UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO _________
COMMISSION FILE NUMBER: 000-23231
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0530346
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 NORTHPOINT DRIVE, SUITE 300 77060
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 925-0300
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.001
per share, outstanding at November 13, 1998 was 9,664,562.
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
-----
Part I -- Financial Information...................................... 2
Item 1 -- Financial Statements..................................... 2
General Information............................................... 2
Unaudited Pro Forma Combined Statements of Operations for the
Three Months and Nine Months Ended September 30, 1997 and 1998.. 3
Note to Unaudited Pro Forma Combined Statements of Operations .... 4
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (Unaudited).................................. 6
Consolidated Statements of Operations for the Three Months and ...
Nine Months Ended September 30, 1997 and 1998 (Unaudited).......... 7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1998 (Unaudited)................... 8
Notes to Consolidated Financial Statements (Unaudited)............ 9
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 13
Part II -- Other Information........................................ 19
Item 5 -- Other Information........................................ 19
Item 6 -- Exhibits and Reports on Form 8-K......................... 20
1
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL INFORMATION
Introduction to Pro Forma Combined Statements of Operations.
Innovative Valve Technologies, Inc. ("Invatec" or the "Company") was
incorporated in Delaware in March 1997 to create the leading single-source
provider of comprehensive maintenance, repair, replacement and value-added
distribution services for industrial valves and related process-system
components throughout North America. Except for its purchase of an established
business in July 1997, Invatec conducted no operations of its own prior to the
closing on October 28, 1997 of (i) its initial public offering (the "IPO") of
its common stock ("Common Stock"), (ii) its purchase of two established
businesses and (iii) a merger (the "SSI Merger") in which The Safe Seal Company,
Inc. ("SSI") became its subsidiary (Invatec, SSI and all businesses acquired
through the closing of the IPO are collectively referred to herein as the
"Founding Companies"). Earlier in 1997, SSI had purchased three established
businesses. SSI and its subsidiaries were affiliates of Invatec prior to the SSI
Merger.
Following the IPO, the Company acquired additional businesses in 1997 and
the first three quarters of 1998 (these businesses, together with the Founding
Companies, are referred to herein as the "Acquired Businesses"). The Company
accounted for the acquisitions of the Acquired Businesses in accordance with the
purchase method of accounting.
The accompanying unaudited pro forma combined statements of operations of
the Company for the three and nine months ended September 30, 1997 and 1998,
respectively, include the combined operations of the Founding Companies from
January 1, 1997 and the other Acquired Businesses from their respective dates of
acquisition.
2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
These unaudited pro forma combined financial statements should be read in
conjunction with the unaudited interim historical consolidated financial
statements of the Company elsewhere in this report.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------
1997 1997
PRO FORMA 1998 PRO FORMA 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES ........................... $ 21,432 $ 38,882 $ 68,134 $ 112,753
COST OF OPERATIONS ................. 14,665 26,619 46,857 76,475
--------- -------- --------- ---------
Gross profit .................. 6,767 12,263 21,277 36,278
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ......................... 6,133 12,111 17,840 31,593
NONRECURRING COSTS ................. -- 2,190 -- 2,190
--------- -------- --------- ---------
Income (loss) from operations . 634 (2,038) 3,437 2,495
OTHER INCOME (EXPENSE):
Interest, net ................. (77) (1,723) (243) (3,855)
Other ......................... (4) 150 -- 250
--------- -------- --------- ---------
Total other ................... (81) (1,573) (243) (3,605)
INCOME (LOSS) BEFORE INCOME TAXES .. 553 (3,611) 3,194 (1,110)
PROVISION (BENEFIT) FOR INCOME TAXES 241 (697) 1,456 378
--------- -------- --------- ---------
NET INCOME (LOSS) .................. $ 312 $ (2,914) $ 1,738 $ (1,488)
========= ======== ========= =========
EARNINGS (LOSS)PER SHARE - BASIC ... $ 0.04 $ (0.30) $ 0.22 $ (0.17)
========= ======== ========= =========
EARNINGS (LOSS)PER SHARE - DILUTED . $ 0.04 $ (0.30) $ 0.22 $ (0.17)
========= ======== ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .............. 7,820 9,665 7,820 8,809
========= ======== ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ............ 7,896 9,665 7,896 8,809
========= ======== ========= =========
</TABLE>
The accompanying note is an integral part of these unaudited pro forma combined
financial statements.
3
<PAGE>
NOTE TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The unaudited pro forma combined statements of operations include the
Company's historical consolidated information for the three months and nine
months ended September 30, 1998 and present the historical consolidated
information for the corresponding periods in 1997 (with SSI as the "accounting
acquirer"), as adjusted to give effect to the following 1997 events and
transactions as if they had occurred on January 1, 1997: (i) the SSI Merger;
(ii) the acquisitions of the Founding Companies and the financings thereof;
(iii) certain reverse stock splits of outstanding stock; (iv) the IPO and the
Company's application of the net proceeds therefrom; and (v) the issuance of
shares of Common Stock to repay certain of the Company's indebtedness. The
unaudited pro forma combined statements convert the results of operations of the
Acquired Businesses whose historical fiscal periods were not on a calendar-year
basis to a calendar-year basis and include pro forma adjustments consisting
principally of the following: (i) the adjustments to selling, general and
administrative expenses described below; (ii) adjustments for the effects of
recording inventories on a first-in, first-out rather than on a last-in,
first-out basis; (iii) adjustments for pro forma goodwill amortization using a
40-year estimated life; (iv) eliminations of historical interest expense
resulting from the application of proceeds from the IPO and the use of Common
Stock to retire outstanding indebtedness; and (v) adjustments to federal and
state income tax provisions.
The unaudited pro forma combined statements of operations include 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 (a) were not employed by the Company
after the acquisition of their Acquired Business and will not be replaced, or
(b) agreed prospectively to the decrease prior to the acquisition of their
Acquired Business; (ii) the elimination of certain excess administrative support
service fees charged by the former parent company of one of the Acquired
Businesses; and (iii) the reversal of the special non-cash, non-recurring
compensation expense attributable to stock awards made by SSI and Common Stock
sales and option awards made by Invatec.
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. The Company
cannot currently quantify these anticipated savings and expects these savings
will be partially offset by incremental costs that the Company expects to incur,
but also cannot currently quantify accurately. The unaudited pro forma combined
financial information herein reflects neither unquantifiable expected savings
nor unquantifiable expected incremental costs. The pro forma adjustments are
based on preliminary estimates, available information and certain assumptions
that management deems appropriate.
The provision for income taxes included in the unaudited pro forma
combined statement of operations for the three and nine months ended September
30, 1997 is an estimate of the federal and state income taxes that would have
been applicable to the Company had it acquired all the Founding Companies on
January 1, 1997. The tax rates indicated by this provision differ from statutory
federal and state rates primarily because a portion of the goodwill amortization
arising from the acquisitions is not deductible for tax purposes.
The computation of pro forma earnings per share for the three and nine
months ended September 30, 1997 is based on 7,896,059 weighted average shares
outstanding common and common equivalent shares, which include (i) 7,819,920
shares issued and outstanding for the entire three-month and nine-month periods
and (ii) 76,139 shares representing the dilution attributable to outstanding
options to purchase the Company's Common Stock, using the treasury stock method.
4
<PAGE>
The unaudited pro forma combined financial information may not be
comparable to and may not be indicative of the Company's future results of
operations because SSI and the Acquired Businesses were not under common control
or management throughout the periods presented.
5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash ......................................... $ 2,544,450 $ --
Accounts receivable, net of allowance
of $1,079,857 and $1,643,231 ......... 17,680,697 28,816,036
Inventories, net ........................ 15,987,765 25,463,121
Prepaid expenses and other current
assets ................................ 1,171,090 2,961,036
Deferred tax asset ...................... 3,723,448 3,808,947
------------- -------------
Total current assets ........... 41,107,450 61,049,140
PROPERTY AND EQUIPMENT, net .................. 11,474,701 19,089,337
GOODWILL, net ................................ 48,387,981 101,970,118
OTHER NONCURRENT ASSETS, net ................. 4,462,551 3,881,753
------------- -------------
TOTAL ASSETS ................... $ 105,432,683 $ 185,990,348
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ......................... $ 4,660,924 $ --
Current maturities of long-term debt .... 304,310 59,460
Credit Facility ......................... -- 66,877,800
Accounts payable and accrued expenses ... 14,910,638 20,787,907
------------- -------------
Total current liabilities ...... 19,875,872 87,725,167
LONG-TERM DEBT, net .......................... 318,911 1,080,801
CREDIT FACILITY .............................. 11,750,000 --
CONVERTIBLE SUBORDINATED DEBT ................ 12,493,178 12,916,929
OTHER LONG-TERM OBLIGATIONS .................. 1,125,417 1,362,796
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
30,000,000 shares authorized,
7,890,198 and 9,664,562 shares
issued and outstanding ............ 7,890 9,665
Additional paid-in capital .......... 70,212,035 94,734,181
Retained deficit .................... (10,350,620) (11,839,191)
------------- -------------
Total stockholders' equity .... 59,869,305 82,904,655
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....... $ 105,432,683 $ 185,990,348
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -----------------------------
1997 1998 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES ..................... $ 13,596,854 $ 38,881,382 $ 33,356,489 $ 112,752,859
COST OF OPERATIONS ........... 9,079,837 26,618,979 22,574,450 76,475,095
------------ ------------ ------------ -------------
Gross profit ............ 4,517,017 12,262,403 10,782,039 36,277,764
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .... 3,190,190 12,111,362 8,107,514 31,593,294
SPECIAL COMPENSATION EXPENSE . -- -- 2,605,005 --
NONRECURRING COSTS ........... -- 2,189,599 -- 2,189,599
------------ ------------ ------------ -------------
Income (loss) from
operations ........... 1,326,827 (2,038,558) 69,520 2,494,871
OTHER INCOME (EXPENSE):
Interest expense, net ... (669,820) (1,722,375) (1,667,932) (3,855,517)
Other ................... 3,694 149,890 5,937 250,045
------------ ------------ ------------ -------------
Total Other ............. (666,126) (1,572,485) (1,661,995) (3,605,472)
INCOME (LOSS) BEFORE INCOME
TAXES ................... 660,701 (3,611,043) (1,592,475) (1,110,601)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................... 278,162 (697,220) 3,067 377,970
------------ ------------ ------------ -------------
NET INCOME (LOSS) ............ $ 382,539 $ (2,913,823) $ (1,595,542) $ (1,488,571)
============ ============ ============ =============
NET INCOME (LOSS) BEFORE
DIVIDENDS APPLICABLE TO
PREFERRED STOCK ......... $ 382,539 $ (2,913,823) $ (1,595,542) $ (1,488,571)
PREFERRED STOCK DIVIDENDS .... (95,000) -- (142,500) --
------------ ------------ ------------ -------------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES ........ $ 287,539 $ (2,913,823) $ (1,738,042) $ (1,488,571)
============ ============ ============ =============
EARNINGS (LOSS) PER SHARE -
BASIC ................... $ 0.12 $ (0.30) $ (0.76) $ (0.17)
============ ============ ============ =============
EARNINGS (LOSS)PER SHARE -
DILUTED ................. $ 0.12 $ (0.30) $ (0.76) $ (0.17)
============ ============ ============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC ........ 2,419,338 9,664,562 2,301,473 8,809,356
============ ============ ============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ...... 2,419,338 9,664,562 2,301,473 8,809,356
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1997 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................. $ (1,595,542) $ (1,488,571)
Adjustments to reconcile net
loss to net cash used in
operating activities -
Depreciation and amortization ............ 919,946 3,119,407
Special compensation expense ............. 2,605,005 --
Gain on sale of property and equipment ... -- (18,430)
Deferred taxes ........................... (233,247) (667,065)
Nonrecurring costs ...................... -- 1,989,599
(Increase) decrease in -
Accounts receivable ................... (1,562,966) (2,722,234)
Inventories ........................... (774,840) (4,382,122)
Prepaid expenses and other
current assets ..................... 327,401 (1,439,617)
Other noncurrent assets ............... 1,561 (1,706,215)
Increase (decrease) in -
Accounts payable and accrued
expenses ........................ (506,206) (3,220,773)
Payable to Innovative Valve
Technologies, Inc. ................. (1,107,750) --
------------ ------------
Net cash used in operating
activities ...................... (1,926,638) (10,536,021)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment .......... 10,226 179,325
Additions to property and
equipment ............................. (434,488) (3,474,440)
Business acquisitions, net of cash
acquired of $135,109 and $818,416 ..... (19,109,479) (39,119,264)
------------ ------------
Net cash used in investing
activities ...................... (19,533,741) (42,414,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ............. 20,624,541 330,814
Repayments of long-term debt ............. (540,365) (484,944)
Repayments of short-term debt ............ -- (4,660,924)
Net borrowings under Credit Facility ..... -- 55,127,800
Payments on noncompete obligations ....... (85,118) (115,293)
Proceeds from exercise of stock
options ............................... -- 208,497
Proceeds from exercise of common
stock warrant ......................... 1,216,855 --
Preferred stock dividends ................ (142,500) --
------------ ------------
Net cash provided by
financing activities ............ 21,073,413 50,405,950
NET DECREASE IN CASH ........................... (386,966) (2,544,450)
CASH, beginning of period ...................... 396,637 2,544,450
------------ ------------
CASH, end of period ............................ $ 9,671 $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................... $ 1,211,424 $ 3,366,665
Cash paid for income taxes ............... $ 89,000 $ 2,020,584
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of an established business in July 1997,
Invatec conducted no operations of its own prior to the closing on October 28,
1997 of (i) its initial public offering (the "IPO") of its common stock ("Common
Stock"), (ii) its purchase of two established businesses and (iii) a merger (the
"SSI Merger") in which The Safe Seal Company, Inc. ("SSI") became its
subsidiary. Earlier in 1997, SSI had purchased three established businesses. SSI
and its subsidiaries were affiliates of Invatec prior to the SSI Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of the seven businesses it and Invatec purchased through the IPO
closing date (collectively, the "Initial Acquired Businesses"), and, as used
herein, the term "Company" means (i) SSI and its consolidated subsidiaries prior
to October 31, 1997 and (ii) Invatec and its consolidated subsidiaries
(including SSI) on that date and thereafter.
Following the IPO, the Company purchased four businesses in the fourth
quarter of 1997, three businesses in the first quarter of 1998, two in the
second quarter of 1998 and four in the third quarter of 1998(these businesses,
together with the Initial Acquired Businesses, are referred to herein as the
"Acquired Businesses"). The Company is accounting for the acquisitions of the
Acquired Businesses in accordance with the purchase method of accounting. The
allocation of the purchase prices paid to the assets acquired and the
liabilities assumed in the acquisitions of the Acquired Businesses has been
recorded initially on the basis of preliminary estimates of fair value and may
be revised as additional information concerning the valuation of those assets
and liabilities becomes available. The accompanying historical consolidated
financial statements of operations present historical information of the
Company, which gives effect to the acquisitions as of their respective
acquisition dates.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to rules and regulations of the Securities and
Exchange Commission which permit certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles to be condensed or omitted. The Company believes
the presentation and disclosures herein are adequate to make the information not
materially misleading, and the financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended September 30, 1997 and 1998.
Operating results for interim periods are not necessarily indicative of the
results for full years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fluctuations in Operating Results" in
Item 2 of this Part I. Invatec's Annual Report on Form 10-K/A for the year ended
December 31, 1997, as amended (the "1997 10-K Report"), includes the Company's
consolidated financial statements and related notes for 1997.
9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income (such as
additional minimum pension liability changes, currency translation adjustments
and unrealized gains and losses on available-for-sale securities). The Company
adopted this standard effective January 1, 1998. The adoption of SFAS No. 130
did not have a material impact on the Company's consolidated financial
statements. For the three- and nine-month periods ended September 30, 1998,
there were no material items of comprehensive income other than net income.
3. CREDIT FACILITY:
The Company has a revolving credit facility (the "Credit Facility") of up
to $90 million (as amended). Invatec's subsidiaries guarantee the repayment of
all amounts due under the facility, and the facility is secured by the capital
stock of those subsidiaries and all assets of the Company. The Credit Facility
prohibits the payment of cash dividends by Invatec, restricts the ability of the
Company to incur other indebtedness and requires the Company to comply with
certain financial covenants. It is scheduled to mature in June 2001.
As of November 13, 1998, the Company was not in compliance with certain of
its loan covenants under the Credit Facility. The Company has therefore
classified amounts due under the Credit Facility as of September 30, 1998, as a
current liability. The Company has obtained waivers of the covenant violations
(terminating November 19, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. The Company expects to have finalized the term sheet for such
amendment by November 19, 1998 and to secure an additional waiver until the
amendment is appropriately documented. At November 13, 1998, approximately $70.6
million of borrowings were outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to provide temporary covenant relief and permit the Company to make
borrowings as may be needed to meet its forecasted working capital requirements.
The Company expects the Credit Facility will be further amended in the first
quarter of 1999 to provide for covenants the Company should be able to comply
with thereafter. However, there can be no assurance that such amendments will be
obtained. In the event that the terms of the Credit Facility are not amended so
that the Company is in compliance with that agreement, the Company may need to
seek replacement debt or equity financings to repay the amounts due under the
Credit Facility. There can be no assurance that any such replacement financing
would be available.
4. NONRECURRING COSTS:
Noncurring costs reflect approximately $1.4 million in write-offs of
capitalized costs of abandoned projects, including a friction welding system and
$0.8 million of accrued severance costs.
5. INCOME TAXES:
Certain of the Acquired Businesses were subject to the provisions of
Subchapter S of the Internal Revenue Code prior to their acquisition by the
Company. Under these provisions, their former stockholders paid income taxes on
their proportionate share of the earnings of these businesses. Because the
stockholders were taxed directly, their businesses paid no federal income tax
and only certain state income taxes.
10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Company files a consolidated federal income tax return that includes the
operations of the Acquired Businesses for periods subsequent to their respective
acquisition dates.
The provision for income taxes included in the unaudited consolidated
statement of operations for the three and nine months ended September 30, 1997
differs from statutory federal and state rates primarily because of the
partial recognition of certain net operating loss benefits carried forward by
SSI.
6. EARNINGS (LOSS) PER SHARE:
The computation of earnings (loss) per share of Common Stock for the
interim periods is presented in accordance with SFAS No. 128, "Earnings Per
Share," based on the following shares of Common Stock outstanding:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding at January 1 . 1,481,919 7,890,198 1,481,919 7,890,198
Issued to acquire businesses in
1998 (weighted) ................... -- 1,749,052 -- 903,086
Issued for stock options exercised
and warrants exercised ........... 937,419 25,312 819,554 16,072
--------- --------- --------- ---------
Weighted average shares outstanding -
Basic ............................ 2,419,338 9,664,562 2,301,473 8,809,356
Dilutive effect of shares issuable
on exercise of stock options ..... -- -- -- --
--------- --------- --------- ---------
Weighted average shares outstanding -
Diluted .......................... 2,419,338 9,664,562 2,301,473 8,809,356
========= ========= ========= =========
</TABLE>
Common Share equivalents including options to purchase 1,483,255 shares of
Common Stock and $12.9 million of subordinated debt convertible into Common
Shares at prices ranging between $16.90 and $22.20 per share, outstanding at
September 30, 1998, were not included in the computation of diluted EPS as their
effect on EPS was antidilutive.
7. ACQUISITIONS:
During the quarter ended September 30, 1998, the Company acquired four
businesses for $5.9 million in cash and assumed debt and 441,020 shares of
Common Stock. Of the total purchase price paid for these acquisitions, $6.0
million has been allocated to the net assets acquired and the remaining $6.9
million has been recorded as goodwill. These acquisitions were accounted for as
purchases and the accompanying balance sheet as of September 30, 1998 includes
preliminary allocations of the respective purchase prices which are subject to
final adjustment.
For three businesses acquired in 1998, the Company guaranteed Common Stock
price targets to the sellers at specified future dates. If the guaranteed price
targets are not met or exceeded, the Company is required to either issue
additional shares of Common Stock or pay additional funds to the sellers for the
difference between the price at the acquisition date and the guaranteed price
targets. Using the Common Stock price at November 11, 1998,
11
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
the total additional consideration would be approximately $5.2 million and
617,143 additional shares of Common Stock. The net present value of the price
guarantees are reflected in the accompanying balance sheet at September 30,
1998. The additional consideration is payable to the sellers on the one year
anniversary of the acquisition date.
The following table reflects, on an unaudited pro forma basis, certain
results of the combined operations of the Company as if the IPO, the SSI Merger,
the Company's acquisitions of Acquired Businesses in 1997 and the first three
quarters of 1998 and certain other events and transactions discussed in Note 1
had taken place on January 1, 1997. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the results
of operations the Company would have obtained had the acquisitions taken effect
on January 1, 1997, has obtained since the dates of acquisition or may obtain in
the future.
SEPTEMBER 30
-----------------------
1997 1998
--------- ---------
(UNAUDITED AND IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues ........................................ $ 137,948 128,265
Income before income taxes ...................... 4,965 1,348
Net income ...................................... 2,830 768
Earnings per share - basic ...................... $ 0.29 $ 0.08
Earnings per share - diluted .................... $ 0.29 $ 0.07
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the historical
consolidated and unaudited pro forma combined financial statements and the notes
thereto which are included in Item 1 of this Part I. This report contains
"forward-looking" statements that involve a number of risks, uncertainties and
assumptions. No assurance can be given that actual results will not differ
materially from these statements as a result of various factors. See "Factors
That May Affect Future Results" in Item 1 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997.
OVERVIEW
The Company derives its revenues principally from (i) sales of industrial
valves and related process-system components to its process-industry customers
and commissions paid by the manufacturers of these products in connection with
the Company's direct sales of these products and (ii) performance of
comprehensive maintenance repair services of industrial valves and related
process-system components for its customers. Costs of operations consist
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, insurance, depreciation and amortization and other related expenses.
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (Unaudited)
The unaudited pro forma combined results of operations for the interim
periods presented below do not purport to be comparable to and may not be
indicative of the Company's post-combination results of operations because (i)
SSI and the Acquired Businesses were not under common control or management
throughout the periods presented and (ii) the Company established a new basis of
accounting to record the purchase of the Acquired Businesses under the purchase
method of accounting. See Note 1 in Item 1 of this Part I.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------- ------------------------------------
1997 1998 1997 1998
--------------- ---------------- --------------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ................ $ 21,432 100% $ 38,882 100% $ 68,134 100% $ 112,753 100%
Cost of operations ...... 14,665 68 26,619 68 46,857 69 76,475 68
-------- --- -------- ---- -------- --- --------- ----
Gross profit ............ 6,767 32 12,263 32 21,277 31 36,278 32
Selling, general and
administrative expenses 6,133 29 12,111 31 17,840 26 31,593 28
Nonrecurring costs ...... -- -- 2,190 6 -- -- 2,190 2
-------- --- -------- ---- -------- --- --------- ----
Income (loss)from
operations ............ 634 3 (2,038) (5) 3,437 5 2,495 2
Interest expense, net ... (77) -- (1,723) (4) (243) -- (3,855) (3)
Other income (expense) .. (4) -- 150 -- -- -- 250 --
-------- --- -------- ---- -------- --- --------- ----
Income (loss)from
operations before
income taxes .......... $ 553 3% $ (3,611) (9)% $ 3,194 5% $ (1,110) (1)%
======== === ======== ==== ======== === ========= ====
</TABLE>
13
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $17.5 million, or 81%, from $21.4 million
in the three months ended September 30, 1997 to $38.9 million in the
corresponding period in 1998. Approximately $17.8 million of this increase
primarily resulted from the inclusion in the 1998 period of the results of the
businesses acquired during the fourth quarter of 1997 and the first three
quarters of 1998 ("the Acquisitions") offset slightly by a decrease in revenues
at three of the Founding Companies. This decrease is primarily the result of
cost deferral programs implemented by the companies' customers in response to a
downturn in the businesses of those customers.
GROSS PROFIT -- Gross profit increased $5.5 million, or 81%, from $6.8
million in the three months ended September 30, 1997 to $12.3 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit remained constant at 32%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $6.0 million, or 97%, from $6.1 million in the
three months ended September 30, 1997 to $12.1 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general and
administrative expenses in the 1998 period of the Acquisitions. As a percentage
of revenues, selling, general and administrative expenses increased from 29% in
the third quarter of 1997 to 31% in the third quarter of 1998. For the Founding
Companies, as a percentage of revenues, these expenses were 27% in the third
quarter of 1998, down from 29% in the same period in 1997. These expenses for
the Acquisitions were approximately 35% of revenues. However, these expenses for
the Acquisitions as a percentage of revenues are higher in the quarter ended
September 30, 1998, as compared with the same period in 1997 as a result of
lower revenue volumes in the 1998 period.
INTEREST EXPENSE, NET -- Interest expense increased $1.6 million, or
2,138%, from $0.1 million in the third quarter of 1997 to $1.7 million in the
third quarter of 1998. This increase is primarily the result of borrowings under
the Company's Credit Facility to fund the cash portion of the purchase prices
paid for the Acquisitions.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $44.7 million, or 65%, from $68.1 million
in the nine months ended September 30, 1997, to $112.8 million in the
corresponding period in 1998. Approximately $44.2 million of this increase
resulted from the inclusion in the 1998 period of the results of the
Acquisitions. The remaining increase of approximately $0.5 million was
attributable to internal growth of the Founding Companies in the first quarter
of 1998.
GROSS PROFIT -- Gross profit increased $15.0 million, or 71%, from $21.3
million in the nine months ended September 30, 1997 to $36.3 million in the
corresponding period in 1998, primarily as a result of the incremental gross
margins generated in the 1998 period by the Acquisitions. As a percentage of
revenues, gross profit increased to 32% in the nine months ended September 30,
1998 from 31% in the same period in 1997. This overall 1% increase in gross
margin as a percentage of revenues was primarily the result of the inclusion of
the incremental gross profit of the Acquisitions, which are primarily off-line
repair service operations and historically have generated higher gross profit
levels than the Founding Companies.
14
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $13.8 million, or 77%, from $17.8 million in
the nine months ended September 30, 1997 to $31.6 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general and
administrative expenses of the Acquisitions. As a percentage of revenues,
selling, general and administrative expenses increased from 26% in the nine
months ended September 30, 1997 to 28% in the corresponding period in 1998. This
overall 2% increase in these expenses as a percentage of revenues in 1998
resulted from the incremental effect of including the selling, general and
administrative expenses of the Acquisitions. For the Founding Companies,
selling, general and administrative expenses in the nine months ended September
30, 1998 remained at 26%.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
INTEREST EXPENSE, NET -- Interest expense, net increased $3.6 million, or
1,486%, from $0.3 million in the nine months ended September 30, 1997, to $3.9
million in the corresponding period in 1998. This increase is primarily the
result of borrowings under the Company's Credit Facility to fund the cash
portion of the purchase prices for the Acquisitions.
RESULTS OF OPERATIONS -- HISTORICAL (Unaudited)
The following table sets forth for the Company certain selected
consolidated financial data and that data as a percentage of consolidated
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------------- -------------------------------
1997 1998 1997 1998
------------- ---------------- ------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............... $13,597 100% $ 38,882 100% $33,356 100% $112,753 100%
Cost of operations ..... 9,080 67 26,619 68 22,574 68 76,475 68
------- --- -------- ---- ------- --- -------- ---
Gross profit ........... 4,517 33 12,263 32 10,782 32 36,278 32
Selling, general and
administrative expenses 3,190 23 12,111 31 8,108 24 31,593 28
Nonrecurring expense ... -- -- 2,190 6 -- -- 2,190 2
Special compensation
expense ............. -- -- -- -- 2,605 8 -- --
------- --- -------- ---- ------- --- -------- ---
Income (loss) from
Operations .......... $ 1,327 10% $ (2,038) (5)% $ 69 --% $ 2,495 2%
======= === ======== ==== ======= === ======== ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $25.3 million, or 186%, from $13.6 million
in the three months ended September 30, 1997 to $38.9 million in the
corresponding period in 1998. This increase primarily resulted from the
inclusion in the 1998 period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $7.8 million, or 171%, from $4.5
million in the three months ended September 30, 1997 to $12.3 million in the
corresponding period in 1998. This increase occurred principally as a result of
the inclusion in the 1998 period of the incremental gross profit of the Acquired
Businesses. As a percentage of revenues, gross profit decreased slightly,
primarily as a result of the relatively fixed nature of the cost of sales
structure combined with a drop in revenues during the third quarter of 1998.
15
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $8.9 million, or 280%, from $3.2 million in
the three months ended September 30, 1997 to $12.1 million in the corresponding
period in 1998. This increase primarily reflected the incremental selling,
general and administrative expenses in the 1998 period of the Acquired
Businesses. As a percentage of revenues, these expenses increased from 23% in
the three months ended September 30, 1997 to 31% in the same period in 1998,
primarily as a result of the inclusion of the results of the Acquired Businesses
coupled with a decrease in the revenue base in the third quarter of 1998
compared with the same period in 1997.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $79.4 million, or 238%, from $33.4 million
in the nine months ended September 30, 1997, to $112.8 million in the
corresponding period in 1998. This increase primarily resulted from the
inclusion in the 1998 period of the results of the Acquired Businesses.
GROSS PROFIT -- Gross profit increased $25.5 million, or 236%, from $10.8
million in the nine months ended September 30, 1997 to $36.3 million in the
corresponding period in 1998, primarily as a result of the inclusion in the 1998
period of the incremental gross profit of the Acquired Businesses. As a
percentage of revenues, gross profit remained relatively flat in 1998 as
compared with 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $23.5 million, or 290%, from $8.1 million in
the nine months ended September 30, 1997 to $31.6 million in the corresponding
period in 1998, primarily as a result of the incremental selling, general, and
administrative expenses in the 1998 period of the Acquired Businesses. As a
percentage of revenues, selling, general and administrative expenses increased
from 24% in the nine months ended September 30, 1997, to 28% in the
corresponding period in 1998. This increase primarily resulted from the
inclusion of the results of the Acquired Businesses.
NONRECURRING COSTS - Nonrecurring costs reflect approximately $1.4 million
in write-offs of capitalized costs of abandoned projects, including a friction
welding system and $0.8 million of accrued severance costs.
SPECIAL COMPENSATION EXPENSE
In connection with the issuance of common stock to certain members of
management and a management services provider, SSI recorded a $2.6 million
non-cash, non-recurring charge in the nine months ended September 30, 1997.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter-to-quarter or year-to-year because of a number of factors, including the
timing of acquisitions, seasonal fluctuations in the demand for the Company's
services and competitive factors. Accordingly, quarterly comparisons of the
Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, the Company's operations
used $10.5 million in cash primarily as a result of an increase in working
capital. Approximately $7.3 million was used to fund an increase in level of
working capital, $4.7 million of retirements of other debt, and $3.5 million in
capital expenditures. Also, during the nine months ended September 30, 1998, the
Company had net
16
<PAGE>
borrowings of $55.1 million under its Credit Facility. Of these borrowings,
approximately $39.1 million were used to fund the cash portion of the purchase
prices paid for the businesses acquired during the period.
The Company's Credit Facility is a revolving credit facility of up
to $90 million. Invatec's subsidiaries have guaranteed the repayment of all
amounts due under the facility, and the facility is secured by the capital stock
of those subsidiaries and all of the Company's assets. The Credit Facility
prohibits the payment of cash dividends by Invatec, restricts the ability of the
Company to incur other indebtedness and requires the Company to comply with
certain financial covenants.
As of November 13, 1998, the Company was not in compliance with certain of
its loan covenants under the Credit Facility. The Company has therefore
classified amounts due under the Credit Facility as of September 30, 1998 as a
current liability. The Company has obtained waivers of the covenant violations
(which terminate November 19, 1998) and is in the process of negotiating an
amendment to the Credit Facility to address future compliance with these
covenants. The Company expects to have finalized the term sheet for such
amendment by November 19, 1998 and to secure an additional waiver until the
amendment is appropriately documented. At November 13, 1998, approximately $70.6
million of borrowings were outstanding under the Credit Facility.
Management believes that the Credit Facility will be amended within the
next 60 days to provide temporary covenant relief and permit the Company to make
borrowings as may be needed to meet its forecasted working capital requirements.
The Company expects the Credit Facility will be further amended in the first
quarter of 1999 to provide for covenants the Company should be able to comply
with thereafter. However, there can be no assurances that amendments will be
obtained. In the event that the terms of the Credit Facility are not amended so
that the Company is in compliance with that agreement, the Company may need to
seek replacement debt or equity financing to repay the amounts due under the
Credit Facility. There can be no assurance that any such replacement financing
would be available.
At September 30, 1998, the Company's capitalization included approximately
$12.9 million aggregate principal amount of convertible subordinated notes due
2002-04 that bore a weighted average interest rate of 5.3%. The Company issued
these notes as partial consideration in acquisitions of certain Acquired
Businesses. These notes are convertible into Common Stock at initial conversion
prices ranging from $16.90 to $22.20 per share.
For three businesses acquired in 1998, the Company guaranteed Common Stock
price targets to the sellers at specified future dates. If the guaranteed price
targets are not met or exceeded, the Company is required to either issue
additional shares of Common Stock or pay additional funds to the sellers for the
difference between the price at the acquisition date and the guaranteed price
targets. Using the Common Stock price at November 11, 1998, the total additional
consideration would be approximately $5.2 million and 617,143 additional shares
of Common Stock. The additional consideration is payable to the sellers on the
one year anniversary of the acquisition date.
Management believes that in the event of additional cash needs required to
support the Company's working capital requirements, the Company may need to seek
additional financing through amendments to increase the borrowing capacity under
the existing Credit Facility or the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
YEAR 2000 ISSUE
Many software applications, computer hardware and related equipment and
systems that use embedded technology (such as microporessors) identify dates
using only the last two digits of the year. These products and systems may be
unable to distinguish between dates in the Year 2000 and dates in the year 1900.
that inability (referred to as the "Year 2000" issue), if not addressed, could
cause applications, equipment or systems to fail or provide incorrect
information after December 31, 1999, or when using dates after December 31,
1999. This in turn could have an adverse effect on the Company due to the
Company's direct dependence on its own applications, equipment and systems and
indirect dependence on those of other entities which the Company must interact.
The Company recognizes the need to ensure that its operations will not be
adversely affected by Year 2000 system failures. Therefore, in 1998 the Company
began addressing the Year 2000 issue in an effort to minimize the disruptions to
the Company's business and potential Company liabilities that
17
<PAGE>
could result from Year 2000 system failures. The Company has been using its own
employees and outside experts to identify Year 2000 compliance problems, assist
in developing estimates for remediation and complete necessary remediation work,
including reprogramming, replacement and testing of software for Year 2000
compliance.
The Company currently has a plan in place to modify or replace portions of
its administrative and operating software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter,
providing management with consistent operational and financial information
throughout the Company. The Company currently estimates that process should be
completed by the third quarter of 1999. The Company has reviewed its own
computer hardware and embedded technology systems that are material to its
operations and concluded that those items will function properly in the Year
2000 and beyond or can be modified or replaced without any material expense or
disruption of operations. Accordingly, the Company does not expect costs
relating to Year 2000 remediation to have a material adverse effect on its
results of operations or financial condition.
A complete assessment of the Year 2000 issue will involve, among other
things, efforts to obtain representations and assurances from third parties,
including third-party vendors, that their hardware and equipment, embedded
technology systems and software being used by or impacting the Company are or
will be modified to be Year 2000 compliant. The Company has yet to begin its
evaluation of the Year 2000 compliance of any third parties. As a result,
management cannot predict the potential consequences if third parties are not
Year 2000 compliant.
Because the Company plans to address any significant Year 2000 issues
before being affected by them, it has not developed a comprehensive contingency
plan. However, if the Company identifies significant risks related to its Year
2000 compliance or its progress deviates from the anticipated program, the
Company will develop contingency plans as necessary. Furthermore, although the
Company does not anticipate any material adverse effect from Year 2000 failures,
there is no guarantee of total compliance. Specific factors that give rise to
uncertainty include failure to identify all susceptible systems, non-compliance
by third parties whose systems and operations impact the Company, a possible
loss of technical resources to perform the work and other similar uncertainties.
Year 2000 noncompliance could result in a material disruption of the Company's
operations, an interruption in its ability to collect amounts due from
customers, loss of accurate accounting records and various of other
difficulties. Depending on the length of noncompliance and system failure, any
of these situations could have a material adverse impact on the Company's
results of operations and financial position.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RECENT MANAGEMENT CHANGES
On November 3, 1998, Invatec announced several management changes as
follows:
Mr. Charles F. Schugart has been appointed President. Mr. Schugart was
formerly Invatec's Senior Vice President and Chief Financial Officer, and has
been heavily involved in the Company's acquisition activities. He will now
concentrate on improving the financial performance of Invatec's operating
businesses.
Mr. Douglas R. Harrington, Jr., has been promoted to Chief Financial
Officer, succeeding Mr. Schugart. Mr. Harrington was formerly Invatec's
Corporate Controller and Treasurer.
Mr. Curry B. Walker, Vice President of Quality, Safety and Engineering,
has assumed certain of the responsibilities formerly assigned to Denny A. Rigas
(who was terminated in September 1998) and will assume additional
responsibilities to support the marketing and partnering efforts of the Invatec
companies.
Mr. Pliny L. Olivier was appointed as Senior Vice President of Operations
to address the implementation of synergistic opportunities.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
2.1* -- Stock Purchase Agreement dated as of December 28, 1996
by and among The Safe Seal Company, Inc. ("SSI"),
certain stockholders of Harley Industries, Inc.
("Harley") and Harley (Form S-1 (Reg. No. 333-31617),
Ex. 2.1).
2.2* -- Stock Transfer Agreement dated as of January 24, 1997
by and among SSI, a stockholder of Harley, Harley and
Harley Equipment Corporation (Form S-1 (Reg. No.
333-31617), Ex. 2.2).
2.3* -- Stock Purchase Agreement entered into on June 23, 1997
by and among the Company, Puget Investments, Inc.,
Flickinger-Benicia Inc. and the stockholders named
therein (Form S-1 (Reg. No. 333-31617), Ex. 2.3).
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by
and among the Company, Industrial Controls & Equipment,
Inc., Valve Actuation & Repair Co. and the other parties
thereto (Form S-1 (Reg. No. 333-31617), Ex. 2.4).
2.5* -- Stock Purchase Agreement dated as of February 26, 1997
by and among SSI and the stockholders of GSV, Inc. (Form
S-1 (Reg. No. 333-31617), Ex. 2.5).
2.6* -- Stock and Real Estate Purchase Agreement dated as of May
22, 1997 by and among SSI, Plant Specialties, Inc., and the
stockholders named therein (Form S-1 (Reg. No.
333-31617), Ex. 2.6).
2.7* -- Agreement and Plan of Reorganization dated as of June
27, 1997 by and among the Company, Southern Valve
Service, Inc. and the other parties thereto (Form S-1
(Reg. No. 333-31617), Ex. 2.7).
2.8* -- Stock Redemption and Purchase Agreement dated as of
June 27, 1997 by and among the Company, Lee Roy Jordan,
Ralph Buffkin and 55 Leasing and Sales, Inc. (Form S-1
(Reg. No. 333-31617), Ex. 2.8).
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997
by and among the Company, IVT Acquisition, Inc. and SSI,
as amended as of August 15, 1997 (Form S-1 (Reg. No.
333-31617), Ex. 2.9).
2.10* -- Uniform Provisions for Acquisitions (incorporated into
the agreements incorporated herein as Exhibits 2.3, 2.4
and 2.7) (Form S-1 (Reg. No. 333-31617), Ex. 2.10).
2.11* -- Merger Agreement dated as of December 17, 1997 by and
among the Company, DIVT Acquisition, LLC, Dalco, Inc.
and the stockholders named therein (Form 8-K dated
December 17, 1997 (File No. 000-23231), Ex. 2).
2.12* -- Stock Purchase Agreement dated as of February 27, 1998
by and among the Company, Cypress Industries, Inc. and
the stockholders named therein (Form 8-K dated February
27, 1998 (File No. 000-23231), Ex. 2).
20
<PAGE>
2.13* -- Merger Agreement, dated as of March 16, 1998, by and
among the Company, IPSCO Acquisition, Inc., IPS Holding,
Ltd. ("IPS") and the subsidiaries and stockholders of
IPS named therein (Form 8-K dated March 16, 1998 (File
No. 000-23231), Ex. 2).
-- Pursuant to Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to the agreements filed or
incorporated by reference as Exhibits 2.1 through 2.13
(all of which are listed therein) have been omitted.
Invatec hereby agrees to furnish supplementally a copy of
any such omitted item to the SEC on request.
3.1 -- Certificate of Incorporation of the Company, as amended.
3.2 -- Amended and Restated Bylaws of the Company.
4.1 -- Loan Agreement, dated as of July 7, 1998, by and among
the Company and Chase Bank of Texas, National Association.
10.1 -- 1997 Incentive Plan of the Company, as amended.
27.1 -- Financial Data Schedule.
________________
* Incorporated by reference to the filing indicated.
(b) Reports on Form 8-K.
None.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Innovative Valve Technologies, Inc., has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
/S/ DOUGLAS R. HARRINGTON, JR.
DOUGLAS R. HARRINGTON, JR.
VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Dated: November 13, 1998
22
EXHIBIT 3.1A
CERTIFICATE OF INCORPORATION
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
FIRST:The name of the Corporation is Innovative Valve Technologies,
Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD:The purpose of the Corporation is to engage in any lawful
business, act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware or any successor statute (the
"DGCL").
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is Thirty-Five Million (35,000,000),
divided into Thirty Million (30,000,000) shares of common stock, par value
$0.001 per share ("Common Stock"), and Five Million (5,000,000) shares of
preferred stock, par value $0.001 per share ("Preferred Stock"). Shares of any
class of capital stock of the Corporation may be issued for such consideration
and for such corporate purposes as the Board of Directors of the Corporation
(the "Board of Directors") may from time to time determine. Each share of Common
Stock shall be entitled to one vote.
The Preferred Stock may be divided into and issued from time to time
in one or more series as may be fixed and determined by the Board of Directors.
The relative rights and preferences of the Preferred Stock of each series shall
be such as shall be stated in any resolution or resolutions adopted by the Board
of Directors setting forth the designation of the series and fixing and
determining the relative rights and preferences thereof, any such resolution or
resolutions being herein called a "Directors' Resolution." The Board of
Directors is hereby authorized to fix and determine the powers, designations,
preferences, and relative, participating, optional or other rights (including,
without limitation, voting powers, full or limited, preferential rights to
receive dividends or assets upon liquidation, rights of conversion or exchange
into Common Stock, Preferred Stock of any series or other securities, any right
of the Corporation to exchange or convert shares into Common Stock, Preferred
Stock of any series or other securities, or redemption provisions or sinking
fund provisions) as between series and as between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions thereof, if any, all as shall be stated in a Directors' Resolution,
and the shares of
-1-
<PAGE>
Preferred Stock or any series thereof may have full or limited voting powers, or
be without voting powers, all as shall be stated in a Directors' Resolution.
No stockholder shall, by reason of the holding of shares of any
class or series of capital stock of the Corporation, have a preemptive or
preferential right to acquire or subscribe for any shares or securities of any
class, whether now or hereafter authorized, which may at any time be issued,
sold or offered for sale by the Corporation, unless specifically provided for in
a Directors' Resolution with respect to a series of Preferred Stock.
Cumulative voting of shares of any class or series of capital stock
having voting rights is prohibited unless specifically provided for in a
Directors' Resolution with respect to a series of Preferred Stock.
FIFTH:The name and mailing address of the incorporator are as
follows:
Name Mailing Address
- - ---- ---------------
Ted W. Paris 3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
SIXTH:(a) DIRECTORS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to the authority and powers conferred upon the Board of Directors by
the DGCL or by the other provisions of this Certificate of Incorporation, the
Board of Directors is hereby authorized and empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject to the provisions of the DGCL, this Certificate of
Incorporation and any Bylaws adopted by the stockholders of the Corporation;
PROVIDED, HOWEVER, that no Bylaws hereafter adopted by the stockholders of the
Corporation, or any amendments thereto, shall invalidate any prior act of the
Board of Directors that would have been valid if such Bylaws or amendment had
not been adopted.
(b) NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by a majority of the directors then in office, subject to an increase in
the number of directors by reason of any provisions contained in or established
pursuant to Article FOURTH, but in any event shall not be less than one. Each
director shall hold office until the next annual meeting following such
director's election or re-election and, the foregoing notwithstanding, shall
serve until his successor shall have been duly elected and qualified or until
his earlier death, resignation or removal.
Election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
-2-
<PAGE>
(c) INITIAL BOARD OF DIRECTORS. The powers of the incorporator shall
terminate upon the filing of this Certificate of Incorporation and the name and
mailing address of the person to serve as the initial director of the
Corporation are:
Name Mailing Address
- - ---- ---------------
Roger L. Miller 14900 Woodham Drive, Suite A-125
Houston, Texas 77073
(d) REMOVAL OF DIRECTORS. No director of the Corporation shall be
removed from office as a director by vote or other action of the stockholders or
otherwise except for cause, and then only by the affirmative vote of the holders
of at least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Except as may otherwise be
provided by law, cause for removal of a director shall be deemed to exist only
if: (i) the director whose removal is proposed has been convicted, or where a
director is granted immunity to testify where another has been convicted, of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal (for this purpose, the entry by the director of a plea
of NOLO CONTENDERE shall be deemed to be a conviction not subject to appeal);
(ii) such director has been found by the affirmative vote of a majority of the
entire Board of Directors at any regular or special meeting of the Board of
Directors called for that purpose or by a court of competent jurisdiction to
have been grossly negligent or guilty of misconduct in the performance of his
duties to the Corporation in a matter of substantial importance to the
Corporation; or (iii) such director has been adjudicated by a court of competent
jurisdiction to be mentally incompetent, which mental incompetency directly
affects his ability as a director of the Corporation. Notwithstanding the
foregoing, whenever holders of outstanding shares of one or more series of
Preferred Stock are entitled to elect members of the Board of Directors pursuant
to the provisions applicable in the case of arrearages in the payment of
dividends or other defaults contained in the Directors' Resolution providing for
the establishment of any series of Preferred Stock, any such director of the
Corporation so elected may be removed in accordance with the provision of such
Directors' Resolution.
(e) VACANCIES. Except as provided in Article FOURTH hereof, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board of Directors. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SEVENTH: From and after the first date as of which the Corporation
has a class or series of capital stock registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any action required or permitted
to be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders of the Corporation
-3-
<PAGE>
and may not be effected by any consent in writing by such stockholders. Except
as otherwise required by law, or as may be prescribed in a Directors'
Resolution, special meetings of stockholders of the Corporation may be called
only by the Chairman of the Board of Directors or by the President of the
Corporation or by the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the entire Board of Directors.
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED, HOWEVER, that the foregoing provisions
shall not eliminate or limit the liability of a director (i) for any breach of
such director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, as the same
exists or as such provision may hereafter be amended, supplemented or replaced,
or (iv) for any transactions from which such director derived an improper
personal benefit. If the DGCL is amended after the filing of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by such law, as so
amended. Any repeal or modification of this Article EIGHTH by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
NINTH:In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation, or adopt new Bylaws, without any
action on the part of the stockholders, except as may be otherwise provided by
applicable law or the Bylaws of the Corporation.
TENTH:Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If the majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders, of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
-4-
<PAGE>
I, the undersigned, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the DGCL, do make this
certificate, hereby declaring that this is my act and deed, and that the facts
herein stated are true, and accordingly have hereunto set my hand this 6th day
of March, 1997.
/s/ TED W. PARIS
Ted W. Paris
-5-
EXHIBIT 3.1B
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
Innovative Valve Technologies, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "DGCL"), hereby adopts this
Certificate of Amendment (this "Certificate of Amendment"), which amends its
Certificate of Incorporation (the "Certificate of Incorporation"), as described
below, and does hereby further certify that:
1. The name of the Corporation is Innovative Valve Technologies, Inc.
1. The Board of Directors of the Corporation duly adopted resolutions proposing
and declaring advisable the amendments to the Certificate of Incorporation this
Certificate of Amendment is effecting, and the Corporation's stockholders have
duly adopted those amendments, all in accordance with the provisions of Sections
242 and 228 of the DGCL.
1. This Certificate of Amendment amends the Certificate of Incorporation so as
to reclassify the shares of Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") which are issued and outstanding immediately
prior to the date this Certificate of Amendment is filed with the Secretary of
State of the State of Delaware (the "Old Shares") by combining the 357,114 Old
Shares into a total of 242,839 new shares of Common Stock having a par value of
$.001 per share (the "New Shares"), which combination represents a 0.68-for-1.00
reverse stock split of the Old Shares.
1. The Certificate of Incorporation is hereby amended by deleting Article Fourth
thereof and replacing in lieu thereof a new Article Fourth reading in its
entirety as follows:
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is Thirty-Five Million
(35,000,000), divided into Thirty Million (30,000,000) shares of common
stock, par value $0.001 per share ("Common Stock"), and Five Million
(5,000,000) shares of preferred stock, par value $0.001 per share
("Preferred Stock"). Shares of any class of capital stock of the
Corporation may be issued for such consideration and for such corporate
purposes as the
<PAGE>
Board of Directors of the Corporation (the "Board of Directors") may from
time to time determine. Each share of Common Stock shall be entitled to
one vote.
The Preferred Stock may be divided into and issued from time to time
in one or more series as may be fixed and determined by the Board of
Directors. The relative rights and preferences of the Preferred Stock of
each series shall be such as shall be stated in any resolution or
resolutions adopted by the Board of Directors setting forth the
designation of the series and fixing and determining the relative rights
and preferences thereof, any such resolution or resolutions being herein
called a "Directors' Resolution." The Board of Directors is hereby
authorized to fix and determine the powers, designations, preferences, and
relative, participating, optional or other rights (including, without
limitation, voting powers, full or limited, preferential rights to receive
dividends or assets upon liquidation, rights of conversion or exchange
into Common Stock, Preferred Stock of any series or other securities, any
right of the Corporation to exchange or convert shares into Common Stock,
Preferred Stock of any series or other securities, or redemption
provisions or sinking fund provisions) as between series and as between
the Preferred Stock or any series thereof and the Common Stock, and the
qualifications, limitations or restrictions thereof, if any, all as shall
be stated in a Directors' Resolution, and the shares of Preferred Stock or
any series thereof may have full or limited voting powers, or be without
voting powers, all as shall be stated in a Directors' Resolution.
No stockholder shall, by reason of the holding of shares of any
class or series of capital stock of the Corporation, have a preemptive or
preferential right to acquire or subscribe for any shares or securities of
any class, whether now or hereafter authorized, which may at any time be
issued, sold or offered for sale by the Corporation, unless specifically
provided for in a Directors' Resolution with respect to a series of
Preferred Stock.
Cumulative voting of shares of any class or series of capital stock
having voting rights is prohibited unless specifically provided for in a
Directors' Resolution with respect to a series of Preferred Stock.
This Certificate of Amendment amends the Certificate of
Incorporation so as to reclassify the shares of Common Stock having a par
value of $.001 per share which are issued and outstanding immediately
prior to the date this Certificate of Amendment is filed with the
Secretary of State of the State of Delaware (the "Old Shares") by
combining the 357,114 Old Shares into a total of 242,839 new shares of
Common Stock having a par value of $.001 per share (the "New Shares"),
which combination represents a 0.68-for-1.00 reverse stock split of the
Old Shares.
This Certificate of Amendment will become effective on the date it
is filed with the Secretary of State of the State of Delaware (the
"Effective Date"). On the Effective Date, each Old Share will,
automatically and without any action on the part of the Corporation or the
holder thereof, be reclassified as a 0.68 fraction of a New Share, and
each holder of a certificate or certificates that immediately prior to the
Effective Date
<PAGE>
represented Old Shares (each, an "Old Certificate") will be entitled to
receive, on the surrender of that holder's Old Certificate or Old
Certificates to the Secretary of the Corporation for cancellation, a
certificate or certificates (the "New Certificates," whether one or more)
representing in the aggregate that number of whole duly authorized,
validly issued, fully paid and nonassessable New Shares into which the Old
Shares formerly represented by that Old Certificate or Old Certificates so
surrendered have been reclassified by this Certificate of Amendment. From
and after the Effective Date, Old Certificates will represent only the
right to receive New Certificates pursuant to the provisions hereof. The
Corporation will not issue fractional New Shares or take any of the
actions specified in clauses (1), (2) and (3) of the second sentence of
Section 155 of the DGCL, and each holder of record of Old Shares will be
entitled to receive, on the surrender of all the Old Certificates formerly
representing the Old Shares so held, New Certificates representing in the
aggregate such number of New Shares, rounded upward to the nearest whole
share, as shall equal the product obtained from multiplying that aggregate
number of Old Shares so held by 0.68. If the Secretary of the Corporation
determines that a holder of Old Certificates has not surrendered all his
Old Certificates, the Secretary of the Corporation will carry forward any
fractional share until all Old Certificates of that holder have been
surrendered so that not more than one New Share will be issued to any
holder in respect of fractional interests; provided, however, that if Old
Shares are held of record by a voting trustee pursuant to a voting trust,
the Secretary of the Corporation will treat each holder of a voting trust
certificate issued by that voting trustee as a holder of an Old
Certificate representing the New Shares into which the Old Shares formerly
represented by that voting trust certificate have been reclassified, and
will take into account any Old Certificates held by that holder which are
not subject to that voting trust, in determining the number of New Shares
to be issued to that voting trustee. If any New Certificate is to be
issued in a name other than that in which the Old Certificates surrendered
therefor are issued, the Old Certificates so surrendered must be properly
endorsed and otherwise in proper form for transfer, and the person or
persons requesting that transfer must affix any requisite stock transfer
tax stamps to the Old Certificates surrendered, or provide funds for their
purchase, or establish to the satisfaction of the Secretary of the
Corporation that those taxes are not payable. From and after the Effective
Date, the total amount of capital represented by the New Shares into which
the Old Shares are reclassified under the terms hereof will be the same as
the amount of capital represented by the Old Shares so reclassified, until
thereafter reduced or increased in accordance with applicable law.
On the Effective Date, any Old Shares held in the treasury of the
Corporation immediately prior to the filing of this Certificate of
Amendment with the Secretary of State of the State of Delaware, and all
rights in respect thereof, will, automatically and without any action on
the part of the Corporation, be canceled.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to
be executed on its behalf this 20th day of October, 1997.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart
Chief Financial Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
INNOVATIVE VALVE TECHNOLOGIES, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on September 18, 1997 adopted the
following resolution creating a series of 300,000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value $.001
per share, of the Corporation be and hereby is created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 300,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
<PAGE>
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock, in
preference to the holders of shares of any class or series of stock of the
Corporation ranking junior to the Series A Junior Participating Preferred Stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10 or (b) the Adjustment Number (as defined below) times the aggregate
per share amount of all cash dividends, and the Adjustment Number times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. The "Adjustment Number" shall initially be
100. In the event the Corporation shall at any time after September 18, 1997
(the "Rights Declaration Date") (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such 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
6
<PAGE>
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 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,
7
<PAGE>
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.
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
8
<PAGE>
(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 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.
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(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 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
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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, first class postage prepaid, not later
than the fifteenth day and not earlier than the sixtieth 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.
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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.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
and does affirm the foregoing as true this 22nd day of October, 1997.
/s/ CHARLES F. SCHUGART
Charles F. Schugart
Chief Financial Officer, Senior Vice President
Corporate Development, Treasurer and Secretary
12
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
ADOPTED TO BE EFFECTIVE AS OF JULY 18, 1997.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
TABLE OF CONTENTS
ARTICLE I OFFICES
1.1 Registered Office.............................................1
1.2 Other Offices.................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings.............................................1
2.2 Annual Meeting................................................1
2.3 Special Meetings..............................................2
2.4 Notice of Meeting.............................................2
2.5 Registered Holders of Shares; Closing of Share Transfer
Records; and
Record Date...................................................2
2.6 Quorum of Stockholders; Adjournment...........................3
2.7 Voting by Stockholders........................................3
2.8 Business to be Conducted......................................4
2.9 Proxies.......................................................5
2.10 Approval or Ratification of Acts or Contracts by Stockholders.5
ARTICLE III DIRECTORS
3.1 Powers, Number and Tenure.....................................6
3.2 Qualifications................................................7
3.3 Nomination of Directors.......................................7
3.4 Place of Meeting; Order of Business...........................8
3.5 Regular Meetings..............................................8
3.6 Special Meetings..............................................8
3.7 Attendance at and Notice of Meetings..........................8
3.8 Quorum of and Action by Directors.............................9
3.9 Board and Committee Action Without a Meeting..................9
3.10 Board and Committee Telephone Meetings........................9
3.11 Compensation..................................................9
3.12 Removal.......................................................9
3.13 Committees of the Board of Directors.........................10
ARTICLE IV OFFICERS
4.1 Designation..................................................12
4.2 Chairman of the Board of Directors...........................13
4.3 President....................................................13
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4.4 Vice President...............................................13
4.5 Secretary....................................................13
4.6 Treasurer....................................................14
4.7 Corporate Controller.........................................14
4.8 Assistant Secretaries........................................14
4.9 Assistant Treasurers.........................................14
4.10 Assistant Controllers........................................15
4.11 Other Officers...............................................15
4.12 Vacancies....................................................15
4.13 Removal......................................................15
4.14 Action with Respect to Securities of Other Corporations......15
ARTICLE V CAPITAL STOCK
5.1 Certificates for Shares......................................16
5.2 Transfer of Shares...........................................16
5.3 Ownership of Shares..........................................16
5.4 Regulations Regarding Certificates...........................16
5.5 Lost or Destroyed Certificates...............................16
ARTICLE VI INDEMNIFICATION
6.1 General......................................................17
6.2 Expenses.....................................................17
6.3 Advances.....................................................17
6.4 Request for Indemnification..................................18
6.5 Nonexclusivity of Rights.....................................18
6.6 Insurance and Subrogation....................................18
6.7 Severability.................................................18
6.8 Certain Actions Where Indemnification Is Not Provided........19
6.9 Definitions..................................................19
6.10 Notices......................................................19
6.11 Contractual Rights...........................................20
ARTICLE VII MISCELLANEOUS PROVISIONS
7.1 Bylaw Amendments.............................................20
7.2 Books and Records............................................20
7.3 Notices; Waiver of Notice....................................20
7.4 Resignations.................................................21
7.5 Seal.........................................................21
7.6 Fiscal Year..................................................21
7.7 Facsimile Signatures.........................................21
7.8 Reliance upon Books, Reports and Records.....................21
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BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE. The registered office of Innovative Valve Technologies,
Inc. (the "Corporation") required by the General Corporation Law of the
State of Delaware or any successor statute (the "DGCL"), to be maintained
in the State of Delaware, shall be the registered office named in the
Certificate of Incorporation of the Corporation, as it may be amended or
restated in accordance with the DGCL from time to time (the "Certificate
of Incorporation"), or such other office as may be designated from time to
time by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") in the manner provided by applicable law.
Should the Corporation maintain a principal office within the State of
Delaware, such registered office need not be identical to such principal
office of the Corporation.
1.2 OTHER OFFICES. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors
may determine from time to time or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at such place
within or without the State of Delaware as may be designated by the Board
of Directors or the officer calling the meeting, or, in the absence of
such designation, at the registered office of the Corporation in the State
of Delaware.
2.2 ANNUAL MEETING. An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire or to fill vacancies and for
the transaction of such other business as may properly come before the
meeting, shall be held on such date and at such time as the Board of
Directors shall fix and set forth in the notice of the meeting, which date
shall be within thirteen months subsequent to the last annual meeting of
stockholders. At the annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
annual meeting as set forth in Section 2.8 hereof. Failure to hold the
annual meeting at the designated time shall not work a dissolution of the
Corporation.
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2.3 SPECIAL MEETINGS. Special meetings of the stockholders may be called at
any time by the Chairman of the Board, the President or a majority of the
Board of Directors. Upon written request of any person or persons who have
duly called a special meeting, it shall be the duty of the Secretary of
the Corporation to fix the date of the meeting to be held not less than
ten nor more than 60 days after the receipt of the request and to give due
notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so.
2.4 NOTICE OF MEETING. Written or printed notice of all meetings stating the
place, day and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, President or Secretary of the Corporation, to each
stockholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be delivered to a stockholder when deposited in the United
States mail addressed to such stockholder at such stockholder's address as
it appears on the stock transfer records of the Corporation, with postage
thereon prepaid.
2.5 REGISTERED HOLDERS OF SHARES; CLOSING OF SHARE TRANSFER RECORDS; AND
RECORD DATE.
(a) REGISTERED HOLDERS AS OWNERS. Unless otherwise provided under
Delaware law, the Corporation may regard the person in whose name
any shares issued by the Corporation are registered in the stock
transfer records of the Corporation at any particular time
(including, without limitation, as of a record date fixed pursuant
to paragraph (b) of this Section 2.5) as the owner of those shares
at that time for purposes of voting those shares, receiving
distributions thereon or notices in respect thereof, transferring
those shares, exercising rights of dissent with respect to those
shares, entering into agreements with respect to those shares, or
giving proxies with respect to those shares; and neither the
Corporation nor any of its officers, directors, employees or agents
shall be liable for regarding that person as the owner of those
shares at that time for those purposes, regardless of whether that
person possesses a certificate for those shares.
(b) RECORD DATE. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive a distribution by the
Corporation (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may fix in advance
a date as the record date for any such determination of
stockholders, such date in any case to be not more than 60 days and,
in the case of a meeting of stockholders, not less than ten days,
prior to the date on which the particular action requiring such
determination of
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stockholders is to be taken. The Board of Directors shall not close
the books of the Corporation against transfers of shares during the
whole or any part of such period.
If the Board of Directors does not fix a record date for any
meeting of the stockholders, the record date for determining
stockholders entitled to notice of or to vote at such meeting shall
be at the close of business on the day next preceding the day on
which notice is given, or, if in accordance with Section 7.3 of
these Amended and Restated Bylaws (these "Bylaws") notice is waived,
at the close of business on the day next preceding the day on which
the meeting is held.
2.6 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Unless otherwise provided in the
Certificate of Incorporation, a majority of the outstanding shares of
capital stock of the Corporation entitled to vote, present in person or
represented by proxy, shall constitute a quorum at any meeting of the
stockholders, and the stockholders present at any duly convened meeting
may continue to do business until adjournment notwithstanding any
withdrawal from the meeting of holders of shares counted in determining
the existence of a quorum. Unless otherwise provided in the Certificate of
Incorporation or these Bylaws, any meeting of the stockholders may be
adjourned from time to time by the chairman of the meeting or the holders
of a majority of the issued and outstanding stock, present in person or
represented by proxy, whether or not a quorum is present, without notice
other than by announcement at the meeting at which such adjournment is
taken, and at any such adjourned meeting at which a quorum shall be
present any action may be taken that could have been taken at the meeting
originally called; PROVIDED that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
2.7 VOTING BY STOCKHOLDERS.
(a) VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS. With respect
to any matters as to which no other voting requirement is specified
by the DGCL, the Certificate of Incorporation or these Bylaws, the
affirmative vote required for stockholder action shall be that of a
majority of the shares present in person or represented by proxy at
the meeting (as counted for purposes of determining the existence of
a quorum at the meeting). In the case of a matter submitted for a
vote of the stockholders as to which a stockholder approval
requirement is applicable under the stockholder approval policy of
any stock exchange or quotation system on which the capital stock of
the Corporation is traded or quoted, the requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any provision of the Internal Revenue Code of 1986, as amended (the
"Code"), in each case for which no higher voting requirement is
specified by the DGCL, the Certificate of Incorporation or these
Bylaws, the vote required for approval shall be the requisite vote
specified in such stockholder approval policy, the Exchange
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<PAGE>
Act or Code provision, as the case may be (or the highest such
requirement if more than one is applicable). For the approval of the
appointment of independent public accountants (if submitted for a
vote of the stockholders), the vote required for approval shall be a
majority of the votes cast on the matter.
(b) VOTING IN THE ELECTION OF DIRECTORS. Unless otherwise provided in
the Certificate of Incorporation or these Bylaws in accordance with
the DGCL, directors shall be elected by a plurality of the votes
cast by the holders of outstanding shares of capital stock of the
Corporation entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present.
(c) OTHER. The Board of Directors, in its discretion, or the officer of
the Corporation presiding at a meeting of stockholders of the
Corporation, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
2.8 BUSINESS TO BE CONDUCTED.
(a) At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall
have been brought before the annual meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of the
giving of such stockholder's notice provided for in this Section
2.8, who shall be entitled to vote at such meeting and who complies
with the requirements of this Section 2.8 and as shall otherwise be
proper subjects for stockholder action and shall be properly
introduced at the meeting. For a proposal to be properly brought
before an annual meeting by a stockholder, in addition to any other
applicable requirements, the stockholder must have given timely
advance notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered
to, or mailed and received at, the principal executive offices of
the Corporation not later than the 90th day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that with respect to the annual meeting of stockholders to
be held in 1998 or in the event that the date of the annual meeting
is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is
first made by the Corporation. Any such stockholder's notice to the
Secretary of the Corporation shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a
description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and
any other stockholders known by such stockholder to be supporting
such proposal,
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(iii) the class and number of shares of the Corporation's stock
which are beneficially owned by the stockholder on the date of such
notice, (iv) any financial interest of the stockholder in such
proposal and (v) a representation that the stockholder intends to
appear in person or by proxy at the meeting to bring the proposed
business before the annual meeting. The presiding officer of the
annual meeting shall determine whether the requirements of this
paragraph (a) have been met with respect to any stockholder
proposal. If the presiding officer determines that a stockholder
proposal was not made in accordance with the terms of this paragraph
(a), he shall so declare at the meeting and any such proposal shall
not be acted upon at the meeting. At a special meeting of
stockholders, only such business shall be acted upon as shall have
been set forth in the notice relating to the meeting required by
Section 2.4 hereof or as shall constitute matters incident to the
conduct of the meeting as the presiding officer of the meeting shall
determine to be appropriate.
(b) Notwithstanding the foregoing provisions of this Section 2.8, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.8.
2.9 PROXIES. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy. Proxies
for use at any meeting of stockholders shall be filed with the Secretary,
or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received
and canvassed by the secretary of the meeting who shall decide all
questions relating to the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in
which event such inspector or inspectors shall decide all such questions.
2.10 APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY STOCKHOLDERS. The Board
of Directors in its discretion may submit any act or contract for approval
or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering
any such act or contract, and any act or contract that shall be approved
or be ratified by the vote of the stockholders holding a majority of the
issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum
is present) shall be as valid and as binding upon the Corporation and upon
all the stockholders as if it had been approved or ratified by every
stockholder of the Corporation.
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ARTICLE III
DIRECTORS
3.1 POWERS, NUMBER AND TENURE.
(a) The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall
be managed by or under the direction of, the Board of Directors. The
directors, other than those who may be elected by the holders of any
series of Preferred Stock, shall be divided into three classes:
Class I, Class II and Class III. Each director shall serve for a
term ending on the third annual meeting following the annual meeting
at which such director was elected; provided however, that the
directors first elected to Class I shall serve until the annual
meeting of stockholders held in 1998, the directors first elected to
Class II shall serve until the annual meeting of stockholders held
in 1999, and the directors first elected to Class III shall serve
until the annual meeting of stockholders held in 2000. Each director
shall hold office until the annual meeting at which such director's
term expires and, the foregoing notwithstanding, shall serve until
his successor shall have been duly elected and qualified or until
his earlier death or resignation or removal in accordance with the
Certificate of Incorporation or these Bylaws.
(b) At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they
succeed, unless by reason of any intervening changes in the
authorized number of directors the Board of Directors shall have
designated one or more directorships whose term then expire as
directorships of another class in order more nearly to achieve
equality of number of directors among the classes. In the event of
any change in the authorized number of directors, each director then
continuing to serve as such shall nevertheless continue as a
director of the class of which he is a member until the expiration
of his current term, or his prior death, resignation or removal. The
Board of Directors shall specify the class to which a newly created
directorship should be allocated.
(c) Within the limits specified in the Certificate of Incorporation, the
number of directors that shall constitute the whole Board of
Directors shall be fixed by, and may be increased or decreased from
time to time by, the affirmative vote of a majority of the members
at any time constituting the Board of Directors. Except as provided
in the Certificate of Incorporation, newly created directorships
resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full
term of the class of directors in which the new directorship was
created or the vacancy occurred
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and until such director's successor shall have been elected and
qualified or until his earlier death, resignation or removal. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
3.2 QUALIFICATIONS. Directors need not be residents of the State of Delaware
or stockholders of the Corporation.
3.3 NOMINATION OF DIRECTORS. Subject to such rights of the holders of one or
more outstanding series of Preferred Stock of the Corporation to elect one
or more directors in case of arrearages in the payment of dividends or
other defaults as shall be prescribed in the Certificate of Incorporation
or in the resolutions of the Board of Directors providing for the
establishment of any such series, only persons who are nominated in
accordance with the procedures set forth in this Section 3.3 shall be
eligible for election as, and to serve as, directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
the stockholders at which Directors are to be elected (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of the giving of
such stockholder's notice provided for in this Section 3.3, who shall be
entitled to vote at such meeting in the election of directors and who
complies with the requirements of this Section 3.3. Such nominations,
other than those made by or at the direction of the Board of Directors,
shall be preceded by timely advance notice in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice shall be delivered
to, or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual
meeting of the stockholders of the Corporation, not later than the close
of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; PROVIDED, HOWEVER, that with respect to
the annual meeting of stockholders to be held in 1998 or in the event that
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely
must be so delivered not later than the close of business on the later of
the 90th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made
by the Corporation; and (ii) with respect to an election to be held at a
special meeting of stockholders of the Corporation for the election of
directors not later than the close of business on the tenth day following
the day on which notice of the date of the special meeting was mailed to
stockholders of the Corporation as provided in Section 2.4 hereof or
public disclosure of the date of the special meeting was made, whichever
first occurs. Any such stockholder's notice to the Secretary of the
Corporation shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the number of
shares of each class of capital stock of the Corporation beneficially
owned by such person, (iv) the written consent of such person to having
such person's name placed in nomination at the meeting and to serve as a
director if elected and (v) any other information relating to such person
that is required to be disclosed in
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solicitations of proxies for election of directors, or is otherwise
required, pursuant to Regulation 14A under the Exchange Act, and (b) as to
the stockholder giving the notice, (i) the name and address, as they
appear on the Corporation's books, of such stockholder and (ii) the number
of shares of each class of voting stock of the Corporation which are then
beneficially owned by such stockholder. The presiding officer of the
meeting of stockholders shall determine whether the requirements of this
Section 3.3 have been met with respect to any nomination or intended
nomination. If the presiding officer determines that any nomination was
not made in accordance with the requirements of this Section 3.3, he shall
so declare at the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section 3.3,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 3.3.
3.4 PLACE OF MEETING; ORDER OF BUSINESS. Except as otherwise provided by law,
meetings of the Board of Directors, regular or special, may be held either
within or without the State of Delaware, at whatever place is specified by
the person or persons calling the meeting. In the absence of specific
designation, the meetings shall be held at the principal office of the
Corporation. At all meetings of the Board of Directors, business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board (if any), or in his absence by the President, or by
resolution of the Board of Directors.
3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held, in each case, at such hour and on such day as may be fixed by
resolution of the Board of Directors, without further notice of such
meetings. The time or place of holding regular meetings of the Board of
Directors may be changed by the Chairman of the Board or the President by
giving written notice thereof as provided in Section 3.7 hereof.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
held, whenever called by the Chairman of the Board, the President or by
resolution adopted by the Board of Directors, in each case, at such hour
and on such day as may be stated in the notice of the meeting.
3.7 ATTENDANCE AT AND NOTICE OF MEETINGS. Written notice of the time and place
of, and general nature of the business to be transacted at, all special
meetings of the Board of Directors, and written notice of any change in
the time or place of holding the regular meetings of the Board of
Directors, shall be given to each director personally or by mail or by
telegraph, telecopier or similar communication at least one day before the
day of the meeting; PROVIDED, HOWEVER, that notice of any meeting need not
be given to any director if waived by him in writing, or if he shall be
present at such meeting. Participation in a meeting of the Board of
Directors shall constitute presence in person at such meeting, except
where a person participates in the meeting for the express purpose of
objecting to
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the transaction of any business on the ground that the meeting is not
lawfully called or convened.
3.8 QUORUM OF AND ACTION BY DIRECTORS. A majority of the directors in office
shall constitute a quorum of the Board of Directors for the transaction of
business; but a lesser number may adjourn from day to day until a quorum
is present. Except as otherwise provided by law or in these Bylaws, all
questions shall be decided by the vote of a majority of the directors
present.
3.9 BOARD AND COMMITTEE ACTION WITHOUT A MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required
or permitted to be taken at a meeting of the Board of Directors or any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be, and shall be
filed with the Secretary of the Corporation.
3.10 BOARD AND COMMITTEE TELEPHONE MEETINGS. Subject to the provisions required
or permitted by the DGCL for notice of meetings, unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of
the Board of Directors, or members of any committee designated by the
Board of Directors, may participate in and hold a meeting of such Board of
Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant
to this Section 3.10 shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose
of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
3.11 COMPENSATION. Directors shall receive such compensation for their services
as shall be determined by the Board of Directors from time to time.
3.12 REMOVAL. No director of the Corporation shall be removed from office as a
director by vote or other action of the stockholders or otherwise except
for cause, and then only by the affirmative vote of the holders of at
least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Cause for removal of a
director shall be as provided by law or in the Certificate of
Incorporation. Any proposal by a stockholder to remove a director of the
Corporation, in order to be validly acted upon at any meeting, shall
comply with paragraph (a) of Section 2.8 hereof.
Notwithstanding the first paragraph of this Section 3.12, whenever
holders of outstanding shares of one or more series of Preferred Stock are
entitled to elect members of the Board of Directors pursuant to the
provisions applicable in the case of arrearages in the payment of
dividends or other defaults contained in the resolution or resolutions of
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the Board of Directors providing for the establishment of any series of
Preferred Stock, any such director of the Corporation so elected may be
removed in accordance with the provision of such resolution or
resolutions.
3.13 COMMITTEES OF THE BOARD OF DIRECTORS.
(a) The Board of Directors, by resolution adopted by a majority of the
full Board of Directors, may designate from among its members one or
more committees (in addition to those listed below), each of which
shall be comprised of one or more of its members, and may designate
one or more of its members as alternate members of any committee,
who may, subject to any limitations by the Board of Directors,
replace absent or disqualified members at any meeting of that
committee. Any such committee, to the extent provided in such
resolution or in the Certificate of Incorporation or these Bylaws,
shall have and may exercise all of the authority of the Board of
Directors to the extent permitted by the DGCL, including, without
limitation, the power and authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL. Any such
committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. In addition to the above, such
committee or committees shall have such other powers and limitations
of authority as may be determined from time to time by resolution
adopted by the Board of Directors.
(b) The Board of Directors shall have the power at any time to change
the membership of any such committee and to fill vacancies in it. A
majority of the number of members of any such committee shall
constitute a quorum for the transaction of business unless a greater
number is required by a resolution adopted by the Board of
Directors. The act of the majority of the members of a committee
present at any meeting at which a quorum is present shall be the act
of such committee, unless the act of a greater number is required by
a resolution adopted by the Board of Directors. Each such committee
may elect a chairman and appoint such subcommittees and assistants
as it may deem necessary. Except as otherwise provided by the Board
of Directors, meetings of any committee shall be conducted, and
other committee actions shall be taken, in accordance with Sections
3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 7.3 hereof. In the absence or
disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or
not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Any member of any such committee
elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any,
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of the person so removed. Election or appointment of a member of a
committee shall not of itself create contract rights.
(c) Any action taken by any committee of the Board of Directors shall
promptly be recorded in the minutes and filed with the Secretary of
the Corporation.
(d) EXECUTIVE COMMITTEE. From and after the date on which the Company
shall first receive payment for shares of Common Stock sold by the
Company in an initial public offering registered under the
Securities Act of 1933, as amended (the "IPO Closing Date"), there
shall be an Executive Committee of the Board of Directors, which
committee shall have and may exercise all the powers and authority
of the Board of Directors between regular or special meetings of the
Board in the management of the business and affairs of the
Corporation, except to the extent limited by Delaware law. Without
limiting the generality of the foregoing, the Executive Committee
shall have the power and authority to (i) declare dividends on any
class of capital stock of the Corporation, (ii) authorize the
issuance of capital stock of the Corporation, (iii) adopt
certificates of ownership and merger pursuant to Section 253 of the
DGCL and (iv) in reference to amending the Certificate of
Incorporation, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the DGCL,
fix the designations and any of the preferences or rights of such
shares relating to dividends, redemptions, dissolution, any
distribution of assets of the Corporation or the conversion into, or
the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares of
any series of stock or authorize the increase or decrease of the
shares of any series.
(e) AUDIT COMMITTEE. From and after the IPO Closing Date, there shall be
an Audit Committee of the Board of Directors whose members shall
consist solely of directors who are not employees or affiliates of
the Corporation and have no relationship with the Corporation that
would, in the judgment of the Board of Directors, interfere with
their exercise of independent judgment as a member of such
Committee. The Audit Committee shall have and may exercise the power
and authority to recommend to the Board of Directors the accounting
firm to be selected by the Board or to be recommended by it for
stockholder approval, as independent auditor of the financial
statements of the Corporation and its subsidiaries, and to act on
behalf of the Board in meeting and reviewing with the independent
auditors, the chief accounting officer, the chief internal auditor,
if any, and the appropriate corporate officers, matters relating to
corporate financial reporting and accounting procedures and
policies, adequacy of financial, accounting and operating controls
and the scope of the respective audits of the independent auditors
and the internal auditor, if any. The Audit Committee shall
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also review the results of such audits with the respective auditors
and shall report the results of those reviews to the Board of
Directors. The Audit Committee shall submit to the Board of
Directors any recommendations it may have from time to time with
respect to financial reporting and accounting practices and policies
and financial, accounting and operational controls and safeguards.
The Audit Committee may submit to the Compensation Committee any
recommendations it may have with respect to the compensation of the
chief accounting officer and the chief internal auditor, if any. The
Board of Directors shall, by resolution adopted by a majority of the
Board of Directors, designate not less than two of its qualifying
members from time to time to constitute members of the Audit
Committee.
(f) COMPENSATION COMMITTEE. From and after the IPO Closing Date, there
shall be a Compensation Committee of the Board of Directors, whose
members shall consist solely of directors who are not employees or
affiliates of the Corporation and have no relationship with the
Corporation that would, in the judgment of the Board of Directors,
interfere with their exercise of independent judgment as a member of
such committee. The Compensation Committee shall have and may
exercise all the power and authority to (i) establish a general
compensation policy for officers and employees of the Corporation,
including to establish and at least annually review officers'
salaries and levels of officers' participation in the benefit plans
of the Corporation, (ii) prepare any reports that may be required by
the regulations of the Securities and Exchange Commission or
otherwise relating to officer compensation, (iii) approve any
increases in directors' fees and (iv) exercise all other powers of
the Board of Directors with respect to matters involving the
compensation of employees and the employee benefits of the
Corporation as shall be delegated by the Board of Directors to the
Compensation Committee from time to time. Without limiting the
generality of the foregoing, the Compensation Committee shall have
the power and authority to authorize the issuance of capital stock
of the Corporation pursuant to any compensation or benefit plan or
arrangement adopted or entered into by the Corporation. The Board of
Directors shall, by resolution adopted by a majority of the Board,
designate two or more of its qualifying members from time to time to
constitute members of the Compensation Committee.
ARTICLE IV
OFFICERS
4.1 DESIGNATION. The officers of the Corporation shall consist of a Chairman
of the Board, President, Secretary, Treasurer, Corporate Controller and
such Executive, Senior or other Vice Presidents, Assistant Secretaries,
Assistant Treasurers, Assistant Controllers and other officers as may be
elected or appointed by the Board of Directors from time to time. Any
number of offices may be held by the same person.
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4.2 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors
shall preside at all meetings of the stockholders and of the Board of
Directors. Except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. The
Chairman of the Board of Directors shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to
him by these Bylaws or by the Board of Directors. In the absence or
incapacity to act of the President, the Chairman of the Board shall serve
as acting President, and when so acting, shall have all the powers of and
be subject to the restrictions of such office.
4.3 PRESIDENT. The President shall be the chief executive officer of the
Corporation and shall have general supervision and control of the
business, affairs and properties of the Corporation and its general
officers, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the power to appoint and
remove all subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors, and shall execute all
bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required
or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when
so authorized by these Bylaws, the Board of Directors or the President.
The President shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these Bylaws
or by the Board of Directors. In the absence or incapacity to act of the
Chairman of the Board, the President shall serve as acting Chairman of the
Board, and when so acting, shall have all the powers of and be subject to
the restrictions of such office.
4.4 VICE PRESIDENT. The Board of Directors may appoint such Vice Presidents as
may be recommended by the President or as they deem necessary or
appropriate. Vice Presidents may be designated as Senior Vice Presidents,
Executive Vice Presidents or some other designation as the Board of
Directors deems appropriate (each a "Vice President"). Each Vice President
shall perform such duties as the Board of Directors may from time to time
prescribe and have such other powers as the President may from time to
time prescribe.
4.5 SECRETARY. The Secretary shall attend the meetings of the
Board of Directors and all
meetings of stockholders and record the proceedings
thereat in a book or books to be kept for that purpose; the Secretary
shall also perform like duties for the standing committees when required.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall
be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if
there be no Assistant Secretary, then either the Chairman of the Board
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or the President may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and
the Secretary or any Assistant Secretary, if there be any, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
4.6 TREASURER. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipt and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of
Directors, at its regular meeting, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books papers, vouchers, money
and other property of whatever kind in his possession or under his control
belonging to the Corporation.
4.7 CORPORATE CONTROLLER. The Corporate Controller shall be the chief
accounting officer of the Corporation, shall maintain records of all
assets, liabilities, and transactions of the Corporation and shall be
responsible for the design, installation and maintenance of accounting and
cost control systems and procedures for the Corporation and shall perform
such other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors, the Audit Committee or the
President.
4.8 ASSISTANT SECRETARIES. Except as may be otherwise provided in these
Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice- President, or the Secretary,
and in the absence of the Secretary or in the event of his disability or
refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
4.9 ASSISTANT TREASURERS. Assistant Treasurers, if there by any, shall perform
such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the President or the Treasurer, and in the
absence of the Treasurer or in the event of his
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disability or refusal to act, shall perform the duties of the Treasurer,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money
and other property of whatever kind in his possession or under his control
belonging to the Corporation.
4.10 ASSISTANT CONTROLLERS. Except as may be otherwise provided in these
Bylaws, Assistant Controllers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice-President, or the Corporate
Controller, and in the absence of the Corporate Controller or in the event
of his disability or refusal to act, shall perform the duties of the
Corporate Controller, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Corporate Controller.
4.11 OTHER OFFICERS. Such other officers as to the Board of Directors may
choose shall perform such duties and have such powers, subordinate to
those powers specifically delegated to certain officer in these Bylaws, as
from time to time may be assigned to them by the Board of Directors. The
President of the Corporation shall have the power to choose such other
officers and to prescribe their respective duties and powers, subject to
control by the Board of Directors.
4.12 VACANCIES. Whenever any vacancies shall occur in any office by death,
resignation, increase in the number of offices of the Corporation, or
otherwise, the same shall be filled by the Board of Directors (or the
President, in accordance with Section 4.3 of these Bylaws, subject to
control by the Board of Directors), and the officer so appointed shall
hold office until such officer's successor is elected or appointed in
accordance with these Bylaws or until his earlier death, resignation or
removal.
4.13 REMOVAL. Any officer or agent of the Corporation may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
4.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise
directed by the Board of Directors, the Chairman of the Board, the
President, any Vice President and the Treasurer of the Corporation shall
each have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect
to any action of security holders of any other corporation in which this
Corporation
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may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V
CAPITAL STOCK
5.1 CERTIFICATES FOR SHARES. The certificates for shares of the capital stock
of the Corporation shall be in such form as may be approved by the Board
of Directors or may be uncertificated shares. In the case of certificated
shares, the Corporation shall deliver certificates representing shares to
which stockholders are entitled. Certificates representing such
certificated shares shall be signed by the Chairman of the Board, the
President or a Vice President and either the Secretary or an Assistant
Secretary of the Corporation, and may bear the seal of the Corporation or
a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles. The stock record books and the blank stock certificate
books shall be kept by the Secretary of the Corporation, or at the office
of such transfer agent or transfer agents as the Board of Directors may
from time to time by resolution determine. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person
were such officer at the date of its issuance.
5.2 TRANSFER OF SHARES. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof
in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of
shares.
5.3 OWNERSHIP OF SHARES. The Corporation shall be entitled to treat the holder
of record of any share or shares of capital stock of the Corporation as
the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
5.4 REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the
power and authority to make all such rules and regulations as they may
deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the
Corporation.
5.5 LOST OR DESTROYED CERTIFICATES. The Board of Directors may determine the
conditions upon which a new certificate of stock may be issued in place of
a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all
losses or claims that
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may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE VI
INDEMNIFICATION
6.1 GENERAL. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date of effectiveness of these Bylaws, and
to such greater extent as applicable law may thereafter permit, indemnify
and hold harmless an Indemnitee (as this and all other capitalized words
used in this Article VI not previously defined in these Bylaws are defined
in Section 6.9 hereof) from and against any and all judgments, penalties,
fines (including excise taxes), amounts paid in settlement and, subject to
Section 6.2, Expenses whatsoever arising out of any event or occurrence
related to the fact that Indemnitee is or was a director or officer of the
Corporation. The Corporation may, but shall not be required to, indemnify
and hold harmless an Indemnitee from and against any and all judgments,
penalties, fines (including excise taxes), amounts paid in settlement and,
subject to Section 6.2, Expenses whatsoever arising out of any event or
occurrence related to the fact that Indemnitee is or was an employee or
agent of the Corporation or is or was serving in another Corporate Status
(other than as an officer or director of the Corporation) at the written
request of the Corporation.
6.2 EXPENSES. If Indemnitee is, by reason of his serving as a director,
officer, employee or agent of the Corporation, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Corporation
shall indemnify him against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith. If any such Indemnitee is
not wholly successful in such Proceeding but is successful, on the merits
or otherwise, as to any Matter in such Proceeding, the Corporation shall
indemnify such Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf relating to such Matter. The termination
of any Matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such Matter. If
Indemnitee is, by reason of any Corporate Status other than his serving as
a director, officer, employee or agent of the Corporation, a party to and
is successful, on the merits or otherwise, in any Proceeding, the
Corporation may, but shall not be required to, indemnify him against all
Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. To the extent that the Indemnitee is, by reason of
his Corporate Status, a witness in any Proceeding, the Corporation may,
but shall not be required to, indemnify him against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
6.3 ADVANCES. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may give
rise to a right of indemnification under this Article VI, following
written request to the Corporation by Indemnitee, the
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Corporation shall promptly pay to Indemnitee amounts to cover expenses
reasonably incurred by Indemnitee in such proceeding in advance of its
final disposition upon the receipt by the Corporation of (i) a written
undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined
pursuant to the provisions of this Article VI or by final judgment or
other final adjudication under the provisions of any applicable law that
Indemnitee is not entitled to be indemnified by the Corporation as
provided in these Bylaws and (ii) satisfactory evidence as to the amount
of such expenses.
6.4 REQUEST FOR INDEMNIFICATION. To request indemnification, Indemnitee shall
submit to the Secretary of the Corporation a written claim or request.
Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
6.5 NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and advancement of
Expenses as provided by this Article VI shall not be deemed exclusive of
any other rights to which Indemnitee may at any time be entitled to under
applicable law, the Certificate of Incorporation, these Bylaws, any
agreement, a vote of stockholders or a resolution of directors of the
Corporation, or otherwise. No amendment, alteration or repeal of this
Article VI or any provision hereof shall be effective as to any Indemnitee
for acts, events and circumstances that occurred, in whole or in part,
before such amendment, alteration or repeal. The provisions of this
Article VI shall continue as to an Indemnitee whose Corporate Status has
ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators. Neither the provisions of this Article VI
nor those of any agreement to which the Corporation is a party shall be
deemed to preclude the indemnification of any person who is not specified
in this Article VI as having the right to receive indemnification or is
not a party to any such agreement, but whom the Corporation has the power
or obligation to indemnify under the provisions of the DGCL.
6.6 INSURANCE AND SUBROGATION. The Corporation shall not be liable under this
Article VI to make any payment of amounts otherwise indemnifiable
hereunder if, but only to the extent that, Indemnitee has otherwise
actually received such payment under any insurance policy, contract,
agreement or otherwise. In the event of any payment hereunder, the
Corporation shall be subrogated to the extent of such payment to all the
rights of recovery of Indemnitee, who shall execute all papers required
and take all action reasonably requested by the Corporation to secure such
rights, including execution of such documents as are necessary to enable
the Corporation to bring suit to enforce such rights.
6.7 SEVERABILITY. If any provision or provisions of this Article VI shall be
held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby; and, to
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<PAGE>
the fullest extent possible, the provisions of this Article VI shall be
construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
6.8 CERTAIN ACTIONS WHERE INDEMNIFICATION IS NOT PROVIDED. Notwithstanding any
other provision of this Article VI, no person shall be entitled to
indemnification or advancement of Expenses under this Article VI with
respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
6.9 DEFINITIONS. For purposes of this Article VI:
(a) "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee or agent of the Corporation or of any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, provided such person is or was
serving in such capacity at the written request of the Corporation.
For purposes of these Bylaws, "serving at the written request of the
Corporation" includes any service by Indemnitee which imposes duties
on, or involves services by, Indemnitee with respect to any employee
benefit plan or its participants or beneficiaries.
(b) "EXPENSES" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a
Proceeding.
(c) "INDEMNITEE" includes any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in
Section 6.1 or 6.2 hereof by reason of his Corporate Status.
(d) "MATTER" is a claim, a material issue or a substantial request for
relief.
(e) "PROCEEDING" includes any action, suit, alternate dispute resolution
mechanism, hearing or any other proceeding, whether civil, criminal,
administrative, arbitrative, investigative or mediative, any appeal
in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that
could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by
an Indemnitee to enforce his rights under this Article VI or (ii)
pending on or before the date of adoption of these Bylaws.
6.10 NOTICES. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a
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<PAGE>
claim for expenses or an advance pursuant to the terms of this Article VI,
notify the Corporation of the commencement of such action, suit or
proceeding; PROVIDED, HOWEVER, that any delay in so notifying the
Corporation shall not constitute a waiver or release by Indemnitee of
rights hereunder and that any omission by Indemnitee to so notify the
Corporation shall not relieve the Corporation from any liability that it
may have to Indemnitee otherwise than under this Article VI. Any
communication required or permitted to the Corporation shall be addressed
to the Secretary of the Corporation at its principal executive offices and
any such communication to Indemnitee shall be addressed to Indemnitee's
address as shown on the Corporation's records unless he specifies
otherwise and shall be personally delivered or delivered by overnight mail
delivery. Any such notice shall be effective upon receipt.
6.11 CONTRACTUAL RIGHTS. The right to be indemnified or to the advancement or
reimbursement of Expenses (i) is a contract right based upon good and
valuable consideration, pursuant to which Indemnitee may sue as if these
provisions were set forth in a separate written contract between
Indemnitee and the Corporation, (ii) is and is intended to be retroactive
and shall be available as to events occurring prior to the adoption of
these provisions and (iii) shall continue after any rescission or
restrictive modification of such provisions as to events occurring prior
thereto.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 BYLAW AMENDMENTS. The Board of Directors shall have the power to adopt,
amend and repeal from time to time the Bylaws of the Corporation, subject
to the right of stockholders entitled to vote with respect thereto to
amend or repeal such Bylaws as adopted or amended by the Board of
Directors. Bylaws of the Corporation may be adopted, amended or repealed
by the affirmative vote of the holders of at least two-thirds of the
combined voting power of the outstanding shares of all classes of stock of
the Corporation entitled to vote generally in the election of directors,
voting together as a single class, at any annual meeting, or at any
special meeting if notice of the proposed amendment be contained in the
notice of said special meeting, or by the Board of Directors as specified
in the preceding sentence.
7.2 BOOKS AND RECORDS. The Corporation shall keep books and records of account
and shall keep minutes of the proceedings of its stockholders, its Board
of Directors and each
committee of its Board of Directors.
7.3 NOTICES; WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder, director or committee member under the provisions of the
DGCL or under the Certificate of Incorporation, as amended, or these
Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, facsimile, cable or wireless transmission or (ii)
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<PAGE>
by deposit of the same in the United States mail, with postage paid
thereon, addressed to the person entitled thereto at his address as it
appears on the records of the Corporation, and such notice shall be deemed
to have been given on the day of such transmission or mailing, as the case
may be.
Whenever any notice is required to be given to any stockholder,
director or committee member under the provisions of the DGCL or under the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be equivalent to the giving of such
notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors, or members
of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or these
Bylaws.
7.4 RESIGNATIONS. Any director or officer may resign at any time. Such
resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt
by the President or the Secretary of the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
7.5 SEAL. The seal of the Corporation shall be in such form as the Board of
Directors may adopt.
7.6 FISCAL YEAR. The fiscal year of the Corporation shall end on the 31st day
of December of each year or as otherwise provided by a resolution adopted
by the Board of Directors.
7.7 FACSIMILE SIGNATURES. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be
used whenever and as authorized by the Board of Directors.
7.8 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director and each member of
any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of its
officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by
any such committee, or in relying in good faith upon other records of the
Corporation.
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EXHIBIT 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 21 1 (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.
"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.
<PAGE>
"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.
"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
<PAGE>
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).
"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.
<PAGE>
"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 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.
<PAGE>
"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 Nonemployee Directors and those employees 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
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.
<PAGE>
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.
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 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 replacement of or as alternatives to
grants or rights under this
<PAGE>
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.
(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
<PAGE>
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 l 62(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 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 Stockbased 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.
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 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.
<PAGE>
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 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
<PAGE>
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 admired 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 pursuant 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM _______________________________________ AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 30,459,267
<ALLOWANCES> 1,643,231
<INVENTORY> 25,463,121
<CURRENT-ASSETS> 61,049,140
<PP&E> 38,874,639
<DEPRECIATION> 19,785,302
<TOTAL-ASSETS> 185,990,348
<CURRENT-LIABILITIES> 87,725,167
<BONDS> 0
0
0
<COMMON> 9,665
<OTHER-SE> 82,894,990
<TOTAL-LIABILITY-AND-EQUITY> 185,990,348
<SALES> 112,752,859
<TOTAL-REVENUES> 112,752,859
<CGS> 76,475,095
<TOTAL-COSTS> 76,475,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,855,517
<INCOME-PRETAX> (1,110,601)
<INCOME-TAX> 377,970
<INCOME-CONTINUING> (1,488,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,488,571)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
