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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
(Title of class)
Rights to Purchase Series A Junior
Participating Preferred Stock
(Title of class)
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 29, 1999, there were 9,664,562 shares of common stock, par
value $.001 per share, of the Registrant issued and outstanding, 6,213,381 of
which, having an aggregate market value of $5,048,392, based on the closing
price per share of the common stock of the Registrant reported on the Nasdaq
National Market on that date, were held by non-affiliates of the Registrant. For
purposes of the above statement only, all directors and executive officers of
the Registrant are assumed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Registrant's 1999 Annual
Stockholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................. 1
Item 2. Properties........................... 14
Item 3. Legal Proceedings.................... 14
Item 4. Submission of Matters to a Vote of
Security Holders................... 14
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.... 15
Item 6. Selected Financial Data.............. 16
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk...... 20
Item 8. Financial Statements and
Supplementary Data................. 21
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... 21
PART III
Item 10. Directors and Executive Officers of
the Registrant..................... 21
Item 11. Executive Compensation............... 21
Item 12. Security Ownership of Certain
Beneficial Owners and Management... 21
Item 13. Certain Relationships and Related
Transactions....................... 21
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form
8-K................................ 21
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PART I
ITEM 1. BUSINESS
GENERAL
Innovative Valve Technologies, Inc. ("Invatec," and collectively with its
operating subsidiaries, the "Company") was created to be the leading
single-source provider of comprehensive maintenance, repair, replacement and
value-added distribution services for industrial valves, piping systems and
other process-system components (collectively, "repair and distribution
services") throughout North America. To achieve this goal, Invatec conducted an
aggressive acquisition program through the first half of 1998 and began
implementing a national operating strategy it had designed to enhance internal
growth, market share and profitability.
Invatec was incorporated in Delaware on March 6, 1997. In October 1997,
Invatec closed its initial public offering (the "IPO") of its Common Stock and
simultaneously acquired seven established businesses (the "Initial Acquired
Businesses") providing various repair and distribution services. Since then and
through December 31, 1998, Invatec has acquired thirteen additional repair and
distribution services businesses (the "Additional Acquired Businesses" and,
together with the Initial Acquired Businesses, the "Acquired Businesses"). See
"Businesses Acquired in 1998" elsewhere in this Item 1. The consideration paid
for acquisitions made in 1998 consisted primarily of common stock of the Company
and cash borrowed under the Company's $90 million credit facility with its bank
lenders established in October 1997 (the "Old Credit Facility").
The Acquired Businesses have been in business an average of 24 years, and
the Company currently has 63 operating locations in the United States, two in
Europe and one in the Middle East. Its principal executive offices are located
at 2 Northpoint Drive, Suite 300, Houston, Texas 77060, and its telephone number
at that address is (281) 925-0300.
RECENT DEVELOPMENTS
The Company's customers consist primarily of refineries, chemical,
petrochemical, power and pulp and paper plants, the businesses of which tend to
be cyclical. Margins in those industries are highly sensitive to demand cycles,
and the Company's customers in those industries have historically tended to
delay capital projects, expensive turnarounds and other maintenance projects
during slow periods. Commencing with the second quarter of 1998 and continuing
into 1999, the Company's business was negatively impacted by significant
slowdowns experienced by its customers in the petroleum refining, petrochemical,
chemical, and pulp and paper industries.
As a result of the above-described downturns affecting the Company's
customers, the Company's level of business declined during 1998 and the
Company's earnings for the last three quarters of 1998 fell significantly short
of expectations. Consequently, this decline in earnings resulted in a severe
reduction in the market price of the Company's Common Stock. Declining earnings
also ultimately resulted in the Company defaulting on its Old Credit Facility as
a result of failing to meet certain financial covenants which required specific
levels of earnings in relation to debt. This default left the Company unable to
borrow funds for acquisitions thereunder. The Company remained in default under
the loan agreement from July 20, 1998 through March 25, 1999. The Company's
acquisition program has been effectively suspended since July 1998 as a result
of the low price of the Company's common stock and its inability to borrow funds
under the Old Credit Facility. Invatec is obligated under certain price
guarantee provisions of its acquisition agreements to issue a substantial number
of additional shares of its Common Stock on the anniversary dates of those
acquisitions. See "Businesses Acquired in 1998" elsewhere in this Item 1.
The Company amended its Old Credit Facility on March 26, 1999 (the "New
Credit Facility") to provide for a one year facility consisting of a $35
million stationary term component and up to a $45 million revolving line of
credit from its existing bank group. The New Credit Facility prohibits the
Company from making acquisitions and provides for increasingly high overall
borrowing costs if the facility is not substantially reduced or replaced prior
to July 1, 1999. As a result, the Company is currently seeking a
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significant equity infusion to enable it to reduce its debt, obtain a new credit
facility on better terms and potentially resume its acquisition program on a
scaled down, strategic basis. A significant equity infusion could have a
substantially dilutive effect on existing shareholders. It is uncertain whether
the Company's efforts to find new equity and debt financing will be successful
or that if such efforts are successful the Company will have sufficient
resources to resume its acquisition program. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Item 7 of this Report.
Since the suspension of the Company's acquisition program, the Company has
focused on efforts to cut costs and otherwise improve profitability. During
1998, the Company eliminated in excess of $5 million in annualized costs,
including substantial corporate overhead. In 1999, the Company intends to
continue its cost cutting program. This program is expected to include
downsizing certain of its operations to fit the current level of business,
consolidation of certain locations, consolidating marketing efforts currently
conducted by different subsidiary companies and other potential improvements in
operational efficiency. See "Business Strategies" elsewhere in this Item 1.
Despite these cost cuts, the Company anticipates that it will be difficult
to improve overall profitability in 1999 due to the high cost of funds under the
New Credit Facility, unless it obtains a more favorable credit facility or
business improves dramatically. The Company has not experienced any significant
improvement in the level of its business during 1999. The Company cannot predict
when or whether its business level will rebound. In addition, there can be no
assurance that a further deterioration in the Company's business will not occur.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in Item 7 of this Report.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains statements of management's plans and objectives and
other "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,
including the factors set forth immediately above in "Recent Developments" and
the following:
The Company's ability to generate internal growth is dependent on its
ability to (i) integrate its businesses into a cohesive, efficient enterprise,
(ii) expand the range of repair services of its businesses, (iii) leverage its
relationships with customers in existing markets into work for those customers
in other markets where they currently use the services of competitors and (iv)
reduce overhead costs. The Company's ability to expand services will also depend
upon its ability to attract and retain qualified operating management, service
technicians and machinists in existing and new areas of operation.
The Company performs a significant portion of its repair services in
refineries, chemical plants and other industrial facilities that process,
produce, store, transport or handle potentially hazardous substances, including
highly corrosive, flammable or explosive substances kept at extremes of
temperature and pressure. These services (i) include sealing leaks and repairing
valves on process units operating under pressure, (ii) typically involve a
combination of individuals and machinery operating in restricted work areas and
(iii) are subject to the usual hazards associated with providing on-site
services in these types of facilities, such as pipeline leaks and ruptures,
explosions, fires, oil and chemical spills, discharges or releases of toxic
substances or gases. These hazards can cause personal injury and loss of life,
severe damage to or destruction of property and equipment and environmental
damage and may result in suspension of operations of all or part of the facility
being serviced. If a catastrophic event occurs at a plant to which the Company
provides services, the Company may have to defend itself against large claims.
It maintains insurance coverage in the amounts and against the risks it believes
accord with industry practice, but this insurance does not cover all types or
amounts of liabilities. No assurance can be given that either (i) this insurance
will be adequate to cover all losses or liabilities the Company may incur in its
operations or (ii) the Company will be able to maintain insurance of the types
or at levels it deems necessary or adequate or at rates it considers reasonable.
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The markets for the Company's repair and distribution services generally
are highly competitive. Some of its competitors may have lower overhead cost
structures and, consequently, may be able to provide their services at lower
rates than the Company or require the Company to lower its gross margins.
A wide range of federal, state and local regulations relating to health,
safety and environmental matters apply to the Company's business. See
"Governmental Regulation and Environmental Matters" elsewhere in this Item 1.
No assurance can be given the Company's compliance with current, amended, new or
more stringent laws or regulations, stricter interpretations of existing laws or
the future discovery of environmental conditions will not require additional,
material expenditures by the Company.
The success of the Company's operations will depend on the continuing
efforts of its executive officers and the senior management of the Acquired
Businesses. The business or prospects of the Company could be affected adversely
if any of these persons do not continue in their respective management roles.
The success of the Company's growth strategy generally, as well as the Company's
current operations, will depend on the extent to which it is able to retain,
recruit and train qualified sales personnel, service technicians and machinists
who meet the Company's standards of service to customers.
The success of the Company as a value-added distributor of new valves and
other process-system components depends, in part, on its relationships with the
Original Equipment Manufacturers ("OEMs") for which it distributes products.
In these relationships, the Company acts either as a sales representative on a
commission basis for direct sales by the OEM to the end user or purchases
products on a discounted basis for resale, generally on a value-added basis.
OEMs typically exercise a great deal of control over their distributors. An OEM
may assign a territory to a distributor on an exclusive or nonexclusive basis,
refuse to assign additional territories to its distributors and reserve the
right to sell directly to customers in an assigned territory. The typical
distribution agreement is terminable at will on relatively short prior notice
and restricts the ability of the distributor to offer similar products made by
another OEM. The Company's business strategy has caused concern by some OEMs and
could conflict with existing or future OEM distributor policies or programs.
Actions taken by OEMs to exploit their bargaining positions with the Company
could materially adversely affect the Company's ability to implement its growth
strategies and maintain its existing distribution services business. See
"Suppliers -- Relationships With OEMs" elsewhere in this Item 1.
The success of the Company as a value-added distributor also depends on the
extent to which its OEMs are able to create demand for their products in the
markets the Company serves. Factors affecting this demand include, in addition
to price, product quality and performance (including durability and safety) and
delivery time, the relative strengths of the brand names and the marketing
abilities of the OEMs. See "Competition" elsewhere in this Item 1.
INDUSTRY BACKGROUND
OVERVIEW. Petroleum refineries, petrochemical, chemical plants, pulp and
paper mills, electric and other utilities and other industrial process
facilities use industrial valves to direct and regulate the flow of feedstocks,
intermediates, products and fuels in their process piping systems. Industrial
valves serve as mechanical control, blocking and pressure-relief devices in
piping applications involving a myriad of liquids, gases, dry materials,
slurries and other substances. The service environments for industrial valves
range from relatively benign to severe, and the useful life of an industrial
valve can range from several hours to 30 years or more depending on the severity
of its service and other factors. These factors include the materials comprising
the valve, the quality of its manufacture and the frequency and quality of its
repair. Valves include rising stem valves ("RSVs"), such as globe, gate and
diaphragm valves, and pressure safety, relief and safety-relief valves
("PRVs"). Process industries use PRVs to relieve excess pressure in process
equipment, pressure vessels, boilers and pipelines in order to prevent
explosions or other system damage. PRVs typically are designed to contain
pressure up to a predetermined level (which is individually set for each valve)
and then to open and relieve excess pressure in a controlled manner. Standard
PRVs are self-operating and typically are spring loaded, while actuated PRVs
typically are operated by a pilot controller that actuates the valve.
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Process systems consist of discrete units or trains of units which
generally operate continuously under pressure. In many process industries, these
systems handle corrosive substances and are subject to high cycling rates and
extremes of pressure and temperature. The process systems in the industries the
Company serves generally require emergency work and comprehensive scheduled
periodic off-line repairs (called "turnarounds"). Emergency work is performed,
if practicable, while the affected unit remains in operation and under pressure.
On-line repairs historically have consisted of sealing leaking pipes and flanges
with various enclosures and clamps and repacking leaking valves as interim
measures pending the next scheduled turnaround. Turnarounds typically involve
the shutdown of an entire process unit or trains of process units to permit the
disassembly, repair and/or replacement and reassembly of component parts
(including industrial valves), a process that can take from a few days to
several months.
OEMs of industrial valves generally sell their products through various
independent distribution channels. Value-added distribution services include the
assembly, testing, sealing and certification of PRVs and customizing original
equipment to meet the customer's specifications.
Repair services include "on-line" repairs of valves, piping systems and
other process-system components that continue to operate under pressure while
the repair is made and "off-line" repairs involving the repair of valves and
other process-system components that have been temporarily removed from a
process system. Off-line repairs are made either at the customer's facility (an
"on-site" repair) or in the repair service company's facility (an "in-shop"
repair).
In the United States, end users, distributors and repair companies perform
most repair and distribution services, while OEMs generally offer these services
only on a limited basis. The Company believes that, as part of an overall
emphasis on reducing operating costs, many end users are increasing their
outsourcing of various non-revenue-producing activities, such as plant
maintenance (including outsourcing of entire valve maintenance and management
programs).
MARKET ENVIRONMENT AND TRENDS. The Company provides service to end users
in primarily the following three categories of process industries in the United
States and Mexico: (i) petroleum refineries, petrochemical, chemical plants, and
pulp and paper mills (process manufacturers); (ii) conventional and nuclear
electric power plants and cogenerators and water and wastewater utilities
(utilities); and (iii) crude oil and natural gas producers, gas processing
plants and oil, gas and products pipelines (resource industries). These groups
are characterized by severe service applications in their processes which
require valves that can endure corrosive substances, flammable and explosive
materials, high cycling rates and extremes of pressure and temperature. The
Company believes economic conditions (generally and in these targeted groups),
technological developments and health, safety and environmental concerns drive
the markets for repair services and value-added distribution services in these
groups. The Company's customers consist of process manufacturers, the businesses
of which tend to be cyclical. Margins in those industries are highly sensitive
to demand cycles and the Company's customers in those industries have
historically tended to delay capital projects, expensive turnarounds and other
maintenance projects during slow periods.
Commencing with the second quarter of 1998 and continuing into 1999, the
Company's business was negatively impacted by significant slowdowns experienced
in the petroleum refining, petrochemical, chemical, and pulp and paper
industries. As a result of the above-described downturns affecting the Company's
customers, the Company's business declined during 1998. Although the power
utilities business was relatively strong, it was not significant enough to
offset the decline in other industries. In addition, the Company believes that
increasing deregulation of utilities has resulted in some uncertainty in that
business, which may temporarily adversely affect demand in that industry.
Although the downturn has adversely affected virtually all of the Company's
businesses, it has had a severe effect on the distribution side of the business
which is driven more by spending on capital projects and large turnarounds. The
Company has not yet experienced any significant improvement in the level of its
distribution business during 1999. The Company cannot predict when or whether
the level of its business will rebound. Any improvement will depend primarily on
a rebound in the underlying business of its petroleum refining, petrochemical,
chemical, and pulp and paper customers. Even prior to the downturn, the Company
believes that for a number of years, many companies in these industries
lengthened the period of
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time between turnarounds to minimize the economic costs associated with
turnarounds and delayed construction of new plant facilities. In recent years,
various factors have led companies in these industries to undertake capital
expenditure programs to retool their existing process operations with newer and
more cost efficient processes. The Company believes this trend has strengthened
both the replacement market for industrial valves and the market for
independent, comprehensive repair services.
Since the Company's customers in targeted industries generally manufacture
or produce commodities, they compete generally on the basis of price with each
other and, in many cases, with overseas companies having lower-cost labor pools
or raw material or other competitive advantages. The downward pressure this
competition places on prices has led to the trend in these industries to attempt
to achieve operating efficiencies as a means of preserving or enhancing
operating margins while remaining competitive in their markets. Also
contributing to this trend are various technological developments that enable
these industries to reduce operating costs by modernizing existing process
systems and other plant operations or replacing existing process systems with
new, more efficient systems. For example, some industries have developed new
process technologies requiring equipment to operate under higher pressures and
thus entailing the replacement or pressure-resetting of installed PRVs.
Similarly, automation of valve and other process control devices and
computerized information management systems enable these industries to use a
smaller work force to perform essential non-revenue-producing services, while
the emergence of reliable independent service providers in areas such as valve
repair service, inventory management and turnaround planning enables these
industries increasingly to outsource these services, typically at a net savings.
The Company believes that many companies in these industries have eliminated or
severely reduced the size of their own maintenance crews and engineering staffs.
In addition, in order to reduce the size of their purchasing departments and the
costs of contract administration, these companies are trending towards using
fewer in-house administrators overseeing a reduced number of vendors performing
an increasing amount of services.
Another factor driving certain of the Company's targeted industries towards
spending for new valves and related products and new valve repair service
technologies is the mandate of the federal Clean Air Act, as amended in 1990,
that various process industries, including most of those the Company serves, (i)
to minimize the occurrences of fugitive emissions from their process systems of
certain volatile organic compounds or other hazardous air pollutants and (ii) to
control the emissions that do occur. To achieve compliance with the applicable
performance standards, federal and state regulations require the process
industries covered thereby to establish leak detection and repair programs
incorporating specified protocols.
BUSINESS STRATEGIES
As a result of the downturn in the Company's business and its limited
financial resources, the Company has focused on various short-term strategies to
reduce costs and improve profitability. One of these strategies includes
downsizing certain of its operations to fit its current level of business.
The Company has 66 operating locations. The Company believes that it can
decrease costs by combining certain locations and continue to service the
customers from other nearby Company facilities without significantly affecting
its business.
Additionally, many of the Company's operating subsidiaries service the same
customers using different sales and marketing staff. The Company believes there
are opportunities to consolidate such sales and marketing efforts and
significantly reduce related costs.
Although the Company believes that it would be beneficial to conduct
additional strategic acquisitions, it is unclear whether it will have the
resources to do so in the foreseeable future. The Company believes that the
downturn in its business has in most instances severely affected potential
acquisition candidates so that there are many attractive acquisition
opportunities. With the suspension of the Company's acquisition program,
executive management will, however, have the opportunity to increase its focus
on improving operations, including continued implementation of its national
operating strategy described below.
To enhance its market position as a leading national provider of repair and
distribution services, the Company continues to implement its national operating
strategy aimed at increasing internal growth and market share and enhancing
profitability. These strategies focus on capitalizing on certain trends in the
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Company's targeted industries, including increased outsourcing, reducing the
number of vendors, and increasingly more stringent regulatory requirements
applicable to process-system facilities.
The principal elements of the Company's long-term national operating
strategy are: (i) cross-selling repair and distribution services; (ii)
capitalizing on the Company's geographic diversity to develop national and
regional customer and OEM relationships; and (iii) achieving cost efficiencies
and standardizing and implementing "best practices". See "Repair Services,"
"Distribution Services," "Operations" and "Sales and Marketing" elsewhere
in this Item 1. Various factors may affect the extent to which the Company is
able to implement this strategy successfully. See "Factors That May Affect
Future Results" elsewhere in this Item 1.
BUSINESSES ACQUIRED IN 1998
A description of the 1998 acquisition program follows.
On February 27, 1998, the Company acquired Cypress Industries, Inc.
("Cypress"). The total purchase price for Cypress was approximately $17.0
million in cash and assumed debt. Cypress, through its three operating
divisions, provides field machining, valve repair, specialized welding and
babbit bearing repair services to its customers, which include the power utility
industry, steel mills and other related industrial markets. Cypress is
headquartered in Schaumburg, Illinois and has operating locations in Cincinnati,
Ohio and Atlanta, Georgia.
On March 16, 1998, the Company acquired IPS Holding, Ltd., and its direct
and indirect subsidiaries, International Piping Services Company, IPSCO (U.K.)
Limited, Mid-America Energies, Corp. and IPSCO-Florida, Inc. (collectively,
"IPSCO"). The total purchase price for IPSCO was approximately $11.9 million
in cash and assumed debt and 807,828 shares of Common Stock. IPSCO, with its
headquarters in Downers Grove, Illinois and through its domestic operating
locations in Florida, Illinois, New Jersey, North Carolina and Texas and its
international operations in England, Germany and United Arab Emirates, provides
on-line piping and valve services, which include hot tapping, line stopping and
leak sealing. In addition, IPSCO manufactures certain small diameter hot tapping
and line stopping machinery for sale to industrial customers and service
companies that provide hot tapping and line stopping services.
During, 1998, the Company purchased an additional seven other businesses.
The total purchase price the Company paid for the seven businesses included
approximately $9.3 million in cash and assumed debt, $0.4 million of convertible
subordinated notes and 941,224 shares of Common Stock. See Notes 2 and 3 of the
Notes to Consolidated Financial Statements of the Company. As a result of these
acquisitions, the Company has expanded its business to include on-line hot
tapping and line stopping services both in the United States and abroad, repair
and replacement of steam turbines and other repair services.
Three of the acquisition agreements for the Additional Acquired Businesses
contain provisions requiring the Company to pay additional amounts (the "Makeup
Amount") to the former shareholders of each acquired business on the first
anniversary of that acquisition if the price of Invatec Common Stock on that
anniversary date is below a certain level. Two of those acquisition agreements
were entered into on July 9, 1998, and give Invatec the option of paying up to
one-half of the Makeup Amount in cash, with the remainder paid in Common Stock
valued at the market price on the anniversary date. The third agreement was
entered into on June 29, 1998 and gives Invatec the option of paying the entire
Makeup Amount in cash or Common Stock valued at the market price on the
anniversary date.
The Makeup Amount in each case is the difference between a set price, being
at or slightly above the market price of Invatec Common Stock on the closing
date of the acquisition, and the greater of (i) the market price of Invatec
Common Stock on the first anniversary of the closing date or (ii) $2.50. If the
price of Invatec Common Stock at the respective anniversary dates of each of
those acquisitions is not greater than $2.50 per share, the aggregate Makeup
Amount would be $6,516,104, of which $4,971,250 may be paid in cash instead of
Invatec Common Stock. The price of Invatec Common Stock was less than $2.50 per
share on March 29, 1999. See "Market for Registrant's Common Equity and Related
Stockholder Matters" in Item 5 of this Report. If the market price of Invatec
Common Stock on the anniversary dates of the acquisitions were the same as its
market price of $.8125 on March 29, 1999 and Invatec paid the maximum
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of $4,971,251 of the Makeup Amount payable in cash, an additional 1,901,358
shares, or approximately 20% of its shares currently issued and outstanding,
would be due the former shareholders of those acquired businesses. The issuance
of those shares could have a substantial dilutive effect on existing
shareholders. It is impossible to determine with certainty what the ultimate
maximum cash portion of the Makeup Amount will be or whether the Company will
have sufficient cash available for such payments when they are due. See
"Liquidity and Capital Resources" in Item 7 of this Report. If the Company is
unable to pay the maximum cash portion of the Makeup Amount in cash and is
required to satisfy such obligation by delivery of additional shares, the
dilution to existing shareholders would be substantially greater than if cash is
available to satisfy the obligation.
In addition, one of the acquisition agreements requires Invatec to pay to
each former shareholder for each share of Invatec Common Stock sold by such
shareholder after six but before twelve months from the closing date of June 29,
1998, the amount by which $8.35 exceeds the greater of (i) the current market
price as of the date on which such share is sold or (ii) $7.35,which was the
current market price as of the closing date. At its current stock price levels,
Invatec would owe those former shareholders $1.00 per share sold by them before
June 29, 1999, payable at Invatec's option in cash or Common Stock valued at its
market price on the first anniversary of the closing. As of March 29, 1999, none
of the shares issued in that acquisition has been sold and an aggregate of
250,102 shares are available for sale by the former shareholders.
REPAIR SERVICES
The Company provides a variety of off-line repair services (including both
on-site and in-shop repair services) and on-line repair services for valves,
piping systems and other process-system components. These services vary by
industry and by process applications within each industry.
OFF-LINE SERVICES. The Company's off-line services include: diagnosis and
testing of valve performance, including nondestructive examination using dye
penetrants and mag-particle testing; repair, rebuilding and replacement of
valves; custom-designing, machining and plating of pressure-sealed gaskets;
repair and upgrading of standard valves of various types; repair and replacement
of actuators and positioners used with actuated valves; and cleaning of valves
used in hazardous and other service applications; inspection, repair and
replacement of steam turbine components; field machining and reconditioning and
casting babbitted bearings used as linings between stationary bearings and
rotating shafts. Valve repair services include: replacing broken stems and other
components with OEMs' parts or equivalent parts that the Company machines and
fabricates; blasting valve interiors with metal shot to remove process residue
and corroded material; welding overlays to refinish valve seats and other worn
areas; upgrading standard valves with actuators and related parts; and modifying
existing components to meet OEMs' specifications for repacking with new, pliable
packing materials. In some locations, the Company also reconditions its
customers' used valves, and remanufactures used valves (other than PRVs) it has
purchased, typically at scrap metal value, to equal or exceed the original OEMs'
specifications. It typically sells its remanufactured valves under a one-year
warranty at a discount from the price of a comparable new valve. As part of the
repair process, the Company uses high-pressure air, steam and liquid lines and
related instrumentation to test and certify the performance capabilities of the
valves and other equipment it repairs.
An important part of the Company's repair services is providing detailed
documentation of the sources and types of the materials and components used to
make repairs, the repair methods applied, the design specifications adhered to
and test results. Customers can use this information in connection with their
planning for future turnarounds and repairs. In addition, customers subject to
federal and state fugitive emissions control regulations are required to
maintain this information in their corrective action files.
ON-LINE SERVICES. The Company's on-line services include (i) hot tapping
and line stopping services; (ii) using conventional technologies to seal leaking
pipes, flanges and valves as interim measures pending the affected system's next
scheduled shutdown and turnaround and (iii) in the case of RSVs leaking as a
result of the deterioration of their stem-packing materials, using its
SafeSeal 2/5 system to restore the packing materials generally to their original
performance capabilities.
7
<PAGE>
Hot tapping involves the use of special equipment to cut into a piping
system operating under pressure in order to connect a new pipe or other
process-system component. Line stopping is a means of stopping flow and
providing a shut-off in a piping system where none exists. This service enables
the customer to isolate piping system lines for repairs, alterations or
relocations. The Company provides these services to offshore pipelines as well
as to onshore plants and pipeline systems.
In performing interim on-line repairs, the Company designs line enclosures
and flange clamps to meet customer-specific technical and engineering objectives
and applicable industry and regulatory code requirements.
In SafeSeal [T] valve restorations, the Company uses a valveless injection
fitting and a combination of specialized tools to inject the appropriate pliable
(or "nonhardening") compound into the valve's packing gland. The compound
supplements the existing packing to stop the leak and restore the sealing
capability of the packing. The Company believes the SafeSeal system is safer,
more effective and more cost-efficient than conventional on-line valve-repacking
methods.
OPERATING HAZARDS. The Company performs a significant portion of its
repair services in refineries, chemical plants and other industrial facilities
that process, produce, store, transport or handle potentially hazardous
substances, including highly corrosive, flammable or explosive substances kept
at extremes of temperature and pressure. These services are subject to the usual
hazards associated with providing on-site services in these types of facilities.
See "Litigation and Insurance" and "Factors That May Affect Future Results"
elsewhere in this Item 1.
DISTRIBUTION SERVICES
The Company currently sells new valves and related instrumentation and
other process-system components directly to its process-industry customers from
a majority of its sales and service locations. In addition to purchasing valves
from OEMs for resale, the Company also acts as a sales representative for a
number of OEMs. In this capacity, it typically promotes the sale and
distribution of the OEMs' products in designated territories for direct factory
shipment to the customer and is compensated by the OEMs on a commission basis.
At each sales location, the Company maintains inventories of valves and other
equipment typically used by the process industries it serves from that location.
The Company's value-added valve distribution services primarily involve the
assembly, setting, testing and sealing of spring-loaded and pilot-operated PRVs
and also include: assembling other original valves with optional components
supplied by the same or different OEMs; customizing the original equipment for
installation in the customer's process unit; combining two or more valves in
configurations designed for specific process applications; and testing and
calibrating, as applicable, individual components and accessories and complete
equipment packages. As a part of its standard quality assurance program, the
Company supplements the positive material identification information OEMs
furnish to trace all materials they use in manufacturing their valves and other
equipment with its own material certifications, testing certificates and
full-assembly and test reports. Compiling this information (i) enables customers
to comply with applicable internal and regulatory recordkeeping requirements and
to demonstrate compliance with applicable industry and regulatory performance
standards, (ii) facilitates the repair or replacement of component parts and the
reconditioning of entire valve assemblies to the original design specifications
and (iii) provides the initial step in a predictive valve maintenance program
that uses actual operating histories to plan turnarounds and, by isolating the
reasons for equipment failures, spurs the use of different or new materials and
technologies.
OPERATIONS
The Company operates on a decentralized basis, and the management of each
operating company and each regional operating group is responsible for its
day-to-day operations, growth and profitability. The Company has centralized and
manages its cash management, auditing and internal control, employee benefits,
financing, financial reporting, and risk management at its corporate
headquarters. It coordinates the sharing among its operating locations of
financial resources for improved systems and expansion of
8
<PAGE>
services, training programs, financial controls, purchasing information and
operating expertise. The Company's executive management team directs the
development of the Company's marketing strategies and programs and is
responsible for key national supplier and customer relationships. The Company
has established standard reporting mechanisms to enhance its ability to monitor
each local or regional operation and assimilate acquired businesses and has
implemented performance-based incentive plans keyed to defined operational and
productivity measurements and benchmarks. The Company periodically reviews the
operations of the Company and other repair and distribution services businesses
in order to identify the "best practices" the Company will implement
throughout its operations. In order to reduce traditional corporate headquarters
expenses (as a percentage of revenues) and increase efficiencies, the Company
outsources various functions, including various personnel management and other
human resource services, legal and tax services, risk management and management
information systems design and implementation.
The Company conducts its repair and distribution services operations
through its local sales and service centers. It typically staffs its service
centers with customer service and order entry personnel, repair coordinators and
inventory, shipping and receiving and office personnel. The Company currently
performs in-shop valve and other equipment assembly, testing and certification
at many of its operating facilities. Most of these locations are authorized by
various OEMs as centers for the assembly, sale and repair of their valves and
other products and maintain various professional certifications by organizations
such as the American Society of Mechanical Engineers ("ASME") and the National
Board of Boiler & Professional Vessel Inspectors.
The Company performs most of its on-site repair services on a scheduled
basis in response to the customer's call. The Company also offers 24-hour
emergency on-line and on-site repair services from many of its service
locations.
The Company operates mobile machine shops that allow its technicians to
perform repair and installation functions at the facilities of its customers.
These shops typically are self-contained trucks or trailers the Company equips
with various combinations of lathes, milling machines, grinders, welding
equipment, drill presses, test stands, work benches and hand tools. The Company
maintains its mobile shops at various locations, and from time to time it will
maintain a shop indefinitely at a customer's facility if the work so warrants.
The Company utilizes its repair and maintenance personnel to remanufacture
valves for sale at times of decreased demand for repair and maintenance
activities. This incremental activity enables the Company to maintain sufficient
staff to meet the high level of activity associated with turnarounds and to
produce a valuable product in times of decreased activity.
SALES AND MARKETING
The Company employs a direct sales force to conduct its marketing and sales
activities. Most product and service orders are awarded by plant maintenance
managers to a small number of pre-approved vendors, with little direct bidding
for each job. More recently, plant owners have begun establishing sole-source
relationships with large, well-insured vendors with reputations for efficient
response, safe technicians and comprehensive service. The Company's sales and
marketing efforts typically focus on one-on-one relationships with plant
maintenance managers and turnaround planners and include regular visits to
customer plants to ensure client satisfaction. Initial visits also typically
involve demonstration of the Company's technical abilities at the plant or the
Company's shop facilities. The Company regularly advertises in trade journals,
participates in trade shows and conducts customer appreciation functions.
Many of the Company's customers are regional and national companies in the
petroleum refining, chemical and pulp and paper industries and power utilities.
For 1998, none of the Company's customers accounted for 10% or more of the
Company's pro forma combined revenues. While the Company is not dependent on any
one customer, the loss of one of its significant customers could, at least on a
short-term basis, have an adverse effect on the Company's results of operations.
9
<PAGE>
The Company generally seeks to enter into "blanket" contracts with its
large customers. These contracts function to designate the Company as an
approved service provider for a customer and establish certain standard terms
and conditions for providing service to plants or other facilities owned or
operated by that customer. Although these blanket contracts generally do not
establish the Company as an exclusive provider of repair and distribution
services, the Company believes they are an important consideration for plant
managers and other decision makers in the usual process of selecting a vendor of
the services the Company provides.
SUPPLIERS
VALVES, PARTS AND FITTINGS. The Company purchases substantially all the
new valves and other process-system components it distributes from OEMs. Its
principal suppliers include OEM's offering multiple product lines and OEM's
offering various specialized product lines. Invatec is not materially dependent
on any single OEM for the achievement of its growth strategies over the
long-term. The loss of one or more product lines could, however, have a material
adverse effect on the ability of the Company to achieve its expectations on a
short-term basis.
RELATIONSHIPS WITH OEMS. The success of the Company as a value-added
distributor of new valves and other process-system components and as a
factory-authorized repair service provider depends on its relationships with the
OEMs of these products. Except for its distribution agreements with OEMs, the
Company generally has no contractual repair services contracts with OEMs.
The typical distribution agreement in the Company's industry specifies the
territory or territories in which the distributor has the right and obligation
to sell the OEM's products and the services (sales, assembly or repair) the
distributor is authorized to, or must, perform. An OEM may (i) assign a
territory on an exclusive or a nonexclusive basis, (ii) limit the range of the
OEM's products the distributor may sell or service, (iii) authorize or restrict
sales or services by the distributor outside the assigned territory, (iv) refuse
to assign the distributor additional territories and (v) reserve to itself the
right to deal exclusively with specified customers or classes of customers (for
example, national accounts or engineering and construction companies) in the
assigned territory. The Company believes the current fragmentation of the
distribution sector of its industry reflects the traditional assignment by OEMs
of territories on generally a local basis to distributors operating from a
single facility.
The typical distribution agreement may limit the distributor's role to that
of sales representative acting on a commission basis or provide for purchases by
the distributor for resales to end users. It also may impose requirements on the
distributor concerning such matters as (i) minimum individual or annual purchase
orders, (ii) maintenance of minimum inventories, (iii) establishment and
maintenance of facilities and equipment to perform specified services and (iv)
training of sales personnel and service technicians. Many OEMs closely monitor
compliance with these requirements. The distribution agreement also typically
(i) grants the distributor the nonexclusive right to use and display the OEM's
trademarks and service marks in the form and manner approved by the OEM and (ii)
prohibits the distributor from offering products that compete with the OEM's
products the distributor is authorized to sell.
The Company's distribution agreements generally have indefinite terms and
are subject to termination by either party on prior notice generally ranging
from 30 to 90 days.
The Company's business strategy could conflict with existing or future OEM
distributor policies or programs. The Company believes, however, that it offers
attractive benefits to OEMs. For large OEMs, it offers a cost-effective
distribution alternative that promotes consistent quality and possesses
significant financial and human resources. For small and mid-sized OEMs, it
offers access to broader markets and expertise in marketing. In addition, the
Company offers to all OEMs (i) a central source of market and usage data,
including complete life histories of valves and other products, and (ii) a means
of reducing their own selling costs through additional outsourcing of their
assembly, testing, repair and certification services, reducing the number of
distributors they are required to monitor and eliminating transition problems
associated with local owner-operated distributorships. Although no assurance can
be given that OEMs will not take actions that could materially adversely affect
the Company's ability to implement its growth
10
<PAGE>
strategies and maintain its existing distribution services business, the Company
believes that the combination of (i) the advantages it offers to OEMs and (ii)
the desire of end users to reduce the number of their vendors should result in
these issues being resolved on a mutually satisfactory basis.
HIRING, TRAINING AND SAFETY
The Company seeks to ensure through its hiring procedures and continuous
training programs and the training programs its OEMs offer that (i) its
product-assembly and service technicians and machinists meet the performance and
safety standards of the Company and its OEMs, professional and industry codes
and federal, state and local laws and regulations have established and possess
the required ASME, factory or other certifications and (ii) its sales personnel
are trained thoroughly in the selection, application, adaptation and
customization of the products it distributes and types of repair services it
offers.
Because on-line and on-site repair services often are performed in
emergency situations under dangerous circumstances, the Company provides its
technicians with extensive classroom and field training and supervision and
establishes and enforces strict safety and competency requirements, including
physical exams and periodic drug testing. The Company's training programs for
its on-site repair technicians must meet requirements of the Occupational Safety
and Health Administration ("OSHA") respecting, among other matters, release
detection procedures, appropriate work practices, emergency procedures and other
measures these technicians can take to protect themselves and the environment.
COMPETITION
The markets for the Company's repair and distribution services generally
are highly competitive. The Company believes the principal competitive factors
in a distributor's sale of new valves and other process-system components
directly to industries in the distributor's market include price and the ability
of the distributor to offer on a timely basis a wide selection of the new,
better-performing valves and components OEMs have designed to meet the needs of
these industries. Factors affecting delivery time include inventory size and
accessibility and whether, in the case of PRVs and certain other valves, the OEM
or the distributor assembles, sets, tests and seals, or otherwise customizes,
the valve. The Company believes its assembly and testing facilities enable it
generally to deliver valves ready for installation faster than the relevant OEM.
In the case of repair services, the Company believes the principal competitive
factors are quality and availability of service (including emergency service and
documentation of valve histories), price, use of OEM-approved replacement parts,
familiarity with the OEMs' products and local brand equity of the repair
business.
In its distribution operations, the Company competes with the direct sales
forces and distribution networks of OEMs offering the same or comparable lines
of products. The success of the Company as a provider of value-added
distribution services depends on the extent to which the OEMs with which it has
distribution arrangements are able to create a demand for their products in the
territories they assign the Company. Factors affecting this demand include, in
addition to price, product quality and performance (including durability and
safety), delivery time and the relative strengths of the brand name and
marketing ability of the OEM.
The Company competes for repair services business with other repair service
businesses and customers' in-house maintenance crews and, to a lesser extent,
with OEMs. Some of its competitors may have lower overhead cost structures and,
consequently, may be able to provide their services at lower rates than the
Company. The Company's competitors for on-line repairs include three national
competitors and several regional competitors. Competition in the market for
off-line repair services is highly fragmented, although certain competitors may
have dominant positions in some of the local markets they serve.
INTELLECTUAL PROPERTY
The Company holds various United States and foreign patents, including some
relating to the SafeSeal [T] system. It does not consider any individual patent
to be presently material to its consolidated business and believes its future
success will depend more on its technological capabilities and the
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<PAGE>
application of know-how in the conduct of that business. The Company enjoys
service and product name recognition, principally through various common law
trademarks.
EMPLOYEES
At December 31, 1998, the Company had approximately 1,200 full-time
employees. Approximately 14 are members of the United Steelworkers of America,
AFL/CIO union and 3 are members of Local Union 597 Pipefitters Association. None
of the Company's other employees are represented by a union. Management believes
the Company's relations with its employees are satisfactory. The Company's
future success will depend, in part, on its ability to attract, retain and
motivate highly qualified technical, marketing, engineering and management
personnel.
The Company has not experienced any strikes or work stoppages that have had
a material impact on the Company's operations and financial condition. The
Company seeks to attract and retain qualified service technicians and other
technical field personnel by providing competitive compensation packages. It has
never experienced a prolonged shortage of qualified technical personnel in any
of its operations (and does not currently anticipate any such shortage), but if
demand for the Company's services were to increase rapidly, retention of
qualified field personnel might become more difficult without significant
increases in compensation.
FACILITIES
The Company leases or owns 63 operating facilities in the United States,
two in Europe and one in the Middle East. It holds most of these facilities
under lease. The facilities consist principally of sales and services,
remanufacturing and administrative facilities. The Company believes its
facilities are adequately maintained and sufficient for its planned operations
at each location.
The Company's principal executive and administrative offices are located in
Houston, Texas.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
A wide range of federal, state and local regulations relating to health,
safety and environmental matters apply to the Company's business. The Company's
in-shop reconditioning and remanufacturing of used valves infrequently involves
the use, handling, storage and contracting for the disposal or recycling of a
variety of substances or wastes considered hazardous or toxic. Environmental
laws are complex and subject to frequent change. These laws impose "strict
liability" in some cases without regard to negligence or fault. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition,
businesses may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to
natural resources. These laws and regulations also may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which complied with all applicable laws when performed. No assurance can
be given the Company's compliance with amended, new or more stringent laws or
regulations, stricter interpretations of existing laws or the future discovery
of environmental conditions will not require additional, material expenditures
by the Company. OSHA regulations also apply to the Company's business, including
requirements the Company's training programs must meet. See "Hiring, Training
and Safety" elsewhere in this Item 1. Future acquisitions by the Company also
may be subject to regulation, including antitrust reviews.
The Company believes it has all material permits and licenses required to
conduct its operations and is in substantial compliance with applicable
regulatory requirements relating to its operations. The Company's capital
expenditures relating to environmental matters were not material on a pro forma
combined basis in 1998. The Company does not currently anticipate any material
adverse effect on its business or financial position as a result of its future
compliance with existing environmental laws and regulations controlling the
discharge of materials into the environment.
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LITIGATION AND INSURANCE
The Company maintains insurance in such amounts and against such risks as
it deems prudent, although no assurance can be given that such insurance will be
sufficient under all circumstances to protect the Company against significant
claims for damages. The primary risks in the Company's operations are bodily
injury to third parties and workers' compensation. The Company maintains a broad
range of insurance coverage against these and other risks including general
liability, automobile liability, automobile physical damage, comprehensive
property damage, workers' compensation, employer's liability, directors and
officers liability and other coverage customary in the industry. The Company is
subject to per incident deductibles ranging from $500 to $100,000. The Company
also maintains excess insurance limits in amounts which management considers
sufficient to protect us against claims beyond the existing coverages. The
occurrence of a significant event not fully insured against could have a
material adverse effect on the Company's financial condition and results of
operations. Moreover, no assurance can be given that the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
YEAR 2000 ISSUE
The Company has assessed its Year 2000 issues and has developed a plan to
address both the information technology ("IT") and non-IT systems issues. The
plan involves the replacement or modification of some of the existing operating
and financial computer systems utilized by the Company's operating subsidiaries.
The Company has not developed any computer systems for use in its business;
consequently, it believes its Year 2000 issues relate to systems that different
vendors have developed and sold to the Company for which modifications are or
will be available.
The Company has contacted the vendors that provide its telephone systems
and computer systems, as well as its OEMs. The Company has received confirmation
from its major vendors of new valves and other process system components,
telephone systems, and computer systems that their products are Year 2000
compliant. Further, the Company has replaced many computer systems that are not
Year 2000 compliant in the normal course of updating various systems used at the
operating subsidiaries. At this time, the replacement of the systems which are
not Year 2000 compliant is over fifty percent complete and the amount expended
to date is approximately $100,000. The Company believes that the cost to replace
the remaining non-compliant systems or the cost to update the systems in 1999
should not exceed $350,000, which costs will be paid for with cash flows from
operations. The Company intends to complete all programming changes by June 30,
1999. The New Credit Facility requires that such programming be completed by
June 30, 1999. The new Credit Facility requires that such programming be
completed by September 30, 1999
The Company believes that any temporary disruptions would not be material
to its overall business or results of operations. As a contingency plan,
immediately prior to January 1, 2000, the Company intends to print all inventory
listings in its systems and take other reasonably necessary steps so that the
Company can operate "manually" until such time as any temporary Year 2000
problems related to its operations are cured.
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EXECUTIVE OFFICERS
The following table sets forth certain information as of March 1, 1999
concerning each of the executive officers of Invatec:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------------- --- -----------------------------------------------------
William E. Haynes.................... 55 Chairman of the Board and Chief Executive Officer
<S> <C> <C>
Charles F. Schugart.................. 39 President
Pliny L. Olivier..................... 53 Senior Vice President -- Operations
Douglas R. Harrington, Jr............ 34 Vice President -- Chief Financial Officer, Treasurer
and Secretary
</TABLE>
Invatec's executive officers are appointed annually by the Invatec Board of
Directors (the "Board of Directors") to serve for the ensuing year or until
their respective successors have been duly appointed.
ITEM 2. PROPERTIES
This item incorporates by this reference the information appearing under
the caption "Facilities" in Item 1 of this Report.
ITEM 3. LEGAL PROCEEDINGS
This Item incorporates by this reference the information appearing under
the caption "Litigation and Insurance" in Item 1 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of 1998.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 1997, the Common Stock of Invatec has been quoted on the
Nasdaq National Market under the symbol "IVTC." NASDAQ has notified the
Company of its intention to delist Invatec's Common Stock, as a result of the
Company's Common Stock failing to maintain a closing bid price of $5 per share
and the Company's failure to maintain the required levels of tangible net worth.
Company management has met with NASDAQ representatives in an effort to maintain
the listing, but no assurance can be given that the Company's Common Stock will
remain listed on the NASDAQ National Market. The Company anticipates that in the
event of delisting from NASDAQ's National Market, its Common Stock will be
eligible to be quoted and traded on the NASDAQ Small Cap Market or Bulletin
Board. As of March 29, 1999, there were 9,664,562 shares of Common Stock
outstanding, held by approximately 80 stockholders of record. The number of
record holders does not necessarily bear any relationship to the number of
beneficial owners of the Common Stock.
The following table sets forth the range of high and low sale prices for
the Common Stock on the Nasdaq National Market for the periods indicated:
HIGH LOW
--------- ---------
Year ended December 31, 1997
Fourth Quarter (October 23 to
December 31)...................... $ 20.25 $ 15.75
Year Ended December 31, 1998
First Quarter...................... 20.25 15.00
Second Quarter..................... 18.75 7.00
Third Quarter...................... 7.44 2.53
Fourth Quarter..................... 3.31 1.13
The last reported sale price of the Common Stock on the Nasdaq National
Market on March 29, 1999 was $.8125 per share.
In January 1998, Invatec issued shares of its Common Stock to eleven
employees who had been granted bonuses of The Safe Seal Company ("SSI") stock
in December 1995, to vest in two equal amounts on December 31, 1996 and 1997.
Giving effect to the merger of SSI and Invatec and the conversion of SSI shares
in connection therewith, rights to receive an aggregate of 1,812 shares of
Common Stock vested on December 31, 1997. The sales of those shares of Common
Stock were exempt from the registration requirements of the Securities Act by
virtue of Section 4(2) thereof as transactions not involving any public
offering.
Invatec has not paid or declared any dividends since its formation and
currently intends to retain earnings to fund working capital. Any future
dividends will be at the discretion of the Board of Directors after taking into
account various factors deemed relevant by the Board of Directors, including the
Company's financial condition and performance, cash needs, income tax
consequences and the restrictions Delaware and other applicable laws and its
credit facilities then impose. The New Credit Facility prohibits the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in Item 7 of this
Report and Note 7 of the Notes to Consolidated Financial Statements of the
Company in Item 8 of this Report.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The Company's financial statements present SSI as the "accounting
acquirer" in the acquisitions Invatec effected through October 31, 1997.
Consequently, the Company's historical financial statements for periods ended on
or before that date are SSI's historical consolidated financial statements, and
in this Item 6 the term "Company" means (i) SSI and its consolidated
subsidiaries prior to that date and (ii) Invatec and its consolidated
subsidiaries on that date and thereafter. The following selected historical
financial information derives from the Company's audited financial statements
for each year in the five-year period ended December 31, 1998. See the
historical financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1994 1995 1996 1997(1) 1998
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
HISTORICAL STATEMENT OF OPERATIONS
INFORMATION:
Revenues........................... $ 2,547 $ 2,852 $ 3,888 $ 58,621 $ 154,617
Gross profit(3).................... 1,276 1,268 1,512 17,634 47,049
Selling, general and administrative
expenses(3)...................... 1,268 1,853 1,917 15,639 40,480
Special compensation expense(1).... -- -- 38 7,614 --
Non-recurring costs(2)............. -- -- -- -- 2,190
Income (loss) from operations...... 8 (585) (443) (5,619) 4,379
Interest income (expense), net..... (7) 10 28 (2,901) (5,622)
Other income (expense), net........ (282) (930) -- (3) 247
Loss before income taxes........... (281) (1,505) (415) (8,523) (996)
Net loss........................... $ (281) $ (1,505) $ (415) $ (7,500) $ (1,416)
========= ========= ========= ========== ==========
HISTORICAL BALANCE SHEET INFORMATION:
Working capital (deficit).......... $ (202) $ 823 $ (13) $ 21,232 $ 42,545
Total assets....................... 668 23,109 2,228 105,432 183,700
Total debt, including current
portion.......................... 93 -- 589 29,527 83,220
Stockholders' equity (deficit)..... (75) (1,075) (1,394) 59,869 79,205
</TABLE>
- - ------------
(1) Non-cash, non-recurring special compensation expenses of $7.6 million
attributable to certain awards of stock and stock options and certain stock
sales and financing fees of $1.0 million (included in interest expense)
related to guarantees by Philip Services, Inc. See Note 2 of the Notes to
Consolidated Financial Statements of the Company.
(2) Non-recurring 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.
(3) Certain 1997 amounts have been reclassified to conform with the current year
presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company derives its revenues principally from its sales of industrial
valves and other process-system components, and its performance of comprehensive
maintenance, repair, replacement and value-added distribution services of
industrial valves and other process-system components. Cost of operations
consists principally of direct costs of valves and components sold, coupled with
labor and overhead costs connected with the performance of repair services.
Selling, general and administrative expenses consist principally of compensation
and benefits payable to owners and to sales, management and administrative
personnel and insurance, depreciation and amortization and other related
expenses.
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Invatec, incorporated in March 1997, conducted no operations prior to
October 28, 1997 except in connection with the IPO and the acquisitions of the
seven Initial Acquired Businesses. Since the IPO, Invatec has acquired thirteen
businesses, nine of which were acquired in 1998. Each of the Additional Acquired
Businesses operated as a separate, independent business prior to its acquisition
by the Company.
The Company's customers consist primarily of petroleum refining,
petrochemical, chemical, power and pulp and paper plants, the businesses of
which tend to be cyclical. Margins in those industries are highly sensitive to
demand cycles and the Company's customers in those industries have historically
tended to delay capital projects, expensive turnarounds and other maintenance
projects during slow periods. Commencing with second quarter of 1998 and
continuing into 1999, the Company's business was negatively impacted by
significant slowdowns experience by its customers in the petroleum refining,
petrochemical, chemical, and pulp and paper industries.
As a result of the above-described downturns affecting the Company's
customers, the Company's level of business declined during 1998 and the
Company's earnings for the last three quarters of 1998 fell significantly short
of expectations. Consequently, this decline in earnings resulted in a severe
reduction in the market price of the Company's Common Stock. Declining earnings
also ultimately resulted in the Company defaulting on its Old Credit Facility as
a result of failing to meet certain financial covenants which required specific
levels of earnings in relation to debt. This default left the Company unable to
borrow funds for acquisitions thereunder. The Company remained in default under
the loan agreement from July 20, 1998 through March 25, 1999. The Company's
acquisition program has been effectively suspended since July 1998 as a result
of the low price of the Company's Common Stock and its inability to borrow funds
under the Old Credit Facility.
The Company amended its Old Credit Facility on March 26, 1999. As a result
the New Credit Facility, expiring on April 20, 2000, consists of a $35 million
stationary term component and up to a $45 million revolving line of credit from
its existing bank group. The New Credit Facility prohibits the Company from
making acquisitions and provides for increasingly high borrowing costs. As a
result, the Company is currently seeking a significant equity infusion to enable
it to reduce its debt, obtain a new credit facility on better terms and
potentially resume its acquisition program on a scaled down, strategic basis. A
significant equity infusion could have a substantially dilutive impact on
existing shareholders.
Since the suspension of the Company's acquisition program, the Company has
focused on efforts to cut costs and otherwise improve profitability. During
1998, the Company eliminated in excess of $5 million in annualized costs,
including substantial corporate overhead. In 1999, the Company intends to
continue its cost cutting program. This program is expected to include
downsizing certain of its operations to fit the current level of business,
consolidation of certain locations and consolidating the marketing efforts
currently conducted by different subsidiary companies and other potential
improvements in operational efficency.
Despite those cost cuts, the Company anticipates that it will be difficult
to improve overall profitability in 1999 due to the high cost of funds under the
New Credit Facility unless it obtains a more favorable credit facility or
business improves dramatically. The Company has not experienced any significant
improvement in its business during 1999. The Company cannot predict when or
whether its business will rebound. In addition, there can be no assurance that a
further deterioration in the Company's business will not occur. Any significant
additional erosion in the Company's business would further depress earnings and
likely result in a default under the New Credit Facility.
The Company's financial statements present SSI as the "accounting
acquirer" in the acquisitions Invatec effected through October 31, 1997.
Consequently, the Company's historical financial statements for periods ended on
or before that date are SSI's historical consolidated financial statements, and
in this discussion the term "Company" means (i) SSI and its consolidated
subsidiaries prior to that date and (ii) Invatec and its consolidated
subsidiaries on that date and thereafter.
17
<PAGE>
RESULTS OF OPERATIONS
HISTORICAL
The following table sets forth selected financial information of the
Company and that information as a percentage of the Company's revenues for the
years indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 3,888 100% $ 58,621 100% $ 154,617 100%
Cost of operations................... 2,376 61 40,987 70 107,568 70
--------- --- --------- --- ---------- ---
Gross profit......................... 1,512 39 17,634 30 47,049 30
Selling, general and administrative
expenses........................... 1,917 49 15,639 27 40,480 26
Special compensation expense......... 38 1 7,614 13 --
Nonrecurring costs................... -- -- -- -- 2,190 1
--------- --- --------- --- ---------- ---
Income (loss) from operations........ $ (443) (11) $ (5,619) (10) $ 4,379 3
========= === ========= === ========== ===
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES -- Revenues increased $96.0 million, or 164%, from $58.6 million
in 1997 to $154.6 million in 1998. Approximately $60.6 million of this increase
resulted from the inclusion of revenues from the additional Acquired Businesses
purchased in 1997 and 1998 from their respective dates of acquisition. The
remaining $35.4 million increase is due to the inclusion of the results of the
Initial Acquired Businesses for the entire year of 1998.
GROSS PROFIT -- Gross profit increased $29.4 million, or 167%, from $17.6
million in 1997 to $47.0 million in 1998, of which $21.0 million was as a result
of the incremental gross margins generated by the Additional Acquired
Businesses. The remaining $8.4 million increase is due to the inclusion of the
gross margin of the Initial Acquired Businesses for the entire year of 1998. As
a percentage of revenues, gross profit remained relatively flat at 30%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $24.8 million, or 159%, from $15.6 million in
1997 to $40.4 million in 1998, primarily due to the incremental selling, general
and administrative expenses of the businesses acquired in 1997 and 1998. As a
percentage of revenues, these expenses decreased from 27% in 1997 to 26% in 1998
as a result of the implementation of the Company's cost reduction strategies,
coupled with selling, general and administrative expenses of the corporate
headquarters being spread over a larger revenue base in 1998.
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.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES -- Revenues increased $54.7 million, or 1,408%, from $3.9 million
in 1996 to $58.6 million in 1997. This increase resulted from the inclusion of
the results of the Acquired Businesses purchased in 1997 from their respective
dates of acquisition.
GROSS PROFIT -- Gross profit increased $16.1 million, or 1,066%, from $1.5
million in 1996 to $17.6 million in 1997, primarily as a result of the
incremental gross margins generated by the Acquired Businesses Invatec purchased
in 1997. As a percentage of revenues, gross profit decreased from 39% in 1996 to
30% in 1997. This decrease reflects the expansion of the Company's consolidated
operations to include the off-line distribution and related services operations
of the businesses purchased in 1997 which historically have generated lower
gross margins than SSI's gross margins attributable to its on-line repair
services operations.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $13.7 million or 716% from $1.9 million in
1996 to $15.6 million in 1997. This increase primarily reflects the incremental
selling, general and administrative expenses of the businesses acquired in 1997
and the building of the Company's corporate management team. As a percentage of
revenues, these expenses decreased from 49% in 1996 to 27% in 1997 as a result
of being spread over a larger revenue base coupled with the implementation of
the Company's cost reduction strategies.
SPECIAL COMPENSATION EXPENSE -- Special compensation expense increased $7.6
million, or 19,937%, from $38,000 in 1996 to $7.6 million in 1997. In 1996,
these non-cash expenses related to the issuance by SSI of its common stock and
options to purchase its common stock under employee benefit programs. In 1997,
these non-cash expenses related to an SSI issuance of shares of its common
stock, sales by Invatec of Common Stock and certain options granted by Invatec
to purchase Common Stock. See Note 2 of the Notes to Consolidated Financial
Statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the Company's
statements of cash flows (in millions):
YEAR ENDED DECEMBER 31
-------------------------------
1996 1997 1998
--------- --------- ---------
Net cash used in operating
activities......................... $ (0.9) $ (0.3) (12.4)
Net cash used in investing
activities......................... (0.2) (52.6) (44.0)
Net cash provided by financing
activities......................... -- 55.0 53.8
--------- --------- ---------
Net change in cash................... $ (1.1) $ 2.1 $ (2.6)
========= ========= =========
For the period from January 1, 1996 through December 31, 1998, the
Company's operations used $13.6 million of cash primarily as a result of 1997
and 1998 increases in inventory and accounts receivable levels required to
support the Company's internal sales growth programs. Cash used in investing
activities of $96.8 million in the same period consisted primarily of $91.0
million used to purchase the Additional Acquired Businesses. Cash provided from
financing activities in the same period of $108.8 million primarily reflects net
proceeds from the Company's IPO of $44.0 million and net borrowings under credit
facilities of $70.6 million offset by repayments of debt to Philip Services,
Inc., an affiliate, of $3.0 million.
The Company's Old Credit Facility was a $90 million three-year revolving
credit facility the Company used for acquisitions and general corporate
purposes. Declining earnings during 1998 ultimately resulted in the Company
defaulting in July 1998 on its Old Credit Facility as a result of failing to
meet certain financial covenants requiring specific levels of earnings in
relation to debt. This default left the Company unable to borrow funds for
acquisitions. The Company remained in default under the loan agreement from July
20, 1998 through March 25, 1999. The Company's acquisition program has been
effectively suspended since July 1998 as a result of the low price of the
Company's Common Stock and its inability to borrow funds.
In March 1999, the Company and its syndicate of lenders agreed to amend the
Company's credit facility to put into place the New Credit Facility. The
Company's credit facility was reduced from $90 million to $80 million and
restructured to be comprised of a stationary term component of $35 million and a
revolving credit facility of up to $45 million, the proceeds of which may be
used only for general corporate and working capital purposes. The Company's
subsidiaries have guaranteed the repayment of all amounts due under the
facility, and repayment is secured by pledges of the capital stock, and all or
substantially all of the assets, of those subsidiaries. The New Credit Facility
prohibits acquisitions and the payment of cash dividends, restricts the ability
of the Company to incur other indebtedness and requires the Company to comply
with certain financial covenants. These financial covenants include provisions
for maintenance of certain levels of earnings before interest, taxes,
depreciation, amortization ("EBITDA") and other items specified in the loan
agreement. Additionally, the New Credit Facility requires that the Company
complete all required programming changes in connection with the Year 2000
compliance objective by September 30, 1999. The Company believes that it will be
able to meet this requirement. See Item 1 "Year 2000 Issue."
The amount of availability under the New Credit Facility is now governed by
a borrowing base which consists primarily of the accounts receivable and
inventory of the Company and its subsidiaries, although
19
<PAGE>
the amount available under the revolving portion of the credit facility will
decrease over time and upon the occurrence of certain specified events, such as
a sale of assets outside the ordinary course of business. Interest accrues at
the prime rate as in effect from time to time, plus 2%, payable monthly. In
addition, fees accrue each quarter at the rate of 1.5% of the unpaid principal
balance under the New Credit Facility. If, however, the stationary term
component is repaid by July 1, 1999 and the revolving portfolio on that date
does not exceed the borrowing base, the aggregate amount of such fees will be
reduced to $100,000. If all obligations under the New Credit Facility are repaid
in full by June 30, 1999, no such fees will be payable. The entire New Credit
Facility matures on April 20, 2000.
In connection with the amendment to the New Credit Facility, the syndicate
of lenders were issued warrants to purchase up to 482,262 shares of the Common
Stock of the Company, exercisable at $0.73 per share (10% below the market price
of such Common Stock as of March 25, 1999), and granted certain registration
rights with respect to the shares issuable upon exercise of the warrants.
Due to (i) the high borrowing costs associated with the New Credit Facility
if it is not fully repaid prior to July 1, 1999, (ii) the Company's high level
of debt and (iii) the Company's belief that it would be advantageous to resume
its acquisition program on a scaled-down, strategic basis if it had sufficient
resources, the Company is currently seeking a significant equity infusion to
enable it to reduce its debt, obtain a new credit facility to reduce its
borrowing costs and potentially resume its acquisition program on a scaled down,
strategic basis. A significant equity infusion could have a substantially
dilutive impact on existing shareholders. It is uncertain whether the Company's
efforts to find new equity and debt financing will be successful or that, if
successful, the Company will have sufficient resources to resume its acquisition
program.
Although the Company believes that based upon current levels of business
that it can comply with the various financial covenants contained in the New
Credit Facility, a substantial adverse deviation of EBITDA would likely result
in a default by the Company of the EBITDA covenants. Therefore, if there is any
significant downward deviation in the Company's business or pressure on margins,
it is likely that the Company will be in default under the New Credit Facility.
At December 31, 1998, the Company's outstanding borrowings under the Old
Credit Facility were $70.6 million, bearing interest at 9.75%. At March 30,
1999, the Company's outstanding borrowings under the New Credit Facility were
$70.4 million, bearing interest at 9.75% per annum, excluding the effect of
contingent fees discussed above.
It is anticipated that cash flow from operations and funds available under
the New Credit Facility will provide sufficient cash for the Company's normal
working capital needs, debt service requirements and planned capital
expenditures for the next year.
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
seasonal fluctuations in the demand for repair and distribution services
(particularly the demand attributable to scheduled turnarounds in the power
industry, which typically are scheduled for mild-weather months) and competitive
factors. Accordingly, quarterly comparisons of the Company's revenues and
operating results should not be relied on as an indication of future
performance, and the results of any quarterly period may not be indicative of
results to be expected for a full year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Revolving credit borrowings under the Company's New Credit Facility contain
certain market risk exposure. The Company's outstanding borrowings under the Old
Credit Facility were $70.6 million at December 31, 1998. A change of one percent
in the interest rate would cause a change in interest expense of approximately
$700,000, or $0.04 per share, on an annual basis. The New Credit Facility was
not entered into for trading purposes and carries interest at a pre-agreed upon
percentage point spread from either the prime interest rate or 30-day Eurodollar
interest rate.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Invatec and certain of its
subsidiaries, together with the related report of independent public
accountants, are set forth on pages F-1 through F-19 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by Item 10 (other than the information
regarding Executive Officers, which is set forth in "Item 1.
Business -- Executive Officers") and Items 11, 12 and 13, reference is made to
the Company's definitive proxy statement for its 1999 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after
December 31, 1998, and which is incorporated herein by reference (except for the
material included under the captions "Report on Compensation Committee" and
"Performance Graph").
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public
Accountants........................ F-1
Consolidated Balance Sheets.......... F-2
Unaudited Pro Forma Combined
Statement of Operations............ F-3
Consolidated Statements of
Operations......................... F-4
Consolidated Statements of
Stockholders' Equity (Deficit)..... F-5
Consolidated Statements of Cash
Flows.............................. F-6
Notes to Consolidated Financial
Statements......................... F-7
(2) Financial Statement Schedules.
All financial statement schedules are omitted because they are not required
or the required information is shown in the Company's consolidated financial
statements or the notes thereto.
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
2.1(a) -- Merger Agreement dated June 29, 1998 among Invatec, Plant Maintenance, Inc. and the former
shareholders thereof.
2.1(b) -- Amendment to Merger Agreement dated as of September 25, 1998 among Invatec, Plant
Maintenance, Inc. and the former shareholders thereof.
2.2(a) -- Merger Agreement dated July 9, 1998 among Invatec, Collier Equipment Corporation and the
former shareholders thereof.
2.2(b) -- Amendment to Merger Agreement dated as of August 20, 1998 among Invatec, Cecorp, Inc. (the
successor corporation to Collier Equipment Corporation), and the former shareholders
thereof.
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
2.3(a) -- Merger Agreement dated as of July 9, 1998 among Invatec, Colonial Process Equipment Co.,
Inc. and Colonial Service Company, Inc. and the former shareholders thereof.
2.3(b) -- Amendment to Merger Agreement dated as of September 22, 1998 among Invatec, Colonial
Process Service and Equipment Co., Inc. (the successor corporation to Colonial Process
Equipment Co. Inc. and Colonial Service Company, Inc.) and the former shareholders thereof.
3.1* -- Certificate of Incorporation of Invatec, as amended, (Form 10-Q for the quarterly period
ended September 30, 1998 (File No. 000-23231) Ex. 3.1).
3.2* -- Amended and Restated Bylaws of Invatec (Form 10-Q for the quarterly period ended September
30, 1998 (File No. 000-23231), Ex. 3.2).
4.1* -- Form of Certificate representing Common Stock (Form S-1 (Reg. No. 333-31617), Ex. 4.1).
4.2* -- Registration Rights Agreement dated as of June 9, 1997 by and among Invatec and the
stockholders listed on the signature pages thereto (Form S-1 (Reg. No. 333-31617), Ex.
4.2).
4.3* -- Registration Rights Agreement dated as of June 12, 1997 by and among Invatec and the
persons listed on the signature pages thereto (Form S-1 (Reg. No. 333-31617), Ex. 4.3).
4.4* -- Addendum to Registration Rights Agreement dated as of July 28, 1997 by and among Invatec
and the holders listed on the signature pages thereto (Form S-1 (Reg. No. 333-31617, Ex.
4.4).
4.5* -- Rights Agreement by and between the Company and ChaseMellon Shareholder Services, L.L.C.,
including form of Rights Certificate attached as Exhibit B thereto (Form 10-Q for the
quarterly period ended September 30, 1997 (File No. 000-23231), Ex. 4.5).
4.6(a)* -- Loan Agreement dated July 7, 1998 among Invatec, Chase Bank of Texas, National
Association, as Agent and as a lender, and the other lenders referred to therein. (Form
10-Q for the quarterly period ended September 30, 1998 (File No. 000-23231), Ex. 4.1).
4.6(b) -- Amendment to Loan Agreement dated March 26, 1999 among Invatec, Chase Bank of Texas,
National Association, as Agent and as a lender, and the other lenders referred to therein.
4.7* -- Form of Indenture dated June 1, 1998 from Invatec to U.S. Trust Company of Texas, N.A., as
trustee relating to the Convertible Debt Securities. (Form S-4 (Reg. No. 333-49283), Ex.
4.4)
4.8 -- Registration Rights Agreement dated as of March 26, 1999 by and among Invatec, Chase Bank
of Texas and the other lenders.
4.9 -- Form of Warrants dated as of March 26, 1999 to purchase an aggregate of 482,262 shares of
Invatec Common Stock issued by Invatec to Chase Bank of Texas, and the other lenders.
Invatec and certain of its subsidiaries are parties to certain debt instruments under
which the total amount of securities authorized does not exceed 10% of the total assets of
Invatec and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Regulation S-K, Invatec agrees to furnish a copy of those instruments to
the SEC on request.
10.1 -- 1997 Incentive Plan of Invatec, as amended.
10.2(a)* -- Form of Employment Agreement dated as of January 27, 1997, between SSI and William E.
Haynes (Form S-1 (Reg. No. 333-31617, Ex. 10.2).
10.2(b) -- Letter Agreement dated October 30, 1998 between the Company and William E. Haynes.
10.3(a)* -- Form of Employment Agreement dated as of January 27, 1997, between SSI and Charles F.
Schugart (Form S-1 (Reg. No. 333-31617), Ex. 10.3).
10.3(b) -- Letter Agreement dated October 30, 1998 between the Company and Charles F. Schugart.
10.4 -- Amended and Restated Employment Agreement dated as of January 1, 1998 between the Company
and Pliny L. Olivier.
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
10.5(a) -- Employment Agreement dated August 21, 1998 between the Company and Douglas R. Harrington,
Jr.
10.5(b) -- Letter Agreement dated October 30, 1998 between the Company and Douglas R. Harrington, Jr.
10.6* -- Form of Indemnification Agreement between Invatec and each of its directors and officers
(Form S-1 (Reg. No. 333-31617), Ex. 10.6).
21.1 -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- - ------------
* Incorporated by reference.
Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this Form 10-K.
(b) Reports on Form 8-K.
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
Date: March 30, 1999 By: /s/WILLIAM E. HAYNES
WILLIAM E. HAYNES
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1999.
SIGNATURE TITLE
--------------- -------------
/s/WILLIAM E. HAYNES Chairman and Chief Executive Officer
WILLIAM E. HAYNES (Principal Executive Officer)
/s/CHARLES F. SCHUGART President and Director
CHARLES F. SCHUGART
/s/DOUGLAS R. HARRINGTON, JR. Vice President, Chief Financial
DOUGLAS R. HARRINGTON, JR. Officer, Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
/s/ROBERT M. CHISTE Director
ROBERT M. CHISTE
/s/ARTHUR L. FRENCH Director
ARTHUR L. FRENCH
/s/ROGER L. MILLER Director
ROGER L. MILLER
/s/FELIX PARDO Director
FELIX PARDO
/s/T. WAYNE WREN Director
T. WAYNE WREN
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Innovative Valve Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Innovative
Valve Technologies, Inc. and subsidiaries, (a Delaware corporation), as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Innovative Valve Technologies, Inc. and Subsidiaries, as of December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1999
F-1
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
--------------------------------
1997 1998
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash............................... $ 2,544,450 $ --
Accounts receivable, net of
allowance of $1,079,857 and
$1,562,104....................... 17,680,697 29,634,167
Inventories, net................... 15,987,765 26,007,804
Prepaid expenses and other current
assets........................... 1,171,090 2,366,871
Deferred tax asset................. 3,723,448 4,481,256
--------------- ---------------
Total current assets..... 41,107,450 62,490,098
PROPERTY AND EQUIPMENT, net............. 11,474,701 19,469,804
GOODWILL, net........................... 48,387,981 96,175,294
PATENT COSTS, net....................... 682,436 490,552
OTHER NONCURRENT ASSETS, net............ 3,780,115 5,074,090
--------------- ---------------
$ 105,432,683 $ 183,699,838
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt.................... $ 4,660,924 $ --
Current maturities of long-term
debt............................. 304,310 580,140
Accounts payable and accrued
expenses......................... 14,910,638 19,364,587
--------------- ---------------
Total current
liabilities........... 19,875,872 19,944,727
CREDIT FACILITY......................... 11,750,000 70,570,584
LONG-TERM DEBT, net of current
maturities............................ 318,911 400,834
CONVERTIBLE SUBORDINATED DEBT........... 12,493,178 11,668,875
OTHER LONG-TERM LIABILITIES............. 1,125,417 1,909,774
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
30,000,000 shares authorized,
7,890,198 and 9,664,562 issued
and outstanding.................. 7,890 9,665
Additional paid-in capital......... 70,212,035 90,960,972
Retained deficit................... (10,350,620) (11,765,593)
--------------- ---------------
Total stockholders'
equity................ 59,869,305 79,205,044
--------------- ---------------
$ 105,432,683 $ 183,699,838
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED
DECEMBER 31
------------------------
1997 1998
----------- ----------
(UNAUDITED)
REVENUES............................. $92,782 $ 154,617
COST OF OPERATIONS................... 63,835 107,568
----------- ----------
Gross profit.................... 28,947 47,049
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 24,169 40,480
NONRECURRING COSTS................... -- 2,190
----------- ----------
Income from operations.......... 4,778 4,379
OTHER INCOME (EXPENSE):
Interest, net................... (354) (5,622)
Other........................... 8 247
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 4,432 (996)
PROVISION FOR INCOME TAXES........... 1,988 420
----------- ----------
INCOME (LOSS)........................ $ 2,444 $ (1,416)
=========== ==========
EARNINGS (LOSS) PER SHARE -- Basic... $ 0.31 $ (0.16)
=========== ==========
EARNINGS (LOSS) PER
SHARE -- Diluted................... $ 0.30 (0.16)
=========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING -- Basic................. 7,825 9,025
=========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING -- Diluted............. 8,088 9,025
=========== ==========
The accompanying notes are an integral part of these
unaudited pro forma combined financial statements.
F-3
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1996 1997 1998
------------ -------------- ---------------
<S> <C> <C> <C>
REVENUES............................. $ 3,887,761 $ 58,620,946 $ 154,616,945
COST OF OPERATIONS................... 2,375,245 40,987,435 107,568,111
------------ -------------- ---------------
Gross profit.................... 1,512,516 17,633,511 47,048,834
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,917,063 15,638,815 40,479,744
SPECIAL COMPENSATION EXPENSE......... 38,048 7,613,386 --
NONRECURRING COSTS................... -- -- 2,189,599
------------ -------------- ---------------
Income (loss) from operations........ (442,595) (5,618,690) 4,379,491
OTHER INCOME (EXPENSE):
Interest income (expense),
net........................... 27,703 (2,901,039) (5,621,182)
Other........................... 393 (2,957) 246,654
------------ -------------- ---------------
28,096 (2,903,996) (5,374,528)
------------ -------------- ---------------
LOSS BEFORE INCOME TAX............... (414,499) (8,522,686) (995,037)
PROVISION (BENEFIT) FOR INCOME TAX... -- (1,022,722) 419,936
------------ -------------- ---------------
NET LOSS............................. $ (414,499) $ (7,499,964) $ (1,414,973)
============ ============== ===============
NET LOSS BEFORE DIVIDENDS APPLICABLE
TO
PREFERRED STOCK.................... $ (414,499) $ (7,499,964) $ (1,414,973)
PREFERRED STOCK DIVIDENDS............ (191,854) (156,957) --
------------ -------------- ---------------
NET LOSS APPLICABLE TO COMMON
SHARES............................. $ (606,353) $ (7,656,921) $ (1,414,973)
============ ============== ===============
Loss per Share:
Basic and Diluted.......... $ (0.42) $ (2.25) $ (0.16)
============ ============== ===============
Weighted average common shares
outstanding:
Basic and Diluted.......... 1,441,135 3,397,980 9,024,915
============ ============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 1,432,951 $1,433 $ 1,010,472 $ (2,087,346) $ (1,075,441)
SSI preferred stock dividends... -- -- -- (191,854) (191,854)
Issuances of SSI common stock... 60,868 61 357,987 -- 358,048
Retirement of SSI common
stock......................... (11,900) (12) (69,988) -- (70,000)
Net loss........................ -- -- -- (414,499) (414,499)
--------- ------ ----------- ------------ --------------
BALANCE, December 31, 1996........... 1,481,919 1,482 1,298,471 (2,693,699) (1,393,746)
SSI preferred stock dividends... -- -- -- (156,957) (156,957)
Issuance of SSI common stock.... 222,650 223 2,604,782 -- 2,605,005
Exercise of SSI common stock
warrant and options........... 714,769 715 4,554,141 -- 4,554,856
Issuance of common stock to
certain executives............ 242,839 243 5,008,675 -- 5,008,918
Public offering, net of offering
costs......................... 3,852,500 3,853 44,018,053 -- 44,021,906
Issuances of common stock in
acquisitions.................. 185,661 185 2,129,794 -- 2,129,979
Redemption of SSI redeemable
preferred stock and payment of
indebtedness to Philip........ 1,189,860 1,189 10,598,119 -- 10,599,308
Net loss........................ -- -- -- (7,499,964) (7,499,964)
--------- ------ ----------- ------------ --------------
BALANCE, December 31, 1997........... 7,890,198 7,890 70,212,035 (10,350,620) 59,869,305
Issuances of Common Stock in
acquisitions.................. 1,749,052 1,749 20,483,297 -- 20,485,046
Exercise of stock options....... 25,312 26 265,640 -- 265,666
Net loss........................ -- -- -- (1,414,973) (1,414,973)
--------- ------ ----------- ------------ --------------
BALANCE, December 31, 1998........... 9,664,562 $9,665 $90,960,972 $(11,765,593) $ 79,205,044
========= ====== =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (414,499) $ (7,499,964) $ (1,414,973)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Depreciation and amortization... 31,183 1,235,940 4,321,854
Deferred taxes.................. -- 4,982,917 (1,690,870)
Special compensation expense.... 38,048 7,613,386 --
Nonrecurring costs.............. -- -- 1,989,599
Gain on sale of property and
equipment..................... -- -- (18,345)
(Increase) decrease in --
Accounts receivable........... (49,736) (1,219,537) (3,600,442)
Inventories, net.............. (13,660) (4,187,410) (4,485,014)
Prepaid expenses and other
current assets............. (66,161) 424,535 (755,654)
Other noncurrent assets,
net........................ (324,246) 1,141,616 (1,208,550)
Increase (decrease) --
Accounts payable and accrued
expenses................... (91,195) (2,806,726) (5,518,177)
-------------- -------------- --------------
Net cash used in operating
activities................. (890,266) (315,243) (12,380,572)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (128,309) (1,062,366) (4,707,457)
Additions to patent costs.......... (46,030) -- --
Proceeds from sale of property and
equipment....................... -- 17,137 168,619
Business acquisitions, net of cash
acquired of $499,436 and
$818,416........................ -- (51,555,833) (39,438,029)
-------------- -------------- --------------
Net cash used in investing
activities................. (174,339) (52,601,062) (43,976,867)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt................. 265,000 29,348,272 209,425
Repayments of debt................. -- (27,981,507) (5,209,853)
Net borrowings under Credit
Facility........................ -- 11,750,000 58,820,584
Repayments of convertible
subordinated debt............... -- -- (81,396)
Payments on non-compete
obligations..................... -- (152,662) (134,268)
Repayment of debt of Philip........ -- (2,981,789) --
Proceeds from sale/exercise of SSI
common stock warrant............ -- 1,216,855 --
Proceeds from exercise of Invatec
stock options................... -- -- 208,497
Proceeds from sale of common stock,
net of offering costs........... -- 44,021,906 --
SSI common stock repurchases....... (70,000) -- --
Preferred stock dividends.......... (191,854) (156,957) --
-------------- -------------- --------------
Net cash provided by financing
activities................. 3,146 55,064,118 53,812,989
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH...... (1,061,459) 2,147,813 (2,544,450)
CASH, beginning of period............ 1,458,096 396,637 2,544,450
-------------- -------------- --------------
CASH, end of period.................. $ 396,637 $ 2,544,450 $ --
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
General
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 Steam Supply &
Rubber Co., Inc. and three related entities (collectively, "Steam Supply") in
July 1997, Invatec conducted no operations of its own prior to the closing on
October 28, 1997 of (i) its initial public offering (the "IPO") of its common
stock, par value $.001 per share ("Common Stock"), (ii) its purchase of
Industrial Controls & Equipment, Inc. and three related entities (collectively,
"ICE/VARCO") and Southern Valve Services, Inc. and a related entity
(collectively, "SVS") and (iii) a merger (the "SSI Merger") in which The
Safe Seal Company, Inc. ("SSI") became its subsidiary. Earlier in 1997, SSI
had purchased Harley Industries, Inc. ("Harley"), GSV, Inc. ("GSV") and
Plant Specialities, Inc. ("PSI"). SSI and its subsidiaries were affiliates of
Invatec prior to the SSI Merger. Subsequent to the IPO, Invatec has acquired
thirteen businesses.
Recent Developments
The Company's customers consist primarily of petroleum refining, chemical,
petrochemical, power and pulp and paper plants, the businesses of which tend to
be cyclical. Margins in those industries are highly sensitive to demand cycles
and the Company's customers in those industries have historically tended to
delay capital projects, expensive turnarounds and other maintenance projects
during slow periods. Commencing with the second quarter of 1998 and continuing
into 1999, the Company's business was negatively impacted by significant
slowdowns experienced by its customers in the petroleum refining, petrochemical,
chemical, and pulp and paper industries.
As a result of the above-described downturns affecting the Company's
customers, the Company's level of business declined during 1998 and the
Company's earnings for the last three quarters of 1998 fell significantly short
of expectations. Consequently, this decline in earnings resulted in a severe
reduction in the market price of the Company's Common Stock. Declining earnings
also ultimately resulted in the Company defaulting on its credit facility (the
"Old Credit Facility") as a result of failing to meet certain financial
covenants which required specific levels of earnings in relation to debt. This
default left the Company unable to borrow funds for acquisitions thereunder. The
Company remained in default under the Old Credit Facility from July 20, 1998
through March 25, 1999. The Company's acquisition program has been effectively
suspended since July 1998 as a result of the low price of the Company's common
stock and its inability to borrow funds under the Old Credit Facility.
The Company amended its Old Credit Facility on March 26, 1999 to provide
for a new credit facility (the "New Credit Facility") expiring on April 20,
2000 and consisting of a $35 million stationary term component and up to a $45
million revolving line of credit from its existing bank group. The New Credit
Facility prohibits the Company from making acquisitions and provides for
increasingly high overall borrowing costs if the facility is not substantially
reduced or replaced prior to July 1, 1999. As a result, the Company is currently
seeking a significant equity infusion to enable it to reduce its debt, obtain a
new credit facility on better terms and potentially resume its acquisition
program on a scaled down, strategic basis. A significant equity infusion could
have a substantially dilutive impact on existing shareholders. It is uncertain
whether the Company's efforts to find new equity and debt financing will be
successful or that if such efforts are successful the Company will have
sufficient resources to resume its acquisition program.
F-7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of Steam Supply, ICE/VARCO, SVS, Harley, GSV and PSI (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.
For accounting purposes, the effective dates of the acquisitions of the
Initial Acquired Businesses in 1997 are as follows: (i) Harley -- January 31;
(ii) GSV -- February 28; (iii) PSI -- May 31; (iv) Steam Supply -- July 31, and
(v) ICE/VARCO and SVS -- October 31. Following the IPO, the Company acquired
thirteen businesses (together with the Initial Acquired Businesses, the
"Acquired Businesses") in 1997 and 1998. The Company accounted for 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 financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma combined statements of operations give effect to
the following events and transactions as if they had occurred on January 1,
1997: (i) the formation and organizational financing of Invatec; (ii) the SSI
Merger; (iii) the acquisitions of the Initial Acquired Businesses and the
financing of those acquisitions; (iv) reverse stock splits of the outstanding
Common Stock and the SSI common stock effected in connection with the IPO; (v)
the IPO and Invatec's application of its net proceeds therefrom; and (vi) the
issuance of shares of Common Stock to repay indebtedness the Company owed to
subsidiaries of Philip Services Corp. (collectively with its subsidiaries,
"Philip"). These statements include the results of operations of the other
Acquired Businesses purchased in 1997 from their respective acquisition dates
and also include pro forma adjustments (i) to selling, general and
administrative expenses to reflect (a) the decrease in salaries and benefits
associated with certain owners and managers of the Acquired Businesses who
either were not employed by the Company after the acquisition of their Acquired
Businesses and will not be replaced or agreed prospectively to the decrease
prior to the acquisition of their Acquired Businesses and (b) the elimination of
certain excess administrative support service fees charged by ICE/VARCO's former
parent, (ii) to depreciation and amortization expense to reflect purchase price
allocations and (iii) to the provision for income taxes to provide for
incremental income taxes as if all Acquired Businesses had been subject to
federal and state income taxes during the periods presented. The per share
information in these statements has been calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year presentation.
INVENTORY
Inventories are valued at the lower of cost or market utilizing the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property
F-8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and equipment are sold or retired, the cost and related accumulated depreciation
are removed and the resulting gain or loss is included in results of operations.
Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the assets.
GOODWILL
Goodwill represents the excess of the aggregate purchase price paid by the
Company in the acquisition of businesses accounted for as purchases over the
fair market value of the net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. Goodwill amortization expense was
approximately $467,000 and $2,163,000 for the years ended December 31, 1997 and
1998, respectively.
The Company periodically evaluates the recoverability of intangibles
resulting from business acquisitions and measures the amount of impairment, if
any, by assessing current and future levels of income and cash flows as well as
other factors, such as business trends and prospects and market and economic
conditions and assuming the acquired business continues to operate as a
consolidated subsidiary.
DEBT ISSUE COSTS
Debt issue costs related to the Company's Credit Facility (see Note 7) are
included in other noncurrent assets and are amortized to interest expense over
the scheduled maturity of the debt. Debt issue costs, net of accumulated
amortization were approximately $469,000 and $412,000 at December 31, 1997 and
1998, respectively.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares and common
equivalent shares outstanding.
STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, the Company has elected to use the method
APB Opinion No. 25 prescribes to measure its compensation costs attributable to
stock-based compensation and to include in Note 11 of these Notes the pro forma
effect on those costs using the fair value approach that SFAS No. 123 would
have.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109. Under this method, deferred income taxes are
recorded based upon differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the underlying assets or liabilities are recovered
or settled.
Prior to the Acquisitions, certain Acquired Businesses' stockholders were
taxed under the provisions of subchapter S of the Internal Revenue Code. Under
these provisions, the stockholders paid income taxes on their proportionate
share of their companies' earnings. Because the stockholders were taxed
directly, their businesses paid no federal income tax and only certain state
income taxes.
The Company intends to file a consolidated federal income tax return that
will include the operations of the Acquired Businesses for periods subsequent to
their respective acquisitions dates.
REVENUE RECOGNITION
Revenue is recognized as products are sold and as services are performed.
F-9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH
Cash payments for interest during 1996, 1997 and 1998 were approximately
$4,000, $1,954,000 and $4,628,000 respectively. Cash payments for taxes during
1996, 1997 and 1998 were $0, $306,000, and $1,695,000 respectively. Noncash
activities for the year ended December 31, 1997 consisted of approximately $10.6
million of obligations and preferred stock owned by a related party which were
converted into Common Stock. Noncash activities for the year ended December 31,
1998 consisted of approximately $1.2 million reduction of convertible
subordinated debt in connection with finalization of the purchase consideration
of a 1997 acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SPECIAL COMPENSATION EXPENSE
In 1996, SSI recorded a special non-cash compensation expense of $38,048
related to the issuance of 4,513 shares of its common stock, $0.01 par value
("SSI Common Stock"), and options to purchase 1,955 shares of that stock under
employee benefit programs.
In 1997, SSI recorded a special non-cash compensation expense of
approximately $2.6 million related to the issuance of 221,595 shares of Common
Stock to three members of executive management and to Computerized Accounting &
Tax Services, Inc. ("CATS"), a related party, to attract such individuals and
CATS to effect the IPO. For financial statement presentation purposes, these
shares were valued at approximately $11.70 per share.
During 1997, Invatec recorded a special non-cash compensation expense of
approximately $5.0 million related to (i) its issuance of 242,839 shares of
Common Stock to six members of executive management and CATS to attract them to
effect the IPO and (ii) its grant to certain of its officers of options to
purchase 202,589 shares of Common Stock at an exercise price of $1.00 per share.
For financial statement presentation purposes, the shares were valued at
approximately $11.70 per share and the options were valued at approximately
$10.70 per option share.
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.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income" issued in June 1997,
established standards for the reporting of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in the equity of
a company during the period which result from the Company's transactions with
its stockholders. For the Company, SFAS No. 130 was effective for the year
beginning January 1, 1998. The adoption of this pronouncement did not have a
material effect on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", requires that public business enterprises report certain
information about its operating segments in order to provide information about
the different types of business activities in which an enterprise engages. The
Company's industrial repair and distribution services are integral and any
separation of revenues or earning streams would
F-10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be arbitrary. As such, management does not view or conduct these activities as
distinct, separate segments. Therefore, the disclosures required by SFAS 131 are
not applicable.
3. ACQUISITIONS:
1996
In November 1996, the Company acquired The Spin Safe Corporation, Inc.
("Spin Safe") in exchange for 54,400 shares of Common Stock, valued at $5.88
per share, and noninterest-bearing notes payable of $400,000 and an agreement to
pay certain royalties. The notes are due in four equal annual installments
beginning January 15, 1998. Additionally, the Company entered into an agreement
with the former stockholders of Spin Safe [T], pursuant to which the Company
will make royalty payments to them based on the number of times in excess of a
specified base the Spin Safe [T] system is used by the Company through 2011. The
cost of this acquisition is recorded as patent costs.
1997
The aggregate consideration paid by the Company to purchase Acquired
Businesses in 1997 (as described in Note 1) was $52.2 million in cash and
assumed debt, $17.2 million in the form of short-term notes and subordinated
notes convertible into common shares and 185,661 shares of Common Stock.
Of the total purchase price paid for the Acquisitions, $23.2 million has
been allocated to net assets acquired, and the remaining $48.9 million has been
recorded as goodwill. On the basis of management's preliminary analysis, the
Company expects the historical carrying values of the Acquired Businesses'
assets and liabilities will approximate fair value, but this analysis is subject
to revision as more information regarding asset and liability valuations becomes
available.
1998
The aggregate consideration paid by the Company to purchase Acquired
Businesses in 1998 (as described in Note 1) was $38.2 million in cash and
assumed debt, $0.4 million in the form of subordinated notes convertible into
common shares and 1,749,052 shares of Common Stock.
Of the total purchase price paid for the Acquisitions, $13.4 million has
been allocated to net assets acquired, and the remaining $44.9 million has been
recorded as goodwill. On the basis of management's preliminary analysis, the
Company expects the historical carrying values of the Acquired Businesses'
assets and liabilities will approximate fair value, but this analysis is subject
to revision as more information regarding asset and liability valuations becomes
available.
Three of the acquisition agreements for the Additional Acquired Businesses
contain provisions requiring the Company to pay additional amounts (the "Makeup
Amount") to the former shareholders of each acquired business on the first
anniversary of that acquisition if the price of Invatec Common Stock on that
anniversary date is below a certain level. Two of those acquisition agreements
were entered into on July 9, 1998, and give Invatec the option of paying up to
one-half of the Makeup Amount in cash, with the remainder paid in Common Stock
valued at the market price on the anniversary date. The third agreement was
entered into on June 29, 1998 and gives Invatec the option of paying the entire
Makeup Amount in cash or Common Stock valued at the market price on the
anniversary date.
The Makeup Amount in each case is the difference between a set price, being
at or slightly above the market price of Invatec Common Stock on the closing
date of the acquisition, and the greater of (i) the market price of Invatec
Common Stock on the first anniversary of the closing date or (ii) $2.50. If the
price of Invatec Common Stock at the respective anniversary dates of each of
those acquisitions is not greater than $2.50 per share, the aggregate Makeup
Amount would be $6,516,104, of which $4,971,251 may be paid in cash instead of
Invatec Common Stock. The price of Invatec Common Stock was less than $2.50 per
share on March 26, 1999. If the market price of Invatec Common Stock on the
anniversary dates of the
F-11
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisitions were the same as its market price of $.8125 on March 26, 1999 and
Invatec paid the maximum of $4,971,251 of the Makeup Amount payable in cash, an
additional 1,901,358 shares, or approximately 20% of its shares currently issued
and outstanding would be due the former shareholders of those acquired
businesses. The issuance of those shares could have a substantial dilutive
effect on existing shareholders. It is impossible to determine with certainty
what the ultimate maximum cash portion of the Makeup Amount will be or whether
the Company will have sufficient cash available for such payments when they are
due. If the Company is unable to pay the maximum cash portion of the Makeup
Amount in cash and is required to satisfy such obligation by delivery of
additional shares, the dilution to existing shareholders would be substantially
greater than if cash is available to satisfy the obligation.
In addition, one of the acquisition agreements requires Invatec to pay to
each former shareholder for each share of Invatec Common Stock sold by such
shareholder after six but before twelve months from the closing date of June 29,
1998, the amount by which $8.35 exceeds the greater of (i) the current market
price as of the date on which such share is sold or (ii) $7.35, which was the
current market price as of the closing date. At its current Common Stock price
levels, Invatec would owe those former shareholders $1.00 per share sold by them
before June 29, 1999, payable at Invatec's option in cash or Common Stock valued
at its market price on the first anniversary of the closing. As of March 26,
1999, none of the shares issued in that acquisition has been sold and an
aggregate of 250,102 shares are available for sale by the former shareholders.
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company as if the IPO, the SSI Merger, the Company's 1997 and
1998 acquisitions of Acquired Businesses and certain other events and
transactions discussed under "-- Unaudited Pro Forma Combined Statements of
Operations" in Note 2 also 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
these events and transactions actually taken place when assumed, has obtained
since the dates of acquisition or may obtain in the future.
1997 1998
---------- ----------
(UNAUDITED AND
IN THOUSANDS)
Revenues............................. $ 183,449 $ 170,116
Income (loss) before income taxes.... 3,399 (2,076)
Net income(loss)..................... 1,937 (1,183)
Basic income (loss) per share........ $ 0.20 $ (0.12)
========== ==========
Diluted income (loss) per share...... $ 0.19 $ (0.12)
========== ==========
See discussion of the pro forma adjustments, reflected in the above amounts
in Note 2 under "Unaudited Pro Forma Combined Statements of Operations."
F-12
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED --------------------------------
USEFUL LIVES 1997 1998
------------- --------------- ---------------
<S> <C> <C> <C>
Land................................. -- $ 1,616,660 $ 1,716,839
Buildings............................ 30 years 4,232,884 5,120,878
Leasehold improvements............... 30 years 988,561 4,425,874
Furniture and fixtures............... 3 - 5 years 3,175,375 4,443,392
Machinery and equipment.............. 5 years 16,632,340 23,690,367
--------------- ---------------
26,645,820 39,397,350
Less -- Accumulated
depreciation.................. (15,171,119) (19,927,546)
--------------- ---------------
Property and equipment, net..... $ 11,474,701 $ 19,469,804
=============== ===============
</TABLE>
Depreciation expense was approximately $31,000, $692,000, and $2,094,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
DECEMBER 31
-------------------------------------
1996 1997 1998
--------- ------------ ------------
Balance, at beginning of year........ $ 25,000 $ 25,000 $ 1,079,857
Additions............................ -- 102,243 107,787
Deductions........................... -- (80,810) (413,151)
Allowance for doubtful accounts at
acquisition dates.................. -- 1,033,424 787,611
--------- ------------ ------------
Balance, at end of year.............. $ 25,000 $ 1,079,857 $ 1,562,104
========= ============ ============
Inventory consists of the following:
1997 1998
-------------- --------------
Finished goods....................... $ 14,358,776 $ 21,785,485
Work in process...................... 1,628,989 4,222,319
-------------- --------------
$ 15,987,765 $ 26,007,804
============== ==============
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
Accounts payable, trade.............. $ 8,553,604 $ 8,086,157
Accrued compensation and benefits.... 1,904,116 1,357,717
Accrued insurance.................... 1,277,637 1,733,133
Interest payable..................... 53,693 1,067,020
Other accrued expenses............... 3,121,588 7,120,560
-------------- --------------
$ 14,910,638 $ 19,364,587
============== ==============
F-13
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHORT-TERM DEBT:
In connection with the Company's purchase of Dalco, Inc., two short-term
notes totaling $4.7 million were issued to the former owners of Dalco, Inc. The
notes bore interest at a rate of 5.5% per annum, were unsecured and were repaid
on January 2, 1998.
7. CREDIT FACILITY:
The Company's Old Credit Facility was a $90 million three-year revolving
credit facility the Company used for acquisitions and general corporate
purposes. Declining earnings during 1998 ultimately resulted in the Company
defaulting in July 1998 on its Old Credit Facility as a result of failing to
meet certain financial covenants requiring specific levels of earnings in
relation to debt. This default left the Company unable to borrow funds for
acquisitions. The Company remained in default under the loan agreement from July
20, 1998 through March 25, 1999. The Company's acquisition program has been
effectively suspended since July 1998 as a result of the low price of the
Company's Common Stock and its inability to borrow funds.
In March 1999, the Company and its existing syndicate of lenders agreed to
amend the Company's credit facility to put into place the New Credit Facility.
The Company's credit facility was reduced from $90 million to $80 million and
restructured to be comprised of a stationary term component of $35 million and a
revolving credit facility of up to $45 million, the proceeds of which may be
used only for general corporate and working capital purposes. The Company's
subsidiaries have guaranteed the repayment of all amounts due under the
facility, and repayment is secured by pledges of the capital stock, and all or
substantially all of the assets, of those subsidiaries. The New Credit Facility
prohibits acquisitions and the payment of cash dividends, restricts the ability
of the Company to incur other indebtedness and requires the Company to comply
with certain financial covenants. These financial covenants include provisions
for maintenance of certain levels of earnings before interest, taxes,
depreciation, amortization, certain levels of cash flows as defined by the New
Credit Facility and other items specified in the loan agreement. Additionally,
the New Credit Facility requires that the Company complete all required
programming changes in connection with the Year 2000 compliance objective by
September 30, 1999. The Company believes that it will be able to meet this
requirement.
The amount of availability under the New Credit Facility is now governed by
a borrowing base which consists primarily of the accounts receivable and
inventory of the Company and its subsidiaries, although the amount available
under the revolving portion of the credit facility will decrease over time and
upon the occurrence of certain specified events, such as a sale of assets
outside the ordinary course of business. In addition, the Company and the
subsidiaries are now required to (i) meet substantially more stringent reporting
covenants, (ii) submit to collateral audits and (iii) deposit all revenues and
receipts into lockbox accounts. Interest accrues at the prime rate as in effect
from time to time, plus 2%, payable monthly. In addition, fees accrue each
quarter at the rate of 1.5% of the unpaid principal balance under the New Credit
Facility. If, however, the stationary term component is repaid by July 1, 1999
and the revolving portfolio on that date does not exceed the borrowing base, the
aggregate amount of such fees will be reduced to $100,000. If all obligations
under the New Credit Facility are repaid in full by June 30, 1999, no such fees
will be payable. The entire New Credit Facility matures on April 20, 2000. As of
March 26, 1999, the Company was in compliance with all covenants under the New
Credit Facility.
Although the Company believes that based upon current levels of business
that it can comply with the various financial covenants contained in the New
Credit Facility, a substantial adverse deviation of EBITDA would likely result
in a default by the Company of the EBITDA covenants. Therefore, if there is any
significant downward deviation in the Company's business or pressure on margins,
it is likely that the Company will be in default under the New Credit Facility.
In connection with the amendment to the New Credit Facility, the syndicate
of lenders were issued warrants to purchase up to 482,262 shares of the common
stock of the Company, exercisable at $0.73 per share (10% below the market price
of such common stock as of March 25, 1999), and granted certain registration
rights with respect to the shares issuable upon exercise of the warrants.
F-14
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 the Company's outstanding borrowings under the Old
Credit Facility were $70.6 million, bearing interest at 9.75%. At March 26,
1999, the Company's borrowings under the New Credit Facility were $70.6 million,
bearing interest at 9.75%.
8. LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Notes payable to former stockholders
of Spin Safe, with annual
installments of $100,000 beginning
January 15, 1998, non-interest
bearing, due January 15, 2001,
unsecured.......................... $ 358,125 $ 280,906
Installment notes payable; interest
ranging from 5.09% to 10%, payable
in monthly installments through
2006; secured by
certain assets..................... 265,096 700,068
---------- ----------
623,221 980,974
Less: current maturities............. 304,310 580,140
---------- ----------
$ 318,911 $ 400,834
========== ==========
9. CONVERTIBLE SUBORDINATED DEBT:
At December 31, 1998, outstanding convertible subordinated debt consisted
of approximately $5.1 million aggregate principal amount of 5.0% notes due in
2002, $1.6 million aggregate principal amount of 5.5% notes due in 2004, $4.6
million aggregate principal amount of 5.5% notes due in 2002 and $0.4 million
aggregate principal amount of 5.0% notes due 2003. These notes are convertible
at initial conversion prices ranging from $16.90 to $22.20 per share at the
option of the holder in whole at any time.
10. INCOME TAXES:
The provision (benefit) for income taxes consisted of:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
--------- -------------- --------------
Current:
U.S. Federal................ $ -- $ (1,026,565) $ (1,089,396)
State....................... -- 513,854 661,728
--------- -------------- --------------
Total current benefit....... -- (512,711) (427,668)
Deferred:
U.S. Federal................ -- (478,127) 711,237
State....................... -- (31,884) 136,367
--------- -------------- --------------
Total deferred provision
(benefit)................. -- (510,011) 847,604
--------- -------------- --------------
Total income tax provision
(benefit)...................... $ -- $ (1,022,722) $ 419,936
========= ============== ==============
F-15
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
Statutory federal income tax
benefit............................ (34)% (34)% (34)%
Special compensation charge.......... -- 22% --
Nondeductible goodwill............... -- 2% 43%
Nondeductible expenses............... -- 3% --
State taxes, net of federal benefit
of 34%............................. -- 4% 33%
Other................................ -- 1% (1)%
Valuation allowance.................. 34% (10)% --
--- --- ---
Effective income tax rate............ 0% (12)% 41%
=== === ===
Net deferred tax assets consist of the following:
DECEMBER 31
--------------------------
1997 1998
------------ ------------
Current deferred tax assets:
Accrued liabilities and
valuation allowances not
currently deductible.......... $ 3,723,448 $ 4,481,256
------------ ------------
3,723,448 4,481,256
Noncurrent deferred tax assets:
Net operating losses............ 172,893 3,025,914
Special compensation charge..... 802,050 802,050
Amortization of intangibles..... 149,871 --
Other........................... 266,210 --
------------ ------------
1,391,024 3,827,964
Valuation allowance.................. -- --
------------ ------------
Total deferred tax assets............ $ 5,114,472 $ 8,309,220
============ ============
Noncurrent deferred tax liabilities:
Depreciation of property, plant
and equipment................. (131,555) (700,812)
Amortization of intangibles..... -- (206,734)
------------ ------------
(131,555) (907,546)
------------ ------------
Net deferred tax assets.............. $ 4,982,917 $ 7,401,674
============ ============
The Company records a valuation allowance for deferred tax assets when
management believes it is more likely than not the asset will not be realized.
Management believes that the Company's deferred tax asset will be fully realized
and therefore has not recorded a valuation allowance for this asset as of
December 31, 1997 and 1998.
F-16
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
------------ ------------ ----------
Deferred tax provision during the
year
Net operating loss.............. $ 107,301 $ 644,022 $ --
Special compensation charge..... -- (802,050) --
Depreciation.................... (2,520) 128,843 302,804
Accrued expenses not deductible
for tax....................... 25,168 366,400 544,800
Valuation allowance............. (129,949) (847,226) --
------------ ------------ ----------
Total...................... $ -- $ (510,011) $ 847,604
============ ============ ==========
Certain deferred tax assets and liabilities were recorded with respect to
purchase accounting for the Acquired Businesses during the year ended December
31, 1998.
11. STOCKHOLDERS' EQUITY:
SSI COMMON STOCK
In 1995, the Company implemented an employee benefit award program. Under
this program, the Company awarded 4,726 shares of Common Stock to employees. In
1996, employees forfeited 816 of these shares and the Company recorded non-cash
compensation expense of $11,500 with respect to the 1,955 of these shares that
had vested. The Company discontinued the program in 1997 and cancelled the
remaining unvested shares.
REVERSE STOCK SPLIT
Prior to the SSI Merger, SSI and Invatec each effected a 0.68-for-one
reverse stock split of its outstanding common stock. The accompanying financial
statements have been prepared as if these splits had been effected as of the
beginning of the earliest period presented.
SSI MERGER
As a result of the SSI Merger: (i) the shares of SSI Common Stock and
redeemable preferred stock outstanding as of October 31, 1997 were converted
into shares of Common Stock; (ii) outstanding options and a warrant to purchase
shares of SSI Common Stock were converted into options to purchase Common Stock;
and (iii) SSI's authorized capital stock became 1,000 shares of SSI Common
Stock, par value $1.00 per share, all of which have been issued and are
outstanding and owned by Invatec. All share and per share information for the
periods shown, except authorized shares, have been restated to reflect the
merger as of the beginning of the earliest period presented.
INVATEC COMMON STOCK
Invatec sold 3,852,500 shares of Common Stock in the IPO. The initial price
to the public in the IPO was $13.00, and Invatec's proceeds from the IPO, net of
an underwriting discount of $3.5 million and IPO expenses of $2.6 million,
including approximately $1.5 million of expenses which were initially funded
through advances obtained from Philip, totaled $44.0 million.
At December 31, 1998, the Company had reserved approximately 601,000 shares
of Common Stock for issuance on conversion of its outstanding convertible
subordinated notes described in Note 9, and 1,500,000 shares of Common Stock for
issuance on the exercise of stock options
F-17
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under Invatec's 1997 Incentive Plan, of which options to purchase a total of
558,198 shares then were exercisable at exercise prices ranging from $1.00 per
share to $17.00 per share. The Company has not reserved a specific number of
shares of Common Stock for issuance in payment of any Makeup Amount that may be
due to certain former shareholders of the three 1998 Additional Acquired
Businesses discussed in Note 3 because it is unable to determine what amount, if
any, may be owing until the anniversary dates of the acquisitions and because of
the uncertainty of the availability of cash to pay the portion of the Makeup
Amount that may be paid in cash. The Company beleives it will have a sufficient
number of authorized but unissued shares to pay all of the Makeup Amount in
stock if necessary.
Invatec's certificate of incorporation authorizes the issuance of up to
30.0 million shares of Common Stock, of which 9,664,562 shares were issued and
outstanding as of December 31, 1998, and 5.0 million shares of preferred stock,
none of which has been issued.
STOCK OPTIONS
In 1996, the Company began a management stock option program that was
discontinued in 1997. Under this program, the Company granted both shares of
Common Stock and options to purchase shares of Common Stock to certain members
of management. The options vested monthly and were exercisable at any time
following the six-month period ending June 30 or December 31 in which the
options were earned. The Company had reserved 200,000 shares of Common Stock for
issuance in this program. During 1996, the Company granted 4,513 shares of
Common Stock and options to purchase 71,899 shares of Common Stock. The options
had an exercise price of $10.00 per share and are exercisable through July 1,
2001. In 1996, the Company recorded non-cash compensation expense of $26,548 for
the 4,513 shares issued with a fair market value of $5.88 per share. No
compensation expense was recorded for the options granted in 1996 because their
exercise price exceeded the fair market value of the underlying shares ($5.88
per share). Prior to 1996, the Company had, from time to time, granted options
to key employees at or above the market value of the Common Stock. The options
granted had exercise prices ranging from $5.00 to $20.00 per share. All but
50,000 options expired in 1996. The remaining options were exercised in June
1997.
1997 INCENTIVE PLAN
The Company has adopted an incentive plan (the "Incentive Plan") that
provides for the granting or awarding of stock options and other
performance-based awards to key employees, nonemployee directors and independent
contractors of the Company and its subsidiaries. The Incentive Plan aims to
attract and retain the services of key employees and qualified independent
directors and contractors by making stock option and other performance-based
awards tied to the growth and performance of the Company. At December 31, 1998,
Invatec had reserved 1,500,000 shares of Common Stock for use under the
Incentive Plan. Beginning in the second quarter of 1998, the number of shares
available for that use is the greater of 1,500,000 or 15% of the number of
shares of Common Stock outstanding on the last day of the preceding quarter.
F-18
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the stock options outstanding at December
31, 1998 and changes during the three years then ended:
WEIGHTED-
SHARES UNDER AVERAGE
OPTION EXERCISE PRICE
------------ --------------
Balance at December 31, 1995......... 121,000 13.18
Granted......................... 71,899 10.00
Exercised....................... -- --
Cancelled....................... (71,000) 18.94
------------
Balance at December 31, 1996......... 121,899 7.94
Warrants converted to options... 15,000 10.00
Granted......................... 1,310,389 9.97
Exercised....................... (50,000) 5.00
Cancelled....................... (1,540) 10.00
------------
Balance at December 31, 1997......... 1,395,748 9.97
Granted......................... 586,236 3.40
Exercised....................... (23,500) 8.87
Cancelled....................... (502,500) 11.51
------------
Balance at December 31, 1998......... 1,455,984 6.81
============
Available for grant at December 31,
1998............................... 44,016
============
The options outstanding at December 31, 1998 have exercise prices from
$1.00 to $17.00 per share, and a weighted average remaining contractual life of
6.02 years.
At December 31, 1997 and 1998 the number of options exercisable was 533,873
and 558,198, respectively, and the weighted average exercise price of those
options was $9.97 and $ 7.96, respectively.
The Company accounts for options by applying APB Opinion No. 25, under
which no compensation expense (other than described in Note 2) has been
recognized. The Company's pro forma compensation expense for 1996 is zero as
options were determined to be without value under SFAS No. 123 using the minimum
value option method.
If the Company had recorded 1997 and 1998 compensation cost for option
grants consistent with SFAS No. 123, 1997 and 1998 net loss and loss per share
would have been increased by the following pro forma amounts:
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
Net Loss:
As Reported..................... $ (7,499,964) $ (1,414,973)
Pro forma....................... $ (8,350,661) $ (3,001,219)
Loss Per Share:
Basic
As Reported..................... $ (2.25) $ (0.16)
Pro forma....................... $ (2.50) $ (0.33)
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and additional
awards may be made each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with the following weighted average
assumptions used for grants in 1997 and 1998,
F-19
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively: dividend yield of 0% and 0%; expected volatility of 48.43% and
50.27%; risk-free interest rate of 6.09% and 4.94%; and expected lives of 6.92
years and 7.0 years.
WARRANTS
During 1997, Philip exercised warrants to purchase 680,768 shares of SSI
Common Stock at an exercise price of $6.32 per share. Consideration for the
exercise consisted of approximately $3.3 million of Philip promissory notes and
approximately $1.2 million in cash. The Company used the Philip notes as part of
the consideration it paid for Harley.
STOCK REPURCHASES
In December 1996, the Company purchased 11,900 shares of SSI Common Stock
from certain stockholders for $70,000 ($5.88 per share). It subsequently
canceled these shares.
12. EARNINGS PER SHARE:
The computation of earnings (loss) per share of Common Stock is presented
in accordance with SFAS No. 128, "Earnings Per Share," based on the following
shares of Common Stock outstanding:
1996 1997 1998
----------- ----------- -----------
Issued and outstanding at January
1.................................. 1,432,951 1,481,919 7,890,198
Issued to acquire businesses
(weighted)......................... -- 25,016 1,116,316
Issued in connection with the
Company's IPO (weighted)........... -- 726,445 --
Issued in redemption of SSI Preferred
Stock (weighted)................... -- 228,192 --
Issued in connection with SSI and
Invatec merger (weighted).......... -- 170,105 --
Issued for stock options exercised
and warrants exercised
(weighted)......................... 8,184 766,303 18,401
----------- ----------- -----------
Weighted average shares
outstanding -- Basic and Diluted... 1,441,135 3,397,980 9,024,915
=========== =========== ===========
Common share equivalents including options to purchase 10,301 shares of
Common Stock and $12.5 million of subordinated debt convertible into Common
Stock at prices ranging from $16.90 to $22.20 per share, outstanding at December
31, 1997, were not included in the computation of diluted EPS as their effect on
EPS was antidilutive.
Common share equivalents including options to purchase 258,583 shares of
Common Stock, approximately 2.5 million shares of Common Stock assumed to be
issued for guaranteed stock prices, and $11.7 million of subordinated debt
convertible into Common Shares at prices ranging between $16.90 and $22.20 per
share, outstanding at December 31, 1998, were not included in the computation of
diluted EPS as their effect on EPS was antidilutive.
13. REDEEMABLE PREFERRED STOCK:
In 1995, SSI issued and sold 20,000 shares of its redeemable preferred
stock to Philip for $2.0 million ($100 per share). In the SSI Merger in 1997,
these shares, together with accrued dividends thereon, converted into 154,958
shares of Common Stock.
F-20
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse space, office facilities and vehicles under
noncancelable leases. Rental expense for 1996, 1997 and 1998 was approximately
$162,400, $822,400, and $2,765,553, respectively. The following represents
future minimum rental payments under noncancelable operating leases:
Year ending December 31 --
1999............................ $ 3,010,999
2000............................ 2,804,987
2001............................ 2,040,896
2002............................ 1,273,234
2003............................ 542,135
Thereafter...................... 2,508,285
--------------
$ 12,180,536
==============
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal actions. Management, after consultation with legal counsel, does
not believe that the outcome of these legal actions will have a material effect
on the Company's financial position or results of operations.
15. CERTAIN TRANSACTIONS:
The Company had a management agreement with CATS, an entity then related by
common ownership. Management fee expense for 1996 and 1997 was approximately
$108,000 and $353,000, respectively. This agreement terminated in 1997.
16. EMPLOYEE BENEFIT PLANS:
The Company maintains certain 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. No
contributions were required or made to these plans during 1996. The Company
contributed approximately $59,000 and $596,000 to its plans during the years
ended December 31, 1997 and 1998, respectively.
17. RELATIONSHIP WITH PHILIP:
In 1996, Philip agreed to make certain advances to SSI to enable SSI, or
its successors, to pursue a possible initial public offering. As a result of
Philip's financial support of SSI's acquisition of Harley, Philip became a
related party of the Company for financial statement presentation purposes
effective January 31, 1997. In June 1997, Invatec entered into a funding
arrangement with Philip pursuant to which Philip advanced funds to Invatec to
pay costs related to the IPO and Invatec assumed SSI's obligation to repay the
Philip advances and the related deferred offering costs funded with these
advances.
In connection with the IPO, Invatec issued 1,036,013 shares of Common Stock
to Philip as payment of $8.6 million of indebtedness owed to Philip. Immediately
after the IPO, Invatec repaid the remaining $3.0 million of indebtedness owed to
Philip in cash.
18. SERVICE AND DISTRIBUTION AGREEMENTS:
The Company purchases, sells and services various products under service
and distribution agreements with its major suppliers. In general, these
agreements are cancelable by the suppliers upon 30 to 60 days' notice.
Management does not anticipate cancellation of these agreements.
F-21
EXHIBIT 2.1(a)
- - ------------------------------------------------------------------------------
MERGER AGREEMENT
DATED AS OF JUNE 29, 1998
BY AND AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
PLANT ACQUISITION, INC.,
AND
PLANT MAINTENANCE, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
- - ------------------------------------------------------------------------------
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is entered into as of the 29th day
of June, 1998, by and among INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware
corporation ("Invatec"), PLANT ACQUISITION, INC, a Delaware corporation
("Invatec Sub"),WILLIAM D. DENSON, an individual whose address is 4205
Eaglecrest Drive, Muskogee, Oklahoma 74401 ("Mr. Denson"), DARRELL G. SALLEE, an
individual whose address is 29739 East 155th Place South, Coweta Oklahoma 74429
("Mr. Sallee"), JOHN P. JORDEN, JR., an individual whose address is 20503 Forest
Road, Damon, Texas 77430 ("Mr. Jorden") (Mr. Denson, Mr. Sallee and Mr. Jorden
being sometimes hereinafter referred to collectively as the "Stockholders" and
individually as a "Stockholder"), and PLANT MAINTENANCE, INC., an Oklahoma
corporation whose address is 1200 N. 43rd St. East, Muskogee, Oklahoma 74403
(the "Company") (the "Company"). Invatec, Invatec Sub, the Stockholders and the
Company are sometimes hereinafter referred to collectively as the "Parties" or
individually as a "Party."
PRELIMINARY STATEMENT
WHEREAS, Mr. Denson is the legal and beneficial owner and holder of One
Hundred Sixty-Eight (168) shares of Common Stock of the Company, Mr. Sallee is
the legal and beneficial owner and holder of One Hundred Sixty-Eight (168)
shares of Common Stock of the Company, and Mr. Jorden is the legal and
beneficial owner and holder of Sixty-Four (64) shares of Common Stock of the
Company, which constitutes all of the issued and outstanding Company Capital
Stock; and
WHEREAS, the Parties have determined that it is in their best interests to
effect a merger pursuant to which the Company will merge with and into Invatec
Sub on the terms and conditions set forth herein (such merger being the
"Acquisition");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements, representations, warranties and undertakings contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties hereby agree as follows:
PARAGRAPH 1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this PARAGRAPH 1.
Capitalized terms used in this Agreement and not defined below in this PARAGRAPH
1 have the meanings assigned to them in the preamble of this Agreement, the
Preliminary Statement or ARTICLE IX of the Uniform Provisions, as the case may
be.
"ACCOUNTING FIRM" means KPMG Peat Marwick, in Houston, Texas.
"ACQUIRED BUSINESS" means the business conducted by the Company and
the Company Subsidiaries. For purposes of ARTICLE VIII of the Uniform
Provisions, the term "Acquired Business" shall include any business
conducted by the Company or any Company Subsidiary during the twelve (12)
months preceding the Effective Time.
"ACQUISITION CONSIDERATION" has the meaning specified in
SUBPARAGRAPH 2(A)(IV).
-1-
<PAGE>
"AGREED CLOSING VALUE OF INVATEC STOCK" means Nine and 35/100
Dollars ($9.35), calculated as the sum of the Current Market Price as of
the Closing Date plus two dollars ($2.00).
"CEILING AMOUNT" means Five Million one Hundred Seventy-Six Thousand
Five Hundred Thirty and No/100 Dollars ($5,176,530.00).
"CLOSING" has the meaning specified in PARAGRAPH 3.
"CLOSING DATE" means June 30, 1998, or such other date as to which
Invatec and the Stockholders may agree.
"COMPANY" has the meaning specified in the preamble of this
Agreement.
"COMPANY CAPITAL STOCK" means the Common Stock, $100 par value per
share, of the Company.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Lewis, Rice &
Fingersh, L.C. of St. Louis, Missouri.
"COUNSEL FOR INVATEC" means Boyer, Ewing & Harris Incorporated of
Houston, Texas.
"CURRENT BALANCE SHEET" means the combined balance sheet of the
Company and the Company Subsidiaries as of the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means March 31, 1998.
"CURRENT MARKET PRICE" means the average closing price per share of
Invatec Common Stock (as reported by the principal securities exchange or
trading market, as the case may be, on which the Invatec Common Stock is
then traded) during the five consecutive trading days immediately
preceding the date as of which the "Current Market Price" is to be
determined.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and the Stockholders and delivered to Invatec prior to the
execution and delivery of this Agreement by Invatec in which either (a)
exceptions are taken to any of certain of the representations and
warranties made by the Company or the Stockholders herein or (b) it is
confirmed that no exception is taken to that representation and warranty.
"EFFECTIVE TIME" means the Effective Time of the Merger, as such
term is defined in SUBPARAGRAPH 2(A)(II).
"EMPLOYMENT AGREEMENTS" means the Employment Agreements to be
entered into as of the Effective Time between (a) Invatec and Mr. Denson,
and (b) Invatec and Mr. Sallee, and (c) Invatec and Mr. Jorden, each in
form and content acceptable to the Parties.
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"INDEBTEDNESS" means all items, except for items of capital stock,
surplus, general contingency, or deferred tax liabilities, which in
accordance with GAAP would be included on the liability side of the
combined balance sheet of the Company and the Company Subsidiaries at such
time, other than accounts payable incurred in the Ordinary Course of
Business and other expenses and trade payables incurred in the Ordinary
Course of Business. The Indebtedness of the Company and the Company
Subsidiaries at the Current Balance Sheet Date (exclusive of any
consideration of the factored accounts receivable) is $912,134.97, as
provided in SCHEDULE I hereto.
"INITIAL FINANCIAL STATEMENTS" means the combined balance sheets of
the Company and the Company Subsidiaries as of March 31, 1998, 1997 and
1996, and the related combined statements of operations and retained
earnings for each of the Company's fiscal years in the three-year period
ended March 31, 1998, and the one-year periods ended March 31, 1998 and
March 31, 1997, are attached hereto as EXHIBIT A.
"INVATEC SUB" has the meaning set forth in the preamble of this
Agreement.
"MERGER" means a transaction as a result of which the Acquisition is
effected and in which the Company is merged with and into Invatec Sub.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the
business of the Company and the Company Subsidiaries, consistent with past
customs and practice (including with respect to quantity and frequency).
"PRO RATA SHARE" of a Stockholder means: Forty-Two percent (42%) in
the case of Mr. Denson, Forty-Two percent (42%) in the case of Mr. Sallee,
and Sixteen percent (16%) in the case of Mr. Jorden.
"SUBSEQUENT MEASUREMENT DATE" means the one-year anniversary of the
Effective Time.
"SURVIVING COMPANY" means Invatec Sub, which is to be designated in
the Certificates of Merger as the Surviving Company.
"THRESHOLD AMOUNT" means One Hundred Fifteen Thousand Thirty-Four
Dollars ($115,034).
"UNIFORM PROVISIONS" means the Uniform Provisions for Stock
Acquisitions By Subsidiary Merger attached hereto as ANNEX 1.
"WORKING CAPITAL" means the current assets minus the current
liabilities of the Company determined in accordance with GAAP (calculated
as provided in SCHEDULE II attached hereto). Current liabilities shall
expressly EXCLUDE current maturities of long-term Indebtedness, and the
current portion of obligations under capital leases. The Working Capital
at the Current Balance Sheet Date is Eighty-One Thousand Seven Hundred
Forty-Four and No/100 ($81,744.00) determined as provided in SCHEDULE II
attached hereto.
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PARAGRAPH 2. THE ACQUISITION. (A) THE MERGER. (i) CERTIFICATES OF
MERGER. Subject to the terms and conditions hereof, the Company will cause the
Certificates of Merger to be duly executed and delivered on the Closing Date and
filed on or promptly after the Closing Date with the Secretary of State of
Oklahoma and the Secretary of State of Delaware.
(ii) THE EFFECTIVE TIME. The "Effective Time" will be upon (a) the
filing of the Certificate of Merger with the Secretary of State of Oklahoma, and
issuance by the Secretary of State of Oklahoma of a Certificate of Merger with
respect thereto, and (b) the filing of the Certificate of Merger with the
Secretary of State of Delaware, and issuance by the Secretary of State of
Delaware of a Certificate of Merger with respect thereto, and in any event, on
or as promptly as practicable after the Closing Date.
(iii) CERTAIN EFFECTS OF THE MERGER. At and as of the Effective Time
(1) the Company will be merged with and into Invatec Sub in accordance with the
provisions of the General Corporation Law of the State of Delaware, (2) the
Company will cease to exist as a separate legal entity, (3) Invatec Sub will be
the Surviving Company and, as such, will, all with the effect provided by the
General Corporation Law of the State of Delaware (a) possess all the properties
and rights, and be subject to all the restrictions, duties and obligations, of
the Company and Invatec Sub and (b) be governed by the laws of the State of
Delaware, (4) the Charter Documents of Invatec Sub then in effect will become
and thereafter remain (until changed in accordance with (a) applicable law (in
the case of the Certificate of Incorporation) or (b) their terms (in the case of
the Bylaws)) the Charter Documents of the Surviving Company, except that the
Certificate of Incorporation shall be amended to change the name of the
Surviving Company to "Plant Maintenance, Inc." (5) the initial member of the
Board of Directors of the Surviving Company will be William E. Haynes, and he
will hold the office of director of the Surviving Company, subject to the
provisions of the applicable laws of the State of Oklahoma and the Charter
Documents of the Surviving Company, and (6) the initial officers of the
Surviving Company will be as set forth below, and each of those persons will
serve in each office specified for that person below, subject to the provisions
of the Charter Documents of the Surviving Company, until that person's successor
is duly elected to, and, if necessary, qualified for, that office:
OFFICE: NAME:
Chairman of the Board & Chief Executive Officer. William E. Haynes
President....................................... William D. Denson
Chief Financial Officer, Senior Vice President,
Treasurer and Secretary......................... Charles F. Schugart
Vice President & Assistant Secretary............ Douglas R. Harrington, Jr.
Vice President & Assistant Secretary............ Frank L. Lombard
Vice President & Assistant Secretary............ John L. King
Vice President ................................. Darrell G. Sallee
Vice President ................................. John P. Jorden, Jr.
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(iv) EFFECT OF THE MERGER ON COMPANY CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(1) the shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right
to receive, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6, on
surrender of the certificates evidencing those shares, shares of Invatec
Common Stock in an aggregate amount equal to (a) Five Million Seven
Hundred Fifty-One Thousand Seven Hundred and No/100 Dollars
($5,751,700.00) minus (i) Nine Hundred Twelve Thousand One Hundred
Thirty-Four and 97/100 Dollars ($912,134.97) (which is an estimate of the
Company's Indebtedness as of the Closing Date), and also minus (ii) One
Hundred Sixty-Two Thousand Six Hundred Fifty-One and 78/100 Dollars
($162,651.78) (which amount is one-half (1/2) of the amount of factored
receivables, calculated as of the close of business on Friday June 26,
1998, in the manner described in SCHEDULE III) divided by (b) the Agreed
Closing Value of Invatec Stock (the "Acquisition Consideration");
whereupon all such shares of Company Capital Stock shall cease to be
outstanding and to exist, and shall be canceled and retired;
(2) each share of Company Capital Stock held in the treasury of the
Company shall cease to be outstanding and to exist and shall be canceled
and retired; and
(3) each share of capital stock of Invatec Sub issued and
outstanding immediately prior to the Effective Time will be converted into
one share of common stock of the Surviving Company and the common stock of
the Surviving Company issued on that conversion will constitute all the
issued and capital stock of the Surviving Company.
Each holder of a certificate representing shares of Company Capital Stock
immediately prior to the Effective Time (which Stockholders hereby covenant and
agree shall only be the Stockholders) will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6, such
holder's pro rata share of the Acquisition Consideration.
Invatec will cause its transfer agent to deliver to each Stockholder the
certificate evidencing such Stockholder's shares of Invatec Common Stock as
promptly as practicable after Closing; however, such Stockholder shall be
treated for all purposes as having been the record holder of such shares as of
the Effective Time.
(v) DELIVERY, EXCHANGE AND PAYMENT. On the Closing Date, the
Stockholders, as the holders of the certificates representing all of the
outstanding shares of Company Capital Stock, will receive, on surrender of those
certificates (duly endorsed in blank, or accompanied by stock powers in blank
duly executed by Stockholders, and with all necessary transfer tax and other
revenue stamps, acquired at Stockholders' expense, affixed and canceled) to
Invatec, free and clear of any restrictions or conditions to transfer or
assignment, rights of first refusal, mortgages, liens, pledges, charges,
encumbrances, equities, claims, covenants, conditions, restrictions, options or
agreements, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6, the
Acquisition Consideration. Until any certificate representing Company Capital
Stock has been surrendered and replaced pursuant to this SUBPARAGRAPH 2(A)(V),
that certificate will, for all purposes, be deemed to evidence only the
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right to receive the pro rata share of the Acquisition Consideration evidenced
thereby. Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Capital Stock surrendered by
such Stockholder.
(B) INCOME AND OTHER TAXES; TRANSACTION EXPENSES. Stockholders shall pay
all income, documentary, transfer, stamp, revenue or other taxes arising out of
the transfer, surrender or cancellation of the Company Capital Stock or receipt
of payments therefor, or any consideration delivered in connection therewith.
Neither Invatec, the Surviving Company, the Company nor any Company Subsidiary
shall be responsible for any business, occupation, income, withholding or
similar tax, or any taxes of any kind, of any Stockholder, including without
limitation any income taxes assessed against any Stockholder which result from
the failure of the Acquisition to qualify as a tax-free reorganization. Invatec,
on the one hand, and the Stockholders, on the other hand, will each pay their
respective legal, accounting, tax, broker's or other advisors' expenses incurred
in pursuing and consummating the Acquisition. Invatec shall pay all income taxes
assessed against the Company or the Surviving Company which result from the
failure of the Acquisition to qualify as a tax-free reorganization.
(C) COMPANY DEBT LIMITATION; STOCKHOLDER DEBT. The Stockholders shall
cause the total Indebtedness of the Company and the Company Subsidiaries to be,
immediately prior to Closing, equal to or less than Nine Hundred Twelve Thousand
One Hundred Thirty-Four and 97/100 Dollars ($912,134.97), (exclusive of any
consideration of the factored accounts receivable) after giving effect to (i)
the repayment by the Company and/or the Company Subsidiaries of the net
Indebtedness owed to the Stockholders, and (ii) the release of the Company for
all liabilities and obligations relating to any non-core assets of the Company
or any Company Subsidiary Distributed to the Stockholders, or any of them, prior
to the Closing Date, as contemplated in SUBPARAGRAPH 2(D) below but exclusive of
any prepayment penalties resulting from or arising out of the prepayment of the
Company's Indebtedness in connection with or as a result of the Acquisition, all
of which shall be paid by Stockholders. Except for salary accrued in the
Ordinary Course of Business, on the Closing Date there will not be any
Indebtedness owed by the Company or any Company Subsidiary to any Stockholder or
any affiliate of any Stockholder, and each Stockholder and each affiliate of
each Stockholder shall repay to the Company or the appropriate Company
Subsidiary at Closing the Indebtedness owed by such Stockholder or such
affiliate, as applicable, to the Company or such Company Subsidiary. On the date
of execution hereof, the only Indebtedness of the Company or any Company
Subsidiary to any Stockholder or any affiliate of any Stockholder is Seventeen
Thousand Five Hundred Dollars ($17,500.00) owed to the wife of Mr. Denson, which
shall be paid in full at Closing.
(D) TRANSFER OF REAL ESTATE AFTER TO CLOSING. The Parties hereby
acknowledge and agree that the Company will transfer to the Stockholders, and
the Stockholders will purchase, after Closing, that certain unimproved real
estate owned by the Company in Muskogee, Oklahoma, provided that such
distribution does not adversely impact the intended tax treatment of the
Acquisition. The purchase price of the real estate shall be the transaction
costs related to the transfer. Such transfer shall be on an "as-is, where-is"
basis, with all faults, and without representation or warranty express or
implied, except that the Company shall warrant that it has not taken any action
which adversely impacts title to the real estate after the Closing Date.
Stockholders hereby
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acknowledge and agree that the distribution of real estate may be a taxable
event for the Stockholders.
(E) FORWARD SUBSIDIARY MERGER TAX REPRESENTATIONS. The Company and the
Stockholders hereby represent and warrant the following to be true and correct
as of the Effective Time:
(i) The fair market value of the Invatec Common Stock and other
consideration received by the Stockholders will be approximately equal to
the fair market value of the Company Capital Stock surrendered in the
Acquisition.
(ii) There is no plan or intention of any Stockholder to have
Invatec redeem, or have a party related to Invatec acquire, shares of
Invatec Common Stock received in the Acquisition which would reduce the
Stockholder's ownership of a number of shares of Invatec Common Stock
received in the Acquisition to a number of shares having a value, as of
the date of the Acquisition, of less than 50% of the sum of (i) the value
at the Effective Time of all the Company Capital Stock held immediately
prior to the Acquisition by the Stockholders and (ii) the value at the
Effective Time of any other instruments (such as debt of the Company which
is guaranteed by the Stockholder) which are classified for federal income
tax purposes as stock of the Company (collectively, "Shares") and which
are held immediately prior to the Acquisition by the Stockholder. For
purposes of this representation, shares of Company Capital Stock
outstanding immediately prior to the Acquisition include shares redeemed
prior to the Acquisition by reason of this Agreement or otherwise as part
of the Acquisition, and the value of all shares of Company Capital Stock
outstanding immediately prior to the Acquisition shall be determined with
regard to any extraordinary distributions (i.e., distributions with
respect to shares of Company Capital Stock other than regular, normal
dividends) by the Company by reason of this Agreement or otherwise as part
of the Acquisition. For purposes of this representation, a party is
related to Invatec if such party and Invatec would be treated as related
parties within the meaning of Treasury Regulations Section 1.368-1(e)(3).
(iii) Invatec Sub will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Company immediately prior to the
Acquisition. For purposes of this representation, amounts paid by the
Company to dissenters, amounts paid by the Company to Stockholders who
receive cash or other property, amounts used by the Company to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends, if any) made by the Company immediately
preceding the Acquisition, will be included as assets of the Company held
immediately prior to the Acquisition.
(iv) The liabilities of the Company assumed by Invatec Sub and the
liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the Ordinary Course of Business.
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(v) The Company and the Stockholders will pay their respective
expenses, if any, incurred in connection with the Acquisition.
(vi) There is no intercorporate indebtedness existing between
Invatec and the Company or between Invatec Sub and the Company that was
issued, acquired or will be settled at a discount.
(vii) The Company is not an investment company. For purposes of this
representation, an investment company means a regulated investment company
(as defined in the Code), a real estate investment trust (as defined in
the Code), or a corporation, 50 percent or more of the value of whose
total assets are stock and securities and 80 percent or more of the value
of whose total assets are assets held for investment within the meaning of
Section 368(a)(2)(F)(iii) of the Code.
(viii)The Company is not under the jurisdiction of a court in a case
under Title 11 of the United States Code, or a receivership, foreclosure,
or similar proceeding in a federal or state court.
(ix) At the Effective Time, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
(x) None of the compensation received by any stockholder-employees
of the Company will be separate consideration for, or allocable to, any of
their shares of Company Capital Stock. None of the shares of Invatec
Common Stock to be received by any stockholder-employee will be separate
consideration for, or allocable to, any employment agreements, and the
compensation paid to any stockholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
PARAGRAPH 3. THE CLOSING. (A) TIME AND PLACE. On or before the
Closing Date, the Parties will take all actions necessary to effect the
Acquisition (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Counsel for Invatec at 10:00 a.m., local time,
or at such later time on the Closing Date as Invatec shall specify by written
notice to Stockholders.
(B) STOCKHOLDERS' DELIVERIES. At or before the Closing, Stockholders shall
deliver or cause to be delivered to Invatec the following, all of which shall be
duly executed by all of the parties thereto, other than Invatec, Invatec Sub and
Invatec's third party lender, and shall be in form and content acceptable to the
Parties:
(i) All of the stock certificates evidencing the Company Capital
Stock, with all necessary transfer tax and other revenue stamps acquired
and attached at the expense of the holder of such certificate, together
with irrevocable stock powers in form and content acceptable to Invatec,
duly authorized and executed by the record holder of each such stock
certificate;
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(ii) An Affiliate Letter from each Stockholder, duly executed by
such Stockholder with respect to such Stockholder's acquisition of Invatec
Common Stock as part of the Acquisition Consideration;
(iii) The Certificate of Merger to be filed in Oklahoma;
(iv) The Certificate of Merger to be filed in Delaware;
(v) The Employment Agreements;
(vi) A Bill of Sale from the Stockholders to the Company
transferring a milling machine acquired from Fenix Equipment;
(vii) A Release and Covenant Not to Sue executed by Jerry W.
Collins;
(viii)A Release and Covenant Not to Sue executed by Donald Higgins;
(ix) Resignations of all directors and officers of the Company and
the Company Subsidiaries, effective as of the Effective Time;
(x) All original promissory notes or other debt instruments executed
by the Company or any Company Subsidiary to any Stockholder or to any
affiliate of any Stockholder, marked "Paid in Full;"
(xi) Payment of any outstanding amounts owed by any Stockholder to
the Company or any Company Subsidiary, as expressly set forth in PARAGRAPH
2(C) hereof;
(xii) An opinion of counsel issued by Counsel for the Company and
the Stockholders;
(xiii)No Withholding Certificates duly executed by the Stockholders;
(xiv) Certificates of the Secretary or Assistant Secretary of the
Company and each Company Subsidiary, certifying as to copies of the
Articles of Incorporation and Bylaws of the Company, and in the case of
the Certificate for the Company, the resolutions of the Board of Directors
of the Company and the Stockholders, in form and content reasonably
acceptable to Invatec, authorizing the transactions contemplated herein;
(xv) A Termination Agreement terminating any existing shareholder,
voting or similar agreement among the Stockholders and the Company, or any
of them, relating to the Company Capital Stock, and waiving the rights of
the parties thereunder;
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(xvi) Termination Agreement terminating the existing Disability
Insurance Agreement among the Company and the Stockholders, and waiving
the rights of the parties thereunder;
(xvii)All governmental, lender or other third party approvals to be
delivered by Stockholders as a condition to closing pursuant to ARTICLE V
of the Uniform Provisions, in form and content reasonably acceptable to
Invatec; and
(xviii) All other items required to be delivered hereunder or as may
be requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
(C) INVATEC'S OBLIGATIONS. At the Closing, Invatec will deliver or cause
to be delivered to the Stockholders the following, all of which shall be duly
executed by Invatec and Invatec Sub, and shall be in form and content acceptable
to the Parties:
(i) The shares of Invatec Common Stock to be delivered hereunder as
a portion of the Acquisition Consideration (provided that the certificates
evidencing such shares shall be delivered as promptly as practicable after
Closing);
(ii) The Certificate of Merger to be filed in Oklahoma;
(iii) The Certificate of Merger to be filed in Delaware;
(iv) The Employment Agreements;
(v) Certificate of the Secretary or Assistant Secretary of Invatec
certifying as to copies of the Certificate of Incorporation and Bylaws of
Invatec attached thereto, and the resolutions of the members of the
Executive Committee of the Board of Directors of Invatec, in form and
content reasonably acceptable to Counsel for the Company and the
Stockholders, authorizing the transactions contemplated herein;
(vi) Certificate of the Secretary or Assistant Secretary of Invatec
Sub certifying as to copies of the Certificate of Incorporation and Bylaws
of Invatec Sub attached thereto, and the resolutions of the sole director
and sole shareholder of Invatec Sub, in form and content reasonably
acceptable to Counsel for the Company and the Stockholders, authorizing
the transactions contemplated herein; and
(vii) All other items required to be delivered hereunder or as may
be requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
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(D) PROPRIETARY RIGHTS OF THE STOCKHOLDERS. In SECTION 2.21 OF THE
DISCLOSURE STATEMENT, the Company and the Stockholders have disclosed the
existence of certain proprietary rights developed by the Stockholders (the
"Proprietary Rights"). The Stockholders hereby represent and warrant that the
Proprietary Rights and the ownership thereof do not materially impact the
Acquired Business, and that the technology and equipment relating to the
Proprietary Rights have not been used to any material degree to date in the
Acquired Business. Further, the Stockholders hereby grant to the Company, the
Company Subsidiaries and the Surviving Company a perpetual non-exclusive right
and license to use the Proprietary Rights and the technology remanufacture and
use all equipment relating to the Proprietary Rights, and to otherwise take full
advantage of the Proprietary Rights and all further developments thereof as
fully as if the Company, the Company Subsidiaries and the Surviving Company were
the owners thereof, EXCEPT that the Company, the Company Subsidiaries and the
Surviving Company may not license or sublicense any rights arising hereunder to
any third party which is not a wholly-owned subsidiary of Invatec. Stockholders
shall deliver to the Surviving Company all of the technology and related
know-how which are reasonably required by or useful to the Surviving Company and
its affiliates in the use or exploitation of the Proprietary Rights. The Parties
hereby acknowledge and agree that the rights granted hereby include the
non-exclusive right to exploit all information, including secret processes,
secret formulae, or other secret information (including trade secrets), relating
to the Proprietary Rights. Each Stockholder hereby acknowledges the restrictions
on the Stockholders under their respective Employment Agreements and this
Agreement, and each hereby covenants and agrees that in addition to the
provisions hereof and thereof, for a period commencing on the date hereof and
terminating upon the expiration of two (2) years after the termination of such
Stockholder's employment with Invatec, he will not use nor permit any third
party to use the Proprietary Rights in competition with Invatec or any of its
subsidiaries within a fifty-mile radius of any location owned or leased by
Invatec or any subsidiary of Invatec (as of the date in question for so long as
such Stockholder is an employee of Invatec, and as of the date of termination
thereafter). Finally, Stockholders covenant and agree that neither the Surviving
Company nor any of its affiliates shall bear any costs or expenses relating to
the research or development of the Proprietary Rights.
(E) INDEMNIFICATION FOR CERTAIN CLAIMS. Stockholders hereby agree, jointly
and severally, without regard to the Threshold Amount, to indemnify, defend and
hold harmless the Company, the Surviving Company, the Company Subsidiaries, and
each Invatec Indemnified Party against, all Third Party Claims that arise from,
are based on or relate or otherwise are attributable to (i) any debt, liability
or obligation to Jerry W. Collins existing as of the date hereof, or (ii) any
claim of Jerry W. Collins or Donald Higgins to any stock or other equity
ownership interest in, or any right of first refusal, option or similar right to
acquire any stock or other equity ownership interest in, the Company, the
Company Subsidiaries or the Surviving Company, or any of their respective assets
or divisions.
(F) FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Each Stockholder, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer
reasonably requested by Invatec, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Invatec, for the
purpose of effecting the Acquisition.
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PARAGRAPH 4. INCORPORATION OF UNIFORM PROVISIONS. The Uniform Provisions
hereby are incorporated in this Agreement by this reference and constitute a
part of this Agreement with the same force and effect as if set forth at length
herein, subject to the following revisions:
(i) Section 1.05 is hereby amended by deleting therefrom the phrase
"or to acquire Invatec Common Stock pursuant to the Convertible Notes, if
any, or any written option granted by Invatec to the Stockholder";
(ii) Section 2.14(b)(i) and (b)(ii) are hereby deleted in their
entirety, and substituted therefor is the following:
(b) DISCLOSURE. As of the date hereof, all Information that
has been furnished to Invatec by or on behalf of the Company prior
to the date of this Agreement in connection with the transactions
contemplated hereby is, taken together, true and correct in all
material respects and does not contain any untrue statement of a
material fact or omit to state any fact which is material to the
Company, and which is necessary in order to make the statements
contained therein not materially misleading in light of the
circumstances under which those statements were made.
(iii) Section 2.19(c) is hereby amended by inserting prior to "(i)"
the phrase "or as otherwise disclosed in writing to Invatec";
(iv) The second sentence of Section 2.20 is amended by inserting
prior to "(i)" the phrase "or as otherwise disclosed in writing to
Invatec";
(v) Section 2.21 is hereby deleted in its entirety, and substituted
therefore is the following:
Section 2.21. PROPRIETARY RIGHTS. Except as set forth in
SECTION 2.21 OF THE DISCLOSURE STATEMENT or otherwise disclosed to
Invatec in writing, each of the Company and the Company Subsidiaries
owns, free and clear of all Liens other than Permitted Liens, or has
the legal right to use all Proprietary Rights that are necessary to
the conduct of its business as now conducted, in each case free of
any claims or infringements known to the Company or any Stockholder.
SECTION 2.21 OF THE DISCLOSURE STATEMENT (a) lists these Proprietary
Rights and (b) indicates those owned by the Company or any Company
Subsidiary and, for those not listed as so owned, the agreement or
other arrangement pursuant to which they are possessed. Except as
set forth in SECTION 2.21 OF THE DISCLOSURE STATEMENT or otherwise
disclosed to Invatec in writing (a) no consent of any Person will be
required for the use of any of these Proprietary Rights by Invatec
or any Subsidiary of Invatec following the Effective Time and (b) no
governmental registration
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of any of these Proprietary Rights has lapsed or expired or been
canceled, abandoned, opposed or the subject of any reexamination
request.
(vi) The third sentence of Section 2.23(a) is hereby amended by
inserting after the phrase "Except as set forth in Section 2.23 of the
Disclosure Statement" the phrase "or otherwise disclosed to Invatec in
writing";
(vii) The first sentence of Section 2.26 is hereby amended by
inserting prior to "(A)" the phrase ",unless otherwise disclosed to
Invatec in writing";
(viii)The first sentence of Section 2.31 is hereby amended by
inserting after the phrase "except as set forth in Section 2.31 of the
Disclosure Statement" the phrase "or otherwise disclosed to Invatec in
writing";
(ix) Article III is hereby amended by inserting the following:
Section 3.06. SEC FILINGS. (a) Invatec has filed with the
Securities and Exchange Commission ("SEC") all material forms,
statements, reports and documents (the "INVATEC SEC FILINGS")
required to be filed by it under the 1934 Act and the rules and
regulations thereunder.
(b) As of its filing date, each Invatec SEC Filing complied as
to form in all material respects with the applicable requirements of
the 1934 Act.
(c) As of its filing date, each Invatec SEC Filing filed
pursuant to the 1934 Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(d) Invatec has previously delivered to the Stockholders
copies of Invatec's prospectus, dated June 10, 1998, as supplemented
(the "PROSPECTUS"). As of its date, the Prospectus did not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(e) Invatec's Financial Statements included in the Prospectus
present fairly, in all material respects, the financial position of
Invatec as of the date thereof and the results of operations and
cash flows of Invatec and stockholders' or other owners' equity for
the periods set forth therein and have been prepared in accordance
with GAAP.
(x) Article IV, Article V and Article XI are hereby deleted in their
entirety;
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(xi) Section 6.03(a)(ii) is hereby amended by deleting therefrom the
word "indefinitely," and substituting therefore the words "for eight
years";
(xii) Section 10.07 is hereby amended by (A) deleting therefrom all
references to "Southern District of Texas, Houston Division" and
substituting therefor the phrase "District of Oklahoma" and (B) deleting
therefrom all remaining references to "Texas" and "Texas, County of
Harris" and substituting therefor the phrase "Oklahoma";
(xiii)The first sentence of Section 10.07 is hereby amended by
inserting at the end thereof the phrase "; provided that it is understood
that no claims arising out of this Agreement are released";
PARAGRAPH 5. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within
ninety (90) days after the Closing Date, Invatec shall deliver to the
Stockholders an unaudited combined balance sheet of the Company and the Company
Subsidiaries, prepared as of the Closing Date (the "Post-Closing Financial
Statements"). These Post-Closing Financial Statements shall become final and
binding on the Parties on the 15th day following receipt thereof by the
Stockholders unless a Stockholder furnishes written notice of his disagreement
("Notice of Disagreement") to Invatec prior to such date. Any Notice of
Disagreement shall specify in detail the nature of any disagreement so asserted.
If a Notice of Disagreement is sent by a Stockholder to Invatec in accordance
with this PARAGRAPH 5, then the Post-Closing Financial Statements shall become
final and binding upon the Parties on the earlier to occur of: (i) the date the
Parties resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Accounting Firm. During the 10-day period
following the delivery of a Notice of Disagreement, the Parties shall seek in
good faith to resolve in writing any differences which they may have with
respect to any matter specified in the Notice of Disagreement. If, at the end of
such 10-day period (or such longer period of time as the Parties may agree upon
in writing), the Parties have not reached agreement on such matters, the matters
which remain in dispute, together with copies of this Agreement, the
Post-Closing Financial Statements, and the Notice of Disagreement, shall be
submitted, within five (5) days following the expiration of such 10-day period
(or any agreed upon extension thereof), to the Accounting Firm for review and
resolution. In connection with such submission, Invatec and each Stockholder
shall promptly execute any waivers, releases, indemnification agreements or fee
agreements requested by the Accounting Firm. All proceedings conducted by the
Accounting Firm shall be conducted at the offices of the Accounting Firm in
Houston, Texas. The Accounting Firm shall render a decision resolving the
matters in dispute as soon as practicable following the date of the submission
to the Accounting Firm. The cost of any proceeding (including the fees of the
Accounting Firm but excluding the fees and disbursements of each Party's
independent auditors and counsel) pursuant to this PARAGRAPH 5 shall be borne
one-half by Invatec and one-half, jointly and severally, by the Stockholders.
The fees and disbursements of Stockholders' independent auditors and counsel
incurred in connection with this PARAGRAPH 5 shall be borne, jointly and
severally, by Stockholders, and the fees and disbursements of Invatec's
independent auditors and counsel incurred in connection with this PARAGRAPH 5
shall be borne by Invatec. The final determination as described in any of the
procedures set forth hereinabove shall constitute the "Final Post-Closing
Financial Statements."
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<PAGE>
(A) WORKING CAPITAL ADJUSTMENT. Stockholders hereby agree, jointly and
severally, to deliver to Invatec within ten (10) business days of delivery of
the Final Post-Closing Financial Statements to Invatec and to Stockholders, at
the option of Stockholders either (a) an aggregate number of shares of Invatec
Common Stock equal to (i) the amount, if any, by which Eighty-One Thousand Seven
Hundred Forty-Four and No/100 Dollars ($81,744.00) exceeds the Working Capital,
as set forth in the Final Post-Closing Financial Statements, divided by (ii) the
Agreed Closing Value of Invatec Stock, or (b) cash in an amount equal to the
amount, if any, by which Eighty-One Thousand Seven Hundred Forty-Four and No/100
Dollars (81,744.00) exceeds the Working Capital, as set forth in the Final
Post-Closing Financial Statements. Conversely, Invatec hereby agrees to deliver
to each Stockholder, within ten (10) business days of delivery of the Final
Post-Closing Financial Statements to Invatec and to Stockholders, at the option
of Invatec, such Stockholder's Pro Rata Share of either (a) a number of shares
of Invatec Common Stock equal to (i) the amount, if any, by which the Working
Capital, as set forth in the Final Post-Closing Financial Statements, exceeds
Eighty-One Thousand Seven Hundred Forty-Four and No/100 Dollars ($81,744.00),
divided by (ii) the Agreed Closing Value of Invatec Stock, or (b) cash in an
amount equal to the amount, if any, by which the Working Capital, as set forth
in the Final Post-Closing Financial Statements, exceeds Eighty-One Thousand
Seven Hundred Forty-Four and No/100 Dollars ($81,744.00).
(B) INDEBTEDNESS ADJUSTMENT. The Final Post-Closing Financial Statements
shall also set forth the amount of the Company's Indebtedness as of the
Effective Time. Stockholders hereby agree, jointly and severally, to deliver to
Invatec within ten (10) business days of delivery of the Final Post-Closing
Financial Statements to Invatec and to Stockholders, an aggregate amount equal
to the amount, if any, by which the Company's Indebtedness as of the Effective
Time, as set forth in the Final Post-Closing Financial Statements, exceeds the
Indebtedness as of the Effective Time estimated at Closing under PARAGRAPH
2(A)(IV), payable at the option of Stockholders either in cash or shares of
Invatec Common Stock (valued at the Agreed Closing Value of Invatec Stock), or a
combination thereof. Conversely, Invatec hereby agrees to deliver to each
Stockholder, within ten (10) business days of delivery of the Final Post-Closing
Financial Statements to Invatec and to Stockholders, an aggregate amount equal
to the amount, if any, by which the Indebtedness as of the Effective Time
estimated at Closing under PARAGRAPH 2(A)(IV) exceeds the Company's Indebtedness
as of the Effective Time, as set forth in the Final Post-Closing Financial
Statements, payable at the option of Invatec either in cash or shares of Invatec
Common Stock (valued at the Agreed Closing Value of Invatec Stock), or a
combination thereof.
Determinations under this PARAGRAPH 5 shall be consistent with the
methodology reflected in SCHEDULES I, II AND III.
PARAGRAPH 6. POST-CLOSING ADJUSTMENT OF VALUE OF INVATEC COMMON
STOCK.
(A) SALES OF INVATEC COMMON STOCK WITHIN SIX MONTHS. Invatec shall not
have any obligation to any Stockholder with respect to the price at which any
Invatec Stock which is received as part of the Acquisition Consideration is
sold, if the sale occurs prior to the expiration of six (6) months from the date
hereof.
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<PAGE>
(B) SALES OF INVATEC COMMON STOCK SOLD AFTER SIX BUT BEFORE TWELVE MONTHS.
For each share of Invatec Common Stock received as part of the Acquisition
Consideration which is not subject to the restrictions set forth in PARAGRAPH 8
which is sold more than six (6) but less than twelve (12) months after the date
hereof, Invatec will pay the selling Stockholder the amount by which the sum of
the Current Market Price as of the Closing Date plus One Dollar ($1.00) exceeds
the greater of (a) the Current Market Price as of the date on which such share
is sold or (b) the Current Market Price as of the Closing Date. The Parties
acknowledge and agree that the foregoing calculation cannot result in a payment
to Stockholders greater than One Dollar ($1.00) per share of Invatec Common
Stock.
(C) SHARES OF INVATEC COMMON STOCK NOT SOLD WITHIN TWELVE MONTHS. If the
Current Market Price as of the Subsequent Measurement Date is less than the
Agreed Closing Value of Invatec Stock, then Invatec will pay each Stockholder
for each share of Invatec Common Stock issued to such Stockholder as part of the
Acquisition Consideration (after giving effect to any adjustment pursuant to
PARAGRAPH 5) which is still owned by the Stockholder as of the Subsequent
Measurement Date, the amount by which the Agreed Closing Value of Invatec Stock
exceeds the greater of (a) the Current Market Price as of the Subsequent
Measurement Date or (b) the Current Market Price as of the Closing Date. The
Parties acknowledge and agree that the foregoing calculation cannot result in a
payment to Stockholders greater than Two Dollars ($2.00) per share of Invatec
Common Stock. The payment, if any, to be made by Invatec pursuant to this
PARAGRAPH 6, may be made by Invatec, at Invatec's option, either in cash, or by
issuing to each Stockholder Invatec Common Stock at a per share price equal to
the Current Market Price as of the Subsequent Measurement Date.
PARAGRAPH 7. OFFSET. To the extent permitted by applicable law, and
subject to the limits on Damage Claims and on indemnification claims in SECTION
6.04 and SECTION 7.06 of the Uniform Provisions, all amounts due and owing to a
Stockholder under this Agreement shall be subject to offset by Invatec to the
extent of any damages incurred as a result of any Stockholder's breach of this
Agreement, commencing on the tenth (10th) day after Invatec sends written notice
to the Stockholders of the alleged breach, unless Stockholders cure same within
such 10-day period. Each Stockholder hereby acknowledges and agrees that but for
the right of offset contained in this PARAGRAPH 7, Invatec would not have
entered into this Agreement or any of the transactions contemplated herein.
PARAGRAPH 8. SECURITIES LAWS.
(A) EACH STOCKHOLDER'S REPRESENTATIONS AND WARRANTIES CONCERNING
SECURITIES. As of the date hereof, each Stockholder hereby makes the following
representations and warranties to and for the benefit of Invatec: (i) that such
Stockholder has been provided with copies of Invatec's Prospectus dated June 10,
1998, as supplemented (the " Prospectus"), and has been provided as much time
and opportunity as he deemed appropriate to review and study such materials, and
to consult with Invatec regarding the merits and risks of the transactions
contemplated by this Agreement; (ii) that such Stockholder has had adequate
opportunity to ask questions of and receive answers from the officers of Invatec
pertaining to the purchase of the Invatec Common Stock pursuant to this
Agreement, and (iii) all such questions have been answered to the satisfaction
of such Stockholder.
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(B) TRANSFER RESTRICTIONS. Each Stockholder hereby agrees that except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this PARAGRAPH 8(B) (or trusts for the benefit of a Stockholder or
family members, or trusts in which a Stockholder is both the grantor and the
beneficiary, the trustees of which so agree), for a period of twelve (12) months
from the Closing Date, such Stockholder will not sell, assign, exchange,
transfer, appoint, or otherwise dispose of one-half (1/2) of the shares of
Invatec Common Stock received by such Stockholder pursuant to this Agreement.
The certificates evidencing the Invatec Common Stock delivered to each
Stockholder pursuant to this Agreement which are subject to this restriction
will bear a legend substantially in the form set forth below and containing such
other information as Invatec may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
WITHOUT THE WRITTEN CONSENT OF INVATEC, AND INVATEC SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE EXPIRATION OF
TWELVE (12) MONTHS FROM THE DATE OF THIS CERTIFICATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, INVATEC AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
PARAGRAPH 9.MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement
may be executed in multiple counterparts, each of which will be an original, but
all of which together will constitute one and the same instrument. For purposes
of the Agreement and all documents, instruments and agreements executed in
connection herewith, facsimile signatures shall be deemed to be original
signatures. In addition, if any Party executes facsimile copies of this
Agreement or any documents , instruments of agreements executed in connection
herewith, such copies shall be deemed originals.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: _______________________________________
CHARLES F. SCHUGART,
Senior Vice President
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<PAGE>
INVATEC SUB:
PLANT ACQUISITION, INC.
By: _______________________________________
CHARLES F. SCHUGART,
Senior Vice President
STOCKHOLDERS:
__________________________________________
WILLIAM D. DENSON
__________________________________________
DARRELL G. SALLEE
__________________________________________
JOHN P. JORDEN, JR.
THE COMPANY:
PLANT MAINTENANCE, INC.
By:_______________________________________
WILLIAM D. DENSON, PRESIDENT
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<PAGE>
The undersigned, the spouses of each of Mr. Denson, Mr. Sallee, and
Mr. Jorden, Jr., are fully aware of, understand, and fully consent and agree to
the provisions of this Merger Agreement, and its binding effect upon any
community or other property interests that they may own in the Company Capital
Stock (or alternatively, in order to confirm that they have no right, title or
interest, legal or beneficial, in the shares of Company Capital Stock standing
in the names of Mr. Denson, Mr. Sallee, and Mr. Jorden) and their awareness,
understanding, consent and agreement are evidenced by their execution hereof.
__________________________________________
NAME:_________________________,
SPOUSE OF WILLIAM D. DENSON
__________________________________________
NAME:_________________________,
SPOUSE OF DARRELL G. SALEE
__________________________________________
NAME:_________________________,
SPOUSE OF JOHN P. JORDEN, JR.
Schedule I - Indebtedness
Schedule II - Working Capital
Schedule III - Factored Receivables
Schedule 3.04 - Capital Stock of Invatec
Schedule 3.05 - Subsidiaries of Invatec
Exhibit A - Certain Company Financial Statements
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EXHIBIT 2.1(B)
AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO MERGER AGREEMENT (the "Amendment") is executed
effective as of the 25th day of September 1998, by and among INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), PLANT MAINTENANCE, INC.,
a Delaware corporation and successor-by-merger to Plant Acquisition, Inc. and
Plant Maintenance, Inc., WILLIAM D. DENSON, an individual residing in Oklahoma,
DARRELL G. SALLEE, an individual residing in Oklahoma, and JOHN P. JORDEN, JR.,
an individual residing in Texas. All defined terms contained herein shall have
the same meanings as contained in that certain Merger Agreement dated effective
June 29, 1998, executed by Invatec, Plant Acquisition, Inc., Plant Maintenance,
Inc., Mr. Denson, Mr. Sallee and Mr. Jorden (the "Merger Agreement"), except as
otherwise specifically indicated herein.
WHEREAS, each of the parties has determined that it is in his or its
best interest to modify the terms of the Merger Agreement with respect to the
post-closing adjustment to the value of the Invatec Common Stock, as hereinafter
set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
i. Subparagraph 6(C) of the Merger Agreement is hereby deleted in
its entirety, and substituted therefor is the following:
(C) SHARES OF INVATEC COMMON STOCK NOT SOLD WITHIN TWELVE
MONTHS. If the Current Market Price as of the Subsequent Measurement
Date is less than the Agreed Closing Value of Invatec Stock, then
Invatec will pay each Stockholder for each share of Invatec Common
Stock issued to such Stockholder as part of the Acquisition
Consideration (after giving effect to any adjustment pursuant to
PARAGRAPH 5) which is still owned by the Stockholder as of the
Subsequent Measurement Date, the amount by which the Agreed Closing
Value of Invatec Stock exceeds the greater of (a) the Current Market
Price as of the Subsequent Measurement Date or (b) Two and 50/100
Dollars ($2.50). The Parties acknowledge and agree that the
foregoing calculation cannot result in a payment to Stockholders
greater than Six and 85/100 Dollars ($6.85) per share of Invatec
Common Stock. The payment, if any, to be made by Invatec pursuant to
this PARAGRAPH 6, may be made by Invatec, at Invatec's option,
either in cash, or by issuing to each Stockholder Invatec Common
Stock at a per share price equal to the Current Market Price as of
the Subsequent Measurement Date.
ii. The parties hereby acknowledge and agree that the closing price
of the Invatec Common Stock as of September 24, 1998, was Three and 25/100
($3.25) per share.
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iii. All other terms, conditions and covenants contained in the
Merger Agreement shall remain in full force and effect except as expressly
amended herein. The parties hereby authorize, adopt, ratify, confirm and approve
the Acquisition on the terms and conditions set forth in the Merger Agreement,
except as the same are expressly amended hereby.
iv. Each of the undersigned representatives of each party hereto
represents and warrants that his signature constitutes the valid and binding act
of such party, and that he has been duly authorized, empowered and directed to
execute and deliver this Amendment.
v. This Amendment embodies the entire agreement and understanding
among the parties relating to the subject matter hereof, and supersedes all
prior proposals, negotiations, agreements, commitments and understandings
relating to such subject matter. There are no unwritten agreements among the
parties. This Amendment, when executed by the parties hereto, shall be binding
upon and inure to the benefit of the parties hereto, and their respective
personal representatives, successors and assigns.
vi. This Amendment may be executed simultaneously in a number of
identical counterparts, each of which shall be an original and all of which
together shall constitute but one and the same instrument. Facsimile signatures
shall be treated as original signatures for all purposes relating to this
Amendment.
IN WITNESS WHEREOF, this Amendment has been executed and delivered
to be effective as of the date first set forth above.
INNOVATIVE VALVE
TECHNOLOGIES, INC.
By: _________________________________
John L. King
Vice President
PLANT MAINTENANCE, INC.
By: _________________________________
John L.King
Vice President
_____________________________________
WILLIAM D. DENSON
_____________________________________
DARRELL G. SALLEE
_____________________________________
JOHN P. JORDEN, JR.
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EXHIBIT 2.2(A)
- - ------------------------------------------------------------------------------
MERGER AGREEMENT
DATED AS OF JULY 9, 1998
BY AND AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
COLLIER ACQUISITION, INC.,
AND
COLLIER EQUIPMENT CORPORATION
AND
THE STOCKHOLDERS NAMED HEREIN
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<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is entered into as of the
9th day of July, 1998, by and among INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation ("Invatec"), COLLIER ACQUISITION, INC., a Delaware
corporation and a wholly-owned subsidiary of Invatec ("Invatec Sub"), ROBERT T.
COLLIER, JR., an individual whose address is 15806 Punta Espada, Corpus Christi,
Texas 78418 ("Mr. Collier"), FRANK H. GORE, an individual whose address is 15357
Mutiny Court, Corpus Christi, Texas 78418 ("Mr. Gore"), (Mr. Collier and Mr.
Gore being sometimes hereinafter referred to collectively as the "Stockholders"
and individually as a "Stockholder"), and COLLIER EQUIPMENT CORPORATION, a Texas
corporation whose address is 1150 Southern Minerals Road, Corpus Christi, Texas
78409 (the "Company"). Invatec, Invatec Sub, the Stockholders and the Company
are sometimes hereinafter referred to collectively as the "Parties" or
individually as a "Party."
PRELIMINARY STATEMENT
WHEREAS, (a) Mr. Collier is the legal and beneficial owner and
holder of two thousand five hundred fifty (2,550) shares of the Common Stock of
the Company, and (b) Mr. Gore is the legal and beneficial owner and holder of
two thousand four hundred fifty (2,450) shares of the Common Stock of the
Company, which constitutes all of the issued and outstanding Company Capital
Stock; and
WHEREAS, the Parties have determined that it is in their best
interests to effect a merger pursuant to which the Company will merge with and
into Invatec Sub on the terms and conditions set forth herein (such merger being
the "Acquisition"); and
WHEREAS, the Parties intend for the Acquisition to qualify as a
tax-free reorganization under Section 368(a)(2)(D) of the Internal Revenue Code
of 1986, as amended; and
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, agreements, representations, warranties and undertakings
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
PARAGRAPH 5. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms have the meanings assigned to them below in this PARAGRAPH
1. Capitalized terms used in this Agreement and not defined below in this
PARAGRAPH 1 have the meanings assigned to them in the preamble of this
Agreement, the Preliminary Statement or ARTICLE IX of the Uniform Provisions, as
the case may be.
"ACCOUNTING FIRM" means KPMG Peat Marwick LLP, in Houston,
Texas.
"ACQUIRED BUSINESS" means the business conducted by the
Company. For purposes of ARTICLE VIII of the Uniform Provisions, the
term "Acquired Business" shall include any business conducted by the
Company during the twelve (12) months preceding the Closing Date.
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<PAGE>
"ACQUISITION CONSIDERATION" has the meaning specified in
SUBPARAGRAPH 2(A)(IV).
"AGREED CLOSING VALUE OF INVATEC STOCK" means Ten Dollars
($10.00) per share.
"CEILING AMOUNT" means Seven Million Two Hundred Thousand and
No/100 Dollars ($7,200,000).
"CLOSING" has the meaning specified in PARAGRAPH 3.
"CLOSING DATE" means the date of this Agreement.
"COMPANY" has the meaning specified in the preamble of this
Agreement.
"COMPANY CAPITAL STOCK" means the Common Stock, no par value,
of the Company.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDER" means Law Office
of David L. Smith, a professional corporation, of Corpus Christi,
Texas.
"COUNSEL FOR INVATEC" means Boyer, Ewing & Harris Incorporated
of Houston, Texas.
"CURRENT BALANCE SHEET" means the balance sheet of the Company
as of the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means May 31, 1998.
"CURRENT MARKET PRICE" means the average closing price per
share of Invatec Common Stock (as reported by the principal
securities exchange or trading market, as the case may be, on which
the Invatec Common Stock is then traded) during the five consecutive
trading days immediately preceding the date as of which the "Current
Market Price" is to be determined. The Current Market Price as of
the Closing Date is $7.313.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and the Stockholders and delivered to Invatec prior to
the execution and delivery of this Agreement by Invatec in which
either (a) exceptions are taken to any of certain of the
representations and warranties made by the Company or the
Stockholders herein or (b) it is confirmed that no exception is
taken to that representation and warranty. The content of the
Disclosure Statement is incorporated into the Uniform Provisions in
accordance with the references in the Uniform Provisions, which are
incorporated herein as hereinafter set forth.
"EFFECTIVE TIME" means the Effective Time of the Merger, as
such term is defined in SUBPARAGRAPH 2(A)(II).
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"EMPLOYMENT AGREEMENT" means the Employment Agreement to be
entered into as of the Effective Time between Invatec and Mr. Gore.
"ENVIRONMENTAL CLAIMS" shall mean all Damage Claims and all
Third Party Claims which relate expressly or by necessary
implication to the environment or Environmental Laws.
"GENERAL CLAIMS" shall mean all Damage Claims and all Third
Party Claims which are not Environmental Claims.
"INDEBTEDNESS" means all items, except for items of capital
stock, surplus, general contingency, or deferred tax liabilities,
which in accordance with GAAP would be included on the liability
side of the balance sheet of the Company at such time other than
accounts payable incurred in the Ordinary Course of Business and
other expenses and trade payables incurred in the Ordinary Course of
Business. The Company did not have any Indebtedness at the Current
Balance Sheet Date, other than the Indebtedness to Stockholders
described in SCHEDULE II.
"INITIAL FINANCIAL STATEMENTS" means (a) the balance sheets of
the Company as of December 31, 1997, 1996 and 1995, and the related
statements of operations and retained earnings for each of the
Company's fiscal years in the three-year period ended December 31,
1997, and (b) the Current Balance Sheet and the related statements
of operations for the five (5) months ended on the Current Balance
Sheet Date, which the Company has delivered to Invatec. The
Company's financial statements for the five-month period ended May
31, 1998, and the one-year periods ended December 31, 1997 and
December 31, 1996, are attached hereto as EXHIBIT A.
"INVATEC SUB" has the meaning set forth in the preamble of
this Agreement.
"MERGER" means a transaction as a result of which the
Acquisition is effected and in which the Company is merged with and
into Invatec Sub.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the
business of the Company, consistent with past customs and practice
(including with respect to quantity and frequency).
"PRO RATA SHARE" of a Stockholder means: fifty-one percent
(51.0%) in the case of Mr. Collier, and forty-nine percent (49.0%)
in the case of Mr. Gore.
"SUBSEQUENT MEASUREMENT DATE" means the one-year anniversary
of the Effective Time.
"SURVIVING COMPANY" means Invatec Sub, which is to be
designated in the Certificates of Merger as the Surviving Company.
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"THRESHOLD AMOUNT" means (a) Fifty Thousand Dollars ($50,000)
for Environmental Claims and (b) Seventy-Two Thousand Dollars
($72,000) for General Claims.
"UNIFORM PROVISIONS" means the Uniform Provisions attached
hereto as ANNEX 1.
"WORKING CAPITAL" means the current assets minus the current
liabilities of the Company determined in accordance with GAAP
(calculated as provided in SCHEDULE I attached hereto). Current
liabilities shall expressly EXCLUDE current debt, current maturities
of long-term Indebtedness, and the current portion of obligations
under capital leases. The Working Capital at the Current Balance
Sheet Date is One Million Two Hundred Seventeen Thousand Dollars
($1,217,000), determined as provided in SCHEDULE I attached hereto.
PARAGRAPH 6. THE ACQUISITION. (A) THE MERGER. (i) CERTIFICATES OF
MERGER. Subject to the terms and conditions hereof, Invatec Sub will cause a
Certificate of Merger to be duly executed and delivered on the Closing Date and
filed on or promptly after the Closing Date with the Secretary of State of
Delaware, and the Company will cause a Certificate of Merger to be duly executed
and delivered on the Closing Date and filed on or promptly after the Closing
Date with the Secretary of State of Texas.
(ii) THE EFFECTIVE TIME. The "Effective Time" will be upon (a)
the filing of the Certificates of Merger with the Secretaries of State of
Delaware and Texas, and (b) issuance by the Secretaries of State of Delaware and
Texas of Certificates of Merger with respect thereto, and in any event, on or as
promptly as practicable after the Closing Date.
(iii) CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time (1) the Company will be merged with and into Invatec Sub in
accordance with the provisions of the Delaware General Corporation Law, (2) the
Company will cease to exist as a separate legal entity, (3) Invatec Sub will be
the Surviving Company and, as such, will, all with the effect provided by the
Delaware General Corporation Law (a) possess all the properties and rights, and
be subject to all the restrictions, duties and obligations, of the Company and
Invatec Sub and (b) be governed by the laws of the State of Delaware, (4) the
Charter Documents of Invatec Sub then in effect will become and thereafter
remain (until changed in accordance with (a) applicable law (in the case of the
Certificate of Incorporation) or (b) their terms (in the case of the Bylaws))
the Charter Documents of the Surviving Company, except that the Certificate of
Incorporation shall be amended to change the name of the Surviving Company to
"CECORP, Inc.," (5) the initial member of the Board of Directors of the
Surviving Company will be William E. Haynes, and he will hold the office of
director of the Surviving Company, subject to the provisions of the applicable
laws of the State of Delaware and the Charter Documents of the Surviving
Company, and (6) the initial officers of the Surviving Company will be as set
forth below, and each of those persons will serve in each office specified for
that person below, subject to the provisions of the Charter Documents of the
Surviving Company, until that person's successor is duly elected to, and, if
necessary, qualified for, that office:
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OFFICE: NAME:
Chairman of the Board & Chief Executive Officer. William E. Haynes
President....................................... Frank H. Gore
Chief Financial Officer, Senior Vice President,
Treasurer and Secretary......................... Charles F. Schugart
Vice President & Assistant Secretary............ Douglas R. Harrington, Jr.
Vice President & Assistant Secretary............ Frank L. Lombard
Vice President & Assistant Secretary............ John L. King
(iv) EFFECT OF THE MERGER ON COMPANY CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(1) the shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right
to receive, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6,
without interest, on surrender of the certificates evidencing those
shares, the following (the "Acquisition Consideration"):
(i) in cash or other immediately available funds, the
aggregate amount of Three Million Eleven Thousand Five Hundred
Seventy-Four and 77/100 Dollars ($3,011,574.77), determined in the
manner set forth in SCHEDULE II attached hereto; and
(ii) Three Hundred Sixty Thousand (360,000) shares of Invatec
Common Stock, determined in the manner set forth in SCHEDULE II
attached hereto;
whereupon all such shares of Company Capital Stock shall cease to be
outstanding and to exist, and shall be canceled and retired;
(2) each share of Company Capital Stock held in the treasury of the
Company shall cease to be outstanding and to exist and shall be canceled
and retired; and
(3) each share of capital stock of Invatec Sub issued and
outstanding immediately prior to the Effective Time will be converted into
one share of common stock of the Surviving Company and the common stock of
the Surviving Company issued on that conversion will constitute all the
issued and capital stock of the Surviving Company.
Each holder of a certificate representing shares of Company Capital Stock
immediately prior to the Effective Time (which Stockholders hereby covenant and
agree shall only be Stockholders) will, as of the Effective Time and thereafter,
cease to have any rights respecting those shares other than the right to
receive, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6, such holder's
pro rata share of the Acquisition Consideration.
Invatec will cause its transfer agent to deliver to each Stockholder the
certificate evidencing such Stockholder's shares of Invatec Common Stock as
promptly as practicable after Closing;
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however, such Stockholder shall be treated for all purposes as having been the
record holder of such shares as of the Effective Time.
SCHEDULE II attached hereto sets forth the manner in which the amount of
the Acquisition Consideration has been determined.
(v) DELIVERY, EXCHANGE AND PAYMENT. On the Closing Date, the
Stockholders, as the holders of the certificates representing all of the
outstanding shares of Company Capital Stock, will receive, on surrender of those
certificates (duly endorsed in blank, or accompanied by stock powers in blank
duly executed by Stockholders, and with all necessary transfer tax and other
revenue stamps, acquired at Stockholders' expense, affixed and canceled) to
Invatec, free and clear of any restrictions or conditions to transfer or
assignment, rights of first refusal, mortgages, liens, pledges, charges,
encumbrances, equities, claims, covenants, conditions, restrictions, options or
agreements, subject to the provisions of PARAGRAPH 5 and PARAGRAPH 6, the
Acquisition Consideration. Until any certificate representing Company Capital
Stock has been surrendered and replaced pursuant to this SUBPARAGRAPH 2(A)(V),
that certificate will, for all purposes, be deemed to evidence only the right to
receive the pro rata share of the Acquisition Consideration evidenced thereby.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Capital Stock surrendered by
such Stockholder. Notwithstanding any provisions of this Agreement to the
contrary, the Threshold Amount shall not apply to any Damage Claims arising from
the failure to pay the Acquisition Consideration, or the failure to make any of
the payments due under PARAGRAPH 5 or PARAGRAPH 6.
(B) INCOME AND OTHER TAXES; TRANSACTION EXPENSES. Stockholders shall pay
all income, documentary, transfer, stamp, revenue or other taxes arising out of
the transfer, surrender or cancellation of the Company Capital Stock or receipt
of payments therefor, or any consideration delivered in connection therewith.
Neither Invatec, the Surviving Company nor the Company shall be responsible for
any business, occupation, income, withholding or similar tax, or any taxes of
any kind, of any Stockholder. Invatec, on the one hand, and the Stockholders, on
the other hand, will each pay their respective legal, accounting, tax, broker's
or other advisors' expenses incurred in pursuing and consummating the
Acquisition.
(C) COMPANY DEBT LIMITATION; STOCKHOLDER DEBT. Immediately prior to
Closing the Stockholders shall cause the Company to pay all of its Indebtedness,
other than the Indebtedness in the amount of Five Hundred Eighty-Eight Thousand
Four Hundred Twenty-Five and 23/100 Dollars ($588,425.23) owed to the
Stockholders, which Invatec shall pay or cause the Company to pay
contemporaneously with the Acquisition Consideration. Except for salary accrued
in the Ordinary Course of Business and the Indebtedness described in the
immediately preceding sentence, on the Closing Date there will not be any
Indebtedness owed by the Company to any Stockholder or any affiliate of any
Stockholder, and each Stockholder and each affiliate of each Stockholder shall
repay to the Company at Closing the Indebtedness owed by such Stockholder or
such affiliate, as applicable, to the Company.
(D) FORWARD SUBSIDIARY MERGER TAX REPRESENTATIONS OF THE COMPANY AND
STOCKHOLDERS. The Company and the Stockholders hereby represent and warrant the
following to be true and correct as of the Effective Time:
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(i) The fair market value of the Invatec Common Stock and other
consideration received by the Stockholders will be approximately equal to
the fair market value of the Company Capital Stock surrendered in the
Acquisition.
(ii) There is no plan or intention of either Stockholder to have
Invatec redeem, or have a party related to Invatec acquire, shares of
Invatec Common Stock received in the Acquisition which would reduce the
Stockholder's ownership of a number of shares of Invatec Common Stock
received in the Acquisition to a number of shares having a value, as of
the date of the Acquisition, of less than 50% of the sum of (a) the value
at the Effective Time of all the Company Capital Stock held immediately
prior to the Acquisition by the Stockholders and (b) the value at the
Effective Time of any other instruments (such as debt of the Company which
is guaranteed by the Stockholder) which are classified for federal income
tax purposes as stock of the Company (collectively, "Shares") and which
are held immediately prior to the Acquisition by the Stockholder. For
purposes of this representation and the representation set forth in
PARAGRAPH 2(E)(II) below, shares of Company Capital Stock outstanding
immediately prior to the Acquisition include shares redeemed prior to the
Acquisition by reason of this Agreement or otherwise as part of the
Acquisition, and the value of all shares of Company Capital Stock
outstanding immediately prior to the Acquisition shall be determined with
regard to any extraordinary distributions (i.e., distributions with
respect to shares of Company Capital Stock other than regular, normal
dividends) by the Company by reason of this Agreement or otherwise as part
of the Acquisition. For purposes of this representation and the
representation set forth in PARAGRAPH 2(E) below, a party is related to
Invatec if such party and Invatec would be treated as related parties
within the meaning of Treasury Regulations Section 1.368-1(e)(3).
(iii) Invatec Sub will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Company immediately prior to the
Acquisition. For purposes of this representation, amounts paid by the
Company to dissenters, amounts paid by the Company to Stockholders who
receive cash or other property, amounts used by the Company to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends, if any) made by the Company immediately
preceding the Acquisition, will be included as assets of the Company held
immediately prior to the Acquisition.
(iv) The liabilities of the Company assumed by Invatec Sub and the
liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the Ordinary Course of Business.
(v) The Company and the Stockholders will pay their respective
expenses, if any, incurred in connection with the Acquisition.
(vi) There is no intercorporate indebtedness existing between
Invatec and the Company or between Invatec Sub and the Company that was
issued, acquired or will be settled at a discount.
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(vii) The Company is not an investment company. For purposes of this
representation, an investment company means a regulated investment company
(as defined in the Code), a real estate investment trust (as defined in
the Code), or a corporation, 50 percent or more of the value of whose
total assets are stock and securities and 80 percent or more of the value
of whose total assets are assets held for investment within the meaning of
Section 368(a)(2)(F)(iii) of the Code.
(viii)The Company is not under the jurisdiction of a court in a case
under Title 11 of the United States Code, or a receivership, foreclosure,
or similar proceeding in a federal or state court.
(ix) At the Effective Time, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
(x) None of the compensation received by any stockholder-employees
of the Company will be separate consideration for, or allocable to, any of
their shares of Company Capital Stock. None of the shares of Invatec
Common Stock to be received by any stockholder-employee will be separate
consideration for, or allocable to, any employment agreements or
agreements not to compete, and the compensation paid to any
stockholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
(E) FORWARD SUBSIDIARY MERGER TAX REPRESENTATIONS OF INVATEC. Invatec
hereby represents and warrants the following to be true and correct as of the
Effective Time:
(i) Invatec Sub is a wholly-owned subsidiary of Invatec;
(ii) The fair market value of the Invatec Common Stock and other
consideration received by the Stockholders will be approximately equal to
the fair market value of the Company Capital Stock surrendered in the
Acquisition.
(iii) There is no plan or intention of Invatec to redeem, or have a
party related to Invatec acquire, shares of Invatec Common Stock received
in the Acquisition which would reduce the Stockholder's ownership of a
number of shares of Invatec Common Stock received in the Acquisition to a
number of shares having a value, as of the date of the Acquisition, of
less than 50% of the sum of (a) the value at the Effective Time of all the
Company Capital Stock held immediately prior to the Acquisition by the
Stockholders and (b) the value at the Effective Time of any Shares, as
defined in PARAGRAPH 2(D), which are held immediately prior to the
Acquisition by the Stockholder.
(iv) There is no intercorporate indebtedness existing between
Invatec and the Company or between Invatec Sub and the Company that was
issued, acquired or will be settled at a discount.
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(v) None of the compensation received by any stockholder-employees
of the Company will be separate consideration for, or allocable to, any of
their shares of Company Capital Stock. None of the shares of Invatec
Common Stock to be received by any stockholder-employee will be separate
consideration for, or allocable to, any employment agreements or
agreements not to compete, and the compensation paid to any
stockholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
(F) TAX-FREE REORGANIZATION. The Parties hereby acknowledge and agree that
they are entering into this Agreement with the intention that the Acquisition
qualify as a tax-free reorganization for federal income tax purposes, although
the cash received by the Stockholders will be taxable. Each Party hereby
represents and warrants that it will not take any action which would disqualify
the Acquisition from such treatment; provided however, that in the event that
the Acquisition fails to qualify as a tax-free reorganization for any reason,
other than the breach of an express representation or warranty by a Party, then
the Stockholders shall pay and be solely responsible for any income taxes
assessed against Stockholders which result from such failure, and Invatec shall
pay and be solely responsible for all income taxes assessed against the Company
or the Surviving Company which result from such failure.
PARAGRAPH 7. THE CLOSING. (A) TIME AND PLACE. On or before the
Closing Date, the Parties will take all actions necessary to effect the
Acquisition (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Counsel for Invatec, located at Nine Greenway
Plaza, Suite 3100, Houston, Texas 77046, at 10:00 a.m., local time, or at such
later time on the Closing Date as Invatec shall specify by written notice to
Stockholders.
(B) STOCKHOLDER' DELIVERIES. At or before the Closing, Stockholders shall
deliver or cause to be delivered to Invatec the following, all of which shall be
duly executed by all of the parties thereto, other than Invatec Sub, Invatec and
Invatec's third party lender, each of which shall be in form and content
acceptable to the Parties:
(i) All of the stock certificates evidencing the Company Capital
Stock, with all necessary transfer tax and other revenue stamps acquired
and attached at the expense of the holder of such certificate, together
with irrevocable stock powers in form and content acceptable to Invatec,
duly authorized and executed by the record holder of each such stock
certificate;
(ii) An Affiliate Letter duly executed by each Stockholder with
respect to such Stockholder's acquisition of Invatec Common Stock as part
of the Acquisition Consideration;
(iii) The Certificate of Merger to be filed in Texas;
(iv) The Certificate of Merger to be filed in Delaware;
(v) The Employment Agreement;
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(vi) Resignations of all directors and officers of the Company,
effective as of the Effective Time;
(vii) Such subordination or other agreements in such form as
Invatec's lender may require with respect to subordination of any landlord
liens or similar liens for each of the Company's leased locations;
(viii)All original promissory notes or other debt instruments
executed by the Company to any Stockholder or any affiliate of any
Stockholder, marked "Paid in Full;"
(ix) Payment of any outstanding amounts owed by any Stockholder or
any affiliate of any Stockholder to the Company, as expressly set forth in
PARAGRAPH 2(C) hereof;
(x) An opinion of counsel issued by Counsel for the Company and the
Stockholders;
(xi) No Withholding Certificate duly executed by the Stockholders;
(xii) Certificate of the Secretary or Assistant Secretary of the
Company, certifying as to copies of the Articles of Incorporation and
Bylaws of the Company, and the resolutions of the Board of Directors of
the Company and the Stockholders, in form and content reasonably
acceptable to Invatec, authorizing the transactions contemplated herein;
(xiii)A Waiver and Termination Agreement terminating any existing
shareholder, voting or similar agreement between or among the Stockholders
and the Company, or any of them, relating to the Company Capital Stock,
and waiving the rights of the parties thereunder, in form and content
reasonably acceptable to Invatec;
(xiv) All governmental, lender or other third party approvals to be
delivered by Stockholders as a condition to closing pursuant to ARTICLE V
of the Uniform Provisions (including without limitation Dresser
Industries, Inc.), in form and content reasonably acceptable to Invatec;
and
(xv) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
(C) INVATEC'S OBLIGATIONS. At the Closing, Invatec will deliver or cause
to be delivered to the Stockholders the following, all of which shall be duly
executed by Invatec and Invatec Sub, each of which shall be in form and content
acceptable to the Parties:
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(i) The cash portion of the Acquisition Consideration;
(ii) Payment by the Company to the Stockholders of the Indebtedness
in the amount of Five Hundred Eighty-Eight Thousand Four Hundred
Twenty-Five and 23/100 Dollars ($588,425.23), as contemplated in SCHEDULE
II;
(iii) The shares of Invatec Common Stock to be delivered hereunder
as a portion of the Acquisition Consideration;
(iv) The Certificate of Merger to be filed in Texas;
(v) The Certificate of Merger to be filed in Delaware;
(vi) The Employment Agreement;
(vii) An opinion of counsel issued by Counsel for Invatec;
(viii)Certificate of the Secretary or Assistant Secretary of Invatec
certifying as to copies of the Certificate of Incorporation and Bylaws of
Invatec attached thereto, and the resolutions of the members of the
Executive Committee of the Board of Directors of Invatec, in form and
content reasonably acceptable to Counsel for the Company and the
Stockholders, authorizing the transactions contemplated herein;
(ix) Certificate of the Secretary or Assistant Secretary of Invatec
Sub certifying as to copies of the Certificate of Incorporation and Bylaws
of Invatec Sub attached thereto, and the resolutions of the sole director
and sole shareholder of Invatec Sub, in form and content reasonably
acceptable to Counsel for the Company and the Stockholders, authorizing
the transactions contemplated herein; and
(x) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
(D) FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Each Stockholder, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer
reasonably requested by Invatec, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Invatec, for the
purpose of effecting the Acquisition.
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PARAGRAPH 8. INCORPORATION OF UNIFORM PROVISIONS. The Uniform
Provisions hereby are incorporated in this Agreement by this reference and
constitute a part of this Agreement with the same force and effect as if set
forth at length herein, subject to the following revisions:
(i) Section 2.17 is hereby deleting the reference to "SECTION 2.17
OF THE DISCLOSURE STATEMENT" and substituting therefor a reference to
"SECTIONS 2.13 AND 2.17 OF THE DISCLOSURE STATEMENT" and by inserting at
the end of Section 2.17 the following:
Notwithstanding any provision of this Section 2.17 to the contrary,
the Stockholders shall not have any liability for any Damage Claims
or Third Party Claims which arise from claims against the Company
for goods sold or services provided, provided that such goods or
services were sold and provided by the Company in a good and
workmanlike manner in the Ordinary Course of Business and in
compliance with applicable law and with the standards of ASME, the
relevant manufacturers (when provided), and all of the Company's
applicable professional certificates;
(ii) Sections 2.28 is hereby amended by adding a new Subsection to
the end thereof as follows:
(h) Notwithstanding any provision of Section 2.27(d) or this Section
2.28 to the contrary, the Parties hereby acknowledge and agree that
the Stockholders shall not be liable for any breaches of the
representations set forth in Subsections 2.27(d) and 2.28, to the
extent of any Damage Claims or Third Party Claims resulting solely
from a failure to comply with the provisions of ERISA, if (i) such
failure to comply is caused by an error or omission of an
independent third party service provider in connection with the
implementation or administration of any Company ERISA Benefit Plan,
and (ii) the Stockholders are unaware of the failure to comply as of
the Closing Date;
(iii) Article III is hereby amended by inserting a new Section 3.07
at the end thereof as follows:
Section 3.07 SEC FILINGS; DISCLOSURE. Invatec has filed with
the Securities and Exchange Commission all material forms,
statements, reports and documents required to be filed by it under
each of the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and the respective rules and
regulations thereunder, all of which, as amended, if applicable,
complied when filed in all material respects with all applicable
requirements of the appropriate Act and the rules and regulations
thereunder.
(iv) Articles IV, V and XI are hereby deleted in their entirety;
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(v) Section 6.04(a) is hereby deleted in its entirety, and
substituted therefore is the following:
Section 6.04 LIMITATIONS ON DAMAGE CLAIMS. (a) In the event
Invatec should have any Damage Claim hereunder following the
Effective Time against any Stockholder which does not involve an
Invatec Indemnified Loss (each such Damage Claim not involving an
Invatec Indemnified Loss being an "Invatec Unindemnified Loss"),
that Stockholder will not be liable to Invatec on account of that
Invatec Unindemnified Loss unless the liability of that Stockholder
in respect of that Invatec Unindemnified Loss, when aggregated with
the liability of all Stockholders in respect of the sum of (i) all
Invatec Unindemnified Losses and (ii) all Invatec Indemnified Losses
under SECTION 7.02, exceeds, and only to the extent the aggregate
amount of all those Invatec Unindemnified Losses and Invatec
Indemnified Losses does exceed, the Threshold Amount. With respect
to General Claims, after there have occurred aggregate Invatec
Unindemnified Losses and Invatec Indemnified Losses in the amount of
the Threshold Amount, the Stockholders will be obligated to
indemnify the Invatec Indemnified Parties from and against further
such Invatec Unindemnified Losses and Invatec Indemnified Losses up
to the Ceiling Amount. With respect to Environmental Claims, after
there have occurred aggregate Invatec Unindemnified Losses and
Invatec Indemnified Losses in the amount of the Threshold Amount,
the Stockholders will be obligated to indemnify the Invatec
Indemnified Parties from and against further such Invatec
Unindemnified Losses and Invatec Indemnified Losses up to an
aggregate amount of One Hundred Thousand and No/100 Dollars
($100,000.00)); thereafter, the Stockholders will not be obligated
to indemnify the Invatec Indemnified Parties from and against any
further such Invatec Unindemnified Losses and Invatec Indemnified
Losses until there have occurred additional aggregate Invatec
Unindemnified Losses and Invatec Indemnified Losses in the amount of
One Hundred Thousand and No/100 Dollars ($100,000.00), after which
the Stockholders will once again be obligated to indemnify the
Invatec Indemnified Parties from and against further such Invatec
Unindemnified Losses and Invatec Indemnified Losses up to the
Ceiling Amount. In no event shall (i) the aggregate liability of the
Stockholders under this Agreement, including SECTION 7.02, exceed
the Ceiling Amount or (ii) the aggregate liability of each
Stockholder under this Agreement, including SECTION 7.02, exceed
that Stockholder's Pro Rata Share of the Ceiling Amount. For
purposes of determining the amount of Invatec Unindemnified Losses
and Invatec Indemnified Losses, no effect will be given to any
resulting Tax benefit to Invatec or any other Invatec Indemnified
Party nor any insurance proceeds received by any Invatec Indemnified
Party as compensation for any claim except to the extent of any
insurance proceeds actually received by Invatec or the Surviving
Company, and to the extent permitted by applicable law without
impacting the insurance coverage of Invatec or the Surviving
Company, their respective rights to such proceeds, or the
subrogation rights of any insurer. If an Invatec Indemnified Party
receives payment from a Stockholder hereunder with respect to a
claim for which the Invatec Indemnified Party has or may have
insurance, then the Invatec Indemnified Party shall assign to
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such Stockholder, without recourse, representation or warranty, any
claims the Invatec Indemnified Party has under such insurance, and
shall cooperate with such Stockholder, at such Stockholder's sole
cost and expense, to the extent reasonably requested by such
Stockholder in pursuing such claim.
(vi) Article VI is hereby amended by adding a new Section 6.05,
which shall provide as follows:
Section 6.05 CREDIT FOR YEARS OF SERVICE. For purposes of
providing benefits to employees of the Company after the Effective
Time, Invatec shall, to the extent permitted by applicable law,
credit such employees for years of service at the Company prior to
the Effective Time for purposes of eligibility and benefit amounts
or privileges paid or provided.
(vii) Section 7.02(a) is hereby amended by inserting at the end
thereof prior to parenthetical definition of "Invatec Indemnified Loss"
the following:
or (iii) notwithstanding any provision to the contrary contained
herein, or any disclosure or disclaimer set forth in the Disclosure
Statement, or any analysis, data or information contained in any
environmental investigations, studies, audits, reviews and other
analyses conducted by or on behalf of Invatec or any Subsidiary of
Invatec, any Environmental Claim, regardless of whether such
Environmental Claim is a breach of any representation or warranty
hereunder.
(viii)Section 7.06(a) is hereby deleted in its entirety, and
substituted therefore is the following:
Section 7.06 LIMITATIONS ON INDEMNIFICATION. (a)
Notwithstanding the provisions of SECTION 7.02, no Stockholder shall
be required to indemnify or hold harmless any of the Invatec
Indemnified Parties on account of any Invatec Indemnified Loss under
SECTION 7.02 unless the liability of the Stockholders in respect of
that Invatec Indemnified Loss, when aggregated with the liability of
all Stockholders in respect of the sum of (i) all Invatec
Unindemnified Losses and (ii) all Invatec Indemnified Losses under
SECTION 7.02, exceeds, and only to the extent the aggregate amount
of all those Invatec Unindemnified Losses and Invatec Indemnified
Losses does exceed, the Threshold Amount. With respect to General
Claims, after there have occurred aggregate Invatec Unindemnified
Losses and Invatec Indemnified Losses in the amount of the Threshold
Amount, the Stockholders will be obligated to indemnify the Invatec
Indemnified Parties from and against further such Invatec
Unindemnified Losses and Invatec Indemnified Losses up to the
Ceiling Amount. With respect to Environmental Claims, after there
have occurred aggregate Invatec Unindemnified Losses and Invatec
Indemnified Losses in the amount of the Threshold Amount, the
Stockholders will be obligated to indemnify the Invatec Indemnified
Parties from and against further
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such Invatec Unindemnified Losses and Invatec Indemnified Losses up
to an aggregate amount of One Hundred Thousand and No/100 Dollars
($100,000.00); thereafter, the Stockholders will not be obligated to
indemnify the Invatec Indemnified Parties from and against any
further such Invatec Unindemnified Losses and Invatec Indemnified
Losses until there have occurred additional aggregate Invatec
Unindemnified Losses and Invatec Indemnified Losses in the amount of
One Hundred Thousand and No/100 Dollars ($100,000.00), after which
the Stockholders will once again be obligated to indemnify the
Invatec Indemnified Parties from and against further such Invatec
Unindemnified Losses and Invatec Indemnified Losses up to the
Ceiling Amount. In no event shall (i) the aggregate liability of the
Stockholders under this Agreement, including SECTION 7.02, exceed
the Ceiling Amount, or (ii) the aggregate liability of each
Stockholder under this Agreement, including SECTION 7.02, exceed
that Stockholder's Pro Rata Share of the Ceiling Amount. For
purposes of determining the amount of Invatec Indemnified Losses, no
effect will be given to any resulting Tax benefit to any Invatec
Indemnified Party nor any insurance proceeds received by any Invatec
Indemnified Party as compensation for any claim except to the extent
of any insurance proceeds actually received by Invatec or the
Surviving Company, and to the extent permitted by applicable law
without impacting the insurance coverage of Invatec or the Surviving
Company, their respective rights to such proceeds, or the
subrogation rights of any insurer. If an Invatec Indemnified Party
receives payment from a Stockholder hereunder with respect to a
claim for which the Invatec Indemnified Party has or may have
insurance, then the Invatec Indemnified Party shall assign to such
Stockholder, without recourse, representation or warranty, any
claims the Invatec Indemnified Party has under such insurance, and
shall cooperate with such Stockholder, at such Stockholder's sole
cost and expense, to the extent reasonably requested by such
Stockholder in pursuing such claim.
(ix) Section 10.07 is hereby amended by (A) deleting therefrom all
references to "Southern District of Texas, Houston Division" and
substituting therefor the phrase "Southern District of Texas, Corpus
Christi Division" and (B) deleting therefrom all remaining references
to"Texas, County of Harris" and substituting therefor references to
"Nueces County, Texas."
PARAGRAPH 9. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within
ninety (90) days after the Closing Date, Invatec shall deliver to the
Stockholders an unaudited balance sheet of the Company, prepared as of the
Closing Date (the "Post-Closing Financial Statements"). These Post-Closing
Financial Statements shall become final and binding on the Parties on the 15th
day following receipt thereof by the Stockholder unless a Stockholder furnishes
written notice of his disagreement ("Notice of Disagreement") to Invatec prior
to such date. Any Notice of Disagreement shall specify in detail the nature of
any disagreement so asserted. If a Notice of Disagreement is sent by a
Stockholder to Invatec in accordance with this PARAGRAPH 5, then the
Post-Closing Financial Statements shall become final and binding upon the
Parties on the earlier to occur of: (i) the date the Parties resolve in writing
any differences they have with respect to any matter specified in the Notice of
Disagreement, or (ii) the date any disputed matters are finally resolved in
writing by the
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<PAGE>
Accounting Firm. During the 10-day period following the delivery of a Notice of
Disagreement, the Parties shall seek in good faith to resolve in writing any
differences which they may have with respect to any matter specified in the
Notice of Disagreement. If, at the end of such 10-day period (or such longer
period of time as the Parties may agree upon in writing), the Parties have not
reached agreement on such matters, the matters which remain in dispute, together
with copies of this Agreement, the Post-Closing Financial Statements, and the
Notice of Disagreement, shall be submitted, within five (5) days following the
expiration of such 10-day period (or any agreed upon extension thereof), to the
Accounting Firm for review and resolution. In connection with such submission,
Invatec and each Stockholder shall promptly execute any waivers, releases,
indemnification agreements or fee agreements requested by the Accounting Firm.
All proceedings conducted by the Accounting Firm shall be conducted at the
offices of the Accounting Firm in Houston, Texas. The Accounting Firm shall
render a decision resolving the matters in dispute as soon as practicable
following the date of the submission to the Accounting Firm. The cost of any
proceeding (including the fees of the Accounting Firm but excluding the fees and
disbursements of each Party's independent auditors and counsel) pursuant to this
PARAGRAPH 5 shall be borne one-half by Invatec and one-half, jointly and
severally, by the Stockholders. The fees and disbursements of Stockholders'
independent auditors and counsel incurred in connection with this PARAGRAPH 5
shall be borne, jointly and severally, by Stockholders, and the fees and
disbursements of Invatec's independent auditors and counsel incurred in
connection with this PARAGRAPH 5 shall be borne by Invatec. The final
determination as described in any of the procedures set forth hereinabove shall
constitute the "Final Post-Closing Financial Statements." Stockholders hereby
agree, jointly and severally, to deliver to Invatec within ten (10) business
days of delivery of the Final Post-Closing Financial Statements to Invatec and
to Stockholders, an aggregate amount equal to the amount, if any, by which One
Million Two Hundred Seventeen Thousand Dollars ($1,217,000) exceeds the Working
Capital, as set forth in the Final Post-Closing Financial Statements, it being
hereby agreed that up to one-half (1/2) of the amount paid to Invatec by each
Stockholder may be paid in shares of Invatec Common Stock (valued at the Agreed
Closing Value of Invatec Stock). Conversely, Invatec hereby agrees to deliver to
each Stockholder, within ten (10) business days of delivery of the Final
Post-Closing Financial Statements to Invatec and to Stockholders, such
Stockholder's Pro Rata Share of the amount, if any, by which the Working
Capital, as set forth in the Final Post-Closing Financial Statements, exceeds
One Million Two Hundred Seventeen Thousand Dollars ($1,217,000), it being hereby
agreed that at least one-half (1/2) of the amount paid to each Stockholders
shall be paid in shares of Invatec Common Stock (valued at the Agreed Closing
Value of Invatec Stock). The Final Post-Closing Financial Statements shall also
set forth the amount of Indebtedness of the Company as of the Effective Time,
and the amount of cash delivered pursuant to SUBPARAGRAPH 2(A)(IV) hereof shall
be decreased by the amount of any Indebtedness other than the Indebtedness to
Stockholders described in SCHEDULE II. Payment of the appropriate amount shall
be made simultaneously with the payment based on Working Capital Adjustment
described above. Determinations hereunder shall be consistent with the
methodology reflected in SCHEDULES I and II.
PARAGRAPH 10. POST-CLOSING ADJUSTMENT OF VALUE OF INVATEC COMMON STOCK.
Notwithstanding the foregoing or any provision hereof to the contrary, if the
Current Market Price as of the Subsequent Measurement Date is less than the
Agreed Closing Value of Invatec Stock, then Invatec will pay each Stockholder
for each share of Invatec Common Stock issued to such Stockholder in the
Acquisition (after giving effect to any adjustment pursuant to PARAGRAPH 5) and
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<PAGE>
still owned by such Stockholder as of the Subsequent Measurement Date, the
amount by which the Agreed Closing Value of Invatec Stock exceeds the greater of
(a) the Current Market Price as of the Subsequent Measurement Date or (b) the
Current Market Price as of the Closing Date. The Parties acknowledge and agree
that the foregoing calculation cannot result in a payment to Stockholders
greater than $2.687 per share of Invatec Common Stock. At least one-half (1/2)
of the payment, if any, to be made by Invatec pursuant to this PARAGRAPH 6,
shall be made by Invatec issuing to each Stockholder Invatec Common Stock at a
per share price equal to the Current Market Price as of the Subsequent
Measurement Date. The Parties acknowledge and agree that no payment shall be due
from Invatec with respect to any shares of Invatec Common Stock sold prior to
the expiration of one year from the date hereof.
PARAGRAPH 11. OFFSET. To the extent permitted by applicable law, and
subject to the limits on Damage Claims and on indemnification claims in SECTION
6.04 and SECTION 7.06 of the Uniform Provisions, all amounts due and owing to a
Stockholder under this Agreement shall be subject to offset by Invatec to the
extent of any damages incurred as a result of any Stockholder's breach of this
Agreement or any document, instrument, or agreement executed by any Stockholder
in connection herewith, commencing on the tenth (10th) day after Invatec sends
written notice to the Stockholders of the alleged breach, unless Stockholders
cure same within such 10-day period. Each Stockholder hereby acknowledges and
agrees that but for the right of offset contained in this PARAGRAPH 7, Invatec
would not have entered into this Agreement or any of the transactions
contemplated herein.
PARAGRAPH 12. SECURITIES LAWS.
(A) EACH STOCKHOLDER'S REPRESENTATIONS AND WARRANTIES CONCERNING
SECURITIES. As of the date hereof, each Stockholder hereby makes the following
representations and warranties to and for the benefit of Invatec: (i) that such
Stockholder has been provided with copies of Invatec's Prospectus dated June 10,
1998, as supplemented (the "Prospectus"), and has been provided as much time and
opportunity as he deemed appropriate to review and study such materials, and to
consult with Invatec regarding the merits and risks of the transactions
contemplated by this Agreement; (ii) that such Stockholder has had adequate
opportunity to ask questions of and receive answers from the officers of Invatec
pertaining to the purchase of the Invatec Common Stock pursuant to this
Agreement, and (iii) all such questions have been answered to the satisfaction
of such Stockholder.
(B) TRANSFER RESTRICTIONS. Mr. Gore hereby agrees that except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this PARAGRAPH 8(B) (or trusts for the benefit of a Stockholder or
family members, or trusts in which a Stockholder is both the grantor and the
beneficiary, the trustees of which so agree), for a period of twelve (12) months
from the Closing Date, Mr. Gore will not sell, assign, exchange, transfer,
appoint, or otherwise dispose of the shares of Invatec Common Stock received by
Mr. Gore pursuant to this Agreement. The certificates evidencing the Invatec
Common Stock delivered to Mr. Gore pursuant to this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Invatec may deem necessary or appropriate:
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<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
WITHOUT THE WRITTEN CONSENT OF INVATEC, AND INVATEC SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE EXPIRATION OF
TWELVE (12) MONTHS FROM THE DATE OF THIS CERTIFICATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, INVATEC AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
Invatec represents and warrants to Mr. Collier that the shares of Invatec Common
Stock delivered to Mr. Collier in payment of the Acquisition Consideration will
be fully registered stock with the SEC, freely transferable by Mr. Collier at
any time without limitation, except as otherwise restricted under Rule 145
promulgated under the Securities Act and other applicable securities laws.
PARAGRAPH 13. MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement
may be executed in multiple counterparts, each of which will be an original, but
all of which together will constitute one and the same instrument. For purposes
of the Agreement and all documents, instruments and agreements executed in
connection herewith, facsimile signatures shall be deemed to be original
signatures. In addition, if any Party executes facsimile copies of this
Agreement or any documents , instruments of agreements executed in connection
herewith, such copies shall be deemed originals.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: _______________________________________
John L. King, Vice President
INVATEC SUB:
COLLIER ACQUISITION, INC.
By: _______________________________________
John L. King, Vice President
STOCKHOLDERS:
___________________________________
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<PAGE>
ROBERT T. COLLIER, JR.
___________________________________
FRANK H. GORE
THE COMPANY:
COLLIER EQUIPMENT CORPORATION
By:_____________________________
Robert T. Collier, Jr., President
The undersigned, the spouses of each of Mr. Collier and Mr. Gore,
are fully aware of, understand, and fully consent and agree to the provisions of
this Merger Agreement, and its binding effect upon any community or other
property interests that they may own in the Company Capital Stock (or
alternatively, in order to confirm that they have no right, title or interest,
legal or beneficial, in the shares of Company Capital Stock standing in the
names of Mr. Collier and Mr. Gore), and their awareness, understanding, consent
and agreement are evidenced by their execution hereof.
_______________________________
NAME:_________________________,
SPOUSE OF ROBERT T. COLLIER, JR.
_______________________________
NAME:_________________________,
SPOUSE OF FRANK H. GORE
Schedule I - Working Capital
Schedule II - Transaction Economics
Schedule 3.04 - Capital Stock of Invatec
Schedule 3.05 - Subsidiaries of Invatec
Exhibit A - Initial Financial Statements
EXHIBIT 2.2(B)
AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO MERGER AGREEMENT (the "Amendment") is executed effective
as of the 20th day of August, 1998, by and among INNOVATIVE VALVE TECHNOLOGIES,
INC., a Delaware corporation ("Invatec"), CECORP, INC., a Delaware
corporation and successor-by-merger to Collier Acquisition, Inc. and Collier
Equipment Corporation, ROBERT T. COLLIER, JR., an individual residing in Texas,
and FRANK H. GORE, an individual residing in Texas. All defined terms contained
herein shall have the same meanings as contained in that certain Merger
Agreement dated effective July 9, 1998, executed by Invatec, Collier
Acquisition, Inc., Collier Equipment Corporation, Mr. Collier and Mr. Gore (the
"Merger Agreement"), except as otherwise specifically indicated herein.
WHEREAS, each of the parties has determined that it is in his or its best
interest to modify the terms of the Merger Agreement with respect to the
post-closing adjustment to the value of the Invatec Common Stock, as hereinafter
set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows
i. Paragraph 6 of the Merger Agreement is hereby deleted in its entirety,
and substituted therefor is the following:
"PARAGRAPH 6. POST-CLOSING ADJUSTMENT OF VALUE OF INVATEC COMMON
STOCK. Notwithstanding the foregoing or any provision hereof to the
contrary, if the Current Market Price as of the Subsequent Measurement
Date is less than the Agreed Closing Value of Invatec Stock, then Invatec
will pay each Stockholder for each share of Invatec Common Stock issued to
such Stockholder in the Acquisition (after giving effect to any adjustment
pursuant to PARAGRAPH 5) and still owned by such Stockholder as of the
Subsequent Measurement Date, the amount by which the Agreed Closing Value
of Invatec Stock exceeds the greater of (a) the Current Market Price as of
the Subsequent Measurement Date or (b) Two Dollars and 50/100 ($2.50). The
Parties acknowledge and agree that the foregoing calculation cannot result
in a payment to Stockholders greater than Seven and 50/100 Dollars ($7.50)
per share of Invatec Common Stock. At least one-half (1/2) of the payment,
if any, to be made by Invatec pursuant to this PARAGRAPH 6, shall be made
by Invatec issuing to each Stockholder Invatec Common Stock at a per share
price equal to the Current Market Price as of the Subsequent Measurement
Date. The Parties acknowledge and agree that no payment shall be due from
Invatec with respect to any shares of Invatec Common Stock sold prior to
the expiration of one year from the date of the Merger Agreement."
<PAGE>
ii. Paragraph 8(B) of the Merger Agreement is hereby deleted in its
entirety, and substituted therefor is the following:
Invatec represents and warrants to Stockholders that the shares of Invatec
Common Stock delivered to Stockholders in payment of the Acquisition
Consideration will be fully registered stock with the SEC, freely
transferable by Stockholders at any time without limitation, except as
otherwise restricted under Rule 145 promulgated under the Securities Act
and other applicable securities laws.
iii. The parties hereby acknowledge and agree that the closing price of
the Invatec Common Stock as of August 19, 1998, was three and three-fourths
($3.75).
iv. All other terms, conditions and covenants contained in the Merger
Agreement shall remain in full force and effect except as expressly amended
herein. The parties hereby authorize, adopt, ratify, confirm and approve the
Acquisition on the terms and conditions set forth in the Merger Agreement,
except as the same are expressly amended hereby.
v. Each of the undersigned representatives of each party hereto represents
and warrants that his signature constitutes the valid and binding act of such
party, and that he has been duly authorized, empowered and directed to execute
and deliver this Amendment.
vi. This Amendment embodies the entire agreement and understanding among
the parties relating to the subject matter hereof, and supersedes all prior
proposals, negotiations, agreements, commitments and understandings relating to
such subject matter. There are no unwritten agreements among the parties. This
Amendment, when executed by the parties hereto, shall be binding upon and inure
to the benefit of the parties hereto, and their respective personal
representatives, successors and assigns.
vii. This Amendment may be executed simultaneously in a number of
identical counterparts, each of which shall be an original and all of which
together shall constitute but one and the same instrument. Facsimile signatures
shall be treated as original signatures for all purposes relating to this
Amendment.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered to be
effective as of the date first set forth above.
INNOVATIVE VALVE
TECHNOLOGIES, INC.
By: _________________________________
Charles F. Schugart,
Senior Vice President
CECORP, INC.
By: _________________________________
Charles F. Schugart,
Senior Vice President
____________________________________
ROBERT T. COLLIER, JR.
____________________________________
FRANK H. GORE
EXHIBIT 2.3(A)
- - ------------------------------------------------------------------------------
MERGER AGREEMENT
DATED AS OF JULY 9, 1998
BY AND AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
COLONIAL ACQUISITION, INC.
AND
COLONIAL PROCESS EQUIPMENT CO., INC.,
COLONIAL SERVICE COMPANY, INC.
AND
THEIR SOLE STOCKHOLDER, MARTIN T. DOONEY
- - ------------------------------------------------------------------------------
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is entered into as of the 9th day
of July, 1998, by and among INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware
corporation ("Invatec"), COLONIAL ACQUISITION, INC, a Delaware corporation
("Invatec Sub"), MARTIN T. DOONEY, an individual whose address is 11 Wolf Road,
Buzzards Bay, Massachusetts 02532 (the "Stockholder"), COLONIAL PROCESS
EQUIPMENT CO., INC., a Massachusetts corporation whose address is 231 Norfolk
Street, Walpole, Massachusetts 02081 ("Equipment"), and COLONIAL SERVICE
COMPANY, INC., a Massachusetts corporation whose address is 231 Norfolk Street,
Walpole, Massachusetts 02081 ("Service") (Equipment and Service being
hereinafter referred to individually and collectively as the "Company").
Invatec, Invatec Sub, the Stockholder and the Company are sometimes hereinafter
referred to collectively as the "Parties" or individually as a "Party."
PRELIMINARY STATEMENT
WHEREAS, the Stockholder is the legal and beneficial owner and holder of
Fifty-One (51) shares of Common Stock of Equipment and Fifty-One (51) shares of
Common Stock of Service, which constitutes all of the issued and outstanding
Capital Stock of each of those corporations; and
WHEREAS, the Parties have determined that it is in their best interests to
effect a merger pursuant to which the Company will merge with and into Invatec
Sub on the terms and conditions set forth herein (such merger being the
"Acquisition");
WHEREAS, the Parties intend for the Acquisition to qualify as a tax-free
reorganization under Section 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations, warranties and undertakings contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
PARAGRAPH 14. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this PARAGRAPH 1.
Capitalized terms used in this Agreement and not defined below in this PARAGRAPH
1 have the meanings assigned to them in the preamble of this Agreement, the
Preliminary Statement or ARTICLE IX of the Uniform Provisions, as the case may
be.
"ACCOUNTING FIRM" means Arthur Andersen, LLP in Houston, Texas.
"ACQUIRED BUSINESS" means the business conducted by the Company. For
purposes of ARTICLE VIII of the Uniform Provisions, the term "Acquired
Business" shall include any business conducted by the Company during the
twelve (12) months preceding the Effective Time.
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<PAGE>
"ACQUISITION CONSIDERATION" has the meaning specified in
SUBPARAGRAPH 2(A)(IV)(1).
"CEILING AMOUNT" means One Million One Hundred Eighty-Five Thousand
and No/100 Dollars ($1,185,000.00).
"CLOSING" has the meaning specified in PARAGRAPH 3.
"CLOSING DATE" means July 31, 1998, or such other date as to which
Invatec and the Stockholder may agree.
"COMPANY" has the meaning specified in the preamble of this
Agreement.
"COMPANY CAPITAL STOCK" means the Common Stock, no par value per
share, of each of Equipment and Service, considered collectively.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDER" means Gelerman,
Cashman & Donahue of Dedham, Massachusetts.
"COUNSEL FOR INVATEC" means Boyer, Ewing & Harris Incorporated of
Houston, Texas.
"CURRENT BALANCE SHEET" means the combined balance sheets of
Equipment and Service as of the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means May 31, 1998.
"CURRENT MARKET PRICE" means the average closing price per share of
Invatec Common Stock (as reported by the principal securities exchange or
trading market, as the case may be, on which the Invatec Common Stock is
then traded) during the five consecutive trading days immediately
preceding the date as of which the "Current Market Price" is to be
determined.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and the Stockholders and delivered to Invatec prior to the
execution and delivery of this Agreement by Invatec in which either (a)
exceptions are taken to any of certain of the representations and
warranties made by the Company or the Stockholders herein or (b) it is
confirmed that no exception is taken to that representation and warranty.
"EFFECTIVE TIME" means the Effective Time of the Merger, as such
term is defined in SUBPARAGRAPH 2(A)(II).
"EMPLOYMENT AGREEMENT" means the Employment Agreement to be entered
into as of the Effective Time between Invatec and Martin T. Dooney, in the
form thereof attached hereto as EXHIBIT A.
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<PAGE>
"EXPIRATION DATE" means September 15, 1998.
"FORMER STOCKHOLDER DEBT" means the agreed current value of the debt
owed to Richard P. Capobianco, a former stockholder of the Company,
pursuant to the noncompetition provisions of his Redemption Agreement with
the Company dated March 19, 1997.
"INDEBTEDNESS" means all items, except for items of capital stock,
surplus or general contingency, which in accordance with GAAP would be
included on the liability side of the combined balance sheet of the
Company, other than accounts payable, accrued expenses and other trade
payables. The Indebtedness of the Company at February 28, 1998 is
$336,188, determined as provided in SCHEDULE I hereto.
"INITIAL FINANCIAL STATEMENTS" means (a) the combined balance sheets
of Equipment and Service as of August 31, 1997 and 1996 and the related
combined statements of income and retained earnings for each of the
Company's fiscal years in the two-year period ended August 31, 1997, and
(b) the Current Balance Sheet and the related combined income statements
for the two months ended on the Current Balance Sheet Date, which the
Company has delivered to Invatec. The Company's financial statements for
the nine month period ended May 31, 1998, and the one year periods ended
August 31, 1997 and 1996 are attached hereto as EXHIBIT B.
"INVATEC SUB" has the meaning set forth in the preamble of this
Agreement.
"LEASE means that five year, triple net lease covering the real
property owned by Lighthouse Realty Trust (the "Trust") and used by the
Company in its business, to be entered into by Invatec Sub on the Closing
Date in the form attached hereto as EXHIBIT C.
"MERGER" means a transaction as a result of which the Acquisition
is effected and in which the Company is merged with and into Invatec Sub.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the
business of the Company and the Company Subsidiaries, consistent with past
customs and practice (including with respect to quantity and frequency).
"REORGANIZATION EXPENSES" means expenses solely and directly related
to the reorganization, such as legal and accounting fees, appraisal fees,
administrative costs and transfer taxes.
"RESPONSIBLE OFFICER" means (i) Martin T. Dooney for Equipment or
Service, and (ii) John L. King for Invatec.
"SURVIVING COMPANY" means Invatec Sub, which is to be
designated in the Certificates of Merger as the Surviving Company.
"THRESHOLD AMOUNT" means one percent (1.0%) of the Ceiling Amount.
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<PAGE>
"UNIFORM PROVISIONS" means the Uniform Provisions for Stock
Acquisitions By Subsidiary Merger attached hereto as ANNEX 1.
"WORKING CAPITAL" means the current assets minus the current
liabilities of the Company determined in accordance with GAAP (calculated
as provided in SCHEDULE II attached hereto). Current liabilities shall
expressly include all accrued and unpaid tax liability, and exclude
current maturities of long-term Indebtedness and the current portions
under capital leases. The Working Capital on February 28, 1998 is
$358,162, determined as provided in SCHEDULE II attached hereto.
PARAGRAPH 15. THE ACQUISITION. (A) THE MERGER. (i) CERTIFICATES OF
MERGER. Subject to the terms and conditions hereof, the Company will cause the
Certificates of Merger to be duly executed and delivered on the Closing Date and
filed on or promptly after the Closing Date with the Secretary of State of
Massachusetts and the Secretary of State of Delaware.
(ii) THE EFFECTIVE TIME. The "Effective Time" will be upon (a) the
filing of the Certificate of Merger with the Secretary of State of
Massachusetts, and issuance by the Secretary of State of Massachusetts of a
Certificate of Merger with respect thereto, and (b) the filing of the
Certificate of Merger with the Secretary of State of Delaware, and issuance by
the Secretary of State of Delaware of a Certificate of Merger with respect
thereto, and in any event, on or as promptly as practicable after the Closing
Date.
(iii) CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (1) the Company will be merged with and into Invatec Sub in accordance
with the provisions of the General Corporation Law of the State of Delaware, (2)
the Company will cease to exist as a separate legal entity, (3) Invatec Sub will
be the Surviving Company and, as such, will, all with the effect provided by the
General Corporation Law of the State of Delaware (a) possess all the properties
and rights, and be subject to all the restrictions, duties and obligations, of
the Company and Invatec Sub and (b) be governed by the laws of the State of
Delaware, (4) the Charter Documents of Invatec Sub then in effect will become
and thereafter remain (until changed in accordance with (a) applicable law (in
the case of the Certificate of Incorporation) or (b) their terms (in the case of
the Bylaws)) the Charter Documents of the Surviving Company, except that the
Certificate of Incorporation shall be amended to change the name of the
Surviving Company to "Colonial Process Equipment & Service Co., Inc." (5) the
initial member of the Board of Directors of the Surviving Company will be
William E. Haynes, and he will hold the office of director of the Surviving
Company, subject to the provisions of the applicable laws of the State of
Massachusetts and the Charter Documents of the Surviving Company, and (6) the
initial officers of the Surviving Company will be as set forth below, and each
of those persons will serve in each office specified for that person below,
subject to the provisions of the Charter Documents of the Surviving Company,
until that person's successor is duly elected to, and, if necessary, qualified
for, that office:
OFFICE: NAME:
Chairman of the Board & Chief Executive Officer. William E. Haynes
President....................................... Martin T. Dooney
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<PAGE>
Chief Financial Officer, Senior Vice President,
Treasurer and Secretary......................... Charles F. Schugart
Vice President & Assistant Secretary............ Douglas R. Harrington, Jr.
Vice President & Assistant Secretary............ Frank L. Lombard
Vice President & Assistant Secretary............ John L. King
(iv) EFFECT OF THE MERGER ON COMPANY CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(1) the shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right
to receive, subject to the provisions of PARAGRAPH 5, without interest, on
surrender of the certificates evidencing those shares, the following (the
"Acquisition Consideration"):
(a) shares of Invatec Common Stock in an aggregate amount equal to
(a) Five Hundred Ninety-Two Thousand Five Hundred Dollars ($592,500)
divided by (b) the Current Market Price of Invatec Stock on the
Closing Date; and
(b) cash or other immediately available funds in the aggregate
amount of Three Hundred Seventy-One Thousand Three Hundred and
Twelve Dollars ($371,312);
whereupon all such shares of Company Capital Stock shall cease to be
outstanding and to exist, and shall be canceled and retired;
(2) each share of Company Capital Stock held in the treasury of the
Company shall cease to be outstanding and to exist and shall be canceled
and retired; and
(3) each share of capital stock of Invatec Sub issued and
outstanding immediately prior to the Effective Time will be converted into
one share of common stock of the Surviving Company and the common stock of
the Surviving Company issued on that conversion will constitute all the
issued and capital stock of the Surviving Company.
Each holder of a certificate representing shares of Company Capital Stock
immediately prior to the Effective Time (which Stockholder hereby covenants and
agrees shall only be him) will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of PARAGRAPH 5, such holder's pro rata share of the
Acquisition Consideration.
Invatec will cause its transfer agent to deliver to each Stockholder the
certificate evidencing such Stockholder's shares of Invatec Common Stock as
promptly as practicable after the Closing Date; however, such Stockholder shall
be treated for all purposes as having been the record holder of such shares as
of the Effective Time.
(v) DELIVERY, EXCHANGE AND PAYMENT. On the Closing Date, the
Stockholder, as the holder of the certificates representing all of the
outstanding shares of Company Capital Stock, will receive, on surrender of those
certificates (duly endorsed in blank, or accompanied by stock
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<PAGE>
powers in blank duly executed by Stockholder, and with all necessary transfer
tax and other revenue stamps, acquired at Stockholder's expense, affixed and
canceled) to Invatec, free and clear of any restrictions or conditions to
transfer or assignment, rights of first refusal, mortgages, liens, pledges,
charges, encumbrances, equities, claims, covenants, conditions, restrictions,
options or agreements, subject to the provisions of PARAGRAPH 5, the Acquisition
Consideration. Until any certificate representing Company Capital Stock has been
surrendered and replaced pursuant to this SUBPARAGRAPH 2(A)(V), that certificate
will, for all purposes, be deemed to evidence only the right to receive the pro
rata share of the Acquisition Consideration evidenced thereby. The Stockholder
shall cure any deficiencies in the endorsement of the certificates or other
documents of conveyance respecting, or in the stock powers accompanying, the
certificates representing Company Capital Stock surrendered by him.
(B) INCOME AND OTHER TAXES; TRANSACTION EXPENSES. Stockholder shall pay
all income, documentary, transfer, stamp, revenue or other taxes arising out of
the transfer, surrender or cancellation of the Company Capital Stock or receipt
of payments therefor, or any consideration delivered in connection therewith.
Neither Invatec, the Surviving Company nor the Company shall be responsible for
any business, occupation, income, withholding or similar tax, or any taxes of
any kind, of the Stockholder, including without limitation any income taxes
assessed against the Stockholder which result from the failure of the
Acquisition to qualify as a tax-free reorganization. Invatec, on the one hand,
and the Stockholder, on the other hand, will each pay their respective legal,
accounting, tax, broker's or other advisors' expenses incurred in pursuing and
consummating the Acquisition; provided, however, that Invatec will pay one-half
of the Reorganization Expenses incurred by the Stockholder after June 22, 1998,
up to $15,000. In no event shall any costs or expenses incurred by the
Stockholder be borne by the Company. In the event that the Acquisition fails to
qualify as a tax-free reorganization for any reason, other than the breach of an
express representation or warranty by a Party, then the Stockholder shall pay
and be solely responsible for any income taxes assessed against the Stockholder
which result from such failure, and Invatec shall pay and be solely responsible
for all income taxes assessed against the Company or the Surviving Company which
result from such failure.
(C) COMPANY DEBT LIMITATION; STOCKHOLDER AND FORMER STOCKHOLDER DEBT. The
Stockholder shall cause the total Indebtedness of the Company to be, immediately
prior to Closing, equal to or less than Three Hundred Thirty-Six Thousand One
Hundred Eighty-Eight Dollars ($336,188), and to consist solely of Indebtedness
described on SCHEDULE I, but exclusive of any prepayment penalties resulting
from or arising out of the prepayment of the Company's Indebtedness in
connection with or as a result of the Acquisition, all of which shall be paid by
the Stockholder. Except for salary accrued in the Ordinary Course of Business,
on the Closing Date there will not be any Indebtedness owed by the Company to
the Stockholder or any affiliate of the Stockholder, and the Stockholder and his
affiliate shall repay to the Company at Closing the Indebtedness owed by him or
such affiliate, as applicable, to the Company. On the date of execution hereof,
the only Indebtedness of the Stockholder or his affiliates to the Company is
$87,000 owed by the Trust, which amount shall be payable by the Trust to Invatec
at Closing. Invatec will pay the Former Stockholder Debt to Mr. Capobianco, at
the Closing and will provide to him health insurance in accordance with the
Company's existing agreement with him.
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(D) LEASE OF REAL ESTATE. At the Closing Invatec Sub will enter into the
Lease for the real property owned by the Trust substantially in the form of
EXHIBIT C attached hereto.
(E) LIFE INSURANCE. The two life insurance policies issued by John Hancock
Insurance Company and maintained by the Company on the lives of the Stockholder
and Ray Santusso, an employee, shall be redeemed for their cash surrender
values. The cash surrender value of the policy covering the Stockholder, in the
approximate amount of $28,000, will be payable to Invatec at the Closing, and
the cash surrender value of the policy covering Mr. Santusso, in the approximate
amount of $32,000, will be paid to Mr. Santusso.
(F) FORWARD SUBSIDIARY MERGER TAX REPRESENTATIONS. The Company and the
Stockholder hereby represent and warrant the following to be true and correct as
of the Effective Time:
(i) The fair market value of the Invatec Common Stock and other
consideration received by the Stockholder will be approximately equal to
the fair market value of the Company Capital Stock surrendered in the
Acquisition.
(ii) There is no plan or intention of the Stockholder to have
Invatec redeem, or have a party related to Invatec acquire, shares of
Invatec Common Stock received in the Acquisition which would reduce the
Stockholder's ownership of a number of shares of Invatec Common Stock
received in the Acquisition to a number of shares having a value, as of
the date of the Acquisition, of less than 50% of the sum of (i) the value
at the Effective Time of all the Company Capital Stock held immediately
prior to the Acquisition by the Stockholders and (ii) the value at the
Effective Time of any other instruments (such as debt of the Company which
is guaranteed by the Stockholder) which are classified for federal income
tax purposes as stock of the Company (collectively, "Shares") and which
are held immediately prior to the Acquisition by the Stockholder. For
purposes of this representation, shares of Company Capital Stock
outstanding immediately prior to the Acquisition include shares redeemed
prior to the Acquisition by reason of this Agreement or otherwise as part
of the Acquisition, and the value of all shares of Company Capital Stock
outstanding immediately prior to the Acquisition shall be determined with
regard to any extraordinary distributions (i.e., distributions with
respect to shares of Company Capital Stock other than regular, normal
dividends) by the Company by reason of this Agreement or otherwise as part
of the Acquisition. For purposes of this representation, a party is
related to Invatec if such party and Invatec would be treated as related
parties within the meaning of Treasury Regulations Section 1.368-1(e)(3).
(iii) Invatec Sub will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Company immediately prior to the
Acquisition. For purposes of this representation, amounts paid by the
Company to the Stockholder in cash or other property, amounts used by the
Company to pay Reorganization Expenses, and all redemptions and
distributions
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(except for regular, normal dividends, if any) made by the Company
immediately preceding the Acquisition, will be included as assets of the
Company held immediately prior to the Acquisition.
(iv) The liabilities of the Company assumed by Invatec Sub and the
liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the Ordinary Course of Business.
(v) The Company and the Stockholder will pay their respective
expenses, if any, incurred in connection with the Acquisition; provided
however, that Invatec will pay one-half of the Reorganization Expenses
incurred by the Stockholder after June 22, 1998, up to $15,000.
(vi) There is no intercorporate indebtedness existing between
Invatec and the Company or between Invatec Sub and the Company that was
issued, acquired or will be settled at a discount.
(vii) The Company is not an investment company. For purposes of this
representation, an investment company means a regulated investment company
(as defined in the Code), a real estate investment trust (as defined in
the Code), or a corporation, 50 percent or more of the value of whose
total assets are stock and securities and 80 percent or more of the value
of whose total assets are assets held for investment within the meaning of
Section 368(a)(2)(F)(iii) of the Code.
(viii)The Company is not under the jurisdiction of a court in a case
under Title 11 of the United States Code, or a receivership, foreclosure,
or similar proceeding in a federal or state court.
(ix) At the Effective Time, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
(x) None of the compensation received by any stockholder-employee of
the Company will be separate consideration for, or allocable to, any of
his shares of Company Capital Stock. None of the shares of Invatec Common
Stock to be received by any stockholder-employee will be separate
consideration for, or allocable to, any employment agreements, and the
compensation paid to any stockholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
PARAGRAPH 16. THE CLOSING. (A) TIME AND PLACE. On or before the
Closing Date, the Parties will take all actions necessary to effect the
Acquisition (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Counsel for Invatec at 10:00 a.m.,
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local time, or at such later time on the Closing Date as Invatec shall specify
by written notice to Stockholders.
(B) STOCKHOLDER'S DELIVERIES. At or before the Closing, Stockholder shall
deliver or cause to be delivered to Invatec the following, all of which shall be
duly executed by all of the parties thereto, other than Invatec, Invatec Sub and
Invatec's third party lender, and shall be in form and content acceptable to the
Parties:
(i) All of the stock certificates evidencing the Company Capital
Stock, with all necessary transfer tax and other revenue stamps acquired
and attached at the expense of the holder of such certificate, together
with irrevocable stock powers in form and content acceptable to Invatec,
duly authorized and executed by the record holder of each such stock
certificate;
(ii) An Affiliate Letter in the form attached hereto as EXHIBIT D
from the Stockholder, duly executed by him with respect to his acquisition
of Invatec Common Stock as part of the Acquisition Consideration;
(iii) The Certificates of Merger to be filed in Massachusetts;
(iv) The Certificate of Merger to be filed in Delaware;
(v) The Employment Agreement;
(vi) The Lease;
(vii) Resignations of all directors and officers of the Company,
effective as of the Effective Time;
(viii)Evidence of the receipt by Mr. Capobianco of payment of the
Former Stockholder Debt amount, together with an executed release by him
of the Company's further payment obligations under the Redemption
Agreement, in form and content acceptable to Invatec;
(ix) The Subordination of Landlord's Lien executed by the Trust in
favor of Invatec's third party lender in the form attached hereto as
EXHIBIT E.
(x) An opinion of counsel issued by Counsel for the Company and the
Stockholder in the form attached as EXHIBIT F;
(xi) No Withholding Certificate duly executed by the Stockholder;
(xii) Certificates of the Secretary or Assistant Secretary of the
Equipment and Service, certifying as to copies of the Articles of
Incorporation and Bylaws of Equipment and Service, and the resolutions of
the Board of Directors of those
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companies and the Stockholder, in form and content reasonably acceptable
to Invatec, authorizing the transactions contemplated herein;
(xiii)Closing Certificate duly executed by the Stockholder in the
form attached hereto as EXHIBIT G;
(xiv) All original promissory notes or other debt instruments
executed by the Company relating to the Indebtedness, together with an
executed release in form and content acceptable to Invatec
(xv) Evidence that the insurance policies described in PARAGRAPH
2(E) have been redeemed;
(xvi) All governmental, lender or other third party approvals to be
delivered by Stockholders as a condition to closing pursuant to ARTICLE V
of the Uniform Provisions, in form and content reasonably acceptable to
Invatec; and
(xvii) All other items required to be delivered hereunder or as may
be requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
(C) INVATEC'S OBLIGATIONS. At the Closing, Invatec will deliver or cause
to be delivered to the Stockholder or other party named below the following, all
of which shall be duly executed by Invatec and Invatec Sub, and shall be in form
and content acceptable to the Parties:
(i) The shares of Invatec Common Stock to be delivered hereunder as
a portion of the Acquisition Consideration (provided that the certificates
evidencing such shares shall be delivered as promptly as practicable after
the Closing);
(ii) Cash or immediately available funds in the aggregate amount of
$256,312, representing the cash portion of the Acquisition Consideration
of $371,312, against which has been credited the $87,000 debt of the Trust
and the $28,000 cash surrender value of the life insurance policy on the
Stockholder, which amounts were payable to Invatec in cash at the Closing;
(iii) The cash surrender value of the insurance policy covering Mr.
Santusso, payable to him, as provided in PARAGRAPH 2(E);
(iv) Cash or immediately available funds in satisfaction of the
Former Stockholder Debt payable to Mr. Capobianco;
(v) Cash or immediately available funds in satisfaction of the
Indebtedness listed on Schedule I to the holders thereof;
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(vi) The Certificates of Merger to be filed in Massachusetts;
(vii) The Certificate of Merger to be filed in Delaware;
(viii)The Employment Agreement;
(ix) The Lease;
(x) Closing Certificate duly executed by Invatec in the form
attached hereto as EXHIBIT H;
(xi) An opinion of counsel issued by Counsel for Invatec, in the
form attached hereto as EXHIBIT I;
(xii) Certificate of the Secretary or Assistant Secretary of Invatec
certifying as to copies of the Certificate of Incorporation and Bylaws of
Invatec attached thereto, and the resolutions of the members of the
Executive Committee of the Board of Directors of Invatec, in form and
content reasonably acceptable to Counsel for the Company and the
Stockholder, authorizing the transactions contemplated herein;
(xiii)Certificate of the Secretary or Assistant Secretary of Invatec
Sub certifying as to copies of the Certificate of Incorporation and Bylaws
of Invatec Sub attached thereto, and the resolutions of the sole director
and sole shareholder of Invatec Sub, in form and content reasonably
acceptable to Counsel for the Company and the Stockholder, authorizing the
transactions contemplated herein; and
(xiv) All other items required to be delivered hereunder or as may
be requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Invatec's representations and warranties set forth herein.
(D) FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Stockholder, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer
reasonably requested by Invatec, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Invatec, for the
purpose of effecting the Acquisition.
PARAGRAPH 17. INCORPORATION OF UNIFORM PROVISIONS. The Uniform Provisions
hereby are incorporated in this Agreement by this reference and constitute a
part of this Agreement with the same force and effect as if set forth at length
herein, subject to the following revisions:
(i) Article III is hereby amended by inserting the following:
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Section 3.07. SEC FILINGS. (a) Invatec has filed with the
Securities and Exchange Commission ("SEC") all material forms,
statements, reports and documents (the "INVATEC SEC FILINGS")
required to be filed by it under the 1934 Act and the rules and
regulations thereunder.
(b) As of its filing date, each Invatec SEC Filing complied as
to form in all material respects with the applicable requirements of
the 1934 Act.
(c) As of its filing date, each Invatec SEC Filing filed
pursuant to the 1934 Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(d) Invatec has previously delivered to the Stockholder copies
of Invatec's prospectus, dated June 10, 1998, as supplemented (the
"PROSPECTUS"). As of its date, the Prospectus did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(e) Invatec's Financial Statements included in the Prospectus
present fairly, in all material respects, the financial position of
Invatec as of the date thereof and the results of operations and
cash flows of Invatec and stockholders' or other owners' equity for
the periods set forth therein and have been prepared in accordance
with GAAP.
(ii) Section 8.01(b) is hereby amended by inserting after the last
sentence of that section, "Notwithstanding the foregoing, if the Stockholder is
terminated without cause after the expiration of the term of his Employment
Agreement with Invatec, so that no lump sum cash payment provided for therein is
paid to the Stockholder, this covenant not to compete shall terminate and be of
no further force or effect."
PARAGRAPH 5. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. (A)
DETERMINATION. Within sixty (60) days after the Closing Date, Invatec shall
deliver to the Stockholder an unaudited combined balance sheet of Equipment and
Service, prepared as of the Closing Date (the "Post-Closing Financial
Statements"). These Post-Closing Financial Statements shall become final and
binding on the Parties on the 15th day following receipt thereof by the
Stockholder unless he furnishes written notice of his disagreement ("Notice of
Disagreement") to Invatec prior to such date. Any Notice of Disagreement shall
specify in detail the nature of any disagreement so asserted. If a Notice of
Disagreement is sent by the Stockholder to Invatec in accordance with this
PARAGRAPH 5, then the Post-Closing Financial Statements shall become final and
binding upon the Parties on the earlier to occur of: (i) the date the Parties
resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Accounting Firm. During the 10-day period
following the delivery of a
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<PAGE>
Notice of Disagreement, the Parties shall seek in good faith to resolve in
writing any differences which they may have with respect to any matter specified
in the Notice of Disagreement. If, at the end of such 10-day period (or such
longer period of time as the Parties may agree upon in writing), the Parties
have not reached agreement on such matters, the matters which remain in dispute,
together with copies of this Agreement, the Post-Closing Financial Statements,
and the Notice of Disagreement, shall be submitted, within five (5) days
following the expiration of such 10-day period (or any agreed upon extension
thereof), to the Accounting Firm for review and resolution. In connection with
such submission, Invatec and each Stockholder shall promptly execute any
waivers, releases, indemnification agreements or fee agreements requested by the
Accounting Firm. All proceedings conducted by the Accounting Firm shall be
conducted at the offices of the Accounting Firm in Houston, Texas. The
Accounting Firm shall render a decision resolving the matters in dispute as soon
as practicable following the date of the submission to the Accounting Firm. The
cost of any proceeding (including the fees of the Accounting Firm but excluding
the fees and disbursements of each Party's independent auditors and counsel)
pursuant to this PARAGRAPH 5 shall be borne one-half by Invatec and one-half by
the Stockholder. The fees and disbursements of Stockholder's independent
auditors and counsel incurred in connection with this PARAGRAPH 5 shall be borne
by Stockholder, and the fees and disbursements of Invatec's independent auditors
and counsel incurred in connection with this PARAGRAPH 5 shall be borne by
Invatec. The final determination as described in any of the procedures set forth
hereinabove shall constitute the "Final Post-Closing Financial Statements."
(B) PAYMENT. The Final Post-Closing Financial Statements shall set forth
the amount of the Company's Working Capital and Indebtedness as of the Effective
Time. Stockholder hereby agrees to deliver to Invatec within ten (10) business
days of delivery of the Final Post-Closing Financial Statements to Invatec and
to Stockholder, the number of shares of Invatec Common Stock determined at the
Current Market Price on the Closing Date (or, if the tax free nature of the
Acquisition would be violated by the delivery of stock, then cash), equal to the
amount, if any, by which the Company's (i) Indebtedness as of the Effective
Time, as set forth in the Final Post-Closing Financial Statements exceeds
$336,188 and (ii) Working Capital as of the Effective Time, as set forth in the
Final Post-Closing Financial Statements, is less than $358,162. Invatec hereby
agrees to deliver to the Stockholder, within ten (10) business days of delivery
of the Final Post-Closing Financial Statements to Invatec and to the
Stockholder, the number of shares of Invatec Common Stock determined at the
Current Market Price on the Closing Date, equal to the amount, if any, by which
the Company's (i) Indebtedness as of the Effective Time as set forth in the
Final Post-Closing Financial Statements is less than $336,188 and (ii) Working
Capital as of the Effective Time, as set forth in the Final Post-Closing
Financial Statements, exceeds $358,162.
Determinations under this PARAGRAPH 5 shall be consistent with the
methodology reflected in SCHEDULES I AND II.
PARAGRAPH 6. OFFSET. To the extent permitted by applicable law, and
subject to the limits on Damage Claims and on indemnification claims in SECTION
6.04 and SECTION 7.06 of the Uniform Provisions, all amounts due and owing to
the Stockholder under this Agreement shall be subject to offset by Invatec to
the extent of any damages incurred as a result of the Stockholder's breach of
this Agreement, commencing on the tenth (10th) day after Invatec sends written
notice to the Stockholder
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of the alleged breach, unless Stockholder cures same within such 10-day period.
The Stockholder hereby acknowledges and agrees that but for the right of offset
contained in this PARAGRAPH 7, Invatec would not have entered into this
Agreement or any of the transactions contemplated herein.
PARAGRAPH 7. SECURITIES LAWS.
(A) STOCKHOLDER'S REPRESENTATIONS AND WARRANTIES CONCERNING SECURITIES. As
of the date hereof, the Stockholder hereby makes the following representations
and warranties to and for the benefit of Invatec: (i) that he has been provided
with copies of Invatec's Prospectus dated June 10, 1998, as supplemented (the "
Prospectus"), and has been provided as much time and opportunity as he deemed
appropriate to review and study such materials, and to consult with Invatec
regarding the merits and risks of the transactions contemplated by this
Agreement; (ii) that he has had adequate opportunity to ask questions of and
receive answers from the officers of Invatec pertaining to the purchase of the
Invatec Common Stock pursuant to this Agreement, and (iii) all such questions
have been answered to the satisfaction of the Stockholder.
(B) TRANSFER RESTRICTIONS. The Stockholder hereby agrees that except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this PARAGRAPH 7(B) (or trusts for the benefit of the Stockholder
or family members, or trusts in which the Stockholder is both the grantor and
the beneficiary, the trustees of which so agree), for a period of twelve (12)
months from the Closing Date, the Stockholder will not sell, assign, exchange,
transfer, appoint, or otherwise dispose of any of the shares of Invatec Common
Stock received by the Stockholder pursuant to this Agreement. The certificates
evidencing the Invatec Common Stock delivered to the Stockholder pursuant to
this Agreement which are subject to this restriction will bear a legend
substantially in the form set forth below and containing such other information
as Invatec may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
WITHOUT THE WRITTEN CONSENT OF INVATEC, AND INVATEC SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE EXPIRATION OF
TWELVE (12) MONTHS FROM THE DATE OF THIS CERTIFICATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, INVATEC AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
PARAGRAPH 8.MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement
may be executed in multiple counterparts, each of which will be an original, but
all of which together will constitute one and the same instrument. For purposes
of the Agreement and all documents, instruments and agreements executed in
connection herewith, facsimile signatures shall be deemed to be original
signatures. In addition, if any Party executes facsimile copies of this
Agreement or any
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documents , instruments of agreements executed in connection herewith, such
copies shall be deemed originals.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: _______________________________________
Name:_____________________________________
Title:______________________________________
INVATEC SUB:
COLONIAL ACQUISITION, INC.
By: _______________________________________
Name:_____________________________________
Title:______________________________________
STOCKHOLDER:
________________________________
MARTIN T. DOONEY
THE COMPANY:
COLONIAL PROCESS EQUIPMENT CO., INC.
By:_______________________________________
Name:_____________________________________
Title:______________________________________
COLONIAL SERVICE COMPANY, INC.
By: ___________________________________
Name:_________________________________
Title: __________________________________
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Schedule I - Indebtedness
Schedule II - Working Capital
Schedule 3.04 - Capital Stock of Invatec
Schedule 3.05 - Subsidiaries of Invatec
Exhibit A - Dooney Employment Agreement
Exhibit B - Certain Company Financial Statements
Exhibit C - Lease
Exhibit D - Affiliate Letter
Exhibit E - Subordination of Landlord's Lien
Exhibit F - Opinion of Counsel of Stockholder and Company
Exhibit G - Closing Certificate of Stockholder
Exhibit H - Closing Certificate of Invatec
Exhibit I - Opinion of Counsel of Invatec
Annex I - Uniform Provisions for Stock Acquisitions By Subsidiary Merger
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EXHIBIT 2.3(B)
AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO MERGER AGREEMENT (the "Amendment") is executed effective
as of the 22nd day of September, 1998, by and among INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), COLONIAL PROCESS SERVICE
& EQUIPMENT CO., INC., a Delaware corporation and successor-by-merger to
Colonial Acquisition, Inc., Colonial Process Equipment Co., Inc. and Colonial
Service Company, Inc., and MARTIN T. DOONEY, an individual residing in
Massachusetts. All defined terms contained herein shall have the same meanings
as contained in that certain Merger Agreement dated effective July 9, 1998,
executed by Invatec, Colonial Acquisition, Inc., Colonial Process Equipment Co.,
Inc., Colonial Service Company, Inc. and Mr. Dooney (the "Merger Agreement"),
except as otherwise specifically indicated herein.
WHEREAS, each of the parties has determined that it is in his or its best
interest to modify the terms of the Merger Agreement to provide for an
adjustment to the value of the Invatec Common Stock delivered as part of the
Acquisition Consideration, as hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
i. The following subparagraph (C) is added to PARAGRAPH 5 of the Merger
Agreement:
"(C) ADJUSTMENT. Notwithstanding the foregoing or any provision
hereof to the contrary, if the Current Market Price as of the one year
anniversary of the Effective Time (the "Subsequent Measurement Date") is
less than Seven and 31/100 Dollars ($7.31) (the "Agreed Closing Value of
Invatec Stock"), then Invatec will pay the Stockholder for each share of
Invatec Common Stock issued to him in the Acquisition (after giving effect
to any adjustment pursuant to this PARAGRAPH 5) and still owned by the
Stockholder as of the Subsequent Measurement Date, the amount by which the
Agreed Closing Value of Invatec Stock exceeds the greater of (a) the
Current Market Price as of the Subsequent Measurement Date or (b) Two
Dollars and 50/100 ($2.50). The Parties acknowledge and agree that the
foregoing calculation cannot result in a payment to the Stockholder
greater than Four and 81/100 Dollars ($4.81) per share of Invatec Common
Stock. At least one-half of the payment, if any, to be made by Invatec
pursuant to this PARAGRAPH 5(C) shall be made by Invatec issuing to the
Stockholder Invatec Common Stock at a per share price equal to the Current
Market Price as of the Subsequent Measurement Date. The Parties
acknowledge and agree that no payment shall be due from Invatec with
respect to any shares of Invatec Common Stock sold prior to the expiration
of one year from the date of the Merger Agreement."
ii. PARAGRAPH 7(B) of the Merger Agreement is hereby amended by deleting
the following:
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"TRANSFER RESTRICTIONS. The Stockholder hereby agrees that except for
transfers to immediate family members who agree to be bound by the
restrictions set forth in this PARAGRAPH 7(B) (or trusts for the benefit
of the Stockholder or family members, or trusts in which the Stockholder
is both the grantor and the beneficiary, the trustees of which so agree),
for a period of twelve (12) months from the Closing Date, the Stockholder
will not sell, assign, exchange, transfer, appoint, or otherwise dispose
of any of the shares of Invatec Common Stock received by the Stockholder
pursuant to this Agreement. The certificates evidencing the Invatec Common
Stock delivered to the Stockholder pursuant to this Agreement which are
subject to this restriction will bear a legend substantially in the form
set forth below and containing such other information as Invatec may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
WITHOUT THE WRITTEN CONSENT OF INVATEC, AND INVATEC SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE EXPIRATION OF
TWELVE (12) MONTHS FROM THE DATE OF THIS CERTIFICATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, INVATEC AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
3. The parties hereby acknowledge and agree that the closing price of the
Invatec Common Stock as of September 21, 1998, was Three and 75/100 Dollars
($3.75).
4. All other terms, conditions and covenants contained in the Merger
Agreement shall remain in full force and effect except as expressly amended
herein. The parties hereby authorize, adopt, ratify, confirm and approve the
Acquisition on the terms and conditions set forth in the Merger Agreement,
except as the same are expressly amended hereby.
5. Each of the undersigned representatives of each party hereto represents
and warrants that his signature constitutes the valid and binding act of such
party, and that he has been duly authorized, empowered and directed to execute
and deliver this Amendment.
6. This Amendment embodies the entire agreement and understanding among
the parties relating to the subject matter hereof, and supersedes all prior
proposals, negotiations, agreements, commitments and understandings relating to
such subject matter. There are no unwritten agreements among the parties. This
Amendment, when executed by the parties hereto, shall be binding upon and inure
to the benefit of the parties hereto, and their respective personal
representatives, successors and assigns.
7. This Amendment may be executed simultaneously in a number of identical
counterparts, each of which shall be an original and all of which together shall
constitute but one and
-19-
<PAGE>
the same instrument. Facsimile signatures shall be treated as original
signatures for all purposes relating to this Amendment.
IN WITNESS WHEREOF, this Amendment has been executed and delivered to be
effective as of the date first set forth above.
INNOVATIVE VALVE
TECHNOLOGIES, INC.
By: _________________________________
Charles F. Schugart,
Senior Vice President
COLONIAL PROCESS EQUIPMENT
& SERVICE CO., INC.
By: _________________________________
Charles F. Schugart,
Senior Vice President
______________________________________
MARTIN T. DOONEY
-20-
EXHIBIT 4.6(b)
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is made and entered
into as of March 21, 1999 by and among INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation (the "BORROWER"); each of the Lenders which is or may from
time to time become a party to the Loan Agreement (as defined below)
(individually, a "LENDER" and, collectively, the "LENDERS") and CHASE BANK OF
TEXAS, N. A., a national banking association (previously known as Texas Commerce
Bank National Association), acting as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "AGENT").
RECITALS
A. The Borrower, the Lenders and the Agent executed and delivered that
certain Loan Agreement dated as of July 7, 1998. Said Loan Agreement, as
amended, supplemented and restated, is herein called the "LOAN AGREEMENT". Any
capitalized term used in this Amendment and not otherwise defined shall have the
meaning ascribed to it in the Loan Agreement.
B. The Borrower, the Lenders and the Agent desire to amend the Loan
Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and further good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Lenders and the Agent do hereby agree as
follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT.
(a) New definitions of "Additional Collateral", "Additional Collateral
Event", "Borrowing Base", "Borrowing Base Certificate", "Eligible Accounts",
"Eligible Inventory", "Free Cash Flow", "Maximum Revolving Loan Available
Amount", "Minimum Monthly EBITDA", "Monthly Financial Statements, "Over Advance
Amount" and "Stationary Term Loan Balance" are hereby added to SECTION 1.1 of
the Loan Agreement, such new definitions to read in their entireties as follows:
ADDITIONAL COLLATERAL shall have the meaning ascribed to such
term in SECTION 7.8 hereof.
ADDITIONAL COLLATERAL EVENT shall have the meaning ascribed to
such term in SECTION 7.8 hereof.
BORROWING BASE means, for any month, an amount determined as
follows:
(i) 80% of the aggregate amount of all Eligible Accounts
of Borrower and its Subsidiaries (other than Foreign
Subsidiaries) shown on the most recent Borrowing Base
Certificate
<PAGE>
delivered pursuant to SECTION 7.2 hereof, PLUS
(ii) 50% of the aggregate amount of all Eligible Inventory
(determined at the lower of cost or market on a
consistent basis) of Borrower or any of its
Subsidiaries (other than Foreign Subsidiaries) shown
on the most recent Borrowing Base Certificate
delivered pursuant to SECTION 7.2 hereof; PROVIDED
that the amount calculated pursuant to this CLAUSE
(II) shall not exceed 50% of the Borrowing Base, PLUS
(iii) the then current Stationary Term Loan Balance, PLUS
or MINUS, as the case may be,
(iv) the then current Over/Under Advance Amount.
In the absence of the applicable Borrowing Base Certificate, Agent
shall determine the Borrowing Base from time to time in its reasonable
discretion, taking into account all information reasonably available to
it, and the Borrowing Base from time to time so determined shall be the
Borrowing Base for all purposes of this Agreement until the applicable
Borrowing Base Certificate, in Proper Form, is furnished to and
accepted by Agent. Notwithstanding anything herein to the contrary, in
calculating the Borrowing Base, the aggregate of the amounts calculated
under CLAUSES (I) AND (II) above shall not exceed $45,000,000.
BORROWING BASE CERTIFICATE shall mean a certificate, duly
executed by the chief executive officer, chief financial officer,
treasurer or controller of Borrower, appropriately completed and in
substantially the form of EXHIBIT J hereto. Each Borrowing Base
Certificate shall be effective only as accepted by Agent (and with such
revisions, if any, as Agent may reasonably require as a condition to
such acceptance).
ELIGIBLE ACCOUNTS shall mean, as at any date of determination
thereof, each Account (both those already billed and unbilled
receivables, i.e. work-in-process) of Borrower or any of its
Subsidiaries (other than Foreign Subsidiaries) which is subject to a
Lien created by any Security Document and on which Agent shall have a
first-priority perfected Lien (subject only to Permitted Liens) which
is at said date payable to Borrower or any such Subsidiary and which
complies with the following requirements: (a) (i) the subject goods
have been sold to an account debtor on an absolute sale basis on open
account and not on consignment, on approval or on a "sale or return"
basis or subject to any other repurchase or return agreement and no
material part of the subject goods has been returned, rejected, lost or
damaged, (ii) the Account is stated to be payable in Dollars and is not
evidenced by chattel paper or an instrument of any kind (unless Agent
has a perfected first priority Lien (subject only to Permitted Liens)
on such chattel paper or instrument) and said account debtor is not
insolvent or the subject of any bankruptcy or insolvency proceedings of
any kind; (b) the account debtor must be located in the United States;
(c) it is a valid obligation of the account debtor thereunder and is
not subject to any offset or other defense on the part of such account
debtor or to any claim on the part of such account debtor denying
liability thereunder; (d) it is subject to no Lien whatsoever, except
for the Liens created or permitted pursuant to the
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<PAGE>
Loan Documents; (e) to the extent applicable, it is evidenced by an
invoice submitted to the account debtor in timely fashion and in the
normal course of business; (f) it has not remained unpaid beyond 90
days after the date of the invoice; (g) it does not arise out of
transactions with an employee, officer, agent, director or stockholder
of Borrower or any of its Subsidiaries or any Affiliate of Borrower or
any of its Subsidiaries, and (h) each of the representations and
warranties set forth in the Security Documents executed by Borrower and
its Subsidiaries with respect thereto is true and correct in all
material respects on such date. In the event of any dispute under the
foregoing criteria, about whether an Account is or has ceased to be an
Eligible Account, the decision of Agent, made in good faith, shall be
conclusive and binding, absent manifest error.
ELIGIBLE INVENTORY shall mean, as at any date of determination
thereof, Inventory of Borrower or any of its Subsidiaries (other than
Foreign Subsidiaries) which is subject to a Lien created by any
Security Documents and on which Agent shall have a first-priority
perfected Lien (subject only to Permitted Liens) and which complies
with the following requirements: (a) such Inventory shall be valued in
accordance with GAAP and consist of (i) raw materials and (ii) finished
goods (but shall not include any work-in-process), PROVIDED that all
such Inventory shall be within the United States of America; (b) it is
in good condition, meets all standards imposed by any Governmental
Authority having regulatory authority over it, its use and/or sale and
is either currently usable or currently salable in the normal course of
business of the Borrower or its applicable Subsidiary, as the case may
be; (c) it is not in the possession or control of any warehouseman,
bailee, or any agent or processor for or customer of Borrower or any of
its Subsidiaries or, if it is, (i) Borrower or its applicable
Subsidiary, as the case may be, shall have notified, in a manner that
effectively under applicable law creates a valid and first priority
Lien in favor of Agent in such Inventory, such warehouseman, bailee,
agent, processor or customer of Agent's Lien and (ii) such
warehouseman, bailee, agent, processor or customer has subordinated any
Lien it may claim therein and agreed to hold all such Inventory during
the continuance of an Event of Default for Agent's account subject to
the Agent's instructions, and (d) each of the representations and
warranties set forth in the Security Documents executed by Borrower and
its Subsidiaries with respect thereto is true and correct in all
material respects on such date. In the event of any dispute under the
foregoing criteria, about whether a portion of Inventory is or has
ceased to be Eligible Inventory, the decision of Agent, made in good
faith, shall be conclusive and binding, absent manifest error.
FREE CASH FLOW means, for any period for which the amount
thereof is to be determined, the Consolidated Net Income of Borrower
PLUS, to the extent deducted in calculating Consolidated Net Income,
depreciation, amortization and accrued fees paid or payable to the
Lenders under SECTION 3 of that certain Amendment to Loan Agreement
dated as of March 21, 1999 executed by and between Borrower and the
Lenders MINUS Capital Expenditures.
MAXIMUM REVOLVING LOAN AVAILABLE AMOUNT means, at any date, an
amount equal to the least of (i) the aggregate of the Revolving Loan
Commitments or (ii) the then effective Borrowing Base or (iii) for any
period, the amount set forth in the table below opposite such
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<PAGE>
period (as such amounts set forth in the table below may be adjusted
from time to time by the Majority Lenders):
PERIOD AMOUNT
------ ------
Through 3/20/99 $73,800,000
3/21/99 through 4/20/99 $76,500,000
4/21/99 through 5/20/99 $77,000,000
5/21/99 through 6/20/99 $76,000,000
6/21/99 through 7/20/99 $75,500,000
7/21/99 through 8/20/99 $73,500,000
8/21/99 through 9/20/99 $73,500,000
9/21/99 through 10/20/99 $75,000,000
10/21/99 through 11/20/99 $76,300,000
11/21/99 through 12/20/99 $74,000,000
12/21/99 through 1/20/2000 $73,000,000
1/21/2000 through 2/20/2000 $71,000,000
2/21/2000 through 3/20/2000 $71,000,000
3/21/2000 through the Revolving Loan
Maturity Date $70,500,000
MINIMUM MONTHLY EBITDA means, for any applicable period, the
sum of the amounts set forth opposite the applicable fiscal months
included in such period on EXHIBIT K hereto.
MONTHLY FINANCIAL STATEMENTS means the monthly financial
statements of a Person, which statements shall include a balance sheet
as of the end of such fiscal month, an income statement for the period
ended on such fiscal month and for the fiscal year to date and a
statement of cash flows for the fiscal year to date, subject to normal
year-end adjustments, prepared in accordance with GAAP in all material
respects except that such statements are condensed and exclude detailed
footnote disclosures and certified by the chief financial officer or
other authorized officer of such Person as fairly presenting, in all
material respects, the financial position of such person as of such
date. Monthly Financial Statements shall set forth in comparative form
the corresponding budgeted income statement amounts consolidated and by
Subsidiary, and balance sheet and statement of cash flow amounts on a
consolidated basis. To the extent required by Agent or the Majority
Lenders, Monthly Financial Statements shall also include an unaudited
consolidating balance sheet and income statement for the applicable
Person, in Proper Form, certified by the chief financial officer or
other authorized officer of such Person as true, correct and complete
in all material respects.
OVER/UNDER ADVANCE AMOUNT means, for any period, the amount
set forth in the table below opposite such period:
4
<PAGE>
PERIOD OVER/UNDER ADVANCE AMOUNT
Through 3/20/99 $2,500,000
3/21/99 through 4/20/99 $1,700,000
4/21/99 through 5/20/99 ($700,000)
5/21/99 through 6/20/99 ($3,000,000)
6/21/99 through 7/20/99 ($2,900,000)
7/21/99 through 8/20/99 ($2,000,000)
8/21/99 through 9/20/99 ($400,000)
9/21/99 through 10/20/99 $1,000,000
10/21/99 through 11/20/99 $0
11/21/99 through 12/20/99 ($3,200,000)
12/21/99 through 1/20/2000 ($2,500,000)
1/21/2000 through 2/20/2000 ($900,000)
2/21/2000 through 3/20/2000 $0
3/21/2000 through the Revolving Loan
Maturity Date ($200,000)
PRIMARY BORROWING BASE means, on any day, the aggregate of the
amounts calculated on such day under CLAUSES (I) AND (II) of the
definition of "Borrowing Base".
STATIONARY TERM LOAN BALANCE means (i) through July 30, 1999,
$35,000,000, (ii) for the period from July 31, 1999 through January 30,
2000, $34,000,000 and (iii) thereafter, $33,000,000, as such amount may
be reduced in accordance with the provisions of SECTIONS 2.1, 2.3,
3.2(B)(1) AND 8.5 hereof.
(b) The definitions of "Base Rate", "Consolidated EBITDA", "Interest
Payment Dates", "Loan Documents", "Revolving Loan Commitment Percentage",
"Revolving Loan Maturity Date" and "Security Agreements" set forth in SECTION
1.1 of the Loan Agreement are hereby amended to read in their entireties as
follows:
BASE RATE means for any day a rate per annum equal to the
lesser of (a) two percent (2%) per annum plus the Prime Rate for that
day or (b) the Ceiling Rate.
CONSOLIDATED EBITDA means, without duplication, for any period
the Consolidated Net Income of Borrower PLUS, to the extent deducted in
calculating Consolidated Net Income, depreciation, amortization, other
non-cash items, Interest Expense, fees payable under SECTION 3 of that
certain Amendment to Loan Agreement dated as of March 21, 1999 executed
by and among Borrower, Agent and certain Lenders, and provisions for
income taxes.
INTEREST PAYMENT DATES means April 1, 1999 and the first day
of each calendar month thereafter prior to the Maturity Date and the
Revolving Loan Maturity Date.
LOAN DOCUMENTS means, collectively, this Agreement, the Notes,
the Guaranties, all Applications, the Security Documents, the Notice of
Entire Agreement, all instruments,
5
<PAGE>
certificates and agreements now or hereafter executed or delivered by
any Obligor to Agent or any Lender pursuant to any of the foregoing or
in connection with the Obligations or any commitment regarding the
Obligations, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the
foregoing.
REVOLVING LOAN COMMITMENT means, as to any Lender, the
obligation, if any, of such Lender to make Loans and incur or
participate in Letter of Credit Liabilities in an aggregate principal
amount at any one time outstanding up to (but not exceeding) the
amount, if any, set forth opposite such Lender's name on the following
table, or otherwise provided for in an Assignment and Acceptance
Agreement (as the same may be reduced from time to time pursuant to
SECTION 2.3 hereof):
LENDER REVOLVING COMMITMENT
------ --------------------
CHASE BANK OF TEXAS, N. A. $24,444,444.44
WELLS FARGO BANK (TEXAS), $8,888,888.89
NATIONAL ASSOCIATION
BANK OF AMERICA TEXAS, N.A. $15,555,555.56
COMERICA BANK-TEXAS $13,333,333.33
NATIONAL CITY BANK OF $17,777,777.78
KENTUCKY
REVOLVING LOAN COMMITMENT PERCENTAGE means, as to any
Revolving Loan Lender, the percentage equivalent of a fraction the
numerator of which is the amount of such Lender's Revolving Loan
Commitment (or if the Revolving Loan Commitments have terminated, such
Lender's outstanding Loans) and the denominator of which is the
aggregate amount of the Revolving Loan Commitments of all Lenders (or
if the Revolving Loan Commitments have terminated, the aggregate amount
of all Loans).
REVOLVING LOAN MATURITY DATE means the maturity of the Notes,
April 20, 2000.
SECURITY AGREEMENTS means (i) security agreements, each in
Proper Form, executed or to be executed in favor of Agent, securing the
Obligations, covering all of the issued and outstanding equity
interests in any Subsidiary of Borrower (other than non-voting
preferred stock of Puget Investments, Inc. outstanding as of the
Effective Date and other than Foreign Subsidiaries) and (ii) security
instruments, each in Proper Form, executed in favor of Agent, securing
the Obligations, covering all real and personal Property of Borrower
and its Subsidiaries (other than Foreign Subsidiaries) and (iii)
security agreements, each in Proper Form, executed or to be executed in
favor of Agent, securing the Obligations, covering 65% of the issued
and outstanding equity interests in any Foreign Subsidiary, as the same
may from time to time be amended, modified, restated or supplemented.
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(c) SECTION 2.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.1 LOANS. Each Lender severally agrees, subject to all of the
terms and conditions of this Agreement (including, without limitation,
SECTIONS 5.1 AND 5.2 hereof), to make Loans to Borrower, from time to
time on or after the Effective Date and during the Revolving Loan
Availability Period, in an aggregate principal amount at any one time
outstanding (including its Revolving Loan Commitment Percentage of all
Letter of Credit Liabilities at such time) up to but not exceeding such
Lender's Revolving Loan Commitment Percentage of the Maximum Revolving
Loan Available Amount. Subject to the conditions in this Agreement, any
such Loan repaid prior to the Revolving Loan Termination Date may be
reborrowed pursuant to the terms of this Agreement; PROVIDED, that any
and all such Loans shall be due and payable in full at the end of the
Revolving Loan Availability Period and PROVIDED, FURTHER that the
Stationary Term Loan Balance shall automatically be reduced by any
payments which reduce the aggregate unpaid principal balance of the
Revolving Notes below the then current Stationary Term Loan Balance
prior to giving effect to such reduction (with the result that the
revolving nature of the credit facility provided for herein shall only
apply to the Revolving Notes to the extent that the aggregate unpaid
principal balance of the Revolving Notes exceeds the then current
Stationary Term Loan Balance). Borrower, Agent and the Lenders agree
pursuant to Chapter 346 ("CHAPTER 346") of the Texas Finance Code, that
Chapter 346 (which relates to open-end line of credit revolving loan
accounts) shall not apply to this Agreement, the Revolving Notes or any
Revolving Loan Obligation and that neither the Revolving Notes nor any
revolving Loan Obligation shall be governed by Chapter 346 or subject
to its provisions in any manner whatsoever.
(d) SECTION 2.2(A) of the Loan Agreement is hereby amended to read in
its entirety as follows:
(a) LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, and on the condition that aggregate Letter of Credit
Liabilities shall never exceed $502,317 (less the face amount of any
Letters of Credit issued and outstanding as of March 21, 1999 which are
terminated or which expire after the date hereof), (i) Borrower shall
have the right to, in addition to Loans provided for in SECTION 2.1
hereof, utilize the Revolving Loan Commitments from time to time during
the Revolving Loan Availability Period by obtaining the issuance of
standby letters of credit for the account of Borrower if Borrower shall
so request in the notice referred to in SECTION 2.2(B)(I) hereof (such
standby letters of credit as any of them may be amended, supplemented,
extended or confirmed from time to time, being herein collectively
called the "LETTERS OF CREDIT)" and (ii) Chase Texas agrees to issue
such Letters of Credit. Upon the date of the issuance of a Letter of
Credit, the applicable Issuer shall be deemed, without further action
by any party hereto, to have sold to each Revolving Loan Lender, and
each such Lender shall be deemed, without further action by any party
hereto, to have purchased from the applicable Issuer, a participation,
to the extent of such Lender's Revolving Loan Commitment Percentage, in
such Letter of Credit and the related Letter of Credit Liabilities,
which participation shall terminate on the earlier of the expiration
date of such Letter of Credit or the Revolving Loan Termination Date.
No Letter of Credit shall have an expiration date later than one year
from date of issuance. Any Letter of Credit
7
<PAGE>
that shall have an expiration date after the end of the Revolving Loan
Availability Period shall be subject to Cover or backed by a standby
letter of credit in form and substance, and issued by a Person,
acceptable to Agent in its sole discretion. Chase Texas or, with the
prior approval of Borrower, Agent and the applicable Lender, another
Lender shall be the Issuer of each Letter of Credit.
(e) SECTION 2.2(B)(II) of the Loan Agreement is hereby amended to read
in its entirety as follows:
(ii) No Letter of Credit may be issued if after
giving effect thereto the sum of (A) the aggregate outstanding
principal amount of Loans plus (B) the aggregate Letter of
Credit Liabilities would exceed the aggregate of the Maximum
Revolving Loan Available Amount. On each day during the period
commencing with the issuance of any Letter of Credit and until
such Letter of Credit shall have expired or been terminated,
the Revolving Loan Commitment of each Revolving Loan Lender
shall be deemed to be utilized for all purposes hereof in an
amount equal to such Lender's Revolving Loan Commitment
Percentage of the amount then available for drawings under
such Letter of Credit (or any unreimbursed drawings under such
Letter of Credit).
(f) SECTION 2.2(B)(IV) of the Loan Agreement is hereby amended to read
in its entirety as follows:
(iv) Borrower shall be irrevocably and
unconditionally obligated forthwith to reimburse Agent, on the
date on which the Agent notifies Borrower of the date and
amount of any payment by the Issuer of any drawing under a
Letter of Credit, for the amount paid by any Issuer upon such
drawing, without presentment, demand, protest or other
formalities of any kind, all of which are hereby waived. Such
reimbursement may, subject to satisfaction of the conditions
in SECTIONS 5.1 and 5.2 hereof and to the Maximum Revolving
Loan Available Amount (after adjustment in the same to reflect
the elimination of the corresponding Letter of Credit
Liability), be made by the borrowing of Loans. Agent will pay
to each Revolving Loan Lender such Lender's Revolving Loan
Commitment Percentage of all amounts received from Borrower
for application in payment, in whole or in part, of the
Reimbursement Obligation in respect of any Letter of Credit,
but only to the extent such Lender has made payment to Agent
in respect of such Letter of Credit pursuant to CLAUSE (III)
above.
(g) SECTION 2.2(B)(V) of the Loan Agreement is hereby amended to read
in its entirety as follows:
(v) Borrower will pay to Agent at the Principal
Office for the account of each Revolving Loan Lender a letter
of credit fee with respect to each Letter of Credit equal to
the greater of (x) $500 or (y) 2.0% multiplied by the face
amount of such Letter of Credit (and computed on the basis of
the actual number of days elapsed in a year composed of 360
days), in each case for the period from and including the date
of issuance of such Letter of Credit to and including the date
of expiration or
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termination thereof, such fee to be due and payable in
advance. Agent will pay to each Revolving Loan Lender,
promptly after receiving any payment in respect of letter of
credit fees referred to in this CLAUSE (V), an amount equal to
the product of such Lender's Revolving Loan Commitment
Percentage TIMES the amount of such fees. In addition to and
cumulative of the above described fees, Borrower shall pay to
Agent, for the account of the applicable Issuer, in advance on
the date of the issuance of the applicable Letter of Credit, a
fronting fee in an amount equal to 1/8% of the face amount of
the applicable Letter of Credit (such fronting fee to be
retained by the applicable Issuer for its own account).
(h) SECTION 2.3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.3 TERMINATIONS OR REDUCTIONS OF COMMITMENTS.
(a) MANDATORY. On the Revolving Loan Termination Date, all
Revolving Loan Commitments shall be terminated in their entirety. The
Revolving Loan Commitments are also subject to reduction as provided in
SECTION 8.5 hereof.
(b) OPTIONAL. Borrower shall have the right to terminate or
reduce the unused portion of the Revolving Loan Commitments at any time
or from time to time, PROVIDED that Borrower shall give notice of each
such termination or reduction to Agent as provided in SECTION 4.3
hereof. Borrower may elect to apply all or any part of such voluntary
reduction to the Stationary Term Loan Balance by so stating in its
written notice of reduction.
(c) NO REINSTATEMENT. No termination or reduction of the
Revolving Loan Commitments may be reinstated without the written
approval of Agent and the Lenders.
(i) SECTION 2.4 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.4 [INTENTIONALLY DELETED]
(j) SECTION 2.5 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.5 SEVERAL OBLIGATIONS. The failure of any Lender to make any
Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but
neither Agent nor any Lender shall be responsible or liable for the
failure of any other Lender to make a Loan to be made by such other
Lender or to participate in, or co-issue, any Letter of Credit.
Notwithstanding anything contained herein to the contrary, (a) no
Lender shall be required to make or maintain Loans at any time
outstanding if as a result the total Revolving Loan Obligations held by
such Lender shall exceed the lesser of (1) such Lender's Revolving Loan
Commitment Percentage of all Revolving Loan Obligations and (2) such
Lender's Revolving Loan Commitment Percentage of the Maximum Revolving
Loan Available Amount and (b) if a Revolving Loan Lender fails to
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make a Loan as and when required hereunder, then upon each subsequent
event which would otherwise result in funds being paid to the
defaulting Lender, the amount which would have been paid to the
defaulting Lender shall be divided among the non-defaulting Lenders
ratably according to their respective shares of the outstanding
Revolving Loan Commitment Percentages until the Revolving Loan
Obligations of each Revolving Loan Lender (including the defaulting
Lender) are equal to such Lender's Revolving Loan Commitment Percentage
of the total Revolving Loan Obligations.
(k) SECTION 2.7 of the Loan Agreement is hereby amended to read in its
entirety as follows:
2.7 USE OF PROCEEDS. The proceeds of the Loans shall be used
to refinance existing Borrowed Money Indebtedness of Borrower, to pay
Reimbursement Obligations and for other working capital and general
corporate purposes. Neither Agent nor any Lender shall have any
responsibility as to the use of any proceeds of the Loans.
(l) SECTION 3.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
3.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as provided in SECTION 3.3
hereof, Borrower shall have the right to prepay, on any Business Day,
in whole or in part, without the payment of any penalty or fee, any
Loans at any time or from time to time, PROVIDED that Borrower shall
give Agent notice of each such prepayment as provided in SECTION 4.3
hereof.
(b) MANDATORY PREPAYMENTS AND COVER. Except, in each case, as
provided in SECTION 3.3 hereof,
(1) INSURANCE PROCEEDS AND CONDEMNATION AWARDS.
(i) Promptly following the receipt thereof
by Borrower or any of its Subsidiaries, subject to
the rights of any applicable lessor, Borrower shall
deposit or cause to be deposited with Agent in an
interest bearing account (but without any obligation
to maximize such interest) all of the net cash
proceeds of any payment or award in excess of $50,000
made to any such Person under any policy of Property
insurance with respect to any Property owned by such
Person or pursuant to any condemnation award with
respect to any such Property; provided such amounts
have not theretofore been reasonably expended for the
restoration or replacement of the asset in respect of
which such payment or award was made. Such amounts
shall be collaterally assigned to Agent as security
for the Obligations in a manner reasonably acceptable
to Agent. Upon delivery to Agent of written
certification by Borrower that the applicable Obligor
has reasonably expended amounts or committed in
writing to expend amounts for the restoration or
replacement of the asset in respect of which such
payment or
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award was made, specifying the amount expended or
committed, so long as no Default or Event of Default
shall have occurred and be continuing any such amount
deposited with Agent shall be released by Agent to
Borrower; PROVIDED, HOWEVER, that, in the event that
within 180 days of receipt of such payment or award
by Borrower, to the extent Borrower shall not have
actually spent or certified to Agent its intention to
expend a substantially equivalent amount for the
restoration or replacement of the asset in respect of
which such payment or award was made, Borrower shall
make a prepayment on the Loans (using any funds
deposited with Agent pursuant to this SECTION
3.2(B)(1) or other funds) in the amount of the excess
of the amount of such payment or award over the
amount of such expenditures and/or commitment on such
180th day. To the extent that such prepayment arises
out of an event occurring with respect to Property
which does not constitute "current assets", the
Stationary Term Loan Balance shall automatically be
reduced by the amount of such prepayment.
(ii) In cases where the amount of the net
cash proceeds of any payment or award is equal to or
less than $50,000 and no Default or Event of Default
has occurred and is continuing, such proceeds may be
paid to any Obligor, and if received by Agent shall
be paid by Agent to Borrower, for use in paying for
replacements or repairs of or substitutes for the
damaged, destroyed or taken assets or in a manner
otherwise consistent with this Agreement.
(2) BORROWING BASE.
(i) Borrower shall from time to time on
demand by Agent prepay the Loans (or provide Cover
for Letter of Credit Liabilities) in such amounts as
shall be necessary so that at all times the aggregate
outstanding amount of all Revolving Loan Obligations
shall be less than or equal to the Maximum Revolving
Loan Available Amount.
(ii) Borrower shall from time to time on
demand by Agent prepay the Loans (or provide Cover
for Letter of Credit Liabilities) in such amounts as
shall be necessary so that on each date set forth in
the table below the ratio of (x) the Primary
Borrowing Base shown on the most recent Borrowing
Base Certificate delivered pursuant to SECTION 7.2
hereof to (y) the unpaid principal balance of the
Obligations as of such date is equal to or greater
than the percentage specified opposite such date in
the table below:
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DATE MINIMUM PERCENTAGE
---- ------------------
3/31/99 50.00%
4/30/99 54.62%
5/31/99 57.18%
6/30/99 56.74%
7/31/99 56.29%
8/31/99 54.06%
9/30/99 53.44%
10/31/99 55.01%
11/30/99 57.85%
12/31/99 56.70%
1/31/2000 54.79%
2/29/2000 52.24%
3/31/2000 53.19%
(3) DISPOSITION OF ASSETS. Reference is hereby made
to SECTION 8.5 hereof which requires certain principal
payments in connection with certain dispositions of assets.
(c) INTEREST PAYMENTS. Accrued and unpaid interest on the
unpaid principal balance of the Loans shall be due and payable on the
Interest Payment Dates.
(d) PAYMENTS AND INTEREST ON REIMBURSEMENT OBLIGATIONS.
Borrower will pay to Agent for the account of each Lender the amount of
each Reimbursement Obligation on the date on which the Agent notifies
Borrower of the date and amount of the applicable payment by the Issuer
of any drawing under a Letter of Credit. The amount of any
Reimbursement Obligation may, if the applicable conditions precedent
specified in SECTIONS 5.1 and 5.2 hereof have been satisfied, be paid
with the proceeds of Loans. Subject to SECTION 11.7 hereof, Borrower
will pay to Agent for the account of each Lender interest on any
Reimbursement Obligation (i) at the Base Rate from the date such
Reimbursement Obligation arises until the date five (5) Business Days
thereafter and (ii) at the Past Due Rate thereafter until the same is
paid in full.
(m) A new SECTION 6.18 is hereby added to the Loan Agreement, such new
Section to read in its entirety as follows:
6.18 COLLATERAL COVERED. As of the Effective Date, the
Collateral covered by the Security Documents constitutes all real and
personal Property owned by the Borrower and its Subsidiaries (other
than (a) Foreign Subsidiaries, (b) 35% of the equity interests in and
to Foreign Subsidiaries, (c) vehicles covered by certificates of title
and (d) a tract of real property in Muskogee, Oklahoma which Plant
Maintenance, Inc. is contractually obligated to convey to the former
shareholders of Plant Maintenance, Inc.).
(n) A new SECTION 6.19 is hereby added to the Loan Agreement, such new
Section reading in its entirety as follows:
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6.19 YEAR 2000. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (i) the
Borrower's and any of its Subsidiaries' computer systems and (ii)
equipment containing embedded microchips (including systems and
equipment supplied by others or with which the Borrower's and any of
its Subsidiaries' systems interface) and the testing of all such
systems and equipment will be completed by September 30, 1999. The cost
to the Borrower and its Subsidiaries of such reprogramming and testing
and of reasonably foreseeable consequences of year 2000 to the Borrower
and its Subsidiaries (including, without limitation, reprogramming
errors and failure of others' systems or equipment) will not result in
an Event of Default or a Material Adverse Effect. Except for such of
the reprogramming referred to in the preceding sentence as may be
necessary, the computer and management systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance,
will continue for the term of this Agreement to be, sufficient to
permit the Borrower and its Subsidiaries to conduct their business
without Material Adverse Effect.
(o) SECTION 7.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
7.2 FINANCIAL STATEMENTS AND INFORMATION. Furnish to Agent
(and, except where indicated, to each Lender) each of the following:
(a) as soon as available and in any event within 90 days after
the end of each applicable fiscal year, beginning with the fiscal year
ending on December 31, 1998, Annual Financial Statements of Borrower;
(b) as soon as available and in any event within 25 days after
the end of each fiscal month, preliminary drafts of Monthly Financial
Statements of Borrower and as soon as available and in any event within
30 days after the end of each fiscal month, final Monthly Financial
Statements of Borrower;
(c) as soon as available and in any event within 45 days after
the end of each fiscal quarter, Quarterly Financial Statements of
Borrower;
(d) concurrently with the financial statements provided for in
SUBSECTIONS 7.2(A), (B) and (C) hereof, (x) such schedules,
computations and other information, in reasonable detail, as may be
required by Agent to demonstrate compliance with the covenants set
forth herein or reflecting any non-compliance therewith as of the
applicable date, all certified and signed by the president, chief
financial officer or treasurer of Borrower (or other authorized officer
approved by Agent) as true and correct in all material respects to the
best knowledge of such officer and (y) a compliance certificate
("COMPLIANCE CERTIFICATE") in the form of EXHIBIT E hereto, duly
executed by such authorized officer;
(e) promptly upon their becoming publicly available, each
financial statement, report, notice or definitive proxy statements sent
by any Obligor to shareholders generally and each regular or periodic
report and each registration statement or prospectus filed by any
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Obligor with any securities exchange or the Securities and Exchange
Commission or any successor agency;
(f) within 20 calendar days after the end of each calendar
month, a Borrowing Base Certificate as at the last day of such calendar
month, together with such supporting information as Agent may
reasonably request;
(g) within 20 days after the end of each calendar month (1) a
listing and aging of the Accounts of Borrower and its Subsidiaries as
of the end of the most recently ended calendar month, prepared in
reasonable detail and containing such other information as Agent may
reasonably request and (2) a summary of the Inventory of Borrower and
its Subsidiaries as of the end of the most recently ended calendar
month, prepared in reasonable detail and containing such other
information as Agent may reasonably request (information under this
clause to be delivered to Agent only);
(h) from time to time, at any time upon the request of Agent,
but at the cost of Borrower, a report of an independent collateral
field examiner approved by Agent in writing and reasonably acceptable
to Borrower (which may be, or be affiliated with, Agent or one of the
Banks) with respect to the Accounts and Inventory components included
in the Borrowing Base;
(i) on Tuesday of each week, the gross Accounts of Borrower
and its Subsidiaries and a true billings and collection report, all in
Proper Form, as of the last Business Day of the preceding week
(information under this clause to be delivered to Agent only);
(j) within 20 days after the end of each calendar month, to
the extent available, a listing and aging of the accounts payable of
Borrower and its Subsidiaries as of the end of the most recently ended
calendar month, prepared in reasonable detail and containing such other
information as Agent may reasonably request;
(k) within 20 days after the end of each calendar month, a
summary of all capital expenditures of Borrower and its Subsidiaries
during the preceding calendar month in excess of $5,000, prepared in
reasonable detail and containing such other information as Agent may
reasonably request;
(l) on every other Friday (or if the applicable Friday is not
a Business Day, on the immediately following Business Day), a report to
Agent and the Lenders, by telephone conference call, of the status of
the strategic plan of the Borrower and its Subsidiaries, and any
revisions to the projections of the operating results of Borrower and
its Subsidiaries and any such other matters as Agent or the Majority
Lenders may require;
(m) on the Wednesday preceding the telephone conference
described the preceding clause (or if the applicable Wednesday is not a
Business Day, on the immediately following Business Day), a report to
Agent and the Lenders on the matters to be discussed during the
following telephone conference, any other material developments with
respect to
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<PAGE>
Borrower and its Subsidiaries and such other matters as Agent or the
Majority Lenders may require;
(n) on the first day of each month, a calculation of the ratio
described in SECTION 3.2(B)(2)(II) hereof as of the last day of the
preceding month;
(o) within 30 days after request therefor from any Lender
(which request may only be made during the continuation of an Event of
Default), real estate evaluations and machinery and equipment
appraisals representing 71% of total net book value of Borrower (on a
consolidated basis) (machinery and equipment items with a net book
value in excess of $250,000 are to be appraised on FSV basis and the
remaining machinery and equipment items are to be valued on a desk top
approach);
(p) on or before June 30, 1999, the Lenders shall coordinate
among themselves, schedule with the Borrower, and perform a collateral
audit (including detailed reports on billing procedures, collection
procedures [including verifications] and inventory systems and costing)
on the Borrower and its Subsidiaries, with the results of same to be
distributed among the Lenders; all costs of the Lenders in connection
with the audits and reports under this CLAUSE (P) are to be paid by the
Borrower;
(q) on or before March 31, 1999, and every two weeks
thereafter, the Borrower shall deliver a strategic plan substantially
in the format heretofore delivered to the Lenders, in such detail as
the Agent may reasonably request;
(r) by the end of each calendar month, an update on progress
with respect to "Year 2000" issues, including projected completion
dates by location, estimated related costs, verification of final
testing and such other related matters as the Majority Lenders may
require;
(s) on or before May 31, 1999, (1) an enterprise valuation of
each Subsidiary of the Borrower; (2) a valuation of each business line
of the Borrower, with the Subsidiaries of the Borrower to be grouped in
accordance with such business lines, and (3) an enterprise valuation of
the Borrower and its Subsidiaries taken as a whole; each such valuation
shall be performed by a Person nominated by the Borrower and acceptable
to the Majority Lenders; and
(t) such other financial projections and other information
relating to the condition (financial or otherwise), operations or
business of any Obligor as from time to time may be reasonably
requested by Agent. Each delivery of a financial statement pursuant to
this SECTION 7.2 shall constitute a restatement of the representations
contained in the last two sentences of SECTION 6.2 with respect to the
period of time from the date of such most recently delivered financial
statements.
(p) SECTION 7.3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
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<PAGE>
7.3 FINANCIAL TESTS. Borrower will have and maintain (in each
case, on a consolidated basis for Borrower and its Subsidiaries):
(a) CONSOLIDATED EBITDA -- Consolidated EBITDA (i)
for the period from January 1, 1999 through June 30, 1999 of
at least $7,000,000, (ii) for the period from January 1, 1999
through December 31, 1999 of at least $14,000,000, (iii) for
each fiscal month of at least 70% of the Minimum Monthly
EBITDA for such fiscal month and (iv) beginning April 30,
1999, for each three-month period ending on the last day of a
fiscal month, of at least 85% of the Minimum Monthly EBITDA
for such period.
(b) FREE CASH FLOW -- Free Cash Flow (i) for any
fiscal quarter of at least $100,000 and (ii) for the period
from January 1, 1999 through December 31, 1999 of at least
$2,000,000; PROVIDED, HOWEVER, that in the event of a
divestiture of a Subsidiary of Borrower, the foregoing amounts
shall be reduced commensurate with such Subsidiary's pro rata
share of projected Consolidated EBITDA for the fiscal year
1999.
The use of historical financial results for acquired Subsidiaries in
connection with "pooling of interests" accounting shall not serve to
cure any default under the covenants set forth in this Section that
would otherwise arise.
(q) SECTION 7.8 of the Loan Agreement is hereby amended to read in its
entirety as follows:
7.8 NOTICE OF CERTAIN MATTERS. Give Agent written notice of
the following promptly (and in any event within five Business Days)
after any executive officer of Borrower shall become aware of the same:
(a) the issuance by any court or governmental agency or
authority of any injunction, order or other restraint prohibiting, or
having the effect of prohibiting, the performance of this Agreement,
any other Loan Document, or the making of the Loans or the initiation
of any litigation, or any claim or controversy which would reasonably
be expected to result in the initiation of any litigation, seeking any
such injunction, order or other restraint;
(b) the filing or commencement of any action, suit or
proceeding, whether at law or in equity or by or before any court or
any Governmental Authority involving claims in excess of $1,000,000
(exclusive of claims covered by insurance) or which may reasonably be
expected to result in a Default hereunder;
(c) any Event of Default or Default, specifying the nature and
extent thereof and the action (if any) which is proposed to be taken
with respect thereto;
(d) the incurrence of material burdensome restrictions under
contracts or applicable law which could reasonably be expected to have
a Material Adverse Effect and
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<PAGE>
any other event (including strikes, labor disputes or loss of use of
material patents or trademarks) which could reasonably be expected to
have a Material Adverse Effect; and
Borrower will also notify Agent in writing at least 30 days prior to
the date that any Obligor changes its name or the location of its chief
executive office or principal place of business or the place where it
keeps its books and records. After the Effective Date, Borrower will
notify Agent in writing at least 45 days prior to any Obligor's
acquisition of any real or personal Property, wherever located, other
than the Collateral covered by the Security Documents (such acquisition
or ownership being herein called an "ADDITIONAL COLLATERAL EVENT" and
the Property so acquired or owned being herein called "ADDITIONAL
COLLATERAL").
(r) New SECTIONS 7.11, 7.12 AND 7.13 are hereby added to the Loan
Agreement, such new Sections to read in their entireties as follows:
7.11 ADDITIONAL SECURITY DOCUMENTS. As soon as practicable and
in any event within ten (10) Business Days after an Additional
Collateral Event, Borrower shall (a) execute and deliver or cause to be
executed and delivered applicable Security Documents, in Proper Form
and in an amount reasonably satisfactory to the Majority Lenders, in
favor of Agent and duly executed by the applicable Obligor, granting a
first-priority Lien (subject only to Permitted Liens) upon the
applicable Additional Collateral securing all of the Obligations, and
such other documents (including, without limitation, all items required
in connection with the applicable Security Documents previously
executed hereunder, such as surveys, environmental assessments,
certificates, legal opinions, all in Proper Form) as may be reasonably
required by Agent or the Majority Lenders in connection with the
execution and delivery of such Security Documents; (b) deliver or cause
to be delivered such other documents or certificates consistent with
the terms of this Agreement and relating to the transactions
contemplated hereby as Agent or the Majority Lenders may reasonably
request, and (c) pay in full all documentary stamps, filing and
recording fees, taxes and other fees and charges payable in connection
with the filing and recording of any Security Document.
7.12 DOMINION OF FUNDS PROCEDURES. All revenues and receipts
received by Borrower or any of its Subsidiaries will be immediately
deposited into an account or accounts (collectively, the "LOCKBOX
ACCOUNTS") in the name of Borrower or one or more of its Subsidiaries
maintained with Agent. No disbursements or withdrawals may be made from
any of the Lockbox Accounts by Borrower or any of its Subsidiaries
without the prior written approval of Agent, in its sole and absolute
discretion. On a daily basis, sums shall be withdrawn from the Lockbox
Accounts by Agent and applied as a prepayment on the unpaid principal
balance of the Loans outstanding on such date.
7.13 TURNAROUND CONSULTANT. Borrower shall at all times retain
a turnaround consultant satisfactory to the Majority Lenders, under an
acceptable scope of work. The Agent and the Lenders will be provided
access to all consultant generated information and reports and the
applicable consultant shall report on a semi-monthly basis to Borrower,
with a copy to the Agent and each Lender.
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(s) SECTION 8.1 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.1 BORROWED MONEY INDEBTEDNESS. Create, incur, suffer or
permit to exist, or assume or guarantee, directly or indirectly, or
become or remain liable with respect to any Borrowed Money
Indebtedness, whether direct, indirect, absolute, contingent or
otherwise, except the following:
(i) Indebtedness under this Agreement and the other Loan
Documents and Indebtedness secured by Liens permitted
by SECTION 8.2 hereof;
(ii) the liabilities existing on the date of this
Agreement and disclosed in the financial statements
delivered on or prior to March 1, 1999 pursuant to
SECTIONS 6.2 OR 7.2 hereof and set forth on EXHIBIT G
hereto, and all renewals, extensions and replacements
(but not increases) of any of the foregoing;
(iii) the Interest Rate Risk Indebtedness;
(iv) current liabilities incurred in the ordinary course
of business.
(t) SECTION 8.2 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.2 LIENS. Create or suffer to exist any Lien upon any of its
Property now owned or hereafter acquired, or acquire any Property upon
any conditional sale or other title retention device or arrangement or
any purchase money security agreement; or in any manner directly or
indirectly sell, assign, pledge or otherwise transfer any of its
Accounts or General Intangibles; PROVIDED, HOWEVER, that any Obligor
may create or suffer to exist the following:
(i) artisans' or mechanics' Liens arising in the ordinary course
of business, and Liens for taxes, but only to the extent that
payment thereof shall not at the time be due or if due, the
payment thereof is being diligently contested in good faith
and adequate reserves computed in accordance with GAAP have
been set aside therefor;
(ii) normal encumbrances and restrictions on title which do not
secure Borrowed Money Indebtedness and which do not have a
Material Adverse Effect;
(iii) Liens in favor of Agent or any Lender under the Loan
Documents, including, without limitation, Liens securing
Interest Rate Risk Indebtedness owed to one or more of the
Lenders (but not to any Person which is not, at the time the
Interest Rate Risk Indebtedness is incurred, a Lender);
(iv) Liens incurred or deposits made in the ordinary course of
business (1) in connection with workmen's compensation,
unemployment insurance, social security and other like laws,
or (2) to secure insurance in the ordinary course of business,
the performance of bids, tenders, contracts, leases, licenses,
statutory obligations, surety,
18
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appeal and performance bonds and other similar obligations
incurred in the ordinary course of business, not, in any of
the cases specified in this clause (2), incurred in connection
with the borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of Property;
(v) attachments, judgments and other similar Liens arising in
connection with court proceedings, PROVIDED that the execution
and enforcement of such Liens are effectively stayed and the
claims secured thereby are being actively contested in good
faith with adequate reserves made therefor in accordance with
GAAP;
(vi) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens, incurred in good
faith in the ordinary course of business and securing
obligations which are not yet due or which are being contested
in good faith by appropriate proceedings if adequate reserves
with respect thereto are maintained in accordance with GAAP;
(vii) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, and restrictions
on the use of Property, and which do not in any case singly or
in the aggregate materially impair the present use or value of
the Property subject to any such restriction or materially
interfere with the ordinary conduct of the business of any
Obligor or any Subsidiary of Borrower to the extent that it
would cause a Material Adverse Effect;
(viii) capital leases permitted under the other provisions of this
Agreement;
(ix) existing Liens as of Effective Date as set forth on EXHIBIT H
hereto; and
(x) extensions, renewals and replacements of Liens referred to in
CLAUSES (I) through (IX) above; PROVIDED that any such
extension, renewal or replacement Lien shall be limited to the
Property or assets covered by the Lien extended, renewed or
replaced and that the Borrowed Money Indebtedness secured by
any such extension, renewal or replacement Lien shall be in an
amount not greater than the amount of the Indebtedness secured
by the Lien extended, renewed or replaced.
(u) SECTION 8.3 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.3 CONTINGENT LIABILITIES. Except for indemnification and
contribution arrangements with customers, sellers of businesses and
officers and directors of Borrower and its Subsidiaries in the ordinary
course of business, directly or indirectly guarantee the performance or
payment of, or purchase or agree to purchase, or assume or contingently
agree to become or be secondarily liable in respect of, any obligation
or liability of any other Person (other than Subsidiaries) except for
(a) the endorsement of checks or other negotiable instruments in the
ordinary course of business; (b) obligations disclosed to Agent in the
financial statements delivered on or prior to March 1, 1999 pursuant to
SECTIONS 6.2 OR 7.2 hereof (but not increases of such obligations after
the Effective Date), including stock price
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guaranties described in such financial statements and (c) those
liabilities permitted under SECTION 8.1 hereof.
(v) SECTION 8.5 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.5 DISPOSITION OF ASSETS. Sell, convey or lease all or any
part of its assets, except for (x) sales of Inventory in the ordinary
course of business and (y) sales of other Property in the ordinary
course of business so long as the net proceeds realized from such sales
are used to prepay the Loans; PROVIDED that the Stationary Term Loan
Balance shall automatically be reduced by the net proceeds realized
from any such sales which consist of Property of Borrower or any of its
Subsidiaries other than items included in the Primary Borrowing Base.
For purposes of this Agreement, no sale/leaseback transaction or sale
of any equity interests will be deemed to be in the ordinary course of
business.
(w) SECTION 8.12 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.12 CAPITAL EXPENDITURES. Permit Capital Expenditures of
Borrower and its Subsidiaries to exceed $625,000 in the aggregate for
any calendar quarter.
(x) SECTION 8.13 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.13 ACQUISITIONS. Acquire any real Property or any material
personal Property (including any acquisition of equity interests in
another Person) after the Effective Date, except for acquisitions of
Property reasonably necessary to the continued operations of Borrower
or its Subsidiaries in the ordinary course of business.
(y) SECTION 8.15 of the Loan Agreement is hereby amended to read in its
entirety as follows:
8.15 SUBSIDIARIES. Form, create or acquire any Subsidiary,
except that Borrower (or any of its Subsidiaries) may form or create a
wholly-owned Subsidiary so long as (a) immediately thereafter and
giving effect thereto, no event will occur and be continuing which
constitutes a Default; (i) such Subsidiary shall execute and deliver to
Agent a Guaranty in substantially the same form as the Guaranties
executed prior to the date hereof; (ii) the applicable owner(s) of the
equity interests in such Subsidiary shall execute and deliver to Agent
such Security Documents as Agent may reasonably require in order to
create a valid, perfected, first priority Lien upon all of the issued
and outstanding equity interests in such Subsidiary, (iii) the new
Subsidiary shall execute and deliver to Agent such Security Documents
as Agent may reasonably require in order to create a valid, perfected,
first priority Lien (subject only to Permitted Liens) upon all of the
real and personal Property of such new Subsidiary and (iv) such new
Subsidiary is not a Foreign Subsidiary and (b) Agent is given at least
15 days' prior written notice of such formation or creation.
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(z) SECTION 9.1(D) of the Loan Agreement is hereby amended to read in
its entirety as follows:
(d) AFFIRMATIVE COVENANTS - (i) default shall be made
in the due observance or performance of any of the covenants
or agreements contained in SECTIONS 7.3 or 7.8(C) hereof, (ii)
default is made in the due observance or performance of any of
the covenants or agreements contained in SECTION 7.2(F) hereof
and such default continues unremedied for a period of one day,
(iii) default is made in the due observance or performance of
any of the other covenants or agreements contained in SECTION
7.2 hereof and such default continues unremedied for a period
of five days, or (iv) default is made in the due observance or
performance of any of the other covenants and agreements
contained in SECTION 7 hereof or any other affirmative
covenant of any Obligor contained in this Agreement or any
other Loan Document and such default continues unremedied for
a period of 30 days after (x) notice thereof is given by the
Agent to the Borrower or (y) such default otherwise becomes
known to any executive officer of the Borrower, whichever is
earlier; or
(aa) SECTION 9.1(J) of the Loan Agreement is hereby amended to read in
its entirety as follows:
(j) SECURITY DOCUMENTS - any Security Document for
any reason ceases to create a valid and perfected Lien of the
first priority (subject to the Permitted Liens), required
thereby on any of the Collateral purported to be covered
thereby and securing that portion of the Obligations which is
therein designated as being secured, or any Obligor (or any
other Person who may have granted or purported to grant such
Lien) will so state in writing or the Security Documents shall
cease to evidence first-priority Liens upon all of the real
and personal Property of each Obligor other than 35% of the
equity interests in and to Foreign Subsidiaries and as
otherwise set forth in SECTION 6.18 hereof (except for the ten
(10) Business Day period provided for in SECTION 7.11 hereof)
; or
(bb) EXHIBIT A to the Loan Agreement (Request for Advance) is hereby
amended to read in its entirety as set forth on EXHIBIT A hereto.
(cc) EXHIBIT E to the Loan Agreement (Compliance Certificate) is hereby
amended to read in its entirety as set forth on EXHIBIT E hereto.
(dd) A new EXHIBIT J (Borrowing Base Certificate) is hereby added to
the Loan Agreement, such new Exhibit to read in its entirety as set forth on
EXHIBIT J hereto.
(ee) A new EXHIBIT K (Minimum Monthly EBITDA) is hereby added to the
Loan Agreement, such new Exhibit to read in its entirety as set forth on EXHIBIT
K hereto.
SECTION 2. NO LIBOR OPTION. Borrower acknowledges and agrees that,
notwithstanding anything to the contrary set forth in the Loan Agreement, the
option to have any part of the Obligations bear interest at an interest rate
based upon a Eurodollar Rate has been terminated.
21
<PAGE>
SECTION 3. CERTAIN FEES. In consideration of the execution and delivery
of this Amendment, but subject to the provisions of SECTION 11.7 of the Loan
Agreement, Borrower shall pay to the Lenders which have elected to execute this
Amendment as of March 21, 1999 (collectively, the "APPROVING LENDERS") a fee
which shall accrue quarterly, on March 31, 1999, June 30, 1999, September 30,
1999 and December 31, 1999, in an amount equal to (for each such quarterly
accrual date) one and one-half percent (1-1/2%) TIMES the unpaid principal
balance of the Obligations as of the applicable accrual date. Such fee shall be
paid to Agent for pro rata distribution to the Approving Lenders (i) in an
installment of $1,000,000 to be due and payable on July 31, 1999, (ii) in an
installment of $500,000 to be due and payable on August 31, 1999, (iii) in an
installment of $500,000 to be due and payable on November 30, 1999 and (iv) on
the Revolving Loan Maturity Date, when the balance of such fee shall be due and
payable; PROVIDED that if on June 1, 1999 (x) the Stationary Term Loan Balance
is reduced to zero; (y) the Revolving Loan Obligations are no greater than the
Primary Borrowing Base (as reflected in the most recent Borrowing Base
Certificate delivered to the Agent) and (z) no Event of Default shall have
occurred which is continuing, the aggregate fees payable under this Section
shall be reduced to $100,000 which shall be due and payable on July 1, 1999 and
PROVIDED FURTHER that if the Obligations are paid in full (and the Revolving
Loan Commitments terminated in their entirety) by June 30, 1999, no fees shall
be payable under this Section.
SECTION 4. RATIFICATION. Except as expressly amended by this Amendment,
the Loan Agreement and the other Loan Documents shall remain in full force and
effect. None of the rights, title and interests existing and to exist under the
Loan Agreement are hereby released, diminished or impaired, and the Borrower
hereby reaffirms all covenants, representations and warranties in the Loan
Agreement.
SECTION 5. EXPENSES. The Borrower shall pay to the Agent all reasonable
fees and expenses of Agent's legal counsel (pursuant to Section 11.3 of the Loan
Agreement) incurred in connection with the execution of this Amendment.
SECTION 6. CERTIFICATIONS. The Borrower hereby certifies that (a) no
material adverse change in the assets, liabilities, financial condition,
business or affairs of the Borrower has occurred since December 31, 1998 and (b)
except as previously disclosed to Agent and the Lenders in writing, no Default
or Event of Default has occurred and is continuing or will occur as a result of
this Amendment.
SECTION 7. EFFECTIVENESS. The effectiveness of this Amendment is
contingent upon (a) execution and delivery to each of the Approving Lenders of
certain warrants and registration rights agreements.
SECTION 8. OVERDRAFTS. Concurrently with the effectiveness of this
Agreement, the Obligors will eliminate the overdrafts in their accounts with
Chase Texas.
SECTION 9. MISCELLANEOUS. This Amendment (a) shall be binding upon and
inure to the benefit of the Borrower, the Lenders and the Agent and their
respective successors, assigns, receivers and trustees; (b) may be modified or
amended only by a writing signed by the required parties; (c) shall be governed
by and construed in accordance with the laws of the State of Texas and the
United
22
<PAGE>
States of America; (d) may be executed in several counterparts by the parties
hereto on separate counterparts, and each counterpart, when so executed and
delivered, shall constitute an original agreement, and all such separate
counterparts shall constitute but one and the same agreement and (e) together
with the other Loan Documents, embodies the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, consents and understandings relating to such subject matter.
The headings herein shall be accorded no significance in interpreting this
Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THE LOAN AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER LOAN
DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR SUBSTANTIALLY
CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have caused
this Amendment to be signed by their respective duly authorized officers,
effective as of the date first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:_________________________________
Douglas R. Harrington, Jr.,
Vice President
24
<PAGE>
CHASE BANK OF TEXAS, N. A.,
as Agent and as a Lender
By:_________________________________
Name:_______________________________
Title:______________________________
25
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:_________________________________
Name:_______________________________
Title:______________________________
26
<PAGE>
BANK OF AMERICA TEXAS, N.A.
By:_________________________________
Name:_______________________________
Title:______________________________
27
<PAGE>
COMERICA BANK-TEXAS
By:_________________________________
Name:_______________________________
Title:______________________________
28
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:_________________________________
Name:_______________________________
Title:______________________________
29
<PAGE>
The undersigned hereby join in this Amendment to evidence their consent
to execution by Borrower of this Amendment, to confirm that each Loan Document
now or previously executed by the undersigned applies and shall continue to
apply to the Loan Agreement, as amended hereby, to acknowledge that without such
consent and confirmation, Lender would not execute this Amendment and to join in
the notice pursuant to Tex. Bus. & Comm. Code ss.26.02 set forth above.
EACH OF THE SUBSIDIARIES OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:________________________________
Douglas R. Harrington, Jr.,
Vice President
30
<PAGE>
[LETTERHEAD OF THE BORROWER]
REQUEST FOR EXTENSION OF CREDIT
________________, 199____
Chase Bank of Texas, National
Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Diversified Corporate Group
Gentlemen:
The undersigned hereby certifies that he is the
_________________________________ of INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation (the "COMPANY"), and that as such he is authorized to
execute this Request for Extension of Credit (the "REQUEST") on behalf of the
Company pursuant to the Loan Agreement (as it may be amended, supplemented or
restated from time to time, the "AGREEMENT") dated as of July 7, 1998, by and
among the Company, Chase Bank of Texas, National Association, as Agent and the
Lenders therein named. The (check one) [ ] Loan [ ] Letter of Credit being
requested hereby is to be in the amount set forth in (b) below and is requested
to be made on __________________, which is a Business Day. The undersigned
further certifies, represents and warrants that to his knowledge, after due
inquiry (each capitalized term used herein having the same meaning given to it
in the Agreement unless otherwise specified herein):
(a) As of the date hereof:
(1) The Borrowing Base is: $
===========
(2) The aggregate Revolving Loan Commitments are: $
===========
(3) The Maximum Revolving Loan Available Amount
(Lesser of (a)(1) and (a)(2)) is: $___________
(4) The aggregate outstanding principal of the Revolving
Loan Obligations, before giving
effect to the Loan, if any, requested hereby, is: (_________)
(5) The amount of Letter of Credit Liabilities as of
EXHIBIT A
<PAGE>
the date hereof, before giving effect to the Letter of
Credit, if any, requested hereby, is: (_________)
(6) The aggregate unused Revolving Loan Commitments of
all Lenders [(a)(3) minus sum of
(a)(4) and (a)(5)], if positive, is: $
===========
(b) If and only if the aggregate unused Revolving Loan Commitments
of all Lenders [(a)(6)] is positive, the Company hereby
requests under this Request a Loan or Letter of Credit (as
indicated above) in the amount of $____________ (which is no
more than the aggregate unused Revolving Loan Commitments of
all Lenders).
(c) If a Letter of Credit is requested hereby, it should be issued
for the benefit of ___________________________________ and
should have an expiration date of ____________________ (which
date is no later than one year from the proposed date of
issuance) and any special language to be incorporated into
such Letter of Credit is attached hereto. The sum of the face
amount of the requested Letter of Credit PLUS the Letter of
Credit Liabilities as the date hereof as specified in item
(a)(5) above does not exceed $______________.
(d) The representations and warranties made in each Loan Document
are true and correct in all material respects on and as of the
time of delivery hereof, with the same force and effect as if
made on and as of the time of delivery hereof.
(e) No change in the assets, liabilities, financial condition,
business or affairs of the Company or any of the other
Obligors has occurred which results in a Material Adverse
Effect.
(f) No Default or Event of Default has occurred and is continuing.
Thank you for your attention to this matter.
Very truly yours,
_________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT A
2
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the
______________________________ of INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation (the "BORROWER"), and that as such he is authorized to
execute this certificate on behalf of the Borrower pursuant to the Loan
Agreement (as amended, the "AGREEMENT") dated as of July 7, 1998, by and among
the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent, and the
lenders therein named; and that a review of the Borrower and the other Obligors
has been made under his supervision with a view to determining whether the
Borrower and the other Obligors have fulfilled all of their respective
obligations under the Agreement, the Notes and the other Loan Documents; and on
behalf of the Borrower further certifies, represents and warrants that to his
knowledge, after due inquiry (each capitalized term used herein having the same
meaning given to it in the Agreement unless otherwise specified):
(a) The Borrower and the other Obligors have fulfilled, in
all material respects, their respective obligations under the
Agreement, the Notes and the other Loan Documents.
(b) The representations and warranties made in each Loan
Document are true and correct in all material respects on and as of the
time of delivery hereof, with the same force and effect as if made on
and as of the time of delivery hereof.
(c) The financial statements delivered to the Agent
concurrently with this Compliance Certificate have been prepared in
accordance with GAAP consistently followed throughout the period
indicated and fairly present the financial condition and results of
operations of the applicable Persons as at the end of, and for, the
period indicated (subject, in the case of Monthly Financial Statements,
to normal changes resulting from year-end adjustments).
(d) No Default or Event of Default has occurred and is
continuing. In this regard, the compliance with the provisions of
SECTIONS 7.3 and 8.12 is as follows:
(i) SECTION 7.3(A) -- CONSOLIDATED EBITDA
[PROVIDE DETAIL FOR APPLICABLE PERIODS
REPORTED, ACTUAL CONSOLIDATED EBITDA AND
REQUIRED CONSOLIDATED EBITDA]
(ii) SECTION 7.3(B) -- FREE CASH FLOW
[PROVIDE DETAIL FOR APPLICABLE PERIODS
REPORTED, ACTUAL FREE CASH FLOW AND REQUIRED
FREE CASH FLOW]
EXHIBIT E
<PAGE>
(iii) SECTION 8.12 -- CAPITAL EXPENDITURES
ACTUAL MAXIMUM
$------------ $------------
(e) No material adverse change in the assets, liabilities,
financial condition, business or affairs of the Borrower or any of the
other Obligors has occurred since the Effective Date.
DATED as of ____________________.
_________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT E
2
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that he is the
__________________________________ of INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation (the "BORROWER"), and that as such he is authorized to
execute this Borrowing Base Certificate on behalf of the Borrower pursuant to
the Loan Agreement (as it may be amended, supplemented or restated from time to
time, the "AGREEMENT") dated as of July 7, 1998, by and among the Borrower,
Chase Bank of Texas, National Association, as Agent, and the Lenders therein
named. The undersigned further certifies, represents and warrants that to his
knowledge, after due inquiry, that SCHEDULE 1 attached hereto has been duly
completed and is true and correct in all material respects.
Dated ________________, 199____.
_________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT J
<PAGE>
Borrowing Base Certificate
Dated ________________
<TABLE>
<CAPTION>
<S> <C>
Gross Accounts Receivable ______________
Plus:
Costs in excess of billings (WIP) ______________
Less:
Over 90 days Old (_____________)
Foreign (_____________)
Total Eligible A/R ______________
Advance Rate 80%
A/R Borrowing Amount _____________
Gross Inventory ______________
Less:
Foreign (______________)
Costs in excess of Billings (WIP) (______________)
Total Eligible Inventory _______________
Advance Rate 50%
Inventory Borrowing Amount ______________
Add or Subtract: Allowed Over/(under) Advance ______________
Add: Allowed Stationary Balance ______________
Total Borrowing Base ______________
Total Outstanding including L/C's (____________)
Availability/(required paydown) ______________
</TABLE>
SCHEDULE 1
<PAGE>
<TABLE>
<CAPTION>
BORROWING BASE COLLATERAL COVERAGE MAXIMUM PERMITTED OUTSTANDINGS
ALLOWED OVER OR ALLOWED REQUIRED OUTSTANDING MAXIMUM
BORROWING (UNDER) ADVANCE STATIONARY LOANS TO BB COVERAGE OBLIGATION
BASE DATE AMOUNTS BALANCE % AND "AS OF" DATE PERIOD AMOUNT
- - --------- --------------- ----------- ----------------------- ------ ------
<S> <C> <C> <C>
2/28/99 $1.7MM $35,000,000
3/31/99 ($.7MM) $35,000,000 50.00% on 3/31/99 3/21/99 - 4/20/99 $76,500,000
4/30/99 ($3MM) $35,000,000 54.62% on 4/30/99 4/21/99 - 5/20/99 $77,000,000
5/31/99 ($2.9MM) $35,000,000 57.18% on 5/31/99 5/21/99 - 6/20/99 $76,000,000
6/30/99 ($2MM) $35,000,000 56.74% on 6/30/99 6/21/99 - 7/20/99 $75,500,000
7/31/99 ($.4MM) $34,000,000 56.29% on 7/31/99 7/21/99 - 8/20/99 $73,500,000
8/31/99 $1.0MM $34,000,000 54.06% on 8/31/99 8/21/99 - 9/20/99 $73,500,000
9/30/99 $0MM $34,000,000 53.44% on 9/30/99 9/21/99 - 10/20/99 $75,000,000
10/31/99 ($3.2MM) $34,000,000 55.01% on 10/31/99 10/21/99 - 11/20/99 $76,300,000
11/30/99 ($2.5MM) $34,000,000 57.85% on 11/30/99 11/21/99 - 12/20/99 $74,000,000
12/31/99 ($.9MM) $34,000,000 56.70% on 12/31/99 12/21/99 - 1/20/00 $73,000,000
1/31/00 $0MM $33,000,000 54.79% on 1/31/00 1/21/00 - 2/20/00 $71,000,000
2/29/00 ($.2MM) $33,000,000 52.24% on 2/29/00 2/21/00 - 3/20/00 $71,000,000
3/31/00 $0MM $33,000,000 53.19% on 3/31/00 3/21/00 - 4/20/00 $70,500,000
</TABLE>
* Calculated by using the current borrowing base as a percent of the total
outstanding credit facility at the end of the indicated month, (e.g., the March
31, 1999 number of 51.37% is calculated using the 2/28 borrowing base of $38,380
divided by the total outstandings including L/C's under the credit facility of
$74,706.)
SCHEDULE 1
2
<PAGE>
MINIMUM MONTHLY EBITDA
CALENDAR MONTH MINIMUM MONTHLY EBITDA
-------------- ----------------------
February, 1999 $112,560
March 1999 $2,318,239
April 1999 $1,799,048
May 1999 $1,799,048
June 1999 $1,059,942
July 1999 $825,955
August 1999 $825,955
September 1999 $1,348,400
October 1999 $1,299,813
November 1999 $1,299,813
December 1999 $629,991
January 2000 $255,343
February 2000 $775,943
March 2000 $1,817,131
April 2000 $1,799,048
EXHIBIT K
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made this day
of March, 1999, by and between Innovative Valve Technologies, Inc., a Delaware
corporation ("IVT"), Chase Bank of Texas, National Association, Wells Fargo Bank
(Texas), National Association, Bank of America Texas, N.A., Comerica Bank-Texas,
and National City Bank of Kentucky (each a "MEMBER" and collectively, the "BANK
GROUP").
WHEREAS, concurrently with the execution hereof, IVT is issuing to the
Bank Group Warrants ("WARRANTS") exercisable for an aggregate of 482,262 shares
of IVT's outstanding common stock, par value $0.001 per share (the "WARRANT
SHARES"), subject to adjustment as set forth in the Warrants; and
WHEREAS, IVT desires to grant to the Bank Group certain registration
rights in respect of the Warrant Shares as provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, IVT and the Members of the Bank Group hereby agree
as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings specified below, whether or not capitalized or
underlined in the text of the Agreement:
(a) "CHANGE OF CONTROL TRANSACTION" shall mean (1) the acquisition by
any Person (including any syndicate or group deemed to be a "person"
under Section 13(d) or 14(d)(2) of the Exchange Act, or any successor
provision) of beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
transactions, of shares of capital stock of the Company entitling such
person to exercise more than 50% of the total voting power of all
shares of capital stock of the Company entitling the holders thereof to
vote generally in elections of directors; or (2) any consolidation of
the Company with, or merger of the Company into, any other Person, any
merger of another Person into the Company, or any sale, lease or
exchange of all or substantially all of the property and assets of the
Company (other than a transaction which (x) does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of capital stock of the Company or (y) is effected primarily to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange or outstanding shares of
Common Stock solely into shares of common stock of the surviving
entity).
(b) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any rulings, regulations, or
interpretations promulgated thereunder by the United States Securities
and Exchange Commission ("SEC").
1
<PAGE>
(c) "EXEMPT OFFERING" shall mean any offering by IVT of shares of
common stock (i) in connection with or pursuant to any benefit,
compensation, incentive or saving plan or program in which solely the
officers, directors, employees or independent contractors of IVT or any
of its subsidiaries participate, (ii) as consideration in any business
combination or acquisition transaction, (iii) filed in connection with
an exchange offer or offering of common stock or of securities
convertible or exchangeable into common stock made solely to IVT's
existing stockholders in connection with a rights offering, or (iv)
made pursuant to Regulation S under the Securities Act (or any similar
provision then in force).
(d) "IVT" shall mean Innovative Valve Technologies, Inc., a Delaware
corporation, and any corporation or business entity resulting from the
merger, consolidation, or conversion of IVT.
(e) "MAJORITY IN INTEREST" shall mean the holders of greater than 60%
of the then outstanding Warrants and/or Warrant Shares.
(f) "MATERIAL ADVERSE EFFECT" shall mean any material adverse change in
the condition (financial or otherwise), business, operations,
properties, prospects, assets or liabilities of IVT (whether or not
covered by insurance).
(g) "PERSON" shall mean any natural person, sole proprietorship,
corporation, partnership, limited liability company, business trust,
unincorporated organization or association, estate, trust or other
entity.
(h) "REGISTRABLE SHARES" shall mean the Warrant Shares and any
securities issued or issuable with respect to the Warrant Shares by way
of dividend or split or in connection with a combination of shares,
recapitalization, reclassification, merger, consolidation or other
reorganization or otherwise.
(i) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time, and any rulings, regulations, or interpretations
promulgated thereunder by the SEC.
2. PIGGYBACK REGISTRATION RIGHTS.
(a) If IVT at any time proposes to file on its behalf and/or on behalf
of any of its stockholders a registration statement under the
Securities Act on any registration form (other than pursuant to an
Exempt Offering) for any class that is the same or substantially
similar to the Registrable Shares, it will give written notice to each
Member, setting forth the terms of the proposed offering and such other
information as Member may reasonably request, at least 21 days before
the initial filing with the SEC of such registration statement, and
offer to include in such filing all or any portion of such Registrable
Shares as each such Member may request. If any Member desires to have
all or any portion of the Registrable Shares registered under this
SECTION 2, each Member shall advise IVT in writing within 15 days after
the date of receipt of such offer from IVT, setting forth the amount of
such Registrable
2
<PAGE>
Shares for which registration is requested. IVT shall thereupon include
in such registration statement the amount of the Registrable Shares for
which registration is so requested, and shall use its best efforts to
effect registration under the Securities Act of such Registrable
Shares.
(b) Notwithstanding the foregoing, if in the reasonable opinion of the
managing underwriter (or financial advisor of IVT if not an
underwritten public offering) the success of the offering would be
adversely affected by inclusion of the Registrable Shares requested to
be included, then the amount of securities to be offered by the Bank
Group shall be reduced (pro rata among the applicable Members) to the
extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such managing
underwriter (or financial advisor); PROVIDED, that if securities are
being offered for the account of other persons or entities as well as
IVT, then with respect to the Registrable Shares, the proportion by
which the amount of the Registrable Shares is reduced shall not exceed
the proportion by which the amount of such class of securities intended
to be offered by such other persons or entities (other than IVT) is
reduced.
3. DEMAND REGISTRATION RIGHTS.
(a) At any time following the earlier to occur of (i) April 1, 2000, or
(ii) a Change of Control Transaction , a Majority in Interest may
request IVT, by written notice (a "DEMAND NOTICE"), to register under
the Securities Act (a "DEMAND REGISTRATION") all or any portion of the
Registrable Shares held by the Bank Group on terms and conditions
comparable to those normally applicable to offerings of similar
securities in reasonably similar circumstances, including, without
limitation, a continuous or "shelf" registration statement, it being
specifically agreed that the Bank Group shall be allowed only one
Demand Registration. A registration pursuant to this Section 3 shall
not be deemed to have been effected (and it shall not count as a Demand
Registration) unless the registration statement relating to all
Registrable Shares requested to be included has become effective under
the Securities Act; provided, however, if after the registration
statement has become effective, (i) the offering pursuant to
registration is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court
or (ii) the Bank Group's right to make sales of Registrable Shares is
suspended by IVT as described in Section 3(b), such registration will
not be deemed to have been effected (and it shall not count as a Demand
Registration).
(b) Promptly following receipt of any Demand Notice under this SECTION
3, IVT shall use its best efforts to register under the Securities Act
the Registrable Shares specified in the Demand Notice; provided,
however, that IVT shall not be required to maintain the effectiveness
of any registration statement pursuant to this Agreement for a period
in excess of the lesser of (i) one year or (ii) the completion of the
distribution, in each case exclusive of any period of time during which
the right of the Members to make sales thereunder or the effectiveness
of such registration statement is suspended by IVT as provided in this
SECTION 3. A request shall be considered made only when (i) all of the
Registrable Shares
3
<PAGE>
requested to be included in any such registration has been so included,
(ii) the corresponding registration statement has become effective
under the Securities Act, and (iii) the public offering has been
consummated on the terms and conditions specified therein or, if not
consummated, such failure was not attributable to an action taken by
IVT. Notwithstanding anything to the contrary contained herein, IVT
shall not be obligated to prepare and file any registration statement
pursuant to this SECTION 3, or prepare or file any amendment or
supplement thereto, and may suspend the Members' right to make sales of
the Registrable Shares pursuant to an effective registration statement,
at any time when IVT, in the good faith judgment of its Board of
Directors, reasonably believes that the filing thereof at the time
requested, or the offering of securities pursuant thereto, would
materially and adversely affect a pending or proposed public offering
of IVT's securities, or an acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction or negotiations,
discussions or pending proposals with respect thereto. The filing of a
registration statement, or any amendment or supplement thereto, by IVT
cannot be deferred, and the Members' right to make sales pursuant to an
effective registration statement cannot be suspended, pursuant to the
provisions of the preceding sentence, for more than 60 days after the
abandonment or consummation of any of the foregoing offerings,
proposals or transactions or, in any event, for more than 90 days after
the date of the Board's determination pursuant to the preceding
sentence of this SECTION 3.
(c) IVT shall not be required by this SECTION 3 to include a Member's
Registrable Shares in any registration statement which is to be filed
if, in the opinion of counsel for such Member and IVT (or, should they
not agree, in the opinion of another counsel experienced in securities
law matters acceptable to counsel (or such Member and IVT)), the
proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws
and would result in all purchasers or transferees obtaining securities
which are not "restricted securities," as defined in Rule 144 under the
Securities Act of 1933, as amended.
4. OBLIGATIONS OF IVT. Whenever required under this Agreement to effect the
registration of all or any portion of the Registrable Shares, IVT shall, as
expeditiously as possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for the period of
distribution as contemplated thereby, including, without limitation,
the period necessary to allow distribution in accordance with any
request for a "shelf" registration as contemplated by SECTION 3(A)
hereof.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement including, without
limitation, the period necessary to allow distribution in accordance
with any request for a "shelf" registration as contemplated by SECTION
3(A) hereof.
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(c) Furnish to each Member and to each underwriter such numbers of
copies of the registration statement and the prospectus included
therein, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such Member.
(d) Immediately notify each Member in writing at any time when a
prospectus relating to any such Member is required to be delivered
under the Securities Act of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that
such prospectus will not contain an untrue statement of a material
fact, or omit to state any material fact required to be stated therein
or necessary to make the statement therein not misleading, and promptly
prepare and make available to each such Member any such supplement or
amendment, promptly after such supplement or amendment may be used in
connection with the offer for sale of the Registrable Shares without
thereby violating any federal or state securities laws.
(e) Use its best efforts to register and qualify the Registrable Shares
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate
for the distribution of the securities covered by the registration
statement, provided that IVT shall not be required in connection
therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(f) Allow the Bank Group, in its sole discretion, to select an
underwriter or underwriters in connection with any public offering
resulting from its exercise of its right to request a Demand
Registration, provided that IVT's approval of such underwriter(s) shall
be required, with such approval not to be unreasonably withheld.
(g) Provide a transfer agent for the Registrable Shares no later than
the effective date of the first registration of the Registrable Shares.
(h) Otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC.
(i) Use its best efforts to cause the Registrable Shares either (a) to
be listed on a national securities exchange (if the Registrable Shares
are not already so listed) and on each additional national securities
exchange on which similar securities issued by IVT are then listed, if
the listing of the Registrable Shares is then permitted under the rules
of such exchange, or (b) to secure designation of all the Registrable
Shares as a NASDAQ "national market system security" within the meaning
of Rule 11Aa2-1 of the SEC or, failing that, to secure listing on
NASDAQ for the Registrable Shares and, without limiting the generality
of the foregoing, to use its best efforts to arrange for at least two
(2) market makers to register as such with respect to the Registrable
Shares with the National Association of Securities Dealers, Inc.
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(j) Enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as each Member
shall reasonably request in order to expedite or facilitate the
disposition of the Registrable Shares.
(k) On the effective day of such registration statement or, in the case
of an underwritten offering, on the date of delivery of the Registrable
Shares sold pursuant thereto, IVT shall cause to be delivered to each
Member and the underwriters, opinions of counsel for IVT, which
opinions (in form, scope, and substance) shall be reasonably
satisfactory to counsel for the underwriters and counsel for the
Members, covering the matters customarily covered in opinions given to
underwriters and selling interest holders, respectively, in secondary
underwritten public offerings. Immediately prior to the effectiveness
of such registration statement, or, in the case of an underwritten
offering, at the time of delivery of any Registrable Shares sold
pursuant thereto, IVT shall cause to be delivered to each Member and
the underwriters letters from IVT's independent public accountants with
respect to IVT within the meaning of the Securities Act and the
applicable published rules and regulations of the SEC thereunder, and
otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent public
accountants delivered in connection with underwritten public offerings.
(l) Make available for inspection by each Member, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant, or other agent
retained by each Member or any such underwriter, all pertinent
financial and other records and pertinent corporate documents and
properties of IVT, and cause all of IVT's officers, directors and
employees to supply all information reasonably requested by each
Member, or any such underwriter, attorney, accountant or agent in
connection with any such registration statement.
(m) Use every reasonable effort to prevent the issuance of any stop
order suspending the effectiveness of such registration statement or of
any order preventing or suspending the use of any preliminary
prospectus and, if any such order is issued, to obtain the lifting
thereof at the earliest reasonable time.
(n) Make such representations and warranties to the Members and the
underwriters as are customarily made by issuers to underwriters and the
Members, as the case may be, in underwritten public offerings.
5. OBLIGATIONS OF THE MEMBERS. (a) In order to participate in any
registration hereunder of the Registrable Shares, the Members shall:
(i) agree to sell its Registrable Shares on the basis provided
in any underwriting arrangement approved by IVT, provided such basis is
then customary in the securities business for such an offering of the
type covered in the registration statement;
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(ii) enter into a written agreement with the managing
underwriter or representative of the underwriters in such form and
containing such provisions as are then customary in the securities
business for such an offering of the type covered in the registration
statement; and
(iii) complete and execute all questionnaires, powers of
attorney, indemnities and other documents as are reasonably required
under the terms of those arrangements and as are then customary in the
securities business for such an offering of the type covered in the
registration statement.
(b) Each Member agrees that it will not sell, transfer or otherwise
dispose of Registrable Shares in a public transaction (including
through put or short-sale arrangements) in the period (i) beginning 10
days prior to the effectiveness under the Securities Act of any
registration statement covering shares of common stock being publicly
offered by IVT or in an Exempt Offering of the type specified in clause
(iii) of the definition of Exempt Offering and (ii) ending 90 days
following the date of that effectiveness. IVT will provide each Member
written notice of any such lockup period.
6. EXPENSES OF REGISTRATION. Except as provided in the following sentence,
IVT shall bear all expenses arising or incurred in connection with any
of the transactions contemplated by this Agreement, including, without
limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc. and fees of transfer agents and
registrars, (b) registration fees, (c) listing fees, (d) printing
expenses, (e) accounting and legal fees and expenses of IVT, (f)
expenses of any special audits or comfort letters incident to or
required by any such registration or qualification, and (g) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification. Notwithstanding the
foregoing, each Member shall pay all of its legal expenses, fees and
expenses of any other special experts retained by such Member in
connection with the registration, and its underwriting discount and
selling commissions incurred in connection with each registration
pursuant to this Agreement.
7. OTHER REGISTRATION RIGHTS. If, on or after the date of this Agreement,
IVT grants to any person with respect to any security issued by IVT or
any of its subsidiaries registration rights that provide for terms that
are in any manner more favorable to the holder of such registration
rights than the terms granted to the Bank Group hereunder, or if IVT
amends or waives any provision of any agreement providing registration
rights of others or takes any other action whatsoever to provide for
terms that are more favorable to other holders than the terms provided
to the Bank Group hereunder, then this Agreement shall immediately be
deemed amended to provide the Bank Group with any and all of such more
favorable terms as the Members shall elect to include herein.
8. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the Bank
Group under this Agreement with respect to the Registrable Shares may
be transferred to any transferee who acquires (otherwise than in a
registered public offering) such Registrable Shares in
7
<PAGE>
compliance with the terms of the Common Stock Purchase Warrant issued
by IVT to each Member and dated of even date herewith; provided, that
any such transfer will be permitted only if the transferee executes an
addendum to this Agreement, in form reasonably satisfactory to IVT, in
which such transferee agrees to comply with and otherwise be bound by
the terms and conditions hereof.
9. INDEMNIFICATION
(a) In the event of a registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, IVT will indemnify
and hold harmless each Member and each underwriter of the Registrable
Shares thereunder and each person who controls such Member or such
underwriter within the meaning of the Securities Act and the Exchange
Act against any losses, claims, damages or liabilities (including
reasonable attorneys' fees), joint or several, to which any Member or
any underwriter or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which the Registrable Shares was registered under the Securities
Act pursuant to this Agreement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof,
or arise out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each
Member, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that IVT will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished in writing by such Member, such underwriter or
such controlling person specifically for use in such registration
statement or prospectus; provided, further, that IVT will not be liable
hereunder to any underwriter or any person who controls an underwriter
within the meaning of the Securities Act and the Exchange Act for any
loss, claim, damage or liability that arises out of, or is based upon,
any untrue statement or alleged untrue statement or any omission or
alleged omission contained in any preliminary prospectus that was
corrected by any subsequent prospectus, and the underwriter was
required to deliver but failed to deliver such prospectus as required
by the Securities Act.
(b) In the event of a registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each Member will
indemnify and hold harmless IVT and each person who controls IVT within
the meaning of the Securities Act and the Exchange Act, each officer of
IVT who signs the registration statement, each director of IVT, each
underwriter and each person who controls any underwriter within the
meaning of the Securities Act and the Exchange Act, against all losses,
claims, damages or liabilities (including reasonable attorneys' fees),
joint or several, to which IVT or such officer or director or
underwriter or controlling person may become subject under the
Securities Act,
8
<PAGE>
the Exchange Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the
Registrable Shares was registered under the Securities Act pursuant to
this Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out
of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse IVT and each such
officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that each Member will be liable hereunder in
any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission relating to
such Member made in reliance upon and in conformity with information
pertaining to such Member, as such, furnished in writing to IVT by such
Member specifically for use in such registration statement or
prospectus ("MEMBER INFORMATION"); provided, further, that no Member
will be liable hereunder to any underwriter or any person who controls
an underwriter within the meaning of the Securities Act and the
Exchange Act for any loss, claim, damage or liability that arises out
of, or is based upon, any untrue statement or alleged untrue statement
or any omission or alleged omission in Member Information contained in
any preliminary prospectus that was corrected by any subsequent
prospectus, and the underwriter was required to deliver but failed to
deliver such prospectus as required by the Securities Act; and
provided, further, that the liability of such Member hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the public offering price
of shares sold by such Member under such registration statement bears
to the total public offering price of all securities sold thereunder,
but not to exceed the amount of the proceeds received by such Member
from the sale of the Registrable Shares covered by such registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification, and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to
such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably
withheld). An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim.
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(d) If the indemnification provided for under this Agreement is
unavailable to an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute
to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, or liabilities (i) in such proportion as
is appropriate to reflect the relative benefit received by IVT from the
offering of such Member's securities; or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of
IVT on the one hand and such Member on the other in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by IVT on the one hand and the Members
on the other shall be the net proceeds from the offering (before
deducting expenses) received by IVT on the one hand and such Member on
the other. The relative fault of IVT on the one hand and the Members on
the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of material fact or the
omission or alleged omission to state a material fact relates to
information supplied by IVT or the Members and the parties' relevant
intent, knowledge, access to information and opportunity to prevent or
correct such statement or omission. IVT and each Member agree that it
would not be just and equitable if contribution pursuant to this
SECTION 9(D) were based solely upon the number of entities from whom
contribution was requested or by any other method of allocation which
does not take account of the equitable considerations referred to above
in this SECTION 9(D). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities
referred to above in this SECTION 9(D) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim,
subject to the provisions of SECTION 9(C) hereof. Notwithstanding the
provisions of this SECTION 9(D), no Member shall be required to
contribute any amount or make any other payments under this Agreement
which in the aggregate exceed the proceeds received by such Member. No
person guilty of fraudulent misrepresentation (within the meaning of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of
securities. IVT also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in
the event IVT's indemnification is unavailable for any reason.
10. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be governed
by the laws of the State of Texas without regard to conflict of law
principles thereof. The parties hereby irrevocably submit in any suit,
action or proceeding arising out of or relating to this Agreement or
any of the transactions contemplated by this Agreement to the exclusive
jurisdiction and venue of the United States District Court for the
Southern District of Texas,
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Houston Division, and waive any and all objections to the jurisdiction
and venue that they may have under applicable law.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written
and oral, among the parties or any of them with respect to the subject
matter hereof.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
13. NOTICE; TIME PERIODS. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given on the
day when delivered personally or sent by telecopier (with receipt
confirmed), and two days after the date of mailing sent by reputable
overnight delivery service (receipt requested), in each case to the
other parties at the following addresses and telecopier numbers (or to
such other address or telecopier number as shall be communicated to the
other parties by like notice):
If to IVT, to:
Innovative Valve Technologies, Inc.
2 Northpoint Drive
Houston, Texas 77060
Attention: Mr. Charles F. Schugart
Telecopy: 281/925-0360
With a Copy to:
Boyer Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Attention: John R. Boyer, Jr.
Telecopy: 713/871-2024
If to a Member, to:
Chase Bank of Texas, National Association
5 CBB E-78
712 Main Street
Houston, Texas 77002
Attn: Manager, Diversified Corporate Group
Telecopy : 713/216-6004
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Bank of America Texas, N.A.
901 Main Street, 11th Floor
Dallas, Texas 25202-3714
Attn: Mr. Mark Henze
Telecopy: 214/508-2588
Comerica Bank
One Shell Plaza
910 Louisiana
Houston, Texas 77002
Attn: Mr. Eric Lundquist
Telecopy: 713/220-5651
Wells Fargo Bank
1000 Louisiana, 3rd Floor
Houston, Texas 77002
Attn: Mr. Roger Fruendt
Telecopy: 713/739-1076
National City Bank of Kentucky
101 South Fifth Street
Louisville, Kentucky 40402
Attn: Mr. Jerry Miles
Telecopy: 502/581-5203
With a copy to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Attn: Mr. Kevin N. Peter
Telecopy: 713/223-3717
[REMAINDER OF PAGE BLANK AS SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:________________________________
Charles F. Schugart, President,
CHASE BANK OF TEXAS, N.A.
By:________________________________
_____________
_____________
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:________________________________
_____________
_____________
BANK OF AMERICA TEXAS, N.A.
By:________________________________
_____________
_____________
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COMERICA BANK-TEXAS
By:________________________________
_____________
_____________
NATIONAL CITY BANK OF KENTUCKY
By:________________________________
_____________
_____________
14
EXHIBIT 4.9
THIS WARRANT, AND ANY SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY OTHER SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT AND NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER
THE ACT AND ANY OTHER APPLICABLE SECURITIES LAW, OR RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR ANY
OF SUCH SHARES MAY BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS
WARRANT, AND NO TRANSFER OF THIS WARRANT OR ANY OF SUCH SHARES SHALL BE VALID OR
EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
WARRANT
To Purchase _______ Shares
of the Outstanding Common Stock of
Innovative Valve Technologies, Inc.
THIS CERTIFIES THAT, for value received, the receipt and sufficiency of
which is hereby acknowledged:
Subject to the conditions set forth herein, _____________________________
____________, or its assigns, is entitled to subscribe for and purchase from
Innovative Valve Technologies, Inc., a Delaware corporation (the "Company"), at
any time or from time to time after the date hereof, a total of _______ fully
paid and nonassessable shares of the Company's Common Stock, par value $0.001
per share (the "Common Stock"), at an exercise price of $0.73 per share of
Common Stock (the "Exercise Price"), subject to adjustment from time to time
pursuant to the provisions of paragraph 4 hereof. The term "Warrant(s)," as used
herein, shall mean this Warrant of even date herewith, including all amendments
to any such Warrants and all warrants issued in exchange, transfer or
replacement therefor. The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchased or purchasable upon the exercise of the
Warrants.
This Warrant is subject to the following provisions, terms and conditions:
1. DEFINITIONS. For the purpose of the Warrants, the following terms,
whether or not capitalized or underlined in the text of this Warrant, shall have
the following meanings:
"COMMISSION" shall mean the U.S. Securities and Exchange Commission or any
other governmental authority at the time administering the Securities Act.
"COMMON STOCK" shall have the meaning specified in the introduction to
this Warrant.
<PAGE>
"COMPANY" shall have the meaning specified in the introduction to this
Warrant, and shall include any corporation or business entity resulting from the
merger, consolidation, or conversion of the Company.
"EXERCISE AGREEMENT" shall have the meaning specified in paragraph 2
hereof.
"EXERCISE PRICE" shall have the meaning specified in the introduction to
this Warrant.
"FAIR MARKET PRICE PER SHARE" shall mean the average of the closing sales
prices, if available, or the average of the bid and asked prices for the Common
Stock or Marketable Securities, as applicable, (or their successors) on the
principal market therefor for the five Trading Days preceding the day which is
two business days prior to the day of exercise, or if no such price is
available, by an appraiser selected by the holder hereof and reasonably
acceptable to the Company. The determination of such appraiser shall be
conclusive and binding on the holder hereof and the Company.
"MARKETABLE SECURITIES" shall mean securities of a corporation subject to
the informational and reporting requirements of the Securities Exchange Act of
1934, as amended, that are listed and actively traded on a nationally-recognized
stock exchange or inter-dealer quotation system in the United States.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, as any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such similar or successor federal statute.
"TRADING DAYS" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.
"WARRANT(S)" shall have the meaning specified in the introduction to this
Warrant.
"WARRANT SHARES" shall have the meaning specified in the introduction to
this Warrant.
2. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES; NO
FRACTIONAL SHARES. The rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed Exercise Agreement in the form attached hereto
("Exercise Agreement"), during normal business hours on any business day at the
principal office of the Company (or such other office or agency of the Company
as it may designate by notice in writing to the holder hereof at the address of
such holder appearing on the books of the Company) at any time during the period
set forth in paragraph 3 hereof and upon payment to the Company by certified
check or wire transfer in an amount equal to the Exercise Price for the Warrant
Shares to be purchased in connection with such exercise. The Company agrees that
the shares so purchased shall be and are deemed to be issued to the holder
hereof or its designee (subject to the
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transfer restrictions applicable to this Warrant to shares purchased upon
exercise of this Warrant) as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in said Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding five (5)
business days, after the rights represented by this Warrant shall have been so
exercised. The stock certificate or certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder or such other name as shall be designated by said
holder (subject to the transfer restrictions applicable to this Warrant and to
shares purchased upon exercise of this Warrant). If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of said stock certificates(s),
deliver to said holder a new Warrant representing the right to purchase the
number of shares of Common Stock with respect to which this Warrant shall not
then have been exercised. The Company shall pay all expenses and charges payable
in connection with the preparation, execution and delivery of stock certificates
(and any new Warrants) pursuant to this paragraph 2 except that, in case such
stock certificates shall be registered in a name or names other than the holder
of this Warrant or such holder's nominee, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of delivery of such stock certificates by the Company as
mentioned above.
This Warrant shall be exercisable only for a whole number of Warrant
Shares. No fractions of shares of Common Stock, or scrip for any such fractions
of shares, shall be issued upon the exercise of this Warrant. The Company shall
pay a cash adjustment in respect of such fractional interest in an amount equal
to the Fair Market Price per Share of one share of Common Stock at the time of
such exercise multiplied by such fraction computed to the nearest whole cent.
3. SHARES TO BE FULLY PAID; RESERVATIONS OF SHARES. The Company covenants
and agrees that all Warrant Shares will be duly authorized and validly issued
and upon issuance in accordance with the terms and conditions hereof, will be
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. Without limiting the generality of the foregoing,
the Company covenants and agrees that it will from time to time take all such
action as may be required to assure that the par value per Warrant Share is at
all times equal to or less than the Exercise Price then in effect. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of issue upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant and any other Warrants.
4. ANTI-DILUTION PROVISIONS. The number, rights and privileges of the
shares of Common Stock issuable upon exercise of this Warrant shall be subject
to the following adjustments:
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(a) DIVIDENDS, DISTRIBUTIONS AND OTHER ISSUANCES. If the Company
shall declare a dividend or distribution of its capital stock or of evidences of
the Company's indebtedness or assets (excluding cash dividends or distributions)
on the Common Stock, or effect a stock split or reverse stock split with respect
to the Common Stock, or issue any shares of its capital stock (whether by
reclassification of shares of the Common Stock, issuance of new shares to
current or additional investors or otherwise), the exercise rights of the holder
hereof in effect on the record date, for any such stock dividend or
distribution, or the effective date, of any such other event, shall be adjusted
proportionately so that the holder of this Warrant thereafter shall be entitled
to receive upon exercise pursuant to paragraph 2 hereof the aggregate number of
shares of the Common Stock or other capital stock that such holder would own or
be entitled to receive after the happening of any of the events mentioned above
if this Warrant had been exercised immediately prior to the close of business on
such record date or effective date, as applicable.
(b) OTHER RECLASSIFICATIONS, CONSOLIDATION, MERGER OR SALE OF
ASSETS. If the Company shall effect any reclassification or similar change of
outstanding shares of the Common Stock (other than as set forth in clause (a) of
this paragraph 4), or a consolidation or merger of the Company with another
corporation, or a conveyance of all or substantially all of the assets of the
Company, this Warrant shall, after such capital reorganization,
reclassification, consolidation, merger or conveyance, be exercisable only for
the number of shares of stock or other properties, including cash, to which a
holder of the number of shares of the Common Stock deliverable upon exercise of
this Warrant would have been entitled upon such capital reorganization,
reclassification, change, consolidation, merger or conveyance if this Warrant
had been exercised immediately prior to the effective date of such event; and,
in any such case, appropriate adjustments (as determined by the Company's Board
of Directors) shall be made in the application of the provisions set forth in
this paragraph 4 with respect to the rights and interests thereafter of the
holder of this Warrant to the end that the provisions set forth in this
paragraph 4 (including provisions with respect to changes in and other
adjustments of the exercise rights in this paragraph 4) shall thereafter be
applicable, as nearly as may be reasonable, in relation to any shares of stock
or other securities thereafter deliverable upon the exercise of this Warrant.
(c) ADJUSTMENTS TO EXERCISE PRICE. If and whenever after the date
hereof the Company shall issue or sell any shares of Common Stock for no
consideration or for a consideration per share less than the Exercise Price
then, forthwith, upon such issue or sale, the Exercise Price shall be reduced
(but not increased) to the price determined by dividing (x) an amount equal to
the sum of (i) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing Exercise
Price plus (ii) the consideration received by the Company upon such issue or
sale by (y) the aggregate number of shares of Common Stock outstanding
immediately after such issue or sale.
(d) ISSUANCES OF RIGHTS OR OPTIONS. In case at any time after the
date hereof the Company shall grant any rights to subscribe for or to purchase,
or any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
and the price per share for which shares of Common Stock are issuable upon the
exercise of such rights
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or options or upon conversion or exchange of such Convertible Securities shall
be less than the Exercise Price, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights or options shall be deemed to be outstanding as of the
date of the granting of such rights or options and to have been issued for such
price per share, with the effect on the Exercise Price as set forth in paragraph
4(c) above. Notwithstanding the foregoing, the Company shall be entitled to
issue options to purchase up to an aggregate of 194,016 shares of Common Stock
pursuant to the terms and conditions of the Innovative Valve Technologies, Inc.
1997 Incentive Plan without adjustment to the Exercise Price as set forth in
paragraph 4(c). The determination of the exercise price per share of such
rights, options or Convertible Securities shall be determined by dividing (i)
any amount received or receivable by the Company as consideration for granting
such rights or options, plus the consideration payable to the Company upon
exercise of such rights or options or, in the case of rights or options relating
to Convertible Securities, the consideration payable upon the issue or sale of
such Convertible Securities and upon conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon exercise of such rights or options.
(e) NOTICE OF TRANSACTION. The Company shall give written notice to
the holder hereof of any transaction within the scope of clause (a) through (d)
of this paragraph 4 promptly after the effective date therefor and provide in
such written notice a brief description of the terms and conditions of such
transaction.
(f) CONSIDERATION FOR STOCK. In case at any time Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration therefor shall be deemed to be the amount received by the Company
therefor. In case at any time Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
fair value of such consideration, as determined reasonably and in good faith by
the Board of Directors of the Company.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company covenants and agrees
that:
(a) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance of this Warrant
and will take all such actions as may reasonably be requested by the holder of
any Warrant in order to protect the exercise privilege of the holders of the
Warrants against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.
(b) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger or consolidation.
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(c) ISSUANCE OF WARRANT SECURITIES. If the issuance of any Warrant
Shares required to be reserved for purposes of exercise of this Warrant is
required to be registered with or approved by any federal governmental authority
under any federal or state law (other than any registration under the Securities
Act or state securities laws), before such shares may be issued upon exercise of
this Warrant, the Company will, at its expense, use its best efforts to cause
such shares to be so registered or approved, at such time, so that such shares
may be issued in accordance with the terms hereof.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of Warrants shall be made without charge to the holders of such
Warrants or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Warrant exercised.
7. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any Warrant, of any Warrant Shares issued or issuable
upon the exercise of any Warrant, or in any manner interfere with the timely
exercise of this Warrant.
8. AMENDMENTS TO TERMS OF WARRANT SHARES. The Company will not amend the
terms of the Warrant Shares without the consent of holders of a majority of the
outstanding Warrants exercisable for a majority of the Warrant Shares.
9. CASHLESS EXERCISE. The Company agrees that:
(a) EXERCISE. The holder of this Warrant may exercise this Warrant
in whole or in part by surrendering it to the Company to purchase, on behalf of
the holder hereof, the number of shares of Common Stock equal to the number of
such shares then purchasable upon exercise of that portion of the Warrant to be
exercised less the number of such shares equal to the quotient of the aggregate
exercise price of all such shares underlying that portion of the Warrant to be
exercised divided by the Fair Market Price per Share.
(b) SALE OR MERGER FOR CASH. Concurrent with the sale or merger of
all or substantially all of the assets or Common Stock of the Company for cash,
the holder of this Warrant may exercise this Warrant by surrendering it to the
Company in exchange for the amount of cash per share such holder would be
entitled to receive after the happening of any of the events mentioned above if
this Warrant had been exercised immediately prior to the close of business on
such record date or effective date, as applicable, less the applicable Exercise
Price per share.
(c) SALE OR MERGER FOR MARKETABLE SECURITIES. Concurrent with the
sale or merger of all or substantially all of the assets or Common Stock of the
Company for Marketable Securities, the holder of this Warrant may exercise this
Warrant by surrendering it to the Company in exchange for the applicable amount
of such Marketable Securities such holder would be entitled to receive after the
happening of any of the events mentioned above if this Warrant had been
exercised immediately prior to the close of business on such record date or
effective date, as applicable, less
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the number of such Marketable Securities equal to the quotient of the aggregate
exercise price of all such shares underlying this Warrant divided by the Fair
Market Price per Share of such Marketable Securities.
10. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
11. TRANSFER AND EXCHANGE.
(a) NO TRANSFER OF WARRANT. This Warrant may not be offered, sold,
pledged or otherwise transferred in any manner whatsoever, other than by
National to any of its affiliates or subsidiaries.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the principal
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the holder hereof), for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares of Common Stock which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of written notice from the
holder hereof or other evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon deliver of an indemnity agreement, or
other indemnity reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any exchange, transfer or replacement as provided in
this paragraph 11, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this paragraph 11.
12. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing, and shall be deemed to have been delivered on the
date delivered by hand, telegram, facsimile or by similar means, on the first
(1st) day following the day when sent by recognized courier or overnight
delivery service (fees prepaid), or on the third (3rd) day following the day
when deposited in the mail, registered or certified (postage prepaid),
addressed: (i) if to the holder hereof or any other holder of any Warrants, at
the registered address of the holder hereof or such other
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holder as set forth in the register kept by the Company at its principal office
with respect to the Warrants, or to such other address as the holder hereof or
such other holder may have designated to the Company in writing, and (ii) if to
the Company, at 2 Northpoint Drive, Houston, Texas 77060, Attention: Mr. Charles
F. Schugart, or addresses as the Company may have designated in writing to the
holder hereof and each other holder of any of the Warrants at the time
outstanding; provided, however, that any such communication to the Company may
also, at the option of the holder hereof, be either delivered to the Company at
its address set forth above or to any officer of the Company.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas, without regard to principles of conflicts of laws.
14. REMEDIES. The Company stipulates that the remedies at law of the
holder hereof in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. MISCELLANEOUS.
(a) Amendments. This Warrant and any provision hereof may be
changed, waived, discharged or terminated, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against whom
enforcement of the same is sought.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this ___ day of March, 1999.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:___________________________________
Charles F. Schugart, President
_______________________________________
By:_____________________________________
_____________________________________
_____________________________________
FORM OF EXERCISE AGREEMENT
[DATE]
_______________________
Company
_______________________
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_________________________
Attention: President
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase ____ shares of Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in cash. The undersigned is acquiring
such shares for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
Signature:________________________
Company:__________________________
Name:_____________________________
Title:____________________________
Address:__________________________
9
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 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
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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.
"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).
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"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.
"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).
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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) 1,650,000 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 275,000 shares will be available for Director Awards. No more than
1,650,000 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.
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
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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 replace ment of or as alternatives to
grants or rights under this Plan or any other employee plan of the Company or
any of its Subsidiaries, including the plan of any acquired entity. An Employee
Award may provide for the grant or issuance of additional, replacement or
alternative Employee Awards on the occurrence of specified events, including the
exercise of the original Employee Award granted to a Participant. All or part of
an Employee Award may be subject to conditions established by the Committee,
which may include, but are not limited to, continuous service with the Company
and its Subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other comparable
measurements of performance. If a Participant holding an Employee Award ceases
to be an Employee, any unexercised, deferred, unexercisable, unvested or unpaid
portion of that Employee Award will be treated as set forth in the applicable
Employee Award Agreement.
(i) STOCK OPTION. An Employee Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive Option
or a Nonqualified
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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 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.
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<PAGE>
(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 Stock based Awards Limitations will not
apply to Independent Contractor Awards.
(d) The SSI Options outstanding immediately prior to the Merger
Effective Time automatically will be converted into Nonqualified Options at the
Merger Effective Time as provided in Schedule 2(D) to the Merger Agreement.
9. DIRECTOR AWARDS. (a) Each Nonemployee Director will be granted
Director Awards in accordance with this Paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreement. Notwithstanding anything to the contrary
contained herein, Director Awards will not be made in any year in which a
sufficient number of shares of Common Stock are not available under this Plan to
make those Director Awards under this Plan.
(b) DIRECTOR OPTIONS. On the IPO Closing Date, each Nonemployee
Director will be automatically awarded a Director Option that provides for the
purchase of 10,000 shares of Common Stock. In addition, on each Annual Director
Award Date, each Nonemployee Director shall automatically be granted a Director
Option that provides for the purchase of 5,000 shares of Common Stock. Any
individual who first becomes a Nonemployee Director after the IPO Closing Date
otherwise than by election at an Annual Meeting automatically will be granted,
on the date of his or her election, a Director Option that provides for the
purchase of a number of shares of Common Stock (rounded up to the nearest whole
number) equal to the product of (i) 10,000 and (ii) a fraction the numerator of
which is the number of days between the election of that Nonemployee Director
and the next scheduled Annual Director Award Date (or, if that date has not been
scheduled, the first anniversary of the immediately preceding Annual Director
Award Date, if any; provided,
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<PAGE>
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 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
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<PAGE>
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.
(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
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<PAGE>
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.
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
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<PAGE>
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 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 pur suant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, will be
governed by and construed in accordance with the laws of the State of Delaware.
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EXHIBIT 10.2(B)
October 30, 1998
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn. Compensation Committee
Re: AMENDED AND RESTATED EMPLOYMENT AGREEMENT OF WILLIAM E. HAYNES
DATED OCTOBER 15, 1997 (THE "EMPLOYMENT AGREEMENT")
Gentlemen:
The purpose of this letter is to evidence our mutual understanding and agreement
as to the following matters:
1. Effective October 12, 1998, I have unilaterally and temporarily reduced my
salary under the Employment Agreement by one-half to help improve the
Company's earnings and cash flow and to illustrate a leadership position
and encourage other employees of the Company to make commitments to help
company performance. Although I am forever waiving the rights to such
salary reduction that has accrued but been unpaid after such date, such
reduction shall not be deemed a breach of the Employment Agreement by the
Company. This reduction is expected to be a temporary reduction and I
reserve the right to prospectively reinstate my full salary at any time
and for any reason.
2. We have mutually agreed that Charles F. Schugart will prospectively be
elected and serve as President of the Company and the first sentence of
Section 2 of the Employment Agreement shall upon such election be modified
to delete the reference to my service as President. Such reduction in my
titles and responsibilities shall in no way be a breach of the Employment
Agreement by me, or trigger any compensation or payments to me from the
Company or result in any right by me to terminate the Employment
Agreement.
3. Except as otherwise expressly set forth above, the Employment Agreement
shall remain in full force and effect and I shall be fully entitled to any
and all compensation, termination payments and any other benefits
whatsoever available to me under the Employment Agreement.
Please evidence the Committee's agreement with the foregoing by executing the
acknowledgment set forth below.
Very truly yours,
<PAGE>
William E. Haynes
AGREED AND ACCEPTED
THIS 11TH DAY OF JANUARY, 1999
COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS
By:___________________________
Robert M. Chiste, Chairman
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EXHIBIT 10.3(B)
October 30, 1998
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn. Compensation Committee
Re: AMENDED AND RESTATED EMPLOYMENT AGREEMENT OF CHARLES F. SCHUGART
DATED OCTOBER 15, 1997 (THE "EMPLOYMENT AGREEMENT")
Gentlemen:
The purpose of this letter is to evidence our mutual understanding and
agreement as to the following matters:
1. We have mutually agreed that I will prospectively be elected and serve as
President of the Company and the first sentence of Section 2 of the
Employment Agreement shall upon such election be modified to delete the
reference to my service as Senior Vice President and Chief Financial
Officer and to recite my service as President. Such change in my titles
and responsibilities shall in no way be a breach of the Employment
Agreement by me, or trigger any compensation or payments to me from the
Company or result in any right by me to terminate the Employment
Agreement.
2. Except as otherwise expressly set forth above, the Employment Agreement
shall remain in full force and effect and I shall be fully entitled to any
and all compensation, termination payments and any other benefits
whatsoever available to me under the Employment Agreement.
Please evidence the Committee's agreement with the foregoing by executing
the acknowledgment set forth below.
Very truly yours,
Charles F. Schugart
AGREED AND ACCEPTED
THIS 11TH DAY OF JANUARY, 1999
COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS
<PAGE>
By:_______________________________
Robert M. Chiste, Chairman
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EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is
dated as of January 1, 1998, between INNOVATIVE VALVE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and PLINY L. OLIVIER ("Executive"). The
Company and the Executive are hereinafter sometimes referred to collectively as
the "Parties" and individually as a "Party."
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement dated effective
February 26, 1997 (the "PURCHASE AGREEMENT"), entered into by and among the
Company, Executive, The David A. Siegel--GSV Voting Trust, David A. Siegel and
Bettie Siegel, the Company acquired more than ninety-nine percent (99%) of the
issued and outstanding shares of capital stock of GSV, Inc. ("GSV") from the
Executive and the other shareholders of GSV;
WHEREAS, the Executive was a shareholder, executive officer and director
of GSV, and was a primary beneficiary of the consideration paid by the Company
under the Purchase Agreement; and
WHEREAS, as a result of the Executive's intimate knowledge of the business
of GSV, and the trade secrets and confidential information relating thereto, as
well as his reputation and relationships with, among others, the clients,
customers, subcontractors, vendors, suppliers, employees and other agents of
GSV, Executive and the Company recognize and acknowledge (i) the detrimental
effect on the business and the substantially decreased value of GSV and its
business and assets which would result if Executive were to disclose or use any
of GSV's trade secrets or confidential information other than in connection with
Executive's employment with the Company, (ii) the detrimental effect on the
business and the substantially decreased value of GSV and its business and
assets which would result if Executive were to enter into competition with GSV
within an unreasonably brief period of time after the Company's acquisition of
GSV, or the termination of the employment of Executive with GSV, (iii) that the
agreements and covenants in this Agreement are essential to protect the business
and goodwill to be acquired by the Company, and other legitimate business
interests of the Company, and (iv) that the Company would not have entered into
the Purchase Agreement but for the covenants and agreements contained in this
Agreement, and the protection afforded to the Company hereby; and
WHEREAS, upon consummation of the acquisition of GSV, the Company
disclosed to the Executive confidential and proprietary information regarding
the business of the Company, and certain trade secrets relating thereto, and the
Executive has been encouraged to expand his relationships with, among others,
the clients, customers, subcontractors, vendors, suppliers, employees and other
agents of the Company, and the Executive and the Company recognize and
acknowledge (i) the detrimental effect on the business of the Company and its
legitimate business interests if the Executive were to disclose or use any of
the Company's trade secrets or
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<PAGE>
confidential information other than in connection with the Executive's
employment with the Company, (ii) the detrimental effect on the business of the
Company and its legitimate business interests which would result if the
Executive were to enter into competition with the Company within an unreasonably
brief period of time after the termination of the employment of Executive with
the Company, and (iii) that the agreements and covenants in this Agreement are
essential to protect the business and goodwill and other legitimate business
interests of the Company;
WHEREAS, it was a material condition to the Company's obligation to
consummate the transactions contemplated by the Purchase Agreement that the
Executive enter into an Employment Agreement of even date therewith; and
WHEREAS, the Company and Executive now desire to amend and restate that
Employment Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein and in the Purchase Agreement, the
Company and Executive agree as follows:
iii. EMPLOYMENT. The Company hereby employs Executive, and
Executive hereby accepts employment by the Company, on the
terms and conditions hereinafter set forth.
iv. EXECUTIVE'S DUTIES. Executive is a Senior Vice President -
Operations of the Company. The Executive's duties shall
include those which are designated or assigned to him by the
President and Chief Executive Officer of the Company, provided
those duties are of the type customarily discharged by the
senior vice president - operations of a company similar in
size and operation to the Company. Executive shall devote his
entire time, attention and energy to the business of the
Company, and diligently pursue its best interests.
v. TERM OF EMPLOYMENT. Subject to the provisions for termination
hereof, the original term of this Agreement shall commence as
of the date hereof and shall continue for a term of two years.
Sections 6(d), (g), (h) and (i), and 7 through 12 of this
Agreement shall survive termination of this Agreement for any
reason whatsoever.
vi. COMPENSATION. For all services rendered by Executive hereunder
on behalf of the Company, and the covenants and agreements of
the Executive set forth herein, the Company agrees to pay to
Executive, and Executive agrees to accept, the following
compensation:
(a) salary in the aggregate amount of One Hundred Seventy-Five
Thousand Dollars ($175,000) per year, payable in accordance with the
standard payroll policies of the Company;
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<PAGE>
(b) an annual incentive award payable in accordance with the Annual
Incentive Plan of the Company to be established by the Compensation
Committee of the Board of Directors, or other plan that may be substituted
for that plan, and subject to the approval by the Compensation Committee
of the Board of Directors; and
(c) an incentive award for 1998 of options to purchase 60,000 shares
at an exercise price of $15.75 per share vesting in equal amounts over a
three year period in accordance with the 1997 Incentive Plan of the
Company, subject to the approval by the Compensation Committee of the
Board of Directors; and
(d) prompt reimbursement of all reasonable expenses incurred by him
in the performance of his duties during the term of this Agreement,
subject to the presenting of appropriate vouchers and receipts in
accordance with the Company's policies.
vii. ADDITIONAL BENEFITS In addition to the compensation provided
for in Section 4 herein, Executive shall be entitled to
participate in or receive benefits under all benefit plans or
programs generally available to employees of the Company to
the extent that his position, tenure, salary, age, health and
other qualifications make him eligible to participate, subject
to the rules and regulations applicable thereto.
viii. COVENANTS OF EXECUTIVE. For and in consideration of the
employment herein contemplated, and the consideration paid or
promised to be paid by the Company hereunder, Executive does
hereby covenant, agree and promise that during the term
hereof, and thereafter to the extent specifically provided in
this Agreement:
(a) Executive will not actively engage, directly or indirectly, in
any other business except at the direction or approval of the Company;
(b) Executive will not engage, directly or indirectly, in the
ownership, management, operation or control of, or employment by, any
business of the type and character engaged in by the Company.
Notwithstanding the foregoing, Executive may make or maintain an
investment not to exceed one percent (1.0%) of the capital stock of any
publicly traded company;
(c) Executive will truthfully and accurately make, maintain and
preserve all records and reports that the Company may from time to time
request or require;
(d) Executive will fully account for all money, records, goods,
wares and merchandise or other property belonging to the Company of which
Executive has custody, and will pay over and deliver same promptly
whenever and however he may be reasonably directed to do so;
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<PAGE>
(e) Executive will obey all rules, regulations and special
instructions applicable to him, and will be loyal and faithful to the
Company at all times, constantly endeavoring to improve his ability and
knowledge of the business in an effort to increase the value of his
services to the mutual benefit of the Parties;
(f) Executive will make available to the Company any and all of the
information of which he has knowledge relating to the business of the
Company, and will make all suggestions and recommendations which he feels
will be of benefit to the Company;
(g) Executive recognizes that during the course of his employment,
and during his prior employment by GSV, Executive has had, has and will
have access to, and that there has been and will be disclosed to him,
information of a proprietary nature owned, directly or indirectly, by the
Company or its subsidiaries, including but not limited to plans,
strategies, computer software, product information and manufacturing and
repair techniques, financial information, records, customer and supplier
lists and information, cost and pricing information, data, formulae,
design information and specifications, technical data, inventions,
processes and methods, which is of a confidential or trade secret nature,
and which has great value to the Company and is a substantial basis and
foundation upon which the Company's business is predicated. Executive
acknowledges that except for his employment and the fulfillment of the
duties assigned to him, he would not have access to such information, and
Executive agrees that any and all confidential knowledge or information
which has been or may be obtained by or disclosed to him in the course of
his employment, including but not limited to the information herein above
set forth (collectively, the "Information"), will be held inviolate by
him, that he will conceal the same from any and all other persons,
including but not limited to competitors of the Company, and that he will
not impart the Information or any such knowledge acquired by him as an
officer, director or employee of the Company to anyone, either during his
employment by the Company or thereafter. Executive further agrees that
during the term of this Agreement and for a period of five (5) years
thereafter, he will not use the Information in competing with the Company,
or in any other manner to his benefit or to the detriment of the Company;
(h) Executive agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to the Company all
books, records, forms, specifications, formulae, data, processes, papers
and writings related to the business of the Company and all other property
belonging to the Company, together with all copies of the foregoing, it
being understood and agreed that the same are the sole property of the
Company; and
(i) Executive agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs, improvements,
inventions and other things of value (hereinafter collectively referred to
as "intangible rights"), whether patentable or not, which are conceived,
made, invented or suggested either by him alone or in collaboration with
others during the term of his employment, and whether or not during
regular working hours, shall be promptly disclosed in writing to the
Company and shall be the sole and
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exclusive property of the Company. Executive hereby assigns all of his
right, title and interest in and to all such intangible rights to the
Company, and its successors or assigns. In the event that any of said
intangible rights shall be deemed by the Company to be patentable or
otherwise registerable under any federal, state or foreign law, Executive
further agrees that at the expense of the Company, he will execute all
documents and do all things necessary, advisable or proper to obtain
patents therefor or registration thereof, and to vest in the Company full
title thereto.
ix. TERMINATION OF EMPLOYMENT FOR CAUSE. The Company may terminate
the employment of Executive if the President and Chief
Executive Officer determines, in his sole discretion, that the
Executive has:
(a) breached or habitually neglected the duties which he was
required to perform under any provision of this Agreement;
(b) misappropriated funds or property of the Company or otherwise
engaged in acts of dishonesty, fraud, misrepresentation or other acts of
moral turpitude, even if not in connection with the performance of his
duties hereunder, which would result in serious prejudice to the interests
of the Company if he were retained as an employee;
(c) secured any personal profit not thoroughly disclosed to and
approved by the Company in connection with any transaction entered into on
behalf of or with the Company or any affiliate of the Company;
(d) died, or become and remained incapacitated (either physically,
mentally or otherwise) for a period of ninety consecutive days; or
(e) failed to carry out and perform duties assigned to Executive in
accordance with the terms hereof in a manner acceptable to the President
and Chief Executive Officer of the Company.
In the event of termination of his employment for cause, Executive shall be
entitled to receive his salary due or accrued on a pro rata basis to the date of
termination, and reimbursement of expenses properly incurred but not yet
reimbursed.
x. TERMINATION WITHOUT CAUSE. The Company may terminate the
employment of Executive with fourteen days' written notice for
any reason other than those enumerated in Section 7 hereof, in
which event such termination shall be deemed a termination
without cause. In the event of a termination without cause,
the Company shall, in exchange for a general release by the
Executive of claims in form and content acceptable to the
Company, make a lump sum cash payment to Executive in an
amount equal to the salary of Executive for the remaining term
of this Agreement or six months, which ever is longer, which
payment shall constitute the full and total amount of
compensation that Executive shall be entitled to receive. In
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the event that Executive contests his termination by filing or
threatening to file a lawsuit or pursuing any other remedy or
proceeding against the Company or any of its officers,
directors, shareholders, employees, agents or affiliates,
Executive shall forfeit his right to such payment, and shall
immediately return to the Company all or any portion of such
payment made to him; provided, however, that such forfeiture
shall have no effect on the general release by the Executive,
which release shall remain in full force and effect.
xi. TERMINATION OF EMPLOYMENT BY EXECUTIVE. The Executive may
terminate this Agreement at Executive's election upon thirty
days' prior written notice to the Company. In the event of a
termination pursuant to this Section 9, the Company shall be
relieved of all of its obligations under this Agreement,
except that the Company shall pay to the Executive his
standard compensation through the date upon which the thirty
day severance period ends. The Executive agrees, in the event
of termination pursuant to this Section 9, and if so requested
by the Company, to assist the Company in training Executive's
replacement during the thirty day severance period.
xii. COVENANT NOT TO COMPETE. The Executive recognizes that the
Company has business good will and other legitimate business
interests which must be protected in connection with and in
addition to the Information, and therefore, in exchange for
access to the Information, the specialized training and
instruction which the Company will provide, the Company's
agreement to employ the Executive on the terms and conditions
set forth herein, and the promotion and advertisement by the
Company of Executive's skill, ability and value in the
Company's business, the Executive agrees that during the term
commencing with the date of the acquisition by the Company of
the outstanding common stock of GSV from the Executive and the
David A. Siegel--GSV Voting Trust, and ending four years
thereafter (or, if earlier, the date which is two years from
the expiration or earlier termination hereof), Executive will
not, without the prior written consent of the Company, engage,
directly or indirectly, in any Competitive Activities. The
term "Competitive Activities" as used herein shall mean:
(a) directly or indirectly engaging in, continuing in or carrying on
the business of manufacturing, remanufacturing, distributing, selling,
repairing, restoring and servicing valves (the "BUSINESS"), including
owning, controlling, participating in, joining, operating, or managing or
being a partner, stockholder or other equity interest owner of any
business which competes with or is engaged in or carries on in any
material respect any aspect of the Business;
(b) consulting with, advising or assisting in any way, whether or
not for consideration, any corporation, partnership, firm or other
business organization which at
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the time of such consultation, advice or assistance is or proposes to
become a competitor of the Business, including, but not limited to,
advertising or otherwise endorsing the products or services of any such
competitor; soliciting clients or customers of the Company (or persons or
entities from which the Company has solicited orders for the sale of any
Business products or services within the twenty-four (24) months
immediately preceding the date of this Agreement) or otherwise serving as
an intermediary for any such competitor; or loaning money or rendering any
other form of financial assistance to any such competitor;
(c) inducing or attempting to induce any director, officer,
employee, agent, customer, client, vendor, supplier or lessor of the
Company to terminate such position or relationship with the Company; or
(d) operating any business or offering any goods or services under
the name of "GSV," "Southern Valve," "Gould Machine," "Ash Tools," or any
variation of any of them;
PROVIDED, HOWEVER, that the term "Competitive Activities" shall not include (i)
the ownership of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed 1.0% of the outstanding shares of any such
corporation, or (ii) any activities performed by Executive on behalf of the
Company or its subsidiaries. The parties agree that the geographic scope of this
covenant not to compete shall (i) with respect to actual or alleged Competitive
Activities occurring (x) while the Executive is employed under this Agreement,
extend throughout the territory in which the Company conducts business as of, or
within one year prior to the date of, any actual or alleged Competitive
Activities, or (y) after the Executive's employment has been terminated, extend
throughout the territory in which the Company conducted business as of, or
within one year prior to the date of, such termination.
Executive understands that the foregoing restrictions limit his ability to
engage in a business similar to the Business, but acknowledges receiving
sufficiently high benefits from the Company hereunder to justify such
restrictions. It is expressly understood and agreed that the Company and the
Executive consider the restrictions contained in Section 6 and this Section 10
to be reasonable and necessary for the purposes of preserving and protecting the
Business and goodwill of the Company and to protect and preserve other
legitimate business interests of the Company. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to the scope of activity to be restrained,
geographic area or time, or otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified by such court in the minimal
amount necessary so as to be reasonable and enforceable and, as so modified by
the court, to be fully enforced. If any provision of this Agreement or
application thereof to anyone or under any circumstances shall be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application.
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The Parties acknowledge that the remedies at law for breach, or threatened
breach, of Executive's covenants contained in Section 6 or this Section 10 are
inadequate, and that such breach or threatened breach will cause irreparable
injury and continuing damage to the Company and its subsidiaries, the exact
amount of which would be impossible to ascertain. The Parties therefore agree
that money damages would not provide an adequate remedy to the Company, and that
the Company shall be entitled, at its election, to injunctive relief, and to
specific performance of said covenants in addition to any other remedies at law
or equity that may be available to the Company.
xiii. BUSINESS OPPORTUNITIES. For as long as the Executive shall be
employed by the Company and thereafter with respect to any
business opportunities learned about during the time of
Executive's employment by the Company, the Executive agrees
that with respect to any future business opportunity or other
new and future business proposal which is offered to, or comes
to the attention of, the Executive and which is in any way
related to or connected with, the business of the Company or
its affiliates, the Company shall have the right to take
advantage of such business opportunity or other business
proposal for its own benefit. The Executive agrees to promptly
deliver notice to the Chief Executive Officer or Chairman of
the Board of Directors in writing of the existence of such
opportunity or proposal, and the Executive may take advantage
of such opportunity only if the Company does not elect to
exercise its right to take advantage of such opportunity and
if the pursuit thereof would not otherwise violate any
provision of this Agreement.
xiv. RIGHT OF OFFSET. To the extent permitted by applicable law,
all amounts due and owing to the Executive hereunder shall be
subject to offset by the Company to the extent of any damages
incurred by the Executive's breach of this Agreement. The
Executive acknowledges and agrees that but for the right of
offset contained in this Agreement, the Company would not have
hired Executive nor entered into this Employment Agreement.
xv. ASSIGNABILITY. The obligations of Executive hereunder are
personal and may not be assigned or delegated by Executive or
transferred in any manner whatsoever, nor are such obligations
subject to involuntary alienation, assignment or transfer. The
Company shall have the right to assign this Agreement and to
delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or
subsidiary of the Company. This Agreement shall be binding
upon all successors and assigns.
xvi. AMENDMENT AND WAIVER. This instrument contains the entire
agreement of the Parties and supersedes and replaces any prior
employment agreements between the Company or any affiliate and
Executive, which prior employment agreements (if any) are
hereby terminated, effective as
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of the commencement date of this Agreement, by mutual
agreement of the Parties. This Agreement may not be changed
orally but only by written documents signed by the Party
against whom enforcement of any waiver, change, modification,
extension or discharge is sought; however, the amount of
compensation to be paid to Executive for services to be
performed for the Company hereunder may be changed from time
to time by the Parties by written agreement without in any
other way modifying, changing or affecting this Agreement or
the performance by Executive of any of the duties of his
employment with the Company. Any such written agreement shall
be, and shall be conclusively deemed to be, a ratification and
confirmation of this Agreement, except as expressly set forth
in such written amendment. The waiver by any Party of a breach
of any provision of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach thereof, nor
of any breach of any other term or provision of this
Agreement.
xvii. NOTICE. Any notice required or permitted to be given hereunder
shall be sent by certified or registered mail; in the case of
the Company, to its principal office address, and in the case
of Executive, to Executive's residence address as shown on the
records of the Company, or may be given by personal delivery
thereof.
xviii. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid
and enforceable under applicable law, but if any provision of
this Agreement shall be invalid, unenforceable or prohibited
by applicable law, then in lieu of declaring such provision
invalid or unenforceable, to the extent permitted by law (a)
the Parties agree that they will amend such provision to the
minimal extent necessary to bring such provision within the
ambit of enforceability, and (b) any court of competent
jurisdiction may, at the request of either party, revise,
reconstruct or reform such provision in a manner sufficient to
cause it to be valid and enforceable.
xix. FORCE MAJEURE. Neither of the Parties shall be liable to the
other for any delay or failure to perform hereunder, which
delay or failure is due to causes beyond the control of said
Party, including, but not limited to: acts of God; acts of the
public enemy; acts of the United States of America or any
state, territory or political subdivision thereof or of the
District of Columbia; fires; floods; epidemics, quarantine
restrictions; strike or freight embargoes. Notwithstanding the
foregoing provisions of this Section 17, in every case the
delay or failure to perform must be beyond the control and
without the fault or negligence of the Party claiming
excusable delay.
xx. AUTHORITY TO CONTRACT. The Company warrants and represents
that it has full authority to enter into this Agreement and to
consummate the
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transactions contemplated hereby and that this Agreement is
not in conflict with any other agreement to which the Company
is a party or by which it may be bound. The Company hereto
further warrants and represents that the individuals executing
this Agreement on behalf of the Company have the full power
and authority to bind the Company to the terms hereof and have
been authorized to do so in accordance with the Company's
corporate organization.
xxi. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Agreement or
any agreement or instrument delivered under or in connection
with this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing
Party or Parties shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or
they may be entitled.
xxii. ARBITRATION. Any and all disputes or controversies whether of
law or fact and of any nature whatsoever arising from or
respecting this Agreement shall be decided by arbitration by
the American Arbitration Association in accordance with its
Commercial Rules except as modified herein.
(a) The arbitrator shall be selected as follows: in the event the
Company and the Executive agree on one arbitrator, the arbitration shall
be conducted by such arbitrator. In the event the Company and the
Executive do not so agree, the Company and the Executive shall each select
one independent, qualified arbitrator and the two arbitrators so selected
shall select the third arbitrator (the arbitrator(s) are herein referred
to as the "Panel"). The Company reserves the right to object to any
individual arbitrator who shall be employed by or affiliated with a
competing organization.
(b) Arbitration shall take place at Houston, Texas, or any other
location mutually agreeable to the Parties. At the request of either
Party, arbitration proceedings will be conducted in the utmost secrecy; in
such case all documents, testimony and records shall be received, heard
and maintained by the arbitrators in secrecy, available for inspection
only by the Company or the Executive and their respective attorneys and
their respective experts who shall agree in advance and in writing to
receive all such information in secrecy until such information shall
become generally known. The Panel shall be able to award any and all
relief, including relief of an equitable nature, provided that punitive
damages shall not be awarded. The award rendered by the Panel may be
enforceable in any court having jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall be
given to all Parties and any interested persons as shall be required by
law.
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xxiii. GOVERNING LAW. This Agreement and the rights and obligations
of the Parties shall be governed by and construed and enforced
in accordance with the substantive laws (but not the rules
governing conflicts of laws) of the State of Florida. The
parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in this Agreement upon the
courts of any state within the geographical scope of such
covenants. If the courts of any one or more of such states or
jurisdictions shall fail to hold such covenants wholly
enforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the Company's right
to the relief provided above in the courts of any other states
or jurisdictions within the geographical scope of such
covenants, breaches of such covenants as they relate to each
state being, for this purpose, severable at the Company's sole
option into diverse and independent covenants.
xxiv. MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts each of which shall be deemed to be an
original but all of which together shall constitute but one
instrument.
xxv. PRIOR EMPLOYMENT AGREEMENTS. The Executive represents and
warrants to the Company that he has fulfilled all of the terms
and conditions of his prior Employment Agreement with the
Company, and at the time of execution of this Agreement is not
a party to any other employment agreement.
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EXECUTED as of the day and year first above set forth.
THE COMPANY:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:______________________________________
William E. Haynes, President
EXECUTIVE:
_________________________________________
PLINY L. OLIVIER
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EXHIBIT 10.5(A)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of August
21st, 1998, between INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and DOUGLAS R. HARRINGTON, JR. ("Executive"). The Company and
the Executive are hereinafter sometimes referred to collectively as the
"Parties" and individually as a "Party."
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive, and Executive is
willing to accept such employment, on the terms hereinafter set forth;
NOW, THEREFORE, the Parties agree as follows:
26. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, on the terms and conditions hereinafter set
forth.
27. EXECUTIVE'S DUTIES. Executive is the Vice President, Corporate
Controller and Treasurer of the Company, and his duties shall include those
which are designated or assigned to him by the Chief Financial Officer of the
Company, provided those duties are of the type customarily discharged by a
person holding the same or similar office in a company similar in size and
operation to the Company. Executive shall devote Executive's entire time,
attention and energy to the business of the Company and diligently pursue its
best interests.
28. TERM OF EMPLOYMENT. Subject to the provisions for termination hereof,
the original term of this Agreement shall commence as of the date hereof and
shall continue for a term of two years. Sections 7(d), (g) - (i), and 8 through
13 of this Agreement shall survive termination of this Agreement for any reason
whatsoever.
29. COMPENSATION. For all services rendered by Executive hereunder on
behalf of the Company, and the covenants and agreements of the Executive set
forth herein, the Company agrees to pay to Executive, and Executive agrees to
accept, the following compensation:
(a) salary in the aggregate amount of One Hundred Thousand Dollars
($100,000.00) per annum, payable in accordance with the standard payroll
policies of the Company;
(b) an annual incentive award payable in accordance with the Annual
Incentive Plan of the Company to be established by the Compensation
Committee of the Board of Directors, or other plan that may be substituted
for that plan, and subject to the approval by the Compensation Committee
of the Board of Directors;
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(c) prompt reimbursement of all reasonable expenses incurred by him
in the performance of his duties during the term of this Agreement,
subject to the presenting of appropriate vouchers and receipts in
accordance with the Company's policies;
(d) participation in the Company's long-term incentive plan
currently being developed by the Company, or other plan that may be
substituted for that plan, in accordance with the provisions of that plan;
and
(e) participation in all compensation plans from time to time in
effect while Executive is an active employee of the Company, taking into
account the Executive's positions with and duties and responsibilities to
the Company and its subsidiaries.
30. ADDITIONAL BENEFITS. In addition to the compensation provided for in
Section 4 herein, Executive shall be entitled to participate in or receive
benefits under all benefit plans or programs generally available to employees of
the Company to the extent that his position, tenure, salary, age, health and
other qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto.
31. MEMBERSHIPS. The Company shall pay, or reimburse Executive for his
payment of, all membership fees, professional organization dues, professional
licenses and related expenses agreed to by the Executive and the Chief Financial
Officer, and which are necessary or appropriate for Executive to perform his
duties hereunder.
32. COVENANTS OF EXECUTIVE. For and in consideration of the employment
herein contemplated and the consideration paid or promised to be paid by the
Company, Executive does hereby covenant, agree and promise that during the term
hereof, and thereafter to the extent specifically provided in this Agreement:
(a) Executive will not actively engage, directly or indirectly, in
any other business except at the direction or approval of the Company;
(b) Executive will not engage, directly or indirectly, in the
ownership, management, operation or control of, or employment by, any
business of the type and character engaged in by the Company.
Notwithstanding the foregoing, Executive may make or maintain an
investment not to exceed one percent of the capital stock of any publicly
traded company;
(c) Executive will truthfully and accurately make, maintain and
preserve all records and reports that the Company may from time to time
request or require;
(d) Executive will fully account for all money, records, goods,
wares and merchandise or other property belonging to the Company of which
Executive has custody, and will pay over and deliver same promptly
whenever and however he may be reasonably directed to do so;
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(e) Executive will obey all rules, regulations and special
instructions applicable to him, and will be loyal and faithful to the
Company at all times, constantly endeavoring to improve his ability and
knowledge of the business in an effort to increase the value of his
services to the mutual benefit of the Parties;
(f) Executive will make available to the Company any and all of the
information of which he has knowledge relating to the business of the
Company, and will make all suggestions and recommendations which he feels
will be of benefit to the Company;
(g) Executive recognizes that during the course of his employment,
Executive has and will have access to, and that there has been and will be
disclosed to him, information of a proprietary nature owned by the
Company, including but not limited to records, customer and supplier lists
and information, pricing information, data, formulae, design information
and specifications, inventions, processes and methods, which is of a
confidential or trade secret nature, and which has great value to the
Company and is a substantial basis and foundation upon which the Company's
business is predicated. Executive acknowledges that except for his
employment and the fulfillment of the duties assigned to him, he would not
have access to such information, and Executive agrees that any and all
confidential knowledge or information which may be obtained by or
disclosed to him in the course of his employment, including but not
limited to the information hereinabove set forth (collectively, the
"Information"), will be held inviolate by him, that he will conceal the
same from any and all other persons, including but not limited to
competitors of the Company, and that he will not impart the Information or
any such knowledge acquired by him as an officer, director or employee of
the Company to anyone, either during his employment by the Company or
thereafter. Executive further agrees that during the term of this
Agreement and thereafter, he will not use the Information in competing
with the Company, or in any other manner to his benefit or to the
detriment of the Company;
(h) Executive agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to the Company all
books, records, forms, specifications, formulae, data, processes, papers
and writings related to the business of the Company and all other property
belonging to the Company, together with all copies of the foregoing, it
being understood and agreed that the same are the sole property of the
Company; and
(i) Executive agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs, improvements,
inventions and other things of value (hereinafter collectively referred to
as "intangible rights"), whether patentable or not, which are conceived,
made, invented or suggested either by him alone or in collaboration with
others during the term of his employment, and whether or not during
regular working hours, shall be promptly disclosed in writing to the
Company and shall be the sole and exclusive property of the Company.
Executive hereby assigns all of his right, title and interest in and to
all such intangible rights to the Company, and its successors or assigns.
In the event that any of said intangible rights shall be deemed by the
Company to be
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patentable or otherwise registerable under any federal, state or foreign
law, Executive further agrees that at the expense of the Company, he will
execute all documents and do all things necessary, advisable or proper to
obtain patents therefor or registration thereof, and to vest in the
Company full title thereto.
33. TERMINATION OF EMPLOYMENT FOR CAUSE. The Company may terminate the
employment of Executive if the Executive has engaged in any of the following or
any of the following occurs:
(a) the willful or continued failure by the Executive substantially to
perform his duties hereunder or regular failure to follow the
specific directives of the Chief Executive Officer, President or
Chief Financial Officer, after demand for substantial performance
that specifically identifies the manner in which the Company
believes the Executive has not substantially performed his duties is
delivered by the Company;
(b) misappropriated funds or property of the Company or otherwise
engaged in acts of dishonesty, fraud, misrepresentation or other
acts of moral turpitude, even if not in connection with the
performance of his duties hereunder, which would result in serious
prejudice to the interests of the Company if he were retained as an
employee or secured any personal profit not thoroughly disclosed to
and approved by the Company in connection with any transaction
entered into on behalf of or with the Company or any affiliate of
the Company;
(c) the Executive's death; or
(d) an accident or illness which renders the Executive unable, for a
period of at least six (6) consecutive months, to perform the
essential functions of his job, notwithstanding the provision of
reasonable accommodation by Company.
For purposes of this section, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated For Cause under
subsection (a)without (i) reasonable notice to the Executive setting forth the
reasons for the Company's intention to terminate For Cause, (ii) an opportunity
for the Executive, together with his counsel, to be heard before the Chief
Executive Officer, President or Chief Financial Officer, and (iii) delivery to
the Executive of a notice of termination from the Chief Executive Officer,
President or Chief Financial Officer, finding that, in the good faith opinion of
the Chief Executive Officer, President or Chief Financial Officer, the Executive
was guilty of conduct set forth above in clause (a) of the preceding sentence
and specifying the particulars thereof in detail. In the event of termination of
his employment for cause, Executive shall be entitled to receive his salary due
or accrued on a pro rata basis to the date of termination, any annual incentive
award earned for fiscal years ending before his termination date but unpaid, and
reimbursement of expenses properly incurred but not yet reimbursed, and, only in
the case of termination under
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subsection (c) or (d) full vesting of all unvested options in his estate or with
his legal guardian.
34. TERMINATION WITHOUT CAUSE. The Company may terminate the employment of
Executive with thirty days' written notice for any reason other than those
enumerated in Section 8 hereof, in which event such termination shall be deemed
a termination without cause. In the event of a termination without cause, the
Company shall, in exchange for a general release by the Executive of claims in
form and content acceptable to the Company, (i) make a lump sum cash payment to
Executive in an amount equal to the salary of Executive for the remaining term
of this Agreement or twelve months, whichever is longer, (ii) immediately
accelerate the vesting date of any stock options granted to Executive (unless
the terms of any options or plan with respect thereto expressly provide
otherwise), (iii) pay any annual incentive earned for fiscal years ending before
his employment termination date but not yet paid, (iv) reimburse Executive for
all expenses incurred under Section 4(c) but not yet reimbursed and (v) continue
health insurance coverage for a period of twenty-four (24) months, at a level
commensurate with that which the Executive enjoyed with the Company immediately
prior to such termination. The aggregate of those payments shall constitute the
full and total amount of compensation that Executive shall be entitled to
receive. In the event that Executive contests his termination by filing or
threatening to file a lawsuit or pursuing any other remedy or proceeding against
the Company or any of its officers, directors, shareholders, employees, agents
or affiliates, Executive shall forfeit his right to such payment and to
acceleration of such options, and shall immediately return to the Company all or
any portion of such payment made to him; provided, however, that such forfeiture
shall have no effect on the general release by the Executive, which release
shall remain in full force and effect.
35. TERMINATION OF EMPLOYMENT BY EXECUTIVE. The Executive may terminate
this Agreement at Executive's election upon thirty days' prior written notice to
the Company. In the event of a termination pursuant to this Section 10, the
Company shall be relieved of all of its obligations under this Agreement, except
that the Company shall pay to the Executive (i) his standard compensation
through the date upon which the thirty-day severance period ends, (ii) any
annual incentive earned for fiscal years ending before his termination date but
not yet paid and (iii) an amount representing the reimbursement of expenses
incurred under Section 4(e) but not yet reimbursed. The Executive agrees, in the
event of termination pursuant to this Section 10, and if so requested by the
Company, to assist the Company in training Executive's replacement during the
thirty-day severance period.
36. COVENANT NOT TO COMPETE. The Executive recognizes that the Company has
business good will and other legitimate business interests which must be
protected in connection with and in addition to the Information, and therefore,
in exchange for access to the Information, the specialized training and
instruction which the Company will provide, the Company's agreement to employ
the Executive on the terms and conditions set forth herein, and the promotion
and advertisement by the Company of Executive's skill, ability and value in the
Company's business, the Executive agrees that during the term commencing with
the date of employment and ending one year after the date Executive's employment
is terminated, Executive will not, without the prior written consent of the
Company, engage, directly or indirectly, in any business that competes with the
Company in any territory in which the Company conducts business (determined as
of such termination).
-53-
<PAGE>
It is mutually understood and agreed that if any of the provisions
relating to the scope, time or territory in this Section 11 are more extensive
than is enforceable under applicable laws or are broader than necessary to
protect the good will and legitimate business interests of the Company, then the
Parties agree that they will reduce the degree and extent of such provisions by
whatever minimal amount is necessary to bring such provisions within the ambit
of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Executive's
covenants contained in Sections 7 and 11 of the Agreement are inadequate, and
they agree that the Company shall be entitled, at its election, to injunctive
relief (without the necessity of posting bond against such breach or attempted
breach), and to specific performance of said covenants in addition to any other
remedies at law or equity that may be available to the Company.
37. BUSINESS OPPORTUNITIES. For as long as the Executive shall be employed
by the Company and thereafter with respect to any business opportunities learned
about during the time of Executive's employment by the Company, the Executive
agrees that with respect to any future business opportunity or other new and
future business proposal which is offered to, or comes to the attention of, the
Executive and which is in any way related to or connected with, the business of
the Company or its affiliates, the Company shall have the right to take
advantage of such business opportunity or other business proposal for its own
benefit. The Executive agrees to promptly deliver notice to the Chief Executive
Officer or Chairman of the Board of Directors in writing of the existence of
such opportunity or proposal, and the Executive may take advantage of such
opportunity only if the Company does not elect to exercise its right to take
advantage of such opportunity and if the pursuit thereof would not otherwise
violate any provision of this Agreement.
38. RIGHT OF OFFSET. To the extent permitted by applicable law, all
amounts due and owing to Executive hereunder shall be subject to offset by the
Company to the extent of any damages incurred by Executive's breach of this
Agreement. Executive acknowledges and agrees that but for the right of offset
contained in this Agreement, the Company would not have hired Executive nor
entered into this Employment Agreement.
39. ASSIGNABILITY. The obligations of Executive hereunder are personal and
may not be assigned or delegated by Executive or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or subsidiary of the
Company. This Agreement shall be binding upon all successors and assigns.
40. AMENDMENT AND WAIVER. This instrument contains the entire agreement of
the Parties and supersedes and replaces any prior employment agreements between
the Company or any affiliate and Executive, which prior employment agreements
(if any) are hereby terminated, effective as of the commencement date of this
Agreement, by mutual agreement of the Parties. This Agreement may not be changed
orally but only by written documents signed by the Party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought;
-54-
<PAGE>
however, the amount of compensation to be paid to Executive for services to be
performed for the Company hereunder may be changed from time to time by the
Parties by written agreement without in any other way modifying, changing or
affecting this Agreement or the performance by Executive of any of the duties of
his employment with the Company. Any such written agreement shall be, and shall
be conclusively deemed to be, a ratification and confirmation of this Agreement,
except as expressly set forth in such written amendment. The waiver by any Party
of a breach of any provision of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach thereof, nor of any breach of
any other term or provision of this Agreement.
41. NOTICE. Any notice required or permitted to be given hereunder shall
be sent by certified or registered mail; in the case of the Company, to its
principal office address, and in the case of Executive, to Executive's residence
address as shown on the records of the Company, or may be given by personal
delivery thereof.
42. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement shall be invalid,
unenforceable or prohibited by applicable law, then in lieu of declaring such
provision invalid or unenforceable, to the extent permitted by law (a) the
Parties agree that they will amend such provision to the minimal extent
necessary to bring such provision within the ambit of enforceability, and (b)
any court of competent jurisdiction may, at the request of either party, revise,
reconstruct or reform such provision in a manner sufficient to cause it to be
valid and enforceable.
43. FORCE MAJEURE. Neither of the Parties shall be liable to the other for
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said Party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America or any
state, territory or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics, quarantine restrictions; strike or freight
embargoes. Notwithstanding the foregoing provisions of this Section 18, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the Party claiming excusable delay.
44. AUTHORITY TO CONTRACT. The Company warrants and represents that it has
full authority to enter into this Agreement and to consummate the transactions
contemplated hereby and that this Agreement is not in conflict with any other
agreement to which the Company is a party or by which it may be bound. The
Company hereto further warrants and represents that the individuals executing
this Agreement on behalf of the Company have the full power and authority to
bind the Company to the terms hereof and have been authorized to do so in
accordance with the Company's corporate organization.
45. RECOVERY OF LITIGATION COSTS. If any legal action or other proceeding
is brought for the enforcement of this Agreement or any agreement or instrument
delivered under or in connection with this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing Party or Parties
-55-
<PAGE>
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
46. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this Agreement
shall be decided by arbitration by the American Arbitration Association in
accordance with its Commercial Rules except as modified herein.
(a) The arbitrator shall be elected as follows: in the event the
Company and the Executive agree on one arbitrator, the arbitration shall
be conducted by such arbitrator. In the event the Company and the
Executive do not so agree, the Company and the Executive shall each select
one independent, qualified arbitrator and the two arbitrators so selected
shall select the third arbitrator (the arbitrator(s) are herein referred
to as the "Panel"). The Company reserves the right to object to any
individual arbitrator who shall be employed by or affiliated with a
competing organization.
(b) Arbitration shall take place at Houston, Texas, or any other
location mutually agreeable to the Parties. At the request of either
Party, arbitration proceedings will be conducted in the utmost secrecy; in
such case all documents, testimony and records shall be received, heard
and maintained by the arbitrators in secrecy, available for inspection
only by the Company or the Executive and their respective attorneys and
their respective experts who shall agree in advance and in writing to
receive all such information in secrecy until such information shall
become generally known. The Panel shall be able to award any and all
relief, including relief of an equitable nature, provided that punitive
damages shall not be awarded. The award rendered by the Panel may be
enforceable in any court having jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall be
given to all Parties and any interested persons as shall be required by
law.
47. GOVERNING LAW. This Agreement and the rights and obligations of the
Parties shall be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Texas.
48. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts each of which shall be deemed to be an original but all of which
together shall constitute but one instrument.
49. PRIOR EMPLOYMENT AGREEMENTS. The Executive represents and warrants to
the Company that he has fulfilled all of the terms and conditions of all prior
employment agreements to which he may be or have been a party, and at the time
of execution of this Agreement is not a party to any other employment agreement.
-56-
<PAGE>
EXECUTED as of the day and year first above set forth.
THE COMPANY:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:______________________________________
William E. Haynes, President
EXECUTIVE:
_________________________________________
Douglas R. Harrington, Jr.
-57-
EXHIBIT 10.5(B)
October 30, 1998
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn.: Compensation Committee
Re: EMPLOYMENT AGREEMENT OF DOUGLAS R. HARRINGTON, JR.
DATED AUGUST 21, 1998 (THE "EMPLOYMENT AGREEMENT")
Gentlemen:
The purpose of this letter is to evidence our mutual understanding and
agreement as to the following matters:
1. We have mutually agreed that I will prospectively be elected and serve as
the Chief Financial Officer and Secretary of the Company and the first
sentence of Section 2 of the Employment Agreement shall upon such election
be modified to delete the reference to my service as Corporate Controller
and to recite my service as Chief Financial Officer and Secretary. Such
change in my titles and responsibilities shall in no way be a breach of
the Employment Agreement by me, or trigger any compensation or payments to
me from the Company or result in any right by me to terminate the
Employment Agreement.
2. Except as otherwise expressly set forth above, the Employment Agreement
shall remain in full force and effect and I shall be fully entitled to any
and all compensation, termination payments and any other benefits
whatsoever available to me under the Employment Agreement.
Please evidence the Committee's agreement with the foregoing by executing
the acknowledgment set forth below.
Very truly yours,
Douglas R. Harrington, Jr.
AGREED AND ACCEPTED
THIS 11TH DAY OF JANUARY, 1999
COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS
By:
Robert M. Chiste, Chairman
-58-
EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE OF
JURISDICTION VOTING SECURITIES OWNED
OF INCORPORATION BY INNOVATIVE VALVE
NAME OF SUBSIDIARY OR ORGANIZATION TECHNOLOGIES, INC.
<S> <C>
The Safe Seal Company, Inc. ................. Texas 100%
Harley Industries, Inc. .................. California
Valve Repair of South Carolina, Inc.... South Carolina
The Safe Seal Company (Canada),
Inc. .................................. Ontario
GSV, Inc. ................................ Florida
Plant Specialties, Inc. .................. Louisiana
Puget Investments, Inc. ..................... Washington 100%
Steam Supply & Rubber Co, Inc.
(d/b/a Steam Supply)................. Washington
Flickinger Company (d/b/a
Flickinger Valve Company)............ Washington
Flickinger Benicia Inc....................... Washington 100%
Industrial Controls & Equipment,
Inc.................................... Pennsylvania 100%
Valve Actuation & Repair Company, Inc........ West Virginia 100%
Southern Valve Service, Inc. ................ Alabama 100%
L.T. Koppl Industries, Inc................... California 100%
Koppl Company............................. California
Koppl Company of Arizona.................. Arizona
Koppl Industrial Systems, Inc............. California
Koppl Industrial Systems, Inc....... Georgia
Koppl Industrial Systems, Inc....... Texas
DIVT Acquisition-Delaware, LLC............... Delaware 100%
Dalco, LLC, f/k/a DIVT Acquisition, LLC...... Kentucky 100%
DIVT Subsidiary, LLC...................... Delaware
Seeley & Jones, Incorporated................. Connecticut 100%
Preventive Maintenance, Inc. ................ North Carolina 100%
Cypress Industries, Inc...................... Illinois 100%
IPSCO Holding, Inc. ......................... Delaware 100%
International Piping Services Company..... Illinois
Mid-America Energies Corp........... Delaware
IPSCO-Florida, Inc. ................ Florida
IPSCO (U.K.) Limited...................... United Kingdom
<PAGE>
Plant Maintenance, Inc....................... Delaware 100%
Energy Maintenance, Inc. ................. Missouri
Production Machine Incorporated........... Oklahoma
CECORP, Inc. ................................ Delaware 100%
Boyden, Inc.................................. West Virginia 100%
Colonial Equipment & Service Co., Inc........ Delaware 100%
A. Blair Powell Company...................... Delaware 100%
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
registration statement on Form S-8 (333-40023).
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 31,196,271
<ALLOWANCES> 1,562,104
<INVENTORY> 26,007,804
<CURRENT-ASSETS> 62,490,098
<PP&E> 39,397,350
<DEPRECIATION> 19,927,546
<TOTAL-ASSETS> 183,699,838
<CURRENT-LIABILITIES> 19,944,727
<BONDS> 0
0
0
<COMMON> 9,665
<OTHER-SE> 79,195,379
<TOTAL-LIABILITY-AND-EQUITY> 183,699,838
<SALES> 154,616,945
<TOTAL-REVENUES> 154,616,945
<CGS> 107,568,111
<TOTAL-COSTS> 107,568,111
<OTHER-EXPENSES> 2,189,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,621,182
<INCOME-PRETAX> (995,037)
<INCOME-TAX> 419,936
<INCOME-CONTINUING> (1,414,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,414,973)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
