UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO _________
COMMISSION FILE NUMBER: 000-23231
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0530346
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2 NORTHPOINT DRIVE, SUITE 300 77060
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 925-0300
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.001
per share, outstanding at November 22, 1999 was 9,664,562.
=============================================================================
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PAGE
----
Part I -- Financial Information...................................... 2
Item 1 -- Financial Statements..................................... 2
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (Unaudited).................................. 2
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 (Unaudited)..................... 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1999 (Unaudited)................... 4
Notes to Consolidated Financial Statements (Unaudited)............ 5
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
Item 3 -- Quantitative and Qualitative Disclosures About Market
Risk............................................................ 16
Part II -- Other Information........................................ 17
Item 3 -- Defaults Upon Senior Securities.......................... 17
Item 5 -- Other Information........................................ 17
Item 6 -- Exhibits and Reports on Form 8-K......................... 19
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash ................................. $ -- $ --
Accounts receivable, net of allowance
of $1,562,104 and $1,584,308 ....... 29,634,167 23,149,816
Inventories, net ..................... 26,007,804 28,434,465
Prepaid expenses and other current
assets ............................. 2,366,871 2,368,185
Deferred tax asset ................... 4,481,256 5,462,013
------------- -------------
Total current assets ....... 62,490,098 59,414,479
PROPERTY AND EQUIPMENT, net ................ 19,469,804 17,926,387
GOODWILL, net .............................. 96,175,294 92,104,831
OTHER NONCURRENT ASSETS, net ............... 5,564,642 5,460,314
------------- -------------
TOTAL ASSETS ............... $ 183,699,838 $ 174,906,011
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit Facility ...................... $ -- $ 69,029,745
Current maturities of long-term debt . 580,140 602,726
Accounts payable and accrued expenses 19,364,587 20,833,171
Makeup Amount (Note 7) ............... -- 6,516,104
------------- -------------
Total current liabilities .. 19,944,727 96,981,746
CREDIT FACILITY ............................ 70,570,584 --
LONG-TERM DEBT, net ........................ 400,834 208,713
CONVERTIBLE SUBORDINATED DEBT .............. 11,668,875 11,668,875
OTHER LONG-TERM OBLIGATIONS ................ 1,909,774 826,868
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value,
30,000,000 shares authorized,
9,664,562 shares issued and
outstanding ................. 9,665 9,665
Additional paid-in capital ...... 90,960,972 84,550,969
Retained deficit ................ (11,765,593) (19,340,825)
------------- -------------
Total stockholders' equity 79,205,044 65,219,809
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .... $ 183,699,838 $ 174,906,011
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -------------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES ................ $ 38,881,382 $ 33,980,761 $ 112,752,859 $ 121,083,767
COST OF OPERATIONS ...... 27,479,428 24,250,265 77,809,092 85,152,308
------------- ------------- ------------- -------------
Gross profit ........ 11,401,954 9,730,496 34,943,767 35,931,459
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES ............ 11,239,137 9,567,879 30,235,745 31,629,583
NONRECURRING COSTS ...... 2,189,599 -- 2,189,599 --
------------- ------------- ------------- -------------
Income(loss) from
operations ........ (2,026,782) 162,617 2,518,423 4,301,876
OTHER INCOME (EXPENSE):
Interest expense, net (1,722,375) (3,127,491) (3,855,517) (9,324,887)
Loss on assets held
for sale .......... -- -- -- (3,809,712)
Other ............... 138,114 116,802 226,493 176,959
------------- ------------- ------------- -------------
Total Other ......... (1,584,261) (3,010,689) (3,629,024) (12,957,640)
LOSS BEFORE INCOME
TAXES ................. (3,611,043) (2,848,072) (1,110,601) (8,655,764)
PROVISION (BENEFIT) FOR
INCOME TAXES .......... (697,220) (534,044) 377,970 (1,080,532)
------------- ------------- ------------- -------------
NET LOSS ................ $ (2,913,823) $ (2,314,028) $ (1,488,571) $ (7,575,232)
============= ============= ============= =============
LOSS PER SHARE -
BASIC AND DILUTED ..... $ (0.30) $ (0.24) $ (0.17) $ (0.78)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUSTANDING - BASIC AND
DILUTED ............... 9,664,562 9,664,562 8,809,356 9,664,562
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ....................................... $ (1,488,571) $ (7,575,232)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization .................. 3,119,407 3,623,837
Loss on assets held for sale ................... -- 3,809,712
Gain on sale of property and equipment ......... (18,430) (28,545)
Deferred taxes ................................. (667,065) (1,875,254)
Nonrecurring costs write-off ................... 1,989,599 --
(Increase) decrease in -
Accounts receivable ....................... (2,722,234) 6,484,351
Inventories ............................... (4,382,122) (3,158,702)
Prepaid expenses and other current
assets .................................. (1,439,617) (502,732)
Other noncurrent assets ................... (1,706,215) (300,665)
Increase (decrease) in -
Accounts payable and accrued expenses ..... (3,220,773) 1,852,451
------------ ------------
Net cash provided by (used in) operating
activities ........................... (10,536,021) 2,329,221
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ................... 179,325 916,488
Additions to property and
equipment ................................. (3,474,440) (1,501,323)
Business acquisitions, net of cash
acquired of $818,416 and $-- ............. (39,119,264) --
------------ ------------
Net cash used in investing
activities ........................... (42,414,379) (584,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ................... 330,814 25,921
Repayments of long-term debt ................... (484,944) (212,544)
Repayments of short-term debt .................. (4,660,924) --
Net borrowings(repayments) under Credit Facility 55,127,800 (1,540,838)
Payments on noncompete obligations ............. (115,293) (16,925)
Proceeds from exercise of stock
options ..................................... 208,497 --
------------ ------------
Net cash provided by (used in)
financing activities ................. 50,405,950 (1,744,386)
NET DECREASE IN CASH ...................................... (2,544,450) --
CASH, beginning of period ................................. 2,544,450 --
------------ ------------
CASH, end of period ....................................... $ -- $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ......................... $ 3,366,665 $ 6,347,767
Cash paid for income taxes ..................... $ 2,020,584 $ 515,622
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of an established business in July 1997,
Invatec conducted no operations of its own prior to the closing on October 28,
1997 of (i) its initial public offering (the "IPO") of its common stock ("Common
Stock"), (ii) its purchase of two established businesses and (iii) a merger (the
"SSI Merger") in which The Safe Seal Company, Inc. ("SSI") became its
subsidiary. Earlier in 1997, SSI had purchased three established businesses. SSI
and its subsidiaries were affiliates of Invatec prior to the SSI Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of the seven businesses it and Invatec purchased through the IPO
closing date (collectively, the "Initial Acquired Businesses"), and, as used
herein, the term "Company" means (i) SSI and its consolidated subsidiaries prior
to October 31, 1997 and (ii) Invatec and its consolidated subsidiaries
(including SSI) on that date and thereafter.
Following the IPO, the Company purchased thirteen businesses (these
businesses, together with the Initial Acquired Businesses, are referred to
herein as the "Acquired Businesses"). The Company is accounting for the
acquisitions of the Acquired Businesses in accordance with the purchase method
of accounting. The allocation of the purchase prices paid to the assets acquired
and the liabilities assumed in the acquisitions of the Acquired Businesses has
been recorded initially on the basis of preliminary estimates of fair value and
may be revised as additional information concerning the valuation of those
assets and liabilities becomes available. Purchase accounting for the
acquisitions have been finalized. The accompanying historical consolidated
financial statements of operations present historical information of the
Company, which gives effect to the acquisitions as of their respective
acquisition dates.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to rules and regulations of the Securities and
Exchange Commission which permit certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles to be condensed or omitted. The Company believes
the presentation and disclosures herein are adequate to make the information not
materially misleading, and the financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended September 30, 1998 and 1999. Certain
reclassifications have been made to 1998 amounts to conform with 1999
presentation.
Operating results for interim periods are not necessarily indicative of
the results for full years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Fluctuations in Operating
Results" in Item 2 of this Part I. Invatec's Annual Report on Form 10-K for the
year ended December 31, 1998, as amended (the "1998 10-K Report"), includes the
Company's consolidated financial statements and related notes for 1998.
5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 has been negatively impacted by significant
slowdowns experienced by its customers in the exploration and production,
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 1999 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 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, when the Company
amended its credit facility. See further discussion of the Company's credit
facility in Footnote 3.
Despite cost cuts and the sale of underperforming non-core assets, the
Company has been unable to improve overall profitability in 1999 due to the high
cost of funds under the Credit Facility and the continued reduced level of 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 could further depress earnings and
likely result in additional defaults under the Credit Facility.
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 for acquisitions. The Company has been working with an
investment banking firm since April of this year to develop a financial
restructuring plan for the Company and otherwise explore strategic alternatives.
After numerous discussions with private investors regarding an infusion of
equity capital and with potential acquirors of the Company regarding a sale of
stock or assets of the Company or certain of its subsidiaries, on November 18,
1999, the Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Flowserve Corporation ("Flowserve")and a wholly-owned
subsidiary of Flowserve. The Merger Agreement provides for the acquisition of
Invatec for a price of $1.62 per share in cash pursuant to a tender offer (the
"Tender Offer") by the Flowserve subsidiary for all outstanding shares of
Invatec Common Stock, par value $.001 per share, (the "Flowserve Transaction").
The Tender Offer, which commenced on November 22, 1999, is currently scheduled
to expire at 12:00 midnight, New York City time, on December 21, 1999 (but may
be extended under certain circumstances).
Completion of the Tender Offer is subject to certain conditions, including a
majority of the outstanding shares of Invatec's common stock being validly
tendered and not withdrawn prior to the expiration of the Tender Offer,
compliance with certain covenants, no material adverse change having occurred
and the expiration of all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. Assuming successful completion of the Tender
Offer, all Invatec shares not tendered and purchased in the Tender Offer will be
converted into the right to receive the price per share paid
6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
pursuant to the Tender Offer in cash pursuant to a merger of Invatec with the
Flowserve subsidiary as contemplated by the Merger Agreement (the "Merger"). See
"Item 5 - Other Information" for a description of the Merger.
2. GOODWILL
Goodwill represents the excess of the aggregate purchase price paid by the
Company in the acquisition of businesses accounted for using the purchase method
of accounting over the fair market value of the net assets acquired. Goodwill is
amortized on a straight-line basis over 40 years.
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, business
trends and prospects and market and economic conditions, assuming the acquired
business continues to operate as a consolidated subsidiary. Management has
continued to evaluate various alternatives, including the potential sale of
certain Company assets, which could result in a potential impairment of the
recorded asset value.
During 1998, Company management designed and implemented a restructuring
plan to improve the Company's cost structure, streamline operations and divest
the Company of underperforming assets. As part of this initiative, management
decided to divest a portion of one of its acquired businesses that was incurring
significant operating losses. This subsidiary was engaged primarily in the
distribution of commodity valve products and related process system components.
Management determined that the products distributed by the subsidiary did not
fit into its long-term vision of providing high quality repair services and
value-added distribution of engineered products. Accordingly, certain assets of
this subsidiary were sold effective July 31, 1999. The carrying value of these
assets held for sale was reduced to fair value based upon the final negotiated
sales price with the buyer, less costs to sell. The resulting adjustment of
approximately $3.8 million to reduce assets held for sale to fair value and
goodwill related to the assets held for sale was recorded in the June 30, 1999
consolidated statements of operations. The Company applied the proceeds from the
sale of the assets to reduce its outstanding balance under the Credit Facility.
Pro forma net sales for the operations associated with the impaired assets were
approximately $11.3 million, $7.8 million, and $3.1 million in 1997, 1998, and
the six month period ended June 30, 1999, respectively. The pro forma operating
losses allocable to such operations for the applicable periods were
approximately ($0.1) million, ($0.3) million, and ($0.4) million, respectively.
As described above, the Tender Offer for all of the outstanding Invatec
shares aggregates approximately $15.7 million, which is approximately $49.5
million below the Company's historical cost basis in its net assets (total
stockholders' equity) of $65.2 million as of September 30, 1999. The proposed
acquisition will be accounted for by Flowserve using the purchase method of
accounting, which requires an allocation of the purchase price to the assets
acquired and liabilities assumed based on fair value as determined by Flowserve.
The Company's consolidated financial statements have been prepared on the
historical cost basis of accounting in accordance with general accepted
accounting principles which may be greater or less than the fair value of the
assets and liabilities as determined by Flowserve. See "Item 5 - Other
Information" for a description of certain terms, conditions and termination
events relating to the Tender Offer and the Merger.
3. CREDIT FACILITY:
In March 1999, the Company and its existing syndicate of lenders restructured
the Company's credit facility to provide for a stationary term component of $35
million and a revolving credit facility of up to $45
7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
million, up to a maximum aggregate loan amount of $76.5 million, the proceeds of
which may be used only for general corporate and working capital purposes (the
"Credit Facility"). On October 22, 1999, and in contemplation of the Company's
entering into the Merger Agreement, the syndicate of lenders entered into the
Third Amendment to Loan Agreement (the "Third Amendment") with the Company,
waiving certain defaults and suspending the breach of certain other covenants
constituting an event of default until January 31, 2000. The Third Amendment
also reduced the maximum aggregate loan amount under the Credit Facility to
$76.0 million. The Company's domestic subsidiaries have guaranteed the repayment
of all amounts due under the Credit Facility, and repayment is secured by
pledges of the capital stock, and all or substantially all of the assets, of
those subsidiaries. The 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, and
amortization ("EBITDA"), certain levels of cash flows as defined by the Credit
Facility and other items specified in the loan agreement. Immediately prior to
the execution of the Third Amendment, the Company was in default under the
Credit Facility. If the Merger fails to occur prior to
January 31, 2000, the Company will again be in default under the Credit
Facility. In that event, the ability of the Company to continue to operate as a
going concern may be jeopardized, and the Company may be forced to pursue
alternatives under reorganization and bankruptcy laws.
The amount of availability under the Credit Facility is governed by a
borrowing base which consists primarily of the accounts receivable and inventory
of the Company and its subsidiaries. The amount available under the revolving
portion of the Credit Facility will decrease 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 required to (i) meet
stringent reporting covenants, (ii) submit to collateral audits and (iii)
deposit all revenues and receipts into lockbox accounts and (iv) retain a
turnaround consultant. Interest accrues at the prime rate as in effect from time
to time, plus 2%, payable monthly. The Credit Facility provides for increasingly
high overall borrowing costs per quarter equal to 1.5% of the principal balance
under the Credit Facility. These fees of approximately $3.2 million are accrued
at September 30, 1999, but will be waived if the Company repays all obligations
under the Credit Facility by January 31, 2000. The entire Credit Facility
matures on January 31, 2000.
In connection with the restructuring of the Credit Facility in March 1999,
the syndicate of lenders was 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. The warrants do not have an expiration date. The estimated fair value
of the warrants at the date issued was $0.21 per share using a Black-Scholes
option pricing model. The fair value of the warrants was recorded as deferred
loan costs and is being amortized over the term of the Credit Facility. Under
the Third Amendment, if the Company repays all obligations under the Credit
Facility by January 31, 2000, the syndicate of lenders has agreed to return
these warrants to the Company for cancellation.
At November 19, 1999, the Company's net borrowings under the Credit Facility
were approximately $73.2 million bearing interest at 10.25%, excluding the
effect of contingent fees discussed above.
8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. 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.
5. INCOME TAXES:
Certain of the Acquired Businesses were subject to the provisions of
Subchapter S of the Internal Revenue Code prior to their acquisition by the
Company. Under these provisions, their former stockholders paid income taxes on
their proportionate share of the earnings of these businesses. Because the
stockholders were taxed directly, their businesses paid no federal income tax
and only certain state income taxes.
The Company files a consolidated federal income tax return that includes the
operations of the Acquired Businesses for periods subsequent to their respective
acquisition dates.
6. EARNINGS (LOSS) PER SHARE:
The computation of earnings (loss) per share of Common Stock for the
interim periods is presented in accordance with SFAS No. 128, "Earnings Per
Share," based on the following shares of Common Stock outstanding:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding at January 1 7,890,198 9,664,562 7,890,198 9,664,562
Issued to acquire businesses in 1998
(weighted) ....................... 1,749,052 -- 903,086 --
Issued for stock options exercised
and warrants exercised (weighted). 25,312 -- 16,072 --
--------- --------- --------- ---------
Average shares outstanding -
Basic and Diluted ................ 9,664,562 9,664,562 8,809,356 9,664,562
========= ========= ========= =========
</TABLE>
Diluted weighted average shares outstanding for 1998 and 1999 do not
reflect the effect of certain options and warrants to purchase common stock,
convertible subordinated notes which were outstanding during the period, and the
potential issuance of additional shares provided in connection with certain
acquisition agreements (as discussed in Note 7) as these items were
anti-dilutive.
7. CONTINGENT CONSIDERATION
Three of the acquisition agreements for the 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.
9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Makeup Amount is approximately $6.5 million and has been accrued at
September 30, 1999, with a corresponding offset to additional paid in capital.
Shares of Invatec Common Stock have not been issued to the former shareholders
of the certain Acquired Businesses, and the Company's management has negotiated
a discount in the payment of the Makeup Amount with the former shareholders
contingent upon payment to the shareholders by January 31, 2000.
8. SUBSEQUENT EVENTS:
Company management has negotiated with holders of its subordinated debt
and of the Makeup Amount described above, and with its primary lender regarding
certain bank fees and related warrants, resulting in a reduction of these
obligations of approximately $9.6 million, contingent upon payment of the
discounted amounts by January 31, 2000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto which are included in
Item 1 of this Part I. This report contains "forward-looking" statements that
involve a number of risks, uncertainties and assumptions. No assurance can be
given that actual results will not differ materially from these statements as a
result of various factors. See "Factors That May Affect Future Results" in Item
1 of the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
OVERVIEW
The Company derives its revenues principally from (i) sales of industrial
valves and related process-system components to its process-industry customers
and commissions paid by the manufacturers of these products in connection with
the Company's direct sales of these products and (ii) performance of
comprehensive maintenance repair services of industrial valves and related
process-system components for its customers. Costs of operations consist
principally of direct costs of valves and components sold, coupled with labor
and overhead costs connected with the performance of repair services. Selling,
general and administrative expenses consist principally of compensation and
benefits payable to sales, management and administrative personnel, insurance,
depreciation and amortization and other related expenses.
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 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 exploration and
production, 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 and earnings declined during 1998 and
1999. This decline in earnings resulted in a severe reduction in the market
price of the Company's Common Stock and ultimately resulted in the Company
defaulting on its credit facility as a result of failing to meet certain
financial covenants which required specific levels of earnings in relation to
debt. The Company remained in default under the loan agreement from July 20,
1998 through March 25, 1999 when the Company amended its Credit Facility. The
Company was again in default under the Credit Facility immediately prior to
entering into the Second Amendment and Third Amendment thereto with its
syndicate of lenders on April 21, 1999 and October 22, 1999, respectively. Under
the Third Amendment, the Company's Credit Facility, expiring on January 31,
2000, consists of a $35 million stationary term component and up to a $45
million revolving line of credit, up to an aggregate maximum of $76 million,
from its existing bank group. The Credit Facility prohibits the Company from
making acquisitions and provides for increasingly high borrowing costs.
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 for acquisitions. The Company has been working with an
investment banking firm since April of this year to develop a financial
restructuring plan for the Company and otherwise explore strategic alternatives.
See "Item 5 - Other Information" for a description of the Merger.
11
<PAGE>
Since the suspension of the Company's acquisition program, the Company has
focused on efforts to cut costs and otherwise improve profitabilty. During 1998,
the Company eliminated in excess of $5 million in annualized costs, including
substantial corporate overhead. In 1999, the Company has continued its cost
cutting program, sold underperforming non-core assets of certain subsidiaries,
downsized certain of its operations to fit the current level of business,
consolidated certain locations and consolidated the marketing efforts currently
conducted by different subsidiary companies in an effort to increase operational
efficiency.
Despite these efforts, the Company has been unable to improve overall
profitability in 1999 due to the high cost of funds under the Credit Facility
and the continued reduced level of its business during 1999. The Company cannot
predict when or whether its business will rebound. In addition, there can be no
assurance that a further deterioration in the Company's business will not occur.
Any significant additional erosion in the Company's business would further
depress earnings and result in additional defaults under the Credit Facility.
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<PAGE>
RESULTS OF OPERATIONS -- HISTORICAL (Unaudited)
The following table sets forth for the Company certain selected
consolidated financial data and that data as a percentage of consolidated
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------------------- --------------------------------------------------
1998 1999 1998 1999
-------------------- ----------------------- --------------------- -----------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ....................$ 38,881 100% $ 33,981 100% $ 112,753 100% $ 121,084 100%
Cost of operations ......... 27,479 71 24,250 71 77,809 69 85,152 70
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit ............... 11,402 29 9,731 29 34,944 31 35,932 30
Selling, general and
administrative expenses .. 11,239 29 9,568 28 30,236 27 31,630 26
Nonrecurring costs ......... 2,190 6 -- -- 2,190 2 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations ............... (2,027) (6) 163 1 2,518 2 4,302 4
Interest expense, net ...... (1,722) (4) (3,128) (9) (3,856) (3) (9,325) (8)
Loss on assets held
for sale ................. -- -- -- -- -- -- (3,810) (3)
Other income (expense) ..... 138 -- 117 -- 227 -- 177 --
--------- --------- --------- --------- --------- --------- --------- ---------
Loss from operations
before income taxes ...... $ (3,611) (10)% $ (2,848) (8)% $ (1,111) (1)% $ (8,656) (7)%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues decreased $4.9 million, or (13)%, from $38.9
million in the three months ended September 30, 1998 to $34.0 million in the
corresponding period in 1999. This decrease primarily resulted from the sale of
certain assets of a subsidiary coupled with a reduced level of repair and
service revenue as compared with the prior year.
GROSS PROFIT -- Gross profit decreased $1.7 million, or (15)%, from
$11.4 million in the three months ended September 30, 1998 to $9.7 million in
the corresponding period in 1999. This decrease occurred principally as a result
of the reduction in sales volumes previously described. Gross margin as a
percentage of revenues remained flat at 29%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $1.7 million, or (15%), from $11.2 million in
the three months ended September 30, 1998 to $9.6 million in the corresponding
period in 1999. This decrease, and the decrease in these expenses as a
percentage of revenues from 29% to 28%, primarily resulted from the cost
reductions previously described.
INTEREST EXPENSE, NET - Interest expense, net increased $1.4 million,
or 82% from $1.7 million in the three months ended September 30, 1998, to $3.1
million in the corresponding period in 1999. This increase is due to the
increased borrowings under the Credit Facility primarily for 1998 acquisitions
and the accrued contingent fees for the third quarter of 1999 of approximately
$1.0 million due under the Credit Facility.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES - Revenues increased $8.3 million, or 7%, from $112.8
million in the nine months ended September 30, 1998 to $121.1 million in the
corresponding period in 1999. This increase primarily resulted from the full
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<PAGE>
inclusion in the 1999 period of the results of the businesses acquired during
1998, offset by downturns previously described.
GROSS PROFIT - Gross profit increased $1.0 million, or 3%, from $34.9
million in the nine months ended September 30, 1998 to $35.9 million in the
corresponding period in 1999. This increase occurred principally as a result of
the inclusion in the 1999 period of the incremental gross profit of the
businesses acquired during 1998. Gross margin as a percentage of revenues
decreased from 31% to 30%, primarily resulting from lower sales volumes
associated with the downturns previously described.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased $1.4 million, or 5%, from $30.2 million in the
nine months ended September 30, 1998 to $31.6 million in the corresponding
period in 1999. This increase primarily reflected the incremental selling,
general and administrative expenses in the 1999 period of the businesses
acquired during 1998. As a percentage of revenues, these expenses decreased from
27% to 26% due to the cost reductions described above.
INTEREST EXPENSE, NET - Interest expense, net increased $5.5 million,
or 142%, from $3.9 million in the nine months ended September 30, 1998 to $9.3
million in the corresponding period in 1999. This increase is due to the
increased borrowings under the Credit Facility primarily for 1998 acquisitions
and the accrued contingent fees of approximately $3.2 million due under the
Credit Facility.
LOSS ON ASSETS HELD FOR SALE - A loss on assets held for sale of $3.8
million for the nine months ended September 30, 1999, reflects the reduction of
the carrying value of assets of one of its subsidiaries sold in the third
quarter to their fair value based on the final sales price to the buyer, less
selling costs. This loss was recorded in June 1999.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter-to-quarter or year-to-year because of a number of factors, including the
timing of acquisitions, seasonal and cyclical fluctuations in the demand for the
Company's services and competitive factors. Accordingly, quarterly comparisons
of the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company's
operations generated $2.3 million in cash. Capital expenditures totaled $1.5
million and repayments of debt amounted to $1.7 million.
In March 1999, the Company and its existing syndicate of lenders
amended the Credit Facility to provide for a stationary term component of $35
million and a revolving credit facility of up to $45 million, up to a maximum
aggregate loan amount of $76.5 million, the proceeds of which may be used only
for general corporate and working capital purposes. As amended on October 22,
1999, the maximum aggregate loan amount under the Credit Facility is $76
million. The Company's domestic 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 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
14
<PAGE>
covenants. These financial covenants include provisions for maintenance of
certain levels of EBITDA and other items specified in the loan agreement.
The amount of availability under the Credit Facility is 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 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 Credit Facility. These fees of
approximately $3.2 million are accrued at September 30, 1999, but will be waived
if all the Company's obligations under the Credit Facility are repaid in full by
January 31, 2000. The entire Credit Facility matures on January 31, 2000.
Immediately prior to the execution of the Third Amendment, the
Company was in default under the Credit Facility for failure to comply with
certain financial and other covenants. As part of the Third Amendment, the
breach of any such covenant does not and will not constitute a default or event
of default unless the same is continuing on January 31, 2000. If the Merger is
not consummated by January 31, 2000, the Company will be in default under the
Credit Facility. In that event, the ability of the Company to continue to
operate as a going concern may be jeopardized, and the Company may be forced to
pursue alternatives under reorganization and bankruptcy laws.
The Company retained an investment banking firm in April 1999 to
assist it in seeking a significant equity infusion to enable the Company 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.
After a thorough investigation of those options, on November 18, 1999, the
Company entered into the Merger Agreement with Flowserve, whereby Flowserve will
make a tender offer to acquire all of the Company's outstanding shares of Common
Stock for $1.62 per share and, upon the purchase of a majority of the shares,
merge its subsidiary into the Company with the result that the Company will
become a wholly-owned subsidiary of Flowserve. See "Item 5 - Other Information"
for a description of the Merger.
At September 30, 1999, the Company's outstanding borrowings under the
Credit Facility were $69.0 million, bearing interest at 10.25%. At November 19,
1999, the Company's outstanding borrowings under the Credit Facility were $73.2
million, bearing interest at 10.25% per annum, excluding the effect of the fees
discussed above.
During 1998, Company management designed and implemented a
restructuring plan to reduce the Company's cost structure, streamline operations
and divest the Company of underperforming assets. As part of this initiative,
management decided to divest a portion of one of its acquired businesses that
was incurring significant operating losses. This subsidiary was engaged
primarily in the distribution of commodity valve products and related process
system components. Management determined that the products distributed by the
subsidiary did not fit into its long-term vision of providing high quality
repair services and value-added distribution of engineered products.
Accordingly, certain assets of this subsidiary were sold effective July 31, 1999
for $550,000 in cash. The Company applied the proceeds from the sale of the
assets to reduce its outstanding balance under the Credit Facility.
At September 30, 1999, the Company's capitalization included
approximately $11.7 million aggregate principal amount of convertible
subordinated notes due 2002-04 that bore a weighted average interest rate of
5.3%. The Company issued these notes as partial consideration in
15
<PAGE>
acquisitions of certain Acquired Businesses. These notes are convertible into
Common Stock at initial conversion prices ranging from $16.90 to $22.20 per
share. The Company's management has negotiated a discount in the payment of the
convertible subordinated notes with the holders of the notes if such payment is
made by January 31, 2000.
Three of the acquisition agreements for the 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 is approximately $6.5 million and has been accrued
at September 30, 1999 with a corresponding entry to additional paid in capital.
Shares of Invatec Common Stock have not been issued to the former shareholders
of the certain Acquired Businesses, and the Company's management has negotiated
a discount in the payment of the Makeup Amount with the former shareholders
contingent upon such payment being made by January 31,2000.
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
were not Year 2000 compliant is complete and the amount expended was
approximately $400,000.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Revolving credit borrowings under the Company's Credit Facility
contain certain market risk exposure. The Company's outstanding borrowings under
the Credit Facility were $69.0 million at September 30, 1999. A change of one
percent in the interest rate would cause a change in interest expense of
approximately $690,000 or $0.07 per share, on an annual basis. The 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.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has been operating since June 1999 under waivers for
defaults in certain covenants in its Credit Facility. At November 19, 1999, the
Company's net borrowings under the Credit Facility were $73.2 million. See Note
3 to Notes to "Consolidated Financial Statements" in Item 1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources" in Item 2 of Part I of this report.
ITEM 5. OTHER INFORMATION
The following information is included by the Company in this
Quarterly Report on Form 10-Q in lieu of filing a Current Report on Form 8-K.
On November 18, 1999, the Company entered into an Agreement and Plan
of Merger with Flowserve Corporation ("Flowserve") and its wholly owned
subsidiary Forrest Acquisition Sub, Inc.(the "Purchaser"), and certain holders
of Company Common Stock entered into Stockholder Agreements with Purchaser, the
operation of either of which may result in a change in control of the Company.
On November 22, 1999, the Purchaser commenced a cash tender offer to
purchase all shares of Company Common Stock at a price of $1.62 per share, net
to the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase and the related Letter
of Transmittal sent to all Company stockholders. The Tender Offer is scheduled
to expire at 12:00 midnight (New York City Time) on December 21, 1999, unless
extended in accordance with applicable law and the terms of the Merger
Agreement.
The Tender Offer is being made pursuant to the Merger Agreement among
the Company, Flowserve and Purchaser. The Merger Agreement provides, among other
things, that as soon as practicable after the consummation of the Tender Offer,
and the satisfaction of the other conditions set forth in the Merger Agreement
and in accordance with the relevant provisions of the General Corporation Law of
the State of Delaware, Purchaser will be merged into the Company and the Company
will be a wholly-owned subsidiary of Flowserve. At the effective time of the
Merger (the "Effective Time"), each share of Common Stock issued and outstanding
immediately prior to the Effective Time will be canceled and converted into the
right to receive the price per share paid pursuant to the Tender Offer in cash,
without interest.
Concurrently with the execution and delivery of the Merger Agreement,
Roger L. Miller, William E. Haynes, Charles F. Schugart and Douglas R.
Harrington, Jr. (collectively, the "Granting Stockholders") entered into a
Stockholder Agreement with Purchaser (the "Stockholder/Option Agreement")
pursuant to which they agreed to tender (and not withdraw) their shares in the
Tender Offer, granted an irrevocable proxy to Purchaser's designees with respect
to their shares and granted to Purchaser an option to purchase the shares held
by them at the offer price under specified circumstances. Also on November 18,
1999, each of Philip Industrial Services Group, Inc. and Philip Environmental
Services, Inc. (each a "Chapter 11 Stockholder" and collectively with the
Granting Stockholders, the "Selling Stockholders"), entered into a Stockholder
Agreement (each a "Chapter 11 Stockholder Agreement," and together with the
Stockholder/Option Agreement, the "Stockholder Agreements") with Purchaser. The
Chapter 11 Stockholders are affiliates of Philip Services Corp. and have filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code with the Bankruptcy Court for the District of Delaware (the "Delaware
Bankruptcy Court"). Each Chapter 11 Stockholder Agreement is similar to the
Stockholder/Option Agreement except that it does not contain an option to
17
<PAGE>
purchase provision and it conditions effectiveness on Delaware Bankruptcy Court
approval of that Chapter 11 Stockholder Agreement or the earlier confirmation by
the Delaware Bankruptcy Court of a plan of reorganization for that Chapter 11
Stockholder. The Selling Stockholders collectively own 3,125,400 shares, or
32.3% of the outstanding shares of Company Common Stock.
All discussions of the Merger and related transactions are qualified
in their entirety by the descriptions thereof in the Schedule 14D-9 of the
Company, together with the Exhibits thereto, filed with the Securities and
Exchange Commission on November 22, 1999 and included herein as Exhibit 2.4(b).
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1(a)* -- Merger Agreement dated June 29, 1998 among Invatec,
Plant Maintenance, Inc. and the former shareholders thereof
(Form 10-K for the year ended December 31, 1998 (File No.
000-23231) Ex. 2.1(a)).
2.1(b)* -- Amendment to Merger Agreement dated as of September 25, 1998
among Invatec, Plant Maintenance, Inc. and the former
shareholders thereof (Form 10-K for the year ended December 31,
1998 (File No. 000-23231) Ex. 2.1(b)).
2.1(c) -- Second Amendment among Invatec, Plant Maintenance, Inc. and
the former shareholders thereof.
2.1(d) -- Waiver letters dated November 13, 1999 among Invatec and the
former shareholders of Plant Maintenance, Inc.
2.2(a)* -- Merger Agreement dated July 9, 1998 among Invatec, Collier
Equipment Corporation and the former shareholders thereof (Form
10-K for the year ended December 31, 1998 (File No. 000-23231)
Ex. 2.2(a)).
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 (Form 10-K for the year ended December 31, 1998 (File
No. 000-23231) Ex. 2.2(b)).
2.2(c) -- Letter Agreement dated November 9, 1999, among the Company
and the former shareholders of Collier Equipment Corporation.
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 shareholder thereof (Form 10-K
for the year ended December 31, 1998 (File No. 000-23231) Ex.
2.3(a)).
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
shareholder thereof (Form 10-K for the year ended December 31,
1998 (File No. 000-23231) Ex. 2.3(b)).
2.3(c) -- Second Amendment among Invatec, Colonial Process Service &
Equipment Co., Inc. and the former shareholder thereof.
2.4(a)* -- Agreement and Plan of Merger dated at of November 18, 1999
among Invatec, Flowserve Corporation and Flowserve Acquisition
Sub, Inc. (Schedule 14D-9 of the Registrant filed November 22,
1999 (File No. 005-51843)Ex. 3).
2.4(b)* -- Schedule 14D-9 of Registrant filed November 22, 1999 (File
No. 005-51843).
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<PAGE>
3.1* -- Certificate of Incorporation of Invatec, as amended (Form
10-Q for the quarterly period ended September 31, 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(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).
4.1(b)* -- Amendment to Loan Agreement dated March 21, 1999 among
Invatec, Chase Bank of Texas and the other lenders (Form 10-K
for the year ended December 31, 1998 (File No. 000-23231) Ex.
4.6(b)).
4.1(c) -- Second Amendment to Loan Agreement dated as of April 21, 1999
among Invatec, Chase Bank of Texas and the other lenders.
4.1(d) -- Third Amendment to Loan Agreement dated as of October 22, 1999
among Invatec, Chase Bank of Texas and the other lenders.
4.2* -- Registration Rights Agreement dated as of March 21, 1999
by and among Invatec, Chase Bank of Texas and the other lenders
(Form 10-K for the year ended December 31, 1998 (File No.
000-23231) Ex. 4.8).
4.3* -- Form of Warrants dated as of March 21, 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 (Form
10-K for the year ended December 31, 1998 (File No. 000-23231)
Ex. 4.9). 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.
4.4* -- Amendment to Rights Agreement dated as of November 18, 1999
between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (Schedule 14D-9 of the Registrant filed
November 22, 1999 (File No. 005-51843) Ex. 10).
10.1* -- 1997 Incentive Plan of Invatec, as amended (Form 10-K for
the year ended December 31, 1998 (File No. 000-23231) Ex.
10.1).
10.2* -- Stockholder Agreement by and among Forrest Acquisition Sub,
Inc., Roger L. Miller, William E. Haynes, Charles F. Schugart
and Douglas R. Harrington, Jr., dated as of November 18, 1999.
(Schedule 14D-9 of the Registrant filed November 22, 1999 (File
No. 005-51843) Ex. 12.1).
10.3* -- Stockholder Agreement by and between Forrest
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<PAGE>
Acquisition Sub., Inc. and Philip Industrial Services Group,
Inc. dated as of November 18, 1999. (Schedule 14D-9 of the
Registrant filed November 22, 1999 (File No. 005-51843)
Ex. 12.2)
10.4* -- Stockholder Agreement by and between Forrest Acquisition
Sub, Inc. and Philip Environmental Services, Inc. dated as of
November 18, 1999. (Schedule 14D-9 of the Registrant filed
November 22, 1999 (File No. 005-51843) Ex. 12.3).
27.1 -- Financial Data Schedule.
- -------------------
* Incorporated by reference to the filing indicated.
(b) Reports on Form 8-K.
This Quarterly Report on Form 10-Q is being filed in lieu of, and
contains the information required by, the Current Report on Form 8-K of the
Company with respect to the execution of the Merger Agreement and the potential
Merger.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Innovative Valve Technologies, Inc., has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
DOUGLAS R. HARRINGTON, JR.
VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Dated: November 22, 1999
22
EXHIBIT 2.1(C)
SECOND AMENDMENT TO MERGER AGREEMENT
THIS SECOND AMENDMENT TO MERGER AGREEMENT (the "Amendment") is executed
effective as of the ____ day of November, 1999, by and among INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), PLANT MAINTENANCE, INC.,
a Delaware corporation ("PMI-Delaware") 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. Invatec, PMI-Delaware, Mr.
Denson, Mr. Sallee and Mr. Jorden are hereinafter sometimes referred to
collectively as the "Parties" and individually as a "Party." Except as otherwise
specifically indicated herein, all defined terms contained herein shall have the
same meanings as contained in that certain Merger Agreement (the "Original
Merger Agreement") dated effective June 29, 1998, executed by Invatec, Plant
Acquisition, Inc., Plant Maintenance, Inc., Mr. Denson, Mr. Sallee and Mr.
Jorden, as amended by that certain Amendment to Merger Agreement (the "First
Amendment") dated effective September 25, 1998, executed by the Parties (the
Original Merger Agreement, as amended by the First Amendment, is hereinafter
referred to as the "Merger Agreement").
WHEREAS, Invatec has provided to Mr. Denson, Mr. Sallee and Mr. Jorden
(the "Former PMI Shareholders"), on a confidential basis pursuant to the
Confidentiality and Nondisclosure Agreement entered into as of October __, 1999,
(the "Confidentiality Agreement"), information regarding one or more
possibilities for a potential Restructuring (as defined in the Confidentiality
Agreement) and, in connection with a Restructuring, Invatec has requested that
the Former PMI Shareholders and certain other third parties (collectively, the
"Holders"), including certain former owners of companies acquired by Invatec,
and certain holders of debt or preferred stock issued by Invatec or its
subsidiaries, amend the terms of the obligations owed to such Holders (any
agreements entered into with any Holders, if any, being hereinafter referred to
collectively as the "Holders' Modification Agreements"), in order to allow
Invatec to pursue, discuss and negotiate a Restructuring and induce the
stockholders of Invatec to approve or otherwise participate in a Restructuring
and any other Restructuring approved by Invatec, and to enter into and
consummate any transactions which may arise therefrom or in connection therewith
(any such Restructuring and such transactions being hereinafter collectively
referred to as the "Transaction");
WHEREAS, the Former PMI Shareholders have agreed to modify the terms of
Invatec's obligations to them under the Merger Agreement on the terms
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:
1. Paragraph 6(C) of the Merger Agreement is hereby deleted in its
entirety, and substituted therefor is the following:
- 1 -
<PAGE>
"(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 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, (a) if such payment is made on or before
January 31, 2000, Four and 57/100 Dollars ($4.57), payable in cash, or (b)
if such payment is made after January 31, 2000, Six and 85/100 Dollars
($6.85), which payment 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.
The Current Market Price as of the Subsequent Measurement Date was less than the
Agreed Closing Value of Invatec Common Stock under the Agreement.
Notwithstanding any provision hereof to the contrary, if the tender offer price
on the date of commencement of the tender in the transaction currently
contemplated by Invatec is less than One and 68/100 Dollar ($1.68) per share,
then this Agreement shall terminate and be of no further force or effect upon
the expiration of five (5) business days after the commencement of the tender,
unless the Stockholders execute a written instrument waiving this termination
right within such five (5) business day period.
2. The Parties hereby acknowledge and agree that as of the Subsequent
Measurement Date, Mr. Denson owned Two Hundred Ten Thousand Eighty-Six (210,086)
shares of Invatec Common Stock issued to him in the Acquisition, and that upon
execution hereof he will be entitled to (a) Nine Hundred Sixty Thousand
Ninety-Three and 02/100 Dollars ($960,093.02), all of which is to be paid in
cash, if such payment is made on or before January 31, 2000, or (b) One Million
Four Hundred Thirty-Nine Thousand Eighty-Nine and 10/100 Dollars
($1,439,089.10), which payment may be made by Invatec, at Invatec's option,
either in cash or by issuing to each Stockholder Invatec Common Stock as
contemplated above, if such payment is made after January 31, 2000.
3. The Parties hereby acknowledge and agree that as of the Subsequent
Measurement Date, Mr. Sallee owned Two Hundred Ten Thousand Eighty-Six (210,086)
shares of Invatec Common Stock issued to him in the Acquisition, and that upon
execution hereof he will be entitled to (a) Nine Hundred Sixty Thousand
Ninety-Three and 02/100 Dollars ($960,093.02), all of which is to be paid in
cash, if such payment is made on or before January 31, 2000, or (b) One Million
Four Hundred Thirty-Nine Thousand Eighty-Nine and 10/100 Dollars
($1,439,089.10), which payment may be made by Invatec, at Invatec's option,
either in cash or by issuing to each Stockholder Invatec Common Stock as
contemplated above, if such payment is made after January 31, 2000.
4. The Parties hereby acknowledge and agree that as of the Subsequent
Measurement Date, Mr. Jorden owned Eighty Thousand Thirty-Two (80,032) shares of
Invatec Common Stock issued to him in the Acquisition, and that upon execution
hereof he will be entitled to (a) Three Hundred Sixty-Five Thousand Seven
Hundred Forty-Six and 24/100 Dollars ($365,746.24), all of which is to be paid
in cash, if such payment is made on or before January 31, 2000, or (b) Five
- 2 -
<PAGE>
Hundred Forty-Eight Thousand Two Hundred Nineteen and 20/100 Dollars
($548,219.20), which payment may be made by Invatec, at Invatec's option, either
in cash or by issuing to each Stockholder Invatec Common Stock as contemplated
above, if such payment is made after January 31, 2000.
5. In the event the payments provided for in subparagraph (b) of Sections
2, 3 and 4 hereof are made in shares of Invatec common stock, Invatec agrees to,
and to cause Chase Mellon Shareholder Services, L.L.C. as Rights Agent to, enter
into an amendment to the Rights Agreement dated as of September 18, 1997,
exempting from the provisions of that agreement the issuance of any shares of
Invatec common stock pursuant to subparagraph (b) of Sections 2, 3 and 4 hereof.
6. Each Party hereby agrees not to file any claim or cause of action
against any person or entity, whether or not a party to this Agreement, with
respect to the Merger Agreement or any of the transactions contemplated therein,
prior to January 31, 2000 (the "Standstill Expiration Date").
7. The Parties agree that any limitations periods for bringing a claim or
cause of action not already barred at the date of this Amendment but which would
expire before the Standstill Expiration Date, are hereby tolled and extended
through and including February 15, 2000. This Amendment shall not serve to
extend or in any manner affect limitations periods which would not otherwise
expire prior to the Standstill Expiration Date, nor shall it serve to revive any
claims or actions upon which limitations have expired at the date of this
Amendment. Each Party acknowledges and confirms that in no way shall the terms
and provisions hereof be, or be construed to be, an admission of any liability
of any Party to any other Party, or an acknowledgment of the validity of any
claim or potential claim of any other Party.
8. Effective upon receipt of the cash payments of $4.57 per share of
Invatec common stock on or before January 31, 2000, as contemplated in
subparagraph (a) of Sections 2, 3 and 4 hereof, to the maximum extent permitted
by applicable law, each of the Former PMI Shareholders releases and forever
discharges Invatec and its officers, directors, shareholders, employees, agents,
representatives and affiliates, and their respective heirs, administrators,
successors and assigns (individually a "Released Party" and collectively, the
"Released Parties"), from (i) any and all debts, liabilities, obligations,
claims, demands, actions or causes of action that arise out of or are based upon
any misrepresentation, omission, transaction, fact, event or other matter
related to, based upon or arising out of the Merger Agreement, as amended
hereby, this Amendment or any of the transactions contemplated herein or therein
(INCLUDING ANY ACT OR FAILURE TO ACT THAT CONSTITUTES ORDINARY OR GROSS
NEGLIGENCE OR RECKLESS OR WILLFUL, WANTON MISCONDUCT). If such cash payments are
not made on or before January 31, 2000, this release shall be void and of no
force or effect. Each of the Former PMI Shareholders (i) acknowledges that he
fully comprehends and understands all the terms of this release and its legal
effects, and (ii) expressly represents and warrants that (a) he is competent to
effect the release made herein knowingly and voluntarily and without reliance on
any statement or representation of any Released Party or any of their agents,
employees or representatives, and (b) he has had the opportunity to consult with
an attorney of his choice regarding this release and has done so.
- 3 -
<PAGE>
9. The Former PMI Shareholders understand that Invatec is subject to the
reporting requirements of Section 13 of the Securities Exchange Act of 1934 (the
"Exchange Act"). The Former PMI Shareholders have been furnished a copy of
Invatec's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and its quarterly reports on Form 10-Q for the fiscal quarters ended March 31
and June 30, 1999 (collectively, the "Reports"). The Former PMI Shareholders
have (i) for a reasonable amount of time had an opportunity to ask questions and
receive answers concerning the Reports, Invatec and its business, the terms and
conditions of the Restructuring, this Agreement and the Holders' Modification
Agreements, and are satisfied with the results thereof, (ii) been given access,
if requested, to all other documents with respect to Invatec or the
Restructuring, as well as to such other information as the Former PMI
Shareholders have requested, and (iii) and relied solely on investigations
conducted by the Former PMI Shareholders in making the decision to execute an
deliver this Agreement.
10. 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. In addition, the Parties
acknowledge and agree that (a) the form, terms and provisions of any Transaction
may change, (b) such changes may be material, (c) any Transaction may be
abandoned for a different Restructuring, and (d) the obligations of each Party
hereunder shall remain in full force and effect with respect to such changed or
different Transaction, provided that under any different terms of the
Transaction, or any different Transaction or Restructuring, each Former PMI
Shareholder receives (or is entitled to receive, at such Former PMI
Shareholder's option) an aggregate of at least Six and 25/100 Dollars ($6.25)
for each share of Invatec Common Stock issued to him in the Acquisition, which
payment shall include full and final payment, compromise and settlement of the
obligations under Section Paragraph 6(C) of the Merger Agreement, and
consideration for the acquisition (in any form) of each such share.
11. Although Invatec agrees to pursue the execution and delivery of the
Holders' Modification Agreements by the other Holders, this Amendment shall be
binding upon, and inure to the benefit of, each of the Parties, and their
respective heirs, executors, administrators, successors and assigns, regardless
of whether any other Holder executes a Holders' Modification Agreement.
12. From time to time after the execution hereof, at the request of
Invatec or its successors or assigns, each other Party shall execute and deliver
such further documents and take such other and further actions as may be
reasonably requested by Invatec or its successors or assigns arising out of this
Amendment or any of the agreements or transactions contemplated herein.
13. Each of the undersigned representatives of each Party 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
eliver this Amendment.
- 4 -
<PAGE>
14. The Merger Agreement, this Amendment, and the Confidentiality
Agreement embody the entire agreement and understanding among the Parties
relating to the subject matter hereof, and supersede all prior proposals,
negotiations, agreements, commitments and understandings relating to such
subject matter. There are no unwritten agreements among the Parties.
15. 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: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
PLANT MAINTENANCE, INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, Vice President
WILLIAM D. DENSON
WILLIAM D. DENSON
DARRELL G. SALLEE
DARRELL G. SALLEE
JOHN P. JORDEN, JR.
JOHN P. JORDEN, JR.
- 5 -
EXHIBIT 2.1 (D)
November 13, 1999
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn: Mr. Charles F. Schugart
RE: WAIVER OF TERMINATION RIGHT
Dear Charles:
All capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in that certain Second Amendment to Merger Agreement (the
"Second Amendment") executed by and among Innovative Valve Technologies, Inc.,
Plant Maintenance, Inc., William D. Denson, Darrell G. Sallee, and John P.
Jorden, Jr.
Pursuant to the terms of the Second Amendment, I have agreed, among other
things (a) to accept Four and 57/100 Dollars ($4.57) for each share of Invatec
Common Stock issued to me in the Acquisition, or Nine Hundred Sixty Thousand
Ninety-Three and 02/100 Dollars ($960,093.02), all of which is to be paid in
cash, if such payment is made on or before January 31, 2000, in full and final
payment, compromise and settlement of the obligations under Section Paragraph
6(C) of the Merger Agreement, and (b) to release the Released Parties from any
and all debts, liabilities, obligations, claims, demands, actions or causes of
action that arise out of or are based upon any misrepresentation, omission,
transaction, fact, event or other matter related to, based upon or arising out
of the Merger Agreement, as amended by the Second Amendment, the Second
Amendment or any of the transactions contemplated therein. The Second Amendment
was to terminate on its own terms, however, if the tender offer price on the
date of commencement of the tender in the transaction currently contemplated by
Invatec (the "Tender Offer Price") were less than One and 68/100 Dollar ($1.68)
per share, upon the expiration of five (5) business days after the commencement
of the tender, unless each of the Former PMI Shareholders executed a written
instrument waiving this termination right within such five (5) business day
period.
I hereby acknowledge that the Tender Offer Price will be One and 62/100
Dollars ($1.62) per share, and that as a result, each Former PMI Shareholder
will receive (or be entitled to receive, at such Former PMI Shareholder's
option) an aggregate of only Six and 19/100 Dollars ($6.19) for each share of
Invatec Common Stock issued to him in the Acquisition. I also hereby knowingly,
voluntarily and intentionally waive the termination right set forth in the
Second Amendment, and agree that notwithstanding any provision of the Second
Amendment to the
<PAGE>
contrary, the Second Amendment shall be and remain valid and binding and in full
force and effect, enforceable against me in accordance with its terms (other
than those waived hereby), notwithstanding the fact that the Tender Offer Price
is less than One and 68/100 Dollar ($1.68) per share.
The existence and terms hereof are subject to the terms of the
Confidentiality Agreement executed between Invatec and me, and I hereby agree
not to disclose the existence or terms hereof to any third party other than my
legal and/or tax counsel, John and Darrell.
Please acknowledge your receipt of this letter, and that Invatec intends
to continue with the tender offer at a price of One and 62/100 Dollars ($1.62)
per share, in reliance upon the waiver of the termination right by the
undersigned set forth above, by executing this letter in the space provided
below for your signature and return same to the undersigned at your earliest
convenience.
Very truly yours,
WILLIAM D. DENSON
William D. Denson
Accepted and Agreed to
this ___ day of November, 1999:
Innovative Valve Technologies, Inc.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
<PAGE>
November 13, 1999
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn: Mr. Charles F. Schugart
RE: WAIVER OF TERMINATION RIGHT
Dear Charles:
All capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in that certain Second Amendment to Merger Agreement (the
"Second Amendment") executed by and among Innovative Valve Technologies, Inc.,
Plant Maintenance, Inc., William D. Denson, Darrell G. Sallee, and John P.
Jorden, Jr.
Pursuant to the terms of the Second Amendment, I have agreed, among other
things (a) to accept Four and 57/100 Dollars ($4.57) for each share of Invatec
Common Stock issued to me in the Acquisition, or Nine Hundred Sixty Thousand
Ninety-Three and 02/100 Dollars ($960,093.02), all of which is to be paid in
cash, if such payment is made on or before January 31, 2000, in full and final
payment, compromise and settlement of the obligations under Section Paragraph
6(C) of the Merger Agreement, and (b) to release the Released Parties from any
and all debts, liabilities, obligations, claims, demands, actions or causes of
action that arise out of or are based upon any misrepresentation, omission,
transaction, fact, event or other matter related to, based upon or arising out
of the Merger Agreement, as amended by the Second Amendment, the Second
Amendment or any of the transactions contemplated therein. The Second Amendment
was to terminate on its own terms, however, if the tender offer price on the
date of commencement of the tender in the transaction currently contemplated by
Invatec (the "Tender Offer Price") were less than One and 68/100 Dollar ($1.68)
per share, upon the expiration of five (5) business days after the commencement
of the tender, unless each of the Former PMI Shareholders executed a written
instrument waiving this termination right within such five (5) business day
period.
I hereby acknowledge that the Tender Offer Price will be One and 62/100
Dollars ($1.62) per share, and that as a result, each Former PMI Shareholder
will receive (or be entitled to receive, at such Former PMI Shareholder's
option) an aggregate of only Six and 19/100 Dollars ($6.19) for each share of
Invatec Common Stock issued to him in the Acquisition. I also hereby knowingly,
voluntarily and intentionally waive the termination right set forth in the
Second Amendment, and agree that notwithstanding any provision of the Second
Amendment to the
<PAGE>
contrary, the Second Amendment shall be and remain valid and binding and in full
force and effect, enforceable against me in accordance with its terms (other
than those waived hereby), notwithstanding the fact that the Tender Offer Price
is less than One and 68/100 Dollar ($1.68) per share.
The existence and terms hereof are subject to the terms of the
Confidentiality Agreement executed between Invatec and me, and I hereby agree
not to disclose the existence or terms hereof to any third party other than my
legal and/or tax counsel, Bill and John.
Please acknowledge your receipt of this letter, and that Invatec intends
to continue with the tender offer at a price of One and 62/100 Dollars ($1.62)
per share, in reliance upon the waiver of the termination right by the
undersigned set forth above, by executing this letter in the space provided
below for your signature and return same to the undersigned at your earliest
convenience.
Very truly yours,
DARRELL G. SALLEE
Darrell G. Sallee
Accepted and Agreed to
this ___ day of November, 1999:
Innovative Valve Technologies, Inc.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
<PAGE>
November 13, 1999
Innovative Valve Technologies, Inc.
2 Northpoint Drive, Suite 300
Houston, Texas 77060
Attn: Mr. Charles F. Schugart
RE: WAIVER OF TERMINATION RIGHT
Dear Charles:
All capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in that certain Second Amendment to Merger Agreement (the
"Second Amendment") executed by and among Innovative Valve Technologies, Inc.,
Plant Maintenance, Inc., William D. Denson, Darrell G. Sallee, and John P.
Jorden, Jr.
Pursuant to the terms of the Second Amendment, I have agreed, among other
things (a) to accept Four and 57/100 Dollars ($4.57) for each share of Invatec
Common Stock issued to me in the Acquisition, or Three Hundred Sixty-Five
Thousand Seven Hundred Forty-Six and 24/100 Dollars ($365,746.24), all of which
is to be paid in cash, if such payment is made on or before January 31, 2000, in
full and final payment, compromise and settlement of the obligations under
Section Paragraph 6(C) of the Merger Agreement, and (b) to release the Released
Parties from any and all debts, liabilities, obligations, claims, demands,
actions or causes of action that arise out of or are based upon any
misrepresentation, omission, transaction, fact, event or other matter related
to, based upon or arising out of the Merger Agreement, as amended by the Second
Amendment, the Second Amendment or any of the transactions contemplated therein.
The Second Amendment was to terminate on its own terms, however, if the tender
offer price on the date of commencement of the tender in the transaction
currently contemplated by Invatec (the "Tender Offer Price") were less than One
and 68/100 Dollar ($1.68) per share, upon the expiration of five (5) business
days after the commencement of the tender, unless each of the Former PMI
Shareholders executed a written instrument waiving this termination right within
such five (5) business day period.
I hereby acknowledge that the Tender Offer Price will be One and 62/100
Dollars ($1.62) per share, and that as a result, each Former PMI Shareholder
will receive (or be entitled to receive, at such Former PMI Shareholder's
option) an aggregate of only Six and 19/100 Dollars ($6.19) for each share of
Invatec Common Stock issued to him in the Acquisition. I also hereby knowingly,
voluntarily and intentionally waive the termination right set forth in the
Second Amendment, and agree that notwithstanding any provision of the Second
Amendment to the
<PAGE>
contrary, the Second Amendment shall be and remain valid and binding and in full
force and effect, enforceable against me in accordance with its terms (other
than those waived hereby), notwithstanding the fact that the Tender Offer Price
is less than One and 68/100 Dollar ($1.68) per share.
The existence and terms hereof are subject to the terms of the
Confidentiality Agreement executed between Invatec and me, and I hereby agree
not to disclose the existence or terms hereof to any third party other than my
legal and/or tax counsel, Bill and Darrell.
Please acknowledge your receipt of this letter, and that Invatec intends
to continue with the tender offer at a price of One and 62/100 Dollars ($1.62)
per share, in reliance upon the waiver of the termination right by the
undersigned set forth above, by executing this letter in the space provided
below for your signature and return same to the undersigned at your earliest
convenience.
Very truly yours,
JOHN P. JORDEN, JR.
John P. Jorden, Jr.
Accepted and Agreed to
this 15th day of November, 1999:
Innovative Valve Technologies, Inc.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
EXHIBIT 2.2 (C)
November 9, 1999
Robert T. Collier, Jr.
Frank H. Gore
1150 Southern Minerals Road
Corpus Christi, Texas 78409
RE: COMPROMISE AND SETTLEMENT IN CONNECTION WITH TENDER OFFER
Gentlemen:
This letter agreement (the "Agreement") will evidence the agreement among
INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), ROBERT
T. COLLIER, JR., an individual residing in Texas, and FRANK H. GORE, an
individual residing in Texas, to compromise and settle the obligations of
Invatec to Mr. Collier and Mr. Gore under that certain Merger Agreement (the
"Original Merger Agreement") dated effective July 9, 1998, executed by Invatec,
Collier Acquisition, Inc., Collier Equipment Corporation, Mr. Collier and Mr.
Gore, as amended by that certain Amendment to Merger Agreement (the "First
Amendment") dated effective August 20, 1998 (the Original Merger Agreement, as
amended by the First Amendment, is hereinafter referred to as the "Merger
Agreement"). Invatec, Mr. Collier and Mr. Gore are hereinafter sometimes
referred to collectively as the "Parties" and individually as a "Party." Except
as otherwise specifically indicated herein, all defined terms contained herein
shall have the same meanings as contained in the Merger Agreement.
Invatec has provided to Mr. Collier and Mr. Gore, on a confidential basis
pursuant to the Confidentiality and Nondisclosure Agreement entered into as of
October 25, 1999 (the "Confidentiality Agreement), information regarding one or
more possibilities for a potential Restructuring (as defined in the
Confidentiality Agreement) and, in connection with a Restructuring, Invatec has
requested that Mr. Collier, Mr. Gore and certain other third parties
(collectively, the "Holders"), including certain former owners of companies
acquired by Invatec, and certain holders of debt or preferred stock issued by
Invatec or its subsidiaries, compromise and settle the obligations owed by
Invatec to such Holders (any agreements entered into with any Holders, if any,
being hereinafter referred to collectively as the "Holders' Modification
Agreements"), in order to allow Invatec to pursue, discuss and negotiate a
Restructuring and induce the stockholders of Invatec to approve or otherwise
participate in a Restructuring and any other Restructuring approved by Invatec,
and to enter into and consummate any transactions which may arise therefrom or
in connection therewith.
<PAGE>
Robert T. Collier, Jr.
Frank H. Gore
November 9, 1999
Page 2
In connection with Invatec's pursuit of a Restructuring, Invatec has
entered into negotiations with an independent third party regarding a possible
cash tender offer to purchase all of the outstanding shares of Invatec common
stock, on terms to be negotiated by Invatec and such third party. In order to
enable Invatec and such third party to reach agreement on the terms of the
tender offer currently contemplated, the Parties have agreed to compromise and
settle Invatec's obligations to Mr. Collier and Mr. Gore under the Merger
Agreement on the terms hereinafter set forth. For purposes of this agreement,
such tender offer, or any subsequent or competing tender offer, shall be
hereinafter referred to as the "Tender Offer," and the party making the Tender
Offer shall be hereinafter referred to as the "Offeror."
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:
1. Pursuant to Paragraph 6 of the Merger Agreement, Invatec is obligated
to pay each Stockholder for each share of Invatec Common Stock issued to such
Stockholder in the Acquisition and still owned by such Stockholder as of July 9,
1999, Seven and 50/100 Dollars ($7.50), at least one-half of such payment to be
made by Invatec issuing to the Stockholders Invatec Common Stock at a per share
price equal to the Current Market Price as of July 9, 1999. Notwithstanding the
foregoing or any provision of the Merger Agreement to the contrary, the Parties
hereby agree that at least three (3) business days prior to the expiration date
of the Tender Offer, if the Tender Offer is then scheduled to closed and fund on
or before January 31, 2000, Invatec will issue (a) to Mr. Collier the number of
shares of Invatec common stock equal to Four Hundred Fifty-Nine Thousand and
No/100 Dollars ($459,000.00) divided by the cash price offered to stockholders
of Invatec for their shares in the Tender Offer (the "Tender Offer Price"),
rounded down to the nearest whole share, and (b) to Mr. Gore the number of
shares of Invatec common stock equal to Four Hundred Forty- One Thousand and
No/100 Dollars ($441,000.00) divided by the Tender Offer Price, rounded down to
the nearest whole share (the shares being issued to Mr. Collier and Mr. Gore
hereunder being hereinafter referred to as the "Settlement Shares"). Further, if
the Tender Offer is closed and funded on or before January 31, 2000, then (a)
Mr. Collier will accept from Offeror Four Hundred Fifty- Nine Thousand and
No/100 Dollars ($459,000.00), all of which is to be paid in cash, in full and
complete compromise and settlement of his claims under the Merger Agreement, and
as full and final payment and performance of all debts, liabilities and
obligations of Invatec and its affiliates, successors and assigns with respect
to the Merger Agreement and the transactions contemplated therein, and (b) Mr.
Gore will accept from Offeror Four Hundred Forty-One Thousand and No/100 Dollars
($441,000.00), all of which is to be paid in cash, in full and complete
compromise and settlement of his claims under the Merger Agreement, and as full
and final payment and performance of all debts, liabilities and obligations of
Invatec and its affiliates, successors and assigns with respect to the Merger
Agreement and the transactions contemplated therein, except the existing and
continuing obligations of Invatec
<PAGE>
Robert T. Collier, Jr.
Frank H. Gore
November 9, 1999
Page 3
under that certain Employment Agreement dated as of July 9, 1998, executed by
Invatec and Mr. Gore (the "Gore Employment Agreement"), all of which shall
continue unimpaired by this Agreement. The cash payments to be made to Mr.
Collier and Mr. Gore contemplated in clauses (a) and (b) of the preceding
sentence are hereinafter referred to collectively as the "Settlement Payments."
Mr. Collier and Mr. Gore hereby acknowledge and agree that if the Settlement
Shares are issued, and the Tender Offer is not closed and funded on or before
January 31, 2000, then they will return to Invatec on or before February 4,
2000, all certificates evidencing Settlement Shares, and upon receipt by Invatec
of such certificates this Agreement shall be void and of no force or effect.
2. The Parties hereby acknowledge and agree that as of July 9, 1999, (a)
Mr. Collier owned One Hundred Eighty Three Thousand Six Hundred (183,600) shares
of Invatec Common Stock issued to him in the Acquisition, and (b) Mr. Gore owned
One Hundred Seventy-Six Thousand Four Hundred (176,400) shares of Invatec Common
Stock issued to him in the Acquisition.
3. Mr. Collier and Mr. Gore shall pay and be solely responsible for all
income taxes assessed against them, and Invatec shall pay and be solely
responsible for all income taxes against it or CECORP, Inc., which result from
or arise out of (a) the issuance, receipt or tender of the Settlement Shares,
(b) the payment or receipt of the Settlement Payments or the Tender Offer Price,
or (c) the failure of the Acquisition to qualify as a tax-free reorganization
for any reason.
4. Each Party hereby agrees not to file any claim or cause of action
against any person or entity, whether or not a party to this Agreement, with
respect to the Merger Agreement or any of the transactions contemplated therein,
prior to January 31, 2000 (the "Standstill Expiration Date").
5. The Parties agree that any limitations periods for bringing a claim or
cause of action not already barred at the date of this Agreement but which would
expire before the Standstill Expiration Date, are hereby tolled and extended
through and including March 15, 2000. This Agreement shall not serve to extend
or in any manner affect limitations periods which would not otherwise expire
prior to the Standstill Expiration Date, nor shall it serve to revive any claims
or actions upon which limitations have expired at the date of this Agreement.
Each Party acknowledges and confirms that in no way shall the terms and
provisions hereof be, or be construed to be, an admission of any liability of
any Party to any other Party, or an acknowledgment of the validity of any claim
or potential claim of any other Party.
6. Effective upon receipt of the Settlement Shares and the Settlement
Payments, to the maximum extent permitted by applicable law, each of Mr. Collier
and Mr. Gore releases and forever discharges Invatec and Offeror and their
respective officers, directors, shareholders, employees, agents, representatives
and affiliates, and their respective heirs, administrators, successors and
<PAGE>
Robert T. Collier, Jr.
Frank H. Gore
November 9, 1999
Page 4
assigns (individually a "Released Party" and collectively, the "Released
Parties"), from any and all debts, liabilities, obligations, claims, demands,
actions or causes of action that arise out of or are based upon any
misrepresentation, omission, transaction, fact, event or other matter related
to, based upon or arising out of the Merger Agreement, the Tender Offer, this
Agreement or any of the transactions contemplated herein or therein (INCLUDING
ANY ACT OR FAILURE TO ACT THAT CONSTITUTES ORDINARY OR GROSS NEGLIGENCE OR
RECKLESS OR WILLFUL, WANTON MISCONDUCT), OTHER, THAN (a) the existing and
continuing obligations of Invatec under the Gore Employment Agreement, and (b)
the covenants and agreement of Invatec under Section 3 hereof, all of which
shall continue unimpaired by this Agreement. Each of Mr. Collier and Mr. Gore
(a) acknowledges that he fully comprehends and understands all the terms of this
release and its legal effects, and (b) expressly represents and warrants that
(i) he is competent to effect the release made herein knowingly and voluntarily
and without reliance on any statement or representation of any Released Party or
any of their agents, employees or representatives, and (ii) he has had the
opportunity to consult with an attorney of his choice regarding this release and
has done so.
7. Mr. Collier and Mr. Gore understand that Invatec is subject to the
reporting requirements of Section 13 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Mr. Collier and Mr. Gore have been furnished a copy of
Invatec's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and its quarterly reports on Form 10-Q for the fiscal quarters ended March 31
and June 30, 1999.
8. All of the terms, conditions and covenants contained in the Merger
Agreement shall remain in full force and effect except for those debts,
liabilities and obligations compromised, settled and released herein. The
Parties hereby authorize, adopt, ratify, confirm and approve the Acquisition on
the terms and conditions set forth in the Merger Agreement, except for those
debts, liabilities and obligations compromised, settled and released herein.
9. Although Invatec agrees to pursue the execution and delivery of the
Holders' Modification Agreements by the other Holders, this Agreement shall be
binding upon, and inure to the benefit of, each of the Parties, and their
respective heirs, executors, administrators, successors and assigns, regardless
of whether any other Holder executes a Holders' Modification Agreement. In
addition, the Parties acknowledge and agree that (a) the final terms and
provisions of the Tender Offer may be different from any terms or provisions
disclosed to Mr. Collier or Mr. Gore, (b) any changes in the terms or provisions
may be material, (c) the Tender Offer may be abandoned for a different
Restructuring, and (d) the obligations of each Party hereunder shall remain in
full force and effect regardless of the final terms and provisions of the Tender
Offer.
10. From time to time after the execution hereof, at the request of
Invatec or its successors or assigns, each other Party shall execute and deliver
such further documents and take
<PAGE>
Robert T. Collier, Jr.
Frank H. Gore
November 9, 1999
Page 5
such other and further actions as may be reasonably requested by Invatec or its
successors or assigns arising out of this Agreement or any of the agreements or
transactions contemplated herein.
11. Each of the undersigned representatives of each Party 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 Agreement.
12. The Merger Agreement, this Agreement and the Confidentiality Agreement
embody the entire agreement and understanding among the Parties relating to the
subject matter hereof, and supersede all prior proposals, negotiations,
agreements, commitments and understandings relating to such subject matter.
There are no unwritten agreements among the Parties.
13. This Agreement 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 Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered to be
effective as of the date first set forth above.
INNOVATIVE VALVE
TECHNOLOGIES, INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
ROBERT T. COLLIER, JR.
ROBERT T. COLLIER, JR.
FRANK H. GORE
FRANK H. GORE
EXHIBIT 2.3 (C)
SECOND AMENDMENT TO MERGER AGREEMENT
THIS SECOND AMENDMENT TO MERGER AGREEMENT (the "Amendment") is executed
effective as of the ____ day of October, 1999, by and among INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), COLONIAL PROCESS SERVICE
& EQUIPMENT CO., INC., a Delaware corporation ("Colonial Delaware") 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 (Invatec, Colonial Delaware and Mr. Dooney
are hereinafter sometimes referred to collectively as the "Parties" and
individually as a "Party"). Except as otherwise specifically indicated herein,
all defined terms contained herein shall have the same meanings as contained in
that certain Merger Agreement (the "Original 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, as amended
by that certain Amendment to Merger Agreement (the "First Amendment") dated
effective January 1, 1998, executed by the Parties (the Original Merger
Agreement, as amended by the First Amendment, is hereinafter referred to as the
"Merger Agreement").
WHEREAS, Invatec has provided to Mr. Dooney, on a confidential basis
pursuant to the Confidentiality and Nondisclosure Agreement entered into as of
October __, 1999, (the "Confidentiality Agreement"), information regarding one
or more possibilities for a potential Restructuring (as defined in the
Confidentiality Agreement) and, in connection with a Restructuring, Invatec has
requested that Mr. Dooney and certain other third parties (collectively, the
"Holders"), including certain former owners of companies acquired by Invatec,
and certain holders of debt or preferred stock issued by Invatec or its
subsidiaries, amend the terms of the obligations owed to such Holders (any
agreements entered into with any Holders, if any, being hereinafter referred to
collectively as the "Holders' Modification Agreements"), in order to allow
Invatec to pursue, discuss and negotiate a Restructuring and induce the
stockholders of Invatec to approve or otherwise participate in a Restructuring
and any other Restructuring approved by Invatec, and to enter into and
consummate any transactions which may arise therefrom or in connection therewith
(any such Restructuring and such transactions being hereinafter collectively
referred to as the "Transaction");
WHEREAS, Mr. Dooney has agreed to modify the terms of Invatec's
obligations to him under the Merger Agreement on the terms 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:
1. Paragraph 5(C) of the Merger Agreement is hereby deleted in its
entirety, and substituted therefor is the following:
"(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
Page -1-
<PAGE>
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 (a) if such payment is made on or before
January 31, 2000, Three and 21/100 Dollars ($3.21), payable in cash, or
(b) if such payment is made after January 31, 2000, Four and 81/100
Dollars ($4.81), at least one-half of such payment to 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.
2. The parties hereby acknowledge and agree that as of the Subsequent
Measurement Date, Mr. Dooney owned Eighty-One Thousand Twenty (81,020) shares of
Invatec Common Stock issued to him in the Acquisition and that upon execution
hereof he will be entitled to (a) Two Hundred Sixty Thousand Seventy Four and
20/100 Dollars ($260,074.20), all of which is to be paid in cash, if such
payment is made on or before January 31, 2000, and (b) Three Hundred Eighty-Nine
Thousand Seven Hundred Six and 20/100 Dollars ($389,706.20), at least one-half
of such payment to be made in Invatec Common Stock as contemplated above, if
such payment is made after January 31, 2000.
3. Each Party hereby agrees not to file any claim or cause of action
against any person or entity, whether or not a party to this Agreement, with
respect to the Merger Agreement or any of the transactions contemplated therein,
prior January 31, 2000 (the "Standstill Expiration Date").
4. The Parties agree that any limitations periods for bringing a claim or
cause of action not already barred at the date of this Amendment but which would
expire before the Standstill Expiration Date, are hereby tolled and extended
through and including February 15, 2000. This Amendment shall not serve to
extend or in any manner affect limitations periods which would not otherwise
expire prior to the Standstill Expiration Date, nor shall it serve to revive any
claims or actions upon which limitations have expired at the date of this
Amendment. Each Party acknowledges and confirms that in no way shall the terms
and provisions hereof be, or be construed to be, an admission of any liability
of any Party to any other Party, or an acknowledgment of the validity of any
claim or potential claim of any other Party.
5. Effective upon receipt of the payment described in Section 2 hereof, to
the maximum extent permitted by applicable law, Mr. Dooney releases and forever
discharges Invatec and its officers, directors, shareholders, employees, agents,
representatives and affiliates, and their respective heirs, administrators,
successors and assigns (individually a "Released Party" and collectively, the
"Released Parties"), from any and all debts, liabilities, obligations, claims,
demands, actions or causes of action that arise out of or are based upon any
misrepresentation, omission, transaction, fact, event or other matter related
to, based upon or arising out of the Merger Agreement, as amended hereby, this
Amendment, or any of the transactions contemplated herein or therein (INCLUDING
ANY ACT OR FAILURE TO ACT THAT CONSTITUTES ORDINARY OR GROSS NEGLIGENCE OR
RECKLESS OR WILLFUL, WANTON MISCONDUCT). Mr. Dooney (i) acknowledges that he
fully comprehends and understands all the terms of this release and its legal
effects, and (ii) expressly represents and warrants that (a) he is competent to
effect the release made herein knowingly and voluntarily and
Page -2-
<PAGE>
without reliance on any statement or representation of any Released Party or any
of their agents, employees or representatives, and (b) he has had the
opportunity to consult with an attorney of his choice regarding this release and
has done so.
6. Mr. Dooney understands that Invatec is subject to the reporting
requirements of Section 13 of the Securities Exchange Act of 1934 (the "Exchange
Act"). Mr. Dooney has been furnished a copy of Invatec's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and its quarterly reports on
Form 10-Q for the fiscal quarters ended March 31 and June 30, 1999
(collectively, the "Reports"). Mr. Dooney has (i) for a reasonable amount of
time had an opportunity to ask questions and receive answers concerning the
Reports, Invatec and its business, the terms and conditions of the
Restructuring, this Agreement and the Holders' Modification Agreements, and is
satisfied with the results thereof, (ii) been given access, if requested, to all
other documents with respect to Invatec or the Restructuring, as well as to such
other information as Mr. Dooney has requested, and (iii) relied solely on
investigations conducted by Mr. Dooney in making the decision to execute and
deliver this Agreement.
7. 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.
8. Although Invatec agrees to pursue the execution and delivery of the
Holders' Modification Agreements by the other Holders, this Amendment shall be
binding upon, and inure to the benefit of, each of the Parties hereto, and their
respective heirs, executors, administrators, successors and assigns, regardless
of whether any other Holder executes a Holders' Modification Agreement.
9. From time to time after the execution hereof, at the request of Invatec
or its successors or assigns, each other Party shall execute an deliver such
further documents and take such other and further actions as may be reasonably
requested by Invatec or its successors or assigns arising out of this Amendment
or any of the agreements or transactions contemplated herein.
10. Each of the undersigned representatives of each Party 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.
11. The Merger Agreement, this Amendment and the Confidentiality Agreement
embody the entire agreement and understanding among the Parties relating to the
subject matter hereof, and supersede all prior proposals, negotiations,
agreements, commitments and understandings relating to such subject matter.
There are no unwritten agreements among the Parties. In addition, the Parties
acknowledge and agree that (a) the form, terms and provisions of any Transaction
may change, (b) such changes may be material, (c) any Transaction may be
abandoned for a different Restructuring, and (d) the obligations of each Party
hereunder shall remain in full force and effect with respect to such changed or
different Transaction.
Page -3-
<PAGE>
12. 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: /s/ CHARLES F. SCHUGART
Charles F. Schugart, President
COLONIAL PROCESS EQUIPMENT
& SERVICE CO., INC.
By: /s/ CHARLES F. SCHUGART
Charles F. Schugart, Senior Vice
President
MARTIN T. DOONEY
MARTIN T. DOONEY
Page -4-
EXHIBIT 4.1(c)
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is made and
entered into as of April 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, as amended by instrument dated
as of March 21, 1999. 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) The definitions of "MAXIMUM REVOLVING LOAN AVAILABLE AMOUNT" and
"OVER/UNDER ADVANCE AMOUNT" set forth in SECTION 1.1 of the Loan Agreement are
hereby amended to read in their entireties as follows:
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 period (as
such amounts set forth in the table below may be adjusted from time to
time by the Majority Lenders):
PERIOD AMOUNT
------ ------
4/21/99 through 5/20/99 $75,500,000
5/21/99 through 6/20/99 $76,500,000
6/21/99 through 7/20/99 $75,000,000
7/21/99 through 8/20/99 $74,000,000
8/21/99 through 9/20/99 $73,500,000
1
<PAGE>
9/21/99 through 10/20/99 $74,000,000
10/21/99 through 11/20/99 $74,500,000
11/21/99 through 12/20/99 $75,000,000
12/21/99 through 1/20/2000 $74,500,000
1/21/2000 through 2/20/2000 $73,000,000
2/21/2000 through 3/20/2000 $70,500,000
3/21/2000 through the Revolving Loan
Maturity Date $70,500,000
OVER/UNDER ADVANCE AMOUNT means, for any period, the amount set
forth in the table below opposite such period:
PERIOD OVER/UNDER ADVANCE AMOUNT
------ -------------------------
4/21/99 through 5/20/99 $1,500,000
5/21/99 through 6/20/99 $900,000
6/21/99 through 7/20/99 ($2,100,000)
7/21/99 through 8/20/99 ($300,000)
8/21/99 through 9/20/99 $500,000
9/21/99 through 10/20/99 $2,400,000
10/21/99 through 11/20/99 $1,300,000
11/21/99 through 12/20/99 $1,500,000
12/21/99 through 1/20/2000 $600,000
1/21/2000 through 2/20/2000 $2,000,000
2/21/2000 through 3/20/2000 $1,100,000
3/21/2000 through the Revolving Loan
Maturity Date $0
(b) SECTION 3.2(B)(2)(II) of the Loan Agreement is hereby amended to read
in its entirety as follows:
(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:
2
<PAGE>
DATE MINIMUM PERCENTAGE
---- ------------------
4/30/99 51.00%
5/31/99 52.60%
6/30/99 55.80%
7/31/99 54.10%
8/31/99 52.50%
9/30/99 50.40%
10/31/99 52.00%
11/30/99 52.30%
12/31/99 53.30%
1/31/2000 51.70%
2/29/2000 51.30%
3/31/2000 51.30%
(c) SECTION 7.13 of the Loan Agreement is hereby amended to read in its
entirety as follows:
7.13 TURNAROUND CONSULTANT. Borrower shall retain a turnaround
consultant satisfactory to the Majority Lenders, under an acceptable scope
of work, such turnaround consultant to be retained by Borrower within
twenty-one (21) days after the Agent shall have approved the applicable
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.
(d) EXHIBIT J to the Loan Agreement (Borrowing Base Certificate) is hereby
amended to read in its entirety as set forth on EXHIBIT J hereto.
SECTION 2. APPROVAL OF PERSON TO PROVIDE VALUATIONS. Borrower has
nominated and Lenders hereby approve Simmons & Co. as the Person to perform the
valuations required under SECTION 7.2(S) of the Loan Agreement.
SECTION 3. 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 4. 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 5. 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,
3
<PAGE>
no Default or Event of Default has occurred and is continuing or will occur as a
result of this Amendment.
SECTION 6. 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 7. 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 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.
4
<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
5
<PAGE>
CHASE BANK OF TEXAS, N. A.,
as Agent and as a Lender
By:_______________________________________
Name:_____________________________________
Title:____________________________________
6
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
7
<PAGE>
NATIONSBANK, N.A., dba Bank of America,
National Association
By:_______________________________________
Name:_____________________________________
Title:____________________________________
8
<PAGE>
COMERICA BANK-TEXAS
By:_______________________________________
Name:_____________________________________
Title:____________________________________
9
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:_______________________________________
Name:_____________________________________
Title:____________________________________
10
<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
11
<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 ________________
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) ______________
SCHEDULE 1
<PAGE>
<TABLE>
<CAPTION>
ALLOWED
OVER OR
BORROWING (UNDER) ALLOWED REQUIRED OUTSTANDING MAXIMUM
- --------- ADVANCE STATIONARY LOANS TO BB COVERAGE OBLIGATION
BASE DATE AMOUNTS BALANCE % AND "AS OF" DATE PERIOD AMOUNT
- --------- -------- ----------- --------------------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
1/31/99 $2.5MM $35,000,000 BEGINNING $71,000,000
2/28/99 $1.7MM $35,000,000 49.24% on 2/28/99 2/21/99 - 3/20/99 $73,800,000
3/31/99 $1.5MM $35,000,000 50.60% on 3/31/99 3/21/99 - 4/20/99 $74,000,000
4/30/99 $.9MM $35,000,000 51.00% on 4/30/99 4/21/99 - 5/20/99 $75,500,000
5/31/99 ($2.1MM) $35,000,000 52.60% on 5/31/99 5/21/99 - 6/20/99 $76,500,000
6/30/99 ($.3MM) $35,000,000 55.80% on 6/30/99 6/21/99 - 7/20/99 $75,000,000
7/31/99 $.5MM $34,000,000 54.10% on 7/31/99 7/21/99 - 8/20/99 $74,000,000
8/31/99 $2.4MM $34,000,000 52.50% on 8/31/99 8/21/99 - 9/20/99 $73,500,000
9/30/99 $1.3MM $34,000,000 50.40% on 9/30/99 9/21/99 - 10/20/99 $74,000,000
10/31/99 $1.5MM $34,000,000 52.00% on 10/31/99 10/21/99 - 11/20/99 $74,500,000
11/30/99 $.6MM $34,000,000 52.30% on 11/30/99 11/21/99 - 12/20/99 $75,000,000
12/31/99 $2.0MM $34,000,000 53.30% on 12/31/99 12/21/99 - 1/20/00 $74,500,000
1/31/00 $1.1MM $33,000,000 51.70% on 1/31/00 1/21/00 - 2/20/00 $73,000,000
2/28/00 ($0MM) $33,000,000 51.30% on 2/28/00 2/21/00 - 3/20/00 $70,500,000
3/31/00 ($0MM) $33,000,000 51.30% 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 50.6% is calculated using the 2/28 borrowing base of $37,056
divided by the total outstandings including L/C's under the credit facility of
$73,227.)
SCHEDULE 1
2
EXHIBIT 4.1(d)
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is made and
entered into as of October 22, 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, NATIONAL ASSOCIATION, 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) The following definitions set forth in SECTION 1.1 of the Loan
Agreement are hereby amended to read in their entireties as follows:
BORROWING BASE means, for any period, 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 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 financial statements of Borrower and its
Subsidiaries as of the Most Recent Financial
Statement Date; PROVIDED that the amount calculated
pursuant to this CLAUSE (II) shall not exceed 50% of
the Borrowing Base, PLUS
(iii) 80% of the WIP of Borrower and its Subsidiaries, PLUS
<PAGE>
(iv) the Stationary Term Loan Balance, PLUS
(v) the 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.
ELIGIBLE ACCOUNTS shall mean, as at any date of determination
thereof, each Account 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, and (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
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.
MAXIMUM REVOLVING LOAN AVAILABLE AMOUNT means, at any date, an
amount equal to the least of (i) $72,750,000 until October 31, 1999 and
$76,000,000 thereafter (as such amounts may be adjusted from time to time
by the
-2-
<PAGE>
Majority Lenders), (ii) the aggregate of the Revolving Loan Commitments or
(iii) the then effective Borrowing Base.
OVER/UNDER ADVANCE AMOUNT means $5,650,000.
REVOLVING LOAN MATURITY DATE means the maturity of the Notes,
January 31, 2000.
STATIONARY TERM LOAN BALANCE means $35,000,000, as such amount may
be reduced in accordance with SECTIONS 2.1, 2.3, 3.2(B)(1) and 8.5 hereof.
(b) The following definitions are hereby added to the Loan Agreement:
AGGREGATE ESTIMATED INCREMENTAL WIP means, as of any date, the sum
of the Estimated Incremental WIP for each Week since the Most Recent
Financial Statement Date; Aggregate Estimated
Incremental WIP may be positive or negative.
BASE WIP means the work in process of Borrower and its Subsidiaries
as reflected in the most recent financial statements of Borrower delivered
to the Agent.
ESTIMATED INCREMENTAL WIP means, for each Week, the difference of
(a) the product of 4.17 times the direct labor costs incurred by Borrower
and its Subsidiaries during such Week minus (b) 70.5% of the Eligible
Accounts of Borrower and its Subsidiaries issued during such Week;
Estimated Incremental WIP may be positive or negative.
MOST RECENT FINANCIAL STATEMENT DATE means the date of the most
recent financial statements of Borrower and its Subsidiaries delivered to
the Agent.
WEEK means the week ending on any Friday (or, if such Friday is not
a Business Day, on the immediately preceding Thursday); but if a Week
would otherwise include the Most Recent Financial Statement Date, then
such Week shall include only the period from such Most Recent Financial
Statement Date to the end of such Week.
WIP means, on any date, the Base WIP plus the Aggregate Estimated
Incremental WIP.
(c) SECTION 3.2(B)(2)(II) of the Loan Agreement is hereby deleted, and no
prior breach thereof shall be a Default or an Event of Default or justify the
exercise of any remedy under the Loan Documents.
(d) SECTION 7.2(F) of the Loan Agreement is hereby amended to read in its
entirety as follows:
-3-
<PAGE>
(f) By 4:30 p.m., Houston time, of each Monday (or, if such Monday
is not a Business Day, of the immediately following Tuesday) during the
term hereof, a Borrowing Base Certificate as at the last day of
immediately preceding Week, together with such supporting information as
Agent may reasonably request;
(e) SECTION 9.1(L) of the Loan Agreement is hereby amended, and there is
hereby added to the Loan Agreement a new SECTION 9.1(M), to read in their
entirety as follows:
(l) CHANGE OF CONTROL - there should occur any Change of
Control; or
(m) SCHEDULE - any of the events scheduled to occur after November
12, 1999 in the "Transaction Timing" which was part of the "Discussion
Materials Prepared For The Invatec Bank Syndicate" dated October 18, 1999
fails to occur by the date specified therein for such event.
(f) EXHIBIT J to the Loan Agreement (Borrowing Base Certificate) is hereby
amended to read in its entirety as set forth on EXHIBIT J hereto.
SECTION 2. SUSPENSION OR WAIVER OF CERTAIN COVENANTS. The covenants of the
Borrower contained in Sections 6.19 ("Year 2000"); 7.2(o) (real estate
evaluations and machinery and equipment appraisals); 7.3(a)(i) and (iv)
("Consolidated EBITDA"), and 7.13 ("Turnaround Consultant") of the Loan
Agreement are hereby suspended until January 31, 2000; that is, the breach of
any of such covenants, whether such breach occurred before or occurs after the
date of this Agreement, does not and will not constitute a Default or an Event
of Default unless the same is continuing on January 31, 2000. The Borrower
represents that the Capital Expenditures of the Borrower and its Subsidiaries
for the calendar quarter ending September 30, 1999 aggregated an amount greater
than $625,000 but less than $640,000; the Lenders hereby waive compliance with
Section 8.12 ("Capital Expenditures") of the Loan Agreement for such calendar
quarter (but such waiver shall not be effective (x) if the Capital Expenditures
for such quarter exceeded $640,000 or (y) for any other calendar quarter).
SECTION 3. FIRST AMENDMENT. Section 3 of the Amendment to Loan Agreement
dated as of March 21, 1999 among the Borrower, the Lenders and the Agent, as
heretofore amended and supplemented (the "FIRST AMENDMENT"), is hereby amended
to provide that the fees described therein shall now be due and payable in full
on the Revolving Loan Maturity Date; PROVIDED that if (a) the unpaid principal
of and accrued interest on the Notes are paid in full; (b) the Borrower provides
Cover for all then-outstanding Letters of Credit; (c) all of the Revolving Loan
Commitments are terminated; (d) the Borrower pays all amounts due under Section
11.3 of the Loan Agreement, including the fees and expenses of counsels to the
Agent and of PricewaterhouseCoopers, LLP for services rendered to the Agent, and
(e) the Loan Agreement is terminated and released (except (1) those provisions
of the Loan Agreement relating to Letters of Credit, if any Letter of Credit is
then outstanding, and (2) those provisions of the Loan Agreement which will
survive termination of the Loan Agreement in accordance with its terms; each of
the Borrower, the Lenders and the Agent agrees that it will enter into a Loan
Document, in Proper Form, releasing the Borrower and its Subsidiaries from all
claims of the Lenders and the Agent under or relating to the Loan Documents
[other than such surviving provisions] upon
-4-
<PAGE>
such termination and release), in each case before the Revolving Loan Maturity
Date, then (x) such fees shall be reduced to zero and (y) each Approving Lender
(as defined in the First Amendment) agrees that it will return to the Borrower
for cancellation the warrants (the "WARRANTS") issued by the Borrower to such
Approving Lender as a condition to the effectiveness of the First Amendment.
Furthermore, each Approving Lender agrees that it will not exercise its Warrants
before the Revolving Loan Maturity Date.
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. RELEASE; INDEMNITY. The Borrower hereby releases, acquits and
forever discharges, to the maximum extent not prohibited by applicable law, each
Lender, the Agent and their respective agents (including but not limited to
Locke Liddell & Sapp LLP; Andrews & Kurth LLP; PricewaterhouseCoopers LLP and
their respective partners and employees), successors, assigns, trustees,
receivers, shareholders, subsidiaries, directors, officers and employees (in
each case whether in their individual capacities or in their capacities as
representatives; collectively, the "INDEMNIFIED PERSONS") from and waives and
relinquishes any and all demands, claims, actions, suits, controversies,
damages, costs, expenses and causes of action whatsoever, in law, equity or
otherwise, known or unknown, suspected or unsuspected, which the Borrower ever
had, now has or hereafter can, shall or may have against any Indemnified Person
by reason of, or in connection with, arising out of or based in any way on any
one or more actions or inactions taken during the course of the negotiation,
documentation, performance and enforcement of the Loan Documents, in each case
through the date hereof, whether arising under tort, contract or otherwise, and
including, without limitation, claims, actions, suits, controversies, damages or
causes of action, sounding and arising out of breach of contract, fraud,
mistake, deceit, breach of obligation of good faith or fair dealing, lender
liability, usury, duress, coercion, control, overreaching, disparate bargaining
position, reliance, equitable subordination, material misrepresentation, failure
to disclose, detrimental reliance, promissory estoppel, interference with
business management or relationships, waiver, laches, breach of fiduciary duty,
negligence, fraudulent transfer, any theory of liability as partners or joint
venturers and deceptive trade practices; but this release shall not affect,
diminish or impair the obligations of the Lenders and the Agent under the Loan
Documents. The release contained in the immediately preceding sentence shall
survive the termination of the Loan Agreement. The Borrower indemnifies and
agrees to defend and hold the Indemnified Persons harmless from and against any
and all loss, liability, obligations, damage, penalty, judgment, claim,
deficiency and expense (including interest, penalties, attorneys' fees and
amounts paid in settlement) to which any Indemnified Person may become subject
by reason of, or in connection with, any claim released or purported to be
released by the Borrower in this Section, WHETHER BY ALLEGED OR ACTUAL
NEGLIGENCE OF SUCH INDEMNIFIED PERSON OR OTHERWISE, except and to the extent
caused by the gross negligence or willful misconduct of such Indemnified Person;
this indemnity shall terminate upon the termination of the Loan Agreement. This
Section is in addition to, and does not supersede or amend, any similar
provision contained in the Loan Documents.
-5-
<PAGE>
SECTION 6. AMENDMENT FEE; EXPENSES. The Borrower shall pay to the Agent
(a) an amendment fee of $150,000 in consideration for the execution and delivery
of this Amendment, such fee to be (1) shared among the Lenders in accordance
with their respective Revolving Loan Commitment Percentages; (2) due and payable
contemporaneously with the execution and delivery of this Amendment, and (3)
paid as a condition precedent to the effectiveness of this Amendment, and (b)
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 7. 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)
after giving effect to this Amendment, no Default or Event of Default has
occurred and is continuing (other than breaches of covenants which have been
waived or suspended by operation of SECTION 2 of this Amendment) or will occur
as a result of this Amendment.
SECTION 8. 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 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.
THE LOAN DOCUMENTS (INCLUDING THIS AMENDMENT) REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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:_______________________________________
Name:_____________________________________
Title:____________________________________
-6-
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as a Lender
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-7-
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-8-
<PAGE>
BANK OF AMERICA, NA,
formerly known as Bank of America Texas, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-9-
<PAGE>
COMERICA BANK-TEXAS
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-10-
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-11-
<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
-12-
<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 ________________, _______.
_____________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT J
<PAGE>
Borrowing Base Certificate
Dated ________________
Gross Accounts Receivable ______________
as of the date above
Less:
Over 90 days old (_____________)
Foreign (_____________)
Total Eligible A/R ______________
Advance Rate 80%
A/R Borrowing Amount _____________
Base WIP as of ______________
Most Recent Financial Statement Date
Direct labor hours since
Most Recent Financial Statement Date ______________
4.17
Increase to WIP ______________
Additions to Eligible Accounts since
Most Recent Financial Statement Date ______________
70.5%
Decrease to WIP (______________)
WIP
____________
Advance Rate 80%
WIP Borrowing Amount
____________
Gross Inventory as of ______________
Most Recent Financial Statement Date
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) ______________
SCHEDULE 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 24,734,124
<ALLOWANCES> 1,584,308
<INVENTORY> 28,434,465
<CURRENT-ASSETS> 59,414,479
<PP&E> 39,479,954
<DEPRECIATION> 21,553,567
<TOTAL-ASSETS> 174,906,011
<CURRENT-LIABILITIES> 96,981,746
<BONDS> 0
0
0
<COMMON> 9,665
<OTHER-SE> 65,210,144
<TOTAL-LIABILITY-AND-EQUITY> 174,906,011
<SALES> 121,083,767
<TOTAL-REVENUES> 121,083,767
<CGS> 85,152,308
<TOTAL-COSTS> 85,152,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,324,887
<INCOME-PRETAX> (8,655,764)
<INCOME-TAX> (1,080,532)
<INCOME-CONTINUING> (7,575,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,575,232)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
