manifest error. The Borrowers shall pay the
Lenders the amount shown as due on any such statement within ten (10) days after
the receipt of the same.
3.15 PAYMENTS IN RESPECT OF INCREASED COSTS.
A. Notwithstanding any other provision hereof, if after the date of this
Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof (whether or
not having the force of law) or any change in GAAP or regulatory
accounting principles shall (i) impose, modify or make applicable to
the Lenders any reserve, special deposit or similar requirement with
respect to the obligations hereunder, (ii) impose on the Lenders any
other condition with respect to the obligations hereunder, or (iii)
subject the Lenders to any tax (other than {a} taxes imposed on the
overall net income of the Lenders, and {b} franchise taxes imposed on
the Lenders by any political subdivision or taxing authority) charge,
fee, deduction or withholding of any kind whatsoever, and the result of
any of the foregoing shall be to increase the cost to the Lenders
hereunder or to reduce the amount of principal, interest or any fee or
compensation receivable by the Lenders hereunder, then such additional
amount or amounts as will compensate the Lenders for such additional
costs or reduction shall be paid to the Lenders by the Borrowers.
B. If, after the date of this Agreement, the Lenders shall determine that
the adoption of any applicable law, rule, regulation or guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administra- tion thereof, or compliance by the Lenders with any request
or directive 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 the Lenders' capital as a consequence of the obligations
hereunder to a level below that which the Lenders could have achieved
but for such adoption, change or compliance, then from time to time,
the Borrowers shall pay to the Lenders such additional amount or
amounts as will compensate the Lenders for such reduction.
C. A certificate of the Agent setting forth such amount or amounts,
supported by calculations as shall be necessary to compensate the
Lenders as specified in Section 3.15.A and Section 3.15.B shall be
delivered to the Borrowers and shall be conclusive and binding upon the
Borrowers absent manifest error. The Borrowers shall pay the Lenders
the amount shown as due on any such certificate within ten (10)
Business Days after receipt of the same.
D. Failure on the part of the Lenders to demand compensation for any
increased costs, reduction in amounts received or receivable hereunder
or reduction in the rate of return earned on capital, in each case
pursuant to Section 3.15.A or Section 3.15.B, shall not constitute a
waiver of the right to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in rate of
return pursuant to Section 3.15.A and Section 3.15.B. The protection
under this Section shall be available to the Lenders regardless of any
possible contention of the invalidity or inapplicability of any law,
regulation or other condition which shall give rise to any demand by
the Lenders for compensation (but if such law, regulation or other
condition is finally determined to be invalid or inapplicable, the
Lenders shall promptly refund (without interest) all amounts paid
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under this Section arising from such invalid or inapplicable law,
regulation or other condition).
ARTICLE IV
SPECIAL PROVISIONS FOR EURODOLLAR LOANS
4.1 INADEQUACY OF EURODOLLAR LOAN PRICING. If with respect to any Interest
Period for any Euro-dollar Loan:
A. The Agent determines in good faith (which determination shall be
conclusive absent manifest error) that, by reason of circumstances
affecting the Eurodollar interbank market generally, deposits in
Dollars (in the applicable amounts) are not being offered to the
Lenders in the Eurodollar interbank market for such Interest Period;
or,
B. The Agent determines in good faith (which determination shall be
conclusive absent manifest error) that (i) the Adjusted LIBOR Rate will
not adequately and fairly reflect the cost to the Lenders of
maintaining or funding such Eurodollar Loan for such Interest Period,
or (ii) reasonable means do not exist for ascertaining the Adjusted
LIBOR Rate, then, the Agent shall forthwith give notice thereof to the
Borrowers. Thereafter, until the Agent notifies the Borrowers that the
circumstances giving rise to such suspension no longer exist, (i) the
obligation of the Lenders to make Eurodollar Loans shall be suspended,
and (ii) the Borrowers shall either (a) repay in full the then
outstanding principal amount of the Eurodollar Loans, together with
accrued interest thereon on the last day of the then current Interest
Period applicable to such Eurodollar Loans, or (b) convert such
Eurodollar Loans to Alternate Base Rate Loans in accordance with
Section 3.2.A.(3) on the last day of the then current Interest Period
applicable to each such Eurodollar Loan.
4.2 ILLEGALITY. If with respect to any Interest Period for any Eurodollar
Loan:
A. The Agent determines in good faith (which determination shall be
conclusive absent manifest error) that any change in any applicable
law, rule or regulation or in the interpretation, application or
administration thereof makes it unlawful, or any central bank or other
Gov- ernmental Authority asserts that it is unlawful for the Lenders to
maintain or fund any Loan by means of Dollar deposits obtained in any
Eurodollar interbank market (any of the above being described as a
"EURODOLLAR EVENT"), then, the Agent shall forthwith give notice
thereof to the Borrowers. Upon receipt of such notice, the Borrowers
shall either (i) prepay in full the then outstanding principal amount
of the affected Eurodollar Loans, together with accrued interest
thereon, or (ii) convert the affected Eurodollar Loans to Alternate
Base Rate Loans on either (a) the last day of the then current Interest
Period applicable to each affected Eurodollar Loan if such Lender may
lawfully continue to maintain and fund such Eurodollar Loan to such
day, or (b) immediately, if the Lenders may not lawfully continue to
fund and maintain such Eurodollar Loans to such day. Upon the
occurrence of any Eurodollar Event, and at any time thereafter so long
as such Eurodollar Event shall contin- ue, the Lenders may exercise the
aforesaid option by giving notice thereof to the Agent and the
Borrowers.
B. Any prepayment of any Eurodollar Loan which is required under the
preceding Section shall be made, together with accrued and unpaid
interest and all other amounts payable to the
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Lenders under this Agreement with respect to such prepaid Eurodollar
Loan on the date stated in the notice to the Borrowers referred to
above, which date ("REQUIRED PREPAYMENT DATE") shall be not less than
fifteen (15) days from the date of such notice.
4.3 EFFECT ON INTEREST OPTIONS. If notice has been given pursuant to Section
4.1 or Section 4.2 requiring a type of Eurodollar Loan to be repaid or
converted, then unless and until the Agent notifies the Borrowers that the
circumstances giving rise to such repayment no longer apply requiring such
repayment or conversion, all Loans shall thereafter be Alternate Base Rate
Loans. If the Agent notifies the Borrowers that the circumstances giving rise to
such repayment no longer apply, the Borrowers may thereafter select Loans to be
Eurodollar Loans in accordance with Section 3.2.A.(1).
4.4 PAYMENTS NOT AT END OF INTEREST PERIOD. If the Borrowers make any
payment of principal with respect to any Adjusted LIBOR Rate Loan on any day
other than the last day of the Interest Period applicable to such Adjusted LIBOR
Rate Loan, the Borrowers shall reimburse the Lenders on demand the Consequential
Loss incurred by the Lenders as a result of the timing of such payment. A
certificate of the Agent setting forth the basis for the determination of the
amount of Consequential Loss shall be delivered to the Borrowers and shall, in
the absence of manifest error, be conclusive and binding. Any conversion of an
Adjusted LIBOR Rate Loan to a different Interest Option on any day other than
the last day of the Interest Period for such Adjusted LIBOR Rate shall be deemed
a payment for purposes of this Section.
4.5 SURVIVAL OF OBLIGATIONS. Failure on the part of the Lenders to demand
compensation pursuant to this Article for any increased costs or reduction in
amounts received or receivable with respect to any Interest Period, shall not
constitute a waiver of the Lenders' rights to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
rate of return in such Interest Period or in any other Interest Period. The
protection under this Article shall be available to the Lenders regardless of
any possible contention of the invalidity or inapplicability of any law,
regulation or other condition which shall give rise to any demand by the Lenders
for compensation.
ARTICLE V
COLLATERAL FOR LOANS
5.1 COLLATERAL FOR LOANS. The Loans shall be secured by the following
property (collectively, the "COLLATERAL") and Liens in the Collateral shall be
created by or in the Collateral Documents, including, but not limited to, those
described as follows:
A. A Security Agreement in the form of Exhibit 5.1.A duly executed by each
Borrower, creat- ing a first priority lien and security interest in and
upon all of the Borrower's present and future Accounts, Inventory,
Equipment, furniture, Goods, Fixtures, General Intangibles,
Instruments, margin accounts, tax refunds, Chattel Paper, drafts,
acceptances, Contracts and Contract Rights, Documents, Title Documents,
notes, returned and repossessed Goods and all other personal property
or interests in personal property, together with all accessions to,
substitutions for, and all replacements, products and proceeds of the
foregoing (including, without limitation, proceeds of insurance
policies insuring any of the foregoing), all books and records
(including, without limitation, customer lists, credit files, computer
programs, printouts and other computer materials and records)
pertaining to any of the foregoing, and
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all insurance policies insuring any of the foregoing, whether now owned
or hereafter acquired, and wherever located.
B. A Security Agreement-Pledge in the form of Exhibit 5.1.B duly executed
by Invatec and Puget (other than the Preferred Stock), as applicable,
creating a first priority lien and security interest in and upon all of
the outstanding and issued capital stock of Puget, Benicia, Steam and
Flickinger (collectively, the "PLEDGED STOCK").
5.2 COLLATERAL DOCUMENTS. Each of the Collateral Documents will be duly
executed by the parties thereto. Each document, including, without limitation,
any Financing Statement, required by the Collateral Documents, under law or
requested by the Agent to be filed, registered or recorded in order to create,
in favor of the Agent for the benefit of the Lenders, a perfected first Lien on
the Collateral described therein, shall be properly filed, registered or
recorded in each jurisdiction in which the filing, registration or recordation
thereof is so required or requested. The Agent shall receive an acknowledgment
copy, or other evidence satisfactory to the Agent, of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
5.3 FURTHER ASSURANCES. The Collateral Documents will contain a description
of the Collateral sufficient to grant to the Agent for the benefit of the
Lenders perfected Liens pursuant to applicable law in all Collateral. Upon the
filing by the Agent of the Financing Statements and the delivery to the Agent of
the Pledged Stock, the Agent will have, for the benefit of the Lenders,
perfected first priority Liens in all Collateral. The Borrowers shall make,
execute or endorse, and acknowledge and deliver or file or cause the same to be
done, all vouchers, invoices, notices, certifications and additional agreements,
undertakings, conveyances, transfers, assignments, Financing Statements or other
assurances, and take any and all such other action, as the Agent may, from time
to time, deem necessary or proper in connection with any of the Loan Documents,
or for better assuring and confirming unto the Agent for the benefit of the
Lenders creation of Liens in all Collateral, or for granting to the Agent for
the benefit of the Lenders any security for the Obligations which the Agent may
reasonably request from time to time.
5.4 OTHER LOANS. It is agreed that the Collateral and the Collateral
Documents given to secure the Loans shall secure all Obligations, regardless of
how same may arise and all collateral given to secure any other obligations of
any of the Borrowers shall additionally secure the Obligations. Any Default
shall constitute an event of default in all Obligations and the collateral
documents securing the payment of same.
ARTICLE VI
CUSTODY, INSPECTION, COLLECTION
AND MAINTENANCE OF COLLATERAL
6.1 CASH COLLATERAL ACCOUNT. The Borrowers will open a collection account
(the "CASH COLLATERAL ACCOUNT") with Chase into which account all payments made
on all Accounts will be deposited. The Cash Collateral Account will be
established pursuant to the terms of this Agreement and the Lockbox Agreement
among the Borrowers, the Agent and Chase in the form of Exhibit 6.1. The
Borrowers will provide written notification to each Account Debtor to remit all
payments to the Cash Collateral Account.
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6.2 COLLECTION OF ACCOUNTS. So ;ong as the procedures set forth in this
Article remain in effect, the arrangements between the Agent and the Lenders
with respect to making of Loans shall be handled in the manner set out herein.
A. The Borrowers will, at Borrowers' cost and expense, (i) arrange for
remittances on Ac- counts to be made directly to the Cash Collateral
Account or in such other manner as the Agent may direct, (ii) except
for disputed items, promptly deposit all payments received by the
Borrowers on account of Accounts, whether in the form of cash, checks,
notes, drafts, bills of exchange, money orders or otherwise, into the
Cash Collateral Account in original form received (but with any
endorsements of the Borrowers necessary for deposit or collection), and
on the date of receipt thereof, and (iii) deposit or cause to be
deposited into the Cash Collateral Account all other sums paid or
payable to the Borrowers from any source, including, but not limited
to, insurance proceeds and condemnation awards. The deposits into the
Cash Collateral Account will be subject to withdrawal only by the Agent
as hereinafter provided. Until such payments are deposited, such
payments shall be deemed to be held in trust by the Borrowers for and
as the Lenders' property and shall not be commingled with the
Borrowers' other accounts, all of which will be maintained in
accordance with Section 7.1.M.
B. All remittances and payments that are deposited in accordance with the
foregoing will be immediately applied by the Agent to reduce the
outstanding balance of the Loans, subject to the continued accrual of
interest on such remittances and payments for two (2) Business Days (or
three {3} Business Days in the case of remittances and payments
received after 12:00 noon, New York, New York time) and in any event
subject to final collection in cash of the item deposited.
C. The Agent shall not, however, be required to credit Borrowers' account
for the amount of any instrument which is unsatisfactory to the Agent
and the Agent may charge the Borrowers' account for the amount of any
instrument which is returned to the Agent unpaid.
D. Each month the Agent shall render to the Borrowers a statement of the
Borrowers' account, which shall constitute an account stated and shall
be deemed to be correct and accepted by and be binding upon the
Borrowers unless the Agent receives a written statement of the
Borrowers' exceptions within thirty (30) days after such statement was
rendered to the Borrowers.
E. The Borrowers shall not, without the Agent's prior written consent,
which the Agent may withhold in the Agent's business judgment, with
respect to any single Account in excess of $2,500.00 or any combination
of Accounts in excess of $50,000.00 in any Fiscal Year, grant any
extension of the time of payment of any Accounts, compromise, adjust or
settle any Accounts for less than the full amount thereof, release, in
whole or in part, any Person or property liable for the payment
thereof, extend the time for payment thereof, or allow any credit or
discount whatsoever thereon except as permitted under Section 7.3.P.
F. If at any time during the term of this Agreement, the Agent permits the
Borrowers to collect any of the proceeds of the Collateral, then until
the authority of the Borrowers to collect the proceeds of the
Collateral is terminated by the Agent, the Borrowers will, at the
Borrowers' sole cost and expense, but on the Agent's behalf and for the
Agent's account, collect as the
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Lenders' property and hold in trust for the Lenders, all amounts unpaid
on Collateral, and shall not commingle such collections with funds of
the Borrowers, except to pay the Obligations.
G. Upon the occurrence and continuance of an Event of Default, the Agent
may (and upon the determination of the Lenders, shall) send a notice of
assignment and/or notice of the Lenders' security interest to any and
all Account Debtors or any third party holding or otherwise concerned
with any of the Collateral, and thereafter the Agent shall have the
sole right to collect the Accounts and/or take possession of the
Collateral and the books and records relating thereto.
H. At any time after the occurrence and during the continuance of an Event
of Default, the Agent may, without notice to or consent from the
Borrowers sue upon or otherwise collect, extend the time of payment of,
or compromise or settle for cash, credit or otherwise upon any terms,
any of the Accounts or any securities, instruments or insurance
applicable thereto and/or release the Account Debtor thereon. The Agent
is authorized and empowered to accept the return of the goods
represented by any of the Accounts. The Agent and the Lenders shall
not, under any circumstances or in any event whatsoever, have any
liability for any error, omission or delay of any kind occurring in the
settlement, collection or payment of any of the Accounts or any
instrument received in payment thereof, or for any damage resulting
therefrom.
6.3 VERIFICATION OF ACCOUNTS. At the Agent's request, the Borrowers will,
upon the creation of Accounts, or at such intervals as the Agent may require,
provide the Agent with (i) confirmatory assignment schedules, (ii) copies of
Account Debtor's invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Accounts as the
Agent may reasonably require. The Agent shall have the right to confirm and
verify all Accounts and do whatever the Agent may reasonably deem necessary to
protect the Lenders' interests. The items to be provided under this Section are
to be in forms satisfactory to the Agent and executed by the Borrowers and
delivered to the Agent, from time to time, solely for the Agent's convenience in
maintaining records of the Collateral. The failure to deliver any of such items
to the Agent shall not affect, terminate, modify or otherwise limit the Liens in
favor of the Agent for the benefit of the Lenders.
6.4 SALES OF INVENTORY. So long as there exists no Default, Inventory
subject to the Liens in favor of the Agent for the benefit of the Lenders may be
sold by the Borrowers in the ordinary course of business, but shall not
otherwise be taken or removed from the Premises. If there shall occur a Default,
the then Inventory shall not be sold, taken or removed, except with the Agent's
prior consent and upon substitution of other Collateral in form and amount
satisfactory to the Agent, in the Agent's business judgment or upon payment of
an amount satisfactory to the Agent to be applied to the Obligations in such
order as the Agent, in the Agent's sole discretion, may determine.
6.5 INSPECTIONS AND FIELD EXAMINATIONS. At all times, the Agent and any of
the Lenders shall have full access to, and the right to examine, check, inspect
and make abstracts and copies from the books, records, audits, correspondence
and all other papers relating to the Collateral. The Agent or any of the
Lenders, and their respective agents, may enter upon any of the Premises at any
time during business hours and at any other reasonable time, and from time to
time, for the purpose of inspecting the Collateral and any and all records
pertaining thereto. The Agent shall have the right to make field examinations,
as often as it may request (but initially scheduled for three (3) times in each
Fiscal Year)
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the existence and condition of the Accounts, books and records of the Borrowers
and to review compliance with the terms and conditions of this Agreement and the
other Loan Documents. If there shall occur an Event of Default, the Agent is
authorized to make as many field examinations, as it may reasonably require. The
Borrowers shall permit any authorized representative designated by the Agent to
discuss the affairs, finances and condition of the Borrowers with the
appropriate Financial Officer and such other officers of the Borrowers as the
Agent shall deem appropriate and the Borrowers' independent public accountants,
as applicable. The Agent agrees that it shall schedule any meeting with any such
independent public accountant through a Responsible Officer of Invatec who shall
have the right to be present at any such meeting. The Borrowers irrevocably
authorize and direct all accountants and auditors employed by the Borrowers to
exhibit and deliver to the Agent at any time during the term of this Agreement
copies of any of the Financial Statements, trial balances or other accounting
records of any sort of the Borrowers in the accountant's or auditor's
possession, and to disclose to the Agent any information they may have
concerning the financial status and business operations. The Borrowers authorize
all Governmental Authority to furnish to the Agent copies of reports or
examinations relating to a Borrower, whether made by the Borrowers or otherwise.
6.6 REPORTS. Each of the Borrowers will, daily on each Business Day, deliver
to the Agent, in form and detail satisfactory to the Agent, (i) confirmatory
assignment schedules, (ii) the Borrower's daily invoice register with respect to
sales for the preceding day, (iii) a collections report for the preceding day,
(iv) the Borrower's daily debit and credit adjustments journal, and (v) with any
supporting documentation reasonably requested by the Agent relating to the
foregoing. Each of the Borrowers will, immediately upon learning thereof, report
to the Agent all matters materially affecting the value, enforceability or
collectibility of any of the Collateral such as the reclamation, repossession or
return to the Borrower of goods and claims or disputes asserted by any Account
Debtor. In addition, each of the Borrowers shall notify the Agent of any
noncompliance in respect of the representations, warranties and covenants
contained in Section 9.3.
6.7 MATERIAL CONTRACTS. Each of the Borrowers will comply with the terms of
the Borrower's Material Contracts. Material Contracts shall include any contract
with any supplier, franchisor, vendor, dealer or distributor from which the
Borrower purchases Inventory and the sales of the Inventory so purchased
constitutes ten (10) per cent or more of the Borrower's sales.
6.8 COMPLIANCE WITH LAW. The Borrowers shall comply with all actions, rules,
regulations and orders of any Governmental Authority applicable to the
Collateral or any part thereof or to the operation of the businesses of the
Borrowers. The Borrowers may, however, contest or dispute any actions, rules,
regulations, orders and directions of a Governmental Authority in any reasonable
manner, provided the Agent is satisfied that the contest or dispute does not
affect the Agent's Liens or have a Material Adverse Effect. Upon the occurrence
and during the continuance of an Event of Default: (i) if any of the Accounts
includes a charge for any Tax, the Agent is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the Governmental
Authority for the account of the Borrowers and to charge the Borrowers' account
therefor; and, (ii) the Borrowers shall notify the Agent if any Accounts include
any Tax and, in the absence of such notice, the Agent shall have the right to
retain the full proceeds of such Accounts and shall not be liable for any taxes
that may be due from the Borrowers by reason of the sale and delivery creating
such Accounts.
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6.9 ACCESS. So long as amounts are owing under Obligations, the Agent:
A. May use any owned or leased lifts, hoists, trucks and other facilities
or equipment for han- dling or removing the Collateral; and,
B. Shall have, and is hereby granted, a right of ingress and egress to and
through any owned or leased property, including the Premises.
6.10 PROTECTION. At any time there shall be an Event of Default, the Agent
may, at any time, take such steps as the Agent deems necessary to protect the
Agent's interest in and to preserve the Collateral, including the hiring of
security guards or the placing of other security protection measures as the
Agent may deem appropriate. The Agent may elect to employ and maintain at the
Premises a custodian who shall have full authority to do all acts necessary to
protect the Agent's interest in the Collateral. The Agent may lease warehouse
facilities to which the Agent may move all or part of the Collateral. The
Borrowers agree to cooperate fully with all of the Agent's efforts to preserve
the Collateral and will take such actions necessary to preserve the Collateral
as the Agent may direct. All of the Agent's reasonable expenses of preserving
the Collateral, including any expenses relating to the bonding of a custodian,
shall be charged to the Borrowers' account and added to the Obligations. The
Agent shall not be responsible or liable for any shortage, discrepancy, damage,
loss or destruction of any part of the Collateral wherever the same may be
located and regardless of the cause thereof.
6.11 RIGHT TO RECEIVE. The Agent shall have the right to receive, endorse,
assign and/or deliver in the names of the Agent and the Borrowers, any and all
checks, drafts and other instruments for the payment of money relating to the
Accounts. The Borrowers waive notice of presentment, protest and of non-payment
of any instrument so endorsed. The Borrowers constitute the Agent or the Agent's
designee as Borrowers' attorney-in-fact with power to: (i) endorse Borrowers'
names upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral that may come into its possession; (ii) sign
Borrowers' names on any invoice or bill of lading relating to any Accounts,
drafts against Account Debtors, assignments and verifications of Accounts and
notices to Account Debtors; (iii) send verifications of Accounts to any Account
Debtor; (iv) upon the occurrence of an Event of Default, notify the U.S. Postal
Service to change the address for delivery of mail addressed to the Borrowers to
such address as the Agent may designate; and, (v) do all other acts and things
necessary to preserve, collect, or perfect the Agent's interest in the
Collateral and carry out this Agreement. All acts of said attorney or designee
are hereby ratified and approved and said attorney or designee shall not be
liable for any acts of omission or commission, for any error of judgment or for
any mistake of fact or law. This power of attorney is coupled with an interest
and is irrevocable until all of the Obligations are paid in full and this
Agreement and the Commitment is terminated.
ARTICLE VII
COVENANTS
7.1 AFFIRMATIVE COVENANTS. Until the fulfillment of all Obligations, unless
the Agent and the Lenders shall otherwise consent in writing, the Borrowers will
perform and comply with the following covenants:
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A. The Borrowers shall furnish to the Agent:
(1) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, audited, consolidated
Financial Statements of the Borrowers and the Consolidated Subsidiaries
consisting of statements of income, stockholder's equity and cash flow
for such Fiscal Year and a balance sheet as of the end of such Fiscal
Year, setting forth, in each case, in comparative form, corresponding
figures from the immediately preceding annual audit, accompanied by
supporting schedules required by GAAP, all in reasonable detail and
satisfactory in scope to the Agent, as fairly presenting the financial
position of the Borrowers and the Consolidated Subsidiaries as of the
dates indicated in accordance with GAAP, together with an opinion
thereon, without material qualifications or exceptions certified by
independent certified public accountants selected by the Borrowers and
satisfactory to the Agent, and the consolidating Financial Statements
of each Consolidated Subsidiary;
(2) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, the auditors' management
report, and promptly upon receipt thereof, each written report
submitted to the Borrowers by independent accountants made in any
annual, quarterly or special audit.
(3) Within thirty (30) days after the end of each calendar month, an
unaudited balance sheet as of the end of such calendar month and the
related statements of income, and stockholder's equity and setting
forth, the amounts for such calendar month and the Fiscal Year to date,
prepared in accordance with GAAP, and certified by the Financial
Officer of Invatec as fairly presenting the financial position of the
Borrowers as of the dates indicated, subject to changes resulting from
audit and normal year-end adjustment, and (i) commencing on September
30, 1997, and for each quarter-annual period thereafter until January
31, 1998, and monthly after such date, the Financial Statements shall
include statements of cash flows, and (ii) commencing on January 31,
1998, the Financial Statements shall set forth amounts for the
corresponding periods in the prior Fiscal Year, in comparative form;
(4) As soon as possible, but in any event within fifteen (15) days
after the end of each calendar month, a consolidated aging and listing
of all Accounts, Eligible Accounts and all accounts payable for such
month certified as being true and correct by the Financial Officer of
Invatec.
(5) Within fifteen (15) days after the end of each calendar month, an
Inventory Designation Report;
(6) On the Effective Date and within thirty (30) days after the end of
each calendar month, Invatec will provide to the Agent (i) a
Certificate of Compliance (with an attached Borrowing Base Certificate)
in the form of Exhibit 7.1.A.(6), signed by the Financial Officer of
Invatec certifying that no Events of Default have occurred and the
Borrowers are in compliance with the covenants set out in Section 7.2
(which annual Certificate of Compliance with respect to the calculation
of the covenants set out in Section 7.2 shall be signed by the
Borrowers' accountants), calculating the Borrowing Base and
demonstrating compliance as at the end of such month with the
Availability requirements, and (ii) together with such payment, if any,
as may be necessary to bring the Availability to zero;
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(7) Within thirty (30) days prior to the end of each Fiscal Year, a
summary of business plans and financial operation projections
(including, without limitation, with respect to Capital Expenditures)
for the Borrowers for the next Fiscal Year (including quarterly balance
sheets, statements of income and of cash flow) and annual projections
for the next following Fiscal Year prepared by management and in form,
substance and detail (including, without limitation, principal
assumptions) satisfactory to the Agent;
(8) As soon as practicable, copies of all reports, forms, filings,
documents and financial information submitted to any Governmental
Authority and/or the Borrowers' shareholders;
(9) As soon as possible, copies of the Federal income tax return and
all extension thereof of the Borrowers for the current Fiscal Year then
ended, certified as being true and correct by the Financial Officer of
Invatec; and,
(10) From time to time, such further information regarding the
business, affairs and financial condition of the Borrowers as the Agent
may reasonably request.
B. The Borrowers shall, promptly upon learning thereof: (i) inform the
Agent, in writing, of any material delay in the Borrowers' performance
of any Borrowers' obligations to any Account Debtor or of any assertion
of any claims, setoffs or counterclaims by any Account Debtor; and,
(ii) furnish to and inform the Agent of all material adverse
information relating to the financial condition of any Account Debtor.
C. The Borrowers shall comply with all Requirements of any Governmental
Authority, including, but expressly not limited to Environmental Laws
applicable to the Premises, any property owned by the Borrowers, or any
parts thereof, and the Occupational Safety and Health Act of 1970
("OSHA"), if the failure to be in compliance would have a Material
Adverse Effect.
D. Each Borrowers will, at all times, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect, all
Permits, franchises, patents, copyrights, trademarks and trade names
material to the conduct of their businesses.
E. The Borrowers shall act prudently and in accordance with customary
industry standards in managing or operating any Borrowers' assets,
properties, business and investments. The Borrowers shall keep in good
working order and condition, ordinary wear and tear excepted, all of
their assets and properties which are necessary to the conduct of their
businesses. The Borrowers shall maintain and operate their business in
the same general manner in which presently conducted and operated.
F. The Borrowers will maintain with financially sound, responsible and
reputable insurance companies insurance against such risks, and in such
amounts and with co-insurance and deductibles as are satisfactory to
the Agent and as otherwise are usually carried by owners of similar
businesses and properties in the same general areas in which a Borrower
operates, and at least in the amounts and types presently carried by
the Borrowers. All insurance covering tangible personal property
subject to Liens in favor of the Agent for the benefit of the Lenders
granted pursuant to the Collateral Documents shall provide that, in the
case of each separate loss, the full amount of insurance proceeds shall
be payable to the Agent and
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shall further provide for at least thirty (30) days prior written
notice to the Agent of the cancellation or substantial modification
thereof. The Borrowers shall cause the insurance policies or proper
certificates evidencing the same to be delivered to the Agent. If the
Borrowers shall fail to obtain insurance as herein provided, or to keep
the same in force, the Agent may obtain such insurance and pay the
premiums therefor and charge the Borrowers' accounts therefor, and such
expenses so paid shall be part of the Obligations.
G. Each Borrower will continue to be a corporation duly incorporated and
existing in good standing under the laws of the state of its
incorporation and will continue to be duly licensed or qualified in all
jurisdictions wherein the character of the property owned or leased by
it or the nature of the business transacted by it makes licensing or
qualification necessary, and the failure to do so would have a Material
Adverse Effect.
H. Each Borrower will promptly inform the Agent of the creation or
acquisition of any direct or indirect Subsidiary. The Borrowers shall
cause each (i) Subsidiary not in existence on the Effective Date (ii)
inactive Subsidiary existing on the Effective Date which becomes active
with the consent of the Lenders, to become a Borrower, and to execute
the Collateral Documents, as applicable, and cause the direct parent of
each such Subsidiary to pledge all of the capital stock of such
Subsidiary pursuant to a Security Agreement-Pledge in the form attached
hereto and cause each such Subsidiary to pledge its accounts receivable
and all other assets pursuant to the Collateral Documents.
I. The Borrowers shall pay and discharge all taxes, assessments and
governmental charges or levies including, but expressly not limited to,
Taxes, prior to the date on which penalties or liens attach thereto and
become of public record, except such Taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. The Borrowers shall pay all lawful claims for labor,
materials and supplies, unless such claims are being contested in good
faith, and which, if unpaid and in excess of $25,000.00 in the
aggregate, might become a Lien or charge on such Person's properties.
J. The Borrowers shall give the Agent prompt written notice of (i) any IRS
audit of any of the Borrowers, (ii) of the filing or commencement of
any action, suit, or administrative pro- ceeding against any of the
Borrowers, whether at law or in equity or by or before any Governmental
Authority, (iii) any Reportable Event, or (iv) violations of any
Requirement (any of which (a) is material and is brought by or on
behalf of any Person, or in which injunctive or other equitable relief
is sought, and (b) it is probable (within the meaning of Statement of
Financial Accounting Standards No. 5 promulgated by FASB) that there
will be an adverse determination and which, if adversely determined,
would (x) reasonably be expected to result in liability in an aggregate
amount of $25,000.00 or more, not reimburs- able by insurance, or (y)
materially impair the ability of such Person to perform its obliga-
tions under any of the Loan Documents to which it is a party.
K. The Borrowers will furnish to the Agent prompt notice of any
development in the business, affairs, financial condition or Material
Contracts of any of the Borrowers which has had or which is likely, in
the judgment of any Responsible Officer of the Borrowers, to have, a
Material Adverse Effect.
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L. The Borrowers will furnish to the Agent prompt notice of the issuance
by any Governmental Authority of any injunction, order, decision or
other restraint prohibiting, or having the effect of prohibiting, the
making of the Loans or occurrence of other Advances, or invalidating,
or having the effect of invalidating, any provision of the Loan
Documents, or the initiation of any litigation or similar proceeding
seeking any such injunction, order, decision or other restraint.
M. The Borrowers will maintain all operating accounts (other than accounts
maintained at other business locations provided that aggregate balances
in all such other accounts do not exceed $25,000.00 at any time
outstanding but no more than $10,000.00 in any one account) and cash
management arrangements with Chase or Texas Commerce.
N. The Borrowers will pay in full all reasonable and necessary expenses,
including legal expenses and attorney's fees, of the Agent or any of
the Lenders which have been or may be incurred by the Agent or any of
the Lenders in connection with the preparation of the Loan Documents,
the lending hereunder, the collection or enforcement of the Obligations
and the recording and filing and re-recording and re-filing of any such
document and the release of any of the Collateral.
O. Except for the filing of continuation statements and the making of
other filings by the Agent as secured party or assignee, at all times
take all actions necessary to maintain the Liens and security interests
provided for under or pursuant to this Agreement and the Collateral
Documents as valid and perfected first priority Liens on the Collateral
intended to be covered thereby (subject only to the Permitted Liens)
and supply all information to the Agent necessary for such maintenance.
P. The Borrowers will make full and timely payment of the Obligations
whether now existing or hereafter arising, and duly comply with all the
terms and covenants contained in this Agreement (including, without
limitation, the Borrowing limitations) and in each of the other Loan
Documents, all at the times and places and in the manner set forth
therein.
Q. The Borrowers shall execute and deliver to the Agent, for the benefit
of Agent and each of the Lenders, the Hazardous Materials
Indemnification Agreement in the form of Exhibit 7.1.Q.
7.2 FINANCIAL COVENANTS. Until the fulfillment of all Obligations unless the
Lenders shall otherwise consent in writing, Borrowers shall maintain the
following financial covenants.
A. The Borrowers (exclusive of Invatec) shall have on a combined basis,
and shall maintain a Net Worth of $10,600,000.00.
B. The Borrowers shall not have Net Loss for any consecutive two (2) month
period or Net Loss for any quarterly period during the term hereof.
C. The Borrowers shall not permit Availability to be less than zero at any
time.
7.3 OTHER COVENANTS. Until the fulfillment of all Obligations, unless the
Agent and the Lenders shall otherwise consent in writing, Borrowers will perform
and comply with the following covenants:
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A. The Borrowers will not create, incur, assume or suffer to exist
Indebtedness, except (i) the Indebtedness ("SCHEDULED INDEBTEDNESS")
described in Schedule 7.3.A, (ii) the Loans; (iii) current accounts
payable and other current obligations (other than for borrowed money)
arising out of transactions in the ordinary course of business; and
(iv) subject to Section 7.3.D, 7.3.E and Section 7.3.E, (a)
Indebtedness incurred in connection with the acquisition of Equipment
or other assets, or (b) Rentals.
B. The Borrowers will not incur, create, assume or permit to exist any
Lien on any of its property or assets (including the stock of any
direct or indirect Subsidiary), whether owned at the date hereof or
hereafter acquired, or assign or convey any rights to or security
interests in any future revenues, except for (i) the Liens ("SCHEDULED
LIENS") described in Schedule 7.3.B, and (ii) the Permitted Liens.
C. The Borrowers will not (i) pay or modify, amend or otherwise alter the
terms and provisions of any Subordinated Indebtedness, (ii) directly or
indirectly prepay, redeem, purchase or retire any Indebtedness other
than Indebtedness incurred hereunder and Scheduled Indebtedness (except
as otherwise permitted hereunder), (iii) execute a Guaranty (except in
favor of the Lenders), or (iv) otherwise in any manner directly or
indirectly become or be responsible for Indebtedness (including, but
not limited to, working capital maintenance and take or pay contracts)
of any other Person.
D. For each Fiscal Year, the Borrowers will not expend or enter into the
commitment to expend, whether by Capital Lease (but only with respect
to the obligations under the Capital Lease accruing in such Fiscal
Year) or Capital Expenditure, an amount in the aggregate exceeding
$400,000.00.
E. For each Fiscal Year, the Borrowers will not expend or enter into the
commitment to expend by Capital Lease an amount in the aggregate
exceeding $100,000.00.
F. The Borrowers will not (i) lend or advance any money, credit or
property to any Person, or (ii) make or have outstanding any
Investments in any Person, except Temporary Cash Investments and such
other "CASH EQUIVALENT" investments as the Lenders may, from time to
time, approve.
G. The Borrowers will not, and will not permit any Subsidiary to, (i)
declare or pay any Dividends, (ii) dissolve or liquidate, or (iii)
become a party of any merger or consolidation, or purchase, lease or
otherwise acquire all or substantially all of the assets or capital
stock of any Person.
H. None of the Borrowers will issue, sell or otherwise dispose of any
shares of its capital stock or other securities, or rights, warrants or
options to purchase or acquire any shares or securities.
I. None of the Borrowers will amend its organizational documents,
including but not limited to, Articles or Certificate of Incorporation
and bylaws.
J. None of the Borrowers will change its name, Fiscal Year, current tax
status or method of accounting except as required by GAAP. A Borrower
may change its name if the
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Borrowers have given the Agent sixty (60) days prior notice of such
name change and there shall have been taken such action as the Agent
deems necessary to continue the perfection of the Liens securing
payment of the Obligations.
K. None of the Borrowers will pay any management fees to or enter into any
transaction with any Affiliates, other than transactions in the
ordinary course of business and upon fair and reasonable terms not
materially less favorable than could be obtained in an arm's-length
transaction with a Person that was not an Affiliate.
L. None of the Borrowers will engage in any other line of business or
business venture, including, but expressly not limited to, any joint
ventures, partnerships or other ventures, other than those presently
engaged or those which are directly related thereto, or change any
method of operation or manner of doing business in any material
respect.
M. None of the Borrowers will (i) use proceeds of any Loan to acquire any
security in any transaction which is subject to ss.13 or ss.14 of the
Securities Exchange Act of 1934, including particularly (but without
limitation) ss.13(d) and ss.14(d) thereof, or (ii) permit the proceeds
of any Advance to be used for any purpose which is or could become a
violation of, or is inconsistent with, Regulation G, T, U or X of the
Board.
N. None of the Borrowers will sell, assign, convey, exchange, lease or
otherwise dispose of any of its properties, rights, assets or business,
whether now owned or hereafter acquired, except in the ordinary course
of business and for a fair consideration.
O. None of the Borrowers will enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower shall sell or transfer
any property, real or personal, and used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property which the Borrowers intends to use for
substantially the same purpose or purposes as the property being sold
or transferred.
P. None of the Borrowers will sell, assign, discount, transfer, or
otherwise dispose of any Accounts, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or
without recourse, except (i) for the purpose of collection or
settlement in the ordinary course of business, or (ii) the sale of any
such accounts to the Agent or any of the Lenders.
7.4 ERISA COMPLIANCE. Borrowers shall, and shall cause each ERISA Affiliate
to:
A. At all times, make prompt payment of all contributions required under
all Employee Plans and required to meet the minimum funding standard
set forth in ERISA with respect to all Employee Plans;
B. With respect to any Pension Plan, not permit to exist any material
"ACCUMULATED FUNDING DEFICIENCY" (within the meaning of ss.302 of ERISA
and ss.412 of the Code), whether or not waived, with respect thereto;
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E. Not engage in any transaction in connection with which the Borrowers or
any ERISA Affiliate could be subject to either a material civil penalty
assessed pursuant to the provisions of ss.502 of ERISA or a material
tax imposed under the provisions of ss.4975 of the Code;
D. Not terminate any Pension Plan in a "DISTRESS TERMINATION" under
ss.4041 of ERISA, or take any other action which could result in a
material liability of the Borrowers or any ERISA Affiliate to the PBGC;
E. Not adopt an amendment to any Pension Plan requiring the provision of
security under ss.307 of ERISA or ss.40(a)(29) of the Code;
F. Within thirty (30) days after the filing thereof, furnish to the Agent
each annual report/return (Form 5500 Series), as well as all schedules
and attachments required to be filed with the Department of Labor
and/or the IRS pursuant to ERISA, and the regulations promulgated
thereunder, in connection with each Employee Plan for each Employee
Plan year;
G. Notify the Agent immediately of any fact, including, but not limited
to, any Reportable Event arising in connection with any Employee Plan,
which might constitute grounds for termination thereof by the PBGC or
for the appointment by the appropriate U.S. District Court of a trustee
to administer an Employee Plan, together with a statement, if requested
by the Agent, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto; and,
H. Furnish to the Agent, upon request, such additional information
concerning any Employee Plan as may be requested.
7.5 INDEMNITY. EACH LOAN PARTY, JOINTLY AND SEVERALLY, INDEMNIFY AND SHALL
SAVE, AND HOLD THE AGENT AND THE LENDERS (INDIVIDUALLY, AN "INDEMNITEE" AND
COLLECTIVELY, THE "INDEMNITEES") FROM AND AGAINST THE FOLLOWING (EACH A
"CLAIM"): (I) ANY AND ALL CLAIMS, DEMANDS, ACTIONS, OR CAUSES OF ACTION THAT ARE
ASSERTED AGAINST ANY INDEMNITEE BY ANY PERSON IF THE CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION DIRECTLY OR INDIRECTLY RELATES TO A CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION THAT THE PERSON ASSERTS OR MAY ASSERT AGAINST A LOAN PARTY (II)
ANY AND ALL CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION THAT ARE ASSERTED
AGAINST ANY INDEMNITEE IF THE CLAIM, DEMAND, ACTION OR CAUSE OF ACTION DIRECTLY
OR INDIRECTLY RELATES TO THE COMMITMENT, THE USE OF PROCEEDS OF THE LOANS, OR
THE RELATIONSHIP OF A LOAN PARTY AND THE AGENT OR ANY OF THE LENDERS UNDER THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED PURSUANT TO THIS AGREEMENT; (III) ANY
ADMINISTRATIVE OR INVESTIGATIVE PROCEEDING BY ANY GOVERNMENTAL AUTHORITY
DIRECTLY OR INDIRECTLY RELATED TO A CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
DESCRIBED IN CLAUSES (I) OR (II) ABOVE; AND, (IV) ANY AND ALL LIABILITIES,
LOSSES, REASONABLE AND NECESSARY COSTS OR EXPENSES (INCLUDING ATTORNEYS' FEES
AND DISBURSEMENTS) THAT ANY INDEMNITEE SUFFERS OR INCURS AS A RESULT OF ANY OF
THE FOREGOING. If any claim is asserted against any Indemnitee, the Indemnitee
shall promptly notify the Borrowers, but the failure to so promptly notify the
Borrowers shall not affect the Loan Parties' obligations under this Section
unless such failure materially prejudices the Loan Parties' right to participate
in the contest of the Claim. The obligations and liabilities of the Loan Parties
to any Indemnitee under this Section shall survive the expiration or termination
of this Agreement and the repayment of the Obligations.
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ARTICLE VIII
CONDITIONS PRECEDENT
8.1 INITIAL ADVANCES. The obligation of the Lenders to make any Advance on
the Loans is subject to the conditions precedent that, on or before the date of
the initial Advance, the Agent shall have received the following:
A. The Borrowers must evidence in a manner satisfactory to the Agent that
the principals of the Borrowers shall have funded not less than
$7,400,000.00 in equity contributions to the Borrowers.
B. A duly executed Notice of Borrowing.
C. Each of the Collateral Documents duly executed by the parties thereto.
Each document, including, without limitation, any Financing Statements,
required by the Collateral Documents, under law or requested by the
Agent to be filed, registered or recorded in order to create, in favor
of the Agent for the benefit of the Lenders, a perfected first priority
Lien on the Collateral described therein shall have been properly
filed, registered or recorded in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested, the
Agent shall have received an acknowledgment copy, or other evidence
satisfactory to the Agent, of each such filing, registration or
recordation and satisfactory evi- dence of the payment of any necessary
fee, tax or expense relating thereto. The Agent shall have received the
possession of the certificates representing all of the Pledged Stock,
together with undated stock powers executed in blank.
D. Subordination Agreements executed by D. Bowen King and Edsel S. Ries in
the form of Exhibit 8.1.D.
E. The Landlord Agreements in the form of Exhibit 8.1.E, duly executed by
each landlord under on each Leasehold pursuant to which any Borrower
possesses any leasehold interest in real property on which any portion
of the Borrower's business is operated. All of the Leaseholds are set
out in Schedule 8.1.E. Notwithstanding the foregoing, if the Borrowers
have not obtained all Landlord Agreements on or before the Effective
Date, the condition will be waived as to the initial fundings of the
Loans, however, the Borrowers covenant to obtain the Landlord
Agreements within forty-five (45) days of the Effective Date. If,
within forty-five (45) days of the Effective Date, the Borrowers have
not obtained all Landlord Agreements, there will be established a
Reserve equal to the rental which will accrue over a ninety (90) day
period for each of the Leaseholds for which a Landlord Agreement has
not been obtained.
F. The duly executed Lockbox Agreement.
G. The duly executed Hazardous Materials Indemnification Agreement.
H. Favorable opinions of legal counsel for Borrowers in form and substance
satisfactory to the Agent subject to reasonable assumptions,
qualifications and limitations.
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I. An Officers Certificate in the form of Exhibit 8.1.1 certified by the
President and the Secretary of Invatec, stating that after due
investigation and review of matters pertinent to the subject matter of
such certificate, (i) no litigation is pending or threatened which
would have a Material Adverse Effect except as specifically disclosed
in the Financial Statements of Borrowers; (ii) no investigation or
proceeding before any Governmental Authority is con- tinuing or
threatened against such Borrower, or any officer, director or Affiliate
of such Borrower with respect to this Agreement, the Documents or any
of the transactions contemplated hereby or thereby which could have a
Material Adverse Effect; and, (iii) to the best knowledge and belief of
such Persons, after due investigation and review of matters pertinent
to the subject matter of such certificate (a) all of the
representations and warranties contained herein and the other Loan
Documents are true and correct as of the date of the Advance, and (b)
no event has occurred and is continuing, or would result from the Ad-
vance, which constitutes a Default or an Event of Default. The Agent
shall also receive a summary and analysis of all litigation in which
any Borrower is involved, in form and substance acceptable to the
Agent, and a statement to the effect that no litigation in which a
Borrower is involved would, in the event of an adverse determination,
have a Material Adverse Effect.
J. Resolutions of each of the Borrowers approving the execution, delivery
and performance of this Agreement, the other Loan Documents and the
transactions contemplated herein and therein, duly adopted by its board
of directors and accompanied by a certificate of the Secretary of each
Borrower stating that the resolutions are true and correct, have not
been altered or repealed and are in full force and effect. The
resolutions shall certify the name of each officer authorized to sign
the Loan Documents to be executed by the Borrower and the other
documents or certificates to be delivered by the Borrower pursuant to
the Loan Doc- uments, together with the true signature of each such
officer. The Agent may conclusively rely on each certificate until the
Agent receives a further certificate of the Secretary canceling or
amending the prior certificate and submitting the name and signature of
each officer named in such further certificate.
K. Certificates of Corporate Existence issued by the Secretary of State of
each state of incorporation for each respective Borrower and a
Certificate of Account Status or like certificates for each Borrower
and Certificates of Qualification, Certificates of Authorization or
other similar instruments for each Borrower, issued by the Secretary of
State or other appropriate official of each of the states wherein a
Borrower is qualified to do business, each dated within ten (10) days
of the Effective Date.
L. The Agent shall have received certified copies of requests for copies
or information on Form UCC-11 or certificates satisfactory to the
Lenders of a UCC reporting service, listing all effective financing
statements which name any of the Borrowers (including the assumed names
under which any of the Borrowers may or has conducted business) as
debtor and which are filed in the appropriate offices in any state in
which any of the Borrowers have operating offices, together with copies
of such financing statements. With respect to any Liens which are not
Permitted Liens, the Agent shall have received termination statements
in form and substance satisfactory to it.
M. Copies of the Articles of Incorporation of each Borrower and all
amendments thereto, certified by the Secretary of State of the State of
incorporation for the Borrower, and dated
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within ten days of the Effective Date, and a copy of the bylaws of each
Borrower, and all amendments thereto, certified by the Secretary of the
Borrower, as being true, correct and complete as of the date of such
certification.
N. The Agent shall have received and determined to be in form and
substance satisfactory to the Agent:
(1) The most recent, dated not earlier than forty-five (45) days
prior to the Effective Date, schedule and aging of accounts receivable
of the Borrowers;
(2) Evidence that the Borrowers have not less than $3,200,000.00
of Availability on the Effective Date;
(3) A copy of a field examination of the Borrowers' books and
records and the results of such field examination shall be satisfactory
to the Agent in all respects;
(4) The Financial Statements described in Section 9.1.D, together
with management letters received for the last Fiscal Year;
(5) Evidence that the Transactions are in compliance with all
Requirements;
(6) Evidence that all requisite third party consents (including,
without limitation, consents with respect to the Borrowers) to the
Transactions have been received;
(7) Copies of all Material Contracts between any of the Borrowers
and its major customers and suppliers and all material leases and
franchise agreements of the Borrowers;
(8) Evidence that the Borrowers have cash management and
management information systems satisfactory to the Agent;
(9) Evidence that there has occurred no event which would have a
Material Adverse Effect on the business, assets, operations or
financial condition of the Borrowers since the date of the last
Financial Statements provided to the Agent; and,
(10) Evidence that there are no actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending
or threatened against or affecting any of the Borrowers or any of
respective Borrower's business, assets or rights which involve any of
the Transactions.
O. The Agent shall have had the opportunity, if the Agent so chooses, to
examine the books of account and other records and files of the
Borrowers and to make copies thereof, and to conduct a pre-closing
field examination which shall include, without limitation, verification
of Eligible Accounts, payment of payroll taxes and accounts payable and
formulation of an opening Borrowing Base, and the results of such
examination and audit shall have been satisfactory to the Agent in all
respects.
P. The corporate structure and capitalization of each of the Borrowers
shall be satisfactory to the Lenders in all respects.
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Q. All legal matters in connection with the Transactions shall be
satisfactory to the Agent, the Lenders and their respective counsel in
their sole discretion.
R. Invatec, for and on behalf of the Borrowers, shall have executed and
delivered to the Agent a disbursement authorization letter with respect
to the disbursement of the proceeds of the Advance made on the
Effective Date, in form and substance satisfactory to the Agent.
S. The Agent and the Lenders shall have received from the Borrowers, and
its counsel where appropriate, a letter stating that there are no
material violations of ERISA, OSHA or Environmental Laws which would
have a Material Adverse Effect.
T. The Agent and the Lenders shall have received from the Borrowers and
shall be satisfied with management prepared income statements, balance
sheets and cash flow projections for the Borrowers for Fiscal Years
1997, 1998, and 1999, including a pro forma balance sheet as of the
Effective Date.
U. Evidence satisfactory to the Agent that the insurance policies required
by this Agreement and the Collateral Documents are in force and effect,
the originals of all such policies, or copies of the policies with
certificates of insurance, where required, and receipts showing that
the premiums therefor have been paid.
V. The Borrowers shall have paid in full (i) all fees owed to the Agent
and the Lenders by the Borrowers under this Agreement, and, (ii) all
legal fees charged, and all costs and expenses incurred, by legal
counsel to the Agent through the Effective Date in connection with the
Transactions.
W. Upon the fulfillment of all applicable conditions set forth herein, the
Agent will, as soon as practicable, but in no event later than 5:00
p.m. (New York, New York time) on the first Business Day after the
Effective Date, fund the proceeds of the Advance to Union Bank of
California to payoff and discharge Indebtedness of Steam Supply secured
by Liens on the Collateral, and upon receipt of and such other
instruments as the Agent shall require.
8.2 SUBSEQUENT ADVANCES. The obligation of any Lender to make any subsequent
Advance under this Agreement shall be subject to the following additional
conditions precedent:
A. As of the date of the making of such Advance, there shall not exist any
Default or Event of Default.
B. Borrowers shall have performed and complied with all agreements and
conditions contained herein and in each of the Loan Documents which are
required to be performed or complied with before or on the date of such
Advance.
C. As of the date of making such Advance, no change that would cause a
Material Adverse Effect shall have occurred.
D. In the case of any Borrowing, the Agent shall have received an
appropriate Notice of Borrowing dated as of the date of a Borrowing
signed by a Responsible Officer of Borrowers. All of the statements
contained in such Notice of Borrowing shall be true and correct, and
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such Notice of Borrowing shall contain a certification by such officer
that, as of the date thereof, (i) all of the representations and
warranties of Borrowers contained in this Agreement and each of the
Loan Documents executed by Borrowers are true and correct, (ii) no
event has occurred and is continuing, or would result from the
Borrowing, which constitutes a Default or an Event of Default, and
(iii) such other facts as Lenders may request.
E. The representations and warranties contained in each of the Loan
Documents shall be true in all material respects on the date of making
of such Advance, the same force and effect as though made on and as of
that date.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS AND WARRANTIES CONCERNING THE BORROWERS. The Borrowers
represent and warrant to the Agent and each of the Lenders the following matters
concerning the Borrowers.
A. Each Borrower is a corporation duly incorporated and existing in good
standing under the laws of the State shown in its Certificate of
Resolution. Each Borrower is duly licensed or qualified in all
jurisdictions wherein the character of the property owned or leased by
it or the nature of the business transacted by it makes licensing or
qualification necessary by foreign corporations and where failure to
become so licensed or qualified would have a Material Adverse Effect.
B. Each Borrower has the corporate power and requisite authority to
execute, deliver and perform the Loan Documents to be executed by it.
The execution, delivery and perfor- mance by each Borrower of this
Agreement and each of the other Loan Documents to which it is a party,
the Borrowing hereunder by the Borrower, the execution and delivery by
the Borrower of the Note, the grant of security interests in the
Collateral created by the Collateral Documents and the performance by
the Borrower of the Obligations thereunder (collectively, the
"TRANSACTIONS") have been duly authorized by all necessary corporate
action. Such actions will not (i) violate any provision of law, the
Borrower's Articles of Incorporation or bylaws, or (ii) result in the
breach of or constitute a default under other agreement or instrument
to which the Borrower is a party. No consent of the Borrower's
shareholders or any holder of Indebtedness of the Borrower is required
as a condition to the validity of this Agreement.
C. The Loan Documents, when duly executed and delivered in accordance with
this Agreement, will constitute legal, valid and binding obligations of
each Borrower in accordance with their respective terms.
D. Each of the Borrowers has furnished to the Agent, (i) current fiscal
year end Financial Statements, including a balance sheet and an income
and surplus statement, and related statements of retained earnings and
changes in financial condition, and current interim, year-to-date
balance sheet and the income and surplus statements and related
statements of retained earnings and changes in financial condition. The
Financial Statements are true and correct and have been prepared in
accordance with GAAP throughout the periods involved. The balance
sheets fairly present the financial condition of the Borrower as of the
dates
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thereof, and the income and surplus statements fairly present the
results of the operations of the Borrower for the periods indicated.
There have been no changes in the condition, financial or otherwise, of
any Borrower since the dates of such Financial Statements which would
have a Material Adverse Effect.
E. Except as disclosed in the Financial Statements referenced in Section
9.1.D, none of the Borrowers has any (i) Investment in any other
Person, or (ii) agreements in effect providing for or relating to
extensions of credit in respect of which it is or may become directly
or contingently obligated.
F. There is no material fact that Borrowers have failed to disclose to the
Agent or the Lenders which could have a Material Adverse Effect.
Neither the Financial Statements referenced in Section 9.1.D, nor any
certificate or statement delivered herewith or heretofore by Borrowers
to the Agent in connection with negotiations of the Loan Documents,
contains any untrue statement of a material fact or omits to state any
material fact necessary to keep the statements contained herein or
therein from being misleading.
G. The Borrowers have good title to the assets pledged or given as
Collateral to secure the Loans, free and clear of all Liens except the
Permitted Liens. None of the Borrowers is aware of any reason why each
of the Collateral Documents to which it is a party would not create and
grant to the Agent, for the benefit of the Lenders, a legal, valid and
perfected first priority security interest in the Collateral identified
therein, subject to the Permitted Liens.
H. Each Borrower has good and marketable title to, or valid leasehold
interest in, all of its respective properties and assets shown on the
most recent balance sheet referred to in Section 9.1.D and all assets
and properties acquired since the date of such balance sheet, except
for (i) such properties as are no longer used or useful in the conduct
of its business or as have been disposed of in the ordinary course of
business, and (ii) minor defects in title that do not interfere with
the ability of the Borrower to conduct its business as now conducted.
All such assets and properties are free and clear of all Liens other
than Permitted Liens.
I. Each Borrower has complied in all material respects with all
obligations under all Leaseholds to which it is a party and under which
it is in occupancy, except for the failure of the Borrower to obtain
the consent of all of the owners of the Premises to the transfer of the
Leaseholds or where noncompliance does not affect the Borrower's use or
occupancy, and all such leases are in full force and effect and the
Borrower enjoys peaceful and undisturbed possession under all such
leases.
J. Each Borrower owns or controls or has the right to use all material
trademarks, trademark rights, trade names, trade name rights,
copyrights, patents, patent rights and licenses which are necessary for
the conduct of its business. No Borrower is infringing upon or
otherwise acting adversely to any of such trademarks, trademark rights,
trade names, trade name rights, copyrights, patent rights or licenses
owned by any other Person or Persons. There is no claim or action by
any such other Person pending, or to the knowledge of any Re- sponsible
Officer of any of the Borrowers, threatened, against any of the
Borrowers with respect to any of the rights or property referred to in
this Section.
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K. Invatec is the sole shareholder of Puget and Benicia. Puget is the sole
shareholder of Steam and Flickinger. No Borrower owns any other
Subsidiary. The sole shareholders of Invatec are set out in Schedule
9.1.K, which sets out the authorized and the issued capital stock of
Invatec. There are no outstanding warrants or options to purchase any
of the capital stock of any of Borrowers. All outstanding capital stock
of each Borrower has been validly issued, is fully paid and
non-assessable and is owned by the shareholder free and clear of all
Liens, except for the Liens in favor of the Lenders.
L. Each of the Borrowers is and, after consummation of this Agreement and
after giving effect to all Indebtedness incurred and the Liens in
connection herewith, will be Solvent.
M. Except as disclosed in writing to the Agent and the Lenders, no
Borrower is a party to a transaction with any Affiliate. All such
transactions are in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than could be obtained
in an arm's-length transaction with a Person that was not an Affiliate.
N. None of the Borrowers is in default in any material respect under any
contract, lease, loan agreement, indenture, mortgage, security
agreement or other material agreement or obligation to which the
Borrower is a party or by which any of the Borrower's property is bound
except for the failure of the Borrower to obtain the consent of all of
the owners of the Premises to the transfer of the Leaseholds.
O. Neither the business nor the property of any Borrower are, affected by
any fire, explosion, accident, strike, lockout or other labor dispute,
storm, hail, earthquake, embargo, act of God or other casualty (whether
or not covered by insurance), which could have a Material Adverse
Effect.
P. The proceeds of the Loans will be used by the Borrowers solely for the
purposes specified herein. None of such proceeds will be used for the
purpose of purchasing or carrying any "MARGIN STOCK" as defined in
Regulation U, Regulation X, or Regulation G, or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to
purchase or carry margin stock or for any other purpose which might
constitute this transaction a "PURPOSE CREDIT" within the meaning of
such Regulation U, Regulation X, or Regulation G. No Borrower is
engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock. Neither any of the Borrowers nor
any Person acting on behalf of any Borrower has taken or will take any
action which might cause the Note or any of the other Loan Documents,
including this Agreement, to violate Regulation U, Regulation X, or
Regulation G or any other regulations of the Board or to violatess.8 of
the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may
hereinafter be in effect. No Borrower owns margin stock except for that
described in the Financial Statements referred to in Section 9.1.D and,
as of the Effective Date, the aggregate value of all margin stock owned
by any Borrower does not exceed twenty-five (25) per cent of the value
of all of the Borrower's assets. If requested by any Lender, each
Borrower shall furnish to such Lender a statement on Federal Reserve
Form U-1 referred to in Regulation U.
Q. No Borrower has during the preceding five (5) years, been known as or
used any fictitious, assumed or trade names except for the assumed
names enumerated in Schedule 9.1.Q. The
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principal office, chief executive office and principal place of
business of each Borrower is at the address set out in the Security
Agreement executed by the Borrower. Each Borrower maintains its
principal records and books at such address.
R. Each Borrower possesses all licenses, permits, approvals and consents,
including, without limitation, all environmental, health and safety
licenses and permits, approvals and consents (collectively, the
"PERMITS") of all Governmental Authority as required to conduct its
business. Each such Permit is and will be in full force and effect.
Each Borrower is in compliance in all material respects with all
Permits, and to its knowledge no event, including, without limitation,
any violation of any law, rule or regulation, has occurred which allows
the revocation or termination of any Permit or any restriction thereon.
S. All employment agreements, compensation agreements or management
agreements of any of the Borrowers is terminable with not more than
thirty (30) days notice.
9.2 REGULATORY MATTERS. Borrowers represent and warrant that as of the
Effective Date, no Regulatory Defects exist, and specifically the following
matters.
A. No Borrower or any Person having "CONTROL" (as that term is defined in
12 U.S.C. ss.375(b)(5) or in regulations promulgated pursuant thereto)
of any Borrower, is an "EXECUTIVE OFFICER", "DIRECTOR", or "PRINCIPAL
SHAREHOLDER" (as those terms are defined in 12 U.S.C.ss.375(b) or in
regulations promulgated pursuant thereto) of any of the Lenders, of a
bank holding company of which any of the Lenders is a subsidiary, or of
any subsidiary of a bank holding company of which any of the Lenders is
a subsidiary, or of any bank at which any of the Lenders maintains a
"CORRESPONDENT ACCOUNT" (as such term is defined in such statute or
regulations), or of any bank which maintains a correspondent account
with any of the Lenders.
B. Except as disclosed in the Financial Statements of the Borrowers and
the summary and analysis of litigation in which the Borrowers are
involved, there are no actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to
the knowledge of any Responsible Officer of any of the Borrowers
threatened against or affecting any Borrower or the business, assets or
rights of any of the Borrowers (i) which involve any of the
Transactions, or (ii) as to which it is probable (within the meaning of
Statement of Financial Accounting Standards No. 5 promulgated by FASB)
that there will be an adverse determination and which, if adversely
determined, would, individually or in the aggregate, materially impair
the ability of any Borrower to conduct business substantially as now
conducted, or have a Material Adverse Effect.
C. The Borrowers have filed all U.S. tax returns and all state and foreign
tax returns which are required to be filed. The returns properly
reflect the U.S. income tax, foreign tax and/or state taxes of each
Borrower for the period covered thereby. The Borrowers have paid, or
made provisions for the payment of, all Taxes which have become due
pursuant to the re- turns or pursuant to any assessment received by the
Borrower, except such Taxes, if any, as are being contested in good
faith and as to which, adequate cash reserves have been provided. No
Federal income tax returns of any Borrower have been audited by the
IRS. None of the Borrowers has, as of the Effective Date, requested or
been granted any
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extension of time to file any Federal, state, local or foreign tax
return. None of the Borrowers is a party to or has any obligation under
any tax sharing agreement.
D. (i) No Reportable Event has occurred and is continuing with respect to
any Employee Plan; (ii) PBGC has not instituted proceedings to
terminate any Employee Plan; (iii) neither the Borrowers, any ERISA
Affiliate, any member of the Controlled Group, nor any duly-ap- pointed
administrator of an Employee Plan has (a) incurred any liability to
PBGC with respect to any Employee Plan other than for premiums not yet
due or payable, or (b) insti- tuted or intends to institute proceedings
to terminate any Employee Plan underss.4041 or ss.4041A of ERISA or
withdraw from any Multi-Employer Plan (as that term is defined in
ss.3(37) of ERISA); and, (iv) each Employee Plan has been maintained
and funded in all material respects in accordance with its terms and
with all provisions of ERISA applicable thereto.
E. No Borrower is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, the Interstate Commerce Act (as any of the preceding acts have
been amended), or any other law (other than Regulation X) which
regulates the incurring by Borrowers of Indebtedness, including but not
limited to laws relating to common contract carriers or the sale of
electricity, gas, steam, water, or other public utility services.
F. The Borrowers have complied with, and will continue to comply with, the
provisions of the Fair Labor Standards Act of 1938, 29 U.S.C. ss.ss.200
et.seq., as amended from time to time (the "FLSA"), including
specifically, but without limitation, 29 U.S.C. ss.215(a). This
representation and warranty, and each re-confirmation thereof, shall
constitute assurance from Borrowers, given as of the Effective Date and
as of the date of each re-confirmation, that Borrowers have complied
with the requirements of the FLSA, in general, and 29 U.S.C.
ss.215(a)(1), thereof, in particular.
G. Except as disclosed to the Lenders in writing, the Borrowers are
compliance with all laws, rules, regulations, orders and decrees which
are applicable to the Borrowers or their properties.
H. None of the Borrowers has been accused of being in violation of Title
IX, of the Organized Crime Control Act of 1970, entitled "RACKETEER
INFLUENCED AND CORRUPT ORGANIZATIONS" (RICO), 18 U.S.C. ss.ss.1961
et.seq.
I. The operations of the Borrowers comply in all material respects with
all applicable Environ- mental Laws (except as disclosed in writing to
the Lenders) and with OSHA. The Borrowers and all of Borrowers' present
facilities or operations, as well as, to the knowl- edge of the
Borrowers, Borrowers' past facilities or operations, are not subject to
any judicial or administrative proceeding or any outstanding written
order or agreement with any Governmental Authority or private party
respecting (i) Environmental Laws, (ii) any remedial work (except as
disclosed in writing to the Lenders), or (iii) any environmental claims
arising from the release of Hazardous Materials into the environment.
To the best of the knowledge of the Borrowers, none of Borrowers'
operations is the subject of any Federal or state investigation
evaluating whether any remedial work is needed to respond to a release
of any Hazardous Materials into the environment in violation of
Environmental
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Laws. Borrowers have not filed any notice under Enviromental Laws
indicating past or present treatment, storage, or disposal of Hazardous
Materials or reporting a spill or release of Hazardous Materials into
the environment in violation of Environmental Laws. To the best of the
knowledge of the Borrowers, Borrowers do not have any contingent
liability in connection with any release of any Hazardous Materials and
none of Borrowers' operations involve the generation, transportation,
treatment or disposal of Hazardous Materials.
9.3 REPRESENTATIONS REGARDING ACCOUNTS. The Borrowers make the following
representations and warranties which shall be deemed to be incorporated by
reference in each Notice of Borrowing and shall be deemed repeated and confirmed
with respect to each item of the Accounts as it is created or otherwise acquired
by the Borrowers.
A. Each Account Debtor named in an Eligible Account or on an invoice is,
to the best of Borrowers' knowledge, Solvent and will continue to be
fully able to pay in full when due all Accounts on which the Account
Debtor is obligated in full when due.
B. Each Eligible Account shall be a good and valid account representing an
undisputed bona fide indebtedness incurred or an amount indisputably
owed by the Account Debtor therein named, for a fixed sum as set forth
in the invoice relating thereto with respect to an absolute sale and
delivery upon the specified terms of goods sold by the Borrowers, or
work, labor and/or services theretofore rendered by the Borrowers.
C. No Eligible Account is or shall be subject to any defense, setoff,
counterclaim, discount or allowances except as may be stated in the
copy of the invoice delivered to the Agent.
D. No note, trade acceptance, draft or other instrument or chattel paper
has been or will be received with respect to merchandise giving rise to
any Eligible Account unless the same is assigned and delivered to the
Agent.
E. There has been no material change in credit criteria or collection
policies concerning Accounts of the Borrowers since December 31, 1996.
F. A Borrowers shall be the sole owner, free and clear of all Liens except
in favor of the Agent or otherwise permitted hereunder, of and fully
authorized to sell, transfer, pledge and/or grant a security interest
in each and every item of Collateral owned by it;
G. To the best of Borrowers' knowledge, none of the transactions
underlying or giving rise to any Eligible Accounts shall violate any
applicable state or federal laws or regulations, and all documents
relating to any Accounts shall be legally sufficient under such laws or
regulations and shall be legally enforceable in accordance with their
terms, subject, as to enforceability, to the effect of applicable
Debtor Laws.
H. All documents and agreements relating to Eligible Accounts shall be
true and correct and in all respects what they purport to be.
I. To the best of Borrowers' knowledge, all signatures and endorsements
that appear on all documents and agreements relating to Eligible
Accounts shall be genuine and all signatories and endorsers with
respect thereto shall have full capacity to contract.
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J. Borrowers shall maintain books and records pertaining to the Accounts
in such detail, form and scope as the Agent shall require.
K. Borrowers will immediately notify the Agent if any Accounts arise out
of contracts with any Governmental Authority, and will execute any
instruments and take any steps required by the Agent in order that all
monies due or to become due under any such contract shall be assigned
to the Agent and notice thereof given to the Governmental Authority
under the Assignment of Claims Act.
L. Borrowers shall not redate any invoice or sale or make sales on
extended dating beyond that customary in the industry
9.4 REPRESENTATIONS REGARDING INVENTORY. The Borrowers make the following
representations and warranties regarding the Inventory which shall be deemed to
be incorporated by reference in each Notice of Borrowing and shall be deemed
repeated and confirmed with respect to each item of Inventory as it is acquired
by Borrowers.
A. No part of the Inventory is subject to any Lien or security interest
whatsoever except for the security interest granted to the Agent in the
Loan Documents.
B. All Inventory is located on the Premises.
C. Except as promptly disclosed to the Agent from time to time in writing,
all Inventory shall be of good merchantable quality, free from any
defects which would affect the market value of the Inventory.
D. Borrowers will, immediately upon learning thereof, report to the Agent
any material loss or destruction of, or substantial damage to, any of
the Inventory, and any other matters affecting the value of the
Inventory.
E. Borrowers shall conduct a physical count of the Inventory at such
intervals as the Agent may request and promptly supply the Agent with a
copy of such counts accompanied by a report of the value (based on the
lower of cost {on a FIFO basis} or market value) of such Inventory.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by Borrowers shall survive delivery of the Loan Documents and the
making of the Loans. Any investigation at any time made by or on behalf of the
Agent or any of the Lenders shall not diminish the Agent's or any Lender's right
to rely on the representations and warranties made by Borrowers.
ARTICLE X
DEFAULTS AND REMEDIES
10.1 EVENTS OF DEFAULT. The Borrowers shall be in Default hereunder if any
one of the following shall occur:
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A. If any installment of principal on any of the Note shall not be paid
when and as due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or
otherwise;
B. If any installment of interest on the Note, any fee or any other
amounts payable hereunder, or any other Loan Document or in connection
with any Advance or the Transactions shall not be paid when and as due
and payable, or if there shall occur a failure to pay any Obligations
owed to the Lenders when and as the same shall become due and payable;
C. If there be a termination of all or any portion of any Material Contract.
D. If any representation, statement, warranty or certification made by any
Loan Party in the Loan Documents, or furnished to the Agent or any of
the Lenders in connection with the Loans, shall prove to have been
incorrect in any material respect at the time of making or issuance
thereof.
E. If there shall occur any one of the following events (an "EVENT OF
DEFAULT"), and if the event can be cured by affirmative action on the
part of Borrowers but shall continue uncured after five (5) days from
the earlier to occur of (i) the date such event becomes known to a Loan
Party, or (ii) the date the Agent shall have given notice to Borrowers
that such event has occurred; provided, however, the Agent shall not be
required to give notice of any such failure or event; provided,
further, if an Event of Default cannot be cured within time above
specified because of causes beyond Borrowers' control, Borrowers must
timely commence and continue the curing of the Event of Default with
due diligence to completion:
(1) If the Borrowers shall fail to comply with any of the covenants and
agreements set forth in Section 7.1.A.(3) or Section 7.1.A.(7); and/or,
(2) Both the following events shall occur: (i) Either (a) process shall
have been instituted to terminate, or a notice of termination shall
have been filed with respect to, any Employee Plan (other than a
Multi-Employer Plan as that term is defined in ss.3(37) of ERISA) by
Borrowers, any ERISA Affiliate, any Subsidiary, any member of the
Controlled Group, PBGC or any representative of any thereof, or any
such Employee Plan shall be terminated in any such case under ss.4041
or ss.4042 of ERISA, or (b) a Reportable Event, the occurrence of which
would cause the imposition of a lien under ss.4068 of ERISA, shall have
occurred with respect to any Employee Plan (other than a Multi-Employer
Plan as that term is defined in ss.3(37) of ERISA) and be continuing
for a period of sixty (60) days; and, (ii) the sum of the estimated
liability to PBGC under ss.4062 of ERISA and the currently payable
obligations of Borrowers or any ERISA Affiliate to fund liabilities (in
excess of amounts required to be paid to satisfy the minimum funding
standard of ss.412 of the Code) under the Employee Plan or Employee
Plans subject to such event shall exceed ten (10) per cent of Tangible
Net Worth at such time; and/or,
(3) Any or all of the following events shall occur with respect to any
Multi-Employer Plan (as that term is defined in ss.3(37) of ERISA) to
which Borrowers or any ERISA Affiliate contributes or contributed on
behalf of its employees: (i) Borrowers or any ERISA Affiliate incurs a
withdrawal liability under ss.4201 of ERISA; (ii) any such plan is "IN
REORGANIZATION" as that term is defined in ss.4241 of ERISA; or, (iii)
any such Employee Plan
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is terminated under ss.4041A of ERISA and the Agent determines in good
faith that the aggregate liability likely to be incurred by Borrowers
or any ERISA Affiliate, as a result of all or any of the events
specified in subsections (i), (ii) and (iii) above occurring, shall
have a Material Adverse Effect.
F. If there shall occur any change in the condition (financial or
otherwise) of the Borrowers which, in the opinion of the Agent or the
Lenders, has a Material Adverse Effect.
G. If any of the Loan Documents shall, for any reason, (i) cease to be, or
shall be asserted by the Borrowers not to be, legal, valid and binding
agreements enforceable against the Borrowers executing the same in
accordance with the respective terms thereof, (ii) in any manner be
terminated or become or be declared ineffective or inoperative, or
(iii) in any manner whatsoever cease to give or provide the Liens,
security interests, rights, titles, interests, remedies, powers or
privileges intended to be created thereby.
H. If there shall occur a failure by the Borrowers in the observance or
performance of any other provision of the Loan Documents. The
provisions of this Agreement shall control in the event that any
provision of any other Loan Document is in conflict with the provisions
of any other instrument executed pursuant hereto and all of such
provisions in such other instruments shall be deemed to be cumulative
of the provisions hereof to the extent such provisions are not
inconsistent herewith.
I. If there shall occur a failure beyond any period of grace, if any, by
the Borrowers in the payment, when due, of (i) the interest on or the
principal of any Indebtedness in excess of $10,000.00, other than
accounts payable incurred in the ordinary course of business, or (ii)
any other Indebtedness and if the effect of any such default shall be
to accelerate, or to permit the holder or obligee of any such
Indebtedness, at its option to accelerate, the maturity of such
Indebtedness.
J. If a judgment (not reimbursed by insurance) or decree for the payment
of money, a fine or penalty which when taken together with all other
such judgments, decrees, fines and penalties shall exceed $10,000.00
shall be rendered by a court or other tribunal against a Loan Party,
and (i) shall remain undischarged or un-bonded for a period of thirty
(30) consecutive days during which the execution of such judgment,
decree, fine or penalty shall not have been stayed effectively, or (ii)
any judgment creditor or other Person shall legally commence actions to
collect on or enforce such judgment, decree, fine or penalty.
K. If there shall be any Change of Control of any of the Borrowers.
L. If a Lien in excess of $10,000.00 arising from unpaid Taxes shall be
filed against any of the Borrowers' properties or assets.
M. If any Borrower shall:
(1) Apply for, consent to or acquiesce in the appointment of a
receiver, trustee or liquidator of such Person, or of such Person's
property; and/or,
(2) Admit in writing such Person's inability to pay debts as they
mature; and/or,
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(3) Make a general assignment for the benefit of creditors; and/or,
(4) Be adjudicated to be bankrupt or insolvent by any court having
jurisdiction; and/or,
(5) File a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, composition, readjustment, an arrangement or
similar relief with creditors under any present or future Debtor Laws
or file an answer admitting the material allegations of a petition
filed against such Person in bankruptcy, reorganization or insolvency
proceeding, or corporate action shall be taken for the purpose of
effecting any of the foregoing; and/or,
(6) Have a receiver or trustee or assignee in bankruptcy or insolvency
appointed for such Person or such Person's property without such
Person's application or consent.
N. If an involuntary petition or complaint shall be filed against any of
the Borrowers seeking bankruptcy or reorganization of such Person or
the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such Per-
son's assets, and such petition or complaint shall not have been
dismissed within thirty (30) days of the filing thereof; or, if an
order, order for relief, judgment or decree shall be entered by any
court of competent jurisdiction or other competent authority approving
a petition or complaint seeking reorganization of any of the Borrowers
or appointing a receiver, custodian, trustee, intervenor or liquidator
of such Person, or of all or substantially all of such Person's assets.
10.2 REMEDIES. Upon the occurrence of an Event of Default, the obligation of
the Lenders to extend Advances to the Borrowers pursuant hereto shall
immediately terminate. If a Default shall occur, the Lenders may, at their
option, without notice to the Borrowers, declare the principal of and interest
accrued on the Obligations to be forthwith due and payable, whereupon the same
shall become due and payable without any presentment, demand, protest, notice of
protest, notice of intent to accelerate the maturity of the Obligations, notice
of acceleration of the maturity of the Obligations or notice of any kind, all of
which are hereby waived. Notwithstanding the foregoing, if the Default is a
default set out in Section 10.1.M or Section 10.1.N, the Commitment shall
automatically terminate and the principal of the Note, together with accrued
interest and fees thereon and any other liabilities of the Borrowers accrued
hereunder shall automatically become due and payable, both as to principal and
interest, without any presentment, demand, protest, notice of protest, notice of
intent to accelerate the maturity of the Obligations, notice of acceleration of
the maturity of the Obligations or notice of any kind, all of which are hereby
waived. Thereafter, the Agent, for and on behalf of the Lenders, may exercise
all remedies available to the Agent as provided in any of the Loan Documents,
and at law or in equity. None of the provisions contained in any of the Loan
Documents shall, or shall be deemed to, give the Agent or any of the Lenders the
right to exercise control over the assets, including, without limitation, real
property, affairs, or management of Borrowers. The rights of the Agent and the
Lenders are limited to the exercise the remedies provided in this Agreement and
the other Loan Documents.
10.3 NOTICES OF DEFAULT. Upon becoming aware of the existence of any
condition or event which constitutes a Default or an Event of Default, the
Borrowers shall immediately furnish to the Agent notice specifying the nature
and period of existence thereof and the action taken or proposed to be taken
with respect thereto.
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ARTICLE XI
AGENT
11.1 APPOINTMENT. In order to expedite the transactions contemplated by this
Agreement, the Agent is appointed to act as agent on behalf of the Lenders. Each
of the Lenders (which term "LENDER" or "LENDERS" shall, unless otherwise
expressly indicated, include the Agent in its capacity as a Lender) and each
subsequent holder of the Note, by its acceptance thereof, irrevocably authorizes
the Agent to take such action on its behalf and to exercise such powers
hereunder and under the other Loan Documents as are specifically delegated to or
required of the Agent by the terms hereof and the terms thereof together with
such powers as are reasonably incidental thereto. No other agent or coagent will
be appointed without to consent of Chase.
11.2 AUTHORIZATION. The Agent is hereby expressly authorized on behalf of
the Lenders, without hereby limiting any implied authority to:
A. Receive on behalf of each of the Lenders any payment of principal of or
interest on the Note and all other amounts accrued hereunder paid to
the Agent and, pursuant to the terms hereof, distribute to each Lender
its proper share of all payments so received;
B. Give notice to the Lenders of the receipt or sending of any notice,
schedule, report, projection, financial statement or other document or
information pursuant to this Agreement or any of the other Loan
Documents and shall promptly forward a copy thereof to each Lender;
C. Take all actions with respect to this Agreement and the other Loan
Documents as are specifically delegated to the Agent; and,
D. In the event that (i) the Borrowers fail to pay any of the Obligations
when due, or (ii) the Agent receives written notice of the occurrence
of a Default or an Event of Default, the Agent shall, within a
reasonable time, give written notice thereof to the Lenders, and shall
take such action with respect to such Default, Event of Default or
other condition or event as it shall be directed to take by the
Lenders; provided, however, that, unless and until the Agent shall have
received such directions, the Agent may take such action or refrain
from taking such action under the Loan Documents with respect to a
Default or Event of Default as it shall deem advisable in the best
interests of all of the Lenders.
11.3 RESPONSIBILITIES OF AGENT. It is expressly understood and agreed that
the obligations of the Agent under the Loan Documents are only those expressly
set forth in the Loan Documents.
A. The Agent shall be entitled to assume that no Default or Event of
Default has occurred and is continuing, unless the Agent has actual
knowledge of such fact or has received notice from a Lender that such
Lender considers that a Default or an Event of Default has occurred and
is continuing and specifying the nature thereof.
B. In the event that the Agent shall acquire actual knowledge of any Event
of Default or of an event which, with the giving of notice or the lapse
of time, or both, would constitute an Event of Default, the Agent shall
promptly give notice thereof to the Lenders.
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C. Lenders recognize and agree, that for the purposes of Section 2.1
hereof the Agent shall not be required to independently determine
whether the conditions described in Section 8.2 have been satisfied
and, in disbursing funds to the Borrowers, may rely fully upon
statements contained in the relevant Notice of Borrowing.
D. Neither the Agent nor any of its directors, officers, employees or
agents shall be liable as such for any action taken or omitted to be
taken by it or them hereunder or under any of the other Loan Documents
or in connection herewith or therewith at the request or with the
approval of the Lenders (or, if otherwise specifically required
hereunder or thereunder, the consent of all the Lenders).
E. Neither the Agent nor any of its directors, officers, employees or
agents shall have any responsibility to the Borrowers on account of the
failure or delay in performance or breach by any Lender, other than the
Agent, of any of its obligations hereunder or to any Lender on account
of the failure of or delay in performance or breach by any other Lender
or the Borrowers of any of their respective obligations hereunder or in
connection herewith.
F. The Agent shall, in the absence of knowledge to the contrary, be
entitled to accept any certificate furnished pursuant to this Agreement
or any of the other Loan Documents as conclusive evidence of the facts
stated therein. The Agent shall incur no liability under or in respect
of any of the Loan Documents by acting upon any such notice, consent,
certifi- cate, warranty or other paper or instrument believed by it to
be genuine or authentic or to be signed by the proper party or parties,
or with respect to anything which it may do or refrain from doing in
the exercise of its judgment, or which may appear to it to be neces-
sary or desirable in the circumstances.
G. The Agent shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement,
or in any certificate or other document referred to or provided for in,
or received by any Lender under, this Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any document referred to or provided for herein or
for any failure by Borrowers to perform any of its obligations
hereunder.
H. Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it.
I. The relationship between the Agent and each of the Lenders is only that
of principal and agent and has no fiduciary aspects, and the Agent's
duties hereunder are acknowledged to be only ministerial and not
involving the exercise of discretion on its part. Nothing in this
Agreement or elsewhere contained shall be construed to impose on the
Agent any duties or responsibilities other than those for which express
provision is herein made. In performing its duties and functions
hereunder, the Agent does not assume and shall not be deemed to have
assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or
for the Borrowers. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or
collection of the Note), the Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected
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in so acting or refraining from acting upon the instructions of the
Lenders and such instructions shall be binding upon all the Lenders and
all holders of the Note; provided, however, that Agent shall not be
required to take any action which exposes Agent to personal liability
or which is contrary to this Agreement or applicable law.
11.4 RESIGNATION AND SUCCESSOR. Subject to the appointment and acceptance of
a successor Agent as provided below, the Agent may resign at any time by giving
written notice thereof to the Lenders and Borrowers and the Agent may be removed
at any time with or without cause by the Lenders. Upon any such resignation or
removal, the Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Lenders and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation or the Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a successor
Agent. 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 each of the other Loan Documents. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Article shall continue in
effect for its benefit in respect to any actions taken or omitted to be taken by
it while it was acting as the Agent.
11.5 NOTEHOLDERS. The Agent may treat the payee of the Note as the holder
thereof until written notice of transfer shall have been filed with it signed by
such payee and in form satisfactory to the Agent.
11.6 CONSULTATION WITH COUNSEL. The Agent may consult with legal counsel
selected by it in connection with matters arising under this Agreement or any of
the other Loan Documents and any action taken or suffered in good faith by it in
accordance with the opinion of such counsel shall be full justification and
protection to it.
11.7 EXPENSES AND INDEMNIFICATION. Each Lender agrees to reimburse the Agent
in the amount of any expenses incurred for the benefit of the Lenders by the
Agent, including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, not reimbursed by the Borrowers.
Each Lender agrees to indemnify and hold harmless the Agent and any of its
directors, officers, employees or agents, on demand, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against it in its capacity as the
Agent or any of them in any manner relating to or arising out of this Agreement
or any of the other Loan Documents or any action taken or omitted by it or any
of them under this Agreement or any of the other Loan Documents, to the extent
not reimbursed by the Borrowers.
11.8 BENEFIT AND APPLICABILITY OF ARTICLE. The agreements contained in this
Article are applicable to and solely for the benefit of the Agent and the
Lenders, and are not applicable to or for the benefit of, or shall the
provisions of this Article be relied upon by the Borrowers or any other Person,
and no Loan Party assumes or shall have any duties, covenants, obligations or
other liabilities of any kind whatever by reason or in consequence of any
provisions contained in this Article.
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ARTICLE XII
ASSIGNMENT OF NOTE AND LIENS
12.1 ASSIGNMENT OF NOTE AND LIENS. It is specifically understood and agreed
among the Borrowers, the Agent, and the Lenders that the Lenders have borrowed
sums from Chase and Texas Commerce (collectively, the "BANKS") pursuant to
certain credit facilities granted by the Banks and administered by Chase. To
secure the extension of credit to the Lenders, the Lenders will collaterally
assign, transfer and convey to Chase, as agent for the Banks, the Note and the
Collateral Documents. As assignee of the Note and the Collateral Documents and
agent for the Banks, Chase will, so long as any sums are owing by any of the
Lenders to the Banks, be the successor Agent and shall administer the Loans made
pursuant to the terms of this Agreement for and on behalf of the Lenders. The
Note, duly indorsed with recourse, will be delivered to Chase, as the agent for
the benefit of the Banks, together with a Security Agreement-Collateral
Assignment of Note. Pursuant to the terms of the Security Agreement-Collateral
Assignment of Note Chase has the right to exercise and will exercise all of the
functions of the Agent hereunder. Each of the Borrowers agree to perform and
fulfil its respective obligations hereunder to Chase and as required by it.
12.2 NOTEMAKER ESTOPPEL CERTIFICATE. In confirmation of their respective
acknowledgements of the assignment of the Note and Collateral Documents and
their respective agreements to perform and fulfil their agreements to Chase, the
Borrowers agree to execute and deliver to Chase a Notemaker Estoppel Certificate
in the form of Exhibit 12.2.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. All notices and other communications given to any party in
accordance with the provisions of this Agreement shall be deemed to have been
given (i) on the date of receipt, if hand delivered, (ii) three (3) days after
being deposited with the U.S. Postal Service, postage prepaid, certified mail,
return receipt requested, or (iii) upon receipt (promptly confirmed in writing)
if by any telex, facsimile or other telecommunications equipment, in each case
addressed to such party as provided in this Section or in accordance with the
latest revoked direction from such party. Notices to be provided to any of the
Borrowers shall be given to Invatec. Notices to be provided to any of the
Lenders shall be given to the Agent. Notices, consents and other communications
provided for herein shall be in writing and shall be addressed:
If to Invatec: INNOVATIVE VALVE TECHNOLOGIES, INC.
14900 Woodham Drive, A-125
Houston, Texas 77073
If to the Agent: THE SAFE SEAL COMPANY, INC.
14900 Woodham Drive, A-125
Houston, Texas 77073
If to Chase: THE CHASE MANHATTAN BANK
Asset Based Lending
633 Third Avenue, 7th Floor
New York, New York 10017
Attention: Credit Deputy
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13.2 SEVERABILITY. In the event any one or more of the provisions contained
in the Loan Documents should be held to be invalid, illegal or unenforceable in
any respect, the validity, enforceability and legality of the remaining
provisions contained in the Loan Documents shall not in any manner be affected
thereby and shall be enforceable in accordance with their terms. The parties
shall endeavor, in good faith negotiation, to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as nearly as possible to that of the invalid, illegal or unenforceable
provision.
13.3 CAPTIONS. The Article, Section, Subsection captions, headings, and
arrangements, the Schedules, Exhibits and the Table of Contents used in this
Agreement are for convenience of reference only and do not in any manner affect,
limit, amplify, or modify the terms and provisions hereof.
13.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Borrowers,
any Subsidiary of Borrowers, any ERISA Affiliate, the Agent and the Lenders and
shall inure to the benefit of Borrowers, any Subsidiary of Borrowers, any ERISA
Affiliate, Agent, Lenders and the successors and assigns of the Agent and the
Lenders. No Loan Party may, without the prior consent of the Lenders, assign any
rights, powers, duties or obligations hereunder. Without limiting the generality
of the foregoing, the Borrowers specifically confirms that any Lender may at any
time and from time to time pledge or otherwise grant a security interest in any
Loan or any Note (or any part thereof) to any Federal Reserve Bank.
13.5 SYNDICATIONS. In the event that Chase shall elect to further syndicate
the credit facility provided under this Agreement, the Borrowers agree to use
their best efforts to assist Chase in same, including, but not limited to, the
providing of such information and confirmations of the Obligations to proposed
syndicate members as shall be necessary to permit the proposed syndicate members
to evaluate the credit facility provided hereunder.
13.6 NON-LIABILITY OF THE AGENT AND THE LENDERS. The relationship among the
Borrowers, the Agent and the Lenders is, and shall at all times remain, solely
that of debtors and creditors. Neither the Agent nor any of the Lenders
undertakes or assumes any responsibility or duty to any Person to review,
inspect, supervise, pass judgment upon, or inform any Person of any matter in
connection with any phase of such Person's business, operations, or condition,
financial or otherwise. Each Person shall rely entirely upon such Person's own
judgment with respect to such matters. Any review, inspection, supervision,
exercise of judgment, or information supplied to any Person by the Agent or any
of the Lenders in connection with any such matter is for the protection of the
Agent and the Lenders, and no Person is entitled to rely thereon.
13.7 FINANCING STATEMENTS. Any carbon, photographic or other reproduction of
any Financing Statement signed by any of the Borrowers is sufficient as a
financing statement for all purposes, including, without limitation, filing in
any state pursuant to the provisions of the UCC.
13.8 LIST OF EXHIBITS AND SCHEDULES. The following Exhibits and Schedules
are attached hereto and made a part hereof for all purposes:
Exhibit 2.1 Notice of Borrowing
Exhibit 3.1 Note
Exhibit 5.1.A Security Agreement
Exhibit 5.1.B Security Agreement-Pledge of Stock
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Exhibit 6.1. Lockbox Agreement
Exhibit 7.1.A.(6) Certificate of Compliance
Exhibit 7.1.Q Hazardous Materials Indemnification Agreement
Exhibit 8.1.D Subordination Agreement
Exhibit 8.1.E Landlord Agreements
Exhibit 8.1.I Officers Certificate
Exhibit 12.2 Notemaker Estoppel Certificate
Schedule 7.3.A Scheduled Indebtedness
Schedule 7.3.B Scheduled Liens
Schedule 8.1.E Leaseholds
Schedule 9.1.K Invatec Shareholders
Schedule 9.1.Q Borrowers' Assumed or Trade Names
13.9 MODIFICATION. All modifications, consents, amendments or waivers of any
provision of any Loan Document, or consent to any departure by the Borrowers
therefrom, shall be effective only if the same shall be in writing and agreed to
by the Lenders and then shall be effective only in the specific instance and for
the purpose for which given.
13.10 WAIVER. The acceptance by the Agent or any of the Lenders of any
partial payment on the Obligations shall not be deemed to be a waiver of any
Event of Default then existing. No waiver by the Agent or any of the Lenders of
any Event of Default shall be deemed to be a waiver of any other then existing
or subsequent Event of Default, or Default. No delay or omission by the Agent or
any of the Lenders in exercising any right under the Loan Documents shall impair
that right or be construed as a waiver thereof or any acquiescence therein, or
shall any single or partial exercise of any right preclude other or further
exercise thereof or the exercise of any other right under the Loan Documents or
otherwise. Any waiver of any provision of this Agreement or the Note or consent
to any departure by the Borrowers therefrom must be authorized as provided in
Section 11.2, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
the Borrowers in any case shall entitle it to any other or further notice or
demand in similar or other circumstances. Each holder of any of the Note shall
be bound by any amendment, modification, waiver or consent authorized as
provided herein, whether or not such Note shall have been marked to indicate
such amendment, modification, waiver or consent. The rights of the Agent and the
Lenders hereunder and under the Loan Documents shall be in addition to all other
rights provided by law.
13.11 APPLICABLE LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN
NEGOTIATED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF NEW
YORK, AND THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT
TO THE CONFLICTS-OF-LAW RULES AND PRINCIPALS OF THE STATE OF NEW YORK, AND THE
APPLICABLE LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF THIS AGREEMENT AND ALL OF THE LOAN DOCUMENTS EXCEPT AS
SPECIFICALLY SET OUT IN ANY SUCH LOAN DOCUMENT.
13.12 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION. Any suit, action
or proceeding against any Loan Party with respect to the Loan Documents, or the
enforcement of any judgment entered by any court in respect thereof, shall be
brought in the courts of the State of New York, or in the U.S. courts located in
State of New York, as the Agent, in the Agent's sole discretion, may elect.
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The Agent, each Lender, and each Loan Party submit to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
A. All parties irrevocably waive, in connection with any such suit,
action or proceeding, any objection, including, without limitation,
any objection to the laying of venue or based on the grounds of forum
non conveniens, which it may now or hereafter have to the bringing of
any such action or proceeding in such respective jurisdictions.
B. All parties irrevocably consent to the service of process of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to each such Person, as the case may be, at its address set
forth in Section 13.1.
C. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by law.
13.13 WAIVER OF JURY TRIAL. Each party hereto hereby waives any right it may
have to a trial by jury in respect of any in any legal proceeding directly or
indirectly arising out of, under or in connection with or relating to any of the
Loan Documents or the Transactions. Except as prohibited by law, each party
hereto hereby waives any right it may have to claim or recover in any litigation
referred to in this Section any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Each party
hereto (i) certifies that no representative, agent or attorney of the Agent or
any Lender has represented, expressly or otherwise, that such Lender would not,
in the event of litigation, seek to enforce the foregoing waivers, and (ii)
acknowledges that it has been induced to enter into this Agreement, the Note and
the other Loan Documents, as applicable, by, among other things, the mutual
waivers and certifications herein.
13.14 NO THIRD PARTY BENEFICIARY. Except as otherwise expressly set out
herein, the parties do not intend for the this Agreement to inure to the benefit
of any third party, or for this Agreement to be construed to make or render the
Agent or any of the Lenders liable to any mechanic, materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by
Borrowers for debts or claims accruing to any such Persons against Borrowers.
Neither the Agent nor any of the Lenders, by anything herein or in any of the
other Loan Documents, assumes any Indebtedness of Borrowers under any contract
or agreement assigned to the Agent or any of the Lenders, and neither the Agent
nor any of the Lenders shall be responsible in any manner for the performance by
the Borrowers of any of the terms and conditions thereof.
13.15 PAYMENT OF EXPENSES. The Borrowers shall pay all necessary and
reasonable expenses, charges, costs and fees provided for in this Agreement or
relating to the Loans or the Collateral, including fees, charges, and taxes in
connection with recording or filing any of the Loan Documents, charges, fees of
any consultants, fees and expenses of the Agent's counsel (which attorneys may
be employees of the Agent), fees and expenses of the Agent's special counsel,
which may include fees billed for law clerks, paralegals and other persons not
admitted to the Bar but performing services under the supervision of an
attorney, printing, photocopying and duplicating expenses, air freight charges,
escrow fees, costs of surveys, premiums of insurance policies and surety bonds,
fees for any appraisal, market or feasibility study required by the Agent fees
for the preparation or review of any releases of any of the Liens. All such
expenses, charges, costs and fees shall be the Borrowers' obligations regardless
of whether or not the Borrowers have requested and met the conditions for the
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Loans. This obligation on the part of the Borrowers shall survive the execution
and delivery of the Loan Documents and the repayment of the Obligations. The
Borrowers authorize the Agent to pay such expenses, charges, costs and fees at
any time by a disbursement of the Loans.
13.16 CONFLICTS. If there shall exist any conflict among this Agreement and
any of the other Loan Documents, the provisions of this Agreement shall control.
13.17 ENTIRETY. The Loan Documents embody the entire agreement among the
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof. Any previous agreement among the
parties hereto with respect to the Transactions is superseded by the Loan
Documents. Except as expressly provided herein or the Loan Documents (other than
this Agreement), nothing in this Agreement or in the other Loan Documents,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
13.18 RIGHT OF SETOFF. If an Event of Default shall have occurred and be
continuing, upon the request of the Lenders each Lender shall and is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to setoff and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of the Borrowers
against any and all of the obligations of the Borrowers now or hereafter
existing under this Agreement and the Note held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement or
the Note and although such obligations may be unmatured. Each Lender agrees to
notify promptly the Agent and the Borrowers after any such setoff and
application made by such Lender, but the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Lender
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which may be available to such
Lender.
13.19 JOINT AND SEVERAL OBLIGATIONS. The Borrowers are jointly and severally
responsible for their respective agreements, covenants, representations and
warranties and obligations contained in this Agreement.
13.20 ENTIRETY. The Loan Documents embody the entire agreement among the
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof. Any previous agreement among the
parties hereto with respect to the Transactions is superseded by the Loan
Documents. Except as expressly provided herein or the Loan Documents (other than
this Agreement), nothing in this Agreement or in the other Loan Documents,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
13.21 MULTIPLE 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.
THIS WRITTEN CREDIT AGREEMENT AND THE LOAN DOCUMENTS DESCRIBED HEREIN REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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In witness whereof, the parties have duly executed this Agreement on the day
and year hereinabove first set forth.
INNOVATIVE VALVE PUGET INVESTMENTS, INC.
TECHNOLOGIES, INC.
BY:/s/ CHARLES F. SCHUGART BY:/s/ CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
FLICKINGER-BENICIA, INC, STEAM SUPPLY & RUBBER CO., INC.
BY:/s/ CHARLES F. SCHUGART BY:/s/ CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
FLICKINGER COMPANY THE SAFE SEAL COMPANY, INC., AGENT
BY:/s/ CHARLES F. SCHUGART BY:/s/ CHARLES F. SCHUGART
CHARLES F. SCHUGART CHARLES F. SCHUGART
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
SENIOR VICE PRESIDENT
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Schedule 7.3.A
Scheduled Indebtedness
(1) 5.5% Convertible Subordinated Promissory Note dated July ___, 1997,
executed by Innovative Valve Technologies, Inc., in the original
principal amount of $____________, payable to the order of D. Bowen
King.
(2) 5.5% Convertible Subordinated Promissory Note dated July ___, 1997,
executed by Innovative Valve Technologies, Inc., in the original
principal amount of $____________, payable to the order of E. S. Ries.
<PAGE>
Schedule 7.3.B
Scheduled Liens
None
<PAGE>
Schedule 8.1.E
Leaseholds
(1) 2900-2910 California Avenue
Long Beach, California 90806
(2) 2550 N.W. 25th Place
Portland, Oregon 97210
(3) 1335 South Inca
Denver, Colorado 80223
(4) Steam Supply
(Lease from Puget Investments)
615 Alaska Street
Seattle, Washington 98108
(5) Bay 4
120101 Industry Way
Anchorage, Alaska 99511
(6) 3200 Bayshore Road, Unit #3
Benicia, California 94510
<PAGE>
Schedule 9.1.Q
Borrowers' Assumed or Trade Names
Flickinger Company:
King-Ries Acquisitions, Inc. (Borrower will not use post July 28, 1997)
Flickinger Valve Company, Inc.
EXHIBIT 4.8
CREDIT AGREEMENT
THE SAFE SEAL COMPANY, INC.
BORROWER
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
BANK
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................. 1
1.1 DEFINITIONS.................................................. 1
1.2 OTHER DEFINITIONS............................................ 10
ARTICLE II LOANS........................................................ 11
2.1 LOANS........................................................ 11
2.2 BORROWING PROCEDURE.......................................... 11
2.3 USE OF PROCEEDS.............................................. 11
ARTICLE III NOTE......................................................... 12
3.1 NOTE......................................................... 12
3.2 INTEREST RATE OPTIONS........................................ 12
3.3 APPLICABLE MARGIN............................................ 13
3.4 DEFAULT RATE................................................. 13
3.5 MAXIMUM INTEREST............................................. 13
3.6 PAYMENTS ON THE NOTE......................................... 14
3.7 CALCULATION OF INTEREST RATES................................ 14
3.8 CONSEQUENTIAL LOSS........................................... 14
3.9 PREPAYMENTS.................................................. 15
3.10 MANNER AND APPLICATION OF PAYMENTS........................... 15
3.11 COMMITMENT FEE............................................... 15
3.12 PAYMENTS IN RESPECT OF INCREASED COSTS....................... 15
ARTICLE IV SPECIAL PROVISIONS FOR EURODOLLAR LOANS...................... 17
4.1 INADEQUACY OF EURODOLLAR LOAN PRICING........................ 17
4.2 ILLEGALITY................................................... 17
4.3 EFFECT ON INTEREST OPTIONS................................... 18
4.4 PAYMENTS NOT AT END OF INTEREST PERIOD....................... 18
4.5 SURVIVAL OF OBLIGATIONS...................................... 18
ARTICLE V COVENANTS.................................................... 18
5.1 AFFIRMATIVE COVENANTS........................................ 18
5.2 OTHER COVENANTS.............................................. 20
5.3 ERISA COMPLIANCE............................................. 21
5.4 INDEMNITY.................................................... 22
ARTICLE VI CONDITIONS PRECEDENT......................................... 23
6.1 INITIAL ADVANCES............................................. 23
6.2 SUBSEQUENT ADVANCES.......................................... 24
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ARTICLE VII REPRESENTATIONS AND WARRANTIES............................... 25
7.1 REPRESENTATIONS AND WARRANTIES CONCERNING BORROWER........... 25
7.2 REGULATORY MATTERS........................................... 26
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES................... 28
ARTICLE VIII DEFAULTS AND REMEDIES........................................ 29
8.1 EVENTS OF DEFAULT............................................ 29
8.2 REMEDIES..................................................... 31
8.3 OTHER NOTICES................................................ 31
ARTICLE IX MISCELLANEOUS................................................ 31
9.1 NOTICES...................................................... 31
9.2 SEVERABILITY................................................. 32
9.3 CAPTIONS..................................................... 32
9.4 SUCCESSORS AND ASSIGNS....................................... 32
9.5 PARTICIPATION................................................ 32
9.6 NON-LIABILITY OF BANK........................................ 32
9.7 LIST OF EXHIBITS............................................. 32
9.8 MODIFICATION................................................. 32
9.9 WAIVER....................................................... 33
9.10 GOVERNING LAW................................................ 33
9.11 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION......... 33
9.12 WAIVER OF JURY TRIAL. ...................................... 33
9.13 AGENCY....................................................... 34
9.14 NO THIRD PARTY BENEFICIARY................................... 34
9.15 PAYMENT OF EXPENSES.......................................... 34
9.16 CONFLICTS.................................................... 34
9.17 DECEPTIVE TRADE PRACTICES ACT................................ 34
9.18 ENTIRETY..................................................... 34
9.19 MULTIPLE COUNTERPARTS........................................ 34
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CREDIT AGREEMENT
This Credit Agreement (the "AGREEMENT") is made and entered into effective
March 6, 1997 (the "EFFECTIVE DATE") by and between THE SAFE SEAL COMPANY, INC.
(the "BORROWER"); and, TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "BANK").
In consideration of the mutual promises, covenants and agreements herein
contained and for other valuable consideration, the parties agree as set out
herein.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, unless the context
requires otherwise, the following terms shall have the respective meanings
ascribed to them in this Article or in the Sections referred to below:
"ADJUSTED LIBOR RATE LOANS" means all, and "ADJUSTED LIBOR RATE LOAN" means any,
of the Loans, with respect to any Interest Period, which bears interest at a
rate of interest determined by reference to the LIBOR Rate for such Interest
Period.
"ADJUSTED LIBOR RATE" means, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the product of (i) the LIBOR Rate in effect for
such Interest Period, and (ii) Statutory Reserves.
"ADVANCES" means all, and "ADVANCE" means any, of the disbursements by the Bank
of the sums loaned to the Borrower pursuant to this Agreement.
"AFFILIATE" of any Person means any other Person which, directly or indirectly,
controls or is controlled by or is under common control with such Person and,
without limiting the generality of the foregoing, includes, (i) any Person which
beneficially owns or holds five per cent or more of any class of Voting Shares
of such Person or five per cent or more of the equity interest in such Person,
(ii) any Person of which such Person beneficially owns or holds five per cent or
more of any class of Voting Shares or in which such Person beneficially owns or
holds five per cent or more of the equity interest in such Person and (iii) any
director, officer, member, manager or employee of such Person. For the purposes
of this definition, the term "CONTROL" (including, with correlative meanings,
the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect
to any Person, 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 Shares or by contract or otherwise.
"AGREEMENT" means this Agreement, as it may, from time to time, be amended.
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"ALLWASTE" means Allwaste, Inc., a Delaware corporation.
"ALTERNATE BASE RATE LOANS" means that portion of any Loan which bears interest
at a rate of interest determined by reference to the Alternate Base Rate.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater
of (i) the Base Rate in effect on such day, (ii) the Base CD Rate in effect on
such day PLUS one (1) per cent, or (iii) the Federal Funds Effective Rate in
effect on such day PLUS one-half (1/2) of one (1) per cent. If the Bank shall
have determined (which determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the Federal Funds Effective
Rate, or both, for any reason, including the inability or failure of the Bank to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (ii) or (iii), or both,
of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Base Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Base Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"APPLICABLE MARGIN" shall have the meaning ascribed to such term in Section 3.3.
"ASSESSMENT RATE" means the annual assessment rate (net of refunds) estimated by
the Bank (in good faith, but in no event in excess of statutory or regulatory
maximums) to be payable by the Bank to the Federal Deposit Insurance Corporation
(or any successor) for insurance to such Governmental Authority (or such
successor) of time deposits made in Dollars during the current calendar year.
"BANK" shall have the meaning set out in the preamble hereof.
"BASE CD RATE" means the sum of (i) the product of the sum of, (a) the
Three-Month Secondary CD Rate, and (b) Statutory Reserves, multiplied by (ii)
the Assessment Rate.
"BASE RATE LOAN" means that portion of any Loan which bears interest at a rate
of interest determined by reference to the Base Rate.
"BASE RATE" means the variable rate of interest announced from time to time by
Chase as the prime rate, and used by Chase as a general reference rate of
interest, but which rate of interest may not be the lowest rate charged by the
Bank on similar loans. If Chase shall, during the term of this Agreement,
abolish or abandon the practice of announcing or publishing a "PRIME RATE", then
the "BASE RATE" used during the remaining term of this Agreement shall be that
interest rate or other general reference rate then in effect and used by the
Bank which, from time to time, in the judgment of the Bank, most effectively
approximates the initial definition of the "BASE RATE".
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"BOARD" means the Board of Governors of the Federal Reserve System of the U.S.
"BORROWER" shall have the meaning set out in the preamble hereof.
"BORROWING DATE" means the date specified in a Notice of Loan Advance, as a date
on which the Borrower requests the Bank make an Advance.
"BORROWING" means any amount disbursed by the Bank to or on behalf of the
Borrower under the Loan Documents, whether such amount advanced constitutes an
original disbursement of funds, the continuation of an amount outstanding or a
disbursement of funds in accordance with and to satisfy the Obligations.
"BUSINESS DAY" means a day on which the Bank is open for business, except for
Saturdays, Sundays and federal holidays recognized by the Bank, except that, if
any determination of a "BUSINESS DAY" shall relate to a Eurodollar Loan, the
term "BUSINESS DAY" shall, in addition, exclude any day on which banks are not
open for dealings in Dollar deposits in the London interbank market.
"CHANGE OF CONTROL" means (i) if any Person, or group of Persons acting together
shall acquire sufficient stock ownership of the Borrower or any of the
Consolidated Subsidiaries to permit such Person or group to elect a majority of
their respective Board of Directors or otherwise control the Borrower or any of
the Consolidated Subsidiaries, (ii) if there shall occur any merger,
consolidation or dissolution of the Borrower or any of the Consolidated
Subsidiaries with any other Person, or (iii) if there shall occur any sale,
lease or other disposition of all or substantially all of the assets or capital
stock of the Borrower or any of the Consolidated Subsidiaries to any other
Person.
"CHASE CREDIT AGREEMENT" means the Credit Agreement dated effective January 31,
1997, among HARLEY INDUSTRIES, INC. ("HARLEY"), the Borrower, VALVE REPAIR OF
SOUTH CAROLINA, INC. ("VALVE"), SPINSAFE CORPORATION ("SPINSAFE"), THE SAFE SEAL
COMPANY (Canada), INC. ("SAFE SEAL CANADA"), as the borrowers, the Bank and
Chase, as the lenders, and Chase as the agent for the lenders.
"CHASE" means The Chase Manhattan Bank.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMITMENT TERMINATION DATE" means August 1, 1997, or, if such date is not a
Business Day, the Business Day preceding such date.
"COMMITTED SUM" means $10,000,000.00.
"CONSEQUENTIAL LOSS" shall have the meaning set forth in Section 3.8.
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"CONSOLIDATED SUBSIDIARIES" means Spinsafe and Safe Seal Canada as to Safe Seal,
and Valve as to Harley, and any other entity acquired by Safe Seal or Harley,
the capital stock of which is owned in its entirety by Safe Seal, Harley or a
wholly owned direct subsidiary of either of them, after the acquisition of the
GSV Stock, GSV, and after the acquisitions of the Plant Specialties Stock, Plant
Specialties, and "CONSOLIDATED SUBSIDIARY" means any of the Consolidated
Subsidiaries.
"CONTRACT RATE" means the rates of interest, as applicable, on the Loans
calculated as set out in Section 3.2.A.
"CONTROLLED GROUP" means (i) the controlled group of corporations as defined in
ss.1563 of the Code, or (ii) the group of trades or businesses under common
control as defined in ss.414(c) of the Code, of which the Borrower is or may
become a part.
"CONVERSION DATE" shall have the meaning ascribed to such term in Section
3.2.A.(4).
"DEBTOR LAWS" means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization or similar
laws, from time to time in effect, affecting the rights of creditors generally.
"DEFAULT" shall have the meaning ascribed to such term in Section 8.1.
"DIVIDENDS" means in respect of any Person, (i) cash distributions or any other
distributions (including distributions by tax-option corporations) on, or in
respect of, any class of capital stock of such Person, whether in cash,
property, securities or a combination thereof (whether by reduction of capital
or otherwise), except for distributions made solely in shares of stock of the
same class, and (ii) any and all funds, cash or other payments (or the setting
aside of any amounts for any such purpose) made in respect of the redemption,
repurchase or acquisition of such stock, unless such stock shall be redeemed or
acquired through the exchange of such stock with stock of the same class.
"DOLLARS" and the symbol "$" shall refer to currency of the U.S.
"EMPLOYEE PLAN" means any, and "EMPLOYEE PLANS" means all, employee benefit or
other plans maintained, in whole or in part, for the employees of the Borrower
and the Consolidated Subsidiaries or any ERISA Affiliate, and covered by Title
IV of ERISA, or subject to the minimum funding standards under ss.412 of the
Code.
"ERISA AFFILIATE" means any Person which, together with the Borrower or any
subsidiary, would be treated as a single employer under the provisions of Title
I or Title IV of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
together with all regulations issued pursuant thereto.
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"EURODOLLAR LOANS" means all, and "EURODOLLAR LOAN" means any, of the Loans,
with respect to any Interest Period, which bears interest at a rate of interest
determined by reference to the Adjusted LIBOR Rate for such Interest Period.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in Section 8.1.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Bank from three
Federal funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means, with respect to any Person, the chairman, the
president, the chief executive officer, or the chief financial officer of such
Person.
"FINANCIAL STATEMENTS" means all, and "FINANCIAL STATEMENT" means each, of the
balance sheets, profit and loss statements, reconciliations of capital and
surplus and statements of cash flow and contingent liabilities of the Borrower
and the other Loan Parties.
"FISCAL YEAR" means the fiscal year of the Borrower for accounting purposes
ending each December 31.
"GAAP" means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board ("FASB") or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the Effective
Date so as to properly reflect the financial condition, and the results of
operations and changes in financial position, of the Borrower and the
Consolidated Subsidiaries, except that any accounting principle or practice
required to be changed by the Accounting Principles Board or FASB (or other
appropriate board or committee of the boards) in order to continue as a
generally accepted accounting principle or practice, may be so changed. In the
event of a change in GAAP, the Bank and the Borrower will thereafter negotiate
in good faith to revise any covenants of this Agreement affected thereby in
order to make such covenants consistent with GAAP then in effect.
"GOVERNMENTAL AUTHORITY" means any government (or any political sub division or
jurisdiction thereof), court, bureau, agency or other governmental authority
having jurisdiction over the Borrower or any other Loan Party or the Borrower's
or any other Loan Party's business or properties.
"GSV STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated February
26, 1997, among the Borrower, Pliny L. Olivier, David A. Siegel, Bettie Siegel,
Philip C. Grace,
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Trustee for the David A. Siegel - GSV Voting Trust, pursuant to the terms of
which the Borrower will acquire the GSV Stock.
"GSV STOCK" means all of the outstanding and issued capital stock of GSV.
"GSV" means GSV, Inc., a Florida corporation, with chief executive office and
principal place of business at 1301 King Road, Tampa, Florida 33605.
"GUARANTY AGREEMENT" means the guaranty agreement executed by Allwaste pursuant
to Section 6.1.C for the benefit of the Bank.
"GUARANTY" means any contract, agreement or understanding of any Person pursuant
to which such Person guarantees, or in effect guarantees, any Indebtedness of
any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, agreements: (i) To purchase such
Indebtedness or any property constituting security therefor; (ii) to advance or
supply funds (a) for the purchase or payment of such Indebtedness, or (b) to
maintain net worth or working capital or other balance sheet conditions, or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness; (iii) to purchase property, securities or service primarily for
the purpose of assuring the holder of such Indebtedness of the ability of the
Primary Obligor to make payment of the Indebtedness; or, (iv) otherwise to
assure the holder of the Indebtedness of the Primary Obligor against loss in
respect thereof. "GUARANTY" shall not include, however, the indorse- ment of
negotiable instruments or documents for deposit or collection by the Borrower or
any other Loan Party in the ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including, without limitation: (i) All
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP; (ii) all obligations of such Person in respect of any
Guaranty; (iii) all obligations of such Person in respect of any capital lease;
(iv) all obligations, indebtedness and liabilities secured by any Lien or any
security interest on any property or assets of such Person; and, (v) all
preferred stock, which is redeemable by the holder of such stock, of such Person
valued at the greater of its voluntary or involuntary liquidation preference
plus accrued and unpaid dividends.
"INTEREST OPTION" shall have the meaning assigned to such term in Section 3.2.
"INTEREST PAYMENT DATE" means the Maturity Date.
"INTEREST PERIOD" means, with respect to any Eurodollar Loan, the period
commencing on the Borrowing Date and ending on the Commitment Termination Date,
consistent with the following provisions. The duration of each Interest Period
shall be selected by the Borrower in a Notice of Loan Advance as provided in
Section 2.2.A or a Rollover Notice as provided in Section 3.2.A.(3):
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A. With respect to Eurodollar Loans requested by the Borrower:
(1) Initially, the period commencing on the Borrowing Date or Conversion
Date with respect to such Eurodollar Loan and ending one (1), two (2) or
three (3) months thereafter; and,
(2) If the last day of an Interest Period would be a day other than a
Business Day, the Interest Period shall end on the next succeeding
Business Day (unless the Interest Period relates to a Eurodollar Loan
and the next succeeding Business Day is in a different calendar month
than the day on which the Interest Period would otherwise end, in which
event the Interest Period shall end on the preceding Business Day).
B. Each Interest Period shall be as selected by the Borrower, subject to
the Bank's consent, at the Bank's sole discretion. The Borrower's choice
of Interest Period is also subject to the following limitations:
(1) No Interest Period shall end on a date after the Commitment
Termination Date; and,
(2) Thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Eurodollar Loan
and ending one (1), two (2) or three (3) months thereafter, as selected
by the Borrower in a Rollover Notice.
"INVESTMENT" means any investment in any period, whether by means of share
purchase, loan, advance, extension of credit, capital contribution or otherwise,
in or to a Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person.
"IRS" means the Internal Revenue Service, Department of the U.S. Treasury, an
agency of the U.S. government.
"LIBOR RATE" means, with respect to any Eurodollar Loan for any Interest Period,
an interest rate per annum equal to the rate at which Dollar deposits
approximately equal in principal amount to the Eurodollar Loan requested and for
a maturity equal to the applicable Interest Period are offered for Eurodollars
in immediately available funds to the Bank by leading banks in whatever
Eurodollar interbank market may be selected by the Bank, in its sole discretion,
at approximately 11:00 A.M., London time, two (2) Business Days prior to the
first day of such Interest Period.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the
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repayment of Indebtedness, whether arising by agreement, under any statute or
law, or otherwise.
"LOAN DOCUMENTS" means this Agreement, the Note, including any renewals,
extensions and modifications thereof, the Guaranty Agreement and any agreements
or documents executed or delivered pursuant to the terms of this Agreement, and
with respect to this Agreement, and such other agreements and documents, any
amendments or supplements thereto or modifications thereof.
"LOAN PARTIES" means the Borrower and the Consolidated Subsidiaries, and the
term "LOAN PARTY" means any of them.
"LOANS" means the aggregate unpaid principal balance of all Borrowing made under
Section 2.1.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the validity,
performance, or enforceability of any of the Loan Documents, (ii) the financial
condition or business operations of the Borrower, and/or (iii) the ability of
the Borrower to fulfill the Obligations.
"MATURITY DATE" means August 1, 1997.
"MAXIMUM RATE" and "MAXIMUM AMOUNT" respectively mean the maximum non-usurious
rate and the maximum non-usurious amount of interest permitted by applicable
laws that, at any time or from time to time, may be contracted for, taken,
reserved, charged or received on the Obligations under the laws which are
presently in effect of the U.S. and the State of Texas and applicable to the
holders of the Note or, to the extent permitted by law, under such applicable
laws of the U.S. and the State of Texas which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws now
allow.
"NOTE" shall have the meaning ascribed to such term in Section 3.1.
"NOTICE OF LOAN ADVANCE" shall have the meaning ascribed to such term in Section
2.1.
"OBLIGATIONS" mean:
A. All present and future indebtedness, obligations and liabilities of the
Borrower to the Bank arising pursuant to any of the Loan Documents,
regardless of whether such indebtedness, obligations and liabilities are
direct, indirect, fixed, contingent, joint, several, or joint and
several;
B. All other Indebtedness of whatever kind or character owing, or which may
hereafter become owing, by the Borrower to the Bank, whether the
Indebtedness is direct or indirect, primary or secondary, fixed or
contingent, or arises out of or is evidenced by note, deed of trust,
open account, overdraft, endorsement, surety
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agreement, guaranty, or otherwise, and it is specifically contemplated
that the Borrower may hereafter become indebted to the Bank in further
sum or sums; and,
C. All renewals, extensions and modifications of the Indebtedness referred
to in the foregoing clauses, or any part thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor to all
or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
"PENSION PLAN" means any Employee Plan which is subject to the provisions of
Title IV of ERISA.
"PERSON" shall include an individual, a corporation, non-profit corporation, a
professional association, a joint venture, a general partnership, a limited
partnership, a limited liability company, a limited liability partnership, a
trust, an unincorporated organization or a government or any agency or political
subdivision thereof.
"PLANT SPECIALTIES STOCK PURCHASE AGREEMENT" means the Stock and Real Estate
Purchase Agreement proposed to be entered into among the Borrower, Curry B.
Walker, Nollie J. Walker, Deborah Elaine Renfroe, Curry B. Walker III, Cheryl
Lynn Mouton, Laura Ann Thomas and Plant Specialties, pursuant to the terms of
which the Borrower proposes to acquire the Plant Specialties Stock and certain
real estate.
"PLANT SPECIALTIES STOCK" means all of the outstanding and issued capital stock
of Plant Specialties.
"PLANT SPECIALTIES" means Plant Specialties, Inc., a Louisiana corporation, with
chief executive office and principal place of business at 4781 Madrid Drive,
Sulphur, Louisiana 70663.
"REGULATION D" means Regulation D of the Board, 12 C.F.R. Part 204, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION G" means Regulation G of the Board, 12 C.F.R. Part 207, or any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"REGULATION U" means Regulation U promulgated by the Board, 12 C.F.R. Part 221,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation U and having substantially the same function.
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"REGULATION X" means Regulation X promulgated by the Board, 12 C.F.R. Part 224,
or any successor or other regulation hereafter promulgated by the Board to
replace the prior Regulation X and having substantially the same function.
"REGULATORY DEFECTS" means the failure by the Borrower or any other Loan Party
to comply with all laws, statutes, orders, rules and regulations of any
Governmental Authority, and such failure to comply has a Material Adverse
Effect.
"REPORTABLE EVENT" shall have the meaning ascribed to such term in Title IV of
ERISA.
"REQUIREMENTS" means (i) any and all present and future judicial decisions,
statutes, rulings, rules, regulations, orders, permits, certificates or
ordinances of any Governmental Authority in any manner applicable to the
Borrower, and (ii) any and all contracts, written or oral, of any nature to
which the Borrower may be bound.
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive
officer, the president, the chief financial officer or the controller, of such
Person.
"SOLVENT" means, with respect to any Person on a particular date, that on such
date (i) the fair value of the property of such Person is greater than the total
amount of liabilities, including, without limitation, contingent liabilities, of
such Person, (ii) the present fair salable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on the Person's debts as they become absolute and matured, (iii)
such Person is able to realize upon the Person's assets and pay the Person's
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"STATUTORY RESERVES" shall, on any day, mean the difference (expressed as a
decimal) of the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any basic, marginal, special,
emergency, or supplemental reserves) expressed as a decimal established by the
Board (or any successor governmental body) and any other banking authority to
which the Bank is subject, however:
A. With respect to the Base CD Rate for new negotiable non-personal time
deposits in Dollars of over $100,000.00 and with maturities
approximately equal to three (3) months, the actual reserves established
by the Board; and,
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B. With respect to the Adjusted LIBOR Rate for Eurocurrency Liabilities, as
defined in Regulation D, such reserve percentages ("EURODOLLAR RESERVE
REQUIREMENT") shall include, without limitation, those imposed under
Regulation D or under any similar or successor regulation with respect
to Eurocurrency Liabilities or Eurocurrency funding. Eurodollar Loans
shall be deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of
or credit for proration, exceptions or setoffs which may be available
from time to time to any bank under Regulation D. Each determination by
the Bank of the Euro- dollar Reserve Requirement shall, in the absence
of manifest error, be conclusive and binding.
C. Statutory Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person, the parent of such Person, any
corporation, association or other business entity of which securities or other
ownership interests representing more than fifty (50) per cent of the Voting
Shares or the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled, directly or indirectly, by the
parent or one or more Subsidiaries of the parent.
"TEMPORARY CASH INVESTMENT" shall mean any Investment maturing within one (1)
year of the date of acquisition thereof, (i) in direct, readily marketable
obligations of the U.S. or obligations fully guaranteed by the U.S., (ii)
commercial paper rated in the highest grade by Standard & Poor's Corporation or
Moody's Investor Service, Inc. (collectively, the "RATING AGENCIES"), and (iii)
Dollar time deposits with, and certificates of deposit and banker's acceptances
issued by, Chase, Texas Commerce or any domestic U.S. bank having capital
surplus and undivided profits aggregating at least $5,000,000,000.00 and whose
long-term debt rating is at least investment grade as determined by the Rating
Agencies.
"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding Business Day)
by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York, New York, received at approximately 10:00 a.m., New York, New York,
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Bank from three New York, New York negotiable
certificate of deposit dealers of recognized standing selected by it.
"TRANSACTIONS" shall have the meaning ascribed to such term in Section 7.1.B.
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"UNITED STATES" and "U.S." each means the United States of America.
"VOTING SHARES" of any corporation means shares, of any class or classes,
however designated, having ordinary voting power for the election of at least a
majority of the members of the Board of Directors of such corporation.
1.2 OTHER DEFINITIONS.
A. All terms defined in this Agreement shall have the above-defined
meanings when used in any of the Loan Documents, certificates, reports
or other documents made or delivered pursuant to this Agreement, unless
the context therein shall require otherwise.
B. Defined terms used herein in the singular shall import the plural and
vice versa.
C. The words "HEREOF," "HEREIN," "HEREUNDER" and similar terms when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
D. Unless specifically otherwise noted, references to statutes by Popular
Names are reference to the United States Code Annotated, including the
regulations promulgated thereunder, and all amendments thereof.
E. References to any obligations or liabilities of the "BORROWER AND
GUARANTOR" or the "BORROWER OR GUARANTOR" shall refer to the joint and
several obligations of such Persons.
ARTICLE II
LOANS
2.1 LOANS. Subject to the terms and conditions of this Agreement, the Bank
agrees to lend to the Borrower, in one or more Advances from time to time prior
to the Commitment Termination Date, an amount equal to the amounts requested by
the Borrower in a Notice of Loan Advance in the form of Exhibit 2.1 attached
hereto. The Bank shall not be obligated to make Loan Advances, however, (i) in
excess of the Committed Sum, and/or (ii) if a Event of Default shall exist.
2.2 BORROWING PROCEDURE. All Advances on the Loans will be deposited into
the Borrower's Account No. 01400015495 maintained with the Bank.
A. Advances on the Loans shall be made pursuant to a Notice of Loan Advance
signed by a Responsible Officer of the Borrower, which shall specify,
(i) the aggregate amount of the Borrowing, (ii) the requested Borrowing
Date of the Borrowing, and (iii) the Interest Option selected in
accordance with Section 3.2. If the Borrower
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shall specify a Eurodollar Loan, the Notice of Loan Advance shall also
specify the length of the Interest Period for such Borrowing. The
Borrower will give the Bank the Notice of Loan Advance not later than
12:00 noon (Houston, Texas time), (i) at least three (3) Business Days
prior to a proposed Eurodollar Loan Advance or conversion, and (ii) one
(1) Business Day prior to a proposed Alternate Base Rate Loan Advance or
conversion. If no election as to the type of Loan is specified in any
such notice, all such Loans shall be Alternate Base Rate Loans. If no
Interest Period with respect to any Eurodollar Loan is specified in any
such notice, then an Interest Period of three (3) months duration shall
be deemed to have been selected (subject to the provisions of the
definition of "INTEREST PERIOD").
B. The Bank shall be entitled to rely and act upon requests made or
purportedly made by any Responsible Officer of the Borrower and each
Notice of Loan Advance shall be irrevocable and binding on the Borrower.
The Borrower will be unconditionally and absolutely estopped from
denying, (i) the authenticity and validity of any transaction so acted
upon by the Bank once the Bank has made an Advance and has deposited or
transferred such funds as requested in any such Notice of Loan Advance,
and (ii) the Borrower's liability and responsibility therefor. The
Borrower covenants and agrees to assume liability for and to protect,
indemnify and save the Bank harmless from any and all liabilities,
obligations, damages, penalties, claims, causes of action, costs,
charges and expenses, including attorneys' fees, which may be imposed
upon, incurred by or asserted against the Bank by reason of any loss,
damage or claim howsoever arising or incurred because of, out of or in
connection with (i) any action of the Bank pursuant to a Notice of Loan
Advance, (ii) the breach of any provisions of this Agreement by the
Borrower, or (iii) the transfer of funds pursuant to (i) and/or (ii)
above.
C. The initial funding of the Loans shall be an Alternate Base Rate Loan.
At any time after the Effective Date, the Borrower may convert to
Alternate Base Rate Loans or Eurodollar Loans, subject to and pursuant
to the provisions of Section 3.2.
2.3 USE OF PROCEEDS. The proceeds of a Borrowing under the Commitment on the
Effective Date shall be solely used to pay transaction costs and fees in
connection herewith, to pay the acquisition costs of the GSV Stock, to pay
transaction costs and fees in connection with the acquisition of the GSV Stock,
to repay Indebtedness owing by GSV and to provide for working capital
requirements of the Borrower. All proceeds of each subsequent Borrowing under
the Commitment after the Effective Date shall be solely used to pay the
acquisition costs of the Plant Specialties Stock, to pay transaction costs and
fees in connection with the acquisition of the Plant Specialties Stock, to repay
Indebtedness owing by Plant Specialities and to provide for working capital
requirements of the Borrower.
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ARTICLE III
NOTE
3.1 NOTE. The Advances made under Section 2.1 by the Bank shall be evidenced
by the Note executed by the Borrower, which shall (i) be dated the Effective
Date, (ii) be in the amount of the Committed Sum, (iii) be payable to the order
of the Bank at the office of the Bank, (iv) bear interest in accordance with
Section 3.2, and (v) be in the form of Exhibit 3.1 attached hereto. The Borrower
will repay, and shall pay interest on, the unpaid principal amount of the Loans
in accordance with the terms of the Note and this Agreement.
3.2 INTEREST RATE OPTIONS. Subject to the provisions of this Section, the
Borrower will elect an option (an "INTEREST OPTION") of having all or any
portion of the Loans bear interest at rates determined as follows:
A. After the initial funding, the Borrower will elect to have Loans bear
interest at a rate based upon the Alternate Base Rate or at the Adjusted
Libor Rate. Each change in an Interest Option made pursuant to this
Section shall be deemed both a payment of the Alternate Base Rate Loan
or the Adjusted Libor Rate Loan from which such change was made and a
Borrowing (notwithstanding that the unpaid principal amount of the Loan
is not thereby changed) as an Alternate Base Rate Loan or an Adjusted
Libor Rate Loan into which such change was made on the Date of such
change.
(1) Prior to Default, the unpaid principal of the Loans shall bear
interest from the date of Advance as follows:
(a) If an Alternate Base Rate Loan is chosen at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Alternate Base Rate in effect from day to day, plus the
Applicable Margin; or, (ii) the Maximum Rate; or,
(b) If an Adjusted LIBOR Rate Loan is chosen, at a rate per annum
which shall, from day to day, be an amount equal to the lesser of:
(i) The Adjusted LIBOR Rate in effect from day to day, plus the
Applicable Margin; or, (ii) the Maximum Rate.
(2) The Borrower will, in each Notice of Loan Advance, give the Bank
notice of the initial Interest Option selected and the term thereof with
respect to each Borrowing made hereunder.
(3) Prior to the termination of each Interest Period with respect to
each Eurodollar Loan, the Borrower will give notice, also a "ROLLOVER
NOTICE," to the Bank of the Interest Option which shall be applicable to
such portion of the Loan upon the expiration of such Interest Period.
Such Rollover Notice shall be given to the Bank at least one (1)
Business Day, in the case of an Alternate Base Rate selection, or
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three (3) Business Days, in the case of an Adjusted Libor Rate
selection, prior to the termination of such Interest Period. If the
Borrower shall specify a Eurodollar Loan, such Rollover Notice shall
also specify the length of the succeeding Interest Period (subject to
the provisions of the definitions of such term), selected by the
Borrower with respect to such portion of the Loan. Each rollover notice
shall be irrevocable and effective upon notification thereof to the
Bank. If the required Rollover Notice shall not have been timely
received by the Bank (in accordance with the above provisions of this
Section) prior to the expiration of the then relevant Interest Period in
effect when such Notice was required to be given, the Borrower will be
deemed to have selected the rate set forth in Section 3.2.A.(1)(a) to be
applicable to such portion of the Loan upon expiration of such Interest
Period and the Borrower shall be deemed to have given the Bank notice of
such selection.
(4) With respect to an Alternate Base Rate Loan, the Borrower shall have
the right, on any Business Day, also a "CONVERSION DATE," to convert
such Alternate Base Rate Loan to a Eurodollar Loan by giving the Bank a
Rollover Notice of such election at least three (3) Business Days, in
the case of an Adjusted Libor Rate selection, prior to such Conversion
Date.
(5) Notwithstanding anything in this Section to the contrary, no
Alternate Base Rate Loan may be converted to an Adjusted Libor Rate Loan
and no Adjusted Libor Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but each
such Loan shall be automatically converted to an Alternate Base Rate
Loan on the last day of each applicable Interest Period.
3.3 APPLICABLE MARGIN. The Applicable Margin for Adjusted LIBOR Rate Loans
shall be 1.25 % and for Alternate Base Rate Loans, the Applicable Margin shall
be 0.00 %.
3.4 DEFAULT RATE. If a Default or an Event of Default shall occur and be
continuing and not be waived, the Borrower will on demand from time to time pay
interest, to the extent permitted by law, on all Loans outstanding up to the
date such Default or Event of Default is cured at a rate per annum equal to two
(2) per cent in excess of the Alternate Base Rate (the "DEFAULT RATE"), but
never in excess of the Maximum Rate.
3.5 MAXIMUM INTEREST. It is the intention of the parties to comply with all
applicable usury laws. Accordingly, it is agreed that notwithstanding any
provision apparently to the contrary in the Loan Documents, no such provision
shall require the payment or permit the collection of interest in excess of the
Maximum Amount or the Maximum Rate. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, in the Loan
Documents, then in such event the provisions of this Section shall govern and
control and (i) no Person liable for the payment of any sums to become due under
the Loan Documents shall be obligated to pay the amount of such interest to the
extent that it is in excess of the Maximum Amount or the Maximum Rate, and (ii)
any such excess which may have been collected shall be first applied as a credit
against the then unpaid principal amount
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on the Note and the excess, if any, refunded to the Borrower or the Guarantor
and the effective rate of interest shall be automatically reduced to the Maximum
Rate. Without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under the Loan Documents which are
made for the purpose of determining whether such rate exceeds the Maximum Rate,
shall be made, to the extent permitted by applicable usury laws, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the Loans, all interest at any time contracted for, charged or
received by the holder or holders of the Note in connection with the Loans. The
Bank notifies and discloses to the Borrower that, for purposes of TEX. REV. CIV.
STAT. ANN. Art. 5069-1.04 (Vernon 1989), as it may, from time to time, be
amended, the "APPLICABLE RATE CEILING" shall be the "INDICATED RATE" ceiling,
from time to time, in effect as limited by Art. 5069-1.04(b). To the extent
provided by applicable law, however, the Bank reserves the right to change the
"APPLICABLE RATE CEILING," from time to time, by further notice and disclosure
to the Borrower. The "HIGHEST NON-USURIOUS RATE OF INTEREST PERMITTED BY
APPLICABLE LAW" for purposes of this Agreement and the Note shall not be
limited to the applicable rate ceiling under Art. 5069-1.04 if federal laws or
other state laws now or hereafter in effect and applicable to this Agreement and
the Note (and the interest contracted for, charged and collected hereunder or
thereunder) shall permit a higher rate of interest. The Borrower and the Bank
agree that, except for ss.15.10(b), the provisions of TEX. REV. CIV. STA. ANN.
Art. 5069-15.01 ET.SEQ. Vernon (1987), as amended (regulating certain revolving
credit loans and revolving tri-party accounts) shall not apply to the Loan
Documents.
3.6 PAYMENTS ON THE NOTE. The unpaid principal amount of the Note shall be
due and payable on the Maturity Date, on which date all principal on the Note
shall be payable in full. Interest on the Note shall be due and payable on the
Interest Payment Date.
3.7 CALCULATION OF INTEREST RATES. Interest on the unpaid principal of the
Note shall be calculated on the basis of the actual days elapsed in a year
consisting of three hundred sixty (360) days. The Bank shall determine each
Contract Rate applicable to the Loans and shall advise the Borrower of the
Contract Rates so determined.
3.8 CONSEQUENTIAL LOSS. The Borrower agrees to reimburse the Bank for and
against any loss or reasonable expense (including, but not limited to, any loss
or expense sustained or incurred or to be sustained or incurred in liquidating
or employing deposits from third parties acquired to affect or maintain any Loan
or part thereof as a Eurodollar Loan) which the Bank may sustain or incur as a
consequence of any of the following events (regardless of whether such events
occur as a result of the occurrence of an Event of Default or the exercise of
any right or remedy of the Bank under this Agreement or any other Loan Document,
or at law): (i) any failure of the Borrower to fulfill on the date of any
Borrowing hereunder the applicable conditions set forth in Article VI applicable
to it; (ii) any failure of the Borrower to borrow hereunder after irrevocable
Notice of Loan Advance pursuant to Section 2.1 has been given; (iii) any
payment, prepayment or conversion of a Eurodollar Loan on a date other than the
last day of the relevant Interest Period; (iv) any Default in payment or
prepayment of the principal amount of any Loan or any part thereof or interest
accrued thereon, as and when
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due and payable (at the due date thereof, by notice of prepayment or otherwise);
or, (v) the occurrence of an Event of Default (collectively, "CONSEQUENTIAL
LOSS"). Such loss or expense shall include, without limitation, an amount equal
to the excess, if any, of (i) the amount of interest which would have accrued on
the principal amount so paid, prepaid or converted or not borrowed for the
period from the date of such payment, prepayment or conversion or failure to
borrow to the last day of the Interest Period for such Loan (or, in the case of
a failure to borrow, the Interest Period for such Loan which would have
commenced on the date of such failure to borrow), at the applicable rate of
interest for such Loan provided for herein over (ii) the amount of interest (as
determined by the Bank) that would be realized by the Bank in reemploying the
funds so paid, prepaid or converted or not borrowed in U.S. Treasury obligations
with comparable maturities for comparable periods. The Bank shall provide to the
Borrower a statement, signed by an officer of the Bank, explaining any loss or
expense and setting forth, if applicable, the computation pursuant to the
preceding sentence, and such statement shall be conclusive absent manifest
error. The Borrower will pay the Bank the amount shown as due on any such
statement within ten (10) days after the receipt of the same.
3.9 PREPAYMENTS. Except as specified in this Section, the Borrower shall have
no right to prepay any Loan. The Borrower may, upon five (5) days' prior notice
to the Bank, make prepayments on the Note in whole at any time or in part, from
time to time, however, the following provisions shall be applicable.
A. Partial prepayments shall be in an aggregate principal amount of
$500,000.00, or a greater integral multiple of $100,000.00.
B. The Borrower may, on any Business Day, prepay the outstanding principal
amount of any Alternate Base Rate Loan, in whole or in part, without
premium or penalty.
C. The Borrower will pay to the Bank an amount equal to the Consequential
Loss if the Borrower shall, in any manner, prepay any Eurodollar Loan.
D. If no Default shall have occurred, prepayments shall be applied (i)
first to the dis- charge of any expenses for which the Bank may be
entitled to receive reimbursement under any agreement with the Borrower,
(ii) next, to the Consequential Loss, (iii) next, to accrued interest on
the Note, (iv) next, to the reduction of principal on the Alternate Base
Rate Loans, and (v) the balance remaining, if any, shall be applied to
the reduction of installments of principal on the Eurodollar Loans.
Prepayments shall be applied to the Eurodollar Loans as the Borrower
shall select; provided, however, the Borrower shall select Eurodollar
Loans to be prepaid in a manner designed to minimize the Consequential
Loss resulting from such prepayments.
E. If, however, the Borrower shall fail to select the Eurodollar Loan to
which such prepayments are to be applied, or a Default has occurred and
is continuing at the time
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of a prepayment, the Bank shall be entitled to apply the prepayment in
any manner the Bank shall deem appropriate.
3.10 MANNER AND APPLICATION OF PAYMENTS. All payments and prepayments of
principal of, and interest on, the Note shall be made by the Borrower to the
Bank before 2:00 p.m. (Houston, Texas time) in immediately available funds at
the Bank's office. Any payment or prepayment received by the Bank after 2:00
p.m. (Houston, Texas time), shall be deemed to have been received by the Bank on
the next succeeding Business Day.
3.11 COMMITMENT FEE. The Borrower agrees to pay to the Bank a commitment fee
in the amount of $30,000.00, for the granting of the Loans which shall be due
and payable on the Effective Date.
3.12 PAYMENTS IN RESPECT OF INCREASED COSTS.
A. Notwithstanding any other provision hereof, if after the date of this
Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof (whether or
not having the force of law) or any change in GAAP or regulatory
accounting principles applicable to the Bank shall (i) impose, modify or
make applicable to the Bank any reserve, special deposit or similar
requirement with respect to its obligations hereunder, (ii) impose on
the Bank any other condition with respect to its obligations hereunder,
or (iii) subject the Bank to any tax (other than {a} taxes imposed on
the overall net income of the Bank, and {b} franchise taxes imposed on
the Bank, in either case by the jurisdiction in which the Bank has its
principal office or lending office or any political subdivision or
taxing authority of any such jurisdiction), charge, fee, deduction or
withholding of any kind whatsoever, and the result of any of the
foregoing shall be to increase the cost to the Bank hereunder or to
reduce the amount of principal, interest or any fee or compensation
receivable by the Bank hereunder, then such additional amount or amounts
as will compensate the Bank for such additional costs or reduction shall
be paid to the Bank by the Borrower. The Bank agrees to give notice to
the Borrower of any such change in law, regulation, interpretation or
administration with promptness after becoming actually aware thereof and
of the applicability thereof to the Transactions.
B. If, after the date of this Agreement, the Bank shall have determined
that the adoption of any applicable law, rule, regulation or guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or its lending
office) with any request or directive 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 the
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Bank's capital as a consequence of its obligations hereunder to a level
below that which the Bank could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's policies with
respect to capital adequacy) then from time to time, the Borrower will
pay to the Bank such additional amount or amounts as will compensate the
Bank for such reduction. The Bank agrees to give notice to the Borrower
of any adoption of, change in, or change in interpretation or
administration of, any such law, rule, regulation or guideline with
promptness after becoming actually aware thereof and of the
applicability thereof to the Transactions.
C. A certificate of the Bank setting forth such amount or amounts,
supported by calculations as shall be necessary to compensate the Bank
as specified in Section 3.12.A and Section 3.12.B shall be delivered to
the Borrower and shall be conclusive and binding upon the Borrower
absent manifest error. The Borrower will pay the Bank the amount shown
as due on any such certificate within ten (10) Business Days after its
receipt of the same.
D. Failure on the part of the Bank to demand compensation for any increased
costs, reduction in amounts received or receivable hereunder or
reduction in the rate of return earned on the Bank's capital, in each
case pursuant to Section 3.12.A or Section 3.12.B, shall not constitute
a waiver of the Bank's rights to demand com- pensation for any increased
costs or reduction in amounts received or receivable or reduction in
rate of return pursuant to Section 3.12.A and Section 3.12.B. The
protection under this Section shall be available to the Bank regardless
of any possible contention of the invalidity or inapplicability of any
law, regulation or other condition which shall give rise to any demand
by the Bank for compensation (but if such law, regulation or other
condition is finally determined to be invalid or inapplicable, the Bank
shall promptly refund (without interest) all amounts paid under this
Section arising from such invalid or inapplicable law, regulation or
other condition).
ARTICLE IV
SPECIAL PROVISIONS FOR EURODOLLAR LOANS
4.1 INADEQUACY OF EURODOLLAR LOAN PRICING. If with respect to any Interest
Period for any Eurodollar Loan:
A. The Bank determines (which determination shall be conclusive) that, by
reason of circumstances affecting the interbank Eurodollar market
generally, deposits in Dollars (in the applicable amounts) are not being
offered to Bank in the interbank Eurodollar market for such Interest
Period; or,
B. The Bank determines in good faith (which determination shall be
conclusive absent manifest error) that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Bank of maintaining or
funding such Eurodollar Loan for such Interest Period, then the Bank
shall give notice thereof to the Borrower, whereupon until the Bank
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notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, (i) the obligation of the Bank to make
Eurodollar Loans shall be suspended, and (ii) the Borrower will either
(a) repay in full the then outstanding principal amount of the
Eurodollar Loans, together with accrued interest thereon on the last day
of the then current Interest Period applicable to such Eurodollar Loans,
or (b) convert such Eurodollar Loans to Alternate Base Rate Loans in
accordance with Section 3.2.A.(3) on the last day of the then current
Interest Period applicable to each such Eurodollar Loan.
4.2 ILLEGALITY. If with respect to any Interest Period for any Eurodollar
Loan:
A. The Bank determines in good faith (which determination shall be
conclusive absent manifest error) that any change in any applicable law,
rule or regulation or in the interpretation, application or
administration thereof makes it unlawful, or any central bank or other
Governmental Authority asserts that it is unlawful for the Bank to
maintain or fund any Loan by means of Dollar deposits obtained in any
Eurodollar interbank market (any of the above being described as a
"EURODOLLAR EVENT"), then, at the option of the Bank, the aggregate
principal amount of the Eurodollar Loans then outstanding, which Loans
are directly affected by such Eurodollar Event, shall be prepaid by the
Borrower. Upon the occurrence of any Eurodollar Event, and at any time
thereafter so long as such Eurodollar Event shall continue, the Bank may
exercise the aforesaid option by giving notice thereof to the Borrower.
B. Any prepayment of any Eurodollar Loan which is required under the
preceding Section shall be made, together with accrued and unpaid
interest and all other amounts payable to the Bank under this Agreement
with respect to such prepaid Eurodollar Loan on the date stated in the
notice to the Borrower referred to above, which date ("REQUIRED
PREPAYMENT DATE") shall be not less than fifteen (15) days from the date
of such notice. Upon receipt of such notice, the Borrower will either
(i) prepay in full the then outstanding principal amount of the
Eurodollar Loan, together with accrued interest thereon, or (ii) convert
the Eurodollar Loan to another Interest Option on either (a) the last
day of the then current Interest Period applicable to each affected
Eurodollar Loan, if the Bank may lawfully continue to maintain and fund
such Eurodollar Loan to such day, or (b) immediately if the Bank may not
lawfully continue to fund and maintain such Eurodollar Loan to such day.
4.3 EFFECT ON INTEREST OPTIONS. If notice has been given pursuant to Section
4.1 requiring a type of Eurodollar Loan to be repaid or converted, then unless
and until the Bank notifies the Borrower that the circumstances giving rise to
such repayment no longer apply requiring such repayment or conversion, all Loans
shall thereafter be Alternate Base Rate Loans. If the Bank notifies the Borrower
that the circumstances giving rise to such repayment no longer apply, the
Borrower may thereafter select Loans to be Eurodollar Loans in accordance with
Section 3.2.A.(1).
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<PAGE>
4.4 PAYMENTS NOT AT END OF INTEREST PERIOD. If the Borrower makes any payment
of principal with respect to any Adjusted LIBOR Rate Loan on any day other than
the last day of the Interest Period applicable to such Adjusted LIBOR Rate Loan,
the Borrower will reimburse the Bank on demand the Consequential Loss incurred
by the Bank as a result of the timing of such payment. A certificate of the Bank
setting forth the basis for the determination of the amount of Consequential
Loss shall be delivered to the Borrower and shall, in the absence of manifest
error, be conclusive and binding. Any conversion of an Adjusted LIBOR Rate Loan
to a different Interest Option on any day other than the last day of the
Interest Period for such Adjusted Libor Rate shall be deemed a payment for
purposes of this Section.
4.5 SURVIVAL OF OBLIGATIONS. Failure on the part of the Bank to demand
compensation pursuant to this Article for any increased costs or reduction in
amounts received or receivable with respect to any Interest Period, shall not
constitute a waiver of the Bank's rights to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
rate of return in such Interest Period or in any other Interest Period. The
protection under this Article shall be available to the Bank regardless of any
possible contention of the invalidity or inapplicability of any law, regulation
or other condition which shall give rise to any demand by the Bank for
compensation.
ARTICLE V
COVENANTS
5.1 AFFIRMATIVE COVENANTS. Until the fulfillment of all Obligations, unless
the Bank shall otherwise consent in writing, the Borrower will, and will cause
each other Loan Party to, perform and comply with the following covenants:
A. The Borrower will furnish to the Bank:
(1) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, audited, consolidated
Financial Statements of the Borrower and the Consolidated Subsidiaries
consisting of statements of income, stockholder's equity and cash flow
for such Fiscal Year and a balance sheet as of the end of such Fiscal
Year, setting forth, in each case, in comparative form, corresponding
figures from the immediately preceding annual audit, accompanied by
supporting schedules required by GAAP, all in reasonable detail and
satisfactory in scope to the Bank, as fairly presenting the financial
position of the Borrower and the Consolidated Subsidiaries as of the
dates indicated in accordance with GAAP, together with an opinion
thereon, without material qualifications or exceptions certified by
independent certified public accountants selected by the Borrower and
satisfactory to the Bank, and the consolidating Financial Statements of
each Consolidated Subsidiary;
(2) As soon as possible, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year, the auditors' management
report;
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(3) Within forty-five (45) days after the end of each calendar month, an
unaudited, consolidated balance sheet as of the end of such calendar
month and the related statements of income, stockholder's equity and
cash flow, and setting forth, in comparative form, the amounts for such
calendar month and the Fiscal Year to date, and the amounts for the
corresponding periods in the prior Fiscal Year, prepared in accordance
with GAAP, and certified by a Financial Officer of the Borrower as
fairly presenting the consolidated financial position of the Borrower
and the Consolidated Subsidiaries as of the dates indicated, subject to
changes resulting from audit and normal year-end adjustment;
(4) As soon as possible, a copy of the federal income tax return of the
Borrower for the current Fiscal Year then ended, certified as being true
and correct by a Financial Officer of the Borrower; and,
(5) From time to time, such further information regarding the business,
affairs and financial condition of the Borrower and the Consolidated
Subsidiaries as the Bank may request.
B. The Borrower will comply, and shall cause each other Loan Party to
comply, with all Requirements of any Governmental Authority.
C. The Borrower will act prudently and in accordance with customary
industry standards in managing or operating the Borrower's assets,
properties, business and investments. The Borrower will keep in good
working order and condition, ordinary wear and tear excepted, all of the
Borrower's assets and properties which are necessary to the conduct of
the Borrower's business. The Borrower will obtain and maintain at the
Borrower's expense, all governmental licenses, authorizations, consents,
permits and approvals as may be required to enable the Borrower to
operate the Borrower's business and to comply with the Borrower's
obligations hereunder and under the other Loan Documents.
D. The Borrower will continue to be a corporation duly incorporated and
existing in good standing under the laws of the State of Texas and will
continue to be duly licensed or qualified in all jurisdictions wherein
the character of the property owned or leased by the Borrower or the
nature of the business transacted by the Borrower makes licensing or
qualification necessary, and the failure to do so would have a Material
Adverse Effect.
E. The Borrower will, and the Borrower will cause each other loan party to
the Chase Credit Agreement to, comply with the terms of the Chase Credit
Agreement.
F. The Borrower will, and the Borrower will cause each other Loan Party to,
pay and discharge all taxes, assessments and governmental charges or
levies including, but expressly not limited to, income, excise and ad
valorem taxes, prior to the date on
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which penalties or liens attach thereto and become of public record,
except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided.
G. The Borrower will, and the Borrower will cause each other Loan Party to,
promptly give notice in writing to the Bank of (i) any IRS audit of the
Borrower or such other Loan Party, (ii) the filing or commencement of
any action, suit, or administrative proceeding against the Borrower or
such other Loan Party, whether at law or in equity or by or before any
Governmental Authority, (iii) violations of any Require- ment, or (iv)
any Reportable Event, any of which events (a) is material and is brought
by or on behalf of any Person, or in which injunctive or other equitable
relief is sought, and (b) it is probable (within the meaning of
Statement of Financial Accounting Standards No. 5 promulgated by FASB)
that there will be an adverse determination and which, if adversely
determined, would materially impair the ability of such Person to
perform its obligations under any of the Loan Documents to which it is a
party.
H. The Borrower will, and the Borrower will cause each other Loan Party to,
furnish to the Bank immediately upon becoming aware of the existence of
any condition or event which constitutes a Default or would become a
Default or an Event of Default, notice specifying the nature and period
of existence thereof and the action which the Borrower and the other
Loan Party are taking or propose to take with respect thereto.
I. The Borrower will pay in full all expenses, including reasonable legal
expenses and attorney's fees, of the Bank which have been or may be
incurred by the Bank in connection with the preparation of the Loan
Documents, the lending hereunder, the collection or enforcement of the
Obligations and the recording and filing and rerecording and re-filing
of any such document.
J. The Borrower will comply with all Requirements of any Governmental
Authority, including, but expressly not limited to environmental laws
applicable to any property owned or occupied by the Borrower, or any
parts thereof, and the Occupational Safety and Health Act of 1970
("OSHA"), if the failure to be in compliance would have a Material
Adverse Effect.
5.2 OTHER COVENANTS. Until the fulfillment of all Obligations, unless the
Bank shall otherwise consent in writing, the Borrower will, and the Borrower
will cause each other Loan Party to, respectively as indicated, perform and
comply with the following covenants:
A. Neither the Borrower nor any of the Consolidated Subsidiaries will
create, incur, assume or suffer to exist Indebtedness, except, (i) the
Loans, and (ii) current accounts payable and other current obligations
(other than for borrowed money) arising out of transactions in the
ordinary course of business.
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B. Neither the Borrower nor any of the Consolidated Subsidiaries will
execute a Guaranty (except in favor of the Bank).
C. Neither the Borrower nor any of the Consolidated Subsidiaries will pay
any Dividends, make any distribution on the Borrower's or the
Consolidated Subsidiaries' capital stock or purchase or retire any
capital stock, dissolve or liquidate, or become a party of any merger or
consolidation, or purchase, lease or otherwise acquire all or
substantially all of the assets or capital stock of any Person, or sell,
transfer, lease or otherwise dispose of all or any substantial part of
the Borrower's or a Consolidated Subsidiary's respective properties,
assets or business. Notwithstanding the foregoing, GSV may pay Dividends
as necessary to acquire GSV Stock not acquired at the closing of the GSV
Stock Purchase Agreement which shall not exceed three per cent of the
GSV Stock. Safe Seal may also pay to Allwaste Dividends on preferred
stock in an amount not to exceed $47,500.00 per quarter-annual period.
D. Neither the Borrower nor a Consolidated Subsidiary will, (i) lend or
advance any money, credit or property to any Person, or (ii) make or
have outstanding any Investments in any Person, except (i) Temporary
Cash Investments, (ii) such other "CASH EQUIVALENT" investments as the
Bank may, from time to time, approve, and (iii) the Borrower may
maintain the Investments in the Consolidated Subsidiaries.
E. Neither the Borrower nor a Consolidated Subsidiary will amend their
respective organizational documents, including but not limited to,
Articles or Certificate of Incorporation and bylaws.
F. Neither the Borrower nor a Consolidated Subsidiary will change its name,
Fiscal Year or method of accounting except as required by GAAP. A Loan
Party may change its name if the Borrower has given the Bank sixty (60)
days prior notice of such name change.
G. The Borrower and the Consolidated Subsidiaries will not enter into any
transaction with any Affiliates, other than transactions in the ordinary
course of business and upon fair and reasonable terms not materially
less favorable than could be obtained in an arm's-length transaction
with a Person that was not an Affiliate.
H. Neither the Borrower nor a Consolidated Subsidiary will increase the
compensation paid to any officer, director or employee, by way of direct
increase in salary, bonus, stock option or in any other manner except in
the ordinary course of business and in amounts not exceeding industry
standard compensation.
I. Neither the Borrower nor a Consolidated Subsidiary will engage in any
other line of business or business venture other than those presently
engaged or those which are directly related thereto, or change any
method of operation or manner of doing business in any material respect.
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<PAGE>
J. The Borrower will not use proceeds of any Loan to acquire any security
in any transaction which is subject to ss.13 or ss.14 of the Securities
Exchange Act of 1934, including particularly (but without limitation)
ss.13(d) and ss.14(d) thereof.
K. Neither the Borrower nor a Consolidated Subsidiary will sell, assign,
convey, exchange, lease or otherwise dispose of any of the Borrower's
respective properties, rights, assets or business, whether now owned or
hereafter acquired, except in the ordinary course of business and for a
fair consideration.
5.3 ERISA COMPLIANCE. The Borrower and the Consolidated Subsidiaries shall,
and shall cause each ERISA Affiliate to:
A. At all times, make prompt payment of all contributions required under
all Employee Plans and required to meet the minimum funding standard set
forth in ERISA with respect to all Employee Plans;
B. With respect to any Pension Plan, not permit to exist any material
"ACCUMULATED FUNDING DEFICIENCY" (within the meaning of ss.302 of ERISA
and ss.412 of the Code), whether or not waived, with respect thereto;
C. Not engage in any transaction in connection with which the Borrower or
any ERISA Affiliate could be subject to either a material civil penalty
assessed pursuant to the provisions of ss.502 of ERISA or a material tax
imposed under the provisions of ss.4975 of the Code;
D. Not terminate any Pension Plan in a "DISTRESS TERMINATION" under ss.4041
of ERISA, or take any other action which could result in a material
liability of the Borrower or any ERISA Affiliate to the PBGC;
E. Not adopt an amendment to any Pension Plan requiring the provision of
security under ss.307 of ERISA or ss.40(a)(29) of the Code;
F. Within thirty (30) days after the filing thereof, furnish to the Bank
each annual report/return (Form 5500 Series), as well as all schedules
and attachments required to be filed with the Department of Labor and/or
the IRS pursuant to ERISA, and the regulations promulgated thereunder,
in connection with each Employee Plan for each Employee Plan year;
G. Notify the Bank immediately of any fact, including, but not limited to,
any Reportable Event arising in connection with any Employee Plan, which
might constitute grounds for termination thereof by the PBGC or for the
appointment by the appropriate U.S. District Court of a trustee to
administer an Employee Plan, together with a statement, if requested by
the Bank, as to the reason therefor and the action, if any, proposed to
be taken with respect thereto; and,
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H. Furnish to the Bank, upon request, such additional information
concerning any Employee Plan as may be reasonably requested.
5.4 INDEMNITY. THE BORROWER WILL, AND THE BORROWER WILL CAUSE EACH OTHER LOAN
PARTY TO, JOINTLY AND SEVERALLY, INDEMNIFY AND SAVE, AND HOLD THE BANK AND THE
BANK'S DIRECTORS, OFFICERS, ATTORNEYS, AND EMPLOYEES (INDIVIDUALLY, AN
"INDEMNITEE" AND COLLECTIVELY, THE "INDEMNITEES") HARMLESS FROM AND AGAINST THE
FOLLOWING (EACH A "CLAIM"): (I) ANY AND ALL CLAIMS, DEMANDS, ACTIONS, OR CAUSES
OF ACTION THAT ARE ASSERTED AGAINST ANY INDEMNITEE BY ANY PERSON IF THE CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION DIRECTLY OR INDIRECTLY RELATES TO A CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION THAT THE PERSON ASSERTS OR MAY ASSERT AGAINST
A LOAN PARTY (II) ANY AND ALL CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION THAT
ARE ASSERTED AGAINST ANY INDEMNITEE IF THE CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION DIRECTLY OR INDIRECTLY RELATES TO THE TOTAL COMMITMENT, THE USE OF
PROCEEDS OF THE LOANS, OR THE RELATIONSHIP OF A LOAN PARTY AND THE BANK UNDER
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED PURSUANT TO THIS AGREEMENT; (III)
ANY ADMINISTRATIVE OR INVESTIGATIVE PROCEEDING BY ANY GOVERNMENTAL AUTHORITY
DIRECTLY OR INDIRECTLY RELATED TO A CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
DESCRIBED IN CLAUSES (I) OR (II) ABOVE; AND, (IV) ANY AND ALL LIABILITIES,
LOSSES, COSTS OR EXPENSES (INCLUDING ATTORNEYS' FEES AND DISBURSEMENTS) THAT ANY
INDEMNITEE SUFFERS OR INCURS AS A RESULT OF ANY OF THE FOREGOING. If any claim
is asserted against any Indemnitee, the Indemnitee shall promptly notify the
Borrower, but the failure to so promptly notify the Borrower shall not affect
the Loan Parties' obligations under this Section unless such failure materially
prejudices the Loan Parties' right to participate in the contest of the Claim.
The obligations and liabilities of the Loan Parties to any Indemnitee under this
Section shall survive the expiration or termination of this Agreement and the
repayment of the Obligations.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 INITIAL ADVANCES. The obligation of the Bank to make any Advance on the
Loans is subject to the conditions precedent that, on or before the date of the
initial Advance, the Bank shall have received the following:
A. The duly executed Note.
B. A duly executed Notice of Loan Advance.
C. A Guaranty Agreement in the form of Exhibit 6.1.C duly executed by
Allwaste in favor of the Bank.
D. An Officers Certificate in the form of Exhibit 6.1.D certified by the
President and the Secretary or Assistant Secretary of the Borrower,
stating that (i) no litigation is
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pending or threatened which would have a Material Adverse Effect; (ii)
no investigation or proceeding before any Governmental Authority is
continuing or threatened against the Borrower or a Consolidated
Subsidiary, or any officer, director or Affiliate of the Borrower or a
Consolidated Subsidiary with respect to this Agreement, the Loan
Documents or any of the Transactions which could have a Material Adverse
Effect; and, (iii) to the best knowledge and belief of such Persons,
after reasonable and due investigation and review of matters pertinent
to the subject matter of such certificate (a) all of the representations
and warranties contained herein and the other Loan Documents are true
and correct as of the date of the Advance, and (b) no event has occurred
and is continuing, or would result from the Advance, which constitutes a
Default or an Event of Default. The Bank shall also receive either a
summary and analysis of all litigation in which the Borrower or a
Consolidated Subsidiary is involved or an opinion of counsel, in form
and substance acceptable to the Bank, to the effect that no litigation
in which the Borrower or a Consolidated Subsidiary is involved would, in
the event of an adverse determination, have a Material Adverse Effect.
E. Resolutions of the Borrower approving the execution, delivery and
performance of this Agreement, the other Loan Documents and the
transactions contemplated herein and therein, duly adopted by the
Borrower's board of directors and accompanied by a certificate of the
Secretary or Assistant Secretary of the Borrower stating that the
resolutions are true and correct, have not been altered or repealed and
are in full force and effect. The resolutions shall certify the name of
each officer of the- Borrower authorized to sign the Loan Documents to
be executed by the Borrower and the other documents or certificates to
be delivered by the Borrower pursuant to the Loan Documents, together
with the true signature of each such officer. The Bank may conclusively
rely on the certificate of the Borrower until the Bank receives a
further certificate of the Secretary or Assistant Secretary of the
Borrower canceling or amending the prior certificate and submitting the
name and signature of each officer named in such further certificate.
F. A Certificate of Incorporation, Certificate of Existence and Certificate
of Account Status (or other similar instruments) for the Borrower issued
by the appropriate official of the state of incorporation of the
Borrower, and Certificates of Qualification, Certificates of
Authorization or other similar instruments for the Borrower, issued by
the Secretary of State of each of the states wherein the Borrower is
qualified to do business, each dated within ten (10) days of the
Effective Date.
G. A copy of the Articles or Certificate of Incorporation of the Borrower
and all amendments thereto, certified by the Secretary of State of the
state of the Borrower's incorporation, and dated within ten (10) days of
Effective Date, and a copy of the bylaws of the Borrower, and all
amendments thereto, certified by the Secretary of theBorrower, as being
true, correct and complete as of the date of such certification.
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H. Resolutions of Allwaste approving the execution, delivery and
performance of the Guaranty Agreement, and the transactions contemplated
therein, duly adopted by the board of directors of Allwaste and
accompanied by a certificate of the Secretary or Assistant Secretary of
Allwaste stating that such resolutions are true and correct, have not
been altered or repealed and are in full force and effect. The
resolutions shall certify the name of each officer authorized to sign
each of the Loan Documents to be executed and the other documents or
certificates to be delivered pursuant to the Loan Documents, together
with the true signature of each such officer. The Bank may conclusively
rely on the certificate until the Bank receives a further certificate
canceling or amending the prior certificate and submitting the name and
signature of each officer named in such further certificate.
I. A true and correct, fully executed copy of the GSV Stock Purchase
Agreement.
J. Such other information and documents as may be required by the Bank and
the Bank's counsel.
6.2 SUBSEQUENT ADVANCES. The obligation of the Bank to make any subsequent
Advance under this Agreement shall be subject to the following additional
conditions precedent:
A. As of the date of the making of such Advance, there shall not exist any
Default or Event of Default.
B. The Borrower shall have performed and complied with all agreements and
conditions contained herein and in each of the Loan Documents which are
required to be performed or complied with before or on the date of such
Advance.
C. As of the date of making such Advance, no change that would cause a
Material Adverse Effect shall have occurred.
D. In the case of any Borrowing, the Bank shall have received an
appropriate Notice of Loan Advance dated as of the date of a Borrowing
signed by the Borrower.
E. The representations and warranties contained in each of the Loan
Documents shall be true in all respects on the date of making of such
Advance, with the same force and effect as though made on and as of that
date.
F. As the Advance relating to the acquisition of the Plant Specialties
Stock, a true and correct, fully executed copy of the Plant Specialties
Stock Purchase Agreement.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS AND WARRANTIES CONCERNING BORROWER. The Borrower
represents and warrants the following matters concerning the Borrower.
A. The Borrower is a corporation duly incorporated and existing in good
standing under the laws of the State of Texas. The Borrower is duly
licensed or qualified in all jurisdictions wherein the character of the
property owned or leased by the Borrower or the nature of the business
transacted by the Borrower makes licensing or qualification necessary by
foreign corporations and where failure to become so licensed or
qualified would have a Material Adverse Effect.
B. The execution of the Loan Documents and the performance of the
Obligations thereunder by the Borrower (collectively, the
"TRANSACTIONS") have been duly autho- rized by all necessary corporate
action. Such actions will not (i) violate any provision of law, the
Borrower's Articles or Certificate of Incorporation or the Borrower's
Bylaws, or (ii) result in the breach of or constitute a default under
other agreement or instrument to which the Borrower is a party. No
consent of the- Borrower's shareholders or any holder of Indebtedness of
the Borrower is required as a condition to the validity of this
Agreement.
C. The Loan Documents, when duly executed and delivered in accordance with
this Agreement, will constitute legal, valid and binding obligations of
the Borrower enforceable in accordance with their respective terms.
D. The Borrower has furnished to the Bank an audited Fiscal Year-end
consolidated balance sheet as of December 31, 1995, and related
statements of income, retained earnings and changes in financial
condition of the Borrower and the Consolidated Subsidiaries as of such
date, and an interim, year-to-date balance sheet and the income and
surplus statements as of November 30, 1996, and related statements of
income, retained earnings and changes in financial condition as of such
date. The Financial Statements are true and correct and have been
prepared in accordance with GAAP throughout the periods involved. The
balance sheets fairly present the financial condition of the Borrower
and the Consolidated Subsidiaries as of the dates thereof, and the
income and surplus statements fairly present the results of the opera-
tions of the Borrower and the Consolidated Subsidiaries for the periods
indicated. There have been no changes in the condition, financial or
otherwise, of the Borrower and the Consolidated Subsidiaries since the
dates of such Financial Statements which would have a Material Adverse
Effect.
E. Except as disclosed in the Financial Statements referenced in Section
7.1.D, neither the Borrower nor any Consolidated Subsidiary has any (i)
Investment in any other
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Person, or (ii) agreements in effect providing for or relating to
extensions of credit in respect of which such Person is or may become
directly or contingently obligated.
F. There is no material fact that the Borrower has failed to disclose to
the Bank which could reasonably be expected to have a Material Adverse
Effect. Neither the Financial Statements referenced in Section 7.1.D,
nor any certificate or statement delivered herewith or heretofore by the
Borrower to the Bank in connection with negotiations of the Loan
Documents, contains any untrue statement of a material fact or omits to
state any material fact necessary to keep the statements contained
herein or therein from being misleading.
G. Exhibit 7.1.G hereto, which sets out the authorized and the issued
capital stock of the Borrower, is a complete and accurate list of all
shareholders of the Borrower as of the Effective Date and the number of
shares of each class of capital stock owned by each. There are no
outstanding warrants or options to purchase any of the capital stock of
the Borrower except as disclosed to the Bank with respect to options
granted to certain employees of the Borrower. All of the outstanding
capital stock of the Borrower has been validly issued, is fully paid and
non-assessable and is owned by the shareholders free and clear of all
Liens.
H. The Borrower is and, after consummation of this Agreement and after
giving effect to all Indebtedness incurred will be Solvent.
I. Except as disclosed in writing to the Bank, the Borrower is not a party
to a transaction with any Affiliate. All such transactions are in the
ordinary course of business and upon fair and reasonable terms not
materially less favorable than could be obtained in an arm's-length
transaction with a Person that was not an Affiliate.
J. The Borrower is not in default in any material respect under any
contract, lease, loan agreement, indenture, mortgage, security agreement
or other material agreement or obligation to which the Borrower is a
party or by which any of the Borrower's property is bound.
K. Neither the business nor the property of the Borrower are, affected by
any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or other casualty
(whether or not covered by insurance), which could have a Material
Adverse Effect.
L. Except as has been previously disclosed to the Bank, the Borrower has
not during the preceding five (5) years, been known as or used any
fictitious, assumed or trade names except as disclosed in writing to the
Bank. The principal office, chief executive office and principal place
of business of the Borrower is at the address set out in Section 9.1.
The Borrower maintains the Borrower's principal records and books at
such address.
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M. The Borrower does not own any Subsidiary, except for the Consolidated
Subsidiaries.
N. The Borrower possesses all licenses, permits, approvals and consents,
including, without limitation, all environmental, health and safety
licenses and permits, approvals and consents (collectively, the
"PERMITS") of all Governmental Authority as required to conduct its
business. Each such Permit is and will be in full force and effect. The
Borrower is in compliance in all material respects with all Permits, and
to its knowledge no event, including, without limitation, any violation
of any law, rule or regulation, has occurred which allows the revocation
or termination of any Permit or any restriction thereon.
7.2 REGULATORY MATTERS. The Borrower represents and warrants that as of the
Effective Date, no Regulatory Defects exist, and specifically the following
matters.
A. The proceeds of the Loans will be used by the Borrower solely for the
purposes here- in set out and for no other purpose whatsoever. None of
such proceeds will be used for the purpose of purchasing or carrying any
"MARGIN STOCK" as defined in Regu- lation U, Regulation X, or Regulation
G, or for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry a "MARGIN STOCK" or for any
other purpose which might constitute this transaction a "PURPOSE CREDIT"
within the meaning of such Regulation U, Regulation X, or Regulation G.
The Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stocks. Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or will take
any action which might cause the Note or any of the other Loan
Documents, including this Agreement, to violate Regu- lation U,
Regulation X, or Regulation G or any other regulations of the board of
governors of the Federal Reserve System or to violatess.8 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each case as now in effect or as the same may hereafter be in effect.
B. Neither the Borrower nor any other Loan Party or any Person having
"CONTROL" (as that term is defined in 12 U.S.C.ss.375(b)(5) or in
regulations promulgated pursuant thereto) of the Borrower or any other
Loan Party, is an "EXECUTIVE OFFICER," "DIRECTOR," or "PRINCIPAL
SHAREHOLDER" (as those terms are defined in 12 U.S.C. ss.375(b) or in
regulations promulgated pursuant thereto) of the Bank, of a bank holding
company of which the Bank is a subsidiary, or of any subsidiary of a
bank holding company of which the Bank is a subsidiary, or of any bank
at which the Bank maintains a "CORRESPONDENT ACCOUNT" (as such term is
defined in such statute or regulations), or of any bank which maintains
a correspondent account with the Bank.
C. There are no suits or proceedings pending, or to the knowledge of the
Borrower or any other Loan Party, threatened, in any court or before any
Governmental Authority against or affecting the Borrower or any other
Loan Party which, if adversely determined, would have a Material Adverse
Effect.
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D. The Borrower and each other Loan Party has filed all U.S. tax returns
and all state and foreign tax returns which are required to be filed.
The returns properly reflect the U.S. income tax, foreign tax and/or
state taxes of the Borrower and the other Loan Party for the period
covered thereby. The Borrower and each other Loan Party has paid, or
made provisions for the payment of, all taxes which have become due
pursuant to the returns or pursuant to any assessment received by the
Borrower or any other Loan Party, except such taxes, if any, as are
being contested in good faith and as to which, adequate reserves have
been provided. Except for Harley, no Federal income tax returns of the
Borrower or any other Loan Party have been audited by the IRS. Neither
the Borrower nor any other Loan Party has, as of the Effective Date,
requested or been granted any extension of time to file any Federal,
state, local or foreign tax return. The Borrower is not a party to or
has any obligation under any tax sharing agreement.
E. (i) No Reportable Event has occurred and is continuing with respect to
any Employee Plan; (ii) PBGC has not instituted proceedings to terminate
any Employee Plan; (iii) neither the Borrower, any member of the
Controlled Group, nor any duly-appointed administrator of an Employee
Plan has (a) incurred any liability to PBGC with respect to any Employee
Plan other than for premiums not yet due or payable, or (b) instituted
or intends to institute proceedings to terminate any Employee Plan under
ss.4041 orss.4041A of ERISA or withdraw from any Multi-Employer Plan (as
that term is defined inss.3(37) of ERISA); and, (iv) each Employee Plan
has been maintained and funded in all material respects in accordance
with its terms and with all provisions of ERISA applicable thereto.
F. The Borrower is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other law (other than
Regulation X) which regulates the incurring by the Borrower of
Indebtedness, including but not limited to laws relating to common
contract carriers or the sale of electricity, gas, steam, water, or
other public utility services.
G. The Borrower has complied with, and will continue to comply with, the
provisions of the Fair Labor Standards Act of 1938, 29 U.S.C. ss.ss.200
ET.SEQ., as amended from time to time (the "FLSA"), including
specifically, but without limitation, 29 U.S.C. ss.215(a). This
representation and warranty, and each reconfirmation thereof, shall
constitute assurance from the Borrower, given as of the Effective Date
and as of the date of each re-confirmation, that the Borrower has
complied with the requirements of the FLSA, in general, and 29 U.S.C.
ss.215(a)(1), thereof, in particular.
H. Neither the Borrower nor any other Loan Party has been accused of being
in violation of Title IX, of the Organized Crime Control Act of 1970,
entitled "RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS" (RICO), 18
U.S.C. ss.ss.1961 ET.SEQ.
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I. The operations of the Borrower comply in all material respects with all
applicable environmental laws (except as disclosed in writing to the
Bank) and with OSHA. The Borrower and all of Borrower's present
facilities or operations, as well as, to the knowledge of the Borrower,
Borrower's past facilities or operations, are not subject to any
judicial or administrative proceeding or any outstanding written order
or agree- ment with any Governmental Authority or private party
respecting (i) environmental laws, (ii) any remedial work (except as
disclosed in writing to the Bank), or (iii) any environmental claims
arising from the release of hazardous materials, as defined in any
environmental laws, into the environment. To the best of the knowledge
of the Borrower, none of Borrower's operations is the subject of any
Federal or state investigation evaluating whether any remedial work is
needed to respond to a release of any hazardous materials into the
environment in violation of environmental laws. The Borrower has not
filed any notice under any environmental laws indicating past or present
treatment, storage, or disposal of hazardous materials or reporting a
spill or release of hazardous materials into the environment in
violation of environmental laws. To the best knowledge of the Borrower,
the Borrower does not have any contingent liability in connection with
any release of any hazardous materials and none of the Borrower's
operations involve the generation, transportation, treatment or disposal
of hazardous materials.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties shall survive delivery of the Loan Documents. Any investigation at
any time made by or on behalf of the Bank shall not diminish the Bank's right to
rely on the representations and warranties made by the Borrower or any other
Loan Party.
ARTICLE VIII
DEFAULTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The Borrower will be in Default hereunder if any one
of the following shall occur:
A. If any installment of principal or interest on the Note, shall not be
paid when due and payable, or if there shall occur a failure to pay,
when due, any Obligations owed to the Bank.
B. If any representation, statement, warranty or certification made by the
Borrower or any other Loan Party in the Loan Documents, or furnished to
the Bank in connection with the Loans, shall prove to have been
incorrect in any material respect at the time of making or issuance
thereof.
C. If there shall occur any one of the following events, and if the event
shall continue uncured after ten (10) days from the earlier to occur of
(i) the date such event becomes known to the Borrower or any other Loan
Party, or (ii) the date the Bank shall
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have given notice to the Borrower that such event has occurred;
provided, however, the Bank shall not be required to give notice of any
such failure or event:
(1) If the Borrower or the other Loan Party shall fail to comply with
any of the covenants and agreements set forth in Section 5.1; and/or,
(2) Both the following events shall occur: (i) Either (a) process shall
have been instituted to terminate, or a notice of termination shall have
been filed with respect to, any Employee Plan (other than a
Multi-Employer Plan as that term is defined in ss.3(37) of ERISA) by the
Borrower, any ERISA Affiliate, any subsidiary, any member of the
Controlled Group, PBGC or any representative of any thereof, or any such
Employee Plan shall be terminated in any such case under ss.4041 or
ss.4042 of ERISA, or (b) a Reportable Event, the occurrence of which
would cause the imposition of a lien under ss.4068 of ERISA, shall have
occurred with respect to any Employee Plan (other than a Multi-Employer
Plan as that term is defined in ss.3(37) of ERISA) and be continuing for
a period of sixty (60) days; and, (ii) the sum of the estimated
liability to PBGC under ss.4062 of ERISA and the currently payable
obligations of the Borrower or any ERISA Affiliate to fund liabilities
(in excess of amounts required to be paid to satisfy the minimum funding
standard of ss.412 of the Code) under the Employee Plan or Employee
Plans subject to such event shall exceed ten (10) per cent of tangible
net worth at such time; and/or,
(3) Any or all of the following events shall occur with respect to any
MultiEmployer Plan (as that term is defined in ss.3(37) of ERISA) to
which the Borrower or any ERISA Affiliate contributes or contributed on
behalf of its employees: (i) the Borrower or any ERISA Affiliate incurs
a withdrawal liability under ss.4201 of ERISA; (ii) any such plan is "IN
REORGANIZATION" as that term is defined in ss.4241 of ERISA; or, (iii)
any such Employee Plan is terminated under ss.4041A of ERISA and the
Bank determines in good faith that the aggregate liability likely to be
incurred by the Borrower or any ERISA Affiliate, as a result of all or
any of the events specified in subsections (i), (ii) and (iii) above
occurring, shall have a Material Adverse Effect.
D. If any event shall occur which would constitute an event of default or
be a default under the Chase Credit Agreement, as those terms are
defined therein.
E. If any event shall occur which would constitute an Event of Default
under Section 5.2 or Section 5.4.
F. If there shall occur any change in the condition (financial or
otherwise) of the Borrower, Allwaste or any other Loan Party which, in
the opinion of the Bank, has a Material Adverse Effect.
G. If any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the Borrower or if the Guaranty Agreement
shall cease to be
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legal, valid and binding agreements enforceable against Allwaste in
accordance with the respective terms thereof or shall in any manner be
terminated or become or be declared ineffective or inoperative or shall
in any manner whatsoever cease to give or provide the rights, interests,
remedies, powers or privileges intended to be created thereby.
H. If there shall occur a failure by the Borrower in the observance or
performance of any other provision of the Loan Documents.
I. If there shall occur a failure beyond any period of grace, if any, by
the Borrower, Allwaste or any other Loan Party in the payment, when due,
of the interest on or the principal of any Indebtedness in excess of
$10,000.00, other than accounts payable incurred in the ordinary course
of business, or (ii) any other Indebtedness and if the effect of any
such default shall be to accelerate, or to permit the holder or obligee
of any such Indebtedness, at its option to accelerate, the maturity of
such Indebtedness.
J. If there shall be any change in the ownership of the Voting Shares of
any Loan Party or if there shall be any other Change of Control of any
Loan Party.
K. If the Borrower, Allwaste or any other Loan Party shall:
(1) Apply for, consent to or acquiesce in the appointment of a receiver,
trustee or liquidator of such Person, or of such Person's property;
and/or,
(2) Admit in writing such Person's inability to pay debts as they
mature; and/or,
(3) Make a general assignment for the benefit of creditors; and/or,
(4) Be adjudicated to be bankrupt or insolvent by any court having
jurisdiction; and/or,
(5) File a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, composition, readjustment, an arrangement or
similar relief with creditors under any present or future Debtor Laws or
file an answer admitting the material allegations of a petition filed
against such Person in bankruptcy, reorganization or insolvency
proceeding, or corporate action shall be taken for the purpose of
effecting any of the foregoing; and/or,
(6) Have a receiver or trustee or assignee in bankruptcy or insolvency
appointed for such Person or such Person's property without such
Person's application or consent.
L. If an involuntary petition or complaint shall be filed against the
Borrower, Allwaste or any other Loan Party seeking bankruptcy or
reorganization of such Person or the appointment of a receiver,
custodian, trustee, intervenor or liquidator of such Person,
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or of all or substantially all of such Person's assets, and such
petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof; or, if an order, order for relief, judgment
or decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of the Borrower or any other Loan Party or appointing a
receiver, custodian, trustee, intervenor or liquidator of such Person,
or of all or substantially all of such Person's assets.
8.2 REMEDIES. Upon the occurrence of an Event of Default, and in any such
event, the obligation of the Bank to extend credit to the Borrower pursuant
hereto shall immediately terminate. If a Default shall occur, the Bank may, at
the Bank's option, without notice to the Borrower, declare the principal of and
interest accrued on the Obligations to be forthwith due and payable, whereupon
the same shall become due and payable without any presentment, demand, protest,
notice of protest, notice of intent to accelerate the maturity of the
Obligations, notice of acceleration of the maturity of the Obligations or notice
of any kind, all of which are hereby waived, and thereafter, the Bank may
exercise all remedies available to the Bank as provided in any of the Loan
Documents and at law or in equity. None of the provisions contained in any of
the Loan Documents shall, or shall be deemed to, give the Bank the right to
exercise control over the assets, including, without limitation, real property,
affairs, or management of the Borrower or any other Loan Party. The rights of
the Bank are limited to the exercise the remedies provided in this Agreement and
the other Loan Documents.
8.3 OTHER NOTICES. The Borrower will promptly notify the Bank of (i) any
change in the Borrower's and any other Loan Party's financial condition or
business which would have a Material Adverse Effect, (ii) any default under any
agreement, contract or other instrument of which such Person is a party or by
which any of such Person's properties are bound, or any acceleration of the
maturity of any Indebtedness, any of which would have a Material Adverse Effect,
(iii) any claim against or affecting the Borrower or any other Loan Party or any
of the Borrower's or the other Loan Party's property which would have a Material
Adverse Effect, and (iv) the commencement of, and any determination in, any
litigation with any third party or any proceeding before any Governmental
Authority affecting the Borrower or any other Loan Party which would have a
Material Adverse Effect.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. Any notice required or permitted to be given hereunder shall be
in writing, shall be addressed to the parties hereto at the respective addresses
set out below, which may be changed by the giving of written notice to that
effect pursuant hereto, and shall be deemed effectively given if (i) delivered
personally, or (ii) upon being deposited with the United States Postal Service,
postage prepaid, certified mail, return receipt requested:
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If to Borrower: THE SAFE SEAL COMPANY, INC.
14900 Woodham Drive, Suite A125
Houston, Texas 77073
If to Bank: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
9.2 SEVERABILITY. In the event any one or more of the provisions contained in
the Loan Documents should be held to be invalid, illegal or unenforceable in any
respect, the validity, enforceability and legality of the remaining provisions
contained in the Loan Documents shall not in any manner be affected thereby and
shall be enforceable in accordance with their terms.
9.3 CAPTIONS. The captions, headings, and arrangements used in this Agreement
are for convenience only and do not in any manner affect, limit, amplify, or
modify the terms and provisions hereof.
9.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrower, any ERISA Affiliate and the Bank and shall inure to the benefit of the
Borrower, any ERISA Affiliate and the Bank and the successors and assigns of the
Bank. The Borrower may not, without the prior consent of the Bank, assign any
rights, powers, duties or obligations hereunder.
9.5 PARTICIPATION. The Borrower recognizes and agrees that the Bank may, from
time to time, assign to one or more banks or other entities all or any part of,
or may grant a participation to one or more banks or other entities, in or to
all or any part of, the Loans, the Note and the Bank's rights in respect of the
Loan Documents. The Borrower will have no obligation for any costs incurred by
the Bank in the participation of the Loans.
9.6 NON-LIABILITY OF BANK. The relationship among the Borrower, any other
Loan Party and the Bank is, and shall at all times remain, solely that of
debtors and creditor. The Bank does not undertake or assume any responsibility
or duty to any Person to review, inspect, supervise, pass judgment upon, or
inform any Person of any matter in connection with any phase of such Person's
business, operations, or condition, financial or otherwise. Each Person shall
rely entirely upon such Person's own judgment with respect to such matters. Any
review, inspection, supervision, exercise of judgment, or information supplied
to any Person by the Bank in connection with any such matter is for the
protection of the Bank, and no Person is entitled to rely thereon.
9.7 LIST OF EXHIBITS. The following Exhibits are attached hereto and made a
part hereof for all purposes:
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Exhibit 2.1 Notice of Loan Advance
Exhibit 3.1 Note
Exhibit 6.1.C Guaranty Agreement
Exhibit 6.1.D Officers Certificate
9.8 MODIFICATION. All modifications, consents, amendments or waivers of any
provision of any Loan Document, or consent to any departure by the Borrower or
the other Loan Party therefrom, shall be effective only if the same shall be in
writing and agreed to by the Bank and then shall be effective only in the
specific instance and for the purpose for which given.
9.9 WAIVER. The acceptance by the Bank of any partial payment on the
Obligations shall not be deemed to be a waiver of any Event of Default then
existing. No waiver by the Bank of any Event of Default shall be deemed to be a
waiver of any other then existing or subsequent Event of Default, or Default. No
delay or omission by the Bank in exercising any right under the Loan Documents
shall impair that right or be construed as a waiver thereof or any acquiescence
therein, or shall any single or partial exercise of any right preclude other or
further exercise thereof or the exercise of any other right under the Loan
Documents or otherwise. The rights of the Bank hereunder and under the Loan
Documents shall be in addition to all other rights provided by law.
9.10 GOVERNING LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN PREPARED,
ARE BEING EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE
OF TEXAS, AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT
TO THE CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE
APPLICABLE LAWS OF THE UNITED STATES SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OF THE LOAN DOCUMENTS.
9.11 CHOICE OF FORUM, SERVICE OF PROCESS AND JURISDICTION. Any suit, action
or proceeding against any Loan Party with respect to the Loan Documents, or the
enforcement of any judgment entered by any court in respect thereof, shall be
brought in the courts of the State of Texas, Harris County, Texas, or in the
U.S. courts located in Southern District of Texas as the Bank, in the Bank's
sole discretion, may elect. The Bank and the Borrower each submit to the
non-exclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding.
A. The Bank and the Borrower and each irrevocably waives, in connection
with any such suit, action or proceeding, any objection, including,
without limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to
the bringing of any such action or proceeding in such respective
jurisdictions.
B. The Bank and the Borrower each irrevocably consents to the service of
process of any of the aforementioned courts in any such action or
proceeding by the mailing of
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copies thereof by registered or certified mail, postage prepaid, to each
such Person, as the case may be, at its address set forth in Section
9.1.
C. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law.
9.12 WAIVER OF JURY TRIAL. Each party hereto hereby waives any right it may
have to a trial by jury in respect of any legal proceeding directly or
indirectly arising out of, under or in connection with or relating to any of the
Loan Documents or the Transactions. Except as prohibited by law, each party
hereto hereby waives any right it may have to claim or recover in any litigation
referred to in this Section any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Each party
hereto (i) certifies that no representative, agent or attorney of the Bank has
represented, expressly or otherwise, that the Bank would not, in the event of
litigation, seek to enforce the foregoing waivers, and (ii) acknowledges that it
has been induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications
herein.
9.13 AGENCY. Nothing herein contained shall be construed to constitute the
Borrower or any other Loan Party as the Bank's agent for any purpose whatsoever.
9.14 NO THIRD PARTY BENEFICIARY. The parties do not intend for this Agreement
to inure to the benefit of any third party, or for this Agreement to be
construed to make or render the Bank liable to any mechanic, materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by the Borrower or any other Loan Party for debts or claims accruing to any such
Persons against the Borrower or any other Loan Party. The Bank does not, by
anything herein or in any of the other Loan Documents, assume any Indebtedness
of the Borrower or any other Loan Party under any contract or agreement assigned
to the Bank, and the Bank shall not be responsible in any manner for the
performance by the Borrower or any other Loan Party of any of the terms and
conditions thereof.
9.15 PAYMENT OF EXPENSES. The Borrower will pay all expenses, charges, costs
and fees provided for in this Agreement or relating to the Loans or the
Collateral, including fees, charges, and taxes in connection with recording or
filing any of the Loan Documents, title insurance premiums and charges, fees of
any consultants, fees and expenses of the Bank's counsel (which attorneys may be
employees of the Bank), fees and expenses of the Bank's special counsel, which
may include fees billed for law clerks, paralegals and other persons not
admitted to the Bar but performing services under the supervision of an
attorney, printing, photocopying and duplicating expenses, air freight charges,
escrow fees, costs of surveys, premiums of insurance policies and surety bonds
and fees for any appraisal, market or feasibility study required by the Bank.
All such expenses, charges, costs and fees shall be the Borrower's obligations
regardless of whether or not the Borrower has requested and met the conditions
for the Loans. This obligation on the part of the Borrower shall survive the
execution and delivery of the Loan Documents and the repayment of the
Obligations. The
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Borrower authorizes the Bank, in its discretion, to pay such expenses, charges,
costs and fees at any time by a disbursement of the Loans.
9.16 CONFLICTS. If there shall exist any conflict among this Agreement and
any of the other Loan Documents, the provisions of this Agreement shall control.
9.17 DECEPTIVE TRADE PRACTICES ACT. The Borrower acknowledges that the
Borrower is a "BUSINESS CONSUMER" as defined under the Deceptive Trade
Practices-Consumer Protection Act, Subchapter E of Chapter 17 of the Texas
Business and Commerce Code, a law that gives consumers special rights and
protections. The Borrower acknowledges that the Deceptive Trade
Practices-Consumer Protection Act is not applicable to the Transactions.
9.18 ENTIRETY. The Loan Documents embody the entire agreement among the
parties and supersede all prior agreements and understandings, if any, relating
to the subject matter hereof and thereof. Any previous agreement among the
parties hereto with respect to the Transactions is superseded by the Loan
Documents. Except as expressly provided herein or the Loan Documents (other than
this Agreement), nothing in this Agreement or in the other Loan Documents,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
9.19 MULTIPLE 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.
A CREDIT AGREEMENT IN WHICH THE AMOUNT INVOLVED EXCEEDS $50,000 IN VALUE
IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE
PARTY TO BE BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE
RIGHTS AND OBLIGATIONS OF BORROWER, ANY OTHER LOAN PARTY AND THE BANK
SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND
INSTRUMENTS. ANY PRIOR ORAL AGREEMENTS AMONG THE PARTIES ARE SUPERSEDED
BY AND MERGED INTO THOSE WRITINGS. THIS AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS (AS SAME MAY, FROM TIME TO TIME, BE AMENDED IN WRITING)
EXECUTED BY BORROWER, ANY LOAN PARTY OR THE BANK REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. THIS PARAGRAPH
IS INCLUDED IN THIS AGREEMENT UNDER ss.26.02 OF
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<PAGE>
THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED FROM TIME TO TIME.
In witness whereof, the parties have duly executed this Agreement on the day
and year hereinabove first set forth.
THE SAFE SEAL COMPANY, INC.
BY: /S/WILLIAM E. HAYNES
WILLIAM E. HAYNES, PRESIDENT
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
BY: /S/PATTY MILLER
NAME: PATTY MILLER , V.P.
VICE PRESIDENT
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<PAGE>
AMENDMENT TO CREDIT AGREEMENT
This Amendment to Credit Agreement (the "First Amendment") is made and
entered into effective August 8, 1997, by and among THE SAFE SEAL COMPANY, INC.
(the "Borrower"); and, TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Bank").
RECITALS
The Borrower and the Bank entered into a Credit Agreement (the "Credit
Agreement") dated March 6, 1997, pursuant to the terms of which the Bank agreed
to loan and the Borrower agreed to borrow, all as set out therein. The parties
desire to amend and modify the Credit Agreement as herein set out.
AGREEMENT
In consideration of the premises, the mutual covenants and agreements
herein contained and other good and valuable considerations, the parties amend
and modify the Credit Agreement and agree as provided herein.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms used in this First Amendment, to the
extent not otherwise defined herein, shall have the meanings ascribed to them in
the Credit Agreement. The following definitions modify, replace or supplement
the definitions used in the Loan Documents.
"Commitment Termination Date" means December 15, 1997, or, if such date is
not a Business Day, the Business Day preceding such date.
"Committed Sum" means $7,000,000.00.
"Loan Documents" is amended to mean the Credit Agreement, this First
Amendment to Credit Agreement, and all instruments executed in connection with
any of the same.
"Maturity Date" means December 31, 1997.
"Note" shall mean the Note in the form of Exhibit 3.1 to this First
Amendment executed by the Borrower, together with any renewals, extensions or
modifications thereof.
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<PAGE>
ARTICLE II
AMENDMENTS
2.1 AMENDMENT TO SECTION 3.1. Section 3.1 is deleted in its entirety and
there is substituted therefor the following:
"3.1 NOTE. The Advances made under Section 2.1 by the Bank shall be
evidenced by the Note executed by the Borrower, which shall (i) be dated
the Effective Date of this First Amendment, (ii) be in the amount of the
Committed Sum, (iii) be payable to the order of the Bank at the office of
the Bank, (iv) bear interest in accordance with Section 3.2, and (v) be in
the form of Exhibit 3.1 attached to this First Amendment. The Borrower
will repay, and shall pay interest on, the unpaid principal amount of the
Loans in accordance with the terms of the Note and this Agreement."
2.2 AMENDMENT TO SECTION 3.6. Section 3.6 is deleted in its entirety and
there is substituted therefor the following:
"3.6 PAYMENTS ON THE NOTE. The unpaid principal amount of the Note
shall be due and payable on the Maturity Date, on which date all principal
on the Note shall be payable in full. Interest on the Note shall be due
and payable monthly on the Interest Payment Dates in each month commencing
on the Interest Payment Date in July 1997."
2.3 AMENDMENT TO SECTION 6.1.C. Section 6.1.C is deleted in its entirety
and there is substituted therefor the following:
"C. A confirmation of Guaranty Agreement in the form of Exhibit
6.1.C to this First Amendment duly executed by Allwaste in favor of the
Bank."
2.4 AMENDMENT TO SECTION 6.1.H. Section 6.1.H is deleted in its entirety
and there is substituted therefor the following:
"H. Resolutions of Allwaste approving the execution, delivery and
performance of the confirmation of the Guaranty Agreement, and the
transactions contemplated therein, duly adopted by the board of directors
of Allwaste and accompanied by a certificate of the secretary of Allwaste
stating that such resolutions are true and correct, have not been altered
or repealed and are in full force and effect. The resolutions shall
certify the name of each officer authorized to sign each of the Loan
Documents to be executed and the other documents or certificates to be
delivered pursuant to the Loan Documents, together with the true signature
of each such officer. The Bank may conclusively rely on the certificate
until the Bank receives a further certificate canceling or amending the
prior certificate and submitting the name and signature of each officer
named in such further certificate."
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<PAGE>
ARTICLE III
RENEWAL AND CONFIRMATION OF OBLIGATIONS
3.1 RENEWAL OF OBLIGATIONS. The Borrower acknowledges and agrees that as
of the execution date of this First Amendment:
A. The outstanding principal balance of the Note is $5,925,827.76.
B. The Loan Documents are in full force and effect as therein written
and as herein modified.
C. The Borrower does not have any (i) rights of set-off against the
Obligations, (ii) defenses to the payment or the performance of any
of the Obligations, or (iii) claims or causes of action against the
Bank.
D. The Borrower promises to pay to the order of the Bank, in the City
of Houston, Harris County, Texas, the sum of $7,000,000.00, pursuant
to the terms of the renewal Note, same being executed and delivered
by the Borrower contemporaneously herewith.
3.2 RATIFICATION BY THE BORROWER. The terms and provisions set forth in
this First Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Loan Documents and except as expressly modified and
superseded by this First Amendment, the terms and provisions of the Loan
Documents are ratified and confirmed and shall continue in full force and
effect. The Borrower and the Bank agree that the Loan Documents, as amended
hereby, shall continue to be legal, valid, binding and enforceable in accordance
with their respective terms.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS. The effectiveness of this First Amendment is subject to
the satisfaction of the following conditions precedent:
A. The Bank shall have received all of the following duly executed by
the proper party, in form and substance satisfactory to the Bank:
(1) This First Amendment;
(2) The renewal Note, executed by the Borrower;
(3) The confirmation of Guaranty Agreement, executed by Allwaste;
(4) The resolutions of Allwaste as set out in Section 6. I. H;
and,
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<PAGE>
(5) Such additional documents, instruments and information as the
Bank may request;
(6) The Borrower shall pay to the Bank all sums due by the
Borrower to the Bank pursuant to the Loan Documents, as
modified hereby, as of the execution date hereof, together
with all legal fees and other fees incurred by the Bank in
connection with the preparation hereof and the documents
executed in connection herewith; and,
B. The representations and warranties contained herein and the Loan
Documents, as amended hereby, shall be true and correct as of the
date hereof as if made on the date hereof.
C. No Event of Default shall have occurred and be continuing and no
event or condition shall have occurred which, with the giving of
notice or lapse of time or both, would be an Event of Default.
ARTICLE V
AGREEMENTS, REPRESENTATIONS AND WARRANTIES
5.1 AGREEMENTS. The Borrower expressly agrees with the Bank that, (i) the
extension of the Obligations pursuant to this First Amendment do not constitute
a novation or discharge of the Obligations, (ii) any and all representations,
warranties, covenants, and agreements contained in the Loan Documents shall
remain in full force and effect, (iii) all rights, and privileges described,
granted, or made to or for the benefit of the Bank by the Borrower, Allwaste or
either of them, shall be carried forward and shall continue in full force and
effect to secure the payment of all Obligations under the Loan Documents, as
amended hereby, and (iv) any and all Guaranty Agreements, en dorsements, or any
other agreement to pay, secure or guaranty payment of the Obligations by the
Borrower or Allwaste or either of them, shall remain in full force and effect
and shall be carried forward to secure payment of the Obligations, as they have
been extended pursuant to this First Amendment.
5.2 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that, (i) the execution, delivery, and performance of this First
Amendment and any and all other Loan Documents executed or delivered in
connection with this First Amendment have been authorized by all requisite
action on the part of the Borrower and will not violate the Articles of
Incorporation and bylaws of the Borrower, (h) the representations and warranties
contained in the Loan Documents, as amended hereby, are true and correct as
though made on and as of the date hereof, (iii) no Event of Default has occurred
or has any other event occurred which, with the giving of notice or lapse of
time or both, would be an Event of Default, and (iv) the Borrower is in full
compliance with all covenants and agreements contained in the Loan Documents, as
amended hereby.
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<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this First Amendment or any other Loan Document including any
Loan Document furnished in connection with this First Amendment, shall survive
the execution and delivery of this First Amendment, and no investigation by the
Bank or any closing shall affect the representations and warranties or the right
of the Bank to rely upon them.
6.2 REFERENCE TO CREDIT AGREEMENT. Each of the Loan Documents, including
the Credit Agreement and any and all other agreements, documents, or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement, as amended hereby, are amended so that any
reference in such Loan Documents to the Credit Agreement shall mean a reference
to the Credit Agreement, as amended hereby.
6.3 FURTHER RENEWAL. Notwithstanding anything to the contrary contained
herein or in any other instrument executed by the Borrower, Allwaste or the Bank
and any other action or conduct undertaken by the Borrower, Allwaste and/or the
Bank on or before the date hereof, the agreements, covenants and provisions
contained herein shall constitute the only evidence of the Bank's consent to
modify the terms and provisions of the Obligations in the manner set forth
herein. Accordingly, no express or implied consent to any further modifications
of the Obligations and the Loan Documents, whether any such modifications
involve any of the matters set forth in this First Amendment or otherwise, shall
be inferred or implied from the Bank's execution of this First Amendment.
Further, the Bank's execution of this First Amendment shall not constitute a
waiver, either express or implied, of the requirement that any further
modification of the Obligations or any of the Loan Documents shall require the
express written approval of the Bank and no such approval (either express or
implied) has been given as of the date hereof.
6.4 EXPENSES OF BANK. The Borrower agrees to pay on demand all costs and
expenses incurred by the Bank in connection with the preparation, negotiation,
and execution of this First Amendment and any and all amendments, modifications,
and supplements thereto, including, without limitation, the costs and fees of
the Bank's legal counsel and all costs and expenses incurred by the Bank in
connection with the enforcement or preservation of any rights under the Loan
Documents, including, without limitation, the costs and fees of the Bank's legal
counsel.
6.5 INDEPENDENT DETERMINATION. The parties hereto acknowledge:
A. They have carefully reviewed this First Amendment;
B. They have had the opportunity to review all of the terms contained
herein and the other Loan Documents executed in connection herewith
with their respective legal counsel;
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<PAGE>
C. They understand the meaning and effect hereof and have willingly
entered into and executed this First Amendment for the herein stated
consideration, which is contractual and not merely recital;
D. They have relied wholly upon their own judgment and knowledge and
that of their respective legal counsel, and have not been influenced
to any extent whatsoever in the making of this First Amendment by
any representation or statement made by the Bank, any of the Bank's
officers, directors, employees, attorneys or agents, or anyone
acting on their behalf;
E. This First Amendment and the other Loan Documents executed in
connection herewith, as well as the Credit Agreement and the Loan
Documents previously executed in connection with the Credit
Agreement, state the entire agreement of the parties hereto and
supersede any and all prior and contemporaneous negotiations and
agreements, and all prior and contemporaneous negotiations, oral or
written, are deemed incorporated herein or are deemed to have been
abandoned if not so incorporated herein;
F. This First Amendment may be amended only by written instrument
signed by all of the parties hereto and a breach hereof may be
waived only by written waiver signed by the party granting the
waiver; and,
G. The waiver of any breach hereof shall not operate or be construed as
a waiver of any other similar or prior or subsequent breach hereof.
6.6 RELEASE. The Borrower, for the Borrower and Allwaste, and their
respective legal representatives, attorneys, agents, successors and
assigns, fully release, acquit and forever discharge the Bank, the Bank's
officers, directors, shareholders, employees, agents, attorneys, legal
representatives, successors and assigns, of and from any and all rights,
liabilities, claims, demands, suits, controversies, debts, damages,
attorneys' fees, penalty or interest, court costs, and/or causes of
action, known or unknown, including, but not limited to, the payment of
any money, for the performance or furnishing of any consideration, for
damages relating to, or resulting from and arising out of, all matters,
facts, circumstances relating to the business relationship among the
Borrower, Allwaste and the Bank, accrued to the date hereof in favor of
the Borrower, Allwaste or their respective heirs, executors,
administrators, legal representatives, attorneys, agents, successors
and/or assigns, except those arising hereunder. The foregoing release
shall, however, be effective as to Allwaste only to the extent of the
business relationship arising out of the loans from the Bank to the
Borrower.
6.7 SEVERABILITY. Any provision of this First Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this First
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<PAGE>
Amendment and the effect thereof shall be confined to the provision so held to
be invalid or unenforceable.
6.8 APPLICABLE LAW. THIS FIRST AMENDMENT AND ALL OTHER LOAN DOCUMENTS HAVE
BEEN PREPARED, ARE BEING EXECUTED AND DELIVERED, AND ARE INTENDED TO BE
PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE
OF TEXAS, AND THE APPLICABLE LAWS OF THE U.S. SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS FIRST AMENDMENT AND THE
OTHER LOAN DOCUMENTS.
6.9 SUCCESSORS AND ASSIGNS. This First Amendment is binding upon and shall
inure to the benefit of the Bank, the Borrower and their respective successors
and assigns, except the Borrower may not assign or transfer any of the
Borrower's rights or obligations hereunder without the prior written consent of
the Bank.
6.10 LIST OF EXHIBITS. The following Exhibits are attached hereto and made
a part hereof for all purposes:
Exhibit 3.1 Note
Exhibit 6.1.C Confirmation of Guaranty Agreement
6.11 COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.12 EFFECT OF WAIVER. No consent or waiver, express or implied, by the
Bank to or for any breach of or deviation from any covenant, condition or duty
by the Borrower or Allwaste shall be deemed a consent or waiver to or of any
other breach of the same or any other covenant, condition or duty.
6.13 HEADINGS. The headings, captions, and arrangements used in this First
Amendment are for convenience only and shall not affect the interpretation of
this First Amendment.
6.14 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The provisions of
Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas Statutes, Article
5069-15) are specifically declared by the parties not to be applicable to this
First Amendment, any of the Loan Documents or the transactions contemplated
hereby.
A CREDIT AGREEMENT IN WHICH THE AMOUNT INVOLVED EXCEEDS $50,000 IN VALUE
IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE
PARTY TO BE BOUND OR BY THAT PARTY'S
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<PAGE>
AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE LOAN PARTIES
AND THE BANK SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS,
DOCUMENTS, AND INSTRUMENTS. ANY PRIOR ORAL AGREEMENTS AMONG THE PARTIES
ARE SUPERSEDED BY AND MERGED INTO THOSE WRITINGS. THIS AGREEMENT AND THE
OTHER WRITTEN LOAN DOCUMENTS (AS SAME MAY, FROM TIME TO TIME, BE AMENDED
IN WRITING) EXECUTED BY ANY LOAN PARTY OR THE BANK REPRESENT THE FINAL
AGREEMENT AMONG THE LOAN PARTIES AND THE BANK AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY
THE PAR TIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
THIS PARAGRAPH IS INCLUDED IN THIS AGREEMENT UNDER SS.26.02 OF THE TEXAS
BUSINESS AND COMMERCE CODE, AS AMENDED FROM TIME TO TIME.
This First Amendment is executed and delivered effective the day and year
first above written.
THE SAFE SEAL COMPANY, INC.
BY: /s/ CHARLES F. SCHUGART
CHARLES F. SCHUGART
SENIOR VICE PRESIDENT
"BORROWER"
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
BY: /s/ DOUGLAS K. ELLER
DOUGLAS K. ELLER
VICE PRESIDENT
"BANK"
-8-
<PAGE>
Exhibit 3.1
Note
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<PAGE>
PROMISSORY NOTE
$7,000,000.00 August 8, 1997
-1-
This note is the renewal Note issued pursuant to the terms of the
Amendment to Credit Agreement (the "First Amendment") dated August 8, 1997,
amending a Credit Agreement dated March 6, 1997 (collectively, the "Credit
Agreement") by and between THE SAFE SEAL COMPANY, INC. (the "Maker") and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION (the "Payee"). All capitalized terms used
herein shall have the meanings ascribed to them in the Credit Agreement unless
the context hereof requires otherwise.
For value received, after date, without grace and in the manner, on the
dates and in the amounts herein stipulated, Maker promises to pay to the order
of Payee at 712 Main Street, Houston, Harris County, Texas, or at such other
place in Houston, Harris County, Texas, designated in writing by Payee or other
holder hereof:
1. The sum of Seven Million Dollars ($7,000,000.00) in lawful money of
the U.S., which shall be due and payable on December 31, 1997 (the
"Maturity Date"), on which date the unpaid balance of all principal
hereon shall be payable in full; together with,
2. Interest from the date hereof on the principal amount outstanding
hereunder from time to time, at the lesser of (a) the Contract Rate,
or, (b) the Maximum Rate; and, interest on the outstanding balance
of principal shall be due and payable on the Maturity Date; and,
3. Notwithstanding the foregoing, if at any time the Contract Rate
shall exceed the Maximum Rate and thereafter, the Contract Rate
shall become less than the Maximum Rate, the rate of interest
payable hereunder shall, at the option of Payee, be the Maximum Rate
until the cumulative interest received by Payee or other holder
hereof equals the interest which would have been received at the
Contract Rate; and,
4. All past due principal and interest shall bear interest at the
Default Rate from maturity until paid.
5. This note may be prepaid pursuant to the terms of the Credit
Agreement.
THIS NOTE SHALL BE PAYABLE IN FULL ON DECEMBER 31, 1997. ON THE
MATURITY DATE, MAKER MUST REPAY THE ENTIRE UNPAID PRINCIPAL BALANCE
_________________________________
Signed for Identification
<PAGE>
PROMISSORY NOTE
$7,000,000.00 August 8, 1997
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AND ALL ACCRUED INTEREST ON THIS NOTE THEN DUE AND PAYABLE. PAYEE SHALL BE UNDER
NO OBLIGATION TO REFINANCE THIS NOTE AT THAT TIME. MAKER SHALL THEREFORE BE
REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS MAKER MAY OWN, OR MAKER SHALL HAVE
TO FIND A LENDER WILLING TO LEND MAKER SUCH AMOUNTS AT PREVAILING MARKET RATES,
WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE ON THIS NOTE.
It is agreed that if default be made in any of the payments of principal
and/or interest due hereon or if there is a Default under the provisions in the
Credit Agreement, then, in any such event, at the option of the holder hereof,
at any time thereafter, without notice, the unpaid principal of this note and,
all accrued interest, shall at once become due and payable and shall bear
interest at the Default Rate from the date of such Default or event. Failure to
exercise any of the options shall not constitute a waiver on the part of holder
hereof of the right to exercise the same at any other time.
It is agreed that if this note be placed in the hands of an attorney for
collection, for the purposes of being sued upon or established in any manner in
any court, then in any of such events, Maker, all endorsers and guarantors
hereof, promise to pay Payee's or other holder's reasonable attorneys' fees and
costs of collection, which sums shall become a part of the principal hereof.
The Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Requirements. This note is
subject to the provisions set out in the Credit Agreement relating to the
payment of interest at the Maximum Rate and to payment or collection of interest
in excess of the Maximum Amount, all of which provisions are incorporated herein
for all purposes.
This note and the maximum rate of nonusurious interest applicable to the
loan evidenced hereby shall be governed by the laws of the U.S. and the State of
Texas in effect on the date of the loan evidenced hereby, and, to the extent
allowed by law, as now or as may hereafter be in effect, but in any event Tex.
Rev. Civ. Stat. Ann. Art. 5069 Ch. 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the loan
evidenced hereby.
It is further agreed that any funds at any time in the possession of any
holder hereof which belong to Maker, any endorser or guarantor hereof, and any
deposits or other sums at any time credited by or due from any holder hereof to
any of such parties shall be held and treated as security for the payment of
this note, and the holder hereof, at the holder's option may, at any time
without notice, and without liability, apply such funds or deposits or any sums
credited by or due from the
_________________________________
Signed for Identification
<PAGE>
PROMISSORY NOTE
$7,000,000.00 August 8, 1997
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holder against any sums owing, whether due or not, under this note and in any
manner and in any order of preference which the holder, in the holder's
discretion, chooses.
Maker, all endorsers and guarantors hereof, and all other persons who may
become liable for all or any part of the obligations represented by this note,
shall be considered as principals as to the making of this note and shall have
joint and several liability. Except as may be set out in the Credit Agreement,
Maker, all endorsers and guarantors, severally waive presentment for payment,
protest, notice of protest, and of nonpayment, notices of intention to
accelerate the maturity and notice of acceleration, as to this note and as to
each, every and all installments hereof, and consent to the renewal or extension
of the time of payment hereof and to the release of any person liable hereon
upon the terms deemed by the holder hereof, in the holder's sole discretion, to
be adequate. Any renewal or extension or release of any person, may be made
without notice to any of such parties and without affecting their liability.
THE LOAN DOCUMENTS, INCLUDING THIS NOTE, HAVE BEEN PREPARED, ARE BEING
EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPLES OF THE STATE OF TEXAS, AND THE APPLICABLE
LAWS OF THE U.S. SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE, AND THE LOAN DOCUMENTS.
This note shall become due and payable, at the option of the holder
hereof, on the occurrence of a Default under the Credit Agreement or any other
Loan Document.
This note is given in renewal and extension, and not in novation, of the
note described in the Credit Agreement dated March 6, 1997.
_________________________________
Signed for Identification
<PAGE>
PROMISSORY NOTE
$7,000,000.00 August 8, 1997
-4-
THE WRITTEN CREDIT AGREEMENT, THE LOAN DOCUMENTS DESCRIBED THEREIN AND
THIS NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
THE SAFE SEAL COMPANY, INC.
BY: _____________________________
CHARLES F. SCHUGART
SENIOR VICE PRESIDENT
_________________________________
Signed for Identification
<PAGE>
Exhibit 6.1.C
Confirmation of Guaranty Agreement
<PAGE>
August 8, 1997
Texas Commerce Bank National Association
712 Main Street
P.O. Box 2558
Houston, Texas 77252-2558
Re: Guaranty Agreement (the "Guaranty Agreement") dated March 6, 1997,
executed by ALLWASTE, INC. in favor of Texas Commerce Bank National
Association (the "Bank") of loans (the "Loans") by the Bank to The
Safe Seal Company, Inc. (the "Borrower")
Gentlemen:
Reference is made to the Guaranty Agreement pursuant to which the Guarantor
guaranteed the performance and payment of the Obligations therein described. It
is understood and agreed that the Borrower and the Bank are entering into an
Amendment to Credit Agreement (the "First Amendment").
The Borrower has executed and delivered to the Bank and, the Bank, in reliance
upon the terms of the Guaranty Agreement, has accepted a renewal promissory note
(the "Renewal Note") dated August 8, 1997. Pursuant to and in accordance with
the terms of the Guaranty Agreement, ALLWASTE, INC. confirms and agrees that the
Guaranty Agreement applies and shall continue to apply to all Obligations of the
Borrower in connection with the Loans, as modified in the First Amendment and
the Renewal Note, limited only as set out in the Guaranty Agreement.
Respectfully,
ALLWASTE, INC.
BY: _______________________
WILLIAM L. FIEDLER
VICE PRESIDENT
EXHIBIT 4.10
DRAFT OF OCTOBER 15, 1997
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INNOVATIVE VALVE TECHNOLOGIES, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
RIGHTS AGENT
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RIGHTS AGREEMENT
DATED AS OF OCTOBER __, 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 ........... 14
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 October __, 1997 (the
"Agreement"), between Innovative Valve Technologies, Inc., a Delaware
corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the
"Rights Agent"),
WITNESSETH:
WHEREAS, on _________, 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 _________,
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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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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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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"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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"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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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 to act as agent for the Company and 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) 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 constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates.
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(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 _________, 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 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
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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.
(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
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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.
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
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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 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.
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(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
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
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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 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
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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 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,
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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
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
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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 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
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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
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
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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 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
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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 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
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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
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.
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(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 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
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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 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
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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 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
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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
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
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(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 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
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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 Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument
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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 connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
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(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 protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
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(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.
(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,
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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
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
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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:
Innovative Valve Technologies, Inc.
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
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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.
_____________________________
_____________________________
Attention: __________________
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 Agreement to the
contrary, no supplement or amendment shall be made that decreases the Redemption
Price.
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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 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
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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.
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 _________________________________
Name:
Title:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By _________________________________
Name:
Title:
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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 _________, 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 _________, 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.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate
and does affirm the foregoing as true this ___ day of _______, 199_.
__________________________
[Vice] President
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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 _________, 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, 1997 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
_________, 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 _________, 1997
ATTEST: INNOVATIVE VALVE TECHNOLOGIES, INC.
____________________________ By ________________________________
Secretary Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By ________________________________
Authorized Signature
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<PAGE>
[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.
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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 _________, 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 [the sole] stockholder[s]
of record at the close of business on _________, 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 _________, 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, 1997, 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
[Baker & Botts, L.L.P. Letterhead]
Exhibit 5.1
October 17, 1997
Innovative Valve Technologies, Inc.
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
Gentlemen:
As set forth in the Registration Statement (the "Registration Statement")
on Form S-1 (Registration No. 333-31617) filed by Innovative Valve Technologies,
Inc., a Delaware corporation (the "Company"), with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
relating to the Company's common stock, par value $.001 per share ("Common
Stock"), certain legal matters in connection with the Common Stock are being
passed on for the Company by us. The Registration Statement relates to the
offering of an aggregate of 3,350,000 shares of Common Stock (the "Shares"), to
be issued and sold by the Company to the underwriters referred to in the
Registration Statement in a firm commitment underwriting, together with up to
502,500 shares (the "Additional Shares") that may be issued and sold by the
Company pursuant to the underwriters' over-allotment option as described in the
Registration Statement. At your request, this opinion is being furnished to you
for filing as Exhibit 5.1 to the Registration Statement.
In our capacity as your counsel in the connection referred to above, we
have examined the Certificate of Incorporation and Bylaws of the Company and the
originals, or copies certified or otherwise identified, of corporate records of
the Company, including minute books of the Company as furnished to us by the
Company, certificates of public officials and of representatives of the Company,
statutes and other instruments and documents pertaining to the Company as a
basis for the opinions hereinafter expressed. In giving such opinions, we have
relied on certificates of officers of the Company with respect to the accuracy
of the material factual matters contained in those certificates.
On the basis of our examination as aforesaid, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware; and
<PAGE>
- 2 - October 17, 1997
2. When the Board of Directors of the Company has determined the
price at which the Shares and the Additional Shares are to be sold to the
underwriters by the Company and has authorized the issuance and sale of
the Shares and the Additional Shares, on the issuance and sale by the
Company of the Shares and any Additional Shares that may be purchased
pursuant to the underwriting agreement referred to in the Registration
Statement for the consideration so determined, the Shares and any such
Additional Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement
Very truly yours,
/s/ BAKER & BOTTS, L.L.P.
EXHIBIT 10.1
1997 INCENTIVE PLAN
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
1. ESTABLISHMENT OF THIS PLAN. Innovative Valve Technologies, Inc.,
a Delaware corporation (the "Company"), hereby establishes this 1997 Incentive
Plan of Innovative Valve Technologies, Inc. (this "Plan") effective as of March
6, 1997. References in this Plan to "Paragraphs" are to Paragraphs of this Plan.
2. DEFINITIONS. As used in this Plan, the following terms have the
following respective meanings:
"Annual Director Award Date" means, for each calendar year beginning
on or after the IPO Closing Date, the first business day of the month next
succeeding the date on which the Annual Meeting is held in that year.
"Annual Meeting" means the annual meeting of the stockholders of the
Company which is held pursuant to Section 211(b) of the Delaware General
Corporation Law.
"Authorized Officer" means the CEO (or any other senior officer of
the Company to whom the CEO delegates, by written notice to the Committee
of that delegation, authority to execute any Award Agreement).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"CEO" means at any time the chief executive officer of the Company
at that time.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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<PAGE>
"Committee" means the Compensation Committee of the Board or any
other committee of the Board which the Board designates by a written
resolution to administer this Plan.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company.
"Company" means Innovative Valve Technologies, Inc., a Delaware
corporation.
"Director" means an individual serving as a member of the Board.
"Director Award" means the grant under this Plan of a Director
Option or Director Restricted Stock.
"Director Award Agreement" means a written agreement between the
Company and a Participant who is a Nonemployee Director which sets forth
the terms, conditions and limitations applicable to a Director Award
granted to that Nonemployee Director.
"Director Options" means Nonqualified Options granted to Nonemployee
Directors pursuant to and in accordance with Paragraph 9(b).
"Director Restricted Stock" means Common Stock granted to
Nonemployee Directors pursuant to and in accordance with Paragraph 9(c).
"Disability" of a Nonemployee Director means the Nonemployee
Director is unable to perform the duties of a member of the Board for a
continuous period of more than 90 days by reason of any medically
determinable physical or mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock, an amount equal to all dividends and other distributions (or the
economic equivalent thereof) that are payable to stockholders of record
during the Restriction Period applicable to those shares on a like number
of shares of Common Stock.
"Employee" means any salaried employee of the Company or any of its
Subsidiaries.
"Employee Award" means the grant under this Plan of any Option, SAR,
Stock Award, Cash Award or Performance Award, whether granted singly or in
combination or tandem with any other Award, to a Participant who is an
Employee on such terms and subject to such conditions and limitations as
the Committee may establish consistent with the terms of this Plan.
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<PAGE>
"Employee Award Agreement" means a written agreement between the
Company and a Participant who is an Employee which sets forth the terms,
conditions and limitations applicable to an Employee Award granted to that
Employee.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price
per share of Common Stock on the consolidated transaction reporting system
for the principal national securities exchange on which shares of Common
Stock are listed on that date, or, if there shall have been no such sale
so reported on that date, on the last preceding date on which such a sale
was so reported, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and
lowest sales price per share of Common Stock reported by the Nasdaq
National Market on that date, or, if there shall have been no such sale so
reported on that date, on the last preceding date on which such a sale was
so reported, (iii) if the Common Stock is not so listed or quoted, the
mean between the closing bid and asked price on that date, or, if there
are no quotations available for that date, on the last preceding date for
which those quotations are available, as reported by the Nasdaq Stock
Market, or, if not reported by the Nasdaq Stock Market, by the National
Quotation Bureau Incorporated, or (iv) if shares of Common Stock are not
publicly traded, the most recent value determined by an independent
appraiser appointed by the Company for that purpose.
"Incentive Option" means an Option that is intended to comply with
the requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries otherwise than in his capacity as an
Employee or a Nonemployee Director.
"Independent Contractor Award" means the grant under this Plan of
any Nonqualified Stock Option, SAR, Stock Award, Cash Award or Performance
Award, whether granted singly or in combination or tandem with any other
Award, to a Participant who is an Independent Contractor on such terms and
subject to such conditions and limitations as the Committee may establish
consistent with the terms of this Plan.
"Independent Contractor Award Agreement" means a written agreement
between the Company and a Participant who is an Independent Contractor
which sets forth the terms, conditions and limitations applicable to an
Independent Contractor Award granted to that Independent Contractor.
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by
the Company of shares of Common Stock is declared effective under that Act
and the shares registered by that registration statement are issued and
sold by the Company (otherwise than pursuant to the exercise of any
overallotment option).
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<PAGE>
"IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
"Merger Agreement" means the Agreement and Plan of Merger dated as
of June 27, 1997, as amended, to which the Company and SSI are parties.
"Merger Effective Time" means the time as of which the merger of a
Subsidiary with and into SSI pursuant to the Merger Agreement becomes
effective.
"Nonemployee Director" has the meaning set forth in Paragraph 4(b).
"Nonqualified Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified price.
"Participant" means an Employee, Director or Independent Contractor
to whom an Award has been made under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor the earning of
which is subject to the attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee to
determine in whole or in part whether a Performance Award will be earned.
"Restricted Stock" means any Common Stock whose transfer is
restricted or which is subject to forfeiture provisions as provided in the
Award Agreement relating thereto.
"Restriction Period" means a period of time beginning as of the
effective date as of which an Award of Restricted Stock is made pursuant
to this Plan and ending as of the date on which the Common Stock subject
to that Award is no longer restricted as to its transfer or subject to
forfeiture provisions.
"SSI" means The Safe Seal Company, Inc., a Texas corporation.
"SSI Options" means the options and warrant to purchase shares of
SSI common stock which have been granted by SSI and are outstanding
immediately prior to the Merger Effective Time.
"SAR" means a right to receive a payment, in cash or Common Stock,
equal to the excess of the Fair Market Value or other specified valuation
of a specified number of shares
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<PAGE>
of Common Stock on the date the right is exercised over a specified strike
price, in each case, as determined by the Committee.
"Stock Award" means an award in the form of shares of Common Stock
or units denominated in shares of Common Stock.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing more
than 50% of the combined voting power of the shares of all classes or
series of capital stock of that corporation which have the right to vote
generally on matters submitted to a vote of the stockholders of that
corporation and (ii) in the case of a partnership or other business entity
not organized as a corporation, any such business entity of which the
Company directly or indirectly owns more than 50% of the voting, capital
or profits interests (whether in the form of partnership interests,
membership interests or otherwise).
3. OBJECTIVES. The Company has designed this Plan (i) to attract and
retain key Employees, qualified Nonemployee Directors and Independent
Contractors, (ii) to encourage the sense of proprietorship of these persons in
the Company and (iii) to stimulate the active interest of these persons in the
development and financial success of the Company and its Subsidiaries by making
Awards under this Plan.
4. ELIGIBILITY. (a) EMPLOYEES. Key Employees eligible for Employee
Awards are those assigned or to be assigned positions of responsibility and
whose performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries.
(b) DIRECTORS. Directors eligible for Director Awards are those
Directors who are not employees of the Company or any of its Subsidiaries
("Nonemployee Directors").
(c) INDEPENDENT CONTRACTORS. Independent Contractors eligible for
Independent Contractor Awards are those Independent Contractors providing
services to, or who will provide services to, the Company or any of its
Subsidiaries.
5. COMMON STOCK AVAILABLE FOR AWARDS. Subject to the provisions of
Paragraph 15, there will be available for Awards under this Plan granted wholly
or partly in Common Stock (including rights or options that may be exercised for
or settled in Common Stock) an aggregate of the greater of (i) 1,500,000 shares
of Common Stock or (ii) 15% of the number of shares of Stock issued and
outstanding on the last day of each calendar quarter, of which an aggregate of
not more than 250,000 shares will be available for Director Awards. No more than
1,500,000 shares of Common Stock will be used for Awards of Incentive Options.
The number of shares of Common Stock which are the subject of Awards that are
forfeited or terminated, expire unexercised, are settled in cash in lieu of
Common Stock or in a manner such that all or some of the shares covered thereby
are not issued to a Participant or are exchanged for a consideration that does
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<PAGE>
not involve Common Stock will again immediately become available for Awards
hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem
appropriate. The Board and the appropriate officers of the Company will from
time to time take whatever actions are necessary to file any required documents
with governmental authorities, stock exchanges and transaction reporting systems
to ensure that shares of Common Stock are available for issuance pursuant to
Awards.
6. ADMINISTRATION. (a) The Committee will administer this Plan.
(b) Subject to the provisions hereof, the Committee will have full
and exclusive power and authority to administer this Plan and to take all
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. The Committee also
will have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers will be exercised in the best interests
of the Company and in keeping with the objectives of this Plan. The Committee
may, in its discretion, provide for the extension of the exercisability of any
Employee Award or Independent Contractor Award, accelerate the vesting or
exercisability of any Employee Award or Independent Contractor Award, eliminate
or make less restrictive any restrictions contained in any Employee Award or
Independent Contractor Award, waive any restriction or other provision of this
Plan or any Employee Award or Independent Contractor Award or otherwise amend or
modify any Employee Award or Independent Contractor Award in any manner that is
either (i) not adverse to the Participant to whom that Employee Award or
Independent Contractor Award was granted or (ii) consented to in writing by that
Participant. The Committee may grant an Employee Award to any individual who has
agreed in writing to become an Employee within six months after the date of that
agreement, provided that the effectiveness of that Award will be subject to the
condition that the individual actually becomes an Employee within that time
period. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in this Plan or in any Employee Award or Independent
Contractor Award in the manner and to the extent the Committee deems necessary
or desirable to further the purposes of this Plan. Any decision of the Committee
in the interpretation and administration of this Plan will lie within its sole
and absolute discretion and will be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of Paragraph
7 will be liable for anything done or omitted to be done by him or her, by any
member of the Committee or by any officer of the Company in connection with the
performance of any duties under this Plan, except for his or her own willful
misconduct or as expressly provided by statute.
7. DELEGATION OF AUTHORITY. The Committee may delegate to the CEO
and to other senior officers of the Company its duties under this Plan on such
terms and subject to such conditions or limitations as the Committee may
establish.
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<PAGE>
8. EMPLOYEE AND INDEPENDENT CONTRACTOR AWARDS. (a) The Committee
will determine the type or types of Employee Awards to be made and will
designate from time to time the Employees who are to receive Employee Awards.
Each Employee Award will be evidenced by an Employee Award Agreement containing
such terms, conditions and limitations as the Committee determines in its sole
discretion and signed by the Participant to whom the Employee Award is made and
by an Authorized Officer for and on behalf of the Company. Employee Awards may
consist of those listed in this Paragraph 8(a) and may be granted singly or in
combination or tandem with other Employee Awards. Employee Awards also may be
made in combination or tandem with, in replace ment of or as alternatives to
grants or rights under this Plan or any other employee plan of the Company or
any of its Subsidiaries, including the plan of any acquired entity. An Employee
Award may provide for the grant or issuance of additional, replacement or
alternative Employee Awards on the occurrence of specified events, including the
exercise of the original Employee Award granted to a Participant. All or part of
an Employee Award may be subject to conditions established by the Committee,
which may include, but are not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance. If a Participant holding an Employee Award ceases
to be an Employee, any unexercised, deferred, unexercisable, unvested or unpaid
portion of that Employee Award will be treated as set forth in the applicable
Employee Award Agreement.
(i) STOCK OPTION. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive Option
or a Nonqualified Option. Unless the Committee specifies otherwise in the
case of any Nonqualified Option, the price at which any share of Common
Stock may be purchased on the exercise of any Option will be not less than
the Fair Market Value of a share of the Common Stock on the date of grant
of that Option, and the Committee will determine the other terms,
conditions and limitations applicable to each Option, including its term
and the date or dates on which it becomes exercisable.
(ii) STOCK APPRECIATION RIGHT. An Employee Award may be in the form
of an SAR. The Committee will determine the terms, conditions and
limitations applicable to each SAR awarded pursuant to this Plan,
including its term and the date or dates on which it becomes exercisable.
(iii) STOCK AWARD. An Employee Award may be in the form of a Stock
Award. The Committee will determine the terms, conditions and limitations
applicable to each Stock Award granted pursuant to this Plan.
(iv) CASH AWARD. An Employee Award may be in the form of a Cash
Award. The Committee will determine the terms, conditions and limitations
applicable to each Cash Award granted pursuant to this Plan.
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(v) PERFORMANCE AWARD. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this Plan,
an Employee Award may be in the form of a Performance Award. A Performance
Award will be paid, vested or otherwise deliverable solely on account of
the attainment of one or more pre-established, objective Performance Goals
established by the Committee prior to the earlier to occur of (A) 90 days
after the commencement of the period of service to which the Performance
Goal relates or (B) the lapse of 25% of the period of service (as
scheduled in good faith at the time the goal is established), and in any
event while the outcome is substantially uncertain. A Performance Goal is
objective if a third party having knowledge of the relevant facts could
determine whether the goal is met. A Performance Goal may be based on one
or more business criteria, including, but not limited to, those that apply
to the individual, one or more lines or classes of products or services of
the Company, one or more business divisions, groups or units of the
Company, or the Company as a whole, and may include one or more of the
following: increased revenue, net income, stock price, market share,
earnings per share, return on equity, return on assets or decrease in
costs. Unless otherwise stated, a Performance Goal need not be based on an
increase or positive result under a particular business criterion and
could include, for example, maintaining the status quo or limiting
economic losses (measured, in each case, by reference to specific business
criteria). In interpreting Plan provisions applicable to Performance Goals
and Performance Awards, it is the intent of this Plan to conform with the
standards of Section 162(m) of the Code and Treasury Regulation ss.
1.162-27(e)(2)(i) or any successor law or regulation, and the Committee in
establishing such goals and interpreting the Plan will be guided by those
provisions. Prior to the payment of any compensation based on the
achievement of Performance Goals, the Committee must certify in writing
that the applicable Performance Goals were, in fact, satisfied. Subject to
the foregoing provisions, the Committee will determine the terms,
conditions and limitations applicable to Performance Awards.
(b) Notwithstanding anything to the contrary contained in this Plan,
the following limitations will apply to each Employee Award:
(i) no Participant may be granted, during any one-year period,
Employee Awards consisting of Options or SARs that are exercisable for
more than 300,000 shares of Common Stock, exclusive of Options into which
the SSI Options are converted as contemplated by Paragraph 8(d);
(ii) no Participant may be granted, during any one-year period,
Stock Awards covering or relating to more than 10,000 shares of Common
Stock (the limitation set forth in this clause (ii), together with the
limitation set forth in clause (i) above, being hereinafter collectively
referred to as the "Stock-based Awards Limitations"); and
(iii) no Participant may be granted Employee Awards consisting of
cash or in any other form permitted under this Plan (other than Employee
Awards consisting of Options or SARs or otherwise consisting of shares of
Common Stock or units denominated in such
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shares) in respect of any one-year period having a value determined on the
date of grant in excess of $1,000,000.
(c) The Committee will have the sole responsibility and authority to
determine the type or types of Independent Contractor Awards to be made and may
make any such Awards as could be made to an Employee, other than Awards
consisting of Incentive Options, but the Stock- based Awards Limitations will
not apply to Independent Contractor Awards.
(d) The SSI Options outstanding immediately prior to the Merger
Effective Time automatically will be converted into Nonqualified Options at the
Merger Effective Time as provided in Schedule 2(D) to the Merger Agreement.
9. DIRECTOR AWARDS. (a) Each Nonemployee Director will be granted
Director Awards in accordance with this Paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards will not be made in any year in which a
sufficient number of shares of Common Stock are not available under this Plan to
make those Director Awards under this Plan.
(b) DIRECTOR OPTIONS. On the IPO Closing Date, each Nonemployee
Director will be automatically awarded a Director Option that provides for the
purchase of 10,000 shares of Common Stock. In addition, on each Annual Director
Award Date, each Nonemployee Director shall automatically be granted a Director
Option that provides for the purchase of 5,000 shares of Common Stock. Any
individual who first becomes a Nonemployee Director after the IPO Closing Date
otherwise than by election at an Annual Meeting automatically will be granted,
on the date of his or her election, a Director Option that provides for the
purchase of a number of shares of Common Stock (rounded up to the nearest whole
number) equal to the product of (i) 10,000 and (ii) a fraction the numerator of
which is the number of days between the election of that Nonemployee Director
and the next scheduled Annual Director Award Date (or, if that date has not been
scheduled, the first anniversary of the immediately preceding Annual Director
Award Date, if any; provided, that for purposes of any Director Options awarded
prior to the scheduling of the 1998 Annual Meeting, September 1, 1997 will be
the initial Annual Director Award Date) and the denominator of which is 365.
Each Director Option will have a term of seven years from the date of grant,
notwithstanding any earlier termination of the status of the holder as a
Nonemployee Director. The purchase price of each share of Common Stock subject
to each Director Option granted on the IPO Closing Date will be the initial
price to the public per share of the Common Stock as set forth on the cover page
of the final prospectus for the IPO. The purchase price of each share of Common
Stock subject to any other Director Option will be equal to the Fair Market
Value of a share of the Common Stock on the date of grant of that Director
Option. All Director Options will vest and become exercisable in increments of
one-third of the total number of shares of Common Stock which are subject
thereto (rounded up to the nearest whole number) on the first and second
anniversaries of the date of grant and of all remaining shares of Common Stock
which are subject thereto on the third anniversary of the date of grant. Any
Nonemployee Director who
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resigns as a Director without the consent of a majority of the other Directors
will forfeit all his then unexercisable Director Options. The Board may
determine, at its discretion, to increase the number of shares of Common Stock
to be subject to Director Options granted on any subsequent Annual Director
Award Date to not more than 15,000 shares. Each Award of Director Options will
be evidenced by a Director Award Agreement containing the terms, conditions and
limitations set forth above and signed by the Participant to whom the Director
Options are granted and by an Authorized Officer for and on behalf of the
Company.
(c) DIRECTOR RESTRICTED STOCK. Prior to the Annual Director Award
Date in each year, beginning in 1998, a Nonemployee Director may elect to
receive either 50% or 100% (the percentage so elected being the "Elected
Percentage") of the Director's fees (including both annual retainer fees, if
any, and meeting fees) the Company otherwise would pay in cash to the
Nonemployee Director for his service as a Director during the period from and
including that Annual Director Award Date to and excluding the next succeeding
Annual Director Award Date (the "Service Period") in the form of the number of
shares of Director Restricted Stock (rounded up to the nearest whole number)
which equals the quotient of (i) the product of (A) the total amount of those
Director's fees multiplied by (B) the Elected Percentage, divided by (ii) the
Fair Market Value of a share of Common Stock on the first day of that Service
Period. Each annual election made by a Nonemployee Director pursuant to this
Paragraph 9(c) will (i) take the form of a written document signed by the
Nonemployee Director and filed with the Secretary of the Company and (ii)
designate the Elected Percentage of the cash fees the Nonemployee Director
elects to forego in the next Service Period in exchange for Director Restricted
Stock. An Award of Director Restricted Stock at the election of a Nonemployee
Director for any Service Period will be effective on the last day of that
Service Period. Each Award of Director Restricted Stock will be evidenced by a
Director Award Agreement containing the terms, conditions and limitations set
forth above and signed by the Participant to whom the Director Restricted Stock
is granted and by an Authorized Officer for and on behalf of the Company.
10. PAYMENT OF AWARDS. (a) GENERAL. Payment of Employee Awards or
Independent Contractor Awards may be made in the form of cash or Common Stock,
or a combination thereof, and may include such restrictions as the Committee may
determine, including, in the case of Common Stock, restrictions on transfer and
forfeiture provisions. If payment of an Employee Award or Independent Contractor
Award is made in the form of shares of Restricted Stock, the applicable Award
Agreement relating to those shares will specify whether they are to be issued at
the beginning or end of their Restriction Period. If shares of Restricted Stock
are to be issued at the beginning of their Restriction Period, the certificates
evidencing those shares (to the extent that those shares are so evidenced) will
contain appropriate legends and restrictions that describe the terms and
conditions of the restrictions applicable thereto. If shares of Restricted Stock
are to be issued at the end of their Restricted Period, the right to receive
those shares will be evidenced by book entry registration or in such other
manner as the Committee may determine.
(b) DEFERRAL. With the approval of the Committee, amounts payable in
respect of Employee Awards or Independent Contractor Awards may be deferred and
paid either in the form
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of installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Employee Awards
or Independent Contractor Awards in accordance with procedures the Committee
establishes. Any deferred payment of an Employee Award or Independent Contractor
Award, whether elected by the Participant or specified by the applicable Award
Agreement or by the Committee, may be forfeited if and to the extent that the
applicable Award Agreement so provides.
(c) DIVIDENDS AND INTEREST. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Employee Award or
Independent Contractor Award consisting of shares of Common Stock or units
denominated in shares of Common Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee also may establish
rules and procedures for the crediting of interest on deferred cash payments and
Dividend Equivalents for Employee Awards or Independent Contractor Awards
consisting of shares of Common Stock or units denominated in shares of Common
Stock.
(d) SUBSTITUTION OF AWARDS. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute any Employee Award or Independent Contractor Award for
another Employee Award or Independent Contractor Award or Employee Awards or
Independent Contractor Awards of the same or a different type.
11. STOCK OPTION EXERCISE. The price at which shares of Common Stock
may be purchased under an Option will be paid in full at the time of exercise in
cash or, if elected by the optionee, the optionee may purchase those shares by
means of tendering Common Stock or surrendering another Award, including shares
of Restricted Stock or Director Restricted Stock, valued at their Fair Market
Value per share on the date of exercise, or any combination thereof. The
Committee will determine acceptable methods for Participants who are Employees
or Independent Contractors to tender Common Stock or other Employee Awards or
Independent Contractor Awards; provided, that any Common Stock that is or was
the subject of an Employee Award or Independent Contractor Award may be so
tendered only if it has been held by the Participant for six months. The
Committee may provide for procedures to permit the exercise or purchase of
Employee Awards or Independent Contractor Awards by use of the proceeds to be
received from the sale of Common Stock issuable pursuant to an Employee Award or
Independent Contractor Award. Unless otherwise provided in the applicable Award
Agreement, if shares of Restricted Stock are tendered as consideration for the
exercise of an Option, the number of the shares issued on the exercise of the
Option which equals the number of shares of Restricted Stock or Director
Restricted Stock used as consideration therefor will be subject to the same
restrictions as the Restricted Stock or Director Restricted Stock so submitted
as well as to any additional restrictions the Committee may impose.
12. TAXES. The Company will have the right to deduct applicable
taxes from any Employee Award payment and withhold, at the time of delivery or
vesting of cash or shares of Common Stock under this Plan, or at the time
otherwise required by applicable law, an appropriate amount of cash or number of
shares of Common Stock or a combination thereof for payment of taxes required by
law or to take such other action as may be necessary in the opinion of the
Company to
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satisfy all obligations for withholding of those taxes. The Committee may permit
withholding to be satisfied by the transfer to the Company of shares of Common
Stock theretofore owned by the holder of the Employee Award with respect to
which withholding is required. If shares of Common Stock are used to satisfy tax
withholding, those shares will be valued at their Fair Market Value per share
when the tax withholding is required to be made. The Committee may provide for
loans, on either a short-term or demand basis, from the Company to a Participant
who is an Employee or Independent Contractor to permit the payment of taxes
required by law.
13. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION. The Board
may amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment or alteration that would adversely affect the
rights of any Participant under any Award previously granted to that Participant
will be made without the consent of that Participant.
14. ASSIGNABILITY. Unless otherwise determined by the Committee and
provided in the applicable Award Agreement, no Award or any other benefit under
this Plan will be assignable or otherwise transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. The Committee may
prescribe and include in any Award Agreement other restrictions on transfer. Any
attempted assignment of an Award or any other benefit under this Plan in
violation of this Paragraph 14 will be null and void.
15. ADJUSTMENTS. (a) The existence of outstanding Awards will not
affect in any manner the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
other stock (whether or not that issue is prior to, on a parity with or junior
to the Common Stock) or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) If any subdivision, split or combination of outstanding shares
of Common Stock, or any declaration of a dividend payable in shares of Common
Stock, occurs, then, except with respect to the Awards outstanding immediately
prior to the Closing Date and consisting of Options, (i) the number of shares of
Common Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards in the form of Common Stock or units denominated
in Common Stock, (iii) the exercise or other price in respect of such Awards,
(iv) the appropriate Fair Market Value and other price determinations for such
Awards, (v) the number of shares of Common Stock covered by Director Options
automatically granted pursuant to Paragraph 9(b), (vi) the number of shares of
Restricted Stock automatically granted pursuant to Paragraph 9(c) and (vii) the
Stock-based Awards Limitations each will be proportionately adjusted by the
Board to reflect the consequences of that occurrence. If any recapitalization or
capital reorganization of the Company, any consolidation or merger of the
Company with another
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<PAGE>
corporation or entity, any adoption by the Company of any plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock of
securities or property (other than normal cash dividends) occurs, the Board will
make appropriate adjustments to the amounts or other items referred to in
clauses (ii), (iii), (iv), (v), (vi) and (vii) of the preceding sentence to give
effect to that transaction; provided, that such adjustments will be only those
as are necessary to maintain the proportionate interest of the holders of the
Awards and preserve, without exceeding, the value of those Awards. In the event
of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board will be authorized to issue
or assume Awards by means of substitution of new Awards, as appropriate, for
previously issued Awards or to assume previously issued Awards as part of such
adjustment.
16. RESTRICTIONS. No Common Stock or other form of payment will be
issued with respect to any Award unless the Company is satisfied, on the basis
of advice of its counsel, that the issuance will comply with applicable federal
and state securities laws. Certificates evidencing shares of Common Stock
delivered under this Plan (to the extent that the shares are so evidenced) may
be subject to such stop-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system on which the Common Stock is then listed or to which it is
admitted for quotation and any applicable federal or state securities law. The
Committee may cause a legend or legends to be placed upon those certificates (if
any) to make appropriate reference to those restrictions.
17. UNFUNDED PLAN. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan will be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts will be
used merely as a bookkeeping convenience. The Company will not be required to
segregate any assets that may at any time be represented by cash, Common Stock
or rights thereto, nor will this Plan be construed as providing for that
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with respect
to an Award of cash, Common Stock or rights thereto under this Plan shall be
based solely on any contractual obligations that may be created by this Plan and
any Award Agreement, and no such liability or obligation of the Company will be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee will be required to
give any security or bond for the performance of any obligation that may be
created by this Plan.
18. GOVERNING LAW. This Plan and all determinations made and actions
taken pur suant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, will be
governed by and construed in accordance with the laws of the State of Delaware.
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EXHIBIT 10.2
William E. Haynes
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
January 27, 1997 (the "Effective Date"), by and between The Safe Seal Company,
Inc., a Texas corporation, and William E. Haynes (the "Executive") and is
amended and restated as of October 15, 1997.
RECITAL:
WHEREAS, the Company desires to employ the Executive, and the
Executive agrees to work in the employ of the Company, and
WHEREAS, the parties hereto desire to set forth the terms of
Executive's Employment with the Company,
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive, and the
Executive hereby accepts Employment, on the terms and
conditions herein set forth.
2. DUTIES. (a) The Company will employ the Executive as Chairman
of the Board, President and Chief Executive Officer ("CEO") of
the Company, (b) the Executive will serve in the Company's
employ in that position and (c) under the direction of the
Board of Directors of the Company (the "Board"), the Executive
shall perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and
corporations and other entities affiliated with the Company as
are commensurate and consistent with his employment in the
position of CEO. The Executive also shall have such additional
powers, authority, functions, duties and responsibilities as
may be assigned to him by the Board; provided that, without
the Executive's written consent, those additional powers,
authority, functions, duties and responsibilities shall not be
inconsistent or interfere with, or detract from, those herein
vested in, or otherwise then being performed for the Company
by, the Executive. In the event of an increase in the
Executive's duties, the Compensation Committee of the Board
(the "Compensation Committee") shall review the Executive's
compensation and benefits to determine if an adjustment in
compensation and employee benefits commensurate with the
Executive's new duties is warranted, in accordance with the
Company's compensation policies.
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3. TERM OF EMPLOYMENT. Subject to the provisions of Section 8,
the term of the Executive's Employment hereunder shall
commence on May 15, 1997, for a continually renewing term of
three years commencing on that date and renewing each day
thereafter for an additional day without any further action by
either the Company or the Executive, it being the intention of
the parties that there shall be continuously a remaining term
of three years' duration of the Executive's Employment until
an event has occurred as described in, or one of the parties
shall have made an appropriate election pursuant to, the
provisions of Section 8. When the termination date of the
Executive's Employment shall have occurred and the Company
shall have paid to the Executive all the applicable amounts
that Section 9 provides the Company shall pay as a result of
the termination of the Executive's Employment, this Agreement
will terminate and have no further force or effect, except
that Sections 15 through 29 shall survive that termination
indefinitely and Section 11 shall survive for the period of
time provided for therein.
4. EXTENT OF SERVICES. The Executive shall not at any time during
his Employment engage in any other activities unless those
activities do not interfere materially with the Executive's
duties and responsibilities to the Company at that time. The
foregoing, however, shall not preclude the Executive from
engaging in appropriate civic, charitable, professional or
trade association activities or from serving on one or more
boards of directors of public or private companies, as long as
such activities and services do not conflict with his
responsibilities to the Company. In addition, it is recognized
that the Executive has an equity interest in Oiltanking
Infrastructure Management Co. which will require some of his
time and services, but will not materially affect the
performance by the Executive of his services hereunder.
5. NO FORCED RELOCATION. The Executive shall not be required to
move his principal place of residence from the Houston, Texas
area or to perform regular duties that could reasonably be
expected to require either such move against his wish or to
spend amounts of time each week outside the Houston, Texas
area which are unreasonable in relation to the duties and
responsibilities of the Executive hereunder, and the Company
agrees that, if it requests the Executive to make such a move
and the Executive declines that request, (a) that declination
shall not constitute any basis for a termination of the
Executive's Employment and (b) no animosity or prejudice will
be held against Executive.
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6. COMPENSATION.
(a) SALARY. An annual base salary shall be payable to the
Executive by the Company as a guaranteed minimum amount
under this Agreement for each calendar year during the
period from May 15, 1997 to the termination date of the
Executive's Employment. That annual base salary shall
(i) accrue daily on the basis of a 365-day year, (ii) be
payable to the Executive in the intervals consistent
with the Company's normal payroll schedules (but in no
event less frequently than semi-monthly) and (iii) be
payable at an initial annual rate of $200,000. The
Executive's annual base salary shall not be decreased,
but shall be adjusted annually in each December to
reflect such adjustments, if any, as the Compensation
Committee determines appropriate based on the
Executive's performance during the most recent
performance period, in accordance with the Company's
compensation policies. A failure of the Company to
increase the Executive's annual base salary would not
constitute a breach or violation of this Agreement by
the Company.
(b) HIRING BONUS, STOCK AWARD AND STOCK OPTIONS. The Company
shall pay the Executive on the IPO Closing Date a hiring
bonus of $300,000. The Company shall pay the Executive
as of the Effective Date a stock award (the "Stock
Award") consisting of 212,348 shares (the "Award
Shares") of the Company's authorized and unissued common
stock (the "Common Stock"). The Company shall also grant
to the Executive effective as of the Effective Date (i)
a nonqualified stock option to purchase 125,000 shares
of Common Stock from the Company at an exercise price
per share equal to the IPO Price and (ii) a nonqualified
option to purchase 125,000 shares of Common Stock from
the Company at an exercise price per share equal to the
lesser of (A) $9.00 and (B) the IPO Price (each option
being an "Option"). The term of each Option shall be
seven years from the IPO Closing Date. Each Option will
become exercisable with respect to 25% of the shares of
Common Stock covered thereby on each of the IPO Closing
Date and the first three anniversaries of the IPO
Closing Date, subject to acceleration as provided in
this Section 6(b). Neither the number of shares of
Common Stock subject to, nor the exercise price
established by, either Option will be subject to any
adjustment by reason of any direct or indirect
combination of the outstanding Common Stock prior to the
IPO Closing Date. The Executive agrees that the Company
may exchange for the Options nonqualified stock options
having the same terms and issued pursuant to the
Innovative Valve Technologies, Inc. 1997 Incentive Plan
(the
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"1997 Incentive Plan"). If the Executive's Employment is
terminated under Section 8(a), (b) or (d) prior to the
fifth anniversary of the IPO Closing Date, the Options
will, notwithstanding any contrary provision of any
Incentive Plan or any award agreement evidencing the
Options thereunder, (i) become, to the extent not
already exercisable, exercisable in whole on the
termination date of the Executive's Employment and (ii)
remain exercisable at least until the date that is the
second anniversary of that termination date. If the
Executive's Employment is terminated under Section 8(e)
prior to the fifth anniversary of the IPO Closing Date,
the Options will, notwithstanding any contrary provision
of any Incentive Plan or any award agreement evidencing
the Options thereunder, (i) become, to the extent not
already exercisable, exercisable on each anniversary of
the IPO Closing Date, as provided above, and (ii) remain
exercisable (to the extent then and thereafter. If the
Executive's Employment is terminated under Section 8(c)
or (f), the Options, to the extent they are outstanding
and exercisable as of the time immediately prior to the
termination date of the Executive's Employment, will
remain outstanding and continue to be exercisable until
the date that is 10 days after that termination date (or
such later date, if any, as the Incentive Plan covering
the Options or any award agreement evidencing the
Options shall prescribe in the case of the termination
of the Executive's Employment under the circumstances
covered by Section 8(c) or (f), as the case may be).
(c) OTHER COMPENSATION. The Executive shall be entitled to
participate in all Compensation Plans from time to time
in effect while in the Employment of the Company,
regardless of whether the Executive is an Executive
Officer. All awards to the Executive under all Incentive
Plans shall take into account the Executive's positions
with and duties and responsibilities to the Company and
its subsidiaries and affiliates. Without limiting the
generality of the foregoing, the Executive shall be
eligible for an annual incentive award in accordance
with the Annual Incentive Plan (the "AIP") currently
being developed as a part of the 1997 Incentive Plan, or
such other plan as may be substituted for the AIP, and
subject to the approval of the Compensation Committee.
The actual target amount of the Executive's annual bonus
under the AIP is currently unknown, although the Company
and the Executive contemplate it will be 100% of the
Executive's annual salary under Section 6(a). The
Executive's rights to benefits at the termination of his
Employment under the Compensation Plans shall be
governed by the provisions of those plans.
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<PAGE>
(d) EXPENSES. The Executive shall be entitled to prompt
reimbursement of all reasonable business expenses
incurred by him in the performance of his duties during
the term of this Agreement, subject to the presenting of
appropriate vouchers and receipts in accordance with the
Company's policies.
7. OTHER BENEFITS.
(a) EMPLOYEE BENEFITS AND PROGRAMS. During the term of this
Agreement, the Executive and the members of his
immediate family shall be entitled to participate in any
employee benefit plans or programs of the Company to the
extent that his position, tenure, salary, age, health
and other qualifications make him or them, as the case
may be, eligible to participate, subject to the rules
and regulations applicable thereto.
(b) SUBSCRIPTIONS AND MEMBERSHIPS. The Company shall pay
periodical subscription costs and membership fees and
dues for the Executive to join professional
organizations appropriate for the CEO.
(c) LOANS TO PAY FEDERAL TAXES. The Company shall loan to
the Executive sufficient funds to pay all federal income
and Medicare tax liability ("Tax Liability") due by
reason of the issuance of the Award Shares to the
Executive (which liability is estimated to be 41.05% of
the "fair market value of the Award Shares," as defined
below). The fair market value of the Award Shares shall
be the fair market value of the Award Shares as of
January 27, 1997, as determined on or prior to April 10,
1997 by Hill Valuation Group, taking into account any
applicable discount for lack of marketability or
minority interest of such shares as of January 27, 1997.
Such loan shall be noninterest- bearing and shall be
evidenced by an unsecured promissory note (the "Tax
Note"). The Tax Note shall be prepayable at any time and
mature in full three years from the date any funds were
first advanced to the Executive under this Section 7(c).
If the Executive sells any Award Shares (or any
securities into which Award Shares have been converted)
for cash while the Tax Note remains outstanding and
unpaid, the Executive shall prepay the Tax Note within
five business days after the Executive receives the
proceeds from that sale in the amount equal to the
lesser of (i) the then unpaid balance of the Tax Note or
(ii) the cash proceeds, net of any applicable commission
and other sale expense and any applicable capital gain
or other income tax, the Executive receives from that
sale. The Tax Note shall be payable either in cash or,
in the event that on any date the Executive
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<PAGE>
makes any payment thereon the Common Stock is listed on
the New York Stock Exchange or another national
securities exchange or is quoted through the NASDAQ
National Market System (the "NMS") and the Executive
desires to pay such loan by delivery of shares of Common
Stock, in shares of Common Stock valued at the closing
price of the Common Stock on (i) the national securities
exchange on which the Common Stock is listed (or, if
there is more than one, the national securities exchange
the Company has designated as the principal market for
the Common Stock) or (ii) the NMS, as the case may be,
on the then most recent day on which the Common Stock
traded on such national securities exchange or the NMS,
as the case may be; provided, however, that in the event
the IPO is not completed, payment of the Tax Note may be
made by the Executive tendering all the Award Shares to
the Company in exchange for cancellation of the Tax
Note.
.
(d) VACATION. The Executive shall be entitled to four weeks
of vacation leave with full pay during each year of this
Agreement (each such year being a 12-month period ending
on May 15). The times for such vacations shall be
selected by the Executive, subject to the prior approval
of the Company. The Executive may accrue up to eight
weeks of vacation time from year to year, but vacation
time otherwise shall not accrue from year to year.
8. TERMINATION. The Executive's Employment hereunder may be
terminated prior to the term provided for in Section 3 only
under the following circumstances:
(a) DEATH. The Executive's Employment shall terminate
automatically on the date of his death.
(b) DISABILITY. If a Disability occurs and is continuing,
the Executive's Employment shall terminate 30 days after
the Company gives the Executive written notice that it
intends to terminate his Employment on account of that
Disability or on such later date as the Company
specifies in such notice. If the Executive resumes the
performance of substantially all his duties under this
Agreement before the termination becomes effective, the
notice of intent to terminate shall be deemed to have
been revoked.
(c) VOLUNTARY TERMINATION. The Executive may terminate his
Employment at any time and without Good Cause with 30
days' prior written notice to the Company.
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(d) TERMINATION FOR GOOD CAUSE. The Executive may terminate
his Employment for Good Cause at any time within 180
days (730 days if the Good Cause is the occurrence of a
Change of Control) after the Executive becomes
consciously aware that the facts and circumstances
constituting that Good Cause exist and are continuing by
giving the Company 14 days' prior written notice that
the Executive intends to terminate his Employment for
Good Cause, which notice will identify that Good Cause;
provided, however, that if a Change of Control occurs,
the Executive shall not have Good Cause to terminate his
Employment solely by reason of the occurrence of that
event until 270 days after that occurrence.
(e) INVOLUNTARY TERMINATION. The Executive's Employment is
at will. The Company reserves the right to terminate the
Executive's Employment at anytime whatsoever, without
cause, with 14 days' prior written notice to the
Executive.
(f) INVOLUNTARY TERMINATION FOR CAUSE. The Company reserves
the right to terminate the Executive's Employment for
Cause. In the event that the Company determines that
Cause exists under Section 10(f)(i) for the termination
of the Executive's Employment, the Company shall provide
in writing (the "Notice of Cause") the basis for that
determination and the manner, if any, in which the
breach or neglect can be cured. If either the Company
has determined that the breach or neglect cannot be
cured, as set forth in the Notice of Cause, or has
advised the Executive in the Notice of Cause of the
manner in which the breach or neglect can be cured, but
the Executive fails to effect that cure within 30 days
after his receipt of the Notice of Cause, the Company
shall be entitled to give the Executive written notice
of his termination for Cause. In the event that the
Company determines that Cause exists under Section
10(f)(ii) for the termination of the Executive's
Employment, it shall be entitled to terminate the
Executive's Employment without providing a Notice of
Cause or any opportunity prior to that termination to
contest that determination. Any termination of the
Executive's Employment for Cause pursuant to this
Section 8(f) shall be effective immediately upon the
Executive's receipt of the Company's written notice of
that termination and the Cause therefor.
(g) TERMINATION FOR IPO FAILURE. If the IPO Closing Date
does not occur on or before December 31, 1997, the
Executive may terminate his Employment at any time
thereafter with 14 days' prior written notice to the
Company.
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9. SEVERANCE PAYMENTS. If the Executive's Employment is
terminated during the term of this Agreement, the Executive
shall be entitled to receive severance payments as follows:
(a) If the Executive's Employment is terminated under
Section 8(a), (b), (d) or (e), the Company will pay or
cause to be paid to the Executive (or, in the case of a
termination under Section (a), the beneficiary the
Executive has designated in writing to the Company to
receive payment pursuant to this Section 9(a) or, in the
absence of such designation, the Executive's estate):
(i) the Accrued Salary;
(ii) the Other Earned Compensation;
(iii) the Reimbursable Expenses; and
(iv) the Severance Benefit.
(b) If the Executive's Employment is terminated under
Section 8(c) or (f), the Company will pay or cause to be
paid to the Executive:
(i) the Accrued Salary determined as of the
termination date of the Executive's Employment;
(ii) the Other Earned Compensation; and
(iii) the Reimbursable Expenses.
(c) Any payments to which the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) is
entitled pursuant to paragraph (i) and (iv) of
subsection (a) of this Section 9 or paragraph (i) of
subsection (b) of this Section 9, as applicable, will be
paid in a single lump sum within five days after the
termination date of the Executive's Employment;
provided, however, that if Section 8(a) applies and the
Executive's designated beneficiary or estate is the
beneficiary of one or more insurance policies purchased
by the Company and then in effect the proceeds of which
are payable to that beneficiary by reason of the
Executive's death, then (i) the Company, at its option,
may credit the amount of those proceeds, as and when
paid by the insurer to that beneficiary, against the
payment to which the Executive's designated beneficiary
or estate is entitled pursuant to paragraph (iv) of
subsection (a) of this Section 9 and, if it exercises
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that option, (ii) the payment otherwise due pursuant to
that paragraph (iv) will bear interest on the
outstanding balance thereof from and including the fifth
day after that termination date to the date of payment
by the insurer to that beneficiary at the rate of
interest specified in Section 29; and provided, further,
that if Section 8(b) applies and the Executive is the
beneficiary of disability insurance purchased by the
Company and then in effect, the Company, at its option,
may credit the proceeds of that insurance which are
payable to the Executive, valued at their present value
as of that termination date using the interest rate
specified in Section 29 and then in effect as the
discount rate, against the payment to which the
Executive is entitled pursuant to paragraph (iv) of
subsection (a) of this Section 9. Any payments to which
the Executive (or his designated beneficiary or estate,
if Section 8(a) applies) is entitled pursuant to
paragraphs (ii) and (iii) of subsection (a) or (b) of
this Section 9, as applicable, will be paid in a single
lump sum within five days after the termination date of
the Executive's Employment or as soon thereafter as is
administratively feasible, together with interest
accrued thereon from and including the fifth date after
that termination date to the date of payment at the rate
of interest specified in Section 29.
(d) Except as provided in Sections 13 and 23 and this
Section, the Company will have no payment obligations
under this Agreement to the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) after
the termination date of the Executive's Employment.
10. DEFINITION OF TERMS. The following terms used in this
Agreement when capitalized shall have the following meanings:
(a) ACCRUED SALARY. "Accrued Salary" shall mean the salary
that has accrued, and the salary that would accrue
through and including the last day of the pay period in
which the termination date of the Executive's Employment
occurs, under Section 6(a) which has not been paid to
the Executive as of that termination date.
(b) ACQUIRING PERSON. "Acquiring Person" shall mean any
person who or which, together with all Affiliates and
Associates of such person, is or are 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
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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.
Notwithstanding anything in this definition of
"Acquiring Person" to the contrary, no Exempt Person
shall be deemed to be or become an "Acquiring Person" or
an Affiliate or Associate of any other person for
purposes of this definition.
(c) AFFILIATE. "Affiliate" has the meaning ascribed to that
term in Exchange Act Rule 12b-2.
(d) ASSOCIATE. "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 that 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 its equity securities, (ii) any
trust or other estate in which that person has a
substantial beneficial interest or for or of which that
person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of that
person, or any relative of that spouse, who has the same
home as that person.
(e) BENEFICIAL OWNER. A specified person shall be deemed the
"Beneficial Owner" of, and shall be deemed to
"beneficially own," any securities:
(i) of which that person or any of that person's
Affiliates or Associates, directly or indirectly,
is the "beneficial owner" (as determined pursuant
to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), 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
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"beneficially own," any security under this
subparagraph (i) as a result of an agreement,
arrangement or understanding to vote that security
if that agreement, arrangement or understanding:
(A) arises solely from a revocable proxy or
consent given in response to a public (that is,
not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent
solicitation made pursuant to, and in accordance
with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such person
on Exchange Act Schedule 13D (or any comparable or
successor report);
(ii) which that person or any of that person's
Affiliates or Associates, directly or indirectly,
has the right or obligation to acquire (whether
that 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 on 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,"
securities tendered pursuant to a tender or
exchange offer made by that person or any of that
person's Affiliates or Associates until those
tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other person (or any
Affiliate or Associate thereof) with which the
specified person or any of the specified 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 Exchange Act Rule
13d-5(b)) of which that specified person is a
member;
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 that
person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days
after the
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date of that 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) in respect of such security.
(f) CAUSE. "Cause" shall mean that the Executive has
(i) willfully breached or habitually neglected
(otherwise than by reason of injury or physical or
mental illness) the duties which he was required
to perform under the terms of this Agreement, or
(ii) committed act(s) of dishonesty, fraud or
misrepresentation or other act(s) of moral
turpitude that would prevent the effective
performance of his duties under this Agreement.
(g) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events that occurs
after the IPO Closing Date: (i) any person becomes an
Acquiring Person; (ii) a merger of the Company with or
into, or a sale by the Company of its properties and
assets substantially as an entirety to, another person
occurs and, immediately after that occurrence, any
person, other than an Exempt Person, together with all
Affiliates and Associates of such person, shall be the
Beneficial Owner of 15% or more of the total voting
power of the then outstanding Voting Shares of the
person surviving that transaction (in the case or a
merger or consolidation) or the person acquiring those
properties and assets substantially as an entirety; or
(iii) Philip Services Corp., together with all its
Affiliates (collectively, "Philip"), shall become the
Beneficial Owner of 65% or more of the shares of Common
Stock then outstanding.
(h) COMPANY. "Company" shall mean (i) The Safe Seal Company,
Inc., a Texas corporation, and (ii) any person that
assumes the obligations of "the Company" hereunder, by
operation of law, pursuant to Section 16 or otherwise.
(i) COMPENSATION PLAN. "Compensation Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive
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<PAGE>
Officer or any member of the immediate family of any
Executive Officer by reason of his status as such, (i)
including (A) any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or
other "employee benefit plan" (as defined in Section
3(3) of ERISA), (B) any other retirement or savings
plan, including any supplemental benefit arrangement
relating to any plan intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or whose benefits are limited by
the Code or ERISA, (C) any "employee welfare plan" (as
defined in Section 3(1) of ERISA), (D) any arrangement,
plan, policy, practice or program providing for
severance pay, deferred compensation or insurance
benefit, (E) any Incentive Plan and (F) any arrangement,
plan, policy, practice or program (1) authorizing and
providing for the payment or reimbursement of expenses
attributable to air travel and hotel occupancy while
traveling on business for the Company or (2) providing
for the payment of business luncheon and country club
dues, long-distance charges, mobile phone monthly air
time or other recurring monthly charges or any other
fringe benefit, allowance or accommodation of
employment, but (ii) excluding any compensation
arrangement, plan, policy, practice or program to the
extent it provides for annual base salary.
(j) DISABILITY. "Disability" shall mean that the Executive
has been unable to perform his essential duties under
this Agreement for a period of at least six consecutive
months as a result of his incapacity due to injury or
physical or mental illness.
(k) EMPLOYMENT. "Employment" shall mean the salaried
employment of the Employee by the Company or a
subsidiary of the Company hereunder.
(l) EXECUTIVE OFFICER. "Executive Officer" shall mean any of
the chairman of the board, the chief executive officer,
the chief operating officer, the chief financial
officer, the president, any executive, regional or other
group or senior vice president or any vice president of
the Company.
(m) EXEMPT PERSON. "Exempt Person" shall mean: (i)(A) the
Company, any subsidiary of the Company, any employee
benefit plan of the Company or any subsidiary of the
Company and (B) 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
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<PAGE>
plan or funding other employee benefits for employees of
the Company or any subsidiary of the Company; (ii) the
Executive, any Affiliate of the Executive which the
Executive controls or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which the Executive or
any such Affiliate is a member; and (iii) so long as
Philip remains the Beneficial Owner of 15% or more of
the outstanding shares of Common Stock, Philip.
(n) GOOD CAUSE. "Good Cause" for the Employee's termination
of his Employment shall mean: (i) any decrease in the
annual base salary under Section 6(a) or any other
violation hereof in any material respect by the Company;
(ii) any material reduction in the Executive's
compensation under Section 6; (iii) the assignment to
the Employee of duties inconsistent in any material
respect with the Employee's then current positions
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities or
any other action by the Company which results in a
material diminution in those positions, authority,
duties or responsibilities; (iv) the occurrence of a
Change of Control; (v) the occurrence of the Abandonment
Date; (vi) the IPO Closing Date continues not to have
occurred past December 31, 1997 and Innovative Valve
Technologies, Inc. ("Invatec") has not filed a
registration statement relating to the IPO (the
"Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), on or before
December 31, 1997; or (vii) Invatec has filed the
Registration Statement under the Securities Act on or
before December 31, 1997 and the IPO Closing Date
continues not to have occurred past May 31, 1998. As
used herein, "Abandonment Date" shall mean the first to
occur of (i) the "Abandonment Date" (as defined in the
Modification and Settlement Agreement dated as of May 9,
1997 by and among the Company, Allwaste, Inc., Allwaste
Environmental Services, Inc., Roger L. Miller and the
other parties thereto, (ii) the date Invatec withdraws
the Registration Statement pursuant to Rule 477 under
the Securities Act or (iii) the date the Registration
Statement is abandoned pursuant to Rule 479 under the
Securities Act.
(o) INCENTIVE PLAN. "Incentive Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer and
which provides for incentive, bonus or other
performance-based awards of
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cash, securities, the phantom equivalent of securities
or other property, including any stock option, stock
appreciation right and restricted stock plan, but
excluding any plan intended to qualify as a plan under
any one or more of Sections 401(a), 401(k) or 423 of the
Code.
(p) IPO. "IPO" shall mean the first time a registration
statement filed under the Securities Act and respecting
an underwritten primary offering by Invatec of shares of
its common stock (the "IVT Common Stock") is declared
effective under that act and the shares registered by
that registration statement are issued and sold by
Invatec (otherwise than pursuant to the exercise of any
over-allotment option).
(q) IPO CLOSING DATE. "IPO Closing Date" shall mean the date
on which Invatec first receives payment for the shares
of IVT Common Stock it sells in the IPO.
(r) IPO PRICE. "IPO Price" shall mean the price per share at
which the IVT Common Stock is initially offered to the
public in the IPO.
(s) OTHER EARNED COMPENSATION. "Other Earned Compensation"
shall mean all the compensation earned by the Executive
prior to the termination date of his Employment as a
result of his Employment (including compensation the
payment of which has been deferred by the Executive, but
excluding Accrued Salary and compensation to be paid to
the Executive in accordance with the terms of any
Compensation Plan), together with all accrued interest
or earnings, if any, thereon, which has not been paid to
the Executive as of that date.
(t) REIMBURSABLE EXPENSES. "Reimbursable Expenses" shall
mean the expenses incurred by the Executive on or prior
to the termination date of his Employment which are to
be reimbursed to the Executive under Section 6(c) and
which have not been reimbursed to the Executive as of
that date.
(u) SEVERANCE BENEFIT. "Severance Benefit" shall mean the
sum of: (i) the amount equal to the product of (A) the
Applicable Monthly Salary Rate multiplied by (B) 36; and
(ii) the amount equal to the product of (A) 3 multiplied
by (B) (1) the greater of (a) the target amount of all
incentive awards or payments that would have been owing
to the Executive for the Company's fiscal year in which
the termination date of the Executive's Employment
occurs were the Executive's
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Employment to have continued to the end of that fiscal
year, regardless of the level of attainment of the
performance objectives for that fiscal year, or (b) the
amount of the highest aggregate amount of all incentive
awards and payments made to the Executive for any fiscal
year of the Company prior to that fiscal year or, if the
Executive's Employment is terminated prior to the
payment of any incentive payment or award to the
Executive for his services hereunder during the
Company's fiscal year ended December 31, 1997, (2)
$200,000; provided, however, if the Executive terminates
his Employment for the Good Cause specified in clause
(v) of the definition thereof after December 31, 1997
and prior to the IPO Closing Date, the Severance Benefit
shall be $400,000. As used herein, "Applicable Monthly
Salary Rate" shall mean 1/12th of the higher of (i) the
annual salary rate in effect under Section 6(a)
immediately prior to the termination date of the
Executive's Employment and (ii) the highest annual
salary rate theretofore in effect under Section 6(a) for
any period.
11. NON-COMPETITION CLAUSE. In addition to his obligations as an
executive and whether or not he remains an executive of the Company,
the Executive agrees that during the period commencing with the
Effective Date and ending upon the second anniversary of the
termination date of his Employment following termination of his
Employment under any of Section 8(b), (c), (e) or (f), he will not,
without the prior written consent of the Company, engage, directly
or indirectly, in any business that sells any industrial valves or
performs any industrial-valve services in competition with the
Company or any subsidiary of the Company in any area within any
"Territory" surrounding any service facility of the Company or any
subsidiary of the Company (determined as of that termination date).
For purposes of this Section 11, the "Territory" surrounding any
service facility will be: (i) the city, town or village in which
that service facility is located; (ii) the county or parish in which
that service facility is located; (iii) the counties or parishes
contiguous to the county or parish in which that service facility is
located; (iv) the area located within 50 miles of that service
facility; (v) the area located within 100 miles of that service
area; and (vi) the area in which that service facility regularly
provides services at the locations of its customers.
12. REGISTRATION RIGHTS; LEGEND.
(a) As used in this Section 12, the term "Registrable Stock" shall
mean the Award Shares and the shares of Common Stock issuable
on the exercise of the Options (the "Option Shares").
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(b) As soon as is practicable following the IPO Closing Date, the
Company will file a registration statement on Form S-8 under
the Securities Act to register the Option Shares (which
registration statement may be the registration statement that
registers all the shares of Common Stock reserved or to be
available for issuance pursuant to the 1997 Incentive Plan).
(c) Prior to July 15, 1997, the Company will execute and deliver
to the Executive a registration rights agreement in
substantially the form delivered to the Executive.
(d) The Executive represents that the Registrable Stock and the
Options are being acquired for investment only and not with a
view toward the resale or distribution thereof. The Executive
is willing and able to bear the economic risk of an investment
in the Registrable Stock, has no need for liquidity with
respect thereto and is able to sustain a complete loss of his
investment. The Executive agrees and understands that the
shares of Registrable Stock are restricted securities as
defined in Rule 144 promulgated under the Securities Act and
may not be sold, assigned or transferred except in a
registered offering under the Securities Act and applicable
blue sky laws, or pursuant to an exemption therefrom. The
following legend shall be set forth on each certificate
representing the Award Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES CANNOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT UPON (1) SUCH REGISTRATION, OR (2) DELIVERY TO THE
ISSUER OF THESE SECURITIES OF AN OPINION OF COUNSEL,
REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER OR (3) SUBMISSION TO THE ISSUER OF
THESE SECURITIES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO
THE ISSUER, TO THE EFFECT THAT ANY SUCH SALE, PLEDGE,
HYPOTHECATION OR TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE
SECURITIES LAWS OR ANY RULES OR REGULATIONS PROMULGATED
THEREUNDER."
13. TAX INDEMNITY. Should any of the payments of salary, other incentive
or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment
in the nature of compensation, singly, in any combination or in the
aggregate, that are provided for hereunder to be paid to or for the
benefit of the Executive be determined or alleged to be subject to
an excise
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or similar purpose tax pursuant to Section 4999 of the Code, or any
successor or other comparable federal, state or local tax law by
reason of being a "parachute payment" (within the meaning of Section
280G of the Code), the Company shall pay to the Executive such
additional compensation as is necessary (after taking into account
all federal, state and local taxes payable by the Executive as a
result of the receipt of such additional compensation) to place the
Executive in the same after-tax position (including federal, state
and local taxes) he would have been in had no such excise or similar
purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional
compensation within the earlier to occur of (i) five business days
after the Executive notifies the Company that the Executive intends
to file a tax return taking the position that such excise or similar
purpose tax is due and payable in reliance on a written opinion of
the Executive's tax counsel (such tax counsel to be chosen solely by
the Executive) that it is more likely than not that such excise tax
is due and payable or (ii) 24 hours of any notice of or action by
the Company that it intends to take the position that such excise
tax is due and payable. The costs of obtaining the tax counsel
opinion referred to in clause (i) of the preceding sentence shall be
borne by the Company, and as long as such tax counsel was chosen by
the Executive in good faith, the conclusions reached in such opinion
shall not be challenged or disputed by the Company. If the Executive
intends to make any payment with respect to any such excise or
similar purpose tax as a result of an adjustment to the Executive's
tax liability by any federal, state or local tax authority, the
Company will pay such additional compensation by delivering its
cashier's check payable in such amount to the Executive within five
business days after the Executive notifies the Company of his
intention to make such payment. Without limiting the obligation of
the Company hereunder, the Executive agrees, in the event the
Executive makes any payment pursuant to the preceding sentence, to
negotiate with the Company in good faith with respect to procedures
reasonably requested by the Company which would afford the Company
the ability to contest the imposition of such excise or similar
purpose tax; provided, however, that the Executive will not be
required to afford the Company any right to contest the
applicability of any such excise or similar purpose tax to the
extent that the Executive reasonably determines (based upon the
opinion of his tax counsel) that such contest is inconsistent with
the overall tax interests of the Executive.
14. LOCATIONS OF PERFORMANCE. The Executive's services shall be
performed primarily in the vicinity of Houston, Texas. The parties
acknowledge, however, that the Executive may be required to travel
in connection with the performance of his duties hereunder.
15. PROPRIETARY INFORMATION.
(a) The Executive agrees to comply fully with the Company's
policies relating to non-disclosure of the Company's trade
secrets and proprietary information
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and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his
Employment, disclose any such secrets, information or
processes to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever except as
may be required by law or governmental agency or legal
process, nor shall the Executive make use of any such property
for his own purposes or for the benefit of any person, firm,
corporation or other entity (except the Company or any of its
subsidiaries) under any circumstances during or after the term
of his Employment, provided that after the term of his
Employment this provision shall not apply to secrets,
information and processes that are then in the public domain
(provided that the Executive was not responsible, directly or
indirectly, for such secrets, information or processes
entering the public domain without the Company's consent).
(b) The Executive hereby sells, transfers and assigns to the
Company all the entire right, title and interest of the
Executive in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and
copyrightable material, to the extent (i) made or conceived by
the Executive solely or jointly with others during the term of
this Agreement and (ii) relating to or used or useful in the
design, manufacture, assembly, operation, maintenance, repair,
reconditioning or remanufacturing of batch or continuous
process systems or units and their component parts and related
equipment and tools, including, without limitation, industrial
valves and their component parts and packing materials and
other process system components (collectively "Valve
Technology"). The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests,
all information, details and data pertaining to the
aforementioned Valve Technology; and, whether during the term
hereof or thereafter, the Executive shall execute and deliver
to the Company such formal transfers and assignments and such
other papers and documents as may be required of the Executive
to permit the Company to file and prosecute any patent
applications relating to such Valve Technology and, as to
copyrightable material, to obtain copyright thereon.
(c) Trade secrets, proprietary information and processes shall not
be deemed to include information which is:
(i) known to the Executive at the time it is disclosed to
him;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of Executive;
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(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law or legal process;
provided, however, that in the event of a proposed
disclosure pursuant to this subsection (c)(v), the
Executive shall give the Company prior written notice
before such disclosure is made.
16. ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided that the Company may assign this Agreement, in connection
with a merger or consolidation involving the Company or a sale of
its business, properties and assets substantially as an entirety to
the surviving corporation or purchaser as the case may be, so long
as such assignee assumes the Company's obligations hereunder. The
Company shall require any successor (direct or indirect (including,
without limitation, by becoming the sole stockholder of the Company)
and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company
substantially as an entirety expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the
Company would have been required to perform it had no such
succession taken place. This Agreement shall be binding upon all
successors and assigns.
17. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered
mail to the Executive at his residence maintained on the Company's
records, or to the Company at its address at 14900 Woodham Drive,
Suite A-125, Houston, Texas, 77073, Attention: Corporate Secretary,
or such other addresses as either party shall notify the other in
accordance with the above procedure.
18. FORCE MAJEURE. Neither party shall be liable to the other for any
delay or failure to perform hereunder, which delay or failure is due
to causes beyond the control of said party, including, but not
limited to: acts of God; acts of the public enemy; acts of the
United States of America or any state, territory or political
subdivision thereof or of the District of Columbia; fires; floods;
epidemics; quarantine restrictions; strikes; or freight embargoes;
provided, however, that this Section 18 will not relieve the Company
of any of its payment obligations to the Executive under this
Agreement. Notwithstanding the foregoing provisions of this Section
18, in every case the delay or failure to perform must be beyond the
control and without the fault or negligence of the party claiming
excusable delay.
19. INTEGRATION. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof
and supersedes all prior or
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contemporaneous agreements whether written or oral. No waiver,
alteration or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly
authorized representatives of the parties hereto.
20. WAIVER. Failure or delay on the part of either party hereto to
enforce any right, power or privilege hereunder shall not be deemed
to constitute a waiver thereof. Additionally, a waiver by either
party of a breach of any promise herein by the other party shall not
operate as or be construed to constitute a waiver of any subsequent
breach by such other party.
21. SAVINGS CLAUSE. If any term, covenant or condition of this Agreement
or the application thereof to any person or circumstance shall to
any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such term, covenant or condition to
persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each
term, covenant or condition of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
22. AUTHORITY TO CONTRACT. The Company warrants and represents to the
Executive that the Company has full authority to enter into this
Agreement and to consummate the transactions contemplated hereby and
that this Agreement is not in conflict with any other agreement to
which the Company is a party or by which it may be bound. The
Company further warrants and represents to the Executive that the
individual executing this Agreement on behalf of the Company has the
full power and authority to bind the Company to the terms hereof and
has been authorized to do so in accordance with the Company's
articles or certificate of incorporation and bylaws.
23. PAYMENT OF EXPENSES. If at any time during the term hereof or
afterwards: (a) there should exist a dispute or conflict between the
Executive and the Company or another Person as to the validity,
interpretation or application of any term or condition hereof, or as
to the Executive's entitlement to any benefit intended to be
bestowed hereby, which is not resolved to the satisfaction of the
Executive, (b) the Executive must (i) defend the validity of this
Agreement or (ii) contest any determination by the Company
concerning the amounts payable (or reimbursable) by the Company to
the Executive or (c) the Executive must prepare responses to an
Internal Revenue Service ("IRS") audit of, or otherwise defend, his
personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or
civil litigation arising therefrom, which is occasioned by or
related to an audit by the IRS of the Company's income tax returns,
then the Company hereby unconditionally agrees: (a) on written
demand of the Company by the Executive, to provide sums sufficient
to advance and pay on a current basis (either by paying directly or
by reimbursing the Executive) not less than 30 days after a written
request therefor is submitted by the Executive, the Executive's out
of pocket costs and
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expenses (including attorney's fees, expenses of investigation,
travel, lodging, copying, delivery services and disbursements for
the fees and expenses of experts, etc.) incurred by the Executive in
connection with any such matter; (b) the Executive shall be
entitled, upon application to any court of competent jurisdiction,
to the entry of a mandatory injunction without the necessity of
posting any bond with respect thereto which compels the Company to
pay or advance such costs and expenses on a current basis; and (c)
the Company's obligations under this Section 23 will not be affected
if the Executive is not the prevailing party in the final resolution
of any such matter unless it is determined pursuant to Section 25
that, in the case of one or more of such matters, the Executive has
acted in bad faith or without a reasonable basis for his position,
in which event and, then only with respect to such matter or
matters, the successful or prevailing party or parties shall be
entitled to recover from the Executive reasonable attorneys' fees
and other costs incurred in connection with that matter or matters
(including the amounts paid by the Company in respect of that matter
or matters pursuant to this Section 23), in addition to any other
relief to which it or they may be entitled.
24. REMEDIES. In the event of a breach by the Executive of Section 11 or
15 of this Agreement, in addition to other remedies provided by
applicable law, the Company will be entitled to issuance of a
temporary restraining order or preliminary injection enforcing its
rights under such Section.
25. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this
Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with its Commercial Rules,
except as modified herein.
(a) The arbitrator shall be selected as follows: in the event the
Company and the Executive agree on one arbitrator, the
arbitration shall be conducted by such arbitrator. In the
event the Company and the Executive do not so agree, the
Company and the Executive shall each select one independent,
qualified arbitrator, and the two arbitrators so selected
shall select the third arbitrator. The arbitrator(s) are
herein referred to as the "Panel." The Company reserves the
right to object to any individual arbitrator who shall be
employed by or affiliated with a competing organization.
(b) Arbitration shall take place at Houston, Texas, or any other
location mutually agreeable to the parties. At the request of
either party, arbitration proceedings will be conducted in the
utmost secrecy; in such case all documents, testimony and
records shall be received, heard and maintained by the Panel
in secrecy, available for inspection only by the Company or
the Executive and their respective attorneys and their
respective experts, who shall agree in advance and in writing
to receive all such information
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confidentially and to maintain such information in secrecy
until such information shall become generally known. The Panel
shall be able to award any and all relief, including relief of
an equitable nature. The award rendered by the Panel may be
enforceable in any court having jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall
be given to all parties and any interested persons as shall be
required by law.
(d) The Company will pay all the fees and out-of-pocket expenses
of each arbitrator selected pursuant to this Section 25.
26. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to its
conflicts of law principles.
27. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
28. INDEMNIFICATION. The Executive shall be indemnified by the Company
to the maximum permitted by the law of the state of the Company's
incorporation, and by the law of the state of incorporation of any
subsidiary of the Company of which the Executive is a director or an
officer or employee, as the same may be in effect from time to time.
29. INTEREST. If any amounts required to be paid or reimbursed to the
Executive hereunder are not so paid or reimbursed at the times
provided herein (including amounts required to be paid by the
Company pursuant to Sections 6, 13 and 23), those amounts shall
accrue interest compounded daily at the annual percentage rate which
is three percentage points above the interest rate shown as the
Prime Rate in the Money Rates column in the then most recently
published edition of THE WALL STREET JOURNAL (Southwest Edition),
or, if such rate is not then so published, on at least a weekly
basis, the interest rate announced by Chase Manhattan Bank (or its
successor), from time to time, as its Base Rate (or prime lending
rate), from the date those amounts were required to have been paid
or reimbursed to the Executive until those amounts are finally and
fully paid or reimbursed; provided, however, that in no event shall
the amount of interest contracted for, charged or received hereunder
exceed the maximum non-usurious amount of interest allowed by
applicable law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date hereinabove first written.
THE SAFE SEAL COMPANY, INC.
By:______________________________
Charles F. Schugart
Senior Vice President
EXECUTIVE:
______________________________
William E. Haynes
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EXHIBIT 10.3
Charles F. Schugart
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
January 27, 1997 (the "Effective Date"), by and between The Safe Seal Company,
Inc., a Texas corporation, and Charles F. Schugart (the "Executive") and is
amended and restated as of October 15, 1997.
RECITAL:
WHEREAS, the Company desires to employ the Executive, and the
Executive agrees to work in the employ of the Company, and
WHEREAS, the parties hereto desire to set forth the terms of
Executive's Employment with the Company,
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive, and the
Executive hereby accepts Employment, on the terms and
conditions herein set forth.
2. DUTIES. (a) The Company will employ the Executive as Senior
Vice President and Chief Financial Officer ("CFO") of the
Company, (b) the Executive will serve in the Company's employ
in that position and (c) under the direction of the Board of
Directors of the Company (the "Board") or the Chief Executive
Officer of the Company (the "CEO"), the Executive shall
perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and
corporations and other entities affiliated with the Company as
are commensurate and consistent with his employment in the
position of CFO. The Executive also shall have such additional
powers, authority, functions, duties and responsibilities as
may be assigned to him by the Board or the CEO; provided that,
without the Executive's written consent, those additional
powers, authority, functions, duties and responsibilities
shall not be inconsistent or interfere with, or detract from,
those herein vested in, or otherwise then being performed for
the Company by, the Executive. In the event of an increase in
the Executive's duties, the CEO shall review the Executive's
compensation and benefits to determine if an adjustment in
compensation and employee benefits commensurate with the
Executive's new duties is warranted, in accordance with the
Company's compensation policies and subject to approval by the
Compensation Committee of the Board (the "Compensation
Committee").
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<PAGE>
3. TERM OF EMPLOYMENT. Subject to the provisions of Section 8,
the term of the Executive's Employment hereunder shall
commence on February 3, 1997, for a continually renewing term
of two years commencing on that date and renewing each day
thereafter for an additional day without any further action by
either the Company or the Executive, it being the intention of
the parties that there shall be continuously a remaining term
of two years' duration of the Executive's Employment until an
event has occurred as described in, or one of the parties
shall have made an appropriate election pursuant to, the
provisions of Section 8. When the termination date of the
Executive's Employment shall have occurred and the Company
shall have paid to the Executive all the applicable amounts
that Section 9 provides the Company shall pay as a result of
the termination of the Executive's Employment, this Agreement
will terminate and have no further force or effect, except
that Sections 15 through 29 shall survive that termination
indefinitely and Section 11 shall survive for the period of
time provided for therein.
4. EXTENT OF SERVICES. The Executive shall not at any time during
his Employment engage in any other activities unless those
activities do not interfere materially with the Executive's
duties and responsibilities to the Company at that time. The
foregoing, however, shall not preclude the Executive from
engaging in appropriate civic, charitable, professional or
trade association activities or from serving on one or more
boards of directors of public companies, as long as such
activities and services do not conflict with his
responsibilities to the Company. In addition, it is realized
that the Executive has school aged children and from time to
time the Executive will attend activities in which the
children participate.
5. NO FORCED RELOCATION. The Executive shall not be required to
move his principal place of residence from the Houston, Texas
area or to perform regular duties that could reasonably be
expected to require either such move against his wish or to
spend amounts of time each week outside the Houston, Texas
area which are unreasonable in relation to the duties and
responsibilities of the Executive hereunder, and the Company
agrees that, if it requests the Executive to make such a move
and the Executive declines that request, (a) that declination
shall not constitute any basis for a termination of the
Executive's Employment and (b) no animosity or prejudice will
be held against Executive.
6. COMPENSATION.
(a) SALARY. An annual base salary shall be payable to the
Executive by the Company as a guaranteed minimum amount
under this Agreement for each calendar year during the
period from the Effective Date to
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the termination date of the Executive's Employment. That
annual base salary shall (i) accrue daily on the basis
of a 365-day year, (ii) be payable to the Executive in
the intervals consistent with the Company's normal
payroll schedules (but in no event less frequently than
semi-monthly) and (iii) be payable at an initial annual
rate of $150,000. The Executive's annual base salary
shall not be decreased, but shall be adjusted annually
in each December to reflect such adjustments, if any, as
the CEO determines appropriate based on the Executive's
performance during the most recent performance period,
in accordance with the Company's compensation policies
and subject to the approval of the Compensation
Committee. A failure of the Company to increase the
Executive's annual base salary would not constitute a
breach or violation of this Agreement by the Company.
(b) HIRING BONUS, STOCK AWARD AND STOCK OPTIONS. The Company
shall pay the Executive as of the Effective Date a
hiring bonus of $50,000. The Company shall pay the
Executive as of the Effective Date a stock award (the
"Stock Award") consisting of 50,000 shares (the "Award
Shares") of the Company's authorized and unissued common
stock (the "Common Stock"). The Company shall also grant
to the Executive effective as of the Effective Date (i)
a nonqualified stock option to purchase 50,000 shares of
Common Stock from the Company at an exercise price per
share equal to the IPO Price and (ii) a nonqualified
option to purchase 50,000 shares of Common Stock from
the Company at an exercise price per share equal to the
lesser of (A) $9.00 and (B) the IPO Price (each option
being an "Option"). The term of each Option shall be
seven years from the IPO Closing Date. Each Option will
become exercisable with respect to 25% of the shares of
Common Stock covered thereby on each of the IPO Closing
Date and the first three anniversaries of the IPO
Closing Date, subject to acceleration as provided in
this Section 6(b). Neither the number of shares of
Common Stock subject to, nor the exercise price
established by, either Option will be subject to any
adjustment by reason of any direct or indirect
combination of the outstanding Common Stock prior to the
IPO Closing Date. The Executive agrees that the Company
may exchange for the Options nonqualified stock options
having the same terms and issued pursuant to the
Innovative Valve Technologies, Inc. 1997 Incentive Plan
(the "1997 Incentive Plan"). If the Executive's
Employment is terminated under Section 8(a), (b) or (d)
prior to the fifth anniversary of the IPO Closing Date,
the Options will, notwithstanding any contrary provision
of any Incentive Plan or any award agreement evidencing
the Options thereunder, (i) become, to the extent not
already
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<PAGE>
exercisable, exercisable in whole on the termination
date of the Executive's Employment and (ii) remain
exercisable at least until the date that is the second
anniversary of that termination date. If the Executive's
Employment is terminated under Section 8(e) prior to the
fifth anniversary of the IPO Closing Date, the Options
will, notwithstanding any contrary provision of any
Incentive Plan or any award agreement evidencing the
Options thereunder, (i) become, to the extent not
already exercisable, exercisable on each anniversary of
the IPO Closing Date, as provided above, and (ii) remain
exercisable (to the extent then and thereafter
exercisable) at least until the date that is the seventh
anniversary of the IPO Closing Date. If the Executive's
Employment is terminated under Section 8(c) or (f), the
Options, to the extent they are outstanding and
exercisable as of the time immediately prior to the
termination date of the Executive's Employment, will
remain outstanding and continue to be exercisable until
the date that is 10 days after that termination date (or
such later date, if any, as the Incentive Plan covering
the Options or any award agreement evidencing the
Options shall prescribe in the case of the termination
of the Executive's Employment under the circumstances
covered by Section 8(c) or (f), as the case may be).
(c) OTHER COMPENSATION. The Executive shall be entitled to
participate in all Compensation Plans from time to time
in effect while in the Employment of the Company,
regardless of whether the Executive is an Executive
Officer. All awards to the Executive under all Incentive
Plans shall take into account the Executive's positions
with and duties and responsibilities to the Company and
its subsidiaries and affiliates.
Without limiting the generality of the foregoing, the
Executive shall be eligible for an annual incentive
award in accordance with the Annual Incentive Plan (the
"AIP") currently being developed as a part of the 1997
Incentive Plan, or such other plan as may be substituted
for the AIP, and subject to the approval of the
Compensation Committee. The actual target amount of the
Executive's annual bonus under the AIP is currently
unknown, although the Company and the Executive
contemplate it will be 70% of the Executive's annual
salary under Section 6(a). The Executive's rights to
benefits at the termination of his Employment under the
Compensation Plans shall be governed by the provisions
of those plans.
(d) EXPENSES. The Executive shall be entitled to prompt
reimbursement of all reasonable business expenses
incurred by him in the performance of his duties during
the term of this Agreement, subject
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to the presenting of appropriate vouchers and receipts
in accordance with the Company's policies.
7. OTHER BENEFITS.
(a) EMPLOYEE BENEFITS AND PROGRAMS. During the term of this
Agreement, the Executive and the members of his
immediate family shall be entitled to participate in any
employee benefit plans or programs of the Company to the
extent that his position, tenure, salary, age, health
and other qualifications make him or them, as the case
may be, eligible to participate, subject to the rules
and regulations applicable thereto.
(b) MEMBERSHIPS. The Company shall pay membership fees for
the Executive to join professional organizations
mutually agreed to by the Executive and the CEO and
shall pay for licenses and fees required for maintaining
financial credentials as required to perform the duties
of CFO.
(c) LOANS TO PAY FEDERAL TAXES. The Company shall loan to
the Executive sufficient funds to pay all federal income
and Medicare tax liability ("Tax Liability") due by
reason of the issuance of the Award Shares to the
Executive (which liability is estimated to be 41.05% of
the "fair market value of the Award Shares," as defined
below). The fair market value of the Award Shares shall
be the fair market value of the Award Shares as of
January 27, 1997, as determined on or prior to April 10,
1997 by Hill Valuation Group, taking into account any
applicable discount for lack of marketability or
minority interest of such shares as of January 27, 1997.
Such loan shall be noninterest- bearing and shall be
evidenced by an unsecured promissory note (the "Tax
Note"). The Tax Note shall be prepayable at any time and
mature in full three years from the date any funds were
first advanced to the Executive under this Section 7(c).
If the Executive sells any Award Shares (or any
securities into which Award Shares have been converted)
for cash while the Tax Note remains outstanding and
unpaid, the Executive shall prepay the Tax Note within
five business days after the Executive receives the
proceeds from that sale in the amount equal to the
lesser of (i) the then unpaid balance of the Tax Note or
(ii) the cash proceeds, net of any applicable commission
and other sale expense and any applicable capital gain
or other income tax, the Executive receives from that
sale. The Tax Note shall be payable either in cash or,
in the event that on any date the Executive makes any
payment thereon the Common Stock is listed on the New
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York Stock Exchange or another national securities
exchange or is quoted through the NASDAQ National Market
System (the "NMS") and the Executive desires to pay such
loan by delivery of shares of Common Stock, in shares of
Common Stock valued at the closing price of the Common
Stock on (i) the national securities exchange on which
the Common Stock is listed (or, if there is more than
one, the national securities exchange the Company has
designated as the principal market for the Common Stock)
or (ii) the NMS, as the case may be, on the then most
recent day on which the Common Stock traded on such
national securities exchange or the NMS, as the case may
be; provided, however, that in the event the IPO is not
completed, payment of the Tax Note may be made by the
Executive tendering all the Award Shares to the Company
in exchange for cancellation of the Tax Note.
.
(d) VACATION. The Executive shall be entitled to four weeks
of vacation leave with full pay during each year of this
Agreement (each such year being a 12-month period ending
on February 3). The times for such vacations shall be
selected by the Executive, subject to the prior approval
of the Company. The Executive may accrue up to eight
weeks of vacation time from year to year, but vacation
time otherwise shall not accrue from year to year.
8. TERMINATION. The Executive's Employment hereunder may be
terminated prior to the term provided for in Section 3 only
under the following circumstances:
(a) DEATH. The Executive's Employment shall terminate
automatically on the date of his death.
(b) DISABILITY. If a Disability occurs and is continuing,
the Executive's Employment shall terminate 30 days after
the Company gives the Executive written notice that it
intends to terminate his Employment on account of that
Disability or on such later date as the Company
specifies in such notice. If the Executive resumes the
performance of substantially all his duties under this
Agreement before the termination becomes effective, the
notice of intent to terminate shall be deemed to have
been revoked.
(c) VOLUNTARY TERMINATION. The Executive may terminate his
Employment at any time and without Good Cause with 30
days' prior written notice to the Company.
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(d) TERMINATION FOR GOOD CAUSE. The Executive may terminate
his Employment for Good Cause at any time within 180
days (730 days if the Good Cause is the occurrence of a
Change of Control) after the Executive becomes
consciously aware that the facts and circumstances
constituting that Good Cause exist and are continuing by
giving the Company 14 days' prior written notice that
the Executive intends to terminate his Employment for
Good Cause, which notice will identify that Good Cause;
provided, however, that if a Change of Control occurs,
the Executive shall not have Good Cause to terminate his
Employment solely by reason of the occurrence of that
event until 270 days after that occurrence.
(e) INVOLUNTARY TERMINATION. The Executive's Employment is
at will. The Company reserves the right to terminate the
Executive's Employment at anytime whatsoever, without
cause, with 14 days' prior written notice to the
Executive.
(f) INVOLUNTARY TERMINATION FOR CAUSE. The Company reserves
the right to terminate the Executive's Employment for
Cause. In the event that the Company determines that
Cause exists under Section 10(f)(i) for the termination
of the Executive's Employment, the Company shall provide
in writing (the "Notice of Cause") the basis for that
determination and the manner, if any, in which the
breach or neglect can be cured. If either the Company
has determined that the breach or neglect cannot be
cured, as set forth in the Notice of Cause, or has
advised the Executive in the Notice of Cause of the
manner in which the breach or neglect can be cured, but
the Executive fails to effect that cure within 30 days
after his receipt of the Notice of Cause, the Company
shall be entitled to give the Executive written notice
of his termination for Cause. In the event that the
Company determines that Cause exists under Section
10(f)(ii) for the termination of the Executive's
Employment, it shall be entitled to terminate the
Executive's Employment without providing a Notice of
Cause or any opportunity prior to that termination to
contest that determination. Any termination of the
Executive's Employment for Cause pursuant to this
Section 8(f) shall be effective immediately upon the
Executive's receipt of the Company's written notice of
that termination and the Cause therefor.
9. SEVERANCE PAYMENTS. If the Executive's Employment is
terminated during the term of this Agreement, the Executive
shall be entitled to receive severance payments as follows:
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(a) If the Executive's Employment is terminated under
Section 8(a), (b), (d) or (e), the Company will pay or
cause to be paid to the Executive (or, in the case of a
termination under Section (a), the beneficiary the
Executive has designated in writing to the Company to
receive payment pursuant to this Section 9(a) or, in the
absence of such designation, the Executive's estate):
(i) the Accrued Salary;
(ii) the Other Earned Compensation;
(iii) the Reimbursable Expenses; and
(iv) the Severance Benefit.
(b) If the Executive's Employment is terminated under
Section 8(c) or (f), the Company will pay or cause to be
paid to the Executive:
(i) the Accrued Salary determined as of the
termination date of the Executive's Employment;
(ii) the Other Earned Compensation; and
(iii) the Reimbursable Expenses.
(c) Any payments to which the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) is
entitled pursuant to paragraph (i) and (iv) of
subsection (a) of this Section 9 or paragraph (i) of
subsection (b) of this Section 9, as applicable, will be
paid in a single lump sum within five days after the
termination date of the Executive's Employment;
provided, however, that if Section 8(a) applies and the
Executive's designated beneficiary or estate is the
beneficiary of one or more insurance policies purchased
by the Company and then in effect the proceeds of which
are payable to that beneficiary by reason of the
Executive's death, then (i) the Company, at its option,
may credit the amount of those proceeds, as and when
paid by the insurer to that beneficiary, against the
payment to which the Executive's designated beneficiary
or estate is entitled pursuant to paragraph (iv) of
subsection (a) of this Section 9 and, if it exercises
that option, (ii) the payment otherwise due pursuant to
that paragraph (iv) will bear interest on the
outstanding balance thereof from and including the fifth
day after that termination date to the date of payment
by the insurer to that beneficiary at the rate of
interest
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specified in Section 29; and provided, further, that if
Section 8(b) applies and the Executive is the
beneficiary of disability insurance purchased by the
Company and then in effect, the Company, at its option,
may credit the proceeds of that insurance which are
payable to the Executive, valued at their present value
as of that termination date using the interest rate
specified in Section 29 and then in effect as the
discount rate, against the payment to which the
Executive is entitled pursuant to paragraph (iv) of
subsection (a) of this Section 9. Any payments to which
the Executive (or his designated beneficiary or estate,
if Section 8(a) applies) is entitled pursuant to
paragraphs (ii) and (iii) of subsection (a) or (b) of
this Section 9, as applicable, will be paid in a single
lump sum within five days after the termination date of
the Executive's Employment or as soon thereafter as is
administratively feasible, together with interest
accrued thereon from and including the fifth date after
that termination date to the date of payment at the rate
of interest specified in Section 29.
(d) Except as provided in Sections 13 and 23 and this
Section, the Company will have no payment obligations
under this Agreement to the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) after
the termination date of the Executive's Employment.
10. DEFINITION OF TERMS. The following terms used in this
Agreement when capitalized shall have the following meanings:
(a) ACCRUED SALARY. "Accrued Salary" shall mean the salary
that has accrued, and the salary that would accrue
through and including the last day of the pay period in
which the termination date of the Executive's Employment
occurs, under Section 6(a) which has not been paid to
the Executive as of that termination date.
(b) ACQUIRING PERSON. "Acquiring Person" shall mean any
person who or which, together with all Affiliates and
Associates of such person, is or are 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
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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. Notwithstanding anything in this definition
of "Acquiring Person" to the contrary, no Exempt Person
shall be deemed to be or become an "Acquiring Person" or
an Affiliate or Associate of any other person for
purposes of this definition.
(c) AFFILIATE. "Affiliate" has the meaning ascribed to that
term in Exchange Act Rule 12b-2.
(d) ASSOCIATE. "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 that 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 its equity securities, (ii) any
trust or other estate in which that person has a
substantial beneficial interest or for or of which that
person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of that
person, or any relative of that spouse, who has the same
home as that person.
(e) BENEFICIAL OWNER. A specified person shall be deemed the
"Beneficial Owner" of, and shall be deemed to
"beneficially own," any securities:
(i) of which that person or any of that person's
Affiliates or Associates, directly or indirectly,
is the "beneficial owner" (as determined pursuant
to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), 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 that security
if that agreement, arrangement or understanding:
(A) arises solely from a revocable proxy or
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consent given in response to a public (that is,
not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent
solicitation made pursuant to, and in accordance
with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such person
on Exchange Act Schedule 13D (or any comparable or
successor report);
(ii) which that person or any of that person's
Affiliates or Associates, directly or indirectly,
has the right or obligation to acquire (whether
that 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 on 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,"
securities tendered pursuant to a tender or
exchange offer made by that person or any of that
person's Affiliates or Associates until those
tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other person (or any
Affiliate or Associate thereof) with which the
specified person or any of the specified 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 Exchange Act Rule
13d-5(b)) of which that specified person is a
member;
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 that
person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days
after the date of that 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
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an authorization (within the meaning of Section 14(a) of
the Exchange Act) in respect of such security.
(f) CAUSE. "Cause" shall mean that the Executive has
(i) willfully breached or habitually neglected
(otherwise than by reason of injury or physical or
mental illness) the duties which he was required
to perform under the terms of this Agreement, or
(ii) committed act(s) of dishonesty, fraud or
misrepresentation or other act(s) of moral
turpitude that would prevent the effective
performance of his duties under this Agreement.
(g) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events that occurs
after the IPO Closing Date: (i) any person becomes an
Acquiring Person; (ii) a merger of the Company with or
into, or a sale by the Company of its properties and
assets substantially as an entirety to, another person
occurs and, immediately after that occurrence, any
person, other than an Exempt Person, together with all
Affiliates and Associates of such person, shall be the
Beneficial Owner of 15% or more of the total voting
power of the then outstanding Voting Shares of the
person surviving that transaction (in the case or a
merger or consolidation) or the person acquiring those
properties and assets substantially as an entirety; or
(iii) Philip Services Corp., together with all its
Affiliates (collectively, "Philip"), shall become the
Beneficial Owner of 65% or more of the shares of Common
Stock then outstanding.
(h) COMPANY. "Company" shall mean (i) The Safe Seal Company,
Inc., a Texas corporation, and (ii) any person that
assumes the obligations of "the Company" hereunder, by
operation of law, pursuant to Section 16 or otherwise.
(i) COMPENSATION PLAN. "Compensation Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer or any
member of the immediate family of any Executive Officer
by reason of his status as such, (i) including (A) any
"employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of
1974, as amended
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("ERISA")) or other "employee benefit plan" (as defined
in Section 3(3) of ERISA), (B) any other retirement or
savings plan, including any supplemental benefit
arrangement relating to any plan intended to be
qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or whose benefits
are limited by the Code or ERISA, (C) any "employee
welfare plan" (as defined in Section 3(1) of ERISA), (D)
any arrangement, plan, policy, practice or program
providing for severance pay, deferred compensation or
insurance benefit, (E) any Incentive Plan and (F) any
arrangement, plan, policy, practice or program (1)
authorizing and providing for the payment or
reimbursement of expenses attributable to air travel and
hotel occupancy while traveling on business for the
Company or (2) providing for the payment of business
luncheon and country club dues, long-distance charges,
mobile phone monthly air time or other recurring monthly
charges or any other fringe benefit, allowance or
accommodation of employment, but (ii) excluding any
compensation arrangement, plan, policy, practice or
program to the extent it provides for annual base
salary.
(j) DISABILITY. "Disability" shall mean that the Executive
has been unable to perform his essential duties under
this Agreement for a period of at least six consecutive
months as a result of his incapacity due to injury or
physical or mental illness.
(k) EMPLOYMENT. "Employment" shall mean the salaried
employment of the Employee by the Company or a
subsidiary of the Company hereunder.
(l) EXECUTIVE OFFICER. "Executive Officer" shall mean any of
the chairman of the board, the chief executive officer,
the chief operating officer, the chief financial
officer, the president, any executive, regional or other
group or senior vice president or any vice president of
the Company.
(m) EXEMPT PERSON. "Exempt Person" shall mean: (i)(A) the
Company, any subsidiary of the Company, any employee
benefit plan of the Company or any subsidiary of the
Company and (B) 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; (ii) the
Executive, any Affiliate of the Executive which the
Executive controls or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which the
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Executive or any such Affiliate is a member; and (iii)
so long as Philip remains the Beneficial Owner of 15% or
more of the outstanding shares of Common Stock, Philip.
(n) GOOD CAUSE. "Good Cause" for the Employee's termination
of his Employment shall mean: (i) any decrease in the
annual base salary under Section 6(a) or any other
violation hereof in any material respect by the Company;
(ii) any material reduction in the Executive's
compensation under Section 6; (iii) the assignment to
the Employee of duties inconsistent in any material
respect with the Employee's then current positions
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities or
any other action by the Company which results in a
material diminution in those positions, authority,
duties or responsibilities; (iv) William E. Haynes
ceases for any reason to be the CEO at any time prior to
the IPO Closing Date; or (v) the occurrence of a Change
of Control.
(o) INCENTIVE PLAN. "Incentive Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer and
which provides for incentive, bonus or other
performance-based awards of cash, securities, the
phantom equivalent of securities or other property,
including any stock option, stock appreciation right and
restricted stock plan, but excluding any plan intended
to qualify as a plan under any one or more of Sections
401(a), 401(k) or 423 of the Code.
(p) IPO. "IPO" shall mean the first time a registration
statement filed under the Securities Act of 1933, as
amended (the "Securities Act"), and respecting an
underwritten primary offering by Innovative Valve
Technologies, Inc. ("Invatec") of shares of its Common
Stock ("IVT Common Stock") is declared effective under
that act and the shares registered by that registration
statement are issued and sold by Invatec (otherwise than
pursuant to the exercise of any over-allotment option).
(q) IPO CLOSING DATE. "IPO Closing Date" shall mean the date
on which Invatec first receives payment for the shares
of IVT Common Stock it sells in the IPO.
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(r) IPO PRICE. "IPO Price" shall mean the price per share at
which the IVT Common Stock is initially offered to the
public in the IPO.
(s) OTHER EARNED COMPENSATION. "Other Earned Compensation"
shall mean all the compensation earned by the Executive
prior to the termination date of his Employment as a
result of his Employment (including compensation the
payment of which has been deferred by the Executive, but
excluding Accrued Salary and compensation to be paid to
the Executive in accordance with the terms of any
Compensation Plan), together with all accrued interest
or earnings, if any, thereon, which has not been paid to
the Executive as of that date.
(t) REIMBURSABLE EXPENSES. "Reimbursable Expenses" shall
mean the expenses incurred by the Executive on or prior
to the termination date of his Employment which are to
be reimbursed to the Executive under Section 6(c) and
which have not been reimbursed to the Executive as of
that date.
(u) SEVERANCE BENEFIT. "Severance Benefit" shall mean the
sum of: (i) the amount equal to the product of (A) the
Applicable Monthly Salary Rate multiplied by (B) the
greater of (1) 24 and (2) the sum of 12 plus the number
(rounded to the next highest whole number, if not a
whole number) equal to the quotient of (a) the number of
whole and partial months during which the Executive has
remained in his Employment prior to the end of the month
in which the termination date of his Employment occurs
divided by (b) 12 (provided, however, that if the
Executive's Employment is terminated pursuant to Section
8(d) because a Change of Control has occurred, the sum
determined pursuant to this clause (2) shall not exceed
36); and (ii) the amount equal to the greater of (A)
twice the target amount of all incentive awards or
payments that would have been owing to the Executive for
the Company's fiscal year in which the termination date
of the Executive's Employment occurs were the
Executive's Employment to have continued to the end of
that fiscal year, regardless of the level of attainment
of the performance objectives for that fiscal year, (B)
twice the amount of the highest aggregate amount of all
incentive awards and payments made to the Executive for
any fiscal year of the Company prior to that fiscal year
or (C) if the Executive's Employment is terminated prior
to the payment of any incentive payment or award to the
Executive for his services hereunder during the
Company's fiscal year ended December 31, 1997, $245,000.
As used herein, "Applicable Monthly Salary Rate" shall
mean 1/12th of the higher of (i) the annual salary rate
in effect under Section 6(a)
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immediately prior to the termination date of the
Executive's Employment and (ii) the highest annual
salary rate theretofore in effect under Section 6(a) for
any period.
11. NON-COMPETITION CLAUSE. In addition to his obligations as an
executive and whether or not he remains an executive of the Company,
the Executive agrees that during the period commencing with the
Effective Date and ending upon the second anniversary of the
termination date of his Employment following termination of his
Employment under any of Section 8(b), (c), (e) or (f), he will not,
without the prior written consent of the Company, engage, directly
or indirectly, in any business that sells any industrial valves or
performs any industrial-valve services in competition with the
Company or any subsidiary of the Company in any area within any
"Territory" surrounding any service facility of the Company or any
subsidiary of the Company (determined as of that termination date).
For purposes of this Section 11, the "Territory" surrounding any
service facility will be: (i) the city, town or village in which
that service facility is located; (ii) the county or parish in which
that service facility is located; (iii) the counties or parishes
contiguous to the county or parish in which that service facility is
located; (iv) the area located within 50 miles of that service
facility; (v) the area located within 100 miles of that service
area; and (vi) the area in which that service facility regularly
provides services at the locations of its customers.
12. REGISTRATION RIGHTS; LEGEND.
(a) As used in this Section 12, the term "Registrable Stock" shall
mean the Award Shares and the shares of Common Stock issuable
on the exercise of the Options (the "Option Shares").
(b) As soon as is practicable following the IPO Closing Date, the
Company will file a registration statement on Form S-8 under
the Securities Act to register the Option Shares (which
registration statement may be the registration statement that
registers all the shares of Common Stock reserved or to be
available for issuance pursuant to the 1997 Incentive Plan).
(c) Prior to July 15, 1997, the Company will execute and deliver
to the Executive a registration rights agreement in
substantially the form delivered to the Executive.
(d) The Executive represents that the Registrable Stock and the
Options are being acquired for investment only and not with a
view toward the resale or distribution thereof. The Executive
is willing and able to bear the economic risk of an investment
in the Registrable Stock, has no need for liquidity with
respect thereto and is able to sustain a complete loss of his
investment. The
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Executive agrees and understands that the shares of
Registrable Stock are restricted securities as defined in Rule
144 promulgated under the Securities Act and may not be sold,
assigned or transferred except in a registered offering under
the Securities Act and applicable blue sky laws, or pursuant
to an exemption therefrom. The following legend shall be set
forth on each certificate representing the Award Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES CANNOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT UPON (1) SUCH REGISTRATION, OR (2) DELIVERY TO THE
ISSUER OF THESE SECURITIES OF AN OPINION OF COUNSEL,
REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER OR (3) SUBMISSION TO THE ISSUER OF
THESE SECURITIES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO
THE ISSUER, TO THE EFFECT THAT ANY SUCH SALE, PLEDGE,
HYPOTHECATION OR TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE
SECURITIES LAWS OR ANY RULES OR REGULATIONS PROMULGATED
THEREUNDER."
13. TAX INDEMNITY. Should any of the payments of salary, other incentive
or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment
in the nature of compensation, singly, in any combination or in the
aggregate, that are provided for hereunder to be paid to or for the
benefit of the Executive be determined or alleged to be subject to
an excise or similar purpose tax pursuant to Section 4999 of the
Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning
of Section 280G of the Code), the Company shall pay to the Executive
such additional compensation as is necessary (after taking into
account all federal, state and local taxes payable by the Executive
as a result of the receipt of such additional compensation) to place
the Executive in the same after-tax position (including federal,
state and local taxes) he would have been in had no such excise or
similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional
compensation within the earlier to occur of (i) five business days
after the Executive notifies the Company that the Executive intends
to file a tax return taking the position that such excise or similar
purpose tax is due and payable in reliance on a written opinion of
the Executive's tax counsel (such tax counsel to be chosen solely by
the Executive) that it is more likely than not that such excise tax
is due and payable or (ii) 24 hours of any notice of or action by
the Company that it intends to take the position that such excise
tax is due
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and payable. The costs of obtaining the tax counsel opinion referred
to in clause (i) of the preceding sentence shall be borne by the
Company, and as long as such tax counsel was chosen by the Executive
in good faith, the conclusions reached in such opinion shall not be
challenged or disputed by the Company. If the Executive intends to
make any payment with respect to any such excise or similar purpose
tax as a result of an adjustment to the Executive's tax liability by
any federal, state or local tax authority, the Company will pay such
additional compensation by delivering its cashier's check payable in
such amount to the Executive within five business days after the
Executive notifies the Company of his intention to make such
payment. Without limiting the obligation of the Company hereunder,
the Executive agrees, in the event the Executive makes any payment
pursuant to the preceding sentence, to negotiate with the Company in
good faith with respect to procedures reasonably requested by the
Company which would afford the Company the ability to contest the
imposition of such excise or similar purpose tax; provided, however,
that the Executive will not be required to afford the Company any
right to contest the applicability of any such excise or similar
purpose tax to the extent that the Executive reasonably determines
(based upon the opinion of his tax counsel) that such contest is
inconsistent with the overall tax interests of the Executive.
14. LOCATIONS OF PERFORMANCE. The Executive's services shall be
performed primarily in the vicinity of Houston, Texas. The parties
acknowledge, however, that the Executive may be required to travel
in connection with the performance of his duties hereunder.
15. PROPRIETARY INFORMATION.
(a) The Executive agrees to comply fully with the Company's
policies relating to non-disclosure of the Company's trade
secrets and proprietary information and processes. Without
limiting the generality of the foregoing, the Executive will
not, during the term of his Employment, disclose any such
secrets, information or processes to any person, firm,
corporation, association or other entity for any reason or
purpose whatsoever except as may be required by law or
governmental agency or legal process, nor shall the Executive
make use of any such property for his own purposes or for the
benefit of any person, firm, corporation or other entity
(except the Company or any of its subsidiaries) under any
circumstances during or after the term of his Employment,
provided that after the term of his Employment this provision
shall not apply to secrets, information and processes that are
then in the public domain (provided that the Executive was not
responsible, directly or indirectly, for such secrets,
information or processes entering the public domain without
the Company's consent).
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(b) The Executive hereby sells, transfers and assigns to the
Company all the entire right, title and interest of the
Executive in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and
copyrightable material, to the extent (i) made or conceived by
the Executive solely or jointly with others during the term of
this Agreement and (ii) relating to or used or useful in the
design, manufacture, assembly, operation, maintenance, repair,
reconditioning or remanufacturing of batch or continuous
process systems or units and their component parts and related
equipment and tools, including, without limitation, industrial
valves and their component parts and packing materials and
other process system components (collectively "Valve
Technology"). The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests,
all information, details and data pertaining to the
aforementioned Valve Technology; and, whether during the term
hereof or thereafter, the Executive shall execute and deliver
to the Company such formal transfers and assignments and such
other papers and documents as may be required of the Executive
to permit the Company to file and prosecute any patent
applications relating to such Valve Technology and, as to
copyrightable material, to obtain copyright thereon.
(c) Trade secrets, proprietary information and processes shall not
be deemed to include information which is:
(i) known to the Executive at the time it is disclosed to
him;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law or legal process;
provided, however, that in the event of a proposed
disclosure pursuant to this subsection (c)(v), the
Executive shall give the Company prior written notice
before such disclosure is made.
16. ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided that the Company may assign this Agreement, in connection
with a merger or consolidation involving the Company or a sale of
its business, properties and assets substantially as an entirety to
the surviving corporation or purchaser as the case may be, so long
as such assignee assumes the Company's obligations hereunder. The
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Company shall require any successor (direct or indirect (including,
without limitation, by becoming the sole stockholder of the Company)
and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company
substantially as an entirety expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the
Company would have been required to perform it had no such
succession taken place. This Agreement shall be binding upon all
successors and assigns.
17. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered
mail to the Executive at his residence maintained on the Company's
records, or to the Company at its address at 14900 Woodham Drive,
Suite A-125, Houston, Texas, 77073, Attention: Chief Executive
Officer, or such other addresses as either party shall notify the
other in accordance with the above procedure.
18. FORCE MAJEURE. Neither party shall be liable to the other for any
delay or failure to perform hereunder, which delay or failure is due
to causes beyond the control of said party, including, but not
limited to: acts of God; acts of the public enemy; acts of the
United States of America or any state, territory or political
subdivision thereof or of the District of Columbia; fires; floods;
epidemics; quarantine restrictions; strikes; or freight embargoes;
provided, however, that this Section 18 will not relieve the Company
of any of its payment obligations to the Executive under this
Agreement. Notwithstanding the foregoing provisions of this Section
18, in every case the delay or failure to perform must be beyond the
control and without the fault or negligence of the party claiming
excusable delay.
19. INTEGRATION. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof
and supersedes all prior or contemporaneous agreements whether
written or oral. No waiver, alteration or modification of any of the
provisions of this Agreement shall be binding unless in writing and
signed by duly authorized representatives of the parties hereto.
20. WAIVER. Failure or delay on the part of either party hereto to
enforce any right, power or privilege hereunder shall not be deemed
to constitute a waiver thereof. Additionally, a waiver by either
party of a breach of any promise herein by the other party shall not
operate as or be construed to constitute a waiver of any subsequent
breach by such other party.
21. SAVINGS CLAUSE. If any term, covenant or condition of this Agreement
or the application thereof to any person or circumstance shall to
any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such term, covenant or condition to
persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each
term, covenant
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or condition of this Agreement shall be valid and enforced to the
fullest extent permitted by law.
22. AUTHORITY TO CONTRACT. The Company warrants and represents to the
Executive that the Company has full authority to enter into this
Agreement and to consummate the transactions contemplated hereby and
that this Agreement is not in conflict with any other agreement to
which the Company is a party or by which it may be bound. The
Company further warrants and represents to the Executive that the
individual executing this Agreement on behalf of the Company has the
full power and authority to bind the Company to the terms hereof and
has been authorized to do so in accordance with the Company's
articles or certificate of incorporation and bylaws.
23. PAYMENT OF EXPENSES. If at any time during the term hereof or
afterwards: (a) there should exist a dispute or conflict between the
Executive and the Company or another Person as to the validity,
interpretation or application of any term or condition hereof, or as
to the Executive's entitlement to any benefit intended to be
bestowed hereby, which is not resolved to the satisfaction of the
Executive, (b) the Executive must (i) defend the validity of this
Agreement or (ii) contest any determination by the Company
concerning the amounts payable (or reimbursable) by the Company to
the Executive or (c) the Executive must prepare responses to an
Internal Revenue Service ("IRS") audit of, or otherwise defend, his
personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or
civil litigation arising therefrom, which is occasioned by or
related to an audit by the IRS of the Company's income tax returns,
then the Company hereby unconditionally agrees: (a) on written
demand of the Company by the Executive, to provide sums sufficient
to advance and pay on a current basis (either by paying directly or
by reimbursing the Executive) not less than 30 days after a written
request therefor is submitted by the Executive, the Executive's out
of pocket costs and expenses (including attorney's fees, expenses of
investigation, travel, lodging, copying, delivery services and
disbursements for the fees and expenses of experts, etc.) incurred
by the Executive in connection with any such matter; (b) the
Executive shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction
without the necessity of posting any bond with respect thereto which
compels the Company to pay or advance such costs and expenses on a
current basis; and (c) the Company's obligations under this Section
23 will not be affected if the Executive is not the prevailing party
in the final resolution of any such matter unless it is determined
pursuant to Section 25 that, in the case of one or more of such
matters, the Executive has acted in bad faith or without a
reasonable basis for his position, in which event and, then only
with respect to such matter or matters, the successful or prevailing
party or parties shall be entitled to recover from the Executive
reasonable attorneys' fees and other costs incurred in connection
with that matter or matters (including the amounts paid by the
Company in respect of that
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matter or matters pursuant to this Section 23), in addition to any
other relief to which it or they may be entitled.
24. REMEDIES. In the event of a breach by the Executive of Section 11 or
15 of this Agreement, in addition to other remedies provided by
applicable law, the Company will be entitled to issuance of a
temporary restraining order or preliminary injection enforcing its
rights under such Section.
25. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this
Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with its Commercial Rules,
except as modified herein.
(a) The arbitrator shall be selected as follows: in the event the
Company and the Executive agree on one arbitrator, the
arbitration shall be conducted by such arbitrator. In the
event the Company and the Executive do not so agree, the
Company and the Executive shall each select one independent,
qualified arbitrator, and the two arbitrators so selected
shall select the third arbitrator. The arbitrator(s) are
herein referred to as the "Panel." The Company reserves the
right to object to any individual arbitrator who shall be
employed by or affiliated with a competing organization.
(b) Arbitration shall take place at Houston, Texas, or any other
location mutually agreeable to the parties. At the request of
either party, arbitration proceedings will be conducted in the
utmost secrecy; in such case all documents, testimony and
records shall be received, heard and maintained by the Panel
in secrecy, available for inspection only by the Company or
the Executive and their respective attorneys and their
respective experts, who shall agree in advance and in writing
to receive all such information confidentially and to maintain
such information in secrecy until such information shall
become generally known. The Panel shall be able to award any
and all relief, including relief of an equitable nature. The
award rendered by the Panel may be enforceable in any court
having jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall
be given to all parties and any interested persons as shall be
required by law.
(d) The Company will pay all the fees and out-of-pocket expenses
of each arbitrator selected pursuant to this Section 25.
26. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to its
conflicts of law principles.
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27. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
28. INDEMNIFICATION. The Executive shall be indemnified by the Company
to the maximum permitted by the law of the state of the Company's
incorporation, and by the law of the state of incorporation of any
subsidiary of the Company of which the Executive is a director or an
officer or employee, as the same may be in effect from time to time.
29. INTEREST. If any amounts required to be paid or reimbursed to the
Executive hereunder are not so paid or reimbursed at the times
provided herein (including amounts required to be paid by the
Company pursuant to Sections 6, 13 and 23), those amounts shall
accrue interest compounded daily at the annual percentage rate which
is three percentage points above the interest rate shown as the
Prime Rate in the Money Rates column in the then most recently
published edition of THE WALL STREET JOURNAL (Southwest Edition),
or, if such rate is not then so published, on at least a weekly
basis, the interest rate announced by Chase Manhattan Bank (or its
successor), from time to time, as its Base Rate (or prime lending
rate), from the date those amounts were required to have been paid
or reimbursed to the Executive until those amounts are finally and
fully paid or reimbursed; provided, however, that in no event shall
the amount of interest contracted for, charged or received hereunder
exceed the maximum non-usurious amount of interest allowed by
applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date hereinabove first written.
THE SAFE SEAL COMPANY, INC.
By:________________________________________
William E. Haynes
President and Chief Executive Officer
EXECUTIVE:
________________________________________
Charles F. Schugart
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EXHIBIT 10.4
D. A. Rigas
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
May 6, 1997 (the "Effective Date"), by and between Innovative Valve
Technologies, Inc., a Delaware corporation (the "Company"), and D. A. Rigas (the
"Executive") and is amended and restated as of October 15, 1997.
RECITAL:
WHEREAS, the Company desires to employ the Executive, and the
Executive agrees to work in the employ of the Company, and
WHEREAS, the parties hereto desire to set forth the terms of
Executive's Employment with the Company,
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive, and the
Executive hereby accepts Employment, on the terms and
conditions herein set forth.
2. DUTIES. (a) The Company will employ the Executive as Senior
Vice President -- Technology & Marketing ("SVP") of the
Company, (b) the Executive will serve in the Company's employ
in that position and (c) under the direction of the Board of
Directors of the Company (the "Board") or the Chief Executive
Officer of the Company (the "CEO"), the Executive shall
perform such duties, and have such powers, authority,
functions, duties and responsibilities for the Company and
corporations and other entities affiliated with the Company as
are commensurate and consistent with his employment in the
position of SVP. The Executive also shall have such additional
powers, authority, functions, duties and responsibilities as
may be assigned to him by the Board or the CEO; provided that,
without the Executive's written consent, those additional
powers, authority, functions, duties and responsibilities
shall not be inconsistent or interfere with, or detract from,
those herein vested in, or otherwise then being performed for
the Company by, the Executive. In the event of an increase in
the Executive's duties, the CEO shall review the Executive's
compensation and benefits to determine if an adjustment in
compensation and employee benefits commensurate with the
Executive's new duties is warranted, in accordance with the
Company's
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compensation policies and subject to approval by the
Compensation Committee of the Board (the "Compensation
Committee").
3. TERM OF EMPLOYMENT. Subject to the provisions of Section 8,
the term of the Executive's Employment hereunder shall
commence on June 9, 1997, for a continually renewing term of
two years commencing on that date and renewing each day
thereafter for an additional day without any further action by
either the Company or the Executive, it being the intention of
the parties that there shall be continuously a remaining term
of two years' duration of the Executive's Employment until an
event has occurred as described in, or one of the parties
shall have made an appropriate election pursuant to, the
provisions of Section 8. When the termination date of the
Executive's Employment shall have occurred and the Company
shall have paid to the Executive all the applicable amounts
that Section 9 provides the Company shall pay as a result of
the termination of the Executive's Employment, this Agreement
will terminate and have no further force or effect, except
that Sections 15 through 29 shall survive that termination
indefinitely and Section 11 shall survive for the period of
time provided for therein.
4. EXTENT OF SERVICES. The Executive shall not at any time during
his Employment engage in any other activities unless those
activities do not interfere materially with the Executive's
duties and responsibilities to the Company at that time. The
foregoing, however, shall not preclude the Executive from
engaging in appropriate civic, charitable, professional or
trade association activities or from serving on one or more
boards of directors of public companies, as long as such
activities and services do not conflict with his
responsibilities to the Company.
5. RELOCATION. In consideration of the Executive's Employment
hereunder, the Executive will move his principal place of
residence from California to the Houston, Texas area. The
Executive estimates that the cost of this relocation will be
from $100,000 to $110,000, and the Company will, on the
Executive's submission of appropriate invoices and receipts,
pay directly or reimburse the Executive for all the reasonable
costs and expenses the Executive incurs in moving his
household from California to the Houston, Texas area, provided
that the Company's liability therefor shall not exceed
$130,000. The Company agrees to advance to the Executive prior
to the date of that moving up to $100,000 for which the
Executive may provide appropriate invoices or receipts at a
later date. Once the Executive has relocated his principal
place of residence to the Houston, Texas area, the Executive
shall not be required to move his principal place of residence
from the Houston, Texas area or to perform regular duties that
could reasonably be expected to require either such move
against his wish or to spend amounts of
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time each week outside the Houston, Texas area which are
unreasonable in relation to the duties and responsibilities of
the Executive hereunder, and the Company agrees that, if it
requests the Executive to make such a move and the Executive
declines that request, (a) that declination shall not
constitute any basis for a termination of the Executive's
Employment and (b) no animosity or prejudice will be held
against Executive.
6. COMPENSATION.
(a) SALARY. An annual base salary shall be payable to the
Executive by the Company as a guaranteed minimum amount
under this Agreement for each calendar year during the
period from the Effective Date to the termination date
of the Executive's Employment. That annual base salary
shall (i) accrue daily on the basis of a 365-day year,
(ii) be payable to the Executive in the intervals
consistent with the Company's normal payroll schedules
(but in no event less frequently than semi-monthly) and
(iii) be payable at an initial annual rate of $175,000.
The Executive's annual base salary shall not be
decreased, but shall be adjusted annually in each
December to reflect such adjustments, if any, as the CEO
determines appropriate based on the Executive's
performance during the most recent performance period,
in accordance with the Company's compensation policies
and subject to the approval of the Compensation
Committee. A failure of the Company to increase the
Executive's annual base salary would not constitute a
breach or violation of this Agreement by the Company.
(b) STOCK SALE AND STOCK OPTIONS. The Company shall sell to
the Executive, and the Executive shall purchase from the
Company, effective as of the Effective Date, 50,000
shares of the Company's authorized and unissued common
stock, par value $.001 per share (the "Common Stock"),
for a cash purchase price of $.001 per share. The
Company shall also grant to the Executive effective as
of the Effective Date (i) a nonqualified stock option to
purchase 50,000 shares of Common Stock from the Company
at an exercise price per share equal to the IPO Price
and (ii) a nonqualified option to purchase 50,000 shares
of Common Stock from the Company at an exercise price
per share equal to the lesser of (A) $9.00 and (B) the
IPO Price (each option being an "Option"). The term of
each Option shall be seven years from the IPO Closing
Date. Each Option will become exercisable with respect
to 25% of the shares of Common Stock covered thereby on
each of the IPO Closing Date and the first three
anniversaries of the IPO Closing Date, subject to
acceleration
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as provided in this Section 6(b). Neither the number of
shares of Common Stock subject to, nor the exercise
price established by, either Option will be subject to
any adjustment by reason of any direct or indirect
combination of the outstanding Common Stock prior to the
IPO Closing Date. The Executive agrees that the Options
shall be evidenced by award agreements under the
Innovative Valve Technologies, Inc. 1997 Incentive Plan
(the "1997 Incentive Plan"). If the Executive's
Employment is terminated under Section 8(a), (b) or (d)
prior to the fifth anniversary of the IPO Closing Date,
the Options will, notwithstanding any contrary provision
of any Incentive Plan or any award agreement evidencing
the Options thereunder, (i) become, to the extent not
already exercisable, exercisable in whole on the
termination date of the Executive's Employment and (ii)
remain exercisable at least until the date that is the
second anniversary of that termination date. If the
Executive's Employment is terminated under Section 8(e)
prior to the fifth anniversary of the IPO Closing Date,
the Options will, notwithstanding any contrary provision
of any Incentive Plan or any award agreement evidencing
the Options thereunder, (i) become, to the extent not
already exercisable, exercisable on each anniversary of
the IPO Closing Date, as provided above, and (ii) remain
exercisable (to the extent then and thereafter
exercisable) at least until the date that is the seventh
anniversary of the IPO Closing Date. If the Executive's
Employment is terminated under Section 8(c) or (f), the
Options, to the extent they are outstanding and
exercisable as of the time immediately prior to the
termination date of the Executive's Employment, will
remain outstanding and continue to be exercisable until
the date that is 10 days after that termination date (or
such later date, if any, as the Incentive Plan covering
the Options or any award agreement evidencing the
Options shall prescribe in the case of the termination
of the Executive's Employment under the circumstances
covered by Section 8(c) or (f), as the case may be).
(c) OTHER COMPENSATION. The Executive shall be entitled to
participate in all Compensation Plans from time to time
in effect while in the Employment of the Company,
regardless of whether the Executive is an Executive
Officer. All awards to the Executive under all Incentive
Plans shall take into account the Executive's positions
with and duties and responsibilities to the Company and
its subsidiaries and affiliates.
Without limiting the generality of the foregoing, the
Executive shall be eligible for an annual incentive
award in accordance with the Annual Incentive Plan (the
"AIP") currently being developed as a part of the 1997
Incentive Plan, or such other plan as may be substituted
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for the AIP, and subject to the approval of the
Compensation Committee. The actual target amount of the
Executive's annual bonus under the AIP is currently
unknown, although the Company and the Executive
contemplate it will be 70% of the Executive's annual
salary under Section 6(a). The Executive's rights to
benefits at the termination of his Employment under the
Compensation Plans shall be governed by the provisions
of those plans.
(d) EXPENSES. The Executive shall be entitled to prompt
reimbursement of all reasonable business expenses
incurred by him in the performance of his duties during
the term of this Agreement, subject to the presenting of
appropriate vouchers and receipts in accordance with the
Company's policies.
7. OTHER BENEFITS.
(a) EMPLOYEE BENEFITS AND PROGRAMS. During the term of this
Agreement, the Executive and the members of his
immediate family shall be entitled to participate in any
employee benefit plans or programs of the Company to the
extent that his position, tenure, salary, age, health
and other qualifications make him or them, as the case
may be, eligible to participate, subject to the rules
and regulations applicable thereto.
(b) COUNTRY CLUB MEMBERSHIPS. The Company shall pay the
first $15,000 of any initial membership fee for the
Executive to join a country club in the Houston, Texas
area, plus the monthly membership fee (up to $300 per
month) with respect thereto throughout the term of this
Agreement.
(c) BRIDGE LOANS. The Company shall extent an interest-free
loan to the Executive of up to $100,000 (the "Bridge
Loan") on (i) at least 10 business days prior written
notice from the Executive and (ii) execution by the
Executive of a mutually acceptable unsecured promissory
note evidencing the Bridge Loan. The entire amount of
the Bridge Loan shall mature and become due and payable
upon the earlier of (i) June 9, 1999 or (ii) termination
of the Executive's Employment hereunder for any reason.
At the option of the Executive or the Company, the
Bridge Loan may be repaid in accordance with the terms
hereof out of, or offset against, any bonus or other
amount payable to the Executive hereunder.
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(d) VACATION. The Executive shall be entitled to four weeks
of vacation leave with full pay during each year of this
Agreement (each such year being a 12-month period ending
on May 6). The times for such vacations shall be
selected by the Executive, subject to the prior approval
of the Company. The Executive may accrue up to eight
weeks of vacation time from year to year, but vacation
time otherwise shall not accrue from year to year.
(e) CAR ALLOWANCE. The Executive shall be furnished with an
automobile allowance in the aggregate amount of (i) $800
per month, for payment of all costs and expenses
incurred by the Executive relating to the purchase,
lease or operation of an automobile by the Executive
(other than fuel expenses), including but not limited to
oil, repair and maintenance costs and expenses, plus
(ii) the actual amount of the fuel expenses incurred by
the Executive in operating such automobile.
8. TERMINATION. The Executive's Employment hereunder may be
terminated prior to the term provided for in Section 3 only
under the following circumstances:
(a) DEATH. The Executive's Employment shall terminate
automatically on the date of his death.
(b) DISABILITY. If a Disability occurs and is continuing,
the Executive's Employment shall terminate 30 days after
the Company gives the Executive written notice that it
intends to terminate his Employment on account of that
Disability or on such later date as the Company
specifies in such notice. If the Executive resumes the
performance of substantially all his duties under this
Agreement before the termination becomes effective, the
notice of intent to terminate shall be deemed to have
been revoked.
(c) VOLUNTARY TERMINATION. The Executive may terminate his
Employment at any time and without Good Cause with 30
days' prior written notice to the Company.
(d) TERMINATION FOR GOOD CAUSE. The Executive may terminate
his Employment for Good Cause at any time within 180
days (730 days if the Good Cause is the occurrence of a
Change of Control) after the Executive becomes
consciously aware that the facts and circumstances
constituting that Good Cause exist and are continuing by
giving the Company 14 days' prior written notice that
the
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Executive intends to terminate his Employment for Good
Cause, which notice will identify that Good Cause;
provided, however, that if a Change of Control occurs,
the Executive shall not have Good Cause to terminate his
Employment solely by reason of the occurrence of that
event until 270 days after that occurrence.
(e) INVOLUNTARY TERMINATION. The Executive's Employment is
at will. The Company reserves the right to terminate the
Executive's Employment at anytime whatsoever, without
cause, with 14 days' prior written notice to the
Executive.
(f) INVOLUNTARY TERMINATION FOR CAUSE. The Company reserves
the right to terminate the Executive's Employment for
Cause. In the event that the Company determines that
Cause exists under Section 10(f)(i) for the termination
of the Executive's Employment, the Company shall provide
in writing (the "Notice of Cause") the basis for that
determination and the manner, if any, in which the
breach or neglect can be cured. If either the Company
has determined that the breach or neglect cannot be
cured, as set forth in the Notice of Cause, or has
advised the Executive in the Notice of Cause of the
manner in which the breach or neglect can be cured, but
the Executive fails to effect that cure within 30 days
after his receipt of the Notice of Cause, the Company
shall be entitled to give the Executive written notice
of his termination for Cause. In the event that the
Company determines that Cause exists under Section
10(f)(ii) for the termination of the Executive's
Employment, it shall be entitled to terminate the
Executive's Employment without providing a Notice of
Cause or any opportunity prior to that termination to
contest that determination. Any termination of the
Executive's Employment for Cause pursuant to this
Section 8(f) shall be effective immediately upon the
Executive's receipt of the Company's written notice of
that termination and the Cause therefor.
9. SEVERANCE PAYMENTS. If the Executive's Employment is
terminated during the term of this Agreement, the Executive
shall be entitled to receive severance payments as follows:
(a) If the Executive's Employment is terminated under
Section 8(a), (b), (d) or (e), the Company will pay or
cause to be paid to the Executive (or, in the case of a
termination under Section (a), the beneficiary the
Executive has designated in writing to the Company to
receive payment pursuant to this Section 9(a) or, in the
absence of such designation, the Executive's estate):
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(i) the Accrued Salary;
(ii) the Other Earned Compensation;
(iii) the Reimbursable Expenses; and
(iv) the Severance Benefit.
(b) If the Executive's Employment is terminated under
Section 8(c) or (f), the Company will pay or cause to be
paid to the Executive:
(i) the Accrued Salary determined as of the
termination date of the Executive's Employment;
(ii) the Other Earned Compensation; and
(iii) the Reimbursable Expenses.
(c) Any payments to which the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) is
entitled pursuant to paragraph (i) and (iv) of
subsection (a) of this Section 9 or paragraph (i) of
subsection (b) of this Section 9, as applicable, will be
paid in a single lump sum within five days after the
termination date of the Executive's Employment;
provided, however, that if Section 8(a) applies and the
Executive's designated beneficiary or estate is the
beneficiary of one or more insurance policies purchased
by the Company and then in effect the proceeds of which
are payable to that beneficiary by reason of the
Executive's death, then (i) the Company, at its option,
may credit the amount of those proceeds, as and when
paid by the insurer to that beneficiary, against the
payment to which the Executive's designated beneficiary
or estate is entitled pursuant to paragraph (iv) of
subsection (a) of this Section 9 and, if it exercises
that option, (ii) the payment otherwise due pursuant to
that paragraph (iv) will bear interest on the
outstanding balance thereof from and including the fifth
day after that termination date to the date of payment
by the insurer to that beneficiary at the rate of
interest specified in Section 29; and provided, further,
that if Section 8(b) applies and the Executive is the
beneficiary of disability insurance purchased by the
Company and then in effect, the Company, at its option,
may credit the proceeds of that insurance which are
payable to the Executive, valued at their present value
as of that termination date using the interest rate
specified in Section 29 and then in effect as the
discount rate, against the payment to which the
Executive is
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entitled pursuant to paragraph (iv) of subsection (a) of
this Section 9. Any payments to which the Executive (or
his designated beneficiary or estate, if Section 8(a)
applies) is entitled pursuant to paragraphs (ii) and
(iii) of subsection (a) or (b) of this Section 9, as
applicable, will be paid in a single lump sum within
five days after the termination date of the Executive's
Employment or as soon thereafter as is administratively
feasible, together with interest accrued thereon from
and including the fifth date after that termination date
to the date of payment at the rate of interest specified
in Section 29.
(d) Except as provided in Sections 13 and 23 and this
Section, the Company will have no payment obligations
under this Agreement to the Executive (or his designated
beneficiary or estate, if Section 8(a) applies) after
the termination date of the Executive's Employment.
10. DEFINITION OF TERMS. The following terms used in this
Agreement when capitalized shall have the following meanings:
(a) ACCRUED SALARY. "Accrued Salary" shall mean the salary
that has accrued, and the salary that would accrue
through and including the last day of the pay period in
which the termination date of the Executive's Employment
occurs, under Section 6(a) which has not been paid to
the Executive as of that termination date.
(b) ACQUIRING PERSON. "Acquiring Person" shall mean any
person who or which, together with all Affiliates and
Associates of such person, is or are 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
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then outstanding. Notwithstanding anything in this
definition of "Acquiring Person" to the contrary, no
Exempt Person shall be deemed to be or become an
"Acquiring Person" or an Affiliate or Associate of any
other person for purposes of this definition.
(c) AFFILIATE. "Affiliate" has the meaning ascribed to that
term in Exchange Act Rule 12b-2.
(d) ASSOCIATE. "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 that 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 its equity securities, (ii) any
trust or other estate in which that person has a
substantial beneficial interest or for or of which that
person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of that
person, or any relative of that spouse, who has the same
home as that person.
(e) BENEFICIAL OWNER. A specified person shall be deemed the
"Beneficial Owner" of, and shall be deemed to
"beneficially own," any securities:
(i) of which that person or any of that person's
Affiliates or Associates, directly or indirectly,
is the "beneficial owner" (as determined pursuant
to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), 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 that security
if that agreement, arrangement or understanding:
(A) arises solely from a revocable proxy or
consent given in response to a public (that is,
not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent
solicitation made pursuant to, and in accordance
with, the applicable provisions of the Exchange
Act; and (B) is not then reportable by such person
on Exchange Act Schedule 13D (or any comparable or
successor report);
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(ii) which that person or any of that person's
Affiliates or Associates, directly or indirectly,
has the right or obligation to acquire (whether
that 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 on 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,"
securities tendered pursuant to a tender or
exchange offer made by that person or any of that
person's Affiliates or Associates until those
tendered securities are accepted for purchase or
exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other person (or any
Affiliate or Associate thereof) with which the
specified person or any of the specified 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 Exchange Act Rule
13d-5(b)) of which that specified person is a
member;
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 that
person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days
after the date of that 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) in respect of such security.
(f) CAUSE. "Cause" shall mean that the Executive has
(i) willfully breached or habitually neglected
(otherwise than by reason of injury or physical or
mental illness) the duties
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which he was required to perform under the terms
of this Agreement, or
(ii) committed act(s) of dishonesty, fraud or
misrepresentation or other act(s) of moral
turpitude that would prevent the effective
performance of his duties under this Agreement.
(g) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events that occurs
after the IPO Closing Date: (i) any person becomes an
Acquiring Person; (ii) a merger of the Company with or
into, or a sale by the Company of its properties and
assets substantially as an entirety to, another person
occurs and, immediately after that occurrence, any
person, other than an Exempt Person, together with all
Affiliates and Associates of such person, shall be the
Beneficial Owner of 15% or more of the total voting
power of the then outstanding Voting Shares of the
person surviving that transaction (in the case or a
merger or consolidation) or the person acquiring those
properties and assets substantially as an entirety; or
(iii) Philip Services Corp., together with all its
Affiliates (collectively, "Philip"), shall become the
Beneficial Owner of 65% or more of the shares of Common
Stock then outstanding.
(h) COMPANY. "Company" shall mean (i) Innovative Valve
Technologies, Inc., a Delaware corporation, and (ii) any
person that assumes the obligations of "the Company"
hereunder, by operation of law, pursuant to Section 16
or otherwise.
(i) COMPENSATION PLAN. "Compensation Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer or any
member of the immediate family of any Executive Officer
by reason of his status as such, (i) including (A) any
"employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) or other "employee benefit
plan" (as defined in Section 3(3) of ERISA), (B) any
other retirement or savings plan, including any
supplemental benefit arrangement relating to any plan
intended to be qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"),
or whose benefits are limited by the Code or ERISA, (C)
any "employee welfare plan" (as defined in Section 3(1)
of ERISA), (D) any arrangement, plan, policy,
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practice or program providing for severance pay,
deferred compensation or insurance benefit, (E) any
Incentive Plan and (F) any arrangement, plan, policy,
practice or program (1) authorizing and providing for
the payment or reimbursement of expenses attributable to
air travel and hotel occupancy while traveling on
business for the Company or (2) providing for the
payment of business luncheon and country club dues,
long-distance charges, mobile phone monthly air time or
other recurring monthly charges or any other fringe
benefit, allowance or accommodation of employment, but
(ii) excluding any compensation arrangement, plan,
policy, practice or program to the extent it provides
for annual base salary.
(j) DISABILITY. "Disability" shall mean that the Executive
has been unable to perform his essential duties under
this Agreement for a period of at least six consecutive
months as a result of his incapacity due to injury or
physical or mental illness.
(k) EMPLOYMENT. "Employment" shall mean the salaried
employment of the Employee by the Company or a
subsidiary of the Company hereunder.
(l) EXECUTIVE OFFICER. "Executive Officer" shall mean any of
the chairman of the board, the chief executive officer,
the chief operating officer, the chief financial
officer, the president, any executive, regional or other
group or senior vice president or any vice president of
the Company.
(m) EXEMPT PERSON. "Exempt Person" shall mean: (i)(A) the
Company, any subsidiary of the Company, any employee
benefit plan of the Company or any subsidiary of the
Company and (B) 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; (ii) the
Executive, any Affiliate of the Executive which the
Executive controls or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which the Executive or
any such Affiliate is a member; and (iii) so long as
Philip remains the Beneficial Owner of 15% or more of
the outstanding shares of Common Stock, Philip.
(n) GOOD CAUSE. "Good Cause" for the Employee's termination
of his Employment shall mean: (i) any decrease in the
annual base salary
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under Section 6(a) or any other violation hereof in any
material respect by the Company; (ii) any material
reduction in the Executive's compensation under Section
6; (iii) the assignment to the Employee of duties
inconsistent in any material respect with the Employee's
then current positions (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities or any other action by the Company
which results in a material diminution in those
positions, authority, duties or responsibilities; or
(iv) the occurrence of a Change of Control.
(o) INCENTIVE PLAN. "Incentive Plan" shall mean any
compensation arrangement, plan, policy, practice or
program established, maintained or sponsored by the
Company or any subsidiary of the Company, or to which
the Company or any subsidiary of the Company
contributes, on behalf of any Executive Officer and
which provides for incentive, bonus or other
performance-based awards of cash, securities, the
phantom equivalent of securities or other property,
including any stock option, stock appreciation right and
restricted stock plan, but excluding any plan intended
to qualify as a plan under any one or more of Sections
401(a), 401(k) or 423 of the Code.
(p) IPO. "IPO" shall mean the first time a registration
statement filed under the Securities Act of 1933, as
amended (the "Securities Act"), and respecting an
underwritten primary offering by the Company of shares
of the Common Stock is declared effective under that act
and the shares registered by that registration statement
are issued and sold by the Company (otherwise than
pursuant to the exercise of any over-allotment option).
(q) IPO CLOSING DATE. "IPO Closing Date" shall mean the date
on which the Company first receives payment for the
shares of the Common Stock it sells in the IPO.
(r) IPO PRICE. "IPO Price" shall mean the price per share at
which the Common Stock is initially offered to the
public in the IPO.
.
(s) OTHER EARNED COMPENSATION. "Other Earned Compensation"
shall mean all the compensation earned by the Executive
prior to the termination date of his Employment as a
result of his Employment (including compensation the
payment of which has been deferred by the Executive, but
excluding Accrued Salary and compensation to be paid to
the Executive in accordance with the terms of any
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<PAGE>
Compensation Plan), together with all accrued interest
or earnings, if any, thereon, which has not been paid to
the Executive as of that date.
(t) REIMBURSABLE EXPENSES. "Reimbursable Expenses" shall
mean the expenses incurred by the Executive on or prior
to the termination date of his Employment which are to
be reimbursed to the Executive under Section 6(c) and
which have not been reimbursed to the Executive as of
that date.
(u) SEVERANCE BENEFIT. "Severance Benefit" shall mean the
sum of: (i) the amount equal to the product of (A) the
Applicable Monthly Salary Rate multiplied by (B) the
greater of (1) 24 and (2) the sum of 12 plus the number
(rounded to the next highest whole number, if not a
whole number) equal to the quotient of (a) the number of
whole and partial months during which the Executive has
remained in his Employment prior to the end of the month
in which the termination date of his Employment occurs
divided by (b) 12 (provided, however, that if the
Executive's Employment is terminated pursuant to Section
8(d) because a Change of Control has occurred, the sum
determined pursuant to this clause (2) shall not exceed
36); and (ii) the amount equal to the greater of (A)
twice the target amount of all incentive awards or
payments that would have been owing to the Executive for
the Company's fiscal year in which the termination date
of the Executive's Employment occurs were the
Executive's Employment to have continued to the end of
that fiscal year, regardless of the level of attainment
of the performance objectives for that fiscal year, (B)
twice the amount of the highest aggregate amount of all
incentive awards and payments made to the Executive for
any fiscal year of the Company prior to that fiscal year
or (C) if the Executive's Employment is terminated prior
to the payment of any incentive payment or award to the
Executive for his services hereunder during the
Company's fiscal year ended December 31, 1997, $210,000.
As used herein, "Applicable Monthly Salary Rate" shall
mean 1/12th of the higher of (i) the annual salary rate
in effect under Section 6(a) immediately prior to the
termination date of the Executive's Employment and (ii)
the highest annual salary rate theretofore in effect
under Section 6(a) for any period.
11. NON-COMPETITION CLAUSE. In addition to his obligations as an
executive and whether or not he remains an executive of the Company,
the Executive agrees that during the period commencing with the
Effective Date and ending upon the second anniversary of the
termination date of his Employment following termination of his
Employment under any of Section 8(b), (c), (e) or (f), he will not,
without the prior written consent
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<PAGE>
of the Company, engage, directly or indirectly, in any business that
sells any products or performs any services in competition with the
Company or any subsidiary of the Company in any area within any
"Territory" surrounding any service facility of the Company or any
subsidiary of the Company (determined as of that termination date).
For purposes of this Section 11, the "Territory" surrounding any
service facility will be: (i) the city, town or village in which
that service facility is located; (ii) the county or parish in which
that service facility is located; (iii) the counties or parishes
contiguous to the county or parish in which that service facility is
located; (iv) the area located within 50 miles of that service
facility; (v) the area located within 100 miles of that service
area; and (vi) the area in which that service facility regularly
provides services at the locations of its customers.
12. REGISTRATION RIGHTS; LEGEND.
(a) As used in this Section 12, the term "Registrable Stock" shall
mean the Award Shares and the shares of Common Stock issuable
on the exercise of the Options (the "Option Shares").
(b) As soon as is practicable following the IPO Closing Date, the
Company will file a registration statement on Form S-8 under
the Securities Act to register the Option Shares (which
registration statement may be the registration statement that
registers all the shares of Common Stock reserved or to be
available for issuance pursuant to the 1997 Incentive Plan).
(c) Prior to July 15, 1997, the Company will execute and deliver
to the Executive a registration rights agreement in
substantially the form delivered to the Executive.
(d) The Executive represents that the Registrable Stock and the
Options are being acquired for investment only and not with a
view toward the resale or distribution thereof. The Executive
is willing and able to bear the economic risk of an investment
in the Registrable Stock, has no need for liquidity with
respect thereto and is able to sustain a complete loss of his
investment. The Executive agrees and understands that the
shares of Registrable Stock are restricted securities as
defined in Rule 144 promulgated under the Securities Act and
may not be sold, assigned or transferred except in a
registered offering under the Securities Act and applicable
blue sky laws, or pursuant to an exemption therefrom. The
following legend shall be set forth on each certificate
representing the Award Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR THE SECURITIES LAWS OF ANY STATE. SUCH
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<PAGE>
SECURITIES CANNOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT UPON (1) SUCH REGISTRATION, OR
(2) DELIVERY TO THE ISSUER OF THESE SECURITIES OF AN OPINION
OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER, THAT
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR (3)
SUBMISSION TO THE ISSUER OF THESE SECURITIES OF OTHER
EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT
THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER SHALL
NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED,
APPLICABLE STATE SECURITIES LAWS OR ANY RULES OR REGULATIONS
PROMULGATED THEREUNDER."
13. TAX INDEMNITY. Should any of the payments of salary, other incentive
or supplemental compensation, benefits, allowances, awards,
payments, reimbursements or other perquisites, or any other payment
in the nature of compensation, singly, in any combination or in the
aggregate, that are provided for hereunder to be paid to or for the
benefit of the Executive be determined or alleged to be subject to
an excise or similar purpose tax pursuant to Section 4999 of the
Code, or any successor or other comparable federal, state or local
tax law by reason of being a "parachute payment" (within the meaning
of Section 280G of the Code), the Company shall pay to the Executive
such additional compensation as is necessary (after taking into
account all federal, state and local taxes payable by the Executive
as a result of the receipt of such additional compensation) to place
the Executive in the same after-tax position (including federal,
state and local taxes) he would have been in had no such excise or
similar purpose tax (or interest or penalties thereon) been paid or
incurred. The Company hereby agrees to pay such additional
compensation within the earlier to occur of (i) five business days
after the Executive notifies the Company that the Executive intends
to file a tax return taking the position that such excise or similar
purpose tax is due and payable in reliance on a written opinion of
the Executive's tax counsel (such tax counsel to be chosen solely by
the Executive) that it is more likely than not that such excise tax
is due and payable or (ii) 24 hours of any notice of or action by
the Company that it intends to take the position that such excise
tax is due and payable. The costs of obtaining the tax counsel
opinion referred to in clause (i) of the preceding sentence shall be
borne by the Company, and as long as such tax counsel was chosen by
the Executive in good faith, the conclusions reached in such opinion
shall not be challenged or disputed by the Company. If the Executive
intends to make any payment with respect to any such excise or
similar purpose tax as a result of an adjustment to the Executive's
tax liability by any federal, state or local tax authority, the
Company will pay such additional compensation by delivering its
cashier's check payable in such amount to the Executive within five
business days after the Executive notifies the Company of his
intention to make such payment. Without limiting the obligation of
the Company hereunder, the Executive
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<PAGE>
agrees, in the event the Executive makes any payment pursuant to the
preceding sentence, to negotiate with the Company in good faith with
respect to procedures reasonably requested by the Company which
would afford the Company the ability to contest the imposition of
such excise or similar purpose tax; provided, however, that the
Executive will not be required to afford the Company any right to
contest the applicability of any such excise or similar purpose tax
to the extent that the Executive reasonably determines (based upon
the opinion of his tax counsel) that such contest is inconsistent
with the overall tax interests of the Executive.
14. LOCATIONS OF PERFORMANCE. The Executive's services shall be
performed primarily in the vicinity of Houston, Texas. The parties
acknowledge, however, that the Executive may be required to travel
in connection with the performance of his duties hereunder.
15. PROPRIETARY INFORMATION.
(a) The Executive agrees to comply fully with the Company's
policies relating to non-disclosure of the Company's trade
secrets and proprietary information and processes. Without
limiting the generality of the foregoing, the Executive will
not, during the term of his Employment, disclose any such
secrets, information or processes to any person, firm,
corporation, association or other entity for any reason or
purpose whatsoever except as may be required by law or
governmental agency or legal process, nor shall the Executive
make use of any such property for his own purposes or for the
benefit of any person, firm, corporation or other entity
(except the Company or any of its subsidiaries) under any
circumstances during or after the term of his Employment,
provided that after the term of his Employment this provision
shall not apply to secrets, information and processes that are
then in the public domain (provided that the Executive was not
responsible, directly or indirectly, for such secrets,
information or processes entering the public domain without
the Company's consent).
(b) The Executive hereby sells, transfers and assigns to the
Company all the entire right, title and interest of the
Executive in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and
copyrightable material, to the extent (i) made or conceived by
the Executive solely or jointly with others during the term of
this Agreement and (ii) relating to or used or useful in the
design, manufacture, assembly, operation, maintenance, repair,
reconditioning or remanufacturing of batch or continuous
process systems or units and their component parts and related
equipment and tools, including, without limitation, industrial
valves and their component parts and packing materials and
other process system components (collectively "Valve
Technology"). The Executive shall communicate
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<PAGE>
promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining
to the aforementioned Valve Technology; and, whether during
the term hereof or thereafter, the Executive shall execute and
deliver to the Company such formal transfers and assignments
and such other papers and documents as may be required of the
Executive to permit the Company to file and prosecute any
patent applications relating to such Valve Technology and, as
to copyrightable material, to obtain copyright thereon.
(c) Trade secrets, proprietary information and processes shall not
be deemed to include information which is:
(i) known to the Executive at the time it is disclosed to
him;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law or legal process;
provided, however, that in the event of a proposed
disclosure pursuant to this subsection (c)(v), the
Executive shall give the Company prior written notice
before such disclosure is made.
16. ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided that the Company may assign this Agreement, in connection
with a merger or consolidation involving the Company or a sale of
its business, properties and assets substantially as an entirety to
the surviving corporation or purchaser as the case may be, so long
as such assignee assumes the Company's obligations hereunder. The
Company shall require any successor (direct or indirect (including,
without limitation, by becoming the sole stockholder of the Company)
and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company
substantially as an entirety expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the
Company would have been required to perform it had no such
succession taken place. This Agreement shall be binding upon all
successors and assigns.
17. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered
mail to the Executive at his residence maintained on the Company's
records, or to the Company at its address at
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14900 Woodham Drive, Suite A-125, Houston, Texas, 77073, Attention:
Chief Executive Officer, or such other addresses as either party
shall notify the other in accordance with the above procedure.
18. FORCE MAJEURE. Neither party shall be liable to the other for any
delay or failure to perform hereunder, which delay or failure is due
to causes beyond the control of said party, including, but not
limited to: acts of God; acts of the public enemy; acts of the
United States of America or any state, territory or political
subdivision thereof or of the District of Columbia; fires; floods;
epidemics; quarantine restrictions; strikes; or freight embargoes;
provided, however, that this Section 18 will not relieve the Company
of any of its payment obligations to the Executive under this
Agreement. Notwithstanding the foregoing provisions of this Section
18, in every case the delay or failure to perform must be beyond the
control and without the fault or negligence of the party claiming
excusable delay.
19. INTEGRATION. This Agreement represents the entire agreement and
understanding between the parties as to the subject matter hereof
and supersedes all prior or contemporaneous agreements whether
written or oral. No waiver, alteration or modification of any of the
provisions of this Agreement shall be binding unless in writing and
signed by duly authorized representatives of the parties hereto.
20. WAIVER. Failure or delay on the part of either party hereto to
enforce any right, power or privilege hereunder shall not be deemed
to constitute a waiver thereof. Additionally, a waiver by either
party of a breach of any promise herein by the other party shall not
operate as or be construed to constitute a waiver of any subsequent
breach by such other party.
21. SAVINGS CLAUSE. If any term, covenant or condition of this Agreement
or the application thereof to any person or circumstance shall to
any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such term, covenant or condition to
persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each
term, covenant or condition of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
22. AUTHORITY TO CONTRACT. The Company warrants and represents to the
Executive that the Company has full authority to enter into this
Agreement and to consummate the transactions contemplated hereby and
that this Agreement is not in conflict with any other agreement to
which the Company is a party or by which it may be bound. The
Company further warrants and represents to the Executive that the
individual executing this Agreement on behalf of the Company has the
full power and authority to bind the Company to the terms hereof and
has been authorized to do so in accordance with the Company's
articles or certificate of incorporation and bylaws.
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<PAGE>
23. PAYMENT OF EXPENSES. If at any time during the term hereof or
afterwards: (a) there should exist a dispute or conflict between the
Executive and the Company or another Person as to the validity,
interpretation or application of any term or condition hereof, or as
to the Executive's entitlement to any benefit intended to be
bestowed hereby, which is not resolved to the satisfaction of the
Executive, (b) the Executive must (i) defend the validity of this
Agreement or (ii) contest any determination by the Company
concerning the amounts payable (or reimbursable) by the Company to
the Executive or (c) the Executive must prepare responses to an
Internal Revenue Service ("IRS") audit of, or otherwise defend, his
personal income tax return for any year the subject of any such
audit, or an adverse determination, administrative proceedings or
civil litigation arising therefrom, which is occasioned by or
related to an audit by the IRS of the Company's income tax returns,
then the Company hereby unconditionally agrees: (a) on written
demand of the Company by the Executive, to provide sums sufficient
to advance and pay on a current basis (either by paying directly or
by reimbursing the Executive) not less than 30 days after a written
request therefor is submitted by the Executive, the Executive's out
of pocket costs and expenses (including attorney's fees, expenses of
investigation, travel, lodging, copying, delivery services and
disbursements for the fees and expenses of experts, etc.) incurred
by the Executive in connection with any such matter; (b) the
Executive shall be entitled, upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction
without the necessity of posting any bond with respect thereto which
compels the Company to pay or advance such costs and expenses on a
current basis; and (c) the Company's obligations under this Section
23 will not be affected if the Executive is not the prevailing party
in the final resolution of any such matter unless it is determined
pursuant to Section 25 that, in the case of one or more of such
matters, the Executive has acted in bad faith or without a
reasonable basis for his position, in which event and, then only
with respect to such matter or matters, the successful or prevailing
party or parties shall be entitled to recover from the Executive
reasonable attorneys' fees and other costs incurred in connection
with that matter or matters (including the amounts paid by the
Company in respect of that matter or matters pursuant to this
Section 23), in addition to any other relief to which it or they may
be entitled.
24. REMEDIES. In the event of a breach by the Executive of Section 11 or
15 of this Agreement, in addition to other remedies provided by
applicable law, the Company will be entitled to issuance of a
temporary restraining order or preliminary injection enforcing its
rights under such Section.
25. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this
Agreement shall be decided by arbitration by the American
Arbitration Association in accordance with its Commercial Rules,
except as modified herein.
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<PAGE>
(a) The arbitrator shall be selected as follows: in the event the
Company and the Executive agree on one arbitrator, the
arbitration shall be conducted by such arbitrator. In the
event the Company and the Executive do not so agree, the
Company and the Executive shall each select one independent,
qualified arbitrator, and the two arbitrators so selected
shall select the third arbitrator. The arbitrator(s) are
herein referred to as the "Panel." The Company reserves the
right to object to any individual arbitrator who shall be
employed by or affiliated with a competing organization.
(b) Arbitration shall take place at Houston, Texas, or any other
location mutually agreeable to the parties. At the request of
either party, arbitration proceedings will be conducted in the
utmost secrecy; in such case all documents, testimony and
records shall be received, heard and maintained by the Panel
in secrecy, available for inspection only by the Company or
the Executive and their respective attorneys and their
respective experts, who shall agree in advance and in writing
to receive all such information confidentially and to maintain
such information in secrecy until such information shall
become generally known. The Panel shall be able to award any
and all relief, including relief of an equitable nature. The
award rendered by the Panel may be enforceable in any court
having jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall
be given to all parties and any interested persons as shall be
required by law.
(d) The Company will pay all the fees and out-of-pocket expenses
of each arbitrator selected pursuant to this Section 25.
26. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to its
conflicts of law principles.
27. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
28. INDEMNIFICATION. The Executive shall be indemnified by the Company
to the maximum permitted by the law of the state of the Company's
incorporation, and by the law of the state of incorporation of any
subsidiary of the Company of which the Executive is a director or an
officer or employee, as the same may be in effect from time to time.
29. INTEREST. If any amounts required to be paid or reimbursed to the
Executive hereunder are not so paid or reimbursed at the times
provided herein (including amounts required to be paid by the
Company pursuant to Sections 6, 13 and 23), those
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amounts shall accrue interest compounded daily at the annual
percentage rate which is three percentage points above the interest
rate shown as the Prime Rate in the Money Rates column in the then
most recently published edition of THE WALL STREET JOURNAL
(Southwest Edition), or, if such rate is not then so published, on
at least a weekly basis, the interest rate announced by Chase
Manhattan Bank (or its successor), from time to time, as its Base
Rate (or prime lending rate), from the date those amounts were
required to have been paid or reimbursed to the Executive until
those amounts are finally and fully paid or reimbursed; provided,
however, that in no event shall the amount of interest contracted
for, charged or received hereunder exceed the maximum non-usurious
amount of interest allowed by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date hereinabove first written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:________________________________________
William E. Haynes
President and Chief Executive Officer
EXECUTIVE:
________________________________________
D. A. Rigas
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EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of
the ____ day of ___________, 1997 (this "Agreement"), by and between Innovative
Valve Technologies, Inc., a Delaware corporation ("Company"), and
_______________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to
serve corporations as directors or in other capacities unless they are provided
with adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of corporations; and
WHEREAS: (i) the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities; (ii) although the furnishing of such insurance has
been a customary and widespread practice among United States-based corporations
and other business enterprises, the Board believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions; and (iii) at the same time,
directors, officers and other persons in service to corporations or business
enterprises are being increasingly subjected to expensive and time-consuming
litigation relating to, among other matters, matters that traditionally would
have been brought only against the corporation or business enterprise itself;
and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a
[director] [and] [officer] of the Company and, as mutually agreed by Indemnitee
and the Company, as a director, officer, employee, agent or fiduciary of other
corporations, partnerships, joint ventures, trusts or other enterprises
(including, without limitation, employee benefit plans)(each, an
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"Enterprise"). Indemnitee may at any time and for any reason resign from any
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company will have no obligation
under this Agreement to continue Indemnitee in that position. This Agreement is
not and will not be deemed an employment contract between the Company (or any of
its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that
Indemnitee's employment with the Company (or any of its subsidiaries), if any,
is at will, and the Indemnitee may be discharged at any time for any reason,
with or without cause, except as may be otherwise provided in any written
employment contract between Indemnitee and the Company (or any of its
subsidiaries), other applicable formal severance policies duly adopted by the
Board or, with respect to service as a director of the Company, by the Company's
Certificate of Incorporation, Bylaws and the General Corporation Law of the
State of Delaware. The foregoing notwithstanding, subject to Section 12, this
Agreement will continue in force after Indemnitee has ceased to serve as an
officer or director of the Company and no longer serves at the written request
of the Company as a director, officer, employee, agent or fiduciary of any other
Enterprise.
SECTION 2. INDEMNIFICATION--GENERAL. The Company will indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the date hereof and as amended
from time to time. The rights of Indemnitee provided under the preceding
sentence will include, but will not be limited to, the rights set forth in the
other Sections of this Agreement.
SECTION 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE COMPANY. Indemnitee will be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to or a participant in any threatened, pending or
completed Proceeding (as hereinafter defined), other than a Proceeding by or in
the right of the Company. Pursuant to this Section 3, the Company will indemnify
Indemnitee against, and will hold Indemnitee harmless from and in respect of,
all Expenses, judgments, penalties, fines (including excise taxes) and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) actually and reasonably incurred by him
or on his behalf in connection with such Proceeding or any claim, issue or
matter therein, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
SECTION 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
will be entitled to the rights of indemnification provided in this Section 4 if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to or a participant in any threatened, pending or completed Proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section 4, the Company will indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he
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reasonably believed to be in or not opposed to the best interests of the
Company; PROVIDED, HOWEVER, that, if applicable law so provides, no
indemnification against such Expenses will be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine that such indemnification may
be made.
SECTION 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of any
Proceeding, the Company will indemnify him against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in defense of such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company will indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section 5 and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, will be deemed to be a successful result as to such claim, issue or
matter.
SECTION 6. INDEMNIFICATION FOR EXPENSES AS A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to
which Indemnitee is not a party, the Company will indemnify him against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
SECTION 7. ADVANCEMENT OF EXPENSES. The Company will advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within 10 days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements must reasonably evidence the Expenses incurred by or on
behalf of Indemnitee and include or be preceded or accompanied by an undertaking
by or on behalf of Indemnitee to repay any Expenses advanced if it ultimately
shall be determined that Indemnitee is not entitled to be indemnified by the
Company against such Expenses.
SECTION 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. (a) To obtain indemnification under this Agreement, Indemnitee
must submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to that indemnification. The Secretary of the Company will, promptly
upon receipt of such a request for that indemnification, advise the Board in
writing that Indemnitee has requested that indemnification.
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(b) On written request by Indemnitee for indemnification pursuant to
Section 8(a), a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto will be made in the specific case: (i) if a
Change of Control shall have occurred within two years prior to the date of such
written request, by Independent Counsel in a written opinion to the Board, a
copy of which will be delivered to Indemnitee; or (ii) if a Change of Control
shall not have occurred within two years prior to the date of such written
request, (A) by a majority vote of the Disinterested Directors, even though less
than a quorum of the Board, or (B) if there are no such Disinterested Directors,
or if such Disinterested Directors so direct, by Independent Counsel in a
written opinion to the Board, a copy of which will be delivered to Indemnitee;
and, if it is so determined that Indemnitee is entitled to indemnification under
this Agreement, the Company will: (i) within 10 days after such determination
pay to Indemnitee all amounts theretofore incurred by or on behalf of Indemnitee
in respect of which Indemnitee is entitled to that indemnification by reason of
that determination; and (ii) thereafter on written request by Indemnitee, pay to
Indemnitee within 10 days after that request such additional amounts incurred by
or on behalf of Indemnitee in respect of which Indemnitee is entitled to that
indemnification by reason of that determination. Indemnitee will cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification under this Agreement, including
providing to such person, persons or entity on reasonable advance request any
documentation or information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination will be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel will be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Board will select the Independent Counsel, and the Company will give written
notice to Indemnitee advising him of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred within two years prior to
the date of Indemnitee's written request for indemnification pursuant to Section
8(a), Indemnitee will select the Independent Counsel (unless Indemnitee requests
that such selection be made by the Board, in which event the preceding sentence
will apply), and Indemnitee will give written notice to the Company advising it
of the identity of the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may, within 10 days after such
written notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; PROVIDED,
HOWEVER, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 17, and the objection must set forth with
particularity the factual basis for such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If
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(i) the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 8(b) and (ii) within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a), no Independent Counsel shall have been selected and not objected
to, either the Company or Indemnitee may petition the Court of Chancery or other
court of competent jurisdiction for resolution of any objection that shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned court or by such other person as the petitioned court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed will act as Independent Counsel under Section 8(b). The
Company will pay any and all reasonable fees and expenses of Independent Counsel
incurred by such Independent Counsel in connection with acting pursuant to
Section 8(b), and the Company will pay all reasonable fees and expenses incident
to the procedures of this Section 8(c), regardless of the manner in which such
Independent Counsel was selected and appointed. If (i) Independent Counsel does
not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within 90 days after receipt by the Company of a
written request therefor and (ii) any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) is then commenced, Independent Counsel will be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
SECTION 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In
making a determination with respect to entitlement to indemnification hereunder,
the person, persons or entity making such determination must presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a), and the
Company will have the burden of proof to overcome that presumption in connection
with the making by any person, persons or entity of any determination contrary
to that presumption.
(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or on a plea of
NOLO CONTENDERE or its equivalent, will not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification under this Agreement or create a presumption that Indemnitee
did not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan will, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
SECTION 10. REMEDIES OF INDEMNITEE. (a) In the event that (i) a
determination is made pursuant to Section 8 that Indemnitee is not entitled to
indemnification hereunder, (ii) advancement of Expenses is not timely made
pursuant to Section 7, (iii) Independent Counsel
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is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within 90 days after receipt by the Company of the
request for that indemnification, (iv) payment of indemnification is not made
pursuant to Section 5 or 6 within 10 days after receipt by the Company of a
written request therefor or (v) payment of indemnification pursuant to Section
8(b) is not made timely, Indemnitee will be entitled to an adjudication from the
Court of Chancery of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee must
commence such proceeding seeking an adjudication or an award in arbitration
within 180 days following the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 10(a); PROVIDED, HOWEVER, that
the foregoing clause shall not apply in respect of a proceeding brought by
Indemnitee to enforce his rights under Section 5.
(b) In the event that a determination shall have been made pursuant
to Section 8(b) that Indemnitee is not entitled to indemnification hereunder,
any judicial proceeding or arbitration commenced pursuant to this Section 10
will be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee will not be prejudiced by reason of that adverse
determination. In any judicial proceeding or arbitration commenced pursuant to
this Section 10, the Company will have the burden of proving that Indemnitee is
not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification hereunder, the Company will be
bound by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission by Indemnitee of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks
a judicial adjudication of or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee will be
entitled to recover from the Company, and will be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration that Indemnitee is
entitled to receive part of, but not all, the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration will be appropriately prorated.
SECTION 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION. (a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement are not and will not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's Certificate of Incorporation, the Company's
Bylaws, any agreement, a vote of stockholders or a resolution of directors, or
otherwise.
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No amendment, alteration or repeal of this Agreement or of any provision hereof
will limit or restrict any right of Indemnitee under this Agreement in respect
of any action taken or omitted by such Indemnitee in his Corporate Status prior
to such amendment, alteration or repeal. To the extent that a change in Delaware
law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under this Agreement, it is the
intent and agreement of the parties hereto that Indemnitee will enjoy by this
Agreement the greater benefits so afforded by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other Enterprise that any such
person serves at the written request of the Company, Indemnitee will be covered
by such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee, agent
or fiduciary under such policy or policies.
(c) The Company will not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(d) In the event of any payment under this Agreement, the Company
will be subrogated to the extent of such payment to all the rights of recovery
of Indemnitee, who will execute all papers required and take all action
necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
(e) The Company's obligation to indemnify or advance Expenses
hereunder to Indemnitee with respect to Indemnitee's service at the written
request of the Company as a director, officer, employee, agent or fiduciary of
any other Enterprise will be reduced by any amount Indemnitee has actually
received as indemnification or advancement of Expenses from such other
Enterprise.
SECTION 12. DURATION OF AGREEMENT. This Agreement will continue
until and terminate on the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as a director or officer of the Company or as a
director, officer, employee, agent or fiduciary of any other Enterprise that
Indemnitee served on behalf of the Company at the written request of the
Company; or (b) the final termination of any Proceeding then pending in respect
of which Indemnitee is granted rights of indemnification or advancement of
expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 10 relating thereto. This Agreement will be binding on the Company and
its successors and assigns and will inure to the benefit of Indemnitee and his
spouse (if Indemnitee resides in Texas or another community property state),
heirs, executors and administrators.
SECTION 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality
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and enforceability of the remaining provisions of this Agreement (including,
without limitation, each portion of any Section containing any such provision
held to be invalid, illegal or unenforceable which is not itself invalid,
illegal or unenforceable) will not in any way be affected or impaired thereby;
(b) such provision or provisions will be deemed reformed to the extent necessary
to conform to applicable law and to give the maximum effect to the intent of the
parties hereto; and (c) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any Section containing
any such provision held to be invalid, illegal or unenforceable which is not
itself invalid, illegal or unenforceable) will be construed so as to give effect
to the intent manifested thereby.
SECTION 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision hereof, Indemnitee will not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change of Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which will for all purposes be deemed to be
an original but all of which together will constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
SECTION 16. HEADINGS. The headings of the Sections hereof are
inserted for convenience only and do not and will not be deemed to constitute
part of this Agreement or to affect the construction thereof.
SECTION 17. DEFINITIONS. For purposes of this Agreement:
(a) "ACQUIRING PERSON" means any Person who or which, together with
all Affiliates and Associates of such Person, is or are the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding;
provided, however, that a Person will not be or become an Acquiring Person
if that 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 that Person or any Affiliate or
Associate of that Person purchases or otherwise 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 (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 becomes 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. Notwithstanding anything in this
definition of "Acquiring
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Person" to the contrary, no Exempt Person shall be deemed to be or become
an "Acquiring Person" or an Affiliate or Associate of any other person for
purposes of this definition.
(b) "AFFILIATE" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
(c) "ASSOCIATE" means, with reference to any Person, (i) any
corporation, firm, partnership, limited liability company, association,
unincorporated organization or other entity (other than the Company or a
subsidiary of the Company) of which that 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 its equity securities or interests, (ii) any trust or other estate in
which that Person has a substantial beneficial interest or for or of which
that Person serves as trustee or in a similar fiduciary capacity and (iii)
any relative or spouse of that Person, or any relative of that spouse, who
has the same home as that Person.
(d) A specified Person is deemed the "BENEFICIAL OWNER" of, and is
deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" (as
determined pursuant to Exchange Act Rule 13d-3) 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 will 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
that security if that agreement, arrangement or understanding: (A)
arises solely from a revocable proxy or consent given in response to
a public (that is, not including a solicitation exempted by Exchange
Act Rule 14a-2(b)(2)) proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the
Exchange Act; and (B) is not then reportable by such Person on
Exchange Act Schedule 13D (or any comparable or successor report);
(ii) which that Person or any of that Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to
acquire (whether that 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 on the exercise of
conversion rights, exchange rights, other rights, warrants or
options, or otherwise; PROVIDED, HOWEVER, that a Person will not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by
that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
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(iii) which are beneficially owned, directly or indirectly, by
(A) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified 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 Exchange Act Rule 13d-5(b))
of which that specified Person is a member;
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 Exchange
Act Regulation M or to cover overallotments created in connection with a
public offering) until the expiration of 40 days after the date of that
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) in respect of
such security.
(e) "CHANGE OF CONTROL" means the occurrence of any of the following
events that occurs after the IPO Closing Date: (i) any Person becomes an
Acquiring Person; (ii) at any time the then Continuing Directors cease to
constitute a majority of the members of the Board; (iii) a merger of the
Company with or into, or a sale by the Company of its properties and
assets substantially as an entirety to, another Person occurs and,
immediately after that occurrence, any Person, other than an Exempt
Person, together with all Affiliates and Associates of such Person (other
than Exempt Persons), shall be the Beneficial Owner of 15% or more of the
total voting power of the then outstanding Voting Shares of the Person
surviving that transaction (in the case or a merger or consolidation) or
the Person acquiring those properties and assets substantially as an
entirety unless such Person, together with all Affiliates and Associates
of such Person, was the Beneficial Owner of 15% or more of the shares of
Common Stock outstanding prior to that transaction; or (iv) Philip,
together with all its Affiliates, shall become the Beneficial Owner of 65%
or more of the shares of Common Stock then outstanding.
(f) "COMMON STOCK" means the common stock, par value $.001 per
share, of the Company.
(g) "CONTINUING DIRECTOR" means at any time any individual who then
(i) is a member of the Board and was a member of the Board as of the IPO
Closing Date or whose nomination for his first election, or that first
election, to the Board following that date was recommended or approved by
a majority of the then Continuing Directors (acting separately
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or as a part of any action taken by the Board or any committee thereof)
and (ii) is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person or a nominee or representative of an Acquiring Person or
of any such Affiliate or Associate.
(h) "CORPORATE STATUS" describes the status of a natural person who
is or was a director, officer, employee or agent of the Company or of any
other Enterprise, provided such person is or was serving in such capacity
at the written request of the Company. For purposes of this Agreement,
"serving at the written request of the Company" includes any service by
Indemnitee which imposes duties on, or involves services by, Indemnitee
with respect to any employee benefit plan or its participants or
beneficiaries.
(i) "COURT OF CHANCERY" means the Court of Chancery of the State of
Delaware.
(j) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "EXEMPT PERSON" means: (i)(A) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of
the Company and (B) 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; (ii) Indemnitee, any
Affiliate or Associate of Indemnitee or any group (as that term is used in
Exchange Act Rule 13d-5(b)) of which Indemnitee or any Affiliate or
Associate of Indemnitee is a member; or (iii) so long as Philip remains
the Beneficial Owner of 15% or more of the outstanding shares of Common
Stock, Philip.
(m) "EXPENSES" include all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness
in, or otherwise participating in, a Proceeding and all interest or
finance charges attributable to any thereof. Should any payments by the
Company under this Agreement be determined to be subject to any federal,
state or local income or excise tax, "Expenses" also shall include such
amounts as are necessary to place Indemnitee in the same after-tax
position (after giving effect to all applicable taxes) he would have been
in had no such tax been determined to apply to such payments.
(n) "INDEPENDENT COUNSEL" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years
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<PAGE>
has been, retained to represent: (i) the Company, its affiliates or
Indemnitee in any matter material to any such party; or (ii) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel"
does not include at any time any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict
of interest in representing either the Company or Indemnitee in an action
to determine Indemnitee's rights under this Agreement.
(o) "IPO" means the first time a registration statement filed under
the Securities Act of 1933, as amended, and respecting an underwritten
primary offering by the Company of shares of Common Stock is declared
effective under that act and the shares registered by that registration
statement are issued and sold by the Company (otherwise than pursuant to
the exercise of any over-allotment option).
(p) "IPO CLOSING DATE" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
(q) "PERSON" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization or
association, mutual company, joint stock company, joint venture, estate,
trust, union or employee organization or governmental authority.
(r) "Philip" means Philip Services Corp., an Ontario corporation.
(s) "PROCEEDING" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that could
lead to any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding, except one (i) initiated by an Indemnitee
pursuant to Section 10 to enforce his rights hereunder or (ii) pending on
or before the date of this Agreement.
(t) "VOTING SHARES" means: (i) in the case of any corporation, stock
of that corporation of the class or classes having general voting power
under ordinary circumstances to elect a majority of that corporation's
board of directors; and (ii) in the case of any other entity, equity
interests of the class or classes having general voting power under
ordinary circumstances equivalent to the Voting Shares of a corporation.
SECTION 18. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement will be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement will
be deemed or will constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
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<PAGE>
SECTION 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing on being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses hereunder; however, failure to give such notice will not deprive
Indemnitee of his rights to indemnification and advancement of Expenses
hereunder unless the Company is actually and materially prejudiced thereby.
SECTION 20. NOTICES. All notices, requests, demands and other
communications hereunder must be in writing and will be deemed delivered and
received (a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom the
notice or communication is sent or (b) if delivered by mail (whether actually
received or not), at the close of business on the third Houston, Texas business
day next following the day when placed in the mail, postage prepaid, certified
or registered, addressed to the appropriate party at the address of such party
set forth below (or at such other address as such party may designate by written
notice to each other party in accordance herewith):
(a) If to Indemnitee, to: _______________________
_______________________
_______________________
with a copy (which shall not constitute notice for the
purposes of this Agreement) to such legal counsel, if any, as
the Indemnitee may designate in writing; and
(b) If to the Company, to: Innovative Valve Technologies, Inc.
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
Attention: President
SECTION 21. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, will contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (b) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
SECTION 22. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the legal relations among the parties will be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without regard to its conflict of laws rules. Except with
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<PAGE>
respect to any arbitration commenced by Indemnitee pursuant to Section 10(a),
the Company and Indemnitee hereby irrevocably and unconditionally (a) agree that
any action or proceeding arising out of or in connection with this Agreement
will be brought only in the Court of Chancery and not in any other state or
federal court in the United States of America or any court in any other country,
(b) consent to submit to the exclusive jurisdiction of the Court of Chancery for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (c) waive any objection to the laying of venue of any such action or
proceeding in the Court of Chancery, and (d) waive, and agree not to plead or to
make, any claim that any such action or proceeding brought in the Court of
Chancery has been brought in an improper or otherwise inconvenient forum.
SECTION 23. MISCELLANEOUS. Use of the masculine pronoun herein
includes usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import refer to
this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: INNOVATIVE VALVE TECHNOLOGIES, INC.
By:__________________________ By: ___________________________________
William E. Haynes
President and Chief Executive Officer
ATTEST: INDEMNITEE:
By: __________________________ By: ____________________________________
-15-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in this registration
statement.
ARTHUR ANDERSEN LLP
Houston, Texas
October 17, 1997
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Innovative Valve
Technologies, Inc. on Form S-1 of our report dated April 11, 1997 appearing in
the Prospectus, which is part of this Registration Statement, on the financial
statements of GSV, Inc. as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
Deloitte & Touche LLP
Orlando, Florida
October 17, 1997
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-31617 of Innovative Valve Technologies, Inc. on Form S-1 of our report dated
January 17, 1997 (January 31, 1997 as to Notes 2 and 7) on the consolidated
financial statements of Harley Industries, Inc. as of October 31, 1995 and 1996
and for each of the three years in the period ended October 31, 1996, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
Deloitte & Touche LLP
Tulsa, Oklahoma
October 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES AS THE ACCOUNTING ACQUIROR AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 396,637 391,292
<SECURITIES> 0 0
<RECEIVABLES> 560,647 9,996,538
<ALLOWANCES> (25,000) (380,000)
<INVENTORY> 36,140 6,313,959
<CURRENT-ASSETS> 1,080,062 18,082,975
<PP&E> 186,912 14,640,552
<DEPRECIATION> (46,463) (8,241,626)
<TOTAL-ASSETS> 2,288,115 43,429,754
<CURRENT-LIABILITIES> 1,092,891 27,128,607
<BONDS> 588,970 5,237,262
2,000,000 2,000,000
0 0
<COMMON> 29,638 48,386
<OTHER-SE> (1,423,384) 3,692,148
<TOTAL-LIABILITY-AND-EQUITY> 2,288,115 43,429,754
<SALES> 3,887,761 19,759,635
<TOTAL-REVENUES> 3,887,761 19,759,635
<CGS> 2,375,245 13,494,613
<TOTAL-COSTS> 4,330,356 20,805,158
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,703 (998,111)
<INCOME-PRETAX> (414,499) (2,041,391)
<INCOME-TAX> 0 257,095
<INCOME-CONTINUING> (414,499) (1,766,296)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (414,499) (1,766,296)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
