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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.
COMMISSION FILE NO. 0-27732
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DAWSON PRODUCTION SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2231546
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
112 E. PECAN STREET, SUITE 1000 78205
SAN ANTONIO, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 476-0420
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE THE NASDAQ NATIONAL MARKET
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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
1034 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] OR NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENTS TO THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AT JUNE 26, 1997, BASED ON THE CLOSING PRICE ON THE NASDAQ NATIONAL
MARKET SYSTEM ON SUCH DATE, WAS $147,423,276.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
JUNE 26, 1997 WAS 11,126,285.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE COMPANY'S
DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
SEPTEMBER 11, 1997 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT ON FORM 10-K
IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT
FOR THE REGISTRANT'S 1997 ANNUAL MEETING OF SHAREHOLDERS.
Item 10 Directors and Executive Incorporated by reference from "Nominees
Officers of the Registrant for Election of Directors" of the
Company's definitive proxy statement to
be filed pursuant to Regulation 14A of
the Securities Exchange act of 1934, as
amended (the "Exchange Act"), for the
Company's 1997 annual meeting of
shareholders.
Item 11 Executive Compensation Incorporated by reference from
"Executive Compensation" of the
Company's definitive proxy statement to
be filed pursuant to Regulation 14A of
the Exchange Act for the Company's 1997
annual meeting of shareholders.
Item 12 Security Ownership of Incorporated by
reference from "Security Ownership of
Certain Beneficial Owners Certain
Beneficial Owners and Management" of the
and Management Company's definitive
proxy statement to be filed pursuant to
Regulation 14A of the Exchange Act for
the Company's 1997 annual meeting of
shareholders. Incorporated by Reference
from "Certain Relationships
Item 13 Certain Relationships and and Related
Transactions" of the Company's
definitive Related Transactions proxy
statement to be filed pursuant to
Regulation 14A of the Exchange Act for
the Company's 1997 annual meeting of
shareholders.
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DAWSON PRODUCTION SERVICES, INC.
YEAR ENDED MARCH 31, 1997
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
ITEM PAGE
NO. NO.
- ---- ----
<S> <C>
RISK FACTORS .............................................................................. 01
PART I .................................................................................... 07
ITEM 1. BUSINESS .................................................................. 07
ITEM 2. PROPERTIES ................................................................ 21
ITEM 3. LEGAL PROCEEDINGS ......................................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....................... 21
PART II ................................................................................... 22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ..... 22
ITEM 6. SELECTED FINANCIAL DATA ................................................... 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................................ 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................... 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ...................................................... 54
PART III .................................................................................. 54
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ....................... 54
ITEM 11. EXECUTIVE COMPENSATION ................................................... 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........... 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................... 54
PART IV ................................................................................... 55
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .......... 55
SIGNATURES ................................................................................ 60
</TABLE>
ii
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RISK FACTORS
THE STATEMENTS INCLUDED IN THIS REPORT REGARDING FUTURE FINANCIAL PERFORMANCE
AND RESULTS AND THE OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS. THE WORDS "EXPECT," "PROJECT," "ESTIMATE," "PREDICT"
AND SIMILAR EXPRESSIONS ALSO ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS,
INCLUDING BUT NOT LIMITED TO, INDUSTRY CONDITIONS, PRICES OF CRUDE OIL AND
NATURAL GAS, AND OTHER FACTORS DISCUSSED IN THIS REPORT (INCLUDING THOSE
SPECIFICALLY DISCUSSED BELOW) AND IN THE COMPANY'S OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL OUTCOMES MAY VARY MATERIALLY FROM THOSE INDICATED.
CAPITALIZED TERMS USED IN RISK FACTORS ARE DEFINED LATER IN THIS REPORT.
INCURRENCE OF SUBSTANTIAL INDEBTEDNESS
At March 31, 1997, the Company had approximately $144.0 million in total
indebtedness. The Company historically has operated at substantially lower
levels of debt. The Company's level of indebtedness has several important
effects on its future operations, including, without limitation, (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest and principal on its indebtedness, (ii) the Company's
leveraged position substantially increases its vulnerability to adverse changes
in general economic and industry conditions, as well as to competitive pressure,
and (iii) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic
conditions, industry cycles and financial, business and other factors affecting
the operations of the Company, many of which are beyond its control. There can
be no assurance that the Company's business will continue to generate cash flow
at or above current levels. If the Company is unable to generate sufficient cash
flow from operations in the future to service its debt, it may be required,
among other things, to seek additional financing in the debt or equity markets,
to refinance or restructure all or a portion of its indebtedness, including the
Senior Notes, or to sell selected assets or reduce or delay planned capital
expenditures. There can be no assurance that any such measures would be
sufficient to enable the Company to service its debt or that any such financing,
refinancing or sale of assets would be available on economically favorable
terms. See "Business - Senior Notes; Subsidiary Guarantees."
1
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DEPENDENCE ON VOLATILE OIL AND GAS INDUSTRY
Demand for the Company's services depends substantially upon the level of
activity in the oil and gas industry, which in turn depends in part on oil and
gas prices, expectations about future prices, the cost of exploring for,
producing and delivering oil and gas, the discovery rate of new oil and gas
reserves in land areas, the level of drilling and workover activity, domestic
and international political, military, regulatory and economic conditions and
the ability of oil and gas companies to raise capital. Prices for oil and gas
historically have been extremely volatile and have reacted to changes in the
supply of and demand for oil and natural gas, domestic and worldwide economic
conditions and political instability in oil producing countries. No assurance
can be given that current levels of oil and gas activities will be maintained or
that demand for the Company's services will reflect the level of such
activities. Prices for oil and natural gas are expected to continue to be
volatile and affect the demand for and pricing of the Company's services. A
material decline in oil or natural gas prices or activities could materially
adversely affect the demand for the Company's services and the Company's results
of operations. Industry conditions will continue to be influenced by numerous
factors over which the Company has no control. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business -
Customers."
The volatility of the oil and gas industry and the consequent impact thereof
on exploration activity could adversely impact certain of the Company's
customers. The Company, therefore, could be subject to special credit risks as
to certain of its customers. While the Company endeavors not to take unjustified
credit risks, it is necessary from time to time to extend trade credit to
long-term customers and others where some risks of nonpayment or late payment
could exist.
ACQUISITION RISKS
The Company completed the Pride Acquisition in February 1997 and the Taylor
Acquisition in July 1996. Pursuant to the Pride Acquisition the Company acquired
407 workover rigs, which is more than four times the number of workover rigs it
previously operated. No assurance can be given that the Company will be
successful in managing and incorporating the businesses and assets acquired in
the Pride Acquisition or the Taylor Acquisition into its existing operations or
that such activities will not require a disproportionate amount of management's
attention. The Company's failure to incorporate the acquired businesses and
assets into its existing operations successfully, or the occurrence of
unexpected costs or liabilities in the acquired businesses, could have a
material adverse effect on the Company. See "Business - General; -- Business
Strategy."
2
<PAGE>
LIQUIDITY NEEDS; ABILITY TO REPAY NOTES
The Company may from time to time fund a portion of its working capital needs
and capital expenditure requirements from external financing. In addition, the
Company expects that in order to repay the principal amount of the Senior Notes
at maturity or upon acceleration, or to purchase the Senior Notes upon a Change
of Control, it will likely be required to seek additional financing or engage in
asset sales or similar transactions. There can be no assurance that sufficient
funds for any of the foregoing purposes would be available to the Company at the
time they are required on favorable terms. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Business - Senior Notes; Subsidiary Guarantees."
RISKS RELATING TO INJECTION WELLS
The Company's injection operations pose certain risks of environmental
liability to the Company. Although the Company monitors the injection process,
any leakage from the subsurface portions of the wells could cause degradation of
fresh groundwater resources, potentially resulting in cancellation of operation
of the well, fines and penalties from governmental agencies, expenditures for
redemption of the affected resource, and liability to third parties for property
damages and personal injuries. In addition, the sale by the Company of residual
crude oil collected as part of the saltwater injection process could impose
liability on the Company in the event the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.
SUBSTANTIAL COMPETITION
The workover rig and production services industry is highly competitive and
fragmented and includes several large companies and a number of small companies
capable of competing effectively on a local basis. See "Business - Competition."
OPERATING RISKS AND INSURANCE
The Company's operations are subject to hazards inherent in the oil and gas
industry, such as blowouts, explosions, craterings, fires and oil spills, that
can cause personal injury or loss of life, damage to or destruction of property,
equipment, the environment and marine life and suspension of operations. In
addition, claims for loss of oil and gas production and damage to formations can
occur in the workover business. Litigation arising from a catastrophic
occurrence at a location where the Company's equipment and services are used may
in the future result in the Company being named as a defendant in lawsuits
asserting potentially large claims.
3
<PAGE>
The Company maintains insurance coverage that it believes to be customary in
the industry against these hazards. However, there can be no assurance that the
Company will be able to maintain adequate insurance in the future at rates it
considers reasonable or that insurance will continue to be available on terms as
favorable as the Company's existing arrangements. The occurrence of a
significant event or adverse claim in excess of the insurance coverage limits
maintained by the Company could have a materially adverse effect on the
Company's financial condition and results of operations. See "Business -
Operating Risks and Insurance."
RISK OF ENVIRONMENTAL COSTS AND LIABILITIES
The Company's operations are subject to governmental laws and regulations
governing the management and disposal of waste materials or otherwise relating
to the protection of the environment or of public health and safety. Many of the
Company's operations take place in or near ecologically sensitive areas, such as
the Texas Gulf Coast and Louisiana inland waters. Numerous local, state and
federal environmental laws impose liability for causing pollution in inland and
coastal waters. State and federal legislation also provide special protection to
water quality and animal and marine life that could be affected by some of the
Company's activities. The Company's operations also take place in states that
stringently regulate environmental matters, such as California. In general, the
regulations applicable to the Company's operations include certain regulations
controlling the discharge of hazardous or toxic materials into the environment,
requiring removal or remediation of pollutants and imposing civil and criminal
penalties for violations. Some of the statutory and regulatory programs that
apply to the Company's operations also authorize private suits, the recovery of
nature resource damages by the government, injunctive relief and cease and
desist orders.
Some environmental statutes impose strict liability, rendering a person or
entity liable for environmental damage without regard to negligence or fault on
the part of such person or entity. As a result, the Company could be liable,
under certain circumstances, for environmental damage caused by others or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed.
The clear trend in environmental regulation has been to impose more
restrictions and limitations on activities that may impact the environment,
including the generation and disposal of wastes and the use and handling of
chemical substances. These restrictions and limitations have increased operating
costs for both the Company and its customers. Any regulatory changes that impose
additional environmental regulations or requirements on the Company and its
customers could adversely affect the Company through increased operating costs
and potential decreased demand for the Company's services.
4
<PAGE>
In this regard, the Resource Conservation and Recovery Act ("RCRA"), the
principal federal statute governing the disposal of solid and hazardous wastes,
includes a statutory exemption that allows oil and gas exploration and
production wastes to be classified as non-hazardous waste. A similar exemption
is contained in many of the state counterparts to RCRA, including the state
statutes in Texas, New Mexico, and Louisiana however, there is no such exemption
in the California statutes. If oil and gas exploration and production wastes
were required to be managed and disposed of as hazardous waste, either as a
result of changes in RCRA or the imposition of more stringent state regulations,
domestic oil and gas producers, including many of the Company's customers, could
be required to incur substantial obligations with respect to such waste. Because
of the potential impact on the Company's customers, any regulatory changes that
impose additional restrictions or requirements on the disposal of oil and gas
wastes could adversely affect demand for the Company's services. See "Business
Environmental Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent upon
the continued services of certain key individuals, particularly Michael E.
Little, Chairman of the Board, President and Chief Executive Officer, and James
J. Byerlotzer, Vice President of Operations and Chief Operating Officer. The
loss of the services of either of these individuals could have a material
adverse effect on the Company.
DEPENDENCE ON MAJOR CUSTOMERS
During the fiscal year ended March 31, 1997, the Company derived approximately
20.00% of its revenues from its largest customer. The loss of this customer
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business Customers."
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock and does not
anticipate that cash dividends will be paid in the foreseeable future. The
Company currently intends to retain any future earnings to finance the expansion
and continuing development of the Company's business. The declaration and
payment in the future of any cash dividends will be at the election of the
Company's Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, future loan covenants,
general economic conditions and other pertinent factors. Furthermore, certain
provisions of the Credit Facility and the Indenture will restrict the Company's
ability to pay cash dividends on the Common Stock. See "Management's Discussions
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
5
<PAGE>
SUBSTANTIAL AMOUNT OF SECURITIES SUBJECT TO REGISTRATION RIGHTS
Pursuant to a registration rights agreement (the "Registration Rights
Agreement"), shareholders (the "Rights Holders") that beneficially own
approximately 2.4 million shares of Common Stock, or approximately 22% of the
currently issued and outstanding shares of Common Stock, are entitled to
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"), subject to certain exceptions and limitations. Under the
Registration Rights Agreement, the Company is obligated to file a registration
statement (the "Shelf Registration Statement"), beginning July 20, 1997 for the
Registrable Securities. The holders of a majority of the Registrable Securities
can require that the Shelf Registration Statement be in the form of an
underwritten offering. Additionally, if the Company proposes to register any of
its securities under the Securities Act for its own account or for the account
of the other security holders, the Rights Holders are entitled to notice of such
registration and are entitled to include all or a portion of the Registrable
Securities in such registration, subject to certain exceptions and limitations,
including the right of the underwriters (if any) of any such offering to exclude
for marketing reasons some or all of the Registrable Securities from such
registration. The Company generally is required to pay all of the expenses
relating to the registration of the Registrable Securities, except for the
Rights Holders' share of any underwriting discounts and commissions. The
Registration Rights Agreement prohibits the Company from granting any new
registration rights under the Securities Act that would adversely impact the
rights of the Rights Holders. Sales of substantial amounts of the Common Stock
in the public market could adversely affect prevailing market prices and the
ability of the Company to raise equity capital in the future.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
The Company's Articles of Incorporation and Bylaws include certain provisions
that may have the effect of discouraging potential unsolicited offers or other
efforts to obtain control of the Company that are not approved by the Board.
Upon a change of control of the Company, holders of the Senior Notes will have
the right to require the Company to purchase such Senior Notes at a price equal
to 101% of the aggregate principal amount thereof, together with accrued and
unpaid interest to the date of purchase. Such provisions may adversely affect
the market price of the Common Stock and may also deprive the shareholders of
opportunities to sell shares of Common Stock at prices higher than prevailing
market prices. Such provisions include the requirement that all shareholder
action must be taken at a duly called annual or special meeting of shareholders
unless a majority of the entire Board provides its prior approval for
shareholder action to be taken by written consent of shareholders. The Board has
the authority, without further action by the shareholders, to issue up to
560,600 shares of the Company's preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, and to issue over
9,000,000 additional shares of Common Stock. The issuance of the Company's
6
<PAGE>
preferred stock or additional shares of Common Stock could adversely affect the
voting power of the purchasers of Common Stock in the Equity Offering and could
have the effect of delaying, deferring or preventing a change in control of the
Company.
7
<PAGE>
PART I
ITEM I. BUSINESS
GENERAL
Dawson Production Services, Inc. (the "Company" or "Dawson") is a leading
provider of a broad range of workover, liquid and production services used in
the production of oil and gas. The Company's services are utilized by major oil
and gas companies as well as independent producers to optimize performance of
oil and gas wells. The Company recently acquired the U.S. land-based well
servicing operations of Pride Petroleum Services, Inc. ("Pride") in a
transaction (the "Pride Acquisition") that has positioned Dawson as the second
largest provider of workover rigs in the United States.
The Company commenced operations in 1951. In 1982, the current management team
joined the Company and initiated a strategy to expand and diversify the
Company's workover rig services. At that time, the Company owned four workover
rigs that were operated out of a single yard. In November 1994, the Company
broadened the array of services that it provides by acquiring the liquid
services and production services businesses of Well Solutions, Inc. (the "Well
Solutions Acquisition") and expanded such business in July 1996 with the
acquisition of Taylor Companies, Inc. (the "Taylor Acquisition"). Subsequent to
the Pride Acquisition that closed effective February 20, 1997, the Company owns
and operates 498 workover rigs. The Company believes that it generally has been
successful in acquiring businesses and assets and subsequently reducing
overhead, enhancing internal controls, improving marketing and related
operations through management incentives and improving the utilization of its
assets by redeploying equipment.
As a result of its acquisitions and certain corporate restructuring, the
Company currently has several direct and indirect subsidiaries through which it
conducts a significant portion of its operations. All of the assets acquired
from Pride are held in Dawson Production Partners, L.P., a Delaware limited
partnership (the "Partnership"), and the Company is in the process of
transferring substantially all of its remaining operating assets to the
Partnership. All of the general and limited partnership interests in the
Partnership are owned by two wholly owned corporate subsidiaries of Dawson;
Dawson Production Management, Inc., a Delaware corporation, owns a 1% general
partnership interest in the Partnership, and Dawson Production Acquisition
Corp., a Delaware corporation, owns the remaining 99% limited partnership
interest in the Partnership. Dawson has the following additional wholly owned
subsidiaries: Dawson Production Services de Mexico, S.A. de C.V., and Ubicadora
de Tecnicos S.A. de C.V., both of which are companies organized under the laws
of Mexico, Taylor Companies, Inc., a Texas corporation; and Mobley Vehicle
Acquisition Corp., a Texas corporation.
8
<PAGE>
BUSINESS STRATEGY
The Company's strategy emphasizes diversification and expansion through
acquisitions and internal growth. In recent years, there has been significant
industry consolidation activity in the Company's principal businesses. The
Company has been an active participant in this industry consolidation and plans
to continue to pursue strategic acquisitions of businesses and assets which
enhance or expand its market presence or complement its existing businesses. As
a result of the Pride Acquisition, the Company has expanded the range of
services offered at its locations and continues to increase its presence,
through redeployment of underutilized assets, within the geographic regions in
which the Company operates. The Company believes that its ability to offer a
wide range of services over a large operating base will provide it with a
competitive advantage by allowing its customers to consolidate their procurement
of workover, liquid and production services by utilizing fewer vendors. The
Company believes that this consolidation may allow customers to lower their
costs by streamlining production decisions and increasing operational
efficiencies. The Company also believes that its strategy will allow it to take
advantage of cross-marketing opportunities for its services and to appeal to a
broader customer base by enhancing its position as a one-stop source for
workover, liquid and production services.
Consistent with its business strategy, on February 20, 1997 the Company closed
a transaction in which it acquired substantially all of Pride's U.S. land-based
well servicing operations for approximately $135.4 million in cash. The Pride
Acquisition has significantly increased the size and geographic scope of the
Company's workover rig service business. This U.S. land-based fleet consists of
407 workover rigs and related operations in 28 locations in the Texas and
Louisiana Gulf Coasts, the Permian Basin areas of West Texas and New Mexico, and
California. The Company is currently the largest provider of workover rigs in
Texas and the second largest provider in the United States. The Company will
seek to generate improved profit margins for the acquired assets through
increased operating efficiencies and cost savings resulting from overhead
reductions and the consolidation of certain overlapping yard locations. In
addition, the Company will seek to expand its liquid and production services
businesses into new markets through certain of the acquired yard locations and
also to redeploy certain of the acquired workover rigs to areas with greater rig
demand.
The Company believes that the high quality of its equipment, employees and
services combined with its favorable safety record enables it to maintain its
position as a leader in its principal markets. In that regard, the Company has
committed substantial capital to an ongoing workover rig refurbishment program
to maintain the Company's equipment in good working condition. The Company has
invested, and plans to continue to invest, in quality management and safety
programs. The Company believes that many smaller competitors have not undertaken
comparable maintenance or training programs and do not have the financial
resources to enable them to do so. The Company believes that a number of its
customers place significant importance on their contractors' safety records and
quality management systems in their screening and selection processes, and that
such factors will gain further importance in the future.
9
<PAGE>
OVERVIEW OF SERVICES
WORKOVER RIG SERVICES
The Company provides workover rig services to oil and gas exploration and
production companies through the use of mobile well servicing workover rigs
together with crews of three to four workers. Additional equipment such as
pumps, tanks, blowout preventers and power swivels are provided by the Company
as may be required for a particular job. The Company also provides trucking
services for moving large equipment to and from the job sites of its customers.
The Company charges its customers an hourly rate for its workover rig services,
which varies based on a number of considerations including market conditions in
each region, the type of rig, the amount of ancillary equipment required and the
necessary personnel. The Company gives its yard managers considerable
flexibility to negotiate with customers and, through compensation arrangements,
seeks to provide incentives to its managers to maximize both revenues and
profitability. For the fiscal year ended March 31, 1997, workover rig services
contributed approximately 49% of the Company's revenues.
The Company operates 496 land workover rigs, two barge-mounted workover rigs
and ancillary equipment from yards in Texas, Louisiana, California and New
Mexico. The Company's land workover rigs are mobile units that generally operate
within a radius of approximately 75 to 100 miles from their respective bases.
Swab rigs are used for swabbing or cleaning wells at depths of up to
approximately 16,000 feet. Pole rigs are used for swabbing and rod and tubing
workovers and repairs on wells at depths of up to approximately 4,000 feet. Rigs
having between 150 and 250 horsepower are used for services on wells to maximum
depths of between 4,000 and 6,000 feet and work primarily on rod and tubing
workovers and repairs. Rigs having between 251 and 350 horsepower are used for
services on wells to maximum depths of between 10,000 and 12,000 feet and also
work primarily on rod and tubing workovers and repairs. Rigs having between 351
and 550 horsepower are used for deeper workovers and more complicated procedures
such as deepening of existing well bores, recompletions and complicated fishing
operations. These rigs operate at maximum depths of between 16,000 and 18,000
feet. Rigs having between 551 and 750 horsepower are used in wells with maximum
depths of approximately 20,000 feet. Rigs having between 751 and 900 horsepower
are generally used for horizontal drilling or recompletion jobs and deep
workovers at depths of up to approximately 25,000 feet. These rigs are almost
always operated for continuous 24-hour periods as contrasted to the Company's
other rigs that typically operate during daylight hours only.
The Company operates two barge-mounted workover rigs in the Louisiana inland
waters. These rigs typically are outfitted by moving a land workover rig onto
the barge, with operating crews housed on the barge, and have the capability to
operate for continuous 24-hour periods. In addition to hourly charges for the
workover rigs, when market conditions permit, the Company charges its customers
for auxiliary equipment, travel time, mobilization and other related items.
10
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Set forth below is certain information pertaining to the Company's land-based
workover rigs including those acquired in the Pride Acquisition.
PRIDE
DESCRIPTION DAWSON ACQUISITION TOTAL
- ----------- ------ ----------- -----
Swab .............................. 2 17 19
Pole .............................. -- 1 1
150-250 hp ........................ -- 71 71
251-350 hp ........................ 71 214 285
351-550 hp ........................ 13 95 108
551-750 hp ........................ 1 6 7
751-900 hp ........................ 2 3 5
--- --- ---
89 407 496
The Company operated approximately 82 of 89 rigs during the 1996 calendar
year. The Company acquired 407 additional rigs from Pride in February 1997. In
the Pride Purchase Agreement, Pride represented that it had operated 318 of the
approximately 407 rigs within the 12 months ended December 23, 1996. The Company
believes that market demand may justify the incremental cost of refurbishing a
majority of the remaining 89 rigs acquired from Pride and anticipates that a
minority of the 89 rigs may not be restored to operating condition. Therefore,
the Company's stacked rigs will be refurbished, used for spare parts or
liquidated.
Workover rig services are categorized by the type of job performed:
completion, maintenance, workover, and plugging and abandonment.
COMPLETION SERVICES. Completion services prepare a newly drilled well for
production. The completion process may involve selectively perforating the well
casing to access producing zones, stimulating and testing these zones and
installing downhole equipment. The Company provides a workover rig to assist in
this completion process. Newly drilled wells are frequently completed by well
servicing rigs to minimize the use of higher cost drilling rigs. The completion
process typically requires a few days to several weeks, depending on the nature
and type of the completion, and generally requires additional auxiliary
equipment.
The demand for well completion services is directly related to drilling
activity levels, which are sensitive to expectations relating to and changes in
oil and gas prices. During periods of weak drilling demand, drilling contractors
frequently price well completion work competitively compared to a workover rig
so that the drilling rig stays on the job. Thus, excess drilling capacity will
serve to reduce the amount of completion work available to the well servicing
industry.
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MAINTENANCE SERVICES. Maintenance services are required on producing oil and
gas wells to ensure efficient and continuous operation. These services consist
of routine mechanical repairs necessary to maintain production from the well,
such as repairing parted sucker rods or defective downhole pumps in an oil well
or replacing defective tubing in a gas well. The Company provides the workover
rigs, equipment and crews for these maintenance services. Many of these workover
rigs also have pumps and tanks that can be used for circulating fluids into and
out of the well. Maintenance jobs are often performed on a series of wells in
proximity to each other and typically take less than 48 hours per well.
Maintenance services are generally required throughout the life of a well. The
need for these services does not depend on the level of drilling activity and is
generally independent of short-term fluctuations in oil and gas prices.
Accordingly, maintenance services are generally the most stable type of workover
rig services activity. The general level of maintenance, however, is affected by
changes in the total number of producing oil and gas wells in the Company's
geographic service area.
WORKOVER SERVICES. In addition to periodic maintenance, producing oil and gas
wells occasionally require major repairs or modifications called "workovers."
Workover services include extensions of existing wells to drain new formations
either through deepening well bores or through drilling of horizontal laterals.
In less extensive workovers, the Company's rigs are used to drill out plugs and
packers in existing well bores to access previously bypassed productive zones.
The Company's workover rigs are also used to convert producing wells to
injection wells during enhanced recovery operations. Workover services also
include major subsurface repairs such as casing repair or replacement, recovery
of tubing and removal of foreign objects in the well bore. These extensive
workover operations are normally performed by a workover rig with additional
specialized auxiliary equipment, which may include rotary drilling equipment,
mud pumps, mud tanks and blowout preventers, depending upon the particular type
of workover operation. Most of the Company's workover rigs are designed and
equipped to perform complex workover operations. A workover may last from a few
days to several weeks.
The demand for workover services is more sensitive to expectations relating to
and changes in oil and gas prices than the demand for maintenance services, but
not as sensitive as the demand for completion services. When oil and gas prices
are low, there is little incentive to perform workovers on wells to increase
production and well operators tend to defer workover services. As oil and gas
prices increase, the level of workover activity tends to increase as operators
seek to increase production by enhancing the efficiency of their wells.
PLUGGING AND ABANDONMENT SERVICES. Workover rigs are also used in the plugging
and abandonment of oil and gas wells no longer capable of producing in economic
quantities. The demand for well plugging services is not impacted significantly
by levels of demand for oil and gas.
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LIQUID SERVICES
The Company provides liquid services, which are comprised of vacuum truck
services, frac tank rentals and salt water injection services. The Company uses
its vacuum trucks, frac tanks and salt water injection wells to provide an
integrated mix of liquid services to well site customers. For the fiscal year
ended March 31, 1997, liquid services contributed approximately 36% of the
Company's revenues.
VACUUM TRUCK SERVICES. The Company previously owned and operated 175 vacuum
trucks and it acquired an additional 10 vacuum trucks in connection with the
Pride Acquisition. A vacuum truck is a tractor trailer with a fluid hauling
capacity of 130 barrels. A large vacuum pump mounted on each truck extracts
fluids from pits, tanks and other storage facilities. The vacuum trucks also are
used for the following purposes: to transport water to fill frac tanks on well
locations, including frac tanks provided by the Company and by others; to
transport produced salt water to injection wells, including injection wells
owned and operated by the Company; and to transport brine and other drilling
fluids to and from well locations. In conjunction with the rental of its frac
tanks, the Company generally uses its vacuum trucks to transport water for use
in fracturing operations. Following completion of fracturing operations, the
Company's vacuum trucks are used to transport salt water produced as a result of
the fracturing operations from the well site to injection wells. Vacuum truck
services are generally provided to oilfield operators within a 30-mile radius of
the Company's nearest yard.
FRAC TANK RENTALS. The Company owns 696 frac tanks located primarily at the
Company's yards in Bryan, Giddings and Kilgore, Texas. Each frac tank can store
up to 500 barrels of fluid and is used by oilfield operators to store various
fluids at the well site, including water, drilling mud, acid and brine. The
Company transports frac tanks on its trucks to well locations which are usually
within a 30-mile radius of the Company's nearest yard. Frac tanks are used
during all phases of the life of a producing well. The Company generally rents
frac tanks at daily rates for a minimum of four days. A typical fracturing
operation, absent complications, can be completed within four days using 20 to
100 frac tanks.
INJECTION WELL SERVICES. The Company owns or leases 22 injection wells that
are authorized to dispose of salt water and incidental non-hazardous oil and gas
wastes, each with an injection capacity of 2,000 to 21,000 barrels per day. The
Company's injection wells are strategically located in close proximity to its
customers' producing wells. These wells are utilized primarily to dispose of
salt water produced from oil and gas wells. Most oil and gas wells ultimately
produce varying amounts of salt water and, particularly in vertically fractured
formations such as those common in the Austin Chalk trend, produce salt water at
increasing rates throughout their productive lives. In addition, these wells are
utilized for the disposal of incidental, non-hazardous oil and gas wastes. In
Texas and Arkansas, oil and gas wastes and salt water produced from oil and gas
wells are required by law to be disposed of in authorized facilities, including
permitted injection wells. Injection wells are licensed by state authorities and
are completed in permeable formations below the fresh water table.
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The Company utilizes its injection wells primarily for the disposal of salt
water and incidental, non-hazardous oil and gas waste transported from the well
site by vacuum trucks owned and operated by the Company. Although the Company is
authorized to inject salt water and non-hazardous oil and gas wastes transported
by other licensed vacuum truck operators, the Company does not currently permit
such uses by third parties. The Company also maintains separators at each of its
injection wells permitting it to salvage residual crude oil, which is later sold
for the account of the Company.
The Company's injection operations pose certain risks of environmental
liability to the Company. Although the Company monitors the injection process,
any leakage from the subsurface portions of the wells could cause degradation of
fresh groundwater resources, potentially resulting in cancellation of operation
of the well, fines and penalties from governmental agencies, expenditures for
remediation of the affected resource, and liability to third parties for
property damages and personal injuries. In addition, the sale by the Company of
residual crude oil collected as part of the saltwater injection process could
impose liability on the Company in the event the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.
PRODUCTION SERVICES
The Company provides production services, which are comprised of production
testing services, slickline wireline services, fishing and rental tool services
and pipe testing. For the fiscal year ended March 31, 1997, production services
contributed approximately 15% of the Company's revenues.
PRODUCTION TESTING SERVICES. The Company owns 21 gas production testing units
that are used to provide services to oil and gas wells located onshore and in
inland waters. The Company performs production testing services for oil and gas
producers primarily along the Texas Gulf Coast and to a limited extent in
Mexico. In addition, the Company is bidding on a multi-year contract for
services in northern Mexico.
The Company's equipment includes several trailer-mounted manifolds,
separators, heater treaters, sand separators, light generators and slickline
wireline units. Manifolds are used to reduce the flowing pressure of the well
stream to a rate which will easily flow through the production testing
equipment. After the appropriate well stream rate is achieved, a separator is
used to divide the well stream into its respective components -- oil, gas and
water. For gas wells, a heater is used to prevent the gas from freezing during
flowbacks. Slickline wireline equipment generally is used to lower measurement
equipment into a well for several days to retrieve data to determine the
characteristics of the reservoir.
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The Company uses its production testing units to perform deliverability tests
required upon the initial completion of a well and periodically during the
productive life of a gas well to determine the maximum production allowable
under certain rules of the Texas Railroad Commission, the state oil and gas
regulatory agency. In addition, these units are used to clean and test
stimulated wells and to measure the pressure, volume and quality of gas and
liquids produced by the well. These units also are used to determine the most
efficient production flow rate, to run pressure build-up tests that measure the
rate of increase of shut-in gas pressure to determine reservoir characteristics
and to determine whether a producing formation has been damaged.
SLICKLINE WIRELINE SERVICES. The Company owns seven slickline wireline units
and will acquire three additional units upon the closing of the Pride
Acquisition. The mechanical downhole wireline or "slickline" services are used
to simplify completion operations and in connection with regular maintenance on
producing wells. In some cases, slickline wireline services may be used instead
of workover rigs to provide workover services. By using slickline wireline
services, workover services can be performed under 15,000 psi of pressure
without shutting-in the well. The Company also provides slickline wireline
consulting services where unusual conditions exist.
FISHING AND RENTAL TOOLS. The Company provides a complete line of cased hole
fishing and rental tools to oilfield operators and well service companies from
two yards in the Texas Panhandle. The Company's rental tool inventory includes
both air compressor equipment, which is used in drilling and workover
activities, and fishing tools, which are used to mill or retrieve loose or
broken equipment or other material in the well bore or to free stuck pipe and
other tools, such as slips, elevators and casing cutters. The Company rents the
equipment to its customers at daily rates and, in the case of air compressors
and fishing tools, generally conducts or supervises the operations.
PIPE TESTING. The Company operates nine pipe testing units along the Texas
Gulf Coast. The Company's testing equipment is used during completion and
recompletion operations for leak detection in the internal pipe systems of oil
and gas wells.
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COMPETITION
The workover rig and production services industry is highly competitive and
fragmented and includes several large companies and a number of small companies
capable of competing effectively on a local basis. As a result of the Pride
Acquisition, the Company is the second largest provider of workover rigs in the
United States behind Pool Energy Services Co. ("Pool"). Pool and Key Energy
Group, Inc. ("Key") are the largest companies that currently compete with the
Company in providing workover rig and liquid services in the domestic well
servicing markets. Pool and Key operate in multiple geographic regions and Pool
has significantly more domestic workover rigs than the Company. In addition to
these large companies, the Company has numerous regional competitors for each of
the services it provides. The Company believes that it is competitive in terms
of pricing, performance, equipment, safety, availability of equipment to meet
customer needs and availability of experienced, skilled personnel in those areas
in which it operates.
Excess capacity in the well servicing industry has resulted in severe price
competition throughout much of the past decade. In the well servicing market, an
important competitive factor in establishing and maintaining long-term customer
relationships is having an experienced and skilled work force. In recent years,
many of the Company's larger customers have placed an emphasis not only on
pricing, but also on safety records and quality management systems of
contractors. The Company believes that such factors will gain further importance
in the future. The Company has directed substantial resources toward employee
safety and quality management training programs as well as its employee review
process. While the Company's efforts in these areas are not unique, many
competitors, particularly small contractors, have not undertaken similar
training programs for their employees. The Company expects competition and
pricing pressures to continue in the foreseeable future.
CUSTOMERS
The Company has approximately 3,700 active customers. The Company's largest
customer, Union Pacific Resources Company ("UPRC"), accounted for approximately
20.00% of the Company's revenues for the fiscal year ended March 31, 1997. The
Company has a contract with UPRC to provide liquid and workover rig services,
which expires in February 1999 (with respect to liquid services) and August 1997
(with respect to workover rig services). The Company is required to maintain
established levels of insurance and to indemnify UPRC against all losses arising
in whole or in part from the Company's negligence, whether or not UPRC and its
agents were contributorily negligent. While the Company believes that its
relationship with UPRC is good, the loss of UPRC, or a significant reduction in
business done with the Company by UPRC, if not offset by sales to new or
existing customers, could have a material adverse effect on the Company's
business, results of operations and prospects. No other customer accounted for
more than 10% of the Company's revenues during the fiscal year ended March 31,
1997.
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EMPLOYEES
As of June 20, 1997, the Company employed approximately 3,051 people, of whom
approximately 2,527 were employed on an hourly basis. The Company's future
success will depend partially on its ability to attract, retain and motivate
qualified personnel. The Company is not a party to any collective bargaining
agreements and has not experienced any strikes or work stoppages. The Company
considers its relations with employees to be generally satisfactory.
OPERATING RISKS AND INSURANCE
The Company's operations are subject to hazards inherent in the oil and gas
industry, such as blowouts, explosions, craterings, fires and oil spills, that
can cause personal injury or loss of life, damage to or destruction of property,
equipment, the environment and marine life, and suspension of operations. In
addition, claims for loss of oil and gas production and damage to formations can
occur in the workover business. If a serious accident was to occur at a location
where the Company's equipment and services are used, it could result in the
Company being named as a defendant in lawsuits asserting potentially large
claims.
Because the Company's vacuum truck and frac tank rentals involve the
transportation of heavy equipment and materials, the Company may experience
traffic accidents which may result in spills, property damage and personal
injury. Despite the Company's efforts to maintain high safety standards, the
Company from time to time has suffered losses in the past and anticipates that
it could experience further losses in the future. Moreover, the frequency and
severity of such incidents affect the Company's operating costs and
insurability, and its relationship with customers, employees and regulators. Any
significant increase in the frequency or severity of such incidents, or the
general level of compensation awards with respect thereto, could adversely
affect the cost of, or ability of the Company to obtain, workers' compensation
and other forms of insurance, and could have other material adverse effects on
the Company's financial condition and results of operations.
As a protection against operating hazards, the Company maintains broad
insurance coverage, including physical damage, employer's liability,
comprehensive commercial general liability and workers' compensation insurance.
The Company believes that it is adequately insured for public liability and
property damage to others with respect to its operations, and that its insurance
coverage is comparable to that which is customary in the industry against such
hazards. However, such insurance may not be sufficient to protect the Company
against liability for all consequences of well disasters, extensive fire damage,
damage to personal property, injuries to or deaths of persons or damage to the
environment. In addition, certain insurance policies exclude coverage for
damages resulting from environmental contamination. The Company also carries
insurance to
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cover physical damage to or loss of certain of its workover rigs. No assurance
can be given that the Company will be able to maintain the type and amount of
coverage that it considers adequate at rates that it considers reasonable or
that insurance will continue to be available on terms as favorable as the
Company's existing arrangements.
In addition to insurance, the Company conducts training programs designed to
promote the safe operation of all equipment and to minimize accidents occurring
on job sites. The Company gives its managers incentives, through compensation
arrangements, to take all reasonable steps possible to promote safety. The
Company monitors safety closely and has carefully designed safety programs to
reduce costs associated with accidents. However, there can be no assurance that
the Company's insurance or safety programs will be adequate to protect against
liability for accidents occurring on the job site or affecting the Company's
equipment.
ENVIRONMENTAL REGULATION
Many of the Company's operations take place in or near ecologically sensitive
areas, such as the Texas Gulf Coast and the Louisiana inland waters, as well as
in states that stringently regulate environmental matters, such as California.
In addition, the Company's operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. The Company's operations and facilities are thus subject
to numerous local, state and federal environmental and public health and safety
laws, rules and regulations, including laws concerning the containment and
disposal of hazardous materials, oilfield waste and other waste materials, the
use of underground storage tanks and the use of underground injection wells. The
regulations applicable to the Company's operations include certain regulations
controlling the discharge of hazardous or toxic materials into the environment,
requiring removal or remediation of pollutants, requiring permits or licenses
issued by regulatory agencies and imposing civil and criminal penalties for
violations. Some of the statutory and regulatory programs that apply to the
Company's operations also authorize private suits, the recovery of natural
resource damages by the government, injunctive relief and cease and desist
orders. Moreover, environmental laws typically expose the Company to "strict
liability" rendering a person or entity liable for environmental damage without
regard to negligence or fault on the part of such person or entity. As a result,
the Company could be liable for cleanup costs, even if the situation resulted
from previous acts by the Company that were lawful at the time or from the
improper conduct of, or conditions caused by, previous property owners, lessees
or other persons not associated with the Company. Environmental laws have become
more stringent in recent years and are expected to become even more so in the
future.
Cleanup costs associated with environmental claims or capital expenditures or
increased operating costs associated with changes in environmental laws and
regulations could be substantial and could have a material adverse effect on the
Company's financial condition and
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results of operations. However, the cost of environmental compliance has not had
any material adverse effect on the Company's operations, financial condition or
competitive position in the past, and management is not currently aware of any
situation or condition that it believes is likely to have any such material
adverse effect or require any material capital expenditure in the foreseeable
future. In addition to management personnel who are responsible for monitoring
environmental compliance and arranging for remedial actions as required from,
the Company also employs from time to time outside experts to advise and assist
the Company's environmental compliance efforts.
In addition to having a direct effect on the Company, local, state and federal
environmental regulations also may negatively impact oil and gas exploration and
production companies which in turn could have a material adverse effect on the
Company. To the extent laws are enacted or other governmental action is taken
that prohibits or restricts drilling or imposes environmental protection
requirements that result in increased costs to the oil and gas industry in
general and the drilling industry in particular, the financial condition and
results of operations of the Company could be adversely affected.
In this regard, RCRA, the principal federal statute governing the disposal of
solid and hazardous wastes, includes a statutory exemption that allows oil and
gas exploration and production wastes to be classified as nonhazardous waste. A
similar exemption is contained in many of the state counterparts to RCRA,
including the state statutes in Texas, New Mexico and Louisiana however, there
is no such exemption in the California statutes. If oil and gas exploration and
production wastes were required to be managed and disposed of as hazardous
waste, either as a result of changes in RCRA or the imposition of more stringent
state regulations, the Company could be required to make significant
unanticipated capital and operating expenditures or to cease or curtail certain
operations. Further, if such wastes were required to be managed and disposed of
as hazardous waste, domestic oil and gas producers, including many of the
Company's customers, could be required to incur substantial obligations with
respect to such waste. Because of the potential impact on the Company's
customers, any regulatory changes that impose additional restrictions or
requirements on the disposal of oil and gas wastes could adversely affect demand
for the Company's services.
SENIOR NOTES; SUBSIDIARY GUARANTEES
Terms used in this subheading as defined terms have the same meanings as set
forth in the Indenture between the Company and its Subsidiary Guarantors, dated
as of February 20, 1997, with U.S. Trust Company of Texas, N.A. as trustee,
relating to the Company's 9 3/8% Senior Notes due 2007. Each of the Company's
Significant Subsidiaries on the Issue Date, including those acquired in the
Pride Acquisition, and each other Restricted Subsidiary that provides a
guarantee under the Credit Facility (defined in the Indenture to include the
Working Line which is in effect, and the Acquisition Line, which is not) became
a Subsidiary Guarantor under
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the Indenture. Each Subsidiary Guarantor has unconditionally guaranteed on a
senior basis, jointly and severally, the full and prompt performance of the
Company's obligations under the Indenture and the Notes, including the payment
of principal and interest on the Notes. The obligations of each Subsidiary
Guarantor under its Subsidiary Guarantee is limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Subsidiary Guarantor and after giving effect to any collections from or payments
made by or on behalf of any other Subsidiary Guarantor in respect of the
obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. The terms of the Subsidiary Guarantees provide that, for purposes of
such limitations and the applicable fraudulent conveyance laws, any indebtedness
of a Subsidiary Guarantor incurred from time to time pursuant to the Credit
Facility and secured by a perfected Lien on the assets of such Subsidiary
Guarantor (assuming, for purposes of such determination, that the incurrence of
any such indebtedness and the granting of any such security interest did not
violate any such fraudulent conveyance laws) shall be deemed, to the extent of
the value of the assets subject to such Lien, to have been incurred prior to the
incurrence by such Subsidiary Guarantor of liability under its Subsidiary
Guarantee.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person (other than the Company or another Subsidiary Guarantor),
whether or not affiliated with such Subsidiary Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) shall
execute a Subsidiary Guarantee and deliver an opinion of counsel in accordance
with the terms of the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; (iv) the Company
would be permitted by virtue of the Company's pro forma Fixed Charge Coverage
Ratio, immediately after giving effect to such transaction, to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the Indenture; and (v) such transaction does not violate
certain other covenants described in the Indenture.
The Indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the property or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation
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or a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
Person acquiring the property (in the event of a sale or other disposition of
all or substantially all of the properties or assets of such Subsidiary
Guarantor) will be released from and relieved of any obligations under its
Subsidiary Guarantee, PROVIDED that any Net Proceeds of such sale or other
disposition are applied in accordance with certain covenants set forth in the
Indenture, and PROVIDED, FURTHER, HOWEVER, that any such termination shall occur
only to the extent that all obligations of such Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests that secure, any other Indebtedness of the Company or its Restricted
Subsidiaries shall also terminate upon such release, sale or disposition.
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the Issue Date, (a) transfer or cause to be
transferred, any assets, businesses, divisions, real property or equipment
having an aggregate fair market or book value in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or (b) make any
Investment having an aggregate fair market or book value in excess of $1.0
million in any Restricted Subsidiary that is not a Subsidiary Guarantor or (ii)
if, after the Issue Date, any Restricted Subsidiary that is not a Subsidiary
Guarantor shall own any assets or properties having an aggregate fair market or
book value in excess of $1.0 million, then the Company shall cause such
Restricted Subsidiary to execute a Subsidiary Guarantee and deliver an opinion
of counsel, in accordance with the terms of the Indenture. In addition, the
Company shall not permit any of its Restricted Subsidiaries, other than a
Subsidiary Guarantor, directly or indirectly, to (i) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness of the Company or
(ii) pledge any intercompany notes representing obligations of any of its
Restricted Subsidiaries to secure the payment of any Indebtedness of the
Company, in each case, unless the Company shall cause such Restricted Subsidiary
to execute a Subsidiary Guarantee and deliver an opinion of counsel in advance
in accordance with the terms of the Indenture.
The Notes are effectively subordinated in right of payment to all existing and
future senior Indebtedness of the Company, which includes any draws made under
the Credit Facility. As of March 31, 1997, the Company's Credit Facility
consisted of a $50.0 million working capital line of credit which, if borrowed,
would be included as senior Indebtedness. The Indenture also permits the Company
to have an acquisition line of credit of up to $10.0 million. See "Management's
Discussion and Analysis - Liquidity and Capital Resources." Thus, the Notes and
the Subsidiary Guarantees are effectively subordinated to claims of the lenders
under the Credit Facility to the extent of such pledged collateral. At March 31,
1997, the Notes and the Subsidiary Guarantees were not subordinated to any
secured Indebtedness (excluding letters of credit) of the Company or the
Subsidiary Guarantors.
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Certain summary financial information concerning Dawson Production Services,
Inc., on an unconsolidated basis, is set forth in the notes to the financial
statements appearing elsewhere in this report. As noted above, the Company is in
the process of completing the transfer of substantially all of its assets to the
Partnership, which is expected to occur during July, 1997. Accordingly, at such
time, substantially all of Company's revenue producing assets (other than
interests in the Partnership itself) will be owned by the Partnership, which is
a Subsidiary Guarantor. The Company's subsidiaries making such transfers are
also Subsidiary Guarantors and the transfers are thus permissible under the
terms of the Indenture.
ITEM 2. PROPERTIES
PROPERTIES
The principal office of the Company is located in approximately 16,400 square
feet of leased office space in San Antonio, Texas. The Company now operates
approximately 39 yards, 15 of which it owns and 24 of which it leases. Of the
Company's approximately 39 yards, 32 yards are located in Texas, 2 yards are
located in Louisiana, 2 yards are located in New Mexico, and 3 yards are located
in California. The Company has an option to purchase 9 of its leased yards
pursuant to the terms of the Pride Purchase Agreement. The Company also operates
21 injection wells in Texas and 1 in Arkansas, 6 of which it owns and 15 of
which it leases. The Company believes that its leased and owned properties, none
of which individually is material to the Company, are adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a party to litigation or other legal
proceedings that the Company considers to be a part of the ordinary course of
its business. The Company currently is not involved in any legal proceedings
that could reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations. See "Business Operating
Risks and Insurance."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted, during the fourth quarter of the Company's fiscal
year ended March 31, 1997, to a vote of its shareholders.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market on
March 20, 1996 under the symbol "DPSI." The following table sets forth the high
and low sale prices per share of the Common Stock as reported by the Nasdaq
National Market for the periods indicated.
HIGH LOW
Fiscal 1996 ------ --------
Fourth Quarter (March 20, 1996 - March 31, 1996) $11 7/8 $10
Fiscal 1997
First Quarter (April 1 - June 30, 1996) $14 1/2 $10 3/4
Second Quarter (July 1 - September 30, 1996) $14 $ 9 3/4
Third Quarter (October 1 - December 31, 1996 $16 1/4 $11 1/2
Fourth Quarter (January 1 - March 31, 1997) $16 1/2 $11 3/16
On March 31, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $12 1/4 per share. At June 24, 1997, the Company had
112 shareholders of record of the Common Stock. The Company believes that there
are in excess of 400 beneficial owners of the Common Stock.
The Company has never paid cash dividends on the Common Stock and does not
anticipate that cash dividends will be paid in the foreseeable future.
Furthermore, certain provisions of the Credit Facility and the Indenture
restrict the Company's ability to pay cash dividends on the Common Stock. Prior
to the conversion of the Company's Series A Preferred Stock into Common Stock in
March 1996, dividends were paid on the Series A Preferred Stock at the rate of
$1.25 per share per annum, in accordance with the requirements of the Company's
Articles of Incorporation. Such dividends were payable, at the option of the
Company, either in cash or in shares of Common Stock, at the rate of one share
of Common Stock for each $3.49 of dividends due. The Company paid dividends on
the Series A Preferred Stock both in cash and in shares of Common Stock. The
Company's loan agreement in effect at the time with its bank prohibited the
payment of dividends; however, the bank waived this provision with respect to
the payment of Series A Preferred Stock dividends. No Series A Preferred Stock
is currently outstanding.
The Company currently intends to retain any future earnings to finance the
expansion and continuing development of the Company's business. The declaration
and payment in the future of any cash dividends will be at the election of the
Company's Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, future loan covenants,
general economic conditions and other pertinent factors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
23
<PAGE>
During the period covered by this report, the Company sold the following
unregistered securities. On or about April 1, 1996, the Company granted options
to acquire 34,400 shares of its Common Stock at an exercise price of $10.75 per
share to eight non-employee directors. These options will expire on April 1,
2006. On or about July 3, 1996, the Company granted options to acquire 290,650
shares of its Common Stock at an exercise price of $11.375 per share to 33
employees and a consultant. These options expire on July 3, 2006. On or about
November 20, 1996, the Company granted options to acquire 4,300 shares of its
Common Stock at an exercise price of $12.25 per share to one director. These
options expire on November 20, 2006. All of the above grants of options were
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
In addition, the Company issued the following restricted shares of its Common
Stock in connection with the exercise of options. On or about April 5, 1996, the
Company issued 4,300 shares to a director for $7.44 per share. On or about May
30, 1996, the Company issued 4,300 shares to a director for $7.44 per share. On
or about January 14, 1997, the Company issued 4,300 shares for $7.44 per share
and 4,300 shares for $10.75 per share to a former directors, transferee. On or
about January 23, 1997, the Company issued 4,300 shares to a former employee or
director for $4.65 per share. All such issuances were made in connection with
the exercise of options and were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the periods indicated. The selected consolidated financial data for
all fiscal years presented have been derived from the audited consolidated
financial statements of the Company. The selected financial data should be read
in conjunction with, and is qualified in its entirety by, the consolidated
financial statements of the Company and related notes and other financial
information included elsewhere in this Annual Report on Form 10-K and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
24
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR YEARS
ENDED
MARCH 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ----------- ----------- ----------- -----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................ $ 20,822 $ 27,942 $ 36,005 $ 52,391 $ 92,628
Costs and expenses:
Operating ..................................... 14,772 19,937 24,241 34,320 59,958
General and administrative .................... 3,040 3,854 5,574 8,937 14,790
Depreciation and amortization ................. 1,374 1,707 2,608 4,396 7,844
---------- ----------- ----------- ----------- -----------
Operating income ................................ 1,636 2,444 3,582 4,738 10,036
Interest expense ................................ 301 282 789 1,848 2,313
Other (income) expense .......................... 84 (61) (41) (129) (697)
Minority interest ............................... 358 902 1,092 937 --
---------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item ......................... 893 1,321 1,742 2,082 8,420
Provision for income taxes ...................... 320 525 681 709 3,343
---------- ----------- ----------- ----------- -----------
Income before extraordinary item ................ 573 796 1,061 1,373 5,077
Extraordinary item(1) ........................... -- (92) -- (514) --
---------- ----------- ----------- ----------- -----------
Net income ...................................... 573 704 1,061 859 5,077
Preferred stock dividends ....................... 101 101 101 88 --
---------- ----------- ----------- ----------- -----------
Net income applicable to common ................. $ 472 $ 603 $ 960 $ 771 $ 5,077
========== =========== =========== =========== ===========
Primary earnings per share .................. $ .23 $ .29 $ .45 $ .27 $ .71
Fully diluted earnings per share ............ $ .23 $ .29 $ .42 $ .27 $ .71
Average number of shares outstanding
-primary .................................... 2,020,664 2,052,168 2,155,380 2,931,234 7,189,638
Average number of shares outstanding
-fully diluted .............................. 2,020,664 2,450,791 2,648,740 3,207,622 7,189,638
BALANCE SHEET DATA:
Cash and cash equivalents ....................... $ 1,139 $ 2,172 $ 2,797 $ 13,863 $ 42,330
Net property and equipment ...................... 8,625 8,978 25,321 29,115 145,641
Total assets .................................... 15,828 16,714 40,525 56,368 273,736
Long-term debt and other obligations,
net of current portion ...................... 1,722 1,623 15,989 3,695 143,306
Total shareholders' equity ...................... 6,009 6,720 10,098 45,694 106,219
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(2) ........... 3.6x 5.0x 3.1x 2.1x 4.4x
EBITDA(3) ....................................... $ 3,010 $ 4,151 $ 6,190 $ 9,134 $ 17,880
Ratio of EBITDA to interest expense ............. 10.0x 14.7x 7.9x 4.9x 7.7x
</TABLE>
- -----------
(1) Includes a $92,000 charge in fiscal 1994 to reflect the cumulative effect
of change in accounting principle.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
are computed as income before income taxes, extraordinary item and
cumulative effect of a change in accounting principle, plus fixed charges.
Fixed charges consist of interest, whether expensed or capitalized,
amortization of debt issuance costs and an estimated portion of rentals
representing interest costs.
25
<PAGE>
(3) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization, minority interest and other (income) expense and is presented
because it is a widely accepted financial indication of a company's ability to
incur and service debt. EBITDA should not be considered as an alternative to
earnings as an indicator of the Company's operating performance or to cash flows
as a measure of liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward looking statements. In addition, the
Management's Discussion and Analysis should be read in conjunction with, and is
qualified in its entirety by reference to, the financial statements of the
Company and the notes thereto included elsewhere in this Annual Report. This
discussion and analysis of operations compares the three fiscal years ended
March 31, 1995, 1996 and 1997.
GENERAL
The Company's operations have been significantly impacted by the Pride
Acquisition. As a result of the Pride Acquisition, the Company increased its
workover rig fleet to over five times its previous size to become the second
largest provider of workover rigs in the United States. In addition, the Company
has acquired significant operations in California, a market in which it did not
previously operate. The Company also will seek to expand its liquid and
production services into land-based well servicing areas acquired through the
Pride Acquisition. The Company does not have any current understanding,
arrangement or agreement to acquire other businesses or assets. There can be no
assurance that attractive acquisitions will be available to the Company at
prices it believes to be reasonable or that any acquisition achieved will
ultimately prove to be a successful undertaking by the Company. Consistent with
its strategy, the Company intends to continue to pursue acquisitions of
businesses and assets as attractive opportunities become available.
The Company has experienced revenue growth as a result of the Pride
Acquisition and, to a lesser extent, the Taylor Acquisition. The Company derives
its revenues from workover rig services, liquid services and production
services. Workover rig services are billed at hourly rates that are generally
determined by the type of equipment required, market conditions in the region in
which the rig operates, the ancillary equipment provided on the rig and the
necessary personnel. The Company charges its customers for liquid services
either on an hourly basis or on a per barrel basis depending on the services
offered, while production services are primarily billed on an hourly basis. The
base rates for the Company's services have generally been stable over the past
three years.
26
<PAGE>
In February 1997, the Company sold 4,722,259 shares of its common stock at
$12.50 per share in a public offering which yielded net proceeds of
approximately $55.3 million. Concurrent with the stock offering, the Company
sold $140 million of senior unsecured notes at par value. The senior unsecured
notes carry a coupon rate of interest of 9 3/8%, the proceeds of which netted
the Company approximately $135.3 million. The total proceeds from the stock and
senior unsecured note offerings (the "Offerings") yielded the Company combined
proceeds of approximately $190.6 million of which $135.4 million was used to pay
the consideration attributable to the Pride Acquisition. Approximately $12.3
million was used to repay existing indebtedness and the remainder is being used
for working capital and general corporate purposes.
The Company's operating costs are comprised primarily of labor and maintenance
costs. Labor costs generally are variable and are incurred only while a workover
rig is operating or liquid services or production services are being provided;
however, the Company employs rig personnel to perform maintenance and other
services who are paid even when rigs are not operating. The Company's
administrative staff at the yard level and in the corporate office are accounted
for as general and administrative expense. Insurance costs generally are fixed
costs and relate to the number of active rigs, trucks and other equipment in the
Company's fleet. The Company's workers' compensation insurance costs have
declined over the past two years due to its favorable safety record.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED MARCH 31, 1996
REVENUES. Revenues for the year ended March 31, 1997 were $92.6 million, an
increase of 77% from $52.4 million for the year ended March 31, 1996. This
increase in revenues is primarily attributable to the various acquisitions made
during the fiscal year ended March 31, 1997. The Pride Acquisition added 407
workover rigs, the Taylor Acquisition added 66 vacuum trucks to the Company's
fleet, and the acquisition of Mobley Company, Inc. ("the Mobley Acquisition")
added 33 vacuum trucks. Various other acquisitions added 11 vacuum trucks, a
Louisiana production testing company and six workover rigs.
OPERATING COSTS. Operating costs for the year ended March 31, 1997 were $60.0
million, an increase of 75% from $34.3 million for the year ended March 31,
1996. This increase was due primarily to the Pride and Taylor Acquisitions.
Operating costs as a percentage of revenues remained constant at 65% for the
years ended March 31, 1997 and 1996.
27
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the year ended March 31, 1997 were $14.8 million, an increase of 65% from $8.9
million for the year ended March 31, 1996. This increase was due primarily to
the higher general and administrative expenses associated with the Pride and
Taylor Acquisitions, which significantly increased the Company's fixed cost base
with the addition of 29 new yard locations. As a percentage of revenues, general
and administrative expenses decreased to 16% for the year ended March 31, 1997,
compared to 17% for the prior year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the
year ended March 31, 1997 was $7.8 million, an increase of 78% from $4.4 million
for the year ended March 31, 1996. This increase was due to a substantial
increase in the Company's asset base resulting from the Pride and Taylor
Acquisitions.
INTEREST EXPENSE. Interest expense for the year ended March 31, 1997 was $2.3
million compared to $1.9 million for the year ended March 31, 1996. The increase
of $.4 million is attributable to two factors. First, interest expense declined
for the first nine months of the year ended March 31, 1997 due to the retirement
of debt from funds generated from the Company's initial public offering
completed in March 1996. Secondly, interest expense in the fourth quarter of
fiscal 1997 increased substantially due to the $140.0 million senior notes
incurred in the Debt Offering in February 1997.
MINORITY INTEREST. Minority interest for the year ended March 31, 1997 was
$nil, compared to $0.9 million for the year ended March 31, 1996. This decrease
was a result of the Company's acquisition of the Minority interest in Dawson
Welltech L.C. in November of 1996.
YEAR ENDED MARCH 31, 1996 COMPARED TO THE YEAR ENDED MARCH 31, 1995
REVENUES. Revenues for the year ended March 31, 1996 were $52.4 million, an
increase of 46% from $36.0 million for the year ended March 31, 1995. This
increase was due primarily to the Well Solutions Acquisition in November 1995.
Revenues from workover rig services were slightly higher for the year ended
March 31, 1996 compared to the prior year due to increased demand for horizontal
recompletion services and the introduction of a second barge-mounted workover
rig in August 1995.
OPERATING COSTS. Operating costs for the year ended March 31, 1996 were $34.3
million, an increase of 42% from $24.2 million for the year ended March 31,
1995. This increase was due primarily to the Well Solutions Acquisition.
Operating costs as a percentage of revenues decreased to 65% for the year ended
March 31, 1996 compared to 67% for the prior year, which reflects the higher
margin characteristics of the liquid services and production services businesses
acquired in the Well Solutions Acquisition compared to the Company's workover
rig services business.
28
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the year ended March 31, 1996 were $8.9 million, an increase of 60% from $5.6
million for the year ended March 31, 1995. This increase was due primarily to
the higher general and administrative expenses associated with the Well
Solutions Acquisition, which significantly increased the Company's fixed cost
base with the addition of seven new yard locations. As a percentage of revenues,
general and administrative expenses increased to 17% for the year ended March
31, 1996, compared to 15% for the prior year. In fiscal year 1996, the Company
granted bonuses of $336,000 in connection with exercises of non-statutory stock
options by certain of the Company's current and former officers, directors and
employees with regard to federal tax liability they incurred related to such
exercises. The Company does not anticipate granting bonuses for such purposes in
the future.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the
year ended March 31, 1996 was $4.4 million, an increase of 69% from $2.6 million
for the year ended March 31, 1995. This increase was due to a substantial
increase in the Company's asset base resulting from the Well Solutions
Acquisition.
INTEREST EXPENSE. Interest expense for the year ended March 31, 1996 was $1.9
million compared to $0.8 million for the year ended March 31, 1995, due to the
incurrence, in connection with the Well Solutions Acquisition, of $13.0 million
of debt with a 10.81% interest rate. The approximately $11.4 million of debt
remaining in March 1996 relating to the Well Solutions Acquisition was prepaid
with a portion of the proceeds from the IPO.
MINORITY INTEREST. Minority interest for the year ended March 31, 1996 was
$0.9 million, a decrease of 12% from $1.1 million for the year ended March 31,
1995. This decrease was a result of the acquisition in November 1995 of the
Minority interest in Dawson Welltech, L.C.
EXTRAORDINARY ITEM. As a result of the prepayment of approximately $11.4
million of debt related to the Well Solutions Acquisition, the Company recorded
an extraordinary expense for the year ended March 31, 1996 amounting to
approximately $0.5 million (net of taxes). This amount represents prepayment
penalties, reimbursement to the lender for its costs and expenses resulting from
the prepayment and the write-off of fees incurred at loan origination (net of
taxes).
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $42.3 million at
March 31, 1997 compared to approximately $13.9 million at March 31, 1996.
Working capital was approximately $56.0 million and approximately $16.8 million
at March 31, 1997 and March 31, 1996, respectively. The Company used a net
amount of approximately $163.8 million for investing activities during the
fiscal year ended March 31, 1997, primarily for the Pride and Taylor Acquisition
and for other capital expenditures of approximately $63 million. Acquisitions of
additional assets
29
<PAGE>
and businesses are expected to continue to be an important part of the Company's
strategy. Under certain circumstances, the Company would need to obtain
additional financing to fund such acquisitions.
On January 20, 1997, the Company completed the Mobley Acquisition. The Company
paid approximately $5.0 million of the acquisition price from its existing cash.
The remainder of the purchase price consisted of a $0.5 million five year
subordinated note.
In February 1997, the Company sold 4,722,259 shares of its common stock at
$12.50 per share in a public offering which yielded net proceeds of
approximately $55.3 million. Concurrent with the stock offering, the Company
sold $140.0 million of senior unsecured notes at par value. The senior unsecured
notes carry a coupon rate of interest of 9 3/8%, the proceeds of which netted
the Company approximately $135.3 million. The total net proceeds from the
Offerings yielded the Company combined proceeds of approximately $190.6 million
of which $135.4 million was used to pay the consideration attributable to the
Pride Acquisition. Approximately $12.3 million was used to repay existing
indebtedness and the remainder is being used for working capital and general
corporate purposes.
The Company has $3.75 million of subordinated debt outstanding at March 31,
1997. Approximately $1.5 million of the subordinated debt is represented by a
debenture held by Well Solutions, bears interest at 8%, matures on November 30,
1999, is prepayable without penalty at any time, and may be converted at any
time, at the option of the holder, into 37,634 shares of Company Common Stock,
subject to adjustment to prevent dilution. The Company does not currently intend
to prepay the debenture by may decide to do so in the future if interest rates
decline. Approximately $1.75 million of subordinated debt is represented by a
subordinated, non-negotiable promissory note held by PSD Investments, Ltd.,
which bears interest at 8%, matures on July 26, 2001 and is prepayable without
penalty at any time. In addition, approximately $.5 million of subordinated debt
is represented by a promissory note held by The Mobley Company, Inc., which
bears interest at 8.5%, matures on January 20, 2002 and is prepayable without
penalty at any time.
All of the subordinated debt of the Company was incurred in conjunction
with certain acquisitions made by the Company and have offset provisions in
conjunction with unforeseen liabilities that might arise from these
acquisitions. The Company has received a request for acceleration of payment and
has been served with a lawsuit relating to the $1.75 million of subordinated
debt held by PSD Investments, Ltd. debt due to an alleged event of default.
However, the Company believes it is in compliance with the applicable loan
covenants and an event of default does not exist. Accordingly, the subordinated
debt has not been reflected as a current obligation in the consolidated
financial statements.
The Company generated cash from operating activities of approximately $13.5
million during the year ended March 31, 1997. The Company's principal uses of
cash during the year ended March 31, 1997 were to prepay the indebtedness from
the Taylor Acquisition and to fund approximately $6.3 million of capital
expenditures for upgrading and purchasing equipment.
30
<PAGE>
The Company believes that the combination of internally generated cash flow,
the net proceeds from the Offerings and availability under the Credit Facility
should provide the Company with sufficient financing to fund the Company's
operations for at least the next 12 months. There can be no assurance, however,
that the Company will not need additional financing or that such financing will
be available on economically acceptable terms.
DESCRIPTION OF CREDIT FACILITY
Concurrent with the closing of the Offerings and the Pride Acquisition, the
Company put into place a working capital line of credit (the "Working Line")
with a bank. The maximum availability under the Working Line is the lesser of
(i) $50.0 million or (ii) 80% of eligible accounts receivable that have been
outstanding less than 90 days. The Working Line is secured by a first lien
security interest on all the Company's accounts receivable. Borrowings under the
Working Line mature on February 20, 1999 and bear interest, at a rate the
Company may select from time-to-time, equal to: (i) the Bank's prime rate of
interest or (ii) the applicable margin plus the Wall Street Journal LIBOR rate
of interest; the applicable margin is determined by a ratio of total funded debt
to consolidated EBITDA, but shall never be less than 1.75% nor higher than
2.75%. Under the terms of the agreement relating to the Working Line, the
Company must maintain minimum working capital, tangible net worth, current
ratios and debt to capital ratios. The foregoing description does not purport to
be a complete description of all terms of the Working Line or the Credit
Facility. The Company had not drawn against the Working Line as of March 31,
1997 but has used the line to secure five letters of credit totaling $568,000
related to its worker's compensation insurance program.
INFLATION AND SEASONALITY
Inflation has not had a significant impact on the Company's operations to date
and the Company's operating revenues have not historically been subject to
significant seasonal changes.
NEW ACCOUNTING PRONOUNCEMENTS -- ACCOUNTING FOR ASSET IMPAIRMENT; ACCOUNTING FOR
STOCK-BASED COMPENSATION; ACCOUNTING FOR EARNINGS PER SHARE
During March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of LongLived Assets and for Long-Lived Assets to Be Disposed Of "
("FAS 121"). The Company adopted FAS 121 effective April 1, 1996. FAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this pronouncement had no material effect on the
financial statements.
In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 defines a fair value based method of
accounting for employee stock options or similar equity instruments and
encourages all entities to adopt that
31
<PAGE>
method of accounting for all of their employee stock compensation plans. Under
the fair value based method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period of the
award, which is usually the vesting period. However, FAS 123 also allows
entities to continue to measure compensation costs for employee stock
compensation plans using the intrinsic value method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Entities electing to remain with the accounting prescribed by APB 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
based method recommended by FAS 123 had been applied. The accounting
requirements of FAS 123 are effective for transactions entered into in years
that begin after December 15, 1995, though they may be adopted on issuance. The
disclosure requirements of FAS 123 are effective for financial statements for
years beginning after December 15, 1995. The Company intends to continue
measuring compensation costs using APB 25 and has provided pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting under FAS 123 had been applied beginning with its financial
statements for the year ending March 31, 1997.
In February 1997, the FASB issued FAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. This
Standard, effective for financial statements issued for periods ending after
December 15, 1997, replaces the presentation of primary earnings per share with
a presentation of basic earnings per share. In addition, this Standard requires
dual presentation of basic and diluted earnings per share on the face of the
statement of operations. The impact of the adoption of FAS No. 128 on earnings
per share for 1996 and 1997 will not be material.
32
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................................ 33
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1996 and 1997............................................ 34
Consolidated Statements of Income for the years ended March 31, 1995, 1996 and 1997............... 35
Consolidated Statements of Shareholders' Equity for the years ended March 31, 1995, 1996 and 1997 36
Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997........... 37
Notes to the Consolidated Financial Statements.................................................... 38
</TABLE>
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dawson Production Services, Inc.:
We have audited the accompanying consolidated balance sheets of Dawson
Production Services, Inc. and subsidiaries as of March 31, 1996 and 1997, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dawson
Production Services, Inc. and subsidiaries as of March 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
June 23, 1997
34
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................... $ 13,863,108 $ 42,329,987
Trade receivables, substantially all pledged (net of allowance for
doubtful accounts of $290,839 and $561,182, respectively) ...................... 8,773,156 30,914,440
Other receivables ................................................................... 95,202 673,905
Income taxes receivable ............................................................. 740,768 574,155
Prepaid expenses and other .......................................................... 215,497 444,415
------------ -------------
Total current assets ........................................................ 23,687,731 74,936,902
Net property and equipment (note 6) ................................................... 29,114,671 145,640,596
Goodwill and other assets ............................................................. 3,565,555 53,158,691
------------ -------------
Total assets ................................................................ $ 56,367,957 $ 273,736,189
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................... $ 2,909,390 $ 9,605,696
Accrued liabilities ................................................................. 2,825,926 8,621,675
Current portion of long-term debt (note 4) .......................................... 20,055 623,333
Current portion of obligations under capital
leases (note 6) .................................................................. 1,167,384 39,207
------------ -------------
Total current liabilities ................................................... 6,922,755 18,889,911
------------ -------------
Long-term debt, net of current portion (note 4) ....................................... 1,530,903 3,166,667
Obligations under capital leases, net of current portion (note 6) ..................... 2,163,610 139,678
Senior notes (note 5) ................................................................. -- 140,000,000
Deferred income taxes (note 9) ........................................................ 56,310 5,320,951
Shareholders' equity (notes 7 and 8):
Preferred stock, no par value 560,600 shares
authorized, none issued and outstanding .......................................... -- --
Common stock, $.01 par value, 20,560,600 shares
authorized, 6,382,526 and 11,126,285 issued and
outstanding, respectively ........................................................ 63,826 111,264
Paid-in capital ..................................................................... 41,458,254 96,858,449
Retained earnings ................................................................... 4,314,177 9,391,147
Notes receivable from officers ...................................................... (141,878) (141,878)
------------ -------------
Total shareholders' equity .................................................. 45,694,379 106,218,982
Commitments and contingencies (note 12)
Total liabilities and shareholders'
equity .................................................................... $ 56,367,957 $ 273,736,189
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
----------------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ...................................................... $ 36,004,700 $ 52,391,307 $ 92,627,701
------------ ------------ ------------
Costs and expenses:
Operating ................................................... 24,240,773 34,319,579 59,957,770
General and administrative .................................. 5,573,978 8,937,502 14,789,471
Depreciation and amortization ............................... 2,607,837 4,396,574 7,844,336
------------ ------------ ------------
Total costs and expenses ............................ 32,422,588 47,653,655 82,591,577
------------ ------------ ------------
Operating income .................................... 3,582,112 4,737,652 10,036,124
------------ ------------ ------------
Other income and expense:
Interest expense ............................................ 789,276 1,847,678 2,312,850
Other income, net ........................................... (40,939) (129,494) (696,696)
------------ ------------ ------------
Total other income and
expense ........................................... 748,337 1,718,184 1,616,154
------------ ------------ ------------
Income before minority
interest, income taxes and
extraordinary item ................................ 2,833,775 3,019,468 8,419,970
Minority interest in consolidated
subsidiary .................................................. 1,091,717 937,164 --
------------ ------------ ------------
Income before income taxes and
extraordinary item ........................................... 1,742,058 2,082,304 8,419,970
Provision for income taxes (note 9) ........................... 680,822 709,306 3,343,000
------------ ------------ ------------
Income before extraordinary item .............................. 1,061,236 1,372,998 5,076,970
Extraordinary item ............................................ -- (513,819) --
------------ ------------ ------------
Net income .................................................... 1,061,236 859,179 $ 5,076,970
------------ ------------ ------------
Preferred stock dividends ..................................... 101,007 88,273 --
------------ ------------ ------------
Net income applicable to common
stock ....................................................... $ 960,229 $ 770,906 $ 5,076,970
============ ============ ============
Earnings per common share:
Primary:
Income before extraordinary item ......................... $ 0.45 $ 0.44 $ 0.71
Extraordinary item ....................................... -- (0.17) --
------------ ------------ ------------
Net income ............................................ $ 0.45 $ 0.27 $ 0.71
============ ============ ============
Average number of shares outstanding ..................... 2,155,380 2,931,234 7,189,638
============ ============ ============
Fully diluted:
Income before extraordinary item ......................... $ 0.42 $ 0.43 $ 0.71
Extraordinary item ....................................... -- (0.16) --
------------ ------------ ------------
Net income ............................................. $ 0.42 $ 0.27 $ 0.71
============ ============ ============
Average number of shares outstanding ..................... 2,648,740 3,207,622 7,189,638
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES
----------------------- TREASURY STOCK RECEIVABLE
ISSUED PAID-IN --------------------- RETAINED FROM
SHARES AMOUNTS CAPITAL SHARES AMOUNTS EARNINGS OFFICERS
----------- --------- ------------ ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994 ..... 1,326,348 $ 13,263 $ 4,200,880 48,732 $ (76,994) $ 2,583,042 $--
Purchase of treasury stock ... -- -- -- 16,172 (72,264) -- --
Sale of common stock ......... 282,536 2,826 2,248,576 (63,687) 143,598 -- --
Dividends on preferred stock,
paid in cash ............... -- -- -- -- -- (101,007) --
Exercise of common stock
warrants ................... 57,818 578 86,300 -- -- -- (66,878)
Conversion of subordinated
convertible note into common
stock ...................... 16,125 161 74,839 -- -- -- --
Net income ................. -- -- -- -- -- 1,061,236 --
----------- --------- ------------ ------- ----------- ----------- ------------
BALANCES AT MARCH 31, 1995 ..... 1,682,827 16,828 6,610,595 1,217 (5,660) 3,543,271 (66,878)
Dividends on preferred stock,
paid in cash ............... -- -- -- -- -- (88,273) --
Common stock issued--
Initial public offering
(note 7) ................. 2,616,202 26,163 23,495,829 -- -- -- --
Conversion of subordinated
convertible note ......... 371,232 3,712 2,546,288 -- -- -- --
Issuance of common stock for
minority interest ........ 1,329,495 13,295 7,686,705 -- -- -- --
Conversion of preferred
stock to common stock .... 347,440 3,474 1,006,526 -- -- -- --
Exercise of stock options .... 36,547 366 75,633 -- -- -- (75,000)
Tax benefit realized from
stock options .............. -- -- 42,326 -- -- -- --
Retirement of treasury
stock ...................... (1,217) (12) (5,648) (1,217) 5,660 -- --
Net income .................... -- -- -- -- -- 859,179 --
----------- --------- ------------ ------- ----------- ----------- ------------
BALANCES AT MARCH 31, 1996 ..... 6,382,526 63,826 41,458,254 -- -- 4,314,177 (141,878)
Common stock issued -
Secondary public
offering (note 7) ........ 4,722,259 47,223 55,238,214 -- -- -- --
Exercise of stock options ...... 21,500 215 161,981 -- -- -- --
Net income ..................... -- -- -- -- -- 5,076,970 --
--------- ------------ ------- ----------- ----------- ------------
BALANCES AT MARCH 31, 1997 ..... 11,126,285 $ 111,264 $ 96,858,449 -- -- $ 9,391,147 $ (141,878)
=========== ========= ============ ======= =========== =========== ============
</TABLE>
TOTAL
SHARE-
HOLDERS'
EQUITY
-------------
Balances at March 31, 1994 ..... $ 6,720,191
Purchase of treasury stock ... (72,264)
Sale of common stock ......... 2,395,000
Dividends on preferred stock,
paid in cash ............... (101,007)
Exercise of common stock
warrants ................... 20,000
Conversion of subordinated
convertible note into common
stock ...................... 75,000
Net income ................. 1,061,236
-------------
BALANCES AT MARCH 31, 1995 ..... 10,098,156
Dividends on preferred stock,
paid in cash ............... (88,273)
Common stock issued--
Initial public offering
(note 7) ................. 23,521,992
Conversion of subordinated
convertible note ......... 2,550,000
Issuance of common stock for
minority interest ........ 7,700,000
Conversion of preferred
stock to common stock .... 1,010,000
Exercise of stock options .... 999
Tax benefit realized from
stock options .............. 42,326
Retirement of treasury
stock ...................... --
Net income .................... 859,179
-------------
BALANCES AT MARCH 31, 1996 ..... 45,694,379
Common stock issued -
Secondary public
offering (note 7) ........ 55,285,437
Exercise of stock options ...... 162,196
Net income ..................... 5,076,970
-------------
BALANCES AT MARCH 31, 1997 ..... $ 106,218,982
=============
See accompanying notes to consolidated financial statements.
37
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 1,061,236 $ 859,179 $ 5,076,970
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest in net income of
subsidiary company ........................................... 1,091,717 937,164 --
Depreciation and amortization .................................. 2,607,837 4,396,574 7,844,336
Allowance for doubtful accounts ................................ 157,921 (57,213) 200,343
Common stock issued in lieu of interest
payments .....................................................
Loss (gain) on sale of assets .................................. (22,113) 95,351 (124,609)
Increase in deferred income taxes .............................. 88,740 636,665 2,573,091
Decrease (increase) in receivables ............................. (4,338,722) (813,746) (19,134,658)
Decrease (increase) in prepaid expenses
and other .................................................... (11,802) (71,512) 36,055
Decrease (increase) in other assets ............................ (129,336) 170,390 (321,106)
Increase (decrease) in accounts payable ........................ 1,823,552 (19,796) 5,862,700
Increase (decrease) in income tax payable ...................... (288,671) -- --
Increase in accrued expenses ................................... 1,000,374 510,305 11,450,404
------------ ------------ ------------
Net cash provided by operating activities .................... 3,040,733 6,643,361 13,463,526
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions ....................................................... (16,597,550) (125,000) (157,540,516)
Additions to property and equipment ................................ (2,567,230) (4,522,765) 6,793,784
Proceeds from sales of property and equipment ...................... 65,644 281,841 91,754
------------ ------------ ------------
Net cash used in investing activities ........................ (19,099,136) (4,365,924) (164,242,546)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ............................................... 16,156,053 1,042,677 9,511,330
Payments on short-term borrowings .................................. -- -- --
Payments on long-term debt ......................................... (2,027,649) (14,058,284) (11,800,526)
Capital lease payments ............................................. (593,838) (1,348,564) (4,576,248)
Sale of common stock ............................................... 2,395,000 23,521,992 55,285,437
Net proceeds from senior notes issuance ............................ -- -- 135,332,000
Deferred debt issuance costs ....................................... -- -- (4,668,290)
Exercise of common stock options and warrants ...................... 20,000 999 162,196
Tax benefit realized from stock options ............................ -- 42,326 --
Cost of treasury stock purchased ................................... (72,264) -- --
Cash dividends on preferred stock .................................. (101,007) (88,273) --
Investment in subsidiary by minority owner ......................... 1,404,000 -- --
Subsidiary distributions to minority owner ......................... (497,026) (323,742) --
------------ ------------ ------------
Net cash used in financing activities ........................ 16,683,269 8,789,131 179,245,899
------------ ------------ ------------
Net increase in cash ......................................... 624,866 11,066,568 28,466,879
Cash and cash equivalents at the beginning of
the period ....................................................... 2,171,674 2,796,540 13,863,108
------------ ------------ ------------
Cash and cash equivalents at the end of the
period ........................................................... $ 2,796,540 $ 13,863,108 $ 42,329,987
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest ......................................................... $ 708,234 $ 1,928,993 $ 859,935
Income taxes ..................................................... 967,208 912,628 817,163
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Assets acquired under capital leases ............................... 645,972 3,823,282 1,302,008
Conversion of preferred stock to common stock ...................... -- 1,010,000 --
Conversion of long-term debt to common stock ....................... 75,000 2,550,000 --
Issuance of common stock for acquisition of
minority interest ................................................ -- 7,700,000 --
Issuance of notes payable for acquisition of
business ......................................................... 1,500,000 -- 2,250,000
Issuance of notes receivable for exercise of
stock options .................................................... 66,878 75,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Dawson Production Services, Inc. (the "Company" or "Dawson") is a leading
provider of a broad range of workover, liquid and production services used in
the production of oil and gas in the Texas and Louisiana Gulf Coasts, the
Permian Basin areas of West Texas and New Mexico, and California. The Company's
services are utilized by major oil and gas companies as well as independent
producers to optimize performance of oil and gas wells. The Company recently
acquired the U.S. land-based well servicing operations of Pride Petroleum
Services, Inc.
("Pride").
As a result of its acquisitions and certain corporate restructuring, the
Company currently has several direct and indirect subsidiaries through which it
conducts a significant portion of its operations. All of the assets acquired
from Pride are held in Dawson Production Partners, L.P., a Delaware limited
partnership (the "Partnership"), and the Company is in the process of
transferring substantially all of its remaining operating assets to the
Partnership. All of the general and limited partnership interests in the
Partnership are owned by two wholly-owned corporate subsidiaries of Dawson;
Dawson Production Management, Inc., a Delaware corporation, owns a 1% general
partnership interest in the Partnership, and Dawson Production Acquisition
Corp., a Delaware corporation owns the remaining 99% limited partnership
interest in the Partnership. Dawson has the following additional wholly owned
subsidiaries: Dawson Production Services de Mexico, S.A. de C.V., and Ubicadora
de Tecnicos, S.A. de C.V., both of which are companies organized under the laws
of Mexico; Taylor Companies, Inc., a Texas corporation; and Mobley Vehicle
Acquisition Corp., a Texas corporation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated (see note 2).
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
39
<PAGE>
the financial statements and the reported amounts of revenues and expenses
during the reporting period. While it is believed that such estimates are
reasonable, actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, cash and short-term investments
with an original maturity of three months or less from the date of purchase are
considered to be cash equivalents.
REVENUE RECOGNITION
The Company generally recognizes revenue when services are rendered.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and improvements are
capitalized and depreciated over the respective asset's useful life.
Expenditures for repairs and maintenance are charged to expense as incurred.
Property and equipment are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amounts of the
property and equipment may not be recoverable.
Property and equipment are depreciated over their estimated useful lives on
the straight-line method. Commencing with the acquisition of substantially all
of Pride Petroleum Services, Inc.'s U.S. land-based well servicing operations in
February 1997, the Company has utilized a "component parts" approach to
depreciating fixed assets. Estimated useful lives are as follows:
ESTIMATED
LIFE (YEARS)
------------
Buildings.............................................. 20
Well servicing equipment............................... 3-20
Vehicles............................................... 3-5
Office furniture and other equipment................... 5-12
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
40
<PAGE>
INTANGIBLE AND OTHER ASSETS
Goodwill represents the excess purchase price over fair value of net assets
acquired and is amortized on a straight-line basis over twenty to twenty-five
year periods from the dates of acquisition. Other assets consist principally of
loan costs and are amortized on a straight-line basis over the terms of the
loans.
Intangible assets are reviewed for impairment whenever events or circumstances
provide evidence that suggests that the carrying amount of the intangible asset
may not be recoverable. The Company assesses the recoverability of the
intangible asset by determining whether the carrying amount of the intangible
asset can be recovered through projected undiscounted future cash flows over the
remaining amortization period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of short-term, variable
rate items or recently issued debt instruments for which management believes
fair value approximates carrying value. The carrying value of the $140 million
Senior Notes due February 1, 2007 (see note 5) approximates fair value as of
March 31, 1997.
EARNINGS PER SHARE
Primary earnings per share is computed by deducting preferred dividends from
net income in order to determine net income attributable to common shareholders.
This amount is then divided by the weighted average number of common shares
outstanding and common stock equivalents.
Earnings per share assuming full dilution is determined by dividing net income
plus tax effected convertible debt interest by the weighted average number of
common shares outstanding during the year after giving effect for common stock
equivalents arising from stock options and for convertible debt or preferred
stock assumed converted to common stock.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, stock and stock options issued during the twelve months immediately
preceding the Company's initial public offering filing date including those
issued in connection with the minority interest acquisition (see note 2) have
been included in the calculation of common and common equivalent shares using
the treasury stock method and the anticipated public offering price as if they
were outstanding for all periods. Common stock equivalents resulting from the
conversion or exercise of convertible debt or preferred shares and other stock
options are excluded when their result is anti-dilutive.
41
<PAGE>
RECLASSIFICATION
Certain amounts, as previously presented, have been reclassified to conform
with the current year financial statement presentation.
NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth alternative
accounting and disclosure requirements for stock-based compensation
arrangements. SFAS 123 does not rescind the existing accounting for employee
stock-based compensation under APB Opinion No. 25. Companies may continue to
follow the current accounting to measure and recognize employee stock-based
compensation; however, SFAS 123 requires disclosure of pro forma net income and
earnings per share that would have been reported under the "fair value" based
recognition provisions of SFAS 123. The Company has elected to continue to
follow the provisions of APB Opinion No. 25 for employee stock-based
compensation and has disclosed the pro forma information required under SFAS 123
(see note 8).
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. This
Standard, effective for financial statements issued for periods ending after
December 15, 1997, replaces the presentation of primary earnings per share with
a presentation of basic earnings per share. In addition, this Standard requires
dual presentation of basic and diluted earnings per share on the face of the
statement of operations. The impact of the adoption of SFAS No. 128 on earnings
per share for 1996 and 1997 will not be material.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of temporary cash investments and trade
receivables. The Company places its temporary cash investments in U.S.
Government securities and in other high quality financial instruments. By policy
the Company limits the amount of credit exposure to any one financial
institution or issuer. The Company's customer base consists primarily of
independent oil and natural gas producers. During the years ended March 31,
1995, 1996 and 1997, the provisions charged to operations to increase the
reserve for doubtful trade accounts receivable were $223,475, $21,714 and
$270,343, respectively. During the years ended March 31, 1995, 1996 and 1997,
sales to the Company's largest customer accounted for approximately 16%, 24% and
20.0%, respectively, of total operating revenues.
42
<PAGE>
(2) ACQUISITIONS
PRIDE
Effective February 20, 1997, the Company acquired Pride for approximately $135.4
million in cash and acquisition costs of $1.9 million. The acquisition has been
accounted for as a purchase and, accordingly, the operating results of Pride
have been included in the Company's consolidated statements of income since the
effective date of acquisition. The excess of the aggregate purchase price over
the fair market value of the net assets acquired was recognized as goodwill and
is being amortized over 25 years. The fair value of assets acquired, including
goodwill of $30.2 million, was $138.0 million and liabilities assumed totaled
$1.8 million. The funds used to acquire Pride were provided by proceeds of sales
of common stock and senior notes through public offerings in February 1997.
TAYLOR COMPANIES, INC.
Effective July 29, 1996, the Company acquired all of the issued and
outstanding stock of Taylor Companies, Inc. for an aggregate purchase price of
$12,750,000, consisting of $11,000,000 in cash and a $1,750,000 subordinated
promissory note payable to the selling shareholder. Goodwill recognized on this
transaction amounted to approximately $7,350,621, which is being amortized over
a twenty-year period. The final purchase price allocations for the Pride and
Taylor Acquisitions may be adjusted based on the resolution of certain
pre-acquisition issues.
Assuming the purchases of Pride and Taylor Companies, Inc. had been
consummated as of the beginning of the fiscal year 1996, unaudited pro forma
operating results of the Company would be as follows:
MARCH 31,
---------------------------------
1996 1997
--------------- --------------
Revenues .................................. $ 182,219,000 205,382,000
Net income (loss) ......................... $ (4,003,000) 2,169,000
Primary earnings (loss) per share ......... $ (0.56) 0.21
Fully diluted earnings (loss) per share ... $ (0.56) 0.21
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase been made
at the beginning of the respective periods.
43
<PAGE>
WELL SOLUTIONS, INC.
On November 30, 1994, the Company acquired substantially all of the property
and equipment of Well Solutions, Inc. (Well Solutions), a company engaged in
providing oilfield services, for an aggregate purchase price of $18,097,550,
consisting of $15,895,733 in cash, a convertible note payable of $1,500,000 and
closing costs of $701,817. The acquisition has been accounted for as a purchase
and, accordingly, the operating results of Well Solutions have been included in
the Company's consolidated statements of income since the date of acquisition.
The excess of the aggregate purchase price over the fair market value of the net
assets acquired was recognized as goodwill and is being amortized over 20 years.
The fair value of assets acquired, including goodwill of $2,451,818, was
$18,534,355 and liabilities assumed totaled $436,805. The funds used to acquire
Well Solutions were provided by long-term borrowings, proceeds of sales of
common stock and subordinated debt and cash from operations.
OTHER ACQUISITIONS:
Effective November 1, 1995, the Company acquired the 39% minority interest in
the Company's subsidiary, Dawson WellTech, L.C., from WellTech, Inc. in exchange
for the issuance to WellTech, Inc. of 1,329,495 shares of common stock for a
total purchase price of $7,700,000 based on an independent appraisal of the
common stock. Goodwill recognized on this transaction amounted to $385,000 and
is being amortized over 20 years.
Effective March 1, 1996, the Company acquired a portion of the assets of a
small company in Giddings, Texas for an aggregate purchase price of
approximately $1,248,000, consisting of $125,000 in cash and $1,123,000 in
capital leases and a note payable. Goodwill recognized on this transaction
amounted to $97,000 and is being amortized over 20 years.
In April 1996, the Company acquired the assets of two small production testing
companies in Louisiana. The aggregate purchase price was approximately $673,000.
Goodwill and a non-compete agreement were recognized on these transactions which
amounted to approximately $111,000. These items are being amortized over 20 and
five year periods, respectively.
In May 1996, the Company acquired the Texas-based well servicing division of a
non-affiliated company. The aggregate purchase price was $779,000.
In July 1996, the Company acquired the assets of a trucking company in
Louisiana. The aggregate purchase price was approximately $400,000. Goodwill
recognized on the transaction amounted to $50,000, which is being amortized over
a 20-year period.
On January 20, 1997, the Company acquired the liquid services assets of Mobley
Company, Inc. for approximately $5.0 million in cash and a $500,000 five year
subordinated note. Goodwill recognized on this transaction amounted to
$1,566,000 and is being amortized over 20 years.
44
<PAGE>
The other acquisitions have been accounted for as purchases and, accordingly,
the operating results have been included in the Company's consolidated
statements of income since the dates of acquisition. The effect on results of
operations would not have been material if such other acquisitions had occurred
at the beginning of the year.
(3) MANDATORILY REDEEMABLE PREFERRED STOCK
In October 1990, the Company issued 80,800 shares of 10% cumulative
convertible preferred stock for a total price of $1,010,000. Each preferred
shareholder was entitled to receive, in preference to common shareholders,
annual dividends in the amount of $1.25 per share, payable quarterly. At the
discretion of the Company, the dividends could have been declared in either cash
or common stock valued at $3.49 a share. Dividends were cumulative and accrued
from the date of the stock issuance. The Company declared dividends on the
preferred stock in the amount of $101,007 in the years ended March 31, 1994 and
1995 and $88,273 in the year ended March 31, 1996.
Holders of the preferred stock elected to convert 20,200 shares of such stock
into 86,860 shares of common stock, effective October 18, 1995. Pursuant to a
November 1, 1995 Agreement for the Conversion of Securities (the "Conversion
Agreement"), the remaining 60,600 shares of preferred stock converted into
260,580 shares of common stock effective February 19, 1996.
(4) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Convertible debenture bearing interest at 8%. Interest is
due quarterly; principal is due November 30, 1999 ........ $1,500,000 $1,500,000
Subordinated promissory note payable to a former Taylor
shareholder bearing interest at 8.0% per annum ...........
Interest is due quarterly; principal is due in
quarterly installments of $83,333 ........................ -- 1,750,000
Subordinated note bearing interest at 8.5%. Interest is due
quarterly; principal is due January 20, 2002 ............. -- 500,000
Other note payable bearing at interest at 10% .............. 50,958 40,000
---------- ----------
Total long-term debt ....................................... 1,550,958 3,790,000
Less current portion ....................................... 20,055 623,333
---------- ----------
Long-term debt, net of current portion ..................... $1,530,903 $3,166,667
========== ==========
</TABLE>
45
<PAGE>
On February 20, 1997, concurrent with the closing of the Senior Note and
Common Stock offerings and the acquisition of Pride, the Company entered into a
working capital line of credit (the "Working Line") with a bank. The maximum
availability under the Working Line would be the lesser of (i) $50 million or
(ii) 80% of eligible accounts receivable that have been outstanding less than 90
days. The Working Line is secured by a first lien security interest on all the
Company's accounts receivable. Borrowings under the Working Line mature two
years from the date of any such borrowings and bear interest at the lesser of
(i) the Bank's prime rate of interest or (ii) a varying percentage rate ranging
from 1.75% to 2.75%, based on the total funded debt to cash flow ratio, over the
Company's choice of the 30, 90 or 180-day LIBOR rate of interest. The Company
had not drawn against the line as of March 31, 1997, but has used the line to
secure five letters of credit totaling $568,000 related to its worker's
compensation insurance program. Under the terms of the loan agreement, the
Company must maintain minimum working capital, tangible net worth, current
ratios and debt to capital ratios. The foregoing description does not purport to
be a complete description of all terms of the Credit Facility.
The Company has $3.75 million of subordinated debt outstanding at March 31,
1997. Approximately $1.5 million of the subordinated debt is represented by a
debenture held by Well Solutions, bears interest at 8%, matures on November 30,
1999, is prepayable without penalty at any time, and may be converted at any
time, at the option of the holder, into 37,634 shares of Company Common Stock,
subject to adjustment to prevent dilution. Approximately $1.75 million of
subordinated debt is represented by a subordinated, non-negotiable promissory
note held by PSD Investments, Ltd., which bears interest at 8%, matures on July
26, 2001 and is prepayable without penalty at any time. In addition, $.5 million
of subordinated debt is represented by a promissory note held by Mobley Company,
Inc., which bears interest at 8.5%, matures on January 20, 2002 and is
prepayable without penalty at any time.
All of the subordinated debt of the Company was incurred in conjunction with
certain acquisitions made by the Company and have offset provisions in
conjunction with unforeseen liabilities that might arise from these
acquisitions. The Company has received a demand for acceleration of payment and
has been served with a lawsuit relating to the $1.75 million of subordinated
debt held by PSD Investments, Ltd. due to an alleged event of default. However,
the Company believes it is in compliance with the applicable loan covenants and
that an event of default does not exist. Accordingly, the subordinated debt has
not been reflected as a current obligation in the consolidated financial
statements.
In March 1996, the Company elected to prepay a $13,000,000 note payable to a
bank. An extraordinary charge of $513,819 (net of income tax benefit of
$264,495) was incurred as a result of the early extinguishment of the note
payable.
During fiscal 1995, $75,000 in principal amount of subordinated notes were
converted into 16,125 shares of common stock. During fiscal 1996, $150,000 in
principal amount of subordinated notes were converted into 27,232 shares of
common stock.
46
<PAGE>
Also, pursuant to the Conversion Agreement, $2.4 million of the Company's
subordinated debt converted into common stock at the rate of one share of common
stock for each $6.98 in principal amount of subordinated debt effective February
19, 1996.
Scheduled maturities of principal for long-term debt based on balances
outstanding at March 31, 1997 are summarized as follows:
YEARS ENDING
MARCH 31, TOTAL
- ------------ ------------
1998 ........................ $ 623,333
1999 .. ...................... 333,333
2000 ........................ 1,833,333
2001 ......................... 333,334
2002 ......................... 666,667
Thereafter (*) ............... 140,000,000
------------
$143,790,000
============
(*) See note 5 for discussion of Senior Notes due 2007.
(5) SENIOR NOTES
MARCH 31,
---------------------------
1996 1997
-------- ------------
9 3/8% Senior Notes due 2007.......... $ -- $140,000,000
======== ============
The Senior Notes due February 1, 2007 (Notes) were issued by the Company in
February 1997. The Notes bear interest at 9 3/8%, payable semi-annually on
February 1 and August 1 of each year, commencing August 1, 1997. The proceeds
from the issuance of the Notes were utilized primarily to acquire Pride (see
note 2) and prepay existing debt. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 2002, at the
redemption prices included in the indenture agreement, together with accrued and
unpaid interest to the date of redemption. The Notes are unconditionally
guaranteed on a senior unsecured basis by each of the Company's principal
operating subsidiaries. The terms of the indenture related to the Notes contain
covenants limiting, among other things, the incurrence of additional
indebtedness of the Company; dividend payments on or issuance and sales of
capital stock of restricted subsidiaries; payments with respect to certain
subordinated obligations and the making of certain investments; sales of assets;
certain transactions with affiliates; and sale/leaseback transactions.
47
<PAGE>
(6) LEASES AND LEASE COMMITMENTS
The Company leases vehicles and office equipment under capital leases. Total
assets recorded under capital leases at March 31, 1996 and 1997 are $5,197,835
and $6,386,608, respectively. Amortization expense related to assets held under
capital lease for the years ended March 31, 1995, 1996 and 1997 was $357,363,
$243,558 and $999,372, respectively.
The Company leases certain of its facilities under operating leases. Lease
terms generally range from one to five years. Rent expense for the years ended
March 31, 1995, 1996 and 1997 was approximately $174,175, $251,556 and $367,240,
respectively.
Future minimum lease payments as of March 31, 1997 are as follows:
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
- ----------- --------- --------
1998........................................... $ 56,423 $394,710
1999........................................... 56,423 278,296
2000........................................... 56,423 203,251
2001........................................... 56,423 93,890
2002........................................... 9,401 25,761
--------- ---------
Total minimum lease payments................... $ 235,093 $995,908
Less amounts representing interest............. (56,208) =========
---------
Present value of minimum lease payments........ $ 178,885
=========
(7) SHAREHOLDERS' EQUITY
(a) EQUITY OFFERINGS
In March 1996, the Company completed an initial public offering (the
"IPO") of 2,616,202 shares (net of 48 fractional shares paid in cash in
connection with the Recapitalization and Stock Split referred to below) of its
common stock for the purpose of raising funds to acquire additional businesses
and to retire debt. Net proceeds to the Company from the IPO, after deduction of
associated expenses, were approximately $23,522,000.
In February 1997, the Company completed a secondary public offering of
4,722,259 shares (including 689,773 shares issued in connection with an
over-allotment option) of its common stock for the purpose of raising funds to
acquire Pride and retire debt (see notes 2 and 4). Net proceeds to the Company,
after deduction of associated expenses, were approximately $55,285,000.
48
<PAGE>
(b) RECAPITALIZATION AND STOCK SPLIT
Effective January 17, 1996, the shareholders approved an amendment to the
Articles of Incorporation which, among other actions, increased the authorized
shares of all classes of capital stock to 20,560,600 and changed the par value
of the common stock to $.01 per share. Share and per share amounts for all
periods presented have been adjusted to reflect these changes. The Board of
Directors approved a 4.3-for-one stock split of the common stock which occurred
on March 1, 1996. Share and per share amounts for all periods presented have
been adjusted to reflect this stock split.
(c) TREASURY STOCK
During fiscal 1996, the Company retired all of the common shares held in
treasury. The cost of acquired shares in excess of par value was charged to
additional paid-in capital.
(8) STOCK WARRANTS AND OPTIONS
In fiscal 1995, 118,250 common stock warrants were issued by the Company to
several officers and directors of the Company. The warrants have an exercise
price of $4.65 per share. During fiscal 1995 and 1996, employees and officers of
the Company exercised their warrants to purchase 40,618 and 36,546 shares,
respectively, of common stock in exchange for notes payable to the Company of
$66,878 and $75,000. The notes are secured by the shares of common stock issued
and the personal guarantees of the officers receiving the stock.
In October 1995, the Company adopted the 1995 Incentive Plan (the "1995
Plan"). Under the 1995 Plan, incentive options, non-statutory options,
restricted stock awards, and/or stock appreciation rights may be granted to key
employees, non-employee directors and consultants to purchase the Company's
common stock at prices not less than the fair market value at the time of grant,
which become exercisable as described in the respective Award Agreement.
Pursuant to the 1995 Plan, an aggregate of 537,500 shares of the Company's
common stock is available for issuance upon the exercise of such options, awards
and rights, which may be granted over a ten-year period. On October 6, 1995,
options to purchase 133,300 shares of common stock at $7.44 per share were
granted under the 1995 Plan. During fiscal 1997, options to purchase 329,350
shares of common stock at amounts ranging from $10.75 to $12.25 per share were
granted under the 1995 Plan. Also in fiscal 1997, 21,500 and 5,300 options were
exercised and canceled, respectively, under the 1995 Plan.
49
<PAGE>
The following table summarizes the activity of stock options and warrants
granted by the Company:
PRICE
SHARES PER SHARE
------- -----------------
Outstanding, March 31, 1995 .............. 154,796 $.23 to $4.65
Granted ................................ 133,300 $7.44
Exercised .............................. (36,546) $.23 to $2.33
Canceled ............................... (10,750) $4.55
-------
Outstanding, March 31, 1996 .............. 240,800 $4.65 to $7.44
-------
Granted ................................ 329,350 $10.75 to $12.25
Exercised .............................. (21,500) $4.65 to $10.75
Canceled ............................... (5,300) $10.75 to $11.375
-------
Outstanding, March 31, 1997 .............. 543,350 $4.65 to $11.375
=======
Exercisable at end of year ............... 159,179
=======
The weighted average fair value of stock options granted during 1996 and 1997
was $7.44 and $11.375 per share, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes options-pricing
model. The model assumed expected volatility of 0% and 47.6%, weighted average
risk-free interest rates of 6.66% and 6.75%, for grants in 1996 and 1997,
respectively, and an expected life of 4 years. As the Company has not declared
dividends since it became a public entity, no dividend yield was used. Actual
value realized, if any, is dependent on the future performance of the Company's
common stock and overall stock market conditions. There is no assurance the
value realized by an optionee will be at or near the value estimated by the
Black-Scholes model.
As discussed in note 1, no compensation expense has been recorded in 1995,
1996 or 1997 for the Company's stock options. Had compensation cost for the
Company's stock option plans been determined based on the fair-value at the
grant dates for awards made after March 31, 1995 under that plan, the Company's
net income and earnings per common share would have been reduced to the pro
forma amounts indicated below:
YEARS ENDED MARCH 31,
-------------------------------
1996 1997
------------- -------------
Net income:
As reported ....................... $ 770,906 $ 5,076,970
Pro forma ......................... $ 685,641 $ 4,928,107
Earnings per common share:
As reported ....................... $ 0.27 $ 0.71
Pro forma ......................... $ 0.23 $ 0.69
50
<PAGE>
(9) INCOME TAXES
The components of income tax expense applicable to continuing operations are
as follows:
YEARS ENDED MARCH 31,
--------------------------------------------
1995 1996 1997
-------- ---------- ----------
Current .................... $592,082 $ -- $ 769,909
Deferred ................... 88,740 709,306 2,573,091
-------- ---------- ----------
$680,822 $ 709,306 $3,343,000
======== ========== ==========
Income taxes for financial reporting purposes differs from the amount computed
by applying the statutory federal income tax rate of 34% to income before income
taxes as follows:
YEARS ENDED MARCH 31,
--------------------------------
1995 1996 1997
-------- --------- ----------
Expected tax expense at U.S. statutory rate .. $592,300 $ 707,984 $2,862,790
Expenses not deductible ...................... 11,220 35,501 70,375
State income taxes, net of federal effect .... 47,190 (37,116) 310,428
Other ........................................ 30,112 2,937 99,407
-------- --------- ----------
Provision for income taxes ................... $680,822 $ 709,306 $3,343,000
======== ========= ==========
The extraordinary loss of $513,819 in 1996 is net of deferred tax benefits of
$264,495.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1996 and 1997 are presented below:
1996 1997
---------- ----------
Deferred tax assets:
Allowance for uncollectible accounts receivable .... $ 109,065 $ 210,443
Reserve for worker's compensation .................. 347,966 621,498
Accrued bonuses .................................... 195,110 248,546
Net operating loss carryforwards ................... 1,119,522 641,059
Alternative minimum tax credit carryforwards ....... 435,455 868,527
Foreign tax credit carryforwards ................... -- 123,783
Other .............................................. 12,456 39,595
---------- ----------
Total gross deferred tax assets ............ 2,219,574 2,753,451
---------- ----------
Deferred tax liabilities:
Property and equipment ............................. 2,275,884 8,074,402
---------- ----------
Net deferred tax liability ................. $ 56,310 $5,320,951
========== ==========
The Company anticipates the reversal of existing taxable temporary differences
will provide sufficient taxable income to realize the benefits of its deferred
tax assets.
For the year ended March 31, 1996, a decrease in deferred income tax expense
resulted primarily from the purchase of the remaining 39% interest in the
Company's majority owned subsidiary, Dawson WellTech, L.C. (note 2), a reduction
in deferred tax liabilities occurred of approximately $1,400,000 as a result of
the differences in basis of assets for financial reporting and income tax
purposes.
As discussed in note 2, the Company acquired all of the issued and outstanding
stock of Taylor Companies, Inc. The transaction was accounted for as a purchase
and resulted in an increase in deferred tax liabilities of approximately $2.5
million due to differences in basis of assets for financial reporting and income
tax purposes.
51
<PAGE>
At March 31, 1997, the Company had $869,000 of alternative minimum tax credit
carryforwards available to reduce regular Federal income taxes which have no
expiration date. The Company also has a tax net operating loss carryforward of
approximately $1,885,000 and foreign tax credits of approximately $124,000 for
federal income tax purposes which expire in 2011 and 2002, respectively.
(10) RELATED PARTY TRANSACTIONS
The Company previously retained a company owned by a member of the Board of
Directors to provide consulting services and makes payments to that company upon
completion of various financing and acquisition transactions. Payments for fees
and expenses for the years ended March 31, 1995, 1996 and 1997 were $147,916,
$47,475 and $18,614, respectively. The payment for the year ended March 31, 1995
includes $122,500 paid as a finder's fee by an investment banking firm from the
fee it received from the Company in connection with an acquisition.
(11) EMPLOYEE BENEFIT PLANS
The Company has a welfare benefit plan (the "Plan") to provide medical
benefits for eligible employees and their dependents. Contributions to the Plan
are made by the Company and covered employees. The Plan may be terminated at the
discretion of the Company. Contributions to the Plan in the amounts of $571,387,
$686,949 and $1,054,965 were made in fiscal 1995, 1996 and 1997, respectively.
In addition, the Company made contributions to the Taylor Interests, Inc.
welfare benefit plan to provide medical benefits for those employees hired by
Dawson. Contributions were $187,239 from July 29, 1996 through January 1, 1997,
the date the employees transferred to the Company.
In fiscal 1993, the Company established a 401(k) savings plan. Eligible
employees can make contributions to the plan. The Company may, at its option,
match a portion of the contributions made by the employees. The Company matched
50% of employee contributions up to a limit of $500 per employee in fiscal 1994,
resulting in total payments of $50,140, which amounts were paid in fiscal 1995.
The Company did not match employee contributions made in fiscal 1995, 1996 or
fiscal 1997.
As of January 1, 1997, the Company transferred all former Taylor Interests,
Inc. employees hired by Dawson from the Taylor Interests 401(k) savings plan to
the Dawson 401(k) savings plan. Dawson did not match employee contributions made
to either plan by these employees from July 29, 1997 through March 31, 1997.
52
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES
Under the Company's worker's compensation insurance program, the Company pays
the first $300,000 of all claims with no aggregate limit in any one year.
Provision for claims under the program has been made in the financial statements
which represent the expected future payments based on the estimated ultimate
costs for incidents incurred through the end of each period. The insurance
carrier required the Company to make a deposit of $95,000. The deposit has been
included in other assets in the accompanying balance sheet. In addition, the
Company has established a letter of credit in favor of its respective insurance
carriers (note 4) and has entered into an agreement with an insurance carrier
for the guarantee of deductible reimbursement. The amount of the guarantee for
the year ended March 31, 1997 was $500,000.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
(13) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Receivables:
Trade receivables ..................................................... $ 9,063,995 $ 31,475,622
Less allowance for doubtful accounts .................................. (290,839) (561,182)
------------- -------------
Net trade receivables ......................................... $ 8,773,156 $ 30,914,440
============= =============
Prepaid expenses and other:
Prepaid expenses ...................................................... $ 108,957 $ 68,507
Other current assets .................................................. 106,540 375,908
------------- -------------
Total prepaids and other assets ............................... $ 215,497 $ 444,415
============= =============
Property and equipment:
Land .................................................................. $ 143,228 $ 98,210
Buildings ............................................................. 1,087,308 753,585
Well servicing equipment .............................................. 31,946,106 150,981,201
Automobiles, trucks and other vehicles ................................ 8,519,707 12,951,176
Office furniture and other equipment .................................. 354,077 691,345
------------- -------------
$ 42,050,426 165,475,517
Less accumulated depreciation and depletion ........................... (12,935,755) (19,834,921)
------------- -------------
Net property and equipment .................................... $ 29,114,671 145,640,596
============= =============
Goodwill and other assets:
Goodwill (net of accumulated amortization of $216,716 and $600,016) ... $ 2,059,696 $ 38,654,974
Other assets (net of accumulated amortization of $248,392 and $530,341) 1,107,224 14,152,590
Deposits and notes receivable ......................................... 398,635 351,127
------------- -------------
$ 3,565,555 $ 53,158,691
============= =============
Accrued liabilities:
Accrued payroll ....................................................... $ 839,446 $ 2,195,827
Accrued insurance ..................................................... 927,911 1,657,329
Other accrued expenses ................................................ 1,058,569 4,768,519
------------- -------------
$ 2,825,926 $ 8,621,675
============= =============
</TABLE>
53
<PAGE>
Summarized parent company only information for Dawson Production Services, Inc.
as of and for the year ended March 31, 1997 is as follows:
March 31,
1997
------------
Assets:
Current assets ................................................. $ 65,766,438
------------
Total assets ........................................... $261,811,356
============
Liabilities and shareholders' equity:
Current liabilities ............................................ $ 10,507,754
------------
Total liabilities ...................................... 155,592,374
Shareholders' equity ............................................. 106,218,982
------------
Total liabilities and shareholders' equity ............. $261,811,356
============
Revenues ......................................................... $ 79,589,594
Income before income taxes and equity in earnings of subsidiaries $ 7,051,874
Net income ....................................................... $ 5,076,970
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data for 1996 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(a)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Revenues ................... $12,647,883 $13,240,504 $13,058,459 $ 13,444,461
Operating income ........... 1,338,895 1,419,899 921,093 1,057,765
Net income (loss) .......... 326,146 321,982 211,756 (705)(a)
Earnings per share-- primary 0.12 0.12 0.06 (0.01)(a)
Earnings per share-- fully
diluted .................. 0.12 0.12 0.06 (0.01)(a)
</TABLE>
- ------------
(a) See discussion at note 4 regarding extraordinary item.
Summarized quarterly financial data for 1997 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ................... $14,677,591 $19,133,840 $22,455,685 $36,360,585
Operating income ........... 1,549,775 2,153,804 2,769,377 3,563,168
Net income ................. 1,015,650 1,159,397 1,549,955 1,351,968
Earnings per share-- primary 0.16 0.18 0.24 0.15
Earnings per share-- fully
diluted .................. 0.16 0.18 0.23 0.15
</TABLE>
54
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Company is
incorporated by reference from the Company's definitive Proxy Statement and
related materials in connection with the annual meeting of shareholders to be
held September 11, 1997. The incorporated portions consist of all of the
disclosures that appear in that Proxy Statement under the headings "Nominees for
Election as Directors" and "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information concerning Executive Compensation is incorporated by reference
from the Company's definitive Proxy Statement and related materials in
connection with the annual meeting of shareholders to be held on September 11,
1997. The incorporated portions consist of all of the disclosures that appear in
that Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the Security Ownership of Certain Beneficial Owners and
Management is incorporated by reference from the Company's definitive Proxy
Statement and related materials in connection with the annual meeting of
shareholders to be held on September 11, 1997. The incorporated portions consist
of all of the disclosures that appear in that Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning Certain Relationships and Related Transactions is
incorporated by reference from the Company's definitive Proxy Statement and
related materials in connection with the annual meeting of shareholders to be
held on September 11, 1997. The incorporated portions consist of all of the
disclosures that appear in that Proxy Statement under the heading "Certain
Relationships and Related Transactions."
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Dawson Production
Services, Inc. and subsidiaries are included in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets as of March 31, 1996 and March 31, 1997
Consolidated Statements of Income for each of the years in the
three-year period ended March 31, 1997
Consolidated Statements of Shareholders' Equity for each of the years in
the three-year period ended March 31, 1997
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended March 31, 1997
Notes to the Consolidated Financial Statements
56
<PAGE>
(2) The following Financial Statement Schedules are included herein:
None.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore, have
been omitted.
(3) Listing of Exhibits (included herein)
(b) Reports on Form 8-K.
On March 7, 1997, the Company filed a Report on Form 8-K reporting the
acquisition of the domestic land-based well serviciing operations of Pride
Petroleum Services, Inc. No financial statements were filed with such report
because they had been previously filed by the Company in the Company's
Registration Statement on Form S-1 (File No. 333-19413).
57
<PAGE>
ITEM 16. EXHIBITS AD FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER
- -------
3.1 -Amended and Restated Articles of Incorporation of the Company, as
amended by Articles of Amendment to the Amended and Restated Articles of
Incorporation (incorporated by reference as Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1 (No. 333-00452 dated
March 14, 1996)).
3.2 -Bylaws of the Company, as amended (incorporated by reference as Exhibit
3.2 of the Registrant's Registration Statement on Form S-1 (No.
333-00452 dated March 14, 1996)).
4.1 -Specimen stock certificate evidencing the Common Stock (incorporated by
reference as Exhibit 4.1 of the Registrant's Registration Statement on
Forms S-1 (No. 333-00452 dated March 14, 1996)).
4.2 -See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws of the Company defining the rights of the
holders of Common Stock.
4.3 -Indenture between the Company and U.S. Trust Company of Texas, N.A.
related to the offering of the 9 3/8% Senior Notes due 2007.
10.1 -Dawson Production Services, Inc. 1995 Incentive Plan (incorporated by
reference as Exhibit 10.1 of the Registrant's Registration Statement on
Forms S-1 (No. 333-00452 dated March 14, 1996)).
10.2 -Employment Agreement between the Company and Michael E. Little dated as
of April 1, 1996 (incorporated by reference as Exhibit 10.2 of the
Registrant's Registration Statement on Forms S-1 (No. 333-00452 dated
March 14, 1996)).
10.3 -Service contract between the Company and Union Pacific Resources
Company dated December 8, 1992 and Purchase Order dated April 27, 1995
(incorporated by reference as Exhibit 10.4 of the Registrant's
Registration Statement on Forms S-1 (No. 333-00452 dated March 14,
1996)).
10.4 -Credit Agreement between the Company and The Frost National Bank, dated
February 20, 1997, relating to a $50.0 million Working Capital Revolving
Facility.
10.5 -Security Agreement between the Company and The Frost National Bank,
dated as of February 20, 1997 relating to the Working Capital Revolving
Facility. Pursuant to Item 601, Instructions of Reg. S-K, identical
copies of the Security Agreement are not included for the following
debtors: Dawson Production Acquisition Corp. Dawson Production
Management, Inc. Taylor Companies, Inc. Dawson Production Partners, L.P.
10.6 -Non-Negotiable Convertible Debenture dated December 1, 1994 executed by
Dawson WellTech, L.C., as maker, and payable to Well Solutions, Inc.,
and Amendment and Modification of Non-Negotiable Convertible Debenture
(incorporated by reference as Exhibit 10.11 of the Registrant's
Registration Statement on Forms S-1 (No. 333-00452 dated March 14,
1996)).
10.7 -Agreement for the Acquisition of Minority Interest in Dawson WellTech,
L.C. between the Company and WellTech, Inc. dated as of November 1, 1995
(incorporated by reference as Exhibit 10.12 of the Registrant's
Registration Statement on Forms S-1 (No. 333-00452 dated March 14,
1996)).
10.8 -Agreement for the Conversion of Securities of Dawson Well Servicing,
Inc. among the Company, RIMCO Partners, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III, Triad Ventures Limited II and Nueces Ventures,
Inc., dated as of November 1, 1995, and Joinder Agreement executed by
NationsBanc Campital Corporation (incorporated by reference as Exhibit
10.13 of the Registrant's Registration Statement on Forms S-1 (No.
333-00452 dated March 14, 1996)).
10.9 -Registration Rights Agreement among the Company, WellTech, Inc., RIMCO
Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III, RIMCO
Partners, L.P. IV, Triad Ventures Limited II, NationsBanc Capital
Corporation and Nueces Ventures, Inc., dated as of November 1, 1995
(incorporated by reference as Exhibit 10.14 of the Registrant's
Registration on Forms S-1 (No. 333-00452 dated March 14, 1996)).
10.10 -Letter agreements between the Company and Nueces Ventures, Inc.
Relating to consulting services dated August 14, 1992, with amendment
dated January 10, 1995 and termination dated October 13, 1995
(incorporated by reference as Exhibit 10.15 of the Registrant's
Registration Statement on Forms S-1 (No. 333-00452 dated March 14,
1996)).
10.11 -Form of Indemnification Agreement between the Company and each of its
directors and executive officers (incorporated by reference as Exhibit
10.16 of the Registrant's Registration Statement on Forms S-1 (No.
333-00452 dated March 14, 1996)).
58
<PAGE>
10.12 -Employment Agreement between the Company and P. Mark Stark dated as of
April 1, 1996 (incorporated by reference as Exhibit 10.17 of the
Registrant's Registration Statement on Forms S-1 (No. 333-00452 dated
March 14, 1996)).
10.13 -Employment Agreement between the Company and Joseph Eustace dated as of
April 1, 1996 (incorporated by reference as Exhibit 10.18 of the
Registrant's Registration Statement on Forms S-1 (No. 333-00452 dated
March 14, 1996)).
10.14 -Promissory Notes dated November 1, 1994 and February 1, 1996 payable to
the Company by Michael E. Little (incorporated by reference as Exhibit
10.19 of the Registrant's Registration Statement on Forms S-1 (No.
333-00452 dated March 14, 1996)).
10.15 -Voting Agreement among RIMCO Partners, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III, RIMCO Partners, L.P. IV, Triad Ventures
Limited II, the Company and Michael E. Little dated November 28, 1994
and letter dated January 16, 1995 relating thereto (Incorporated by
Reference to Exhibit 10.9 to the Registration Statement on Form S-1
effective March 20, 1996 (File No. 333-00452)).
10.16 -Purchase Agreement between the Company and Pride Petroleum Services,
Inc., a Louisiana Corporation, dated as of December 23, 1996.
(Incorporated by reference from Exhibit 10.16 of the Company's
Registration Statement on Form S-1 (File No. 333-19413))
10.17 -First Amendment to Purchase Agreement dated February 20, 1997 between
the Company and Pride Petroleum Services, Inc., a Louisiana Corporation.
(Incorporated by reference from Exhibit 10.24 of the Company's Report on
Form 8-K filed March 7, 1997 (File No. 0-27732)).
10.18 -Stock Purchase Agreement dated July 8, 1996 among Dawson Production
Services, Inc., a Texas Corporation (the "Buyer"), PSD Investments,
Ltd., a Texas limited partnership (the "Seller"), John Randall Taylor,
an individual residing in Panola County, Texas, in his individual
capacity, and as general partner and sole managing partner of the Seller
and his spouse, Kathy Dianne Taylor, who is also an individual residing
in Panola County, Texas, in her individual capacity and as a general
partner of the Seller (incorporated by reference as Exhibit 10.23 of the
Registrant's Current Report on Form 8-K (No. 0-27732 dated July 29,
1996)).
10.19 -First Amendment dated July 29, 1996 to Stock Purchase Agreement dated
July 8, 1996 by and among Dawson Production Services, Inc., a Texas
corporation (the "Buyer"), PSD Investments, Ltd., a Texas limited
partnership (the "Seller"), John Randall Taylor, an individual residing
in Panola County, Texas, in his individual capacity, and as general
partner and sole managing partner of the Seller and his spouse, Kathy
Diane Taylor, who is also an individual residing in Panola County,
Texas, in her individual capacity and as a general partner of the Seller
(incorporated by reference as Exhibit 10.24 of the Registrant's Current
Report on Form 8-K (No. 0-27732 dated July 29, 1996)).
10.20 -Omitted.
10.21 -Omitted.
11.1 -Statement Regarding Computation of Per Share Earnings.
12.1 -Statement of Ratio of Earnings to Fixed Charges for each of the last
three fiscal years.
21.1 -Subsidiaries of the Registrant.
24.1 -Power of Attorney for Dawson Production Services, Inc. (contained on
the signature page of this report).
59
<PAGE>
As permitted by Item 601 (b) (4) (iii) (A) of Regulation S-K, the Registrant
has not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreement to the Commission upon request.
60
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on June 27, 1997.
DAWSON PRODUCTION SERVICES, INC.
BY: /s/ MICHAEL E. LITTLE
Michael E. Little
Chairman of the Board, President
and Chief Executive Officer
Power of Attorney
Each person whose signature appears below hereby constitutes and appoints
Michael E. Little and P. Mark Stark, and each of them, each with full power to
act without the other, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this Report, and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person hereby ratifying and confirming that each of said attorneys-in-fact
and agents or his substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ MICHAEL E. LITTLE Chairman of the Board, President, June 27, 1997
- ------------------------------ Chief Executive Officer and
Michael E. Little Director (Principal Executive
Officer)
/s/ P. MARK STARK Chief Financial Officer (Principal June 27, 1997
- ------------------------------ Accounting and Financial Officer)
P. Mark Stark
______________________________ Director June 27, 1997
Wm. Ward Greenwood
______________________________ Director June 27, 1997
J. Michael Bell
______________________________ Director June 27, 1997
Douglas D. Lewis
61
<PAGE>
/s/ PAUL E. MCCOLLAM Director June 27, 1997
- ------------------------------
Paul E. McCollam
/s/ RUSSELL BANKS Director June 27, 1997
- ------------------------------
Russell Banks
/s/ STEPHEN F. OAKES Director June 27, 1997
- ------------------------------
Stephen F. Oakes
/S/ LAWRENCE C. PETRUCCI Director June 27, 1997
- ------------------------------
Lawrence C. Petrucci
</TABLE>
62
DAWSON PRODUCTION SERVICES, INC.
AND
SUBSIDIARY GUARANTORS
9-3/8% SENIOR NOTES DUE 2007
INDENTURE
Dated as of February 20, 1997
U.S. TRUST COMPANY OF TEXAS, N.A.
Trustee
$140,000,000
<PAGE>
CROSS REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION
310(a)(1).................................................................7.10
(a)(2)....................................................................7.10
(a)(3)....................................................................N.A.
(a)(4)................................................................... N.A.
(a)(5)....................................................................7.10
(b).......................................................................7.10
(c).......................................................................N.A.
311(a)....................................................................7.11
(b).......................................................................7.11
(c).......................................................................N.A.
312(a).....................................................................2.5
(b).......................................................................11.3
(c).......................................................................11.3
313(a).....................................................................7.6
(b)(1).....................................................................7.6
(b)(2)................................................................ 7.6;7.7
(c)...................................................................7.6;11.2
(d)........................................................................7.6
314(a)................................................................4.3;11.2
(b).......................................................................4.12
(c)(1)....................................................................11.4
(c)(2)....................................................................11.4
(c)(3)....................................................................N.A.
(d).............................................................11.3;11.4;11.5
(e).......................................................................11.5
(f).......................................................................N.A.
315(a).....................................................................7.1
(b)...................................................................7.5;11.2
(c)........................................................................7.1
(d)........................................................................7.1
(e).......................................................................6.11
316 (a)(last sentence).....................................................2.9
(a)(1)(A)..................................................................6.5
(a)(1)(B)..................................................................6.4
(a)(2)....................................................................N.A.
(b)........................................................................6.7
(c).......................................................................2.12
317(a)(1)..................................................................6.8
(a)(2).....................................................................6.9
(b)........................................................................2.4
318(a)....................................................................11.1
(b).......................................................................N.A.
(c).......................................................................11.1
N.A. means not applicable.
*This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE................. 1
SECTION 1.1 DEFINITIONS........................................ 1
SECTION 1.2 OTHER DEFINITIONS.................................. 15
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.. 16
SECTION 1.4 RULES OF CONSTRUCTION.............................. 16
ARTICLE 2 THE NOTES.................................................. 17
SECTION 2.1 FORM AND DATING.................................... 17
SECTION 2.2 EXECUTION AND AUTHENTICATION....................... 17
SECTION 2.3 REGISTRAR AND PAYING AGENT......................... 18
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST................ 18
SECTION 2.5 HOLDER LISTS....................................... 19
SECTION 2.6 TRANSFER AND EXCHANGE.............................. 19
SECTION 2.7 REPLACEMENT NOTES.................................. 21
SECTION 2.8 OUTSTANDING NOTES.................................. 22
SECTION 2.9 TREASURY NOTES..................................... 22
SECTION 2.10 TEMPORARY NOTES.................................... 22
SECTION 2.11 CANCELLATION....................................... 22
SECTION 2.12 DEFAULTED INTEREST................................. 23
SECTION 2.13 CUSIP NUMBERS...................................... 23
ARTICLE 3 REDEMPTION AND PREPAYMENT.................................. 23
SECTION 3.1 NOTICES TO TRUSTEE................................. 23
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.................. 23
SECTION 3.3 NOTICE OF REDEMPTION............................... 24
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION..................... 25
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE........................ 25
SECTION 3.6 NOTES REDEEMED IN PART............................. 25
SECTION 3.7 OPTIONAL REDEMPTION................................ 25
SECTION 3.8 MANDATORY REDEMPTION............................... 26
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS 26
ARTICLE 4 COVENANTS.................................................. 28
SECTION 4.1 PAYMENT OF NOTES................................... 28
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.................... 28
SECTION 4.3 REPORTS............................................ 29
SECTION 4.4 COMPLIANCE CERTIFICATE............................. 29
SECTION 4.5 TAXES.............................................. 30
SECTION 4.6 STAY, EXTENSION AND USURY LAWS..................... 30
SECTION 4.7 RESTRICTED PAYMENTS................................ 30
SECTION 4.8 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES....................................... 32
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
EQUITY............................................. 33
SECTION 4.10 ASSET SALES........................................ 35
SECTION 4.11 TRANSACTIONS WITH AFFILIATES....................... 37
SECTION 4.12 LIENS.............................................. 37
i
<PAGE>
SECTION 4.13 ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED SUBSIDIARIES................................. 38
SECTION 4.14 SALE-AND-LEASEBACK TRANSACTIONS.................... 38
SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL......... 38
SECTION 4.16 BUSINESS ACTIVITIES................................ 39
ARTICLE 5 SUCCESSORS................................................. 39
SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS............ 39
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.................. 40
ARTICLE 6 DEFAULTS AND REMEDIES...................................... 40
SECTION 6.1 EVENTS OF DEFAULT.................................. 40
SECTION 6.2 ACCELERATION....................................... 42
SECTION 6.3 OTHER REMEDIES..................................... 42
SECTION 6.4 WAIVER OF PAST DEFAULTS............................ 43
SECTION 6.5 CONTROL BY MAJORITY................................ 43
SECTION 6.6 LIMITATION ON SUITS................................ 43
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT...... 43
SECTION 6.8 COLLECTION SUIT BY TRUSTEE......................... 44
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM................... 44
SECTION 6.10 PRIORITIES......................................... 44
SECTION 6.11 UNDERTAKING FOR COSTS.............................. 45
ARTICLE 7 TRUSTEE ................................................... 45
SECTION 7.1 DUTIES OF TRUSTEE.................................. 45
SECTION 7.2 RIGHTS OF TRUSTEE.................................. 46
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE....................... 47
SECTION 7.4 TRUSTEE'S DISCLAIMER............................... 47
SECTION 7.5 NOTICE OF DEFAULTS................................. 47
SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES.......... 47
SECTION 7.7 COMPENSATION AND INDEMNITY......................... 47
SECTION 7.8 REPLACEMENT OF TRUSTEE............................. 48
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC................... 49
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION...................... 49
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
COMPANY............................................ 50
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE................... 50
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE......................................... 50
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE..................... 50
SECTION 8.3 COVENANT DEFEASANCE................................ 50
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE......... 51
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS........... 52
SECTION 8.6 REPAYMENT TO THE COMPANY........................... 53
SECTION 8.7 REINSTATEMENT...................................... 53
ii
<PAGE>
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER........................... 53
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES................ 53
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES................... 54
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT................ 56
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.................. 56
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES................... 56
SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC...................... 56
ARTICLE 10 SUBSIDIARY GUARANTEES...................................... 57
SECTION 10.1 SUBSIDIARY GUARANTEES.............................. 57
SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES................... 58
SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY..... 59
SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON
CERTAIN TERMS...................................... 59
SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS.................. 60
SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT.................. 60
SECTION 10.7 CONTRIBUTION....................................... 60
SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES................. 61
ARTICLE 11 MISCELLANEOUS.............................................. 61
SECTION 11.1 TRUST INDENTURE ACT CONTROLS....................... 61
SECTION 11.2 NOTICES............................................ 61
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES................................... 63
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.......................................... 64
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION...... 64
SECTION 11.6 RULES BY TRUSTEE AND AGENTS........................ 64
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND SHAREHOLDERS......................... 64
SECTION 11.8 GOVERNING LAW...................................... 65
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS...... 65
SECTION 11.10 SUCCESSORS......................................... 65
SECTION 11.11 SEVERABILITY....................................... 65
SECTION 11.12 COUNTERPART ORIGINALS.............................. 65
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC................... 65
iii
<PAGE>
INDENTURE dated as of February 20, 1997, by and among Dawson Production
Services, Inc., a Texas corporation (the "COMPANY"), the Subsidiary Guarantors
(as defined herein) and U.S. Trust Company of Texas, N.A., as trustee (the
"TRUSTEE").
The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of one another and for the equal and ratable benefit of the
Holders of the 9-3/8% Senior Notes due 2007 of the Company (the "NOTES"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary to such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ACQUISITION LINE" means the loan facility under the credit agreement to
be entered into between the Company and the Frost National Bank for the purpose
of acquisitions of assets or businesses, as amended, modified, supplemented,
extended, restated or renewed from time to time.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a sale-and-leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale-and-leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). As used in the preceding sentence, the "net
rental payments" under any lease for any such period shall mean the sum of
rental and other payments required to be paid with respect to such period by the
lessee thereunder, excluding any amounts required to be paid by such lessee on
account of maintenance and repairs, insurance, taxes, assessments, water rates
or similar charges. In the case of any lease that is terminable by the lessee
upon payment of penalty, such net rental payment shall also include the amount
of such penalty, but no rent
1
<PAGE>
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated.
"BANKRUPTCY CUSTODIAN" means any receiver, trustee, assignee, liquidator
or similar officer under any Bankruptcy Law.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability
corporation or similar entity, any membership or other similar interests therein
and (v) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"CASH EQUIVALENTS" means (i) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million; (iii)
commercial paper with a maturity of 270 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and rated at least A-2 by
Standard and Poor's or at least P-2 by Moody's; (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; (v) overnight bank deposits and bankers'
acceptances at any commercial bank meeting the qualifications specified in
clause (ii) above; (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above,
provided all such deposits do not exceed $5.0 million in the aggregate at any
one time; (vii) demand and time deposits and certificates of deposit with any
commercial bank organized in the United States not meeting the qualifications
specified in clause (ii) above, PROVIDED that such deposits and certificates
support bond, letter of credit and other similar types of obligations incurred
in the ordinary course of business and (viii) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of
2
<PAGE>
related transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act); (ii) the Company consolidates
with or merges into another Person or any Person consolidates with, or merges
into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (a) the
outstanding Voting Stock of the Company is changed into or exchanged for Voting
Stock of the surviving or resulting Person that is Qualified Capital Stock and
(b) the holders of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, not less than a majority of the Voting
Stock of the surviving or resulting Person immediately after such transaction;
(iii) the adoption of a plan relating to the liquidation or dissolution of the
Company; (iv) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the Voting Stock of the Company or (v) the first
day on which a majority of the members of the Board of Directors are not
Continuing Directors. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring Voting Stock
of the Company will be deemed to be a transfer of such portion of such Voting
Stock as corresponds to the portion of the equity of such entity that has been
so transferred.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated net interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Indebtedness, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Interest Rate Protection Obligations), to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iv) depreciation, amortization (including amortization of goodwill, debt
issuance costs and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges (including
any provision for the reduction in the carrying value of assets recorded in
accordance with GAAP but excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, minus (v) any non-cash items increasing the
Consolidated Net Income of such Person and its Restricted Subsidiaries during
such period (excluding any such items that represent the reversal of any accrual
of, or cash reserve for, anticipated cash charges in any prior period commencing
subsequent to the Issue Date), in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of a Restricted Subsidiary of the referent Person shall
be added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in same proportion)
3
<PAGE>
that the Net Income of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its shareholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof that is a Subsidiary Guarantor; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its shareholders; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of a change
in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common shareholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of cash dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Issue Date in the book
value of any asset owned by such Person or a consolidated Restricted Subsidiary
of such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments) and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on the Issue Date or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 11.2 hereof or such other address as to which the
Trustee may give notice to the Company.
"CREDIT FACILITY" means, collectively, the Acquisition Line and the
Working Line.
"CURRENCY HEDGE OBLIGATIONS" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency
4
<PAGE>
exchange agreement, option or futures contract or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
Subsidiaries' exposure to fluctuations in foreign currency exchange rates.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DEFINITIVE NOTES" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
footnotes 1 and 2 thereto.
"DEPOSITORY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest (other than an interest arising solely from the beneficial
ownership of Capital Stock of the Company) in or with respect to such
transaction or series of transactions.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"EMPLOYEE STOCK REPURCHASES" means purchases by the Company of any of
its Capital Stock from employees, provided that the aggregate amount of all such
purchases shall not exceed $500,000 during any fiscal year of the Company.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EVENT OF LOSS" means, with respect to any workover rig or similar or
related property or asset of the Company or any Restricted Subsidiary, (i) any
damage to such workover rig or similar or related property or asset that results
in an insurance settlement with respect thereto on the basis of a total loss or
a constructive or compromised total loss or (ii) the confiscation, condemnation
or requisition of title to such workover rig or similar or related property or
asset by any government or instrumentality or agency thereof. An Event of Loss
shall be deemed to occur as of the date of the insurance settlement,
confiscation, condemnation or requisition of title, as applicable.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means up to $3.75 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facility) in existence on the Issue Date, until
such amounts are repaid.
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"FAIR MARKET VALUE" means, with respect to any asset or Investment, the
fair market value of such asset or Investment at the time of the event requiring
such determination, and, with respect to any assets or Investment in excess of
$5.0 million (other than cash, Cash Equivalents or securities for which there is
a readily available public market) as determined by an Independent Appraiser
that is, in the reasonable judgment of the Board of Directors, qualified to
perform the task for which such Independent Appraiser has been engaged and
independent with respect to the Company.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions of businesses that
have been made by the referent Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period; (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded; and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense (net of any interest income) of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (excluding amortization of debt issuance costs and including, without
limitation, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Indebtedness, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Interest
Rate Protection Obligations); (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period;
(iii) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv) the product of (A) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person, to the
extent such preferred stock is owned by Persons other than such Person or its
Restricted Subsidiaries, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States, which are in effect as of the date of
preparation of a financial statement or the date that a particular action is
taken or event occurs, as applicable.
"GLOBAL NOTE" means a Note that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in footnote 2 to the form of
Note attached hereto as Exhibit A.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America, which, in either case, are not
callable or redeemable as the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
The term "GUARANTEE" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"GUARANTEE" has a corresponding meaning.
"HOLDER" means a Person in whose name a Note is registered.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any obligations in respect of
Currency Hedge Obligations or Interest Rate Protection Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than letters of credit, Currency
Hedge Obligations and Interest Rate Protection Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any Indebtedness
of any other Person.
"INDENTURE" means this indenture, as amended or supplemented from time
to time.
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"INDEPENDENT APPRAISER" means an investment banking firm of national
standing with noninvestment grade debt underwriting experience or any third
party appraiser of national standing; PROVIDED, HOWEVER, that such firm or
appraiser is not an Affiliate of the Company.
"INTEREST RATE PROTECTION OBLIGATIONS" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
PROVIDED that the following shall not constitute Investments: (i) an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company, (ii) extensions of trade
credit or other advances to customers on commercially reasonable terms in
accordance with normal trade practices or otherwise in the ordinary course of
business, (iii) Interest Rate Protection Obligations and Currency Hedge
Obligations, but only to the extent that the same constitute Permitted
Indebtedness and (iv) endorsements of negotiable instruments and documents in
the ordinary course of business. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"ISSUE DATE" means the date on which the Notes were first issued under
this Indenture.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of San Antonio, Texas or the City of New York or at a
place of payment are authorized by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday, payment may be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement).
"MOODY'S" means Moody's Investors Service, Inc. and any successor to the
rating agency business thereof.
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"NET EQUITY PROCEEDS" means (i) in the case of any sale by the Company
of Qualified Capital Stock of the Company, the aggregate net proceeds received
by the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors, as
evidenced by a written resolution of said Board of Directors, at the fair market
value thereof at the time of receipt) and (ii) in the case of any exchange,
exercise, conversion or surrender of any outstanding Indebtedness of the Company
or any Restricted Subsidiary for or into shares of Qualified Capital Stock of
the Company, the amount of such Indebtedness (or, if such Indebtedness was
issued at an amount less than the stated principal amount thereof, the accrued
amount thereof as determined in accordance with GAAP) as reflected in the
consolidated financial statements of the Company prepared in accordance with
GAAP as of the most recent date next preceding the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holders of such Indebtedness to the Company or to any Wholly Owned
Restricted Subsidiary of the Company upon such exchange, exercise, conversion or
surrender and less any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the Company in connection
therewith), in the case of each of clauses (i) and (ii) to the extent
consummated after the Issue Date.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale-and-leaseback transactions) or other
sale of assets or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; (ii) any extraordinary or
nonrecurring item (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss) and (iii) any interest
income, together with any related provision for taxes on such interest income.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (i) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (ii) amounts required to be applied to the repayment of
Indebtedness (other than Indebtedness under the Credit Facility) secured by a
Lien on the asset or assets that were the subject of such Asset Sale, (iii)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the asset or assets that
were the subject of such Asset Sale, (iv) any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP
and (v) any adjustment for expenses of discontinuing any operations or line of
business or severance costs, in both cases associated with an Asset Sale;
provided that such adjustment does not exceed 15% of the aggregate cash
proceeds.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (A) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a Subsidiary
Guarantor or otherwise) or (C) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of
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the Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"NON-RECOURSE PURCHASE MONEY INDEBTEDNESS" means Indebtedness or that
portion of Indebtedness of the Company or any Restricted Subsidiary incurred in
connection with the acquisition by the Company or such Restricted Subsidiary,
subsequent to the Issue Date, of any property or assets and as to which (i) the
holders of such Indebtedness agree that they will look solely to the property or
assets so acquired (or, in the case of the acquisition of all of the outstanding
Capital Stock of a Person, the underlying properties and assets of such Person
at the time of such acquisition, including proceeds thereof) and securing such
Indebtedness for payment on or in respect of such Indebtedness, and neither the
Company nor any Restricted Subsidiary (A) provides credit support, including any
undertaking, agreement or instrument that would constitute Indebtedness or (B)
is directly or indirectly liable for such Indebtedness and (ii) no default with
respect to such Indebtedness would permit (after notice or passage of time or
both), according to the terms thereof, any holder of any Indebtedness of the
Company or a Restricted Subsidiary to declare a default on such Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and, PROVIDED HOWEVER, that any portion of the purchase price of such
property or assets that is not financed through the incurrence of such
Indebtedness, shall be deemed to be a "Restricted Investment" under this
Indenture and shall only be permitted to be expended by the Company or any
Restricted Subsidiary to the extent that the Company would be permitted to make
a Restricted Payment in such amount under the terms of Section 4.7 hereof.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means, with respect to any Person, the Chief Executive
Officer, President, Chief Financial Officer, Treasurer, Secretary or any Vice
President of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers, at
least one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company, that meets the
requirements of Section 11.5 hereof.
"OIL SERVICE BUSINESS" means any businesses related to providing
services for the drilling for, or exploration and production of, oil, gas or
other hydrocarbons, including, but not limited to, (i) the well servicing
business, (ii) liquid services and (iii) production services.
"OPINION OF COUNSEL" means an Opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company.
"PERMITTED INVESTMENTS" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries (including repurchases of any of the Notes on the open
market or as otherwise permitted by this Indenture); (iii) Investments by the
Company or any of its Restricted Subsidiaries in another Person, if as a result
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of such Investment (A) such other Person becomes a Wholly Owned Restricted
Subsidiary or (B) such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its properties and assets to,
the Company or a Wholly Owned Restricted Subsidiary; (iv) Investments permitted
under Section 4.10 hereto; (v) Investments made in the ordinary course of
business in prepaid expenses, lease, utility, workers' compensation, performance
and other similar deposits; (vi) Investments in stock, obligations or securities
received in, settlement of debts owing to the Company or any Restricted
Subsidiary as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection or enforcement of any Lien in favor of the Company or
any Restricted Subsidiary, in each case as to debt owing to the Company or any
Restricted Subsidiary that arose in the ordinary course of business of the
Company or any such Restricted Subsidiary, PROVIDED that any stocks, obligations
or securities received in settlement of debts that arose in the ordinary course
of business (and received other than as a result of bankruptcy or insolvency
proceedings or upon foreclosure, perfection or enforcement of any Lien) that
are, within 30 days of receipt, converted into cash or Cash Equivalents shall be
treated as having been cash or Cash Equivalents at the time received and (vii)
other Investments in joint ventures, corporations, limited liability companies
or partnerships formed with or organized by third Persons, which joint ventures,
corporations, limited liability companies or partnerships, engage in the Oil
Service Business and are not Unrestricted Subsidiaries at the time of such
Investment, provided all such Investments do not, in the aggregate, exceed $10.0
million.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens existing as of the Issue Date;
(ii) Liens securing the Notes or the Subsidiary
Guarantees;
(iii) Liens in favor of the Company;
(iv) Liens securing Indebtedness that constitutes
Permitted Indebtedness pursuant to clause (i), (ii) or (iv) of the
definition of "Permitted Indebtedness" included in Section 4.9 hereof;
(v) Liens for taxes, assessments and governmental
charges or claims either (A) not delinquent or (B) contested in good
faith by appropriate proceedings and as to which the Company or its
Restricted Subsidiaries shall have set aside on its books such reserves
as may be required pursuant to GAAP;
(vi) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserve or
other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(vii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the payment or performance of tenders, statutory or regulatory
obligations, surety and appeal bonds, bids, government contracts and
leases, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
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(viii) judgment Liens not giving rise to an Event of
Default so long as any appropriate legal proceedings which may have been
duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be
initiated shall not have expired;
(ix) any interest or title of a lessor under any Capital
Lease Obligation or operating lease;
(x) Liens securing Non-Recourse Purchase Money
Indebtedness and other purchase money Liens; PROVIDED, HOWEVER, that (i)
the related Non-Recourse Purchase Money Indebtedness or other purchase
money Indebtedness shall not be secured by any property or assets of the
Company or any Restricted Subsidiary other than the property or assets
so acquired and any proceeds therefrom and (ii) the Lien securing any
such Indebtedness shall be created within 90 days of such acquisition;
(xi) Liens securing obligations under or in respect of
either Currency Hedge Obligations or Interest Rate Protection
Obligations;
(xii) Liens upon specific items of inventory or other
goods of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(xiii) Liens securing reimbursement obligations with
respect to commercial letters of credit that encumber documents and
other property or assets relating to such letters of credit and products
and proceeds thereof; and
(xiv) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
PROVIDED that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded and (iv)
with respect to any such Indebtedness of the Company being extended, refinanced,
renewed, replaced, defeased or refunded, such Permitted Refinancing Indebtedness
shall not be incurred by any Restricted Subsidiary.
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"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PUBLIC EQUITY OFFERING" means an underwritten offer and sale of common
stock of the Company pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise relating to equity securities
issuable under any employee benefit plan of the Company) or a private sale in
which the Company is obligated to publicly register such common stock for resale
within 120 days of such sale.
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital Stock
of such Person other than Disqualified Stock.
"RATING AGENCIES" means Standard and Poor's and Moody's, or any
successor to the respective rating agency businesses thereof.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"RESTRICTED INVESTMENT" means (without duplication) (i) the designation
of a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary", (ii) any Investment other than a
Permitted Investment and (iii) any amount constituting a "Restricted Investment"
as contemplated in the definition of "Non-Recourse Purchase Money Indebtedness".
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" means any (i) Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof, and (ii) any other Subsidiary that contributed more than 5% of
the Company's Consolidated Cash Flow for the most recent four fiscal quarters
for which financial statements are available.
"STANDARD AND POOR'S" means Standard and Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc., and any successor to the rating
agency business thereof.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person of one or more of the other Subsidiaries of that
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Person (or a combination thereof) and (ii) any partnership (A) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (B) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
"SUBSIDIARY GUARANTORS" means each of (i) the Company's Significant
Subsidiaries on the Issue Date or any other Restricted Subsidiary that provides
a guarantee under the Credit Facility, (ii) any other Subsidiary that executes a
Subsidiary Guarantee in accordance with Article 10 hereof and (iii) their
respective successors and assigns, as required under Article 10 hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.3 hereof.
"TRUSTEE" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary (or any successor to any
of them) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a resolution of the Board of Directors; but only to the
extent that such Subsidiary (i) has no Indebtedness other than Non-Recourse
Indebtedness; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (A) to
subscribe for additional Equity Interests or (B) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results and (iv) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.7 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.9 hereof, the Company shall be in
default of such Section). The Board of Directors may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.9 hereof and (ii) no Default or Event of Default
would be in existence following such designation.
"VOTING STOCK" means, with respect to any specified Person, Capital
Stock with voting power, under ordinary circumstances and without regard to the
occurrence of any contingency, to elect the directors or other managers or
trustees of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal,
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including payment at final maturity, in respect thereof, by (B) the number of
years (calculated to the nearest one-twelfth) that will elapse between such date
and the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary to
the extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, PROVIDED that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interests
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary to the extent (i) all of
the Capital Stock or other ownership interests in such Subsidiary, other than
any directors' qualifying shares mandated by applicable law, is owned directly
or indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a wholly owned Subsidiary.
"WORKING LINE" means the loan facility under the credit agreement, dated
February 20, 1997, between the Company and the Frost National Bank for the
purposes of supporting accounts receivable, funding letters of credit and
providing for working capital needs, as amended, modified, supplemented,
extended, restated or renewed from time to time.
SECTION 1.2 OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
"Adjusted Net Assets"..................... 10.7
"Asset Sale".............................. 4.10
"Asset Sale Offer"........................ 4.10
"Asset Sale Offer Payment"................ 3.9
"Asset Sale Offer Purchase Date".......... 3.9
"Asset Sale Offer Trigger Date"........... 4.10
"Benefitted Party"........................ 10.1
"Change of Control Offer"................. 4.15
"Change of Control Payment"............... 4.15
"Change of Control Payment Date".......... 4.15
"Covenant Defeasance"..................... 8.3
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"DTC" ................................... 2.3
"Event of Default"........................ 6.1
"Excess Proceeds"......................... 4.10
"Funding Guarantor"....................... 10.7
"incur"................................... 4.9
"Interest Payment Date"................... Exhibit A
"Legal Defeasance"........................ 8.2
"Maximum Bank Facility Amount"............ 4.9
"Offer Amount"............................ 3.9
"Offer Period"............................ 3.9
"Paying Agent"............................ 2.3
"Payment Default"......................... 6.1
"Permitted Indebtedness".................. 4.9
"refinancing"............................. 4.9
"Registrar"............................... 2.3
"Restricted Payments"..................... 4.7
"Subsidiary Guarantees"................... 10.1
"transfer"................................ 4.10
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Subsidiary Guarantees;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, any Subsidiary Guarantor and
any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
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(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in
the plural include the singular;
(v) provisions apply to successive events and
transactions; and
(vi) references to sections of or rules under the
Securities Act or the Exchange Act shall be deemed to include
substitute, replacement of successor sections or rules adopted by the
Commission from time to time.
ARTICLE 2
THE NOTES
SECTION 2.1 FORM AND DATING.
The Notes, the notation thereon relating to the Subsidiary Guarantees
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit A hereto. The Notes may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Note shall be dated the date
of its authentication. The Notes shall be issued in minimum denominations of
$1,000 and integral multiples thereof.
The terms and provisions contained in the form of the Notes and the
notation thereon relating to the Subsidiary Guarantees annexed hereto as Exhibit
A and the Subsidiary Guarantees shall constitute, and are hereby expressly made,
a part of this Indenture and the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 2
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Notes from time to time
endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.6 hereof.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid. Each Subsidiary Guarantor shall execute its Subsidiary Guarantee in the
manner set forth in Section 10.8.
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A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall authenticate the Notes for original issue up to the
aggregate principal amount of $140,000,000. The aggregate principal amount of
Notes outstanding at any time may not exceed $140,000,000 except as provided in
Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("REGISTRAR") and an
office or agency where Notes may be presented for payment ("PAYING AGENT"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "REGISTRAR" includes any co-registrar and the term
"PAYING AGENT" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary thereof) shall have no
further liability for the money. If the Company or a Subsidiary thereof acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Trustee shall serve
as Paying Agent for the Notes.
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SECTION 2.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive
Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal
principal amount of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by such Holder or by his
attorney, duly authorized in writing.
(b) TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A
GLOBAL NOTE. A Definitive Note may not be exchanged for a beneficial interest in
a Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with written instructions from the Holder thereof directing the Trustee
to make, or to direct the Note Custodian to make, an endorsement on the Global
Note to reflect an increase in the aggregate principal amount of the Global
Note, in which case the Trustee shall cancel such Definitive Note in accordance
with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, the aggregate principal amount of the Global
Note to be increased accordingly. If no Global Note is then outstanding, the
Company shall issue and, upon receipt of an authentication order in accordance
with Section 2.2 hereof, the Trustee shall authenticate,a new Global Note in the
appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL NOTE. The transfer and
exchange of the Global Note or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures of
the Depository therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A
DEFINITIVE NOTE.
(i) Any Person having a beneficial interest in a Global
Note may upon request exchange such beneficial interest for a Definitive
Note. Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a beneficial
interest in a Global
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Note, the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and
procedures existing between the Depository and the Note Custodian, cause
the aggregate principal amount of a Global Note to be reduced
accordingly and, following such reduction, the Company shall execute and
the Trustee shall authenticate and deliver to the transferee a
Definitive Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes
are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTE.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.6), a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) AUTHENTICATION OF DEFINITIVE NOTES IN ABSENCE OF DEPOSITORY.
If at any time:
(i) the Depository for the Notes notifies the Company that
the Depository is unwilling or unable to continue as Depository for the
Global Note and a successor Depository for the Global Note is not
appointed by the Company within 90 days after delivery of such notice;
or
(ii) the Company, at its discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
then the Company shall execute, and the Trustee shall authenticate and deliver,
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Global Note in exchange for such Global Note.
(g) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTE. At such time
as all beneficial interests in a Global Note have been exchanged for Definitive
Notes, redeemed, repurchased or canceled, the Global Note shall be returned to
or retained and canceled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Definitive Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
(h) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Definitive
Notes and Global Notes at the Registrar's request.
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(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 3.7, 3.9, 4.10, 4.15 and 9.5 hereto).
(iii) The Registrar shall not be required to register the
transfer or exchange of any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the
Definitive Notes or Global Notes surrendered upon such registration of
transfer or exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for
redemption under Section 3.2 hereof and ending at the close of
business on the day of selection;
(B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a
Note between a record date and the next succeeding interest
payment date.
(i) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and interest on such Notes,
and neither the Trustee, any Agent nor the Company shall be affected by notice
to the contrary.
SECTION 2.7 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Company, and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
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SECTION 2.8 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those redeemed, those reductions in the interest in a Global Note effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.9 hereof, a
Note does not cease to be outstanding because the Company, any of the Subsidiary
Guarantors or any Affiliate of the Company or any of the Subsidiary Guarantors
holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.1
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.9 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any of the Subsidiary Guarantors or any Affiliate of the Company or any
of the Subsidiary Guarantors, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that
the Trustee actually knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers thereof. Temporary Notes shall be substantially
in the form of Definitive Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate Definitive Notes or the Global Note in exchange for
temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, redemption, replacement or cancellation and shall
destroy such canceled Notes. The Trustee shall provide a certificate of
destruction to the Company from time to time, at the written request of the
Company. The Company may not issue new Notes to replace Notes that it has paid
or that have been delivered to the Trustee for cancellation. If the Company or
any Subsidiary Guarantor
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shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.1 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
SECTION 2.13 CUSIP NUMBERS.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of
redemption as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company shall promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate; provided that no Notes of $1,000 or less will be
redeemed in part. In the event that less than all of the
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Notes are to be redeemed by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
The provisions of the two preceding paragraphs of this Section 3.2 shall
not apply with respect to any redemption affecting only a Global Note, whether
such Global Note is to be redeemed in whole or in part. In case of any such
redemption in part, the unredeemed portion of the principal amount of the Global
Note shall be in an authorized denomination.
SECTION 3.3 NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.9 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address. Failure to receive such
notice or any defect in the notice to any such Holder shall not affect the
validity of the proceedings for the redemption of any other Notes or portion
thereof.
The notice shall identify the Notes to be redeemed (including CUSIP
number) and shall state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(iv) the name and address of the Paying Agent;
(v) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(vi) that, unless the Company's defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(vii) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(viii) that no representation is made as to the
correctness or accuracy of the CUSIP number, if any, listed in such
notice or printed on the Notes.
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If any of the Notes to be redeemed is in the form of a Global Note, then
the Company shall modify such notice to the extent necessary to accord with the
procedures of the Depository applicable to redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 45 days (unless the
Trustee and the Company agree to a shorter period) prior to the redemption date,
an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 2.4 hereof)
money sufficient to pay the redemption price of and accrued interest on all
Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any money deposited with the Trustee or the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Note and in
Section 4.1 hereof.
SECTION 3.6 NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
SECTION 3.7 OPTIONAL REDEMPTION.
(a) The Notes will not be redeemable at the Company's option
prior to February 1, 2002. Thereafter, the Notes will be subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable
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redemption date, if redeemed during the 12- month period beginning on February
1, of the years indicated below:
YEAR PERCENTAGE
2002.................................................. 104.6875%
2003.................................................. 103.1250%
2004.................................................. 101.5625%
2005 and thereafter................................... 100.0000%
(b) Notwithstanding the foregoing, at any time on or prior to
February 1, 2000, the Company may redeem up to an aggregate of $49.0 million
principal amount of Notes at a redemption price of 109.375% of the principal
amount thereof, plus accrued and unpaid interest thereon to the redemption date,
with the net proceeds of a Public Equity Offering; PROVIDED that at least $91.0
million in aggregate principal amount of Notes remain outstanding immediately
after the occurrence of such redemption; and, PROVIDED, FURTHER; that such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
SECTION 3.8 MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the Company
shall not be required to make mandatory redemption payments or sinking fund
payments with respect to the Notes.
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
(a) In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
(i) The Asset Sale Offer shall be made to all Holders and
shall remain open for a period of 20 Business Days following its
commencement and no longer, except to the extent that a longer period is
required by applicable law (the "OFFER PERIOD").
(ii) If the Asset Sale Offer Purchase Date is on or after
an interest record date and on or before the related interest payment
date, any accrued and unpaid interest thereon, if any, shall be paid to
the Person in whose name a Note is registered at the close of business
on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
(iii) Within 10 days following any Asset Sale Offer
Trigger Date, the Company shall send, by first class mail, a notice to
each of the Holders at such Holder's registered address, with a copy to
the Trustee. The notice, which shall govern the terms of the Asset Sale
Offer, shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Asset Sale Offer, and shall
state:
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(A) that the Asset Sale Offer Trigger Date has
occurred pursuant to Section 4.10 hereof and that the Company is
offering to purchase the maximum principal of Notes that may be
purchased out of the Excess Proceeds (the "OFFER AMOUNT") at an
offer price in cash in an amount equal to
100.0% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to date of purchase, which shall be a
Business Day (the "ASSET SALE OFFER PURCHASE DATE") that is not
earlier than 30 days nor later than 60 days from the date such
notice is mailed;
(B) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date;
(C) that any Note subject to the Asset Sale Offer
not tendered shall continue to accrue interest;
(D) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to
the Asset Sale Offer, any such Notes accepted for payment
pursuant to the Asset Sale Offer shall cease to accrue interest,
after the Asset Sale Offer Purchase Date;
(E) that Holders electing to have a Note purchased
pursuant to an Asset Sale Offer may only elect to have all of
such Note purchased (subject to the provisions of Section
3.9(a)(iii)(H) hereof) and may not elect to have only a portion
of such Note purchased;
(F) that Holders electing to have a Note purchased
pursuant to any Asset Sale Offer shall be required to surrender
the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed to the Company or
a Paying Agent at the address specified in the notice at least
three Business Days before the Purchase Date;
(G) that Holders shall be entitled to withdraw
their election if the Company or the Paying Agent, as the case
may be, receives, not later than the expiration of the Offer
Period, a facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(H) that, if the aggregate principal amount of
Notes surrendered by Holders exceeds the Offer Amount or less
than all of the Notes tendered pursuant to the Asset Sale Offer
are accepted for payment by the Company for any reason consistent
with this Indenture, the Trustee shall select the Notes to be
purchased in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee deems fair and
appropriate; PROVIDED that Notes accepted for payment in part
will only be purchased in integral multiples of $1,000; and
(I) that Holders whose Notes were purchased only
in part shall be issued new Notes equal in principal amount to
the unpurchased portion of the Notes surrendered.
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If any of the Notes subject to an Asset Sale Offer is in the form of a
Global Note, then the Company shall modify such notice to the extent necessary
to accord with the procedures of the Depository applicable to repurchases.
(b) On the Asset Sale Offer Purchase Date, the Company shall: (i)
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of the
Excess Proceeds, (ii) deposit with the Paying Agent the aggregate purchase price
of all Notes or portions thereof accepted for payment and (iii) deliver or cause
to be delivered to the Trustee all Notes tendered pursuant to the Asset Sale
Offer. The Company or the Paying Agent, as the case may be, shall promptly mail
to each Holder of Notes or portions thereof accepted for payment an amount equal
to the purchase price for such Notes and the Trustee shall promptly authenticate
and mail to any such Holder of Notes accepted for payment in part a new Note
equal in principal amount to any unpurchased portion of the Notes, and any Note
not accepted for payment in whole or in part shall be promptly returned to the
Holder of such Note. The Company shall announce the results of the Asset Sale
Offer to Holders of the Notes on or as soon as practicable after the Asset Sale
Offer Purchase Date. The Company shall comply with the requirements of Rule
14e-1 under the Exchange Act, and any other securities laws or regulations, if
applicable, in connection with any Asset Sale Offer.
(c) Other than as specifically provided in this Section 3.9, any
purchase pursuant to this Section 3.9 shall be made pursuant to the provisions
of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 2:00 p.m. Eastern Time one Business Day prior to the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1.0% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be presented for
payment, surrendered for registration of transfer or for exchange and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change
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in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED,
HOWEVER, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.3
hereof.
SECTION 4.3 REPORTS.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Holders of Notes (i) either the actual Forms 10-Q and 10-K filed with the
Commission, or all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the consolidated financial condition and results of operations of the
Company and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants and (ii) either any actual Form
8-K filed with the Commission, or all information that would be required to be
contained in a filing with the Commission on Form 8-K if the Company were
required to file such Form. In addition, whether or not required by the rules
and regulations of the Commission, the Company shall file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. The Company shall at
all times comply with TIA ss. 314(a).
(b) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company'
compliance with any of the covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.4 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred and is
continuing, describing all such Defaults or Events of Default of which he or
she may
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have knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.3(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.5 TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.7 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any
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Affiliate of the Company (other than (A) any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company that is a
Subsidiary Guarantor and (B) Employee Stock Repurchases); (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Subordinated Indebtedness (other than $3.75 million of
Subordinated Indebtedness which is Existing Indebtedness, provided that such
Subordinated Indebtedness is redeemed or repaid at or below par), except in
accordance with the mandatory redemption or repayment provisions set forth in
the documentation governing such Indebtedness or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
(in addition to Permitted Indebtedness) pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.9(a) hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (x) and (y) of the next succeeding paragraph, but
including the Restricted Payment permitted by clause (z) of the next
succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate Net Equity Proceeds (A)
received by the Company from the issue or sale, subsequent to the Issue
Date, of Qualified Capital Stock of the Company or (B) of any other
Equity Interests or debt securities of the Company that have been issued
subsequent to the Issue Date and that have been converted into such
Qualified Capital Stock (other than any Qualified Capital Stock sold to
a Restricted Subsidiary of the Company) plus (iii) to the extent not
otherwise included in Consolidated Net Income, the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances, or other transfers of assets, in each
case to the Company or a Restricted Subsidiary after the Issue Date from
any Unrestricted Subsidiary or from the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued as provided below), plus
(iv) $10.0 million.
The foregoing provisions shall not prohibit any of the following: (w)
the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of this Indenture; (x) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company in exchange for, or out
of the Net Equity Proceeds of, the substantially concurrent sale (other than to
a Restricted Subsidiary of the Company) of Qualified Capital Stock of the
Company (other than any Disqualified Stock); PROVIDED that the amount of any
such Net Equity Proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph and (y) the defeasance, redemption or repurchase of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted
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Refinancing Indebtedness or the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company;
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph.
For purposes of the foregoing provisions, the amount of any Restricted
Payment (other than cash) shall be the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than five days
following the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.7 were computed, which calculations may be based upon the
Company's latest available financial statements.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would be permitted by the provisions
of this Section 4.7 and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash prior to such designation) in
the Restricted Subsidiary so designated will be deemed to be Restricted Payments
at the time of such designation and will reduce the amount available for
Restricted Payments under paragraph (c) of this Section 4.7. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the Fair Market Value of such Investments at the time of such
designation.
SECTION 4.8 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits or (b) pay any indebtedness owed to the Company or any of its Restricted
Subsidiaries, (ii) make loans or advances to the Company or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (r) Existing Indebtedness as in
effect on the Issue Date, (s) the Credit Facility as in effect as of the Issue
Date, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, PROVIDED that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the Issue Date, (t) this Indenture and the Notes, (u)
applicable law, (v) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, PROVIDED that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of Section 4.9 hereof to be incurred,
(w) by reason of customary non-assignment provisions in leases entered into in
the ordinary course of business and customary provisions in other agreements
that restrict assignment of such agreements or rights thereunder, (x) customary
restrictions contained in asset sale
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agreements limiting the transfer of such assets pending the closing of such
sale, (y) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (z) Permitted Refinancing
Indebtedness with respect to any indebtedness referred to in clauses (r), (t)
and (v) above, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED EQUITY.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR") any
Indebtedness (including Acquired Indebtedness but excluding any Permitted
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock, and any
Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness),
if the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least (i) 2.0 to 1.0 if
such date occurs on or after the Issue Date and on or prior to March 31, 1998,
or (ii) 2.25 to 1.0 if such date occurs after March 31, 1998, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
(b) The Company shall not, and shall not permit any Subsidiary
Guarantor to, directly or indirectly, in any event incur any Indebtedness that
by its terms (or by the terms of any agreement governing such Indebtedness) is
subordinated to any other Indebtedness of that Company or such Subsidiary
Guarantor, as the case may be, unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinate to the Notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be, to the same extent and in the same manner as such
Indebtedness is subordinated pursuant to subordination provisions that are most
favorable to the holders of any other Indebtedness of the Company or such
Subsidiary Guarantor, as the case may be.
The foregoing provisions shall not apply to the incurrence of any of the
following Indebtedness (collectively, "PERMITTED INDEBTEDNESS"):
(i) Indebtedness (and any guarantee thereof) under the
Working Line in an aggregate principal amount at any one time
outstanding not to exceed the greater of (A) $35.0 million, less any
amounts derived from Asset Sales and applied to the permanent reduction
of the Indebtedness thereunder as contemplated by Section 4.10 hereof or
(B) 80% of the Company's Acceptable Accounts Receivable (as defined in
the Working Line) (the "MAXIMUM BANK FACILITY AMOUNT"), and any
renewals, amendments, extensions, supplements, modifications, deferrals,
refinancing or replacements (each, for purposes of this clause (i), a
"REFINANCING") thereof, including any successive refinancing thereof, so
long as the aggregate principal amount of any such new Indebtedness,
together with the aggregate principal amount of all other Indebtedness
outstanding pursuant to this clause (i), shall not at any one time
exceed the Maximum Bank Facility Amount;
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(ii) Indebtedness under the Acquisition Line in an
aggregate principal amount at any one time outstanding not to exceed
$10.0 million, and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancing or replacements (each, for
purposes of this clause (ii), a "REFINANCING") thereof, including any
successive refinancing thereof, so long as the aggregate principal
amount of any such new Indebtedness hereunder, together with the
aggregate principal amount of all other Indebtedness outstanding
pursuant to this clause (ii), shall not at any one time exceed $10.0
million;
(iii) Indebtedness under the Notes;
(iv) Indebtedness under any Existing Indebtedness and any
Indebtedness under Letters of Credit existing on the Issue Date;
(v) Indebtedness under Interest Rate Protection
Obligations, provided that (A) such Interest Rate Protection Obligations
are related to payment obligations on Permitted Indebtedness or
Indebtedness otherwise permitted by Section 4.9(a) hereof and (B) the
notional principal amount of such Interest Rate Protection Obligations
does not exceed the principal amount of such Indebtedness to which such
Interest Rate Protection Obligations relate;
(vi) Indebtedness under Currency Hedge Obligations,
provided that (A) such Currency Hedge Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise
permitted by Section 4.9(a) hereof or to the foreign currency cash flows
reasonably expected to be generated by the Company and its Restricted
Subsidiaries and (B) the notional principal amount of such Currency
Hedge Obligations does not exceed the principal amount of such
Indebtedness and the amount of such foreign currency cash flows to which
such Currency Hedge Obligations relate;
(vii) the Subsidiary Guarantees of the Notes (and any
assumption of the obligations guaranteed thereby);
(viii) Indebtedness of the Company to a Wholly Owned
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary of
the Company to the Company or a Wholly Owned Restricted Subsidiary;
PROVIDED, HOWEVER, that upon any subsequent issuance or transfer of any
Capital Stock or any other event that results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary
or any other subsequent transfer of any such Indebtedness (except to the
Company or a Wholly Owned Restricted Subsidiary), such Indebtedness
shall be deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of Section 4.9(a) hereof at the time the Wholly
Owned Restricted Subsidiary in question ceased to be a Wholly Owned
Restricted Subsidiary or the time such subsequent transfer occurred;
(ix) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted Subsidiary
thereof in the ordinary course of business, including guarantees or
obligations of the Company or any Restricted Subsidiary thereof with
respect to letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money
borrowed);
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(x) the incurrence by the Company or its Restricted
Subsidiaries of Non-Recourse Purchase Money Indebtedness;
(xi) any Permitted Refinancing Indebtedness incurred by
the Company or a Restricted Subsidiary of any Indebtedness incurred
pursuant to clause (iii) or (iv) of this Section 4.9(b), including any
successive refinancing by the Company or such Restricted Subsidiary;
(xii) Capital Lease Obligations in an aggregate amount not
in excess of $8.0 million at any one time outstanding; and
(xiii) any additional Indebtedness issued pursuant to one
or more credit agreements in an aggregate principal amount for all such
credit agreements not in excess of $5.0 million at any one time
outstanding and any guarantee thereof.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, sell, issue, convey, transfer, lease or otherwise dispose of, to any Person
other than the Company or any of its Restricted Subsidiaries (including, without
limitation, by means of a sale-and-leaseback transaction or a merger or
consolidation) (collectively, for purposes of this Section 4.10, a "TRANSFER"),
directly or indirectly, in one or a series of related transactions, (a) any
Capital Stock of any Restricted Subsidiary held by the Company or any other
Restricted Subsidiary, (b) all or substantially all of the properties and assets
of any division or line of business of the Company or any of its Restricted
Subsidiaries, (c) any Event of Loss or (d) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than transfers of cash, Cash
Equivalents, accounts receivable, or properties or assets in the ordinary course
of business; PROVIDED that the sale, lease, conveyance or other disposition of
all or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries, taken as a whole, shall be governed by Sections 4.15
and/or 5.1 hereof and not by the provisions of this Section 4.10 (each of the
foregoing, an "ASSET SALE"), unless (i) the Company (or the Restricted
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
PROVIDED that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are Subordinated Indebtedness or otherwise by their terms subordinated to the
Notes or the Subsidiary Guarantees) that are assumed by the transferee of any
such assets pursuant to a novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash within 180 days of closing such Asset Sale (to the extent of the cash
received), shall be deemed to be cash for purposes of this clause (ii).
Notwithstanding the foregoing, any of the following shall, not be deemed
an "Asset Sale": (i) any transfer of properties or assets to an Unrestricted
Subsidiary, if such transfer is permitted under Section 4.7 hereof; (ii) sales
of damaged, worn-out or obsolete equipment or assets that, in the Company's
reasonable judgment, are either (A) no longer used or (B) no
longer useful in the business
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of the Company or its Restricted Subsidiaries; (iii) any lease of any property
entered into in the ordinary course of business and with respect to which the
Company or any Restricted Subsidiary is the lessor, except any such lease that
provides for the acquisition of such property by the lessee during or at the end
of the term thereof for an amount that is less than the fair market value
thereof at the time the right to acquire such property occurs; (iv) any trade or
exchange by the Company or any Restricted Subsidiary of one or more workover
rigs for one or more workover rigs owned or held by another Person, PROVIDED
that (A) the Fair Market Value of the workover rig or rigs traded or exchanged
by the Company or such Restricted Subsidiary (including any cash or Cash
Equivalents, not to exceed 15% of such Fair Market Value, to be delivered by the
Company or such Restricted Subsidiary) is reasonably equivalent to the Fair
Market Value of the workover rig or rigs (together with any cash or Cash
Equivalents, not to exceed 15% of such Fair Market Value) to be received by the
Company or such Restricted Subsidiary and (B) such exchange is approved by a
majority of the Disinterested Directors of the Company; (v) sales of inventory
in the ordinary course of business of the Company and any Subsidiary consistent
with past practices; (vi) the issuance by the Company of its Capital Stock;
(vii) a Restricted Payment permitted under the terms of Section 4.7 hereof and
(viii) any transfers that, but for this clause (viii), would be Asset Sales, if
(A) the Company elects to designate such transfers as not constituting Asset
Sales and (B) after giving effect to such transfers, the aggregate Fair Market
Value of the properties or assets transferred in such transaction or any such
series of related transactions so designated by the Company does not exceed
$500,000.
Within 365 days after the receipt of any Net Proceeds from any Asset
Sale, the Company may (i) apply all or any of the Net Proceeds therefrom to
repay Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary, PROVIDED, in each case, that the related loan commitment
of any revolving credit facility or other borrowing (if any) is thereby
permanently reduced by the amount of such Indebtedness so repaid or (ii) invest
all or any part of the Net Proceeds thereof in properties and other capital
assets that replace the properties or other capital assets that were the subject
of such Asset Sale or in other properties or other capital assets that will be
used in the business of the Company and its Restricted Subsidiaries or in
entities engaged in such business, provided that in such latter instance such
entities become a Subsidiary Guarantor or Restricted Subsidiary, as applicable.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce borrowings under any revolving credit facility or otherwise
invest such Net Proceeds in any manner that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph shall be deemed to constitute "EXCESS
PROCEEDS". When the aggregate amount of Excess Proceeds equals or exceeds $15.0
million (the date of such occurrence being called the "ASSET SALE OFFER TRIGGER
DATE"), the Company shall make an offer to all Holders of Notes (an "ASSET SALE
OFFER") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase in accordance with the procedures set forth in Section 3.9
hereof. To the extent that the aggregate amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company shall not permit any Restricted Subsidiary to enter into or
suffer to exist any agreement that would place any restriction of any kind
(other than pursuant to law or regulation) on the ability of the Company to make
an Asset Sale Offer following any Asset Sale. The Company shall comply with Rule
14e-1 under the Exchange Act, and any other securities laws and regulations
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thereunder, if applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes pursuant to this Section 4.10.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, (a) sell, lease, transfer or otherwise dispose of any of its
properties, assets or securities to, (b) purchase or lease any property, assets
or securities from, (c) make any Investment in or (d) enter into or suffer to
exist any other transaction or series of related transactions with, or for the
benefit of, any Affiliate of the Company unless (i) such transaction or series
of transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that would be available in
a comparable arm's length transaction with an unrelated third party, (ii) with
respect to any one transaction or series of related transactions involving
aggregate payments in excess of $1.0 million, the Company delivers an Officers'
Certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above and (iii) with respect to a
transaction or series of related transactions involving payments in excess of
$10.0 million, the Company delivers an Officers' Certificate to the Trustee
certifying that (A) such transaction or series of related transactions complies
with clause (i) above and (B) such transaction or series of related transactions
has been approved by a majority of the Disinterested Directors of the Company;
PROVIDED, HOWEVER, that the foregoing restriction shall not apply to (u) any
arrangements in effect on the Issue Date, (v) transactions between or among the
Company and its Wholly Owned Restricted Subsidiaries, (w) loans or advances to
officers, directors and employees of the Company or any Restricted Subsidiary
made in the ordinary course of business and consistent with past practices of
the Company and its Restricted Subsidiaries in an aggregate amount not to exceed
$1.0 million outstanding at any one time, (x) indemnities of officers, directors
and employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions, (y) the payment of reasonable and customary regular fees
to directors of the Company or any of its Restricted Subsidiaries who are not
employees of the Company or any Affiliate and (z) the Company's employee
compensation and other benefit arrangements.
SECTION 4.12 LIENS.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume, affirm or suffer to exist or
become effective any Lien of any kind, except for Permitted Liens, upon any of
their respective property or assets, whether now owned or acquired after the
Issue Date, or any income, profits or proceeds therefrom, to secure (i) any
Indebtedness of the Company or such Restricted Subsidiary (if it is not also a
Subsidiary Guarantor), unless prior to, or contemporaneously therewith, the
Notes are equally and ratably secured or (ii) any Indebtedness of any Subsidiary
Guarantor, unless prior to, or contemporaneously therewith, the Subsidiary
Guarantees are equally and ratably secured; PROVIDED, HOWEVER, that if such
Indebtedness is expressly subordinated to the Notes or the Subsidiary
Guarantees, the Lien securing such Indebtedness will be subordinated and junior
to the Lien securing the Notes or the Subsidiary Guarantees, as the case may be,
with the same relative priority as such Indebtedness has with respect to the
Notes or the Subsidiary Guarantees. The foregoing covenant shall not apply to
any Lien securing Acquired Indebtedness, provided that any such Lien extends
only to the property or assets that were subject to such Lien prior to the
related acquisition by the Company or such Restricted Subsidiary and was not
created, incurred or assumed in contemplation of such transaction.
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SECTION 4.13 ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, or otherwise
dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (A) such transfer, conveyance, sale or other
disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (B) the cash Net Proceeds from such transfer, conveyance, sale or
other disposition are applied in accordance with Section 4.10 hereof and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests to any Person other than to the Company or a Wholly
Owned Restricted Subsidiary of the Company; except, in the case of both clauses
(i) and (ii) above, with respect to dispositions or issuances by a Wholly Owned
Restricted Subsidiary of the Company as contemplated in clauses (i) and (ii) of
the definition of "Wholly Owned Restricted Subsidiary" included in Section 1.1
hereof.
SECTION 4.14 SALE-AND-LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale-and-leaseback transaction; PROVIDED that
the Company or any Restricted Subsidiary, as applicable, may enter into a
sale-and-leaseback transaction if (i) the Company could have (A) incurred
Indebtedness in an amount equal to the Attributable Indebtedness relating to
such sale-and-leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 4.9(a) hereof and (B) incurred a Lien to secure such
Indebtedness pursuant to Section 4.12 hereof; (ii) the gross cash proceeds of
such sale-and-leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale-and-leaseback transaction and (iii) the transfer of assets
in such sale-and-leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with, Section 4.10 hereof.
SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes on a
Business Day (the "CHANGE OF CONTROL PAYMENT DATE") not more than 70 nor less
than 30 days following such Change of Control, pursuant to the offer described
below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest thereon
to the date of purchase (the "CHANGE OF CONTROL PAYMENT"). Within 30 days
following any Change of Control, the Company shall mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes pursuant to the procedures required by this
Section 4.15 and described in such notice. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. The Change of Control Offer shall be required to remain open
for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Payment Date.
(b) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect
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of all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted, together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail or
otherwise deliver to each Holder of Notes so tendered the Change of Control
Payment for such Notes, and the Trustee shall promptly authenticate and mail (or
cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
PROVIDED that each such new Note shall be in a principal amount of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(c) The Change of Control provisions described above shall be
applicable whether or not any other provisions of this Indenture are applicable.
(d) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
SECTION 4.16 BUSINESS ACTIVITIES.
The Company shall not, and will not permit any Restricted Subsidiary to,
engage in any business other than (i) the Oil Service Business, (ii) such other
businesses as the Company or its Restricted Subsidiaries are engaged in on the
Issue Date and (iii) such other business activities as are reasonably related or
incidental thereto.
ARTICLE 5
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and this Indenture pursuant to a supplemental Indenture in a
form reasonably satisfactory to the Trustee, (iii) except in the case of a
merger of the Company with or into a Wholly Owned Subsidiary of the Company,
immediately after such transaction no Default or Event of Default exists and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other
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disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness (in addition to
Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 4.9(a) hereof.
In connection with any consolidation, merger or transfer contemplated by
this provision, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent in this
Indenture provided for relating to such transaction or transactions have been
complied with.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
properties or assets of the Company in accordance with Section 5.1 hereof, the
Person formed by such consolidation or into or with which the Company is merged
or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to "the Company" shall
refer instead to such Person and not to the Company), and may exercise every
right and power of the Company under this Indenture with the same effect as if
such Person had been named as the Company herein; PROVIDED, HOWEVER, that the
Company shall not be relieved from the obligation to pay the principal of,
premium, if any, and interest on the Notes except in the case of a sale of all
or substantially all of the Company's properties or assets that meets the
requirements of Section 5.1 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" occurs if:
(i) the Company defaults for 30 days in the payment when
due of interest on the Notes;
(ii) the Company defaults in payment when due of the
principal of or premium, if any, on the Notes;
(iii) the Company fails to comply with the provisions of
Section 4.10, 4.15 or 5.1 hereof.
(iv) the Company fails for 45 days after notice to comply
with any of its other agreements in this Indenture or the Notes;
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(v) the Company or any of its Restricted Subsidiaries
defaults under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the Issue Date, which default
(A) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"PAYMENT DEFAULT") or (B) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more for any single Indebtedness or a total
of $10.0 million or more for all such Indebtedness and PROVIDED,
FURTHER, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period
of 10 days from the continuation of such default beyond the applicable
grace period or the occurrence of such acceleration, as the case may be,
such Event of Default under this Section 6.1(v) and any consequential
acceleration of the Notes shall be automatically rescinded, so long as
such recision does not conflict with any judgment or decree;
(vi) a final judgment or final judgments for the payment
of money are entered by a court or courts of competent jurisdiction
against the Company or any of its Subsidiaries and such judgment or
judgments remain unpaid and undischarged for a period (during which
execution shall not be effectively stayed) of 60 consecutive days,
provided that the aggregate of all such unpaid and undischarged
judgments exceeds $5.0 million;
(vii) any Subsidiary Guarantee shall for any reason cease
to be, or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect (except pursuant to the
release of any Subsidiary Guarantee in accordance with this Indenture);
(viii) the Company or any of its Restricted Subsidiaries
that constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant
Subsidiary, pursuant to or within the meaning of Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Bankruptcy
Custodian of it or for all or substantially all of its property,
(D) makes a general assignment for the benefit of
its creditors, or
(E) generally is not paying its debts as they
become due; or
(ix) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
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(A) is for relief, in an involuntary case, against
the Company or any of its Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant
Subsidiary;
(B) appoints a Bankruptcy Custodian of the Company
or any of its Restricted Subsidiaries that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary,
for all or substantially all of the property of the Company or
any of such Restricted Subsidiaries; or
(C) orders the liquidation of the Company or any of
its Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, for all of
substantially all of the property of the Company or any of such
Restricted Subsidiaries;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.2 ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (viii) or (ix) of Section 6.1 hereof with respect to the Company or any
of its Restricted Subsidiaries that constitutes a Significant Subsidiary or any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (viii) or (ix) of
Section 6.1 hereof occurs with respect to the Company or any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes shall be due and payable immediately without
further action or notice.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of all of the
Holders waive any existing Default or Event of Default acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium on the Notes) have been cured or waived.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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SECTION 6.4 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes (including in connection
with an offer to purchase pursuant to Sections 3.7, 3.9, 4.10 or 4.15 hereof).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY.
Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.6 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Note only if:
(i) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes make a written request to the
Trustee to pursue the remedy;
(iii) such Holder of a Notes or Holders of Notes offer
and, if requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(v) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase pursuant to Sections 3.7,
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3.9, 4.10 or 4.15 hereof), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(i) or (ii) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.7 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due
under Section 7.7 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any, and interest,
respectively; and
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THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard for the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.6 hereof, or a suit by Holders of more
than 10% in aggregate principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.1;
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(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it
is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel of its selection and the advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
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SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or any Affiliate of
the Compete with the same rights it would have if it were not Trustee. However,
in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Notes, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA ss. 313(a) (but if no event described in TIA ss.
313(a) has occurred within the 12 months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2) and
ss. 313(b)(1). The Trustee shall also transmit by mail all reports as required
by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation
as shall be agreed between the Company and the Trustee for its acceptance of
this Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee promptly upon request for all reasonable
disbursements,
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advances and expenses incurred or made by it in addition to the compensation for
its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any successor
Trustee against any and all losses, liabilities, damages, claims or expenses,
including taxes (other than taxes based on the income of the Trustee), incurred
by it arising out of or in connection with the acceptance or administration of
its duties under this Indenture, including the costs and expenses of enforcing
this Indenture against the Company (including this Section 7.7) and defending
itself against any claim (whether asserted by the Company or any Holder or any
other person) or liability in connection with the exercise or performance of any
of its powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of much counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, premium,
if any, and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(viii) or (ix) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law. The Trustee shall also be entitled to receive compensation for
extraordinary services in default administration.
The Trustee shall comply with the provisions of TIA ss. 313 (b)(2) to
the extent applicable.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in aggregate principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
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(c) a Bankruptcy Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of Notes of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee. As
soon as practicable, the successor Trustee shall mail a notice of its succession
to the Company and the Holders of the Notes.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has (together with its parent bank holding company, if any)
a combined capital and surplus of at least $200 million as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
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SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company and each Subsidiary Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.4 hereof,
be deemed to have been discharged from its obligations with respect to all
outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.5 hereof and the other Sections
of this Indenture referred to in clauses (i) and (ii) below, and the Company and
each Subsidiary Guarantor shall be deemed to have satisfied all of its other
obligations under such Notes or Subsidiary Guarantee and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions, which
shall survive until otherwise terminated or discharged hereunder: (i) the rights
of Holders of outstanding Notes to receive solely from the trust fund described
in Section 8.4 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due; (ii) the Company's obligations with respect to such Notes
under Article 2 and Section 4.2 hereof; (iii) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (iv) this Article 8. Subject to compliance with this
Article 8, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3 hereof.
SECTION 8.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 4.5, 4.7, 4.8, 4.9, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 hereof and Article 10 hereof with respect
to the outstanding Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes
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hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Company and any Subsidiary Guarantor may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.1 hereof, but, except as specified above,
the remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3 hereof, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, Sections 6.1(v) and 6.1(vii) hereof
shall not constitute Events of Default.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Sections 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated date for payment thereof or on
the applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of an election under Section 8.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article 8
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concurrently with such incurrence) or insofar as Section 6.1(viii) or 6.1(ix)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date such opinion, (i) the trust funds
will not be subject to rights of holders of Indebtedness other than the Notes
and (ii) assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit (assuming no Holder of Notes is
an insider of the Company) or the day following the end of such other preference
period in effect at the time of such opinion (assuming a Holder of Notes is an
insider of the Company), as applicable, following the deposit, the trust funds
will not be subject to the effects of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under any
applicable United States or state law;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over any other creditors of the Company or
any Subsidiary Guarantor with the intent of defeating, hindering, delaying or
defrauding creditors of the Company, or any Subsidiary Guarantor or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"TRUSTEE") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.4 hereof that, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.4(a) hereof), are in excess of the amount thereof
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that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.6 REPAYMENT TO THE COMPANY.
Subject to the applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium, if any, or interest on any
Note and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Notes shall thereafter, as a secured creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in The New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
SECTION 8.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.5
hereof by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Sections 8.2 or 8.3
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.5 hereof; PROVIDED, HOWEVER, that, if
the Company makes any payment of principal of, premium, if any, or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES.
(a) Notwithstanding Section 9.2 of this Indenture, the Company,
the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture
or the Notes without the consent of any Holder of a Note:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Notes in addition
to or in place of certificated Notes;
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(iii) to provide for the assumption of the Company's
obligations to the Holders of the Notes pursuant
to Article 5 or Section 10.4(b) hereof;
(iv) to secure the Notes pursuant to the requirements
of Section 4.12 or otherwise;
(v) to make any change that would provide any
additional rights or benefits to the Holders of
the Notes or that does not adversely affect the
legal rights under this Indenture of any such
Holder;
(vi) to add any Restricted Subsidiary as an
additional Subsidiary Guarantor as provided in
Section 10.2 hereof or to evidence the
succession of another Person to any Subsidiary
Guarantor pursuant to Section 10.4 hereof and
the assumption by any such successor of the
covenants and agreements of such Subsidiary
Guarantor contained herein and in the Subsidiary
Guarantee of such Subsidiary Guarantor;
(vii) to release a Subsidiary Guarantor from its
obligations under this Indenture and its
Subsidiary Guarantee pursuant to Section 10.5
hereof, or
(viii) to comply with requirements of the Commission in
order to effect or maintain the qualification of
this Indenture under the TIA.
(b) Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.6 hereof, the Trustee shall join with the Company and the
Subsidiary Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.2, the Company and the
Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the
Notes with the consent of the Holders of at least a majority in aggregate
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes) and, subject to Sections 6.4 and 6.7 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes (including consents obtained in connection with a
purchase of, tender offer or exchange offer for Notes).
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and
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upon receipt by the Trustee of the documents described in Section 9.6 hereof,
the Trustee shall join with the Company and the Subsidiary Guarantors in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Company and the Subsidiary Guarantors with any
provision of this Indenture or the Notes. However, without the consent of each
Holder affected, an amendment or waiver may not (with respect to any Notes held
by a non-consenting Holder):
(i) reduce the principal amount of Notes whose
Holders must consent to an amendment, supplement
or waiver;
(ii) reduce the principal of or change the fixed
maturity of any Note or alter or waive any of
the provisions with respect to the redemption of
the Notes (except as provided below with respect
to Sections 3.9, 4.10 and 4.15 hereof);
(iii) reduce the rate of or change the time for
payment of interest, including default interest,
on any Note;
(iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or
interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount
of the then outstanding Notes and a waiver of
the payment default that resulted from such
acceleration);
(v) make any Note payable in money other than that
stated in the Notes;
(vi) make any change in the provisions of this
Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or
interest on the Notes;
(vii) waive a redemption payment with respect to any
Note (other than a payment required by Sections
4.10 or 4.15 hereof);
(viii) alter the ranking of the Notes relative to other
Indebtedness of the Company; or
(ix) make any change in the foregoing amendment and
waiver provisions.
In addition, without the consent of Holders of not less than 66-2/3% in
aggregate principal amount of the Notes then outstanding, no such amendment,
supplement or waiver may amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate an Asset Sale Offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto.
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It shall not be necessary for the consent of the Holders of Notes under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until its Board of Directors
approves it. In executing any amended or supplemental Indenture, the Trustee
shall be entitled to receive, and (subject to Section 7.1 hereof) shall be fully
protected in relying upon, Officers' Certificates and Opinions of Counsel
stating that the execution of such amended or supplemental Indenture is
authorized or permitted by this Indenture.
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ARTICLE 10
SUBSIDIARY GUARANTEES
SECTION 10.1 SUBSIDIARY GUARANTEES.
(a) The Subsidiary Guarantors and each Subsidiary of the Company
that in accordance with Section 10.2 hereof is required to guarantee the
obligations of the Company under the Notes and this Indenture hereby jointly and
severally and unconditionally guarantees, on a senior basis (each such guarantee
being a "SUBSIDIARY GUARANTEE"), to each Holder of a Note authenticated and
delivered by the Trustee irrespective of the validity or enforceability of this
Indenture, the Notes or the obligations of the Company under this Indenture or
the Notes, that: (i) the principal of, premium, if any, and interest on the
Notes shall be paid in full when due, whether at the maturity or interest
payment or mandatory redemption date, by acceleration, call for redemption or
otherwise, and interest on the overdue principal and interest, if any, of the
Notes and all other obligations of the Company to the Holders or the Trustee
under this Indenture or the Notes shall be promptly paid in full or performed,
all in accordance with the terms of this Indenture and the Notes and (ii) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, they shall be paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, each Subsidiary Guarantor shall be obligated to pay the
same whether or not such failure to pay has become an Event of Default that
could cause acceleration pursuant to Section 6.2 hereof. Each Subsidiary
Guarantor agrees that this is a guarantee of payment not a guarantee of
collection.
(b) Each Subsidiary Guarantor hereby agrees that its obligations
with regard to its Subsidiary Guarantee shall be unconditional, irrespective of
the validity or enforceability of the Notes or the obligations of the Company
under this Indenture, the absence of any action to enforce the same, the
recovery of any judgment against the Company or any other obligor with respect
to this Indenture, the Notes or the obligations of the Company under this
Indenture or the Notes, any action to enforce the same or any other
circumstances (other than complete performance) that might otherwise constitute
a legal or equitable discharge or defense of a Subsidiary Guarantor. Each
Subsidiary Guarantor further, to the extent permitted by law, waives and
relinquishes all claims, rights and remedies accorded by applicable law to
guarantors and agrees not to assert or take advantage of any such claims, rights
or remedies, including but not limited to: (i) any right to require the Trustee,
the Holders or the Company (each, a "BENEFITTED PARTY") to proceed against the
Company or any other Person or to proceed against or exhaust any security held
by a Benefitted Party at any time or to pursue any other remedy in any
Benefitted Party's power before proceeding against such Subsidiary Guarantor;
(ii) the defense of the statute of limitations in any action hereunder or in any
action for the collection of any Indebtedness or the performance of any
obligation hereby guaranteed; (iii) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other Person or the
failure of a Benefitted Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person; (iv)
demand, protest and notice of any kind including but not limited to notice of
the existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of such Subsidiary
Guarantor, the Company, any Benefitted Party, any creditor of such Subsidiary
Guarantor, the Company or on the part of any other Person whomsoever in
connection with any Indebtedness or Obligations hereby guaranteed; (v) any
defense based upon an election of remedies by a Benefitted Party, including but
not limited to an election to proceed against such Subsidiary Guarantor for
reimbursement; (vi) any defense based upon any statute or rule of law that
provides that
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the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal; (vii) any defense arising
because of a Benefitted Party's election, in any proceeding instituted under any
Bankruptcy Law, of the application of Section 1111(b)(2) under the Bankruptcy
Law; (viii) any defense based on any borrowing or grant of a security interest
under Section 364 under the Bankruptcy Law or (ix) any right to require a
proceeding first against the Company, protest, notice and all demands
whatsoever. Each Subsidiary Guarantor hereby covenants that its Subsidiary
Guarantee will not be discharged except by complete performance of all of the
obligations contained in its Subsidiary Guarantee, the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or any Subsidiary Guarantor, or any
custodian, trustee, or similar official acting in relation to either the Company
or such Subsidiary Guarantor, any amount paid by the Company or such Subsidiary
Guarantor to the Trustee or such Holder, the applicable Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
(d) Each Subsidiary Guarantor further agrees that, as between
such Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 6.2 hereof for the purposes of this
Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration as to the Company or any other obligor on the Notes
of the obligations guaranteed hereby and (ii) in the event of any declaration of
acceleration of those obligations as provided in Section 6.2 hereof, those
obligations (whether or not due and payable) will forthwith become due and
payable by such Subsidiary Guarantor for the purpose of this Subsidiary
Guarantee.
SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES.
(a) If, after the Issue Date, (i) the Company or any of its
Restricted Subsidiaries shall (A) transfer or cause to be transferred, any
assets, businesses, divisions, real property or equipment having a fair market
or book value in excess of $1.0 million to any Restricted Subsidiary that is not
a Subsidiary Guarantor or (B) make any Investment having an aggregate fair
market or book value in excess of $1.0 million in any Restricted Subsidiary that
is not a Subsidiary Guarantor or (ii) any Restricted Subsidiary that is not a
Subsidiary Guarantor (A) shall provide a guarantee under the Credit Facility or
(B) shall own any assets or properties having an aggregate fair market or book
value in excess of $1.0 million, then the Company shall cause such Restricted
Subsidiary to execute and deliver a supplemental indenture to this Indenture
agreeing to be bound by its terms applicable to a Subsidiary Guarantor and
providing for a Subsidiary Guarantee of the Notes by such Restricted Subsidiary,
in accordance with the terms of this Indenture.
(b) The Company shall not permit any of its Restricted
Subsidiaries, other than a Subsidiary Guarantor, directly or indirectly, to (i)
incur, guarantee or secure through the granting of Liens the payment of any
Indebtedness of the Company or (ii) pledge any intercompany notes representing
obligations of any of its Restricted Subsidiaries to secure the payment of any
Indebtedness of the Company, in each case, unless the Company shall cause such
Restricted Subsidiary to execute a Subsidiary Guarantee and deliver an Opinion
of Counsel in advance in accordance with the terms of this Indenture.
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SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY.
(a) Each Subsidiary Guarantor and by its acceptance hereof, each
beneficiary hereof, hereby confirm that it is its intention that the Subsidiary
Guarantee by such Subsidiary Guarantor not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any of the Subsidiary Guarantees. To effectuate the
foregoing intention, each such person hereby irrevocably agrees that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee under
this Article 10 shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under this Indenture, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.
(b) For purposes of such limitations and the applicable
fraudulent conveyance laws, any indebtedness of a Subsidiary Guarantor incurred
from time to time pursuant to the Credit Facility and secured by a perfected
Lien on the assets of such Subsidiary Guarantor (assuming, for purposes of such
determination, that the incurrence of any such indebtedness and the granting of
any such security interest did not violate any such fraudulent conveyance laws)
shall be deemed, to the extent of the value of the assets subject to such Lien,
to have been incurred prior to the incurrence by such Subsidiary Guarantor of
liability under its Subsidiary Guarantee.
(c) Each beneficiary under the Subsidiary Guarantees, by
accepting the benefits hereof, confirms its intention that, in the event of a
bankruptcy, reorganization or other similar proceeding of the Company or any
Subsidiary Guarantor in which concurrent claims are made upon such Subsidiary
Guarantor hereunder, to the extent such claims will not be fully satisfied, each
such claimant with a valid claim against the Company shall be entitled to a
ratable share of all payments by such Subsidiary Guarantor in respect of such
concurrent claims.
SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON CERTAIN TERMS.
(a) No Subsidiary Guarantor may consolidate with or merge with or
into (whether or not such Subsidiary Guarantor is the surviving Person) another
Person (other than the Company or another Subsidiary Guarantor), whether or not
affiliated with such Subsidiary Guarantor, unless (i) subject to the provisions
of the following paragraph, the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) shall execute
and deliver a supplemental indenture to this Indenture agreeing to be bound by
its terms applicable to a Subsidiary Guarantor and providing for a Subsidiary
Guarantee of the Notes by such Person, in accordance with the terms of this
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have Consolidated
Net Worth (immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction; (iv) the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in Section 4.9(a) hereof and
(v) such transaction does not violate any of the covenants contained in Articles
4 and 5 hereof. In
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connection with any consolidation or merger contemplated by this provision, the
Subsidiary Guarantor shall deliver, or cause to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation or
merger and the supplemental indenture in respect thereto comply with this
provision and that all conditions precedent in this Indenture provided for
relating to such transaction or transactions have been complied with.
(b) Notwithstanding the foregoing, (i) a Subsidiary Guarantor may
consolidate with or merge with or into the Company, provided that the surviving
corporation (if other than the Company) shall expressly assume by supplemental
indenture complying with the requirements of this Indenture, the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes, and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be performed by the Company and
(ii) a Subsidiary Guarantor may consolidate with or merge with or into any other
Subsidiary Guarantor.
SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS.
In the event of (i) the designation of any Subsidiary Guarantor as an
Unrestricted Subsidiary or (ii) a sale or other disposition of all or
substantially all of the properties or assets of any Subsidiary Guarantor to a
third party or an Unrestricted Subsidiary, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, in either case, in a transaction or manner that does not
violate any of the covenants or other provision of this Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor) will be released from and relieved of any
obligations under this Indenture and its Subsidiary Guarantee, PROVIDED that any
Net Proceeds of such sale or other disposition are applied in accordance with
Section 4.10 hereof and PROVIDED, FURTHER, HOWEVER, that any such termination
shall occur only to the extent that all obligations of such Subsidiary Guarantor
under all of its guarantees of, and under all of its pledges of assets or other
security interests that secure, any other Indebtedness of the Company or its
Restricted Subsidiaries shall also terminate upon such release, sale or
disposition.
SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 10 shall in such case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 10 in place of the Trustee.
SECTION 10.7 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"FUNDING GUARANTOR") under a Subsidiary Guarantee, such Funding Guarantor shall
be entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets (as defined below) of each Subsidiary
Guarantor (including the Funding Guarantor)
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for all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Subsidiary Guarantor's obligations with respect to such Subsidiary Guarantee.
"ADJUSTED NET ASSETS" of such Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (x) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities, but excluding liabilities under the
Subsidiary Guarantee of such Subsidiary Guarantor at such date and (y) the
present fair salable value of the assets of such Subsidiary Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Subsidiary Guarantor on its debts (after giving effect to all other fixed
and contingent liabilities incurred or assumed on such date and after giving
effect to any collection from any subsidiary of such Subsidiary Guarantor in
respect of the obligations of such subsidiary under the Subsidiary Guarantees),
excluding debt in respect of the Subsidiary Guarantees, as they become absolute
and matured.
SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES.
To evidence its guarantee to each Holder of Notes, each of the
Subsidiary Guarantors hereby agree to execute its Subsidiary Guarantee in
substantially the form of Exhibit A recited to be endorsed on each Note ordered
to be authenticated and delivered by the Trustee. Each Subsidiary Guarantor
hereby agrees that its Subsidiary Guarantee set forth in Section 10.1 hereof
shall remain in full force and effect notwithstanding any failure to endorse on
each Note a notation of such Subsidiary Guarantee. Each such Subsidiary
Guarantee shall be signed on behalf of each Subsidiary Guarantor by one Officer
of such Subsidiary Guarantor who shall have been duly authorized by all
requisite corporate actions, and the delivery of such Note by the Trustee, after
the authentication thereof hereunder, shall constitute due delivery of such
Subsidiary Guarantee on behalf of such Subsidiary Guarantor. Such signatures
upon the Subsidiary Guarantee may be by manual or facsimile signature of such
Officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case any such Officer who shall have signed the Subsidiary
Guarantee shall cease to be such Officer before the Note on which such
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed the
Subsidiary Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 11.2 NOTICES.
Any notice or communication by the Company, any of the Subsidiary
Guarantors or the Trustee to any of the others is duly given if in writing and
delivered in person or mailed by first class mail (registered or certified,
return receipt requested), facsimile or overnight air courier guaranteeing
next-day delivery, to such other's address:
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If to the Company:
Dawson Production Services, Inc.
901 N.E. Loop 410
Suite 700
San Antonio, Texas 78209
Facsimile No.: (210) 930-3345
Attention: Chief Financial Officer
With a copy to:
J. Rowland Cook
Jenkens & Gilchrist
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Facsimile No.: (512) 404-3520
If to any Subsidiary Guarantor:
c/o Dawson Production Services, Inc.
901 N.E. Loop 410
Suite 700
San Antonio, Texas 78209
Facsimile No.: (210) 930-3345
Attention: Chief Financial Officer
With a copy to:
J. Rowland Cook
Jenkens & Gilchrist
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
Facsimile No.: (512) 404-3520
If to the Trustee:
For payment, registration, transfer, exchange and tender of
Notes:
BY HAND:
U.S. Trust Company of Texas, N.A.
111 Broadway, L.L.
New York, New York 10006
Telephone: (212) 374-4056
Attention: Corporate Trust
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BY MAIL:
U.S. Trust Company of Texas, N.A.
P.O. Box 841
Cooper Station
New York, New York 10276
For all other communications relating to the Notes:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue
Suite 2700
Dallas, Texas 75201
Telephone: (214) 754-1254
Facsimile No.: (214) 754-1303
Attention: Corporate Trust
The Company, any of the Subsidiary Guarantors or the Trustee, by notice
to the others, may designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the United States mail,
postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; the
next Business Day after timely delivery to the courier, if sent for overnight
delivery by a courier guaranteeing next-day delivery; and the second Business
Day after timely delivery to the courier, if sent for second-day delivery by a
courier guaranteeing second-day delivery.
Any notice or communication to a Holder shall be mailed by first class
U.S. mail to its address shown on the register kept by the Registrar. Any notice
or communication shall also be so mailed to any Person described in TIA ss.
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Subsidiary Guarantors, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c).
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SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, such requesting entity shall furnish to the
Trustee:
(i) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 11.5 hereof) stating that, in the
opinion of the signers, all conditions precedent and covenants, if any,
provided for in this Indenture relating to the proposed action have been
satisfied; and
(ii) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 11.5 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants
have been satisfied.
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(i) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he
or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been satisfied.
SECTION 11.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No past, present or future director, officer, employee, incorporator or
shareholder of the Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or such Subsidiary Guarantor under
the Notes, this Indenture or the Subsidiary Guarantees, as the case may be, or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and the Subsidiary Guarantees.
64
<PAGE>
SECTION 11.8 GOVERNING LAW.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY
GUARANTEES.
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10 SUCCESSORS.
All agreements of the Company or any Subsidiary Guarantor in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successors.
SECTION 11.11 SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12 COUNTERPART ORIGINALS.
The parties hereto may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Indenture as
of the date first written above.
DAWSON PRODUCTION SERVICES, INC.,
a Texas corporation
By: /s/ MICHAEL E. LITTLE
MICHAEL E. LITTLE
Chairman of the Board, President
and Chief Executive Officer
65
<PAGE>
TAYLOR COMPANIES, INC.
By: /s/ MICHAEL E. LITTLE
MICHAEL E. LITTLE
President
66
<PAGE>
DAWSON PRODUCTION SERVICES DE MEXICO, S.A. DE C.V.
By:/s/ JOHN P. LOMAX
JOHN P. LOMAX
Sole Administrator
67
<PAGE>
U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee
By: /s/ PETER C. GERRER
PETER C. GERRER
Vice President
68
<PAGE>
EXHIBIT A
[FORM OF NOTE]
9-3/8% SENIOR NOTES DUE 2007
CUSIP: 239423 AA 4
No. $
DAWSON PRODUCTION SERVICES, INC., a Texas corporation, promises to pay
to , or registered assigns, the principal sum of Dollars
on February 1, 2007.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
DAWSON PRODUCTION SERVICES, INC.
By:
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Notes referred
to in the within-mentioned
Indenture:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
By:
Authorized Signatory
A-1
<PAGE>
(DAWSON PRODUCTION SERVICES, INC.)
9-3/8% SENIOR NOTES DUE 2007
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the Company or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co, has an interest herein.(1)
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Dawson Production Services, Inc., a Texas corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Note at
9-3/8% per annum from February 20, 1997, until maturity. The Company shall pay
interest semi-annually on February 1 and August 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each, an
"INTEREST PAYMENT DATE"). Interest on the Notes shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; PROVIDED that the first Interest Payment Date shall
be August 1, 1997. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the rate then in effect; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the January 15 or July 15 next preceding the
Interest Payment Date, even if such Notes are canceled after such record date
and on or before such Interest Payment Date, except as provided in Section 2.12
of the Indenture with respect to defaulted interest. The Notes will be payable
as to principal, premium and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of, and interest and premium on, all
Global Notes and all other Notes the Holders of which shall have provided
written wire transfer instructions to the Company or the Paying Agent at least
10 Business Days prior to the applicable
- ------------
(1) This paragraph should be included only in the Note if issued in global form.
A-2
<PAGE>
payment date. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of Texas,
N.A., the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE AND SUBSIDIARY GUARANTEES. The Company issued the Notes
under an Indenture dated as of February 20, 1997 (the "INDENTURE"), among the
Company, the Subsidiary Guarantors and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. The Notes are
obligations of the Company limited to $140.0 million in aggregate principal
amount. Payment on each Note is guaranteed on a senior basis, jointly and
severally, by the Subsidiary Guarantors pursuant to Article 10 of the Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Company shall not have the option to redeem the Notes prior to February 1,
2002. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' written notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the 12-month period beginning on February 1
of each of the years indicated below:
YEAR PERCENTAGE
2002.......................................... 104.6875%
2003.......................................... 103.1250%
2004.......................................... 101.5625%
2005 and thereafter........................... 100.0000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time on or prior to February 1, 2000, the Company may redeem
up to an aggregate of $49.0 million principal amount of Notes at a redemption
price of 109.375% of the principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date, with the net proceeds of a Public
Equity Offering; PROVIDED that at least $91.0 million in aggregate principal
amount of Notes remain outstanding immediately after the occurrence of such
redemption; and, PROVIDED, FURTHER, that such redemption shall occur within 60
days of the date of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION. The Company shall not be required to make
mandatory redemption payments or sinking fund payments with respect to the
Notes.
A-3
<PAGE>
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be
required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and any unpaid interest thereon, if any, to the Change of Control
Payment Date (as hereinafter defined) (the "CHANGE OF CONTROL PAYMENT"). Within
30 days of the occurrence of a Change of Control, the Company shall notify the
Trustee in writing of such proposed occurrence and shall make a Change of
Control Offer. Within 30 days following the occurrence of a Change of Control,
the Company shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales, within 10 days following each Asset Sale Trigger Date, the Company
shall commence an offer to all Holders of Notes (an "ASSET SALE OFFER") pursuant
to Section 3.9 of the Indenture to purchase the maximum principal amount of
Notes that may be purchased out of the Excess Proceeds at an offer price in cash
in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the Asset Sale Offer Purchase Date in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company (or such Subsidiary) may use such excess
for general corporate purposes. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before a redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a
A-4
<PAGE>
Note, the Indenture or the Notes may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to secure the Notes, to add or
release any Subsidiary Guarantor pursuant to the terms of the Indenture or to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the TIA.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on the Notes; (ii) default in payment
when due of principal of or premium, if any, on the Notes when the same becomes
due and payable at maturity, upon redemption (including in connection with an
offer to purchase) or otherwise, (iii) failure by the Company to comply with
Section 4.10, 4.15 or 5.1 of the Indenture; (iv) failure by the Company for 45
days after notice to the Company by the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding to comply with
certain other agreements in the Indenture or the Notes; (v) default under
certain other agreements relating to Indebtedness of the Company, which default
(A) is caused by a failure to pay principal of or premium, if any, or interest
on such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "PAYMENT DEFAULT") or (B)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more for any single Indebtedness or a total of $10.0 million or
more for all such Indebtedness and PROVIDED, FURTHER, that if any such default
is cured or waived or any such acceleration rescinded, or such Indebtedness is
repaid, within a period of 10 days from the continuation of such default beyond
the applicable grace period or the occurrence of such acceleration, as the case
may be, such Event of Default under the Indenture and any consequential
acceleration of the Notes shall be automatically rescinded, so long as such
recision does not conflict with any judgment or decree; (vi) certain final
judgments for the payment of money that remain undischarged for a period of 60
days; (vii) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Restricted Subsidiary that is a Guarantor, as
applicable, not to be, in full force and effect (except pursuant to the release
of any Subsidiary Guarantee in accordance with the Indenture) and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries that constitutes a Significant Subsidiary or any group
of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, any
Restricted Subsidiary that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing
A-5
<PAGE>
Default or Event of Default in the payment of interest on, or the principal of,
the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator or shareholder of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or such Subsidiary Guarantor under the Notes, the Indenture or the Subsidiary
Guarantees, as the case may be, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes and the Subsidiary Guarantees.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Dawson Production Services, Inc.
901 N.E. Loop 410
Suite 700
San Antonio, Texas 78209
Facsimile No.: (210) 930-3345
Attention: Chief Financial Officer
A-6
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEES]
Each of the Subsidiary Guarantors under the Indenture (the "INDENTURE")
referred to in the Note upon which this notation is endorsed, has
unconditionally guaranteed the obligations of the Company under the Notes and
the Indenture, jointly and severally (each such guarantee being a "SUBSIDIARY
GUARANTEE"), to each Holder of a Note authenticated and delivered by the Trustee
irrespective of the validity or enforceability of the Indenture, the Notes or
the obligations of the Company under the Indenture or the Notes, that: (i) the
principal of, premium, if any, and interest on the Notes shall be paid in full
when due, whether at the maturity or interest payment or mandatory redemption
date, by acceleration, call for redemption or otherwise, and interest on the
overdue principal and interest, if any, of the Notes and all other obligations
of the Company to the Holders or the Trustee under the Indenture or the Notes
shall be promptly paid in full or performed, all in accordance with the terms of
the Indenture and the Notes and (ii) in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, they shall be paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at maturity, by acceleration or otherwise. Failing payment when
due of any amount so guaranteed for whatever reason, each Subsidiary Guarantor
shall be obligated to pay the same whether or not such failure to pay has become
an Event of Default that could cause acceleration pursuant to Section 6.2 of the
Indenture. Each Subsidiary Guarantor agrees that this is a guarantee of payment,
not a guarantee of collection. Capitalized terms used herein have the meanings
assigned to them in the Indenture unless otherwise indicated, and the
obligations of the Subsidiary Guarantors pursuant to the Subsidiary Guarantees
are subject to the terms of the Indenture, to which reference is hereby made for
the precise terms thereof. The obligations of each Subsidiary Guarantor to the
Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the
Indenture are expressly set forth, and are senior unsecured obligations of each
such Subsidiary Guarantor to the extent and in the manner provided, in Article
10 of the Indenture, and may be released or limited under certain circumstances.
Reference is hereby made to such Indenture for the precise terms of the
Subsidiary Guarantee therein made.
The Subsidiary Guarantees shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note on which the
Subsidiary Guarantees are noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
By each of the following, and any other Subsidiary Guarantor as may be
added or substituted from time to time, as Subsidiary Guarantors:
SUBSIDIARY GUARANTORS:
TAYLOR COMPANIES, INC.
DAWSON PRODUCTION SERVICES DE MEXICO, S.A. DE C.V.
By:
Name:
(for each of the above-listed Subsidiary
Guarantors)
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: ________________
Your Signature:
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$____________ (Must be in $1,000 Denominations)
Date: ________________
Your Signature:
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee:
A-9
<PAGE>
SCHEDULE OF EXCHANGES FOR DEFINITIVE NOTES(2)
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
AMOUNT OF SIGNATURE OF
DECREASE IN PRINCIPAL AMOUNT OF AUTHORIZED
PRINCIPAL AMOUNT OF INCREASE THIS GLOBAL NOTE SIGNATORY OF
DATE OF AMOUNT OF THIS IN PRINCIPAL AMOUNT FOLLOWING SUCH TRUSTEE OR NOTE
EXCHANGE GLOBAL NOTE OF THIS GLOBAL NOTE DECREASE (OR INCREASE) CUSTODIAN
- --------------- ---------------------- ------------------------ ------------------------- ---------------
<S> <C> <C>
</TABLE>
- --------
(2) This should be included only if the Note is issued in global form.
A-10
CREDIT AGREEMENT
between
DAWSON PRODUCTION SERVICES, INC.,
as Borrower
and
THE FROST NATIONAL BANK,
as Bank
$50,000,000.00 Revolving Facility
February 20, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONAL PROVISIONS 1
SECTION 1.1 CERTAIN DEFINITIONS OF TERMS. 1
SECTION 1.2 GENERAL DEFINITIONAL PROVISIONS. 1
ARTICLE 2
THE CREDITS 2
SECTION 2.1 COMMITMENT TO LEND. 2
SECTION 2.2 METHOD OF BORROWING. 2
SECTION 2.3 NOTES. 3
SECTION 2.4 INTEREST RATES AND PAYMENT. 3
SECTION 2.5 COMMITMENT, LOAN AND LETTER OF CREDIT FEES. 4
SECTION 2.6 MANDATORY PREPAYMENTS. 5
SECTION 2.7 OPTIONAL PREPAYMENTS. 5
SECTION 2.8 GENERAL PROVISIONS AS TO PAYMENTS. 5
SECTION 2.9 PROCEEDS OF LOANS. 6
SECTION 2.10 COLLATERAL; GUARANTY AGREEMENT 6
ARTICLE 3
CONDITIONS 6
SECTION 3.1 INITIAL LOANS AND LETTER OF CREDIT ON THE CLOSING DATE. 6
SECTION 3.2 ALL LOANS. 6
ARTICLE 4
REPRESENTATIONS AND WARRANTIES 7
SECTION 4.1 ENTITY STATUS; POWER AND AUTHORITY. 7
SECTION 4.2 AUTHORIZATION; CONSENTS. 7
SECTION 4.3 NO CONFLICTS. 7
SECTION 4.4 ENFORCEABLE OBLIGATIONS; LIEN ESTABLISHMENT. 8
SECTION 4.5 TITLE TO PROPERTIES. 8
SECTION 4.6 Financial Statements 8
SECTION 4.7 FULL DISCLOSURE. 8
SECTION 4.8 NO DEFAULT OR ADVERSE CONDITION 8
SECTION 4.9 MATERIAL AGREEMENTS; INSURANCE. 9
SECTION 4.10 NO LITIGATION. 9
i
<PAGE>
SECTION 4.11 USE OF PROCEEDS; MARGIN STOCK. 9
SECTION 4.12 NO FINANCING OF REGULATED CORPORATE TAKEOVERS. 10
SECTION 4.13 TAXES. 10
SECTION 4.14 PRINCIPAL OFFICE; NAMES; PRIMARY BUSINESS. 10
SECTION 4.15 SUBSIDIARIES. 10
SECTION 4.16 ERISA. 10
SECTION 4.17 COMPLIANCE WITH LAW. 11
SECTION 4.18 GOVERNMENT REGULATION. 11
SECTION 4.19 INSIDER. 11
SECTION 4.20 CERTAIN ENVIRONMENTAL MATTERS. 11
SECTION 4.21 INSURANCE; CERTIFICATIONS. 12
ARTICLE 5
AFFIRMATIVE COVENANTS 12
SECTION 5.1 FINANCIAL STATEMENTS. REPORTS AND DOCUMENTS. 12
SECTION 5.2 PAYMENT OF TAXES AND OTHER LIABILITIES. 15
SECTION 5.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. 15
SECTION 5.4 NOTICE OF DEFAULT. 15
SECTION 5.5 OTHER NOTICES. 15
SECTION 5.6 COMPLIANCE WITH LOAN DOCUMENTS. 16
SECTION 5.7 COMPLIANCE WITH AGREEMENTS. 16
SECTION 5.8 ACCESS; BOOKS AND RECORDS. 16
SECTION 5.9 COMPLIANCE WITH LAW. 16
SECTION 5.10 INSURANCE. 16
SECTION 5.11 ERISA COMPLIANCE. 17
SECTION 5.12 FURTHER ASSURANCES. 17
SECTION 5.13 MAINTENANCE OF CORPORATE IDENTITY. 18
SECTION 5.14 PRIMARY BUSINESS. 18
SECTION 5.15 SUBORDINATION OF AFFILIATE OBLIGATIONS. 18
ARTICLE 6
NEGATIVE COVENANTS 18
SECTION 6.1 CERTAIN FINANCIAL MATTERS. 19
SECTION 6.2 LIMITATION ON INDEBTEDNESS. 19
SECTION 6.3 LIMITATION ON PROPERTY. 20
SECTION 6.4 ADDITIONAL NEGATIVE PLEDGE 20
SECTION 6.5 RESTRICTED PAYMENTS. 20
SECTION 6.6 LIMITATION ON INVESTMENTS. 20
SECTION 6.7 AFFILIATE TRANSACTIONS. 20
SECTION 6.8 LIMITATION ON SALE OF PROPERTY. 21
SECTION 6.9 ACCOUNTING METHOD. 21
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SECTION 6.10 INTERNAL GOVERNANCE DOCUMENTS: NAME AND PRINCIPAL PLACE OF
BUSINESS. 21
SECTION 6.11 CERTAIN ENVIRONMENTAL MATTERS. 21
SECTION 6.12 MERGERS, ACQUISITIONS AND DISSOLUTIONS. 22
SECTION 6.13 SUBSIDIARIES. 22
SECTION 6.14 SALE OF RECEIVABLES. 22
SECTION 6.15 SALE OF CERTAIN INTERESTS. 22
ARTICLE 7
EVENTS OF DEFAULT 22
SECTION 7.1 EVENTS OF DEFAULT. 22
SECTION 7.2 REMEDIES UPON EVENT OF DEFAULT. 24
ARTICLE 8
MISCELLANEOUS 24
SECTION 8.1 NOTICES. 24
SECTION 8.2 NO WAIVERS. 25
SECTION 8.3 PAYMENT OF COSTS AND EXPENSES; PROFESSIONALS AND
CONSULTANTS. 25
SECTION 8.4 INDEMNIFICATION. 26
SECTION 8.5 SHARING OF SET-OFFS. 27
SECTION 8.6 AMENDMENTS AND WAIVERS. 28
SECTION 8.7 SUCCESSORS AND ASSIGNS; PARTICIPATIONS ASSIGNMENTS. 28
SECTION 8.8 MAXIMUM INTEREST RATE. 30
SECTION 8.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. 31
SECTION 8.10 COUNTERPARTS; EFFECTIVENESS. 31
SECTION 8.11 INDEPENDENCE OF COVENANTS. 31
SECTION 8.12 SURVIVAL. 32
SECTION 8.13 SEVERABILITY. 32
SECTION 8.14 GOVERNMENTAL REGULATION. 32
SECTION 8.15 NO CONTROL. 32
SECTION 8.16 RENEWALS, EXTENSIONS, REARRANGEMENTS, TERMINATION, ETC. 33
SECTION 8.17 CONFLICTS. 33
SECTION 8.18 CONFIDENTIALITY. 33
SECTION 8.19 PROVISIONS CONCERNING LOCK BOX. 33
SECTION 8.20 PAYMENTS SET ASIDE. 34
SECTION 8.21 LIMITATION OF LIABILITY; COMMENCEMENT OF ACTIONS. 34
SECTION 8.22 REVIEW. 35
SECTION 8.23 THIS AGREEMENT. 35
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CREDIT AGREEMENT
This Credit Agreement is made and entered into as of the 20th day of
February, 1997, between DAWSON PRODUCTION SERVICES, INC., a Texas corporation
("Borrower"), and THE FROST NATIONAL BANK, a national banking association (the
"Bank").
WITNESSETH:
WHEREAS, Borrower has requested the Bank to provide it a revolving
facility for the purposes hereinafter provided; and
WHEREAS, the Bank is willing to commit and to advance to the extent of
its commitment, a revolving loan to Borrower upon the terms and subject to the
conditions herein provided;
NOW THEREFORE, for and in consideration of the premises and the promises
herein, and for other good and valuable considerations, the receipt, adequacy
and reasonable equivalency of which are hereby acknowledged by each party
hereto, the Borrower and the Bank agree as follows:
ARTICLE 1
DEFINITIONAL PROVISIONS
SECTION 1.1 CERTAIN DEFINITIONS OF TERMS. For purposes of this
Agreement, unless otherwise defined herein or the context otherwise requires,
capitalized terms used in this Agreement shall have the respective meanings
assigned to them in Annex B hereto.
SECTION 1.2 GENERAL DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have their defined
meanings when used in each Loan Document and in each certificate, exhibit,
schedule, annex or other instrument related thereto, unless in any case the
context states or implies otherwise; and when required by the context, each term
shall include the plural as well as the singular, and vice versa. Furthermore,
in each Loan Document: (i) the word "or" is not exclusive, and the word
"including" (in its various forms) means "including without limitation"; and
(ii) provisions in the masculine, feminine or neither genders should be
construed to include any gender.
(b) Definitions of each Person specifically defined herein or in each
other Loan Document shall mean and include herein and therein, unless otherwise
expressly provided to the contrary, the successors, assigns, heirs and legal
representatives of each such Person.
(c) Unless the context otherwise requires or unless otherwise expressly
provided, references to this Agreement and each other Loan Document shall
include all amendments, modifications, supplements, restatements, ratifications,
renewals, increases, extensions, replacements, substitutions and rearrangements
thereof or thereto, as applicable, and as in effect from time to time;
<PAGE>
provided, however, nothing contained in this sentence shall be construed to
authorize any Person to execute or enter into any such amendments,
modifications, supplements, restatements, ratifications, renewals, increases,
extensions or rearrangements to a Loan Document to which it is a party, unless
entered into and executed pursuant to the applicable provisions of the
respective Loan Documents.
(d) All accounting terms not specifically defined in a Loan Document
shall be construed, and all accounting procedures, calculations and reporting
required or provided for in any Loan Document shall be performed or prepared, as
applicable, in accordance with GAAP consistently applied.
(e) The term "Section" refers to Sections of this Agreement, and the
terms "Annex", Exhibit" and "Schedule" refer to Annexes, Exhibits and Schedules
attached hereto, reference to which is hereby made for incorporation herein for
all intents and purposes, unless in any case the context states or implies
otherwise. The table of contents and headings in each Loan Document are inserted
for convenience of reference only and shall be ignored when construing any such
Loan Document.
ARTICLE 2
THE CREDITS
SECTION 2.1 COMMITMENT TO LEND. From time to time prior to February
20th, 1999, so long as there is no Default or Event of Default under this
Agreement that has occurred and is continuing, the Bank agrees to make loans
(each, a "Loan") to Borrower and issue letters of Credit on terms reasonably
satisfactory to the Bank for the benefit of Borrower and any of its
Subsidiaries, on and subject to the terms and conditions set forth in this
Agreement, up to an aggregate principal amount of Loans which when added to the
face amount of all outstanding Letters of Credit, do not exceed the lesser of
(i) the Consolidated Borrowing Base, or (ii) the sum of$50,000,000.00. The
aggregate face amount of all outstanding Letters of Credit issued hereunder
shall never exceed $10,000,000.00. Subject to the terms and conditions of this
Agreement, Loans may be borrowed, repaid and reborrowed at any time during the
term of the Commitment without premium or penalty
SECTION 2.2 METHOD OF BORROWING.
(a) Borrower shall give the Bank notice (a "Selection of Interest Rate
Form"), in the form attached hereto as Exhibit A, not later than 12:00 noon (San
Antonio time) on the second Business Day before its initial Borrowing,
specifying the Base Rate for all Loans.
(b) Not later than 12:00 noon (San Antonio time) on the second Business
Day before each Borrowing or the issuance of each Letter of Credit requested
hereunder, Borrower shall give the Bank the following:
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(1) for each Borrowing, notice (a "Consolidated Borrowing Base
Certificate") in the form attached hereto as Exhibit B
specifying the amount of such Borrowing;
(2) for each Letter of Credit, a Consolidated Borrowing Base
Certificate and a notice (a "Letter of Credit Information
Form") in the form attached hereto as Exhibit C specifying the
terms of the requested Letter of Credit.
(c) Not later than 2:00 P.M. (San Antonio time) on the date of each
Borrowing, unless the Bank determines that any applicable condition precedent
has not been satisfied, the Bank will make the funds available to Borrower in
its deposit account established with the Bank.
SECTION 2.3 NOTES.
(a) The Loans of the Bank shall be evidenced by a Note to the Bank and a
Note to each Purchaser described in Section 8.7(d) in the amount of the
Commitment held by each.
(b) Each reference in this Agreement to the "Notes" of the Bank shall be
deemed to refer to and include any or all of the Notes referred to in the
preceding clause (a), as the context may require.
(c) Bank shall record on its books, and prior to any transfer of the
Notes shall endorse on the schedule forming a part thereof, appropriate
notations to evidence the date and amount of the Loans made and the date and
amount of each payment of principal made by Borrower with respect thereto;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of Borrower or the Bank hereunder
or under any other Loan Document. The Bank is hereby irrevocably authorized by
Borrower so to endorse the Notes and to attach to and make a part of the Notes a
continuation of any such schedule as and when required.
SECTION 2.4 INTEREST RATES AND PAYMENT.
(a) The Loans shall bear interest on the outstanding principal amount
thereof at a rate per annum equal to whichever of the following rates as shall
be selected by Borrower in its Selection of Interest Rate Form given to Bank at
the time of the initial Borrowing: (i) the Prime Rate the Bank may charge from
time to time, or (ii) the sum of the Applicable Margin PLUS the applicable Wall
Street Journal London Interbank Offered Rate, but never more than the Maximum
Rate. The interest rate so selected by Borrower shall continue to be effective
as to all Loans until the date of maturity unless no less than three Business
Days prior to the end of any month before maturity, Borrower shall change its
selection on one or more occasions by submitting to the Bank a new Selection of
interest Rate Form. Any new interest rate so selected shall become effective as
to all Loans as of the first day of the following month, and such new interest
rate shall continue to be effective until the date of maturity unless again
changed by Borrower in accordance with the preceding sentence of this Section
2.4(a). Accrued, unpaid interest on the outstanding principal of the Loans shall
be due and payable
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monthly as it accrues on the first day of each month for the Loans. Any
principal of and, to the extent permitted by Law, interest on the Loans which
has become due and payable shall bear interest on the unpaid portion thereof,
payable on demand, for each day from such due date and until paid, at the
Default Rate.
(b) The Bank shall determine the interest rate applicable to the Loans
hereunder and each fee hereunder. Interest for all Loans and all fees shall be
computed on the basis of a year of 360 days, in each case for the actual number
of days elapsed (including the first day but excluding the last day), except
that, if use of a 360-day year would result in a rate in excess of the Maximum
Rate, such computation will be made on the basis of a year consisting of 365 or
366 days, as appropriate. Each determination by the Bank of an interest rate or
fee hereunder shall be conclusive and binding in the absence of manifest error.
(c) Notwithstanding the foregoing, if at any time the applicable
contractual rate of interest provided for herein (without reference to the
Maximum Rate limitation) exceeds the Maximum Rate, then the rate of interest on
the Loans or other Obligation shall be limited to the Maximum Rate during such
time, and at all times thereafter (including periods during which any or all of
such applicable contractual rates of interest have fallen below the Maximum
Rate), the interest rate on the Loans or other Obligation shall be the Maximum
Rate, or if there is no Maximum Rate in effect, the Agreed Maximum Rate, until
the total amount of interest accrued on the Loans or other Obligation equals the
amount of interest which would have accrued thereon if the applicable
contractual rate of interest (without reference to the Maximum Rate limitation)
had at all times been in effect; but in no event shall the aggregate interest
payable or paid during the period beginning on the date the initial Loan is made
until the Obligations are paid in full exceed an amount equal to interest at the
Maximum Rate, so long as the Maximum Rate shall be applicable to this Agreement
and the transactions contemplated hereby. If at maturity or final payment of the
Notes or other Obligations, as applicable, the total amount of interest paid or
accrued on the Notes or other Obligations under the foregoing provisions is less
than the total amount of interest which would have been paid or accrued if the
applicable contractual rate of interest provided for herein had at all times
been in effect, then the Borrower agrees, to the fullest extent permitted by
Law, to pay an amount equal to the difference between (i) the lesser of (A) the
amount of interest which would have been paid or accrued on the Notes or other
Obligations, as applicable, if the Maximum Rate had at all times been in effect
and (B)the amount of interest which would have been paid or accrued on the Notes
or other Obligations, as applicable, if a rate per annum equal to the applicable
contractual rate of interest provided for herein had at all times been in
effect, and (ii) the amount of interest paid or accrued in accordance with the
other provisions of the Notes or other Obligations, as applicable.
(d) The payment of interest (or any amount deemed to be interest) on the
Notes and on any other Obligation shall, in all respects regarding each Loan
Document, be subject to the provisions of Section 8.8.
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(e) Unless the maturity of the Notes shall have sooner accrued, the
outstanding principal balance of the Notes and any accrued, unpaid interest
shall be finally and fully payable on February 20, 1999.
SECTION 2.5 COMMITMENT, LOAN AND LETTER OF CREDIT FEES. Subject to
Section 8.8 the Borrower shall pay to the Bank:
(a) On the Closing Date, a Commitment fee in the amount of$125,000.00;
(b) A Loan fee equal to .15% (15 basis points) per annum on the average
daily unused amount of the Commitment during the term thereof; with such Loan
fee to be payable quarterly in arrears on the 15th day of May, August, November
and February of each year commencing May 15, 1997, upon the Bank's delivery to
the Borrower of a detailed statement thereof for the preceding calendar quarter,
and
(c) A Letter of Credit fee equal to the greater of (i) $300.00 for each
Letter of Credit issued during the term of the Commitment, or (ii) 1.5% per
annum on the average daily face amount of each Letter of Credit issued during
such term; with such Letter of Credit fee to be payable upon execution and
delivery to Bank of an Application and Agreement for Standby Letter of Credit in
form and substance satisfactory to the Bank.
SECTION 2.6 MANDATORY PREPAYMENTS. If at any time the aggregate
principal amount of all Loans outstanding and the face amount of all outstanding
Letters of Credit exceeds the lesser of (i) the Consolidated Borrowing Base, or
(ii) the sum of $50,000,000.00, the Borrower shall immediately prepay the Loans
in an amount at least equal to such excess of Loans and Letters of Credit over
the lesser of "(i)" or "(ii)" above. All such mandatory prepayments shall be
accompanied by, and the Borrower shall pay, interest thereon which has accrued
until the date of payment thereof.
SECTION 2.7 OPTIONAL PREPAYMENTS. The Borrower may, upon notice to the
Bank given not later than 1:00 P.M. (San Antonio time) on the date of prepayment
of the Loans, prepay (without premium or penalty) the Loans in whole at any
time, or from time to time in part. Such notice shall specify the date and
amount of prepayment. The payment amount specified in such notice shall be due
and payable on the date specified therein, together with accrued interest
thereon and other fees and expenses due and owing by such Borrower to the date
of prepayment.
SECTION 2.8 GENERAL PROVISIONS AS TO PAYMENTS. The Borrower shall make
each payment of principal of and interest on the Loans and each payment of fees
or any other Obligations of the Borrower, in U.S. dollars, not later than 1:00
P.M. (San Antonio time) on the date when due (it being understood that interest
shall accrue and be payable for such date on any amounts which are paid after
1:00 P.M. (San Antonio time)), in immediately available funds, without
deduction, setoff or counterclaim to the Bank at the Domestic Lending Office of
the Bank set forth in Annex A. Whenever any payment of principal of or interest
shall be due on a day which is not a Business Day, the date for payment thereof
shall be extended to the next succeeding Business Day unless such
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<PAGE>
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the immediately preceding Business Day. Whenever any payment of
any other Obligations shall be due on a day which is not a Business Day, the
date for payment thereof shall be extended to the next succeeding Business Day.
If the date for any payment of principal is extended as provided above or by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
SECTION 2.9 PROCEEDS OF LOANS. The proceeds of the Loans shall be used
by Borrower to (i) support Accounts Receivable; (ii) fund Letters of Credit for
up to$10,000,000.00 issued by the Bank as a part of its Commitment, and (iii)
provide for certain of the Companies' working capital needs.
SECTION 2.10 COLLATERAL; GUARANTY AGREEMENT. All Obligations shall be
secured by perfected, first and prior security interest and lien (subject only
to Permitted Liens)covering all Accounts Receivable of all Companies. All
Subsidiaries of Borrower will execute a Guaranty Agreement to Guarantee the
Obligations.
ARTICLE 3
CONDITIONS
SECTION 3.1 INITIAL LOANS AND LETTERS OF CREDIT ON THE CLOSING DATE. The
obligation of the Bank to make any Loan or issue any Letter of Credit on the
Closing Date is subject to the conditions precedent that on or before the
Closing Date, the Bank shall have received, there shall have been performed and
there shall exist, the documents, actions and other matters set forth in Annex C
hereto, each in form, scope and substance, and (as applicable) dated as of a
date, satisfactory to the Bank and its counsel.
SECTION 3.2 ALL LOANS. The obligations of the Bank to make each Loan or
issue any Letter of Credit is subject to, in addition to the conditions referred
to in Section 3.1, the satisfaction of the Bank as to the following conditions
precedent:
(a) REPRESENTATIONS TRUE AND NO DEFAULTS. (i)The representations and
warranties contained and referred to in Article 4 (other than those
representations and warranties limited by their terms to a specific date) shall
be true, complete and accurate in all material respects on and as of the date of
the Credit Event as though made on and as of such date; (ii) no event shall have
occurred since the date of the most recent financial statements delivered
pursuant to Section 5.1 that has caused a Material Adverse Effect; and (iii) no
Event of Default or Default shall have occurred and be continuing.
(b) NO MATERIAL ADVERSE CHANGE. As of the date of the Credit Event, no
change or event that might cause a Material Adverse Effect shall have occurred.
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(c) BORROWING/BANK DOCUMENTS. The Bank shall have received (i) a
certificate signed by an Authorized Officer of the requesting Borrower dated as
of such date to the effects set forth in Section 3.2(a), (ii) the notices
required in accordance with Sections 2.2(a) and 2.2(b),and (iii) such other
documents and certificates relating to the transactions herein contemplated as
the Bank may reasonably require.
(d) LETTERS OF CREDIT. The terms of each Letter of Credit requested by
Borrower shall be reasonably acceptable to Bank.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into and perform its agreements pursuant to
this Agreement, including, without limitation, the making of the Loans and the
issuance of Letters of Credit, the Borrower (i) makes and reaffirms to the Bank
each of the representations and warranties contained in each Loan Document, and
(ii) without duplication, represents and warrants to the Bank, at the time of
execution hereof and the transactions contemplated hereby and as of each of the
dates of each of the financial statements required to be delivered (unless
excused in writing by the Bank), from time to time, pursuant to Section 5.1:
SECTION 4.1 ENTITY STATUS; POWER AND AUTHORITY. Each Company is a
corporation or limited partnership duly organized and validly existing in good
standing under the laws of the State of incorporation or organization and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the failure to be so qualified could have a Material
Adverse Effect, all of which jurisdictions are set forth in Schedule 4.1 hereto.
Each Company has the corporate power and authority and all Legal Rights which
are necessary (i) to own, lease, use and operate its respective Property and to
transact its business as now being and as proposed to be conducted and(ii) to
execute and deliver each Loan Document, perform and comply with all obligations
and agreements thereunder and consummate the transactions contemplated thereby.
SECTION 4.2 AUTHORIZATION; CONSENTS. The execution, delivery and
performance by each Company of each Loan Document to which it is a party, and
the consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate and other action by, on behalf of, and
with respect to, each Company, and no consent, approval, authorization,
declaration, filing, order or other action by, on behalf of, or with respect to,
any Company is required of, or from, any Governmental Authority or other Person
in connection with any of such execution, delivery or performance, or the
validity or enforceability of any Loan Document against each Company which is a
party thereto or any Property covered thereby which has not been obtained and is
final and in full force and effect.
SECTION 4.3 NO CONFLICTS. Neither the execution or delivery of any Loan
Document, nor the consummation of any transaction contemplated therein, nor the
performance of, or compliance with, any of the terms and provisions thereof,
does or will (i) conflict with, or result
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in or constitute a breach, violation or default of, or require a consent under,
(A) any provision of Law to which any Company or any of its Property is subject
or bound, (B) any judgment or Legal Right applicable to any Company or any of
its Property, (C) any lease, indenture, loan agreement, note, purchase or
acquisition agreement, mortgage, deed of trust or other agreement or instrument
to which any Company is a party or by which it or any of its Property may be
bound or subject, or (D) any provision of the charter or bylaws any Company, or
(ii) result in the creation or imposition of any Lien or Negative Pledge upon
any Company or any of its Property, except for the benefit of the Bank.
SECTION 4.4 ENFORCEABLE OBLIGATIONS; LIEN ESTABLISHMENT. Each Loan
Document has been duly executed and delivered by each Company which is a party
thereto and constitutes the legal, valid and binding obligations of each
Company, enforceable against each Company in accordance with its respective
terms.
SECTION 4.5 TITLE TO PROPERTIES. Each Company has good and indefeasible
title to, or valid leasehold interests in, as applicable, all of its Property,
free and clear of all Liens (except Permitted Liens), Negative Pledges and any
other adverse claims of any nature, except any of the foregoing which are for
the benefit of the Bank. Except as set forth in Schedule 4.5, there are no
financing statements, lien instruments, abstracts of judgment, levies,
executions or other filings of record in any jurisdiction naming any Company as
"debtor", "mortgagor", "obligor" or the like, or covering any Property of any
Company, except those evidencing Permitted Liens.
SECTION 4.6 FINANCIAL STATEMENTS The Borrower has delivered to the Bank
copies of the audited consolidated and consolidating balance sheet of the
Companies as of March 31, 1996, and the related statements of income,
stockholders' equity and cash flows for the year ended on such date, with
reports thereon by KPMG Peat Marwick LLP, its independent public accountants,
and unaudited copies of such financial statements of the Companies for the
monthly period ended December 31 , 1996. Such financial statements (together
with related schedules and notes, the "Financial Statements") are true, complete
and accurate, fairly present the financial condition of the Companies as of the
respective dates thereof and have been prepared in accordance with GAAP applied
throughout the periods covered thereby on a basis consistent with that of prior
periods, subject to normal year-end audit adjustments. As of the date hereof, no
Company has any(i) obligations, liabilities or other Indebtedness (including
Guarantees) or (ii)Investments in any Person which are (separately or in the
aggregate) not reflected in such Financial Statements; and there has been no
material adverse change in the financial condition, management, control,
operations, business or prospects of the Companies or their respective Property
(as applicable) since the date of the Financial Statements.
SECTION 4.7 FULL DISCLOSURE. There is no fact that any Company has not
disclosed to the Bank which might reasonably be expected to have a Material
Adverse Effect. Neither the financial information referenced in Section 4.6 nor
any certificate, report, exhibit, schedule, statement, disclosure letter or
other information furnished to the Bank by, or on behalf of, any Company,
whether heretofore or herewith, in connection with the negotiation, preparation,
execution, delivery or consummation of this Agreement and the other Loan
Documents, or included therein or delivered
8
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pursuant thereto, contains any untrue statement of a material fact or omits or
omitted to state any material fact necessary to make and keep the statements
contained herein or therein from being misleading. All information furnished
after the date hereof by or on behalf of any Company shall be true, complete and
accurate in all material respects.
SECTION 4.8 NO DEFAULT OR ADVERSE CONDITION. No event has occurred and
is continuing which constitutes a Default or an Event of Default, and there
exists no event, circumstance, condition or casualty (whether or not covered by
insurance) which could have a Material Adverse Effect.
SECTION 4.9 MATERIAL AGREEMENTS; INSURANCE. No Company is in default
under, or in violation or breach of (nor has any event or circumstance occurred
which, but for the passage of time or the giving of notice, or both, would
constitute a default under, or a violation or breach of), (i) its charter,
bylaws or other internal governance document, (ii) any Judgment affecting it or
any of its Property, or (iii) any partnership agreement or any material
indenture, promissory note, contract, lease, purchase or acquisition agreement,
loan agreement, mortgage, deed of trust, security agreement, license, permit,
franchise or other material agreement or obligation to which it is a party or by
which it or any of its Property is bound. Attached hereto as Schedule 4.9 is a
complete and correct list of all of each Company's material patents, trademarks,
trade names, copyrights and service marks and all applications, registrations
and licenses relating thereto. No Company is a party to, or bound by, any
futures contract, forward agreement or contract, interest rate swap contract,
commodity price swap contract or other hedging agreement or material contract or
agreement. Each Company maintains insurance in compliance with Section 5.10.
SECTION 4.10 NO LITIGATION. Except as set forth on Schedule 4.10 (and
therein designating which of the following clauses (i) through (iv) is
applicable thereto), as of the date hereof, there is no Litigation or Judgment
pending, or to the knowledge of any Company threatened, against, affecting or
challenging (as applicable) (i) any Property of any Company, including, without
limitation, each Company's sole legal and beneficial title therein and all Legal
Rights with respect thereto, (ii) the validity or enforceability of any Loan
Document, (iii) the ability of each Company to enter into, execute, deliver and
perform its obligations under each Loan Document to which it is a party as
provided therein, and otherwise to consummate the actions and transactions
contemplated thereby, (iii) any Company which, if adversely determined, could
reasonably be expected to result in a Judgment, individually or when aggregated
with all other Judgments, (A) for the payment of money in excess of
$1,000,000.00 (regardless of insurance coverage) or (B) for the forfeiture of
any Legal Rights of any Company (other than of a trivial or non-consequential
nature), or (iv) any Company, or any of its respective Property or Legal Rights,
which might otherwise have a Material Adverse Effect.
SECTION 4.11 USE OF PROCEEDS; MARGIN STOCK. The proceeds of the Loans
will be used solely as provided in Section 2.9, and none of such proceeds will
be used (i) for the purpose of purchasing or carrying any "margin stock" as
defined in Regulations G, T, U or X, (ii)for the purpose of maintaining,
reducing or retiring any Indebtedness which was originally incurred to purchase
or
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carry a "margin stock", or (iii) for any other purpose which might constitute
this transaction a "purpose credit" within the meaning of Regulations G, T, U or
X. No Company nor any Person acting on behalf of any Company is engaged in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying "margin stock". No Company nor any Person acting
on behalf of any Company has taken or will take any action which might cause any
of the Loan Documents to violate Regulations G, T, U or X, or any other
regulations of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act or any rule or regulation thereunder, in each case as
now in effect or as the same may hereafter be in effect.
SECTION 4.12 NO FINANCING OF REGULATED CORPORATE TAKEOVERS. No proceeds
of the Loans will be used to acquire any security in any transaction which is
subject to Sections 13 or 14 of the Exchange Act, including particularly
Sections 13(d) and 14(d) thereof.
SECTION 4.13 TAXES. All Tax returns, reports, statements and filings
required to be filed by each Company in any jurisdiction have been timely and
correctly filed, and all Taxes upon each Company or any of its Property have
been paid prior to the time that such Taxes could give rise to a Lien thereon,
except for Contested Claims. No tax or similar Lien has been filed on, or is
being enforced against, any Company or any of its Property, and no United States
Federal income tax returns of any Company have ever been and are not now being,
examined or audited, and(ii) there is no proposed Tax assessment against any
Company any of its Property, and there is no basis for any such assessment.
SECTION 4.14 PRINCIPAL OFFICE; NAMES; PRIMARY BUSINESS. The actual and
anticipated principal place of business of each Company, or if it has more than
one such place, its chief executive office, is shown in Schedule 4.14, and each
Company intends to maintain its principal records and books at such office.
Schedule 4.14 also lists the address of each location at which each Company
operates or conducts its business or maintains or stores any of its equipment,
inventory or other Property. No Company (i) has heretofore conducted and is not
now conducting, nor does it currently plan hereafter to conduct, any business or
operations, or owned or is owning or operated or is operating, or currently
plans hereafter to own or operate, any Property, in any name, other than set
forth on Schedule 4.14 and (ii) has not heretofore merged into, consolidated
with, or acquired, and has no current plans to merge into, consolidate with or
acquire, any Person other than as set forth on Schedule 4.14. The primary
business of Borrower is oil field services.
SECTION 4.15 SUBSIDIARIES. No Company has any Subsidiaries and is not a
general or limited partner in any Person, except as set forth in Schedule 4.15,
which lists as to each Subsidiary or general or limited partnership interest:
(i) name of entity; (ii) jurisdiction of incorporation or organization; (iii)
foreign qualification; (iv) share/percentage/nature ownership; and(v) primary
business. Except as set forth in Schedule 4.15, there are no outstanding
warrants, options, rights, contracts or commitments of any Company of any kind
entitling any Person to purchase or otherwise acquire (A) any shares of capital
stock of such Company or (B) any securities convertible into or exchangeable for
any shares of capital stock of such Company.
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SECTION 4.16 ERISA. No Reportable Event(as defined in Section 4043(b) of
ERISA) to which the notice requirement has not been waived has occurred with
respect to any Plan. Each Plan complies with all applicable provisions of ERISA,
and each Company has filed all reports required by ERISA and the Code to be
filed with respect to each Plan. No Company has any knowledge of any event which
could result in a liability of such Company to the PBGC. Each Company has met
all requirements with respect to funding the Plans imposed by ERISA or the Code.
Since January 1, 1986, there have not been any, nor are there now existing any
events or conditions that would permit, termination of any Plan under
circumstances which would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of any Company. The value of the Plans' liabilities as
defined in Section 4001(a)(16) of ERISA on the date hereof does not exceed the
value of such Plans' assets allocable to such benefits as of the date of this
Agreement and shall not be permitted to do so hereafter. No Plan is or has been
a multi employer plan as defined in Section 4001(a)(3) of ERISA.
SECTION 4.17 COMPLIANCE WITH LAW. Each Company has complied in all
material respects with, and is in compliance in all material respects with, all
Laws applicable to it and its Property, including Environmental Laws and the
provisions of the FAIR LABOR STANDARDS ACT OF 1938, 29 U.S.C. ss. 200, et seq.,
as amended, including specifically, but without limitation, 29 U.S.C. ss.
215(a).
SECTION 4.18 GOVERNMENT REGULATION. No Company is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other Law which regulates either the
incurring by such Company of Indebtedness or the determination or setting of, or
changes to, the rates or amounts charged by Borrower for the goods or products
it sells or the services it performs, including Laws relating to common contract
carriers or the sale of electricity, gas, steam, water or other public utility
services. No Company is (i) an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, and no Company
is "controlled" by such a company, or (ii) a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, and is not a "subsidiary company" or an "affiliate" of any such
company.
SECTION 4.19 INSIDER. No Company is, and no Person having "control" (as
that term is defined in 12 U.S.C. ss. 375(b)(5) or in regulations promulgated
pursuant thereto)of any Company is, an "executive officer", "director" or
"principal shareholder" (as those terms are defined in 12 U.S.C. ss. 375(b) or
in regulations promulgated pursuant thereto) of Bank, of a bank holding company
of which Bank is a Subsidiary, or of any Subsidiary of a bank holding company of
which Bank is a Subsidiary.
SECTION 4.20 CERTAIN ENVIRONMENTAL MATTERS. Except as disclosed in
Schedule 4.20, (i) no Company (A) is aware of, and has not received notice or
otherwise learned of, any Environmental Complaint or Environmental Liability
which could individually or in the aggregate have a Material Adverse Effect, (B)
has threatened or actual liability (contingent, direct or otherwise)
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in connection with the release or threatened release, generation, handling,
treatment, storage, disposal or transportation of any Hazardous Material, or
other substance which could individually or in the aggregate have a Material
Adverse Effect, (C) is aware of, and has received notice or otherwise learned
of, any federal or state investigation evaluating whether any remedial action is
needed to respond to a release or threatened release, and/or the generation,
handling, treatment, storage, disposal or transportation of any Hazardous
Material for which such Company is or may be liable, (D) is in violation of any
Judgment or Litigation based upon Environmental Laws, or subject to any such
Judgment or Litigation, (E) is in violation of any permits, licenses, approvals
and other authorizations necessary for the use and operation of its Property,
including, the generation, handling, treatment, storage, disposal,
transportation or release of any Hazardous Material, and(F) is in violation of
any Environmental Laws, except to the extent the failure to so comply could not
reasonably be expected to have a Material Adverse Effect or to result in any
Environmental Liability that could reasonably be expected to have a Material
Adverse Effect; and (ii) all Properties of each Company are free from any
Hazardous Material and Environmental Liens. There have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted by
or on behalf of, or which are in the possession or knowledge of, any Company, or
any of such Company's predecessors, in relation to any Property now or
previously owned or leased by such Company, or any of such Company's
predecessors, which have not been (y) made available to any Bank or its agents,
employees or contractors and (z) listed in Schedule 4.20. No Company has
received a notice of any Environmental Liability, Environmental Lien or
Environmental Complaint other than those which have been provided to the Bank
and listed in Schedule 4.20.
SECTION 4.21 INSURANCE; CERTIFICATIONS. The insurance certificates
delivered pursuant to Section 3.1 are true, correct and complete, and the
insurance coverage set forth therein complies in all regards with the
requirements set forth in Section 5.10. In furtherance of the foregoing, but not
in limitation thereof, and in furtherance of all other matters as to which
certifications are required pursuant to Section 3.1, all matters certified to by
each and every Person which were evidenced by certificates and certifications
referred to in Section 3.1 were true, correct and complete, as so certified and
received by the Bank, as of the Closing Date and were certified by officers of
each Company, each of whom was authorized to execute and deliver such
certificate for and on behalf of such Company.
ARTICLE 5
AFFIRMATIVE COVENANTS
Until payment in full of the Notes, the payment and performance of all
other Obligations, and so long as the Bank has any obligation hereunder to make
any Loans or issue or honor any Letter of Credit, unless excused in writing by
Bank, Borrower will punctually and completely perform and observe each of the
following covenants:
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SECTION 5.1 FINANCIAL STATEMENTS. REPORTS AND DOCUMENTS. The Borrower
shall deliver the following to the Bank, in form, substance and scope
satisfactory to Bank and otherwise as provided herein:
(a) QUARTERLY STATEMENTS. As soon as available, and in any event within
45 days after the end of each Fiscal Quarter, copies of the statements of
income, stockholders' equity and cash flow of the Companies for such Fiscal
Quarter and for the portion of the Fiscal Year ending with such Fiscal Quarter,
and the related balance sheet as at the end of such period and a list of
contingent liabilities, in each case setting forth in comparative form the
corresponding figures for the corresponding periods of the preceding Fiscal
Year, all in reasonable detail and certified by the president, chief financial
officer or controller of Borrower as being true, complete and accurate in all
material respects, as fairly presenting the financial condition and results of
operations of the Companies for the periods therein covered, and as having been
prepared in accordance with GAAP, subject to normal year-end audit adjustments;
(b) ANNUAL STATEMENTS. As soon as available, and in any event within 120
days after the end of each Fiscal Year, copies of the audited statements of
income, stockholders' equity and cash flow of the Companies for such Fiscal
Year, and the related balance sheet and a list of contingent liabilities of the
Companies as at the end of such Fiscal Year, in each case setting forth in
comparative form the corresponding figures for the preceding Fiscal Year, all in
reasonable detail and accompanied by (i) an unqualified opinion of Peat Marwick
LLP or other independent public accountants of recognized national standing
selected by Borrower and satisfactory to the Bank, to the effect that such
financial statements have been prepared in accordance with GAAP, consistently
applied, and fairly present the financial condition and results of operations of
the Companies, as at the end of, and for, such Fiscal Year, and (ii) a
certificate executed by the president, chief financial officer or controller of
Borrower to the same effect as such opinion;
(c) MONTHLY REPORTS. Within 30 days after the end of each month, (i) a
Consolidated Borrowing Base Certificate, executed by the president, chief
financial officer or controller of Borrower, with information required therein
completed to reflect the Consolidated Borrowing Base as of the end of the prior
month, and (ii) an aging schedule of Accounts Receivable in summary form,
certified by the president, chief financial officer or controller of Borrower,
which reflects aging of current Accounts Receivable of the Companies that are
current or 30, 60 or 90 days past due as of the end of the prior month.
(d) QUARTERLY RIG UTILIZATION REPORTS. As soon as available, and in any
event within 45 days after the end of each Fiscal Quarter, a report as to the
Companies' work over rig utilization during the preceding Fiscal Quarter.
(e) AUDIT MANAGEMENT AND OTHER REPORTS. Promptly upon receipt thereof, a
copy of each written report submitted to any Company by independent accountants
in any annual, quarterly or special audit, review or examination;
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(f) SEC AND OTHER REPORTS. Promptly upon its becoming available, one
copy of each financial statement, report, notice or proxy statement sent by any
Company to its stockholders or debtholders generally and of any report,
registration statement or prospectus filed by any Company with any securities
exchange or the Securities and Exchange Commission or any successor agency or
any similar Governmental Authority of a foreign country, and of any order issued
by any Governmental Authority in any proceeding to which any Company is a party;
(g) COMPLIANCE CERTIFICATE. Within 45 days of the end of each Fiscal
Quarter, in addition to the delivery of the financial statements delivered
pursuant to Sections 5.l(a) and(b), respectively, a certificate in the form of
Exhibit G, executed by the president, chief financial officer or controller of
Borrower, (i) stating that a diligent review of the activities of the Companies
during such period has been made under such officer's supervision and that to
the knowledge of such officer, each Company has observed, performed and
fulfilled each and every obligation and covenant contained in each Loan Document
to which it is a party and is not in Default under any Loan Document to which it
is a party, or, if any such Default has occurred, specifying the nature and
status thereof, and (ii) setting forth in reasonable detail the computation and
information necessary to determine whether the Companies are in compliance with
Section 6.1 as of the end of the last Fiscal Quarter.
(h) ACCOUNTANT'S CERTIFICATE. Concurrently with the delivery of the
financial statements delivered pursuant to Section 5.1(b), a certificate of the
accountants who audited such financial statements and rendered the related
opinion, stating that they have reviewed this Agreement and each other relevant
Loan Document, and stating further whether, in making their audit, such
accountants have become aware of any condition or event which would constitute a
Default or Event of Default, and if any such condition or event then exists,
specifying the nature and period of existence thereof;
(i) INSURANCE REPORT. On or before the Closing Date, and if requested by
Bank, within 90 days after the end of each Fiscal Year, a report describing the
insurance coverage of Borrower;
(j) LITIGATION REPORTS. Within 90 days after the end of each Fiscal
Year, complete reports by counsel to each Company describing all Litigation
affecting such Company or any of its Property and within 45 days after the end
of each month (except the last) in which a significant change in Litigation has
occurred or additional Litigation has been threatened or commenced, reports by
counsel to such Company describing such changes in or additions to Litigation
since the date of the annual Litigation report most recently received by the
Bank;
(k) ENVIRONMENTAL NOTICES. Notice to the Bank, in writing, promptly upon
any Company's receipt of notice or otherwise learning (whichever first occurs)
from any Person of any(i) Environmental Complaint or Environmental Lien or (ii)
any other claim, demand, action, event, condition, report or investigation
indicating any potential or actual liability (A) upon which any Environmental
Liability or Environmental Lien could result against any Company, Bank or any
Property of any Company or (B) arising in connection with (1) the non-compliance
with, or violation of, the requirements of any Environmental Law, (2) the
release or threatened release, generation, treatment, handling, storage,
disposal or transportation of any Hazardous Material into the
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environment or which act, occurrence or event any Company would have a duty to
report to a Governmental Authority under an Environmental Law, or (3) the
existence of any Environmental Lien on any Property of any Company; and such
Company shall immediately deliver a copy of each such notice to the Bank;
(l) SUPPLEMENTED SCHEDULES. As soon as possible, and in any event within
15 days after the Borrower or Company obtains knowledge thereof, such Borrower
or Company, as applicable, shall provide the Bank with a supplement to any
existing Schedule which would make such Schedule (and any subsequent supplement
thereto), and the corresponding representation and warranty to which it applies,
true, complete and accurate; provided, however, any such supplement shall not be
deemed to have amended any Schedule to this Agreement unless and until the Bank
has approved such amendment; and
(m) OTHER INFORMATION. Within such period reasonably prescribed by the
Bank, such other information concerning the business, operations, Property or
financial condition of any Company as the Bank shall reasonably request.
SECTION 5.2 PAYMENT OF TAXES AND OTHER LIABILITIES. The Borrower will,
and Borrower will cause each Company to, pay and discharge when due, but in no
event, later than 30 days following the date when due, all trade payables,
royalties, license fees, franchise fees, operating costs and expenses, and
similar expenses and obligations related to its operations, except for Contested
Claims; and, except for Contested Claims, the Borrower will, and the Borrower
will cause each Company to, timely pay and discharge when due (i) all Taxes,
(ii) all other lawful claims against it or any of its Property, and (iii) all of
its other Indebtedness, obligations and liabilities. In no regard shall the
foregoing serve as a basis of excusing or delaying the payment by the Borrower
of any Indebtedness or other amounts from time to time owed by it.
SECTION 5.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
The Borrower will, and the Borrower will cause each Company to, preserve and
maintain its existence and all of its Legal Rights necessary or desirable in the
ordinary course of its business and conduct and the ownership, maintenance and
operation of its Property, and conduct its business in an orderly and efficient
manner consistent with good business practices and industry standards and in
accordance with all Laws, except where the failure to so preserve, maintain or
conduct would only result in a trivial and inconsequential effect. In addition,
the Borrower will, and the Borrower will cause each Company to, act prudently
and in accordance with customary industry standards and with its contractual
obligations in managing and operating its Property, business and investments and
will keep in good working order and condition, ordinary wear and tear excepted,
all of its Property and Legal Rights which are necessary or desirable to the
conduct of its business and the ownership and maintenance of its Property.
SECTION 5.4 NOTICE OF DEFAULT. The Borrower shall furnish to the Bank,
immediately upon any Company becoming aware of the existence of any condition or
event which constitutes or would become a Default or an Event of Default,
written notice thereof that specifies
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the nature and period of existence thereof and the action which such Company is
taking or proposes to take with respect thereto.
SECTION 5.5 OTHER NOTICES. As soon as possible, but in any event within
three days of any Company becoming aware thereof, the Borrower will promptly
notify the Bank of (i)any material adverse change in the financial condition,
operations, Property or business of any Company, (ii) any default under, or any
threatened or actual acceleration of the maturity of, any Indebtedness owing or
secured by any Company (or any of its Property), which individually or in the
aggregate represents a monetary obligation of $500,000.00 or more, or one with
respect to which a default thereunder might have a Material Adverse Effect,
(iii) any default or event of default under any lease pertaining to a location
at which any Company operates or conducts any of its business or stores any of
its Property, (iv) any significant adverse claim against or affecting any
Company or any of the Property of any Company, and (v) the commencement of,
and/or any material determination in, any Litigation which could reasonably be
expected to result in a Judgment in excess of$500,000.00 (without regard to
insurance coverage). In respect to each of the foregoing notices, the Borrower
will promptly provide to the Bank all related information requested by the Bank,
in reasonable detail satisfactory to the Bank.
SECTION 5.6 COMPLIANCE WITH LOAN DOCUMENTS. The Borrower will, and the
Borrower will cause each Company to, promptly and completely comply with and
observe and perform all covenants and provisions of each Loan Document to which
it respectively is a party. In furtherance of the foregoing, but in no way
limiting the generality thereof, the proceeds of each Loan will be used strictly
in compliance with Section 2.9.
SECTION 5.7 COMPLIANCE WITH AGREEMENTS. The Borrower will, and the
Borrower will cause each Company to, promptly comply in all material respects
with all material contracts, leases, agreements, indentures, mortgages or
documents binding on it or affecting it or its Property, business or operations.
SECTION 5.8 ACCESS; BOOKS AND RECORDS. Upon reasonable notice, during
all business hours, and at any time that an Event of Default continues to exist,
the Borrower authorizes and will permit each Company to authorize and permit,
any representatives of the Bank(i) to have access to, and grant permission for
such representatives to examine, copy or make excerpts from, any and all books,
records and documents that relate to the business, operations or Property of any
Company, (ii) to inspect any and all Property of any Company, and (iii) to
discuss the business, operations and financial condition of any Company with its
officers, partners and employees and its independent certified public
accountants, legal counsel and other consultants, all of the foregoing at the
expense of the Borrower. The Borrower will, and will cause each Company to,
maintain complete and accurate books and records of its respective transactions
in accordance with GAAP.
SECTION 5.9 COMPLIANCE WITH LAW. The Borrower will and will cause each
Company to, comply in all material respects with all Laws applicable to it or
any of its Property, business operations or transactions.
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SECTION 5.10 INSURANCE. The Borrower will and will cause each Company
to, maintain insurance with reputable insurers of sound financial strength and
creditworthiness with respect to its Property and as to its operations and
business, all as required by each Loan Document to which it is a party and
otherwise in such types, amounts, scope and coverage, and against such risks,
casualties, contingencies and liabilities, as required or necessitated by Law,
and additionally, as is customarily maintained by other Persons engaged in
similar businesses and operations, the foregoing insurance coverage specifically
including the following: (i) worker's compensation or similar insurance as may
be required by applicable Law, (ii) public liability insurance against claims
for personal injury, death or property damage suffered upon, in or about, any
Property occupied by any Company or occurring as a result of the ownership,
maintenance or operation by any Company of any equipment, vehicle or other
Property or as the result of the use of products or equipment manufactured,
constructed, sold or operated by any Company or services rendered by it, and
(iii) insurance against the loss or damage to the Property and businesses of any
Company now owned or hereafter acquired. In addition, (A) the Borrower will
cause each Company to, (x) name the Bank as an additional insured on all such
general and comprehensive liability insurance and as loss payee on all such
Property insurance and (y) cause each policy of insurance to provide that such
policy will not be canceled or modified (as to term, coverage, scope, property
or risks covered, or otherwise) without 30 days prior written notice to the Bank
and (B) the Borrower will deliver copies of the policies and endorsements for
such insurance to the Bank promptly after issuance or renewal of each.
SECTION 5.11 ERISA COMPLIANCE.
The Borrower will cause each Company to, at all times:
(a) make contributions to each Plan in a timely manner and in an amount
sufficient to comply with the minimum funding standards requirements of ERISA
and the Code;
(b) immediately upon acquiring knowledge of any "reportable event" to
which the notice requirement has not been waived or of any "prohibited
transaction" (as such terms are defined in the Code or ERISA, as applicable) in
connection with a Plan, furnish the Bank with a statement executed by an
Authorized Officer of such Company, setting forth the details thereof and the
action which such Company proposes to take with respect thereto and, when known,
any action taken by the Internal Revenue Service with respect thereto;
(c) notify the Bank immediately upon receipt by any Company of any
notice of an interest by the PBGC to terminate or appoint a trustee or of the
institution of any proceeding or other action which may result in the
termination of any Plan and furnish to the Bank copies of such notice;
(d) furnish the Bank with copies of each annual report (together with
all related schedules and attachments) for each Plan filed with the Internal
Revenue Service not later than 30 days after such report has been filed; and
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(e) furnish the Bank with copies of any request for waiver of the
funding standards or extension of the amortization periods required by Sections
303 and 304 of ERISA or Section 412 of the Code promptly after the request is
submitted to the Secretary of the Treasury, the Department of Labor or the
Internal Revenue Service, as the case may be.
SECTION 5.12 FURTHER ASSURANCES. The Borrower will and will cause each
Company to, cure and cause to be cured promptly any defects or deficiencies in
the execution, delivery, creation or issuance of the Loan Documents, or any of
them, and any of the transactions contemplated thereby. In addition, the
Borrower will and will cause each Company to, promptly make, execute or endorse,
and acknowledge and deliver or file, or cause each of the same to be done, all
such vouchers, invoices, notices, certifications and additional agreements,
documents, instruments, undertakings or other assurances, and take any and all
such other action, as the Bank may, from time to time, reasonably request or
deem reasonably necessary or proper under any of the Loan Documents to which
such Company is a party and the obligations of such Company thereunder.
SECTION 5.13 MAINTENANCE OF CORPORATE IDENTITY. The Borrower will and
will cause each Company to, maintain separate corporate records, books and
accounts. The Borrower will and will cause each Company to, observe the formal
legal, financial and accounting requirements necessary for the maintenance of
each Company as a separate legal entity, including the keeping of corporate
records indicating that, to the extent required by Law or its charter documents,
transactions are reviewed and authorized by its Board of Directors and
stockholders. All monies and funds advanced and to be advanced to or on behalf
of any Company by its Affiliates (other than capital contributions and other
equity infusions, in each case, that are of a "common stock"nature, by
shareholders or Affiliates of such Company into such Company), pursuant to a
loan or otherwise, will be evidenced by valid, binding and enforceable written
obligations to repay such monies and funds, the repayment of which shall be
subordinated to the full and final payment of the Obligations, on terms and
conditions satisfactory to the Bank.
SECTION 5.14 PRIMARY BUSINESS. Each Company will continue to provide
services to the oil and gas exploration and production industry as its primary
business.
SECTION 5.15 SUBORDINATION OF AFFILIATE OBLIGATIONS. The Borrower will
and will cause each Company to, cause all loans or advances of any Company to
any Affiliate of any Company at any time arising or existing to be evidenced by
promissory notes. All such promissory notes are set forth on Schedule 5.15. The
Borrower will obtain and deliver to the Bank, and the Borrower will cause each
Company to obtain and deliver to the Bank, the written agreement, in form,
substance and scope satisfactory to the Bank, of the holder of each such
promissory note evidencing the subordination of such holder's right to payment
under each such note to the payment of the Obligations. The Borrower will and
will cause each Company to, cause the face of each promissory note to be marked
with a reference to such subordination agreement, and will take and cause to be
taken all such further and additional actions as the Bank may reasonably request
to effect and evidence such subordination.
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ARTICLE 6
NEGATIVE COVENANTS
Until payment in full of the Notes, the payment and performance of all
other Obligations and so long as the Bank has any obligation hereunder to make
any Loans or issue or honor any Letter of Credit, the Borrower will and will
cause each Company to, punctually and completely perform and observe each of the
following covenants:
SECTION 6.1 CERTAIN FINANCIAL MATTERS. Unless excused in writing by the
Bank, the Borrower will not permit:
(a) the ratio of its Consolidated Current Assets to Consolidated Current
Liabilities to be less than 1.50 to 1.00 as of the end of any Fiscal Quarter; or
(b) its Consolidated Tangible Net Worth as of the end of any Fiscal
Quarter to be less than the sum of $50,000,000.00; or
(c) the ratio of its total liabilities, less subordinated debt, to the
Consolidated Tangible Net Worth of all Companies as of the end of any Fiscal
Quarter to be greater than 3.00 to 1.00; or
(d) the ratio of its Total Funded Debt to Consolidated EBITDA to exceed
5.50 to 1.00 for the four Fiscal Quarters ended at the end of any Fiscal Quarter
ending on or before March 31, 1998; and thereafter, the ratio of its Total
Funded Debt To Consolidated EBITDA to exceed 5:00 to 1:00 for the four Fiscal
Quarters ended at the end of any Fiscal Quarter; or
(e) the ratio of its interest then accrued on Total Funded Debt plus the
current portion of long term indebtedness, including the current portion of
Consolidated Capital Lease Obligation to the Consolidated EBITDA of Borrower to
be less than 1.50 to 1.00 for the four Fiscal Quarters ended at the end of any
Fiscal Quarter; or
(f) its Consolidated Current Assets, less Consolidated Current
Liabilities, as of the end of any Fiscal Quarter to be less than the sum of
$10,000,000.00.
(g) Consolidated Capital Expenditures to exceed $15,000,000.00 for any
Fiscal Year ending March 31,1996 or thereafter.
SECTION 6.2 LIMITATION ON INDEBTEDNESS. Neither the Borrower nor any
Company will, and Borrower will not permit any Company to, incur, create,
contract, assume, have outstanding, permit or suffer to exist, Guarantee or
otherwise be or become, directly or indirectly, liable in respect of any
Indebtedness, except the following (collectively, "Permitted Indebtedness"):
(i) the Obligations;
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(ii) current liabilities for Taxes incurred in the ordinary
course of business which are not yet due and payable;
(iii) trade payables arising in the ordinary course of business
that are paid within the earlier of (A) 60 days of the date when payment
thereof is due and payable, or (B)60 days of the date the respective
goods are delivered or services are rendered;
(iv) Indebtedness listed in Schedule 6.2; and
(v) the issuance or sale of senior notes by the Borrower.
SECTION 6.3 LIMITATION ON PROPERTY. The Borrower will not and will not
permit any Company to, (i) grant, create, enter into, incur, permit or suffer to
exist, upon or with regard to any of its respective Property now owned or
hereafter acquired, (A) any Lien, except for Permitted Liens, or (B) any
Negative Pledge, except for the benefit of the Bank, or (ii) enter into any
sale-and-lease-back transaction. Anything in the foregoing or elsewhere in the
Loan Documents to the contrary notwithstanding, it is understood that no Liens,
other than Permitted Liens, or Negative Pledges, except for the benefit of the
Bank, is permitted on or with respect to any of the Property of Borrower.
SECTION 6.4 ADDITIONAL NEGATIVE PLEDGE. The Borrower will not and will
not permit any Company to enter into any term, provision, agreement, contract or
undertaking that, directly or indirectly requires any of such parties to
provide, or cause to be provided, any assurances or security to a Person, which
assurances and security did not theretofore exist and/or was not theretofore
required, whether such assurances or security consist of collateral, guarantees,
modifications or supplements to then existing agreements, new agreements or
otherwise.
SECTION 6.5 RESTRICTED PAYMENTS. The Borrower will not and will not
permit any Company to, directly or indirectly (i) declare or make, or incur any
liability to pay or make, any Dividends, or (ii) redeem, repurchase, retire or
otherwise acquire for value any of its capital stock, warrants, stock
equivalents or other evidence of equity of any class or nature, or (iii)set
apart any money or other Property for a defeasance, sinking or analogous fund
for any Dividend or distribution thereon, or for any redemption, retirement or
other acquisition thereof; provided however, the foregoing shall not prohibit
any Company from making a distribution to pay the federal income taxes of any
Company.
SECTION 6.6 LIMITATION ON INVESTMENTS. The Borrower will not and will
not permit any Company to, make or have outstanding any Investments in any
Person, except for:
(i) Temporary Cash Investments;
(ii) Investments listed in Schedule 6.6; and
(iii) Investments expressly permitted by other provisions of
this Agreement.
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SECTION 6.7 AFFILIATE TRANSACTIONS. Borrower will not and will not
permit any Company to, enter into any transaction with, or pay any management or
other fees or compensation to, any Affiliate of any Company other than
transactions in the ordinary course of business which are on fair and reasonable
terms no less favorable to Borrower, or such other Company, as applicable, than
would be obtained in a comparable arm's-length transaction with a Person who is
not an Affiliate of Borrower, or any such other Company, as applicable. In
addition, the Borrower will not and will not permit any Company to, enter into
any transaction with, or pay any management or other fees or compensation to,
any Person (a "Non-Affiliated Person") who is not an Affiliate of any Company
wherein such Affiliate is directly or indirectly involved in, related to, or
associated with, such transaction other than transactions in the ordinary course
of business which are on fair and reasonable terms no less favorable to
Borrower, or such other Company, as applicable, than would be obtained in a
comparable arm's-length transaction with a Non-Affiliated Person wherein an
Affiliate of such Borrower, or such other Company is not directly or indirectly
involved, related or associated.
SECTION 6.8 LIMITATION ON SALE OF PROPERTY. The Borrower will not and
will not permit any Company to, sell, assign, lease, sublease or discount or
otherwise exchange or dispose of any of its Property other than (i) sales of
inventory in the ordinary course of its business, and (ii) sales or other
dispositions of obsolete equipment that is no longer needed for its ordinary
business or which is being replaced by equipment of at least comparable value
and utility to the equipment replaced when such equipment was efficiently
operational and functional.
SECTION 6.9 ACCOUNTING METHOD. The Borrower will not and will not permit
any Company to, change its fiscal year or method of accounting, without the
prior written approval of the Bank.
SECTION 6.10 INTERNAL GOVERNANCE DOCUMENTS: NAME AND PRINCIPAL PLACE OF
BUSINESS. The Borrower will not and will not permit any Company to, amend their
respective Governing Documents in any respect which could have a Material
Adverse Effect. Without notifying the Bank in writing at least 30 Business Days
prior to the effective date of each of the following changes, Borrower will not
and will not permit any Company to, (i) change its name, or operate any of its
business, operations or Property or own or lease any Property under any name,
different than as set forth in Schedule 4.14, (ii) operate or conduct any of its
business or store or maintain any of its inventory, equipment or other Property,
at a location other than as set forth in Schedule 4.14, (iii) change its
identity or corporate structure, or (iv) change its principal place of business
or chief executive office, as applicable, from such address and location set
forth in Schedule 4.14.
SECTION 6.11 CERTAIN ENVIRONMENTAL MATTERS. Except in compliance in all
respects with Environmental Laws, and otherwise in no way posing an imminent and
significant endangerment to public health or welfare or the environment,
Borrower will not and will not permit any Company to, (i) cause or permit any
Hazardous Material to be placed, held, transported, located, released or
disposed of on, under, from, to, or at, any Property now or hereafter owned,
leased or otherwise controlled directly or indirectly by any Company (for
purposes of this Section 6.11, the"Subject Property"), or (ii) permit the
Subject Property ever to be used (whether by any Company or any other
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Person) as a dump site or storage site (whether permanent or temporary) for any
Hazardous Material. Without limitation of the Bank's Rights under the Loan
Documents, the Bank and its representatives shall have the right, but not the
obligation, to enter upon the Subject Property or take such other actions as the
Bank deems necessary or advisable to cleanup, remove, resolve or minimize the
impact of, or otherwise deal with, any Hazardous Discharge or Environmental
Complaint upon the Bank's receipt of any notice from any Governmental Authority
or other Person, asserting the existence of any Hazardous Discharge or
Environmental Complaint on or pertaining to the Subject Property which, if true,
could result in Environmental Liability against Borrower, the Bank or otherwise
which, in the sole opinion of any of them, could jeopardize any of their present
or future Liens against or rights to the Subject Property. All costs and
expenses incurred by the Bank in the exercise of any such Rights shall become
part of the Obligations and be payable upon demand, together with interest on
the unpaid portion thereof at the Default Rate.
SECTION 6.12 MERGERS, ACQUISITIONS AND DISSOLUTIONS. The Borrower will
not and will not permit any Company to become a party to a merger, Acquisition
or consolidation, or purchase or otherwise acquire by merger, lease or purchase
all or a substantial part of the assets or Property of any Person or any shares
or other evidence of legal or beneficial ownership of any Person, or dissolve or
liquidate, without the prior written consent of Bank.
SECTION 6.13 SUBSIDIARIES. The Borrower will not and will not permit any
Company to, create or permit to exist any Subsidiary of such Person, except for
the Subsidiaries listed in Schedule 4.15. The Borrower will not and will not
permit any Company to become a general partner, venturer or similar capacity in
any partnership, venture or similar Person.
SECTION 6.14 SALE OF RECEIVABLES. Unless in favor of the Bank or
reasonably necessary in connection with collection efforts on delinquent
receivables, the Borrower will not and will not permit any Company to, sell or
discount any of its accounts or notes receivable.
SECTION 6.15 SALE OF CERTAIN INTERESTS. The Borrower will not and will
not permit any Company to, transfer or sell any outstanding capital stock,
partnership interests or other ownership interests of any Subsidiary of
Borrower.
ARTICLE 7
EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. An"Event of Default" shall exist if any
one or more of the following events shall occur and be continuing:
(a) Borrower fails or refuses to pay, within seven days of the date when
due, any principal of, or interest on, any Note, or any fee, expense or other
Obligations payable by such Borrower; or
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(b) unless excused in writing by Bank, any representation, warranty or
certification made or deemed made by, or on behalf of, any Company under, or in
connection with, any of the Loan Documents, or in any certificate, notice,
request, statement or other communication furnished or made to the Bank pursuant
hereto or in connection herewith is untrue, misleading or inaccurate in any
material respect as of the date on which such representation, warranty or
certification was made (or deemed made) or furnished; or
(c) (i) any Company fails to perform, observe or comply with any
covenant or agreement contained in Article 6 or the occurrence of an event or
circumstance designated as a"default" or an "event of default" under any other
Loan Document; or (ii) except as provided in Section 7.1(a) , fails to perform,
observe or comply with any covenant or agreement contained in this Agreement or
any other Loan Document, which failure continues for a period of seven days
after the effectiveness of written notice of default from the Bank to the
Borrower; or
(d) either (i) any Company defaults in the payment of any Indebtedness
in excess of $500,000.00 of such Company or defaults in respect of any note,
agreement, indenture, loan agreement, credit agreement, bond or other document
evidencing or relating to any such Indebtedness, and such default continues for
more than the period of grace, if any, specified therein, or (ii) any
Indebtedness of any Company in excess of $500,000.00 becomes due or prepayable
before its stated maturity by acceleration of the maturity thereof or otherwise;
or
(e) any Company (i) applies for or consents to the appointment of, or
the taking of possession by, a receiver, trustee, custodian, intervenor or
liquidator of such Company or of all or a substantial part of its Property, (ii)
commences or files a voluntary petition, proceeding or case in bankruptcy, or
admits in writing that it is unable to pay its debts as they become due or
generally not pay its debts as they become due, (iii) makes a general assignment
for the benefit of creditors, (iv) files a petition or answer seeking
reorganization or an arrangement with creditors or take advantage of any Debtor
Laws, (v) files an answer admitting the material allegations of or consenting
to, or defaults in answering, a petition, proceeding or case filed against it in
any bankruptcy, reorganization or insolvency proceeding or (vi) takes corporate
action for the purpose of effecting any of the foregoing; or
(f) an involuntary petition, proceeding, case or complaint is filed
against any Company seeking bankruptcy, liquidation, dissolution, winding-up or
reorganization of such Company or the composition or readjustments of its debts,
or the appointment of a receiver, custodian, trustee, intervenor or liquidator
of it or all or substantially all of its Property, and such petition,
proceeding, case or complaint is not dismissed within 30 days of the filing
thereof; or an order, order for relief, judgment or decree shall be entered by
any court of competent jurisdiction or other competent authority approving a
petition, proceeding, case or complaint seeking liquidation, reorganization,
dissolution, winding-up or bankruptcy of any Company or appointing a receiver,
custodian, trustee, intervenor or liquidator of any Company, or of all or
substantially all of its Property, and such order, order for relief, judgment or
decree continues unstayed for a period of 30 days; or (g)one or more Judgments
that, individually or in the aggregate, require the payment of money in excess
of the sum
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of $500,000.00 or that would otherwise have a Material Adverse Effect are
rendered against any Company or with respect to its Property, and such Judgment
or Judgments shall not be satisfied or discharged within 30 days of the date it
is rendered; or
(h) both (i) and (ii) following shall occur: (i) either (A)proceedings
are instituted to terminate, or a notice of termination is filed with respect
to, any Plan by any Company, any member of the "controlled group" (as defined in
the Code) of any Company, PBGC or any representative of any thereof, or any such
Plan shall be terminated, in each case under Section 4041 or 4042 of ERISA, or
(B) a "reportable event" (as defined in Title 4 of ERISA) occurs with respect to
any Plan and continues for a period of 60 days, and (ii) the sum of the
estimated liability to PBGC under Section 4062 of ERISA and the currently
payable obligations of the Companies to fund liabilities (in excess of amounts
required to be paid to satisfy the minimum funding standard of Section 412 of
the Internal Revenue Code) under the Plan or Plans subject to such event exceeds
10% of the Companies' Consolidated Tangible Net Worth at such time; or
(i) a Change in Control of Borrower shall occur; or
(j) except pursuant to the express terms of any Loan Document, any Loan
Document shall, at any time after its execution and delivery and for any reason,
cease to be in full force and effect or be declared to be null and void, or
Borrower or any other Person (other than the Bank) shall deny that it has any or
any further liability or obligations under any Loan Document to which it is a
party.
SECTION 7.2 REMEDIES UPON EVENT OF DEFAULT. In the event an Event of
Default occurs and is continuing, the Bank may exercise any one or more of the
following Rights, and any other Rights available at law or in equity or provided
in any of the Loan Documents: (i) terminate all or any portion of the Commitment
(including the commitment to issue Letters of Credit), and such Commitment shall
thereupon terminate, and (ii) declare the principal of, and all earned and
accrued interest on, the Notes then outstanding and all other accrued and unpaid
Obligations to be immediately due and payable, whereupon the same shall be and
become due and payable, each and all of the foregoing without presentment,
demand, protest, notice of default, NOTICE OF INTENT TO ACCELERATE, NOTICE OF
ACCELERATION or other notice of any kind, all of which are hereby waived by
Borrower, provided however, upon the occurrence of any Event of Default
specified in Section 7.1(e) or Section 7.1(f), all of the Commitments shall
thereupon automatically and immediately terminate and the principal of, and all
earned and accrued interest on the Notes then outstanding and all other accrued
and unpaid Obligations shall thereupon be and become automatically and
immediately due and payable, each and all of the foregoing without presentment,
demand, protest, notice of default, NOTICE OF INTENT TO ACCELERATE, NOTICE OF
ACCELERATION or other notice of any kind, all of which are hereby waived by each
Borrower. If any amount payable under any of the Loan Documents is not paid when
due the outstanding and unpaid portion of such amount shall bear interest at the
Default Rate.
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ARTICLE 8
MISCELLANEOUS
SECTION 8.1 NOTICES. (a) All notices, requests and other communications
to any party under any Loan Document shall be in writing or by telephone
confirmed the same day in writing on or before 12:00 noon (San Antonio time)
(including bank wire, telecopy, telex or similar writing) and shall be given to
such party at its address, telecopy or telex number set forth in Annex A or such
other address, telecopy or telex number as such party may hereafter specify for
the purpose by notice to the Bank and the Borrower. Each such notice, request or
other communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified pursuant to this Section 8.1 and the
appropriate answer back is received, (ii) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified pursuant to this
Section 8.1, and the sender has received electronic confirmation thereof, (iii)
if given by registered or certified mail, return receipt requested, 72 hours
after such communication is deposited in the mails with postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified pursuant to this Section 8.1.
(b) Any verbal communication or instrument in writing received by the
Bank in connection with a Borrowing or a Loan, or any other matter with respect
to any Loan Document, which purports to be dispatched or signed by or on behalf
of any Borrower and confirmed, in the case of a verbal communication, by the
Bank by telephone confirmation with an Authorized Officer of the Borrower, shall
conclusively be deemed to have been dispatched or signed by or on behalf of the
Borrower pursuant to such Person's authority to bind the Borrower and all other
Persons for the liabilities and matters in connection therewith to the Bank, and
the Bank may conclusively rely thereon and shall have no obligation, duty or
responsibility to determine the validity or genuineness thereof or the authority
of the Person or Persons executing or dispatching the same.
SECTION 8.2 NO WAIVERS. No failure or delay by the Bank in exercising
any Right under any Loan Document, and no course of dealing with respect to any
such Rights, shall operate as a waiver thereof, nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps or actions to
enforce any Rights, preclude or prejudice the concurrent or subsequent exercise
thereof or the exercise of any other such Rights. The Rights provided in the
Loan Documents shall be cumulative and not exclusive of any rights or remedies
provided by Law or in equity.
SECTION 8.3 PAYMENT OF COSTS AND EXPENSES; PROFESSIONALS AND
CONSULTANTS.
(a) The Borrower agrees to pay all reasonable costs and expenses
incurred (whether before, after or during the Closing Date) by or on behalf of
the Bank (including audit costs and expenses and all attorneys' and other
professionals' and consultants' fees, costs and expenses of the Bank incurred in
connection with the preparation of, advice or counsel regarding, or enforcement
of, any Loan Document) in connection with (i) the investigation, review,
negotiation, preparation, execution, delivery, administration, syndication,
participation, filing, recordation, refinancing,
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restructuring, renegotiation or enforcement of each of the Loan Documents, and
any and all renewals, amendments, extensions, restatements, supplements,
rearrangements, consents, waivers, assignments and modifications thereto or
thereof, and the transactions contemplated thereby, (ii)the monitoring,
evaluating, making, maintaining, servicing, enforcement and collection of the
Loans and Letters of Credit, (iii) the creation, preservation, maintenance,
protection, perfection and enforcement of Rights under each Loan Document and
Liens in Property (whether or not incurred in connection with the commencement
of a proceeding, litigation, foreclosure or other proceeding), specifically
including all costs and expenses incurred with respect to any bankruptcy,
insolvency or reorganization proceeding, regardless of whether the Bank
ultimately prevails in such bankruptcy, insolvency or reorganization proceeding,
and (iv) all amounts expended, advanced or incurred by or on behalf of the Bank
to satisfy any obligation of any Borrower under any Loan Document which is not
timely satisfied by such Borrower, if the Bank, at its discretion, so chooses to
incur any such expenses or costs.
(b) Should Borrower fail to perform or observe any covenant or agreement
contained in any of the Loan Documents and such failure continues through the
cure period provided for therein, if any, the Bank may then perform or attempt
to perform such covenant or agreement on behalf of the Borrower. The Bank will
endeavor to give the Borrower notice of such performance or attempted
performance. The Borrower shall, at the request of the Bank, promptly pay any
amount expended in such performance or attempted performance to the Bank at the
principal office of the Bank, together with interest on the portion thereof from
time to time remaining unpaid at the Default Rate. Notwithstanding the
foregoing, it is expressly understood and agreed that (i) the Bank does not
assume any liability or responsibility for the performance of any covenants or
agreements of the Borrower hereunder or under any of the other Loan Documents,
or any other documents, or other control over the management and affairs of the
Borrower, and (ii) the Borrower's failure to perform any covenant or agreement
that is cured, in whole or part, by any of their action shall be and continue a
Default unless and until (A) all of the Bank's attendant costs and expenses have
been reimbursed as herein provided and (B) the Borrower has submitted, and the
Bank has received and approved, such objective evidence that supports the
determination that such Default will not reoccur.
(c) The Borrower acknowledges and agrees that all attorneys,
accountants, auditors, and other professional Persons and consultants who are
from time to time engaged or employed by the Bank and whose fees and expenses
are or may be paid or reimbursed, as applicable, by Borrower, pursuant to the
terms of any Loan Document, are the professionals of the Bank and not of the
Borrower, and each of them (i) shall have the right to act exclusively in the
interest of the Bank, and (ii) shall have no duty of disclosure, duty of
loyalty, duty of care or any other duty of any type or nature whatsoever, or
deemed to have any attorney-client or other similar professional relationship
whatsoever, to the Borrower.
SECTION 8.4 INDEMNIFICATION. SUBJECT TO SECTION 8.8, THE BORROWER SHALL
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS THE BANK AND ITS AFFILIATES,
SUBSIDIARIES, PARENT COMPANIES AND OTHER RELATED ENTITIES, AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS
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AND OTHER PROFESSIONALS AND CONSULTANTS, INSURERS AND STOCKHOLDERS, AND EACH OF
THEM (AND TOGETHER WITH EACH AND ALL OF THEIR RESPECTIVE SUCCESSORS, ASSIGNS,
HEIRS AND LEGAL REPRESENTATIVES, THE "INDEMNIFIED PARTIES"), FROM AND AGAINST
ALL LIABILITIES, OBLIGATIONS, LOSSES, CLAIMS, ACTIONS, SUITS AND OTHER LEGAL
PROCEEDINGS, JUDGMENTS, PENALTIES, DAMAGES, COSTS, INTEREST, CHARGES, ATTORNEYS'
AND OTHER PROFESSIONALS' AND CONSULTANTS' FEES AND OTHER EXPENSES AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER ( "INDEMNIFIED COSTS"), WHICH MAY
BE IMPOSED ON, INCURRED OR SUSTAINED BY, OR ASSERTED AGAINST, THE INDEMNIFIED
PARTIES, OR ANY OF THEM, BY REASON OF, ARISING OUT OF, OR IN ANY MANNER RELATED
TO (DIRECTLY OR INDIRECTLY, CONSEQUENTIALLY, OR OTHERWISE), ANY LOAN DOCUMENT,
THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ENFORCEMENT, PROTECTION OR
ADMINISTRATION THEREOF OR WITH RESPECT THERETO (COLLECTIVELY, THE "SUBJECT
TRANSACTIONS"), INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS AND EXPENSES
INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR,
DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY
OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY
FEDERAL OR STATE, OR ANY SUBDIVISION THEREOF, SECURITIES OR ENVIRONMENTAL LAW OR
ANY OTHER LAW OF ANY JURISDICTION OR AT COMMON LAW.
THIS FOREGOING IS INTENDED TO INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS EACH
OF THE INDEMNIFIED PARTIES AGAINST ALL RISKS, FORESEEABLE OR UNFORESEEABLE,
INVOLVED IN THE SUBJECT TRANSACTIONS, INCLUDING, WITHOUT LIMITATION, THE
NEGLIGENCE OR ALLEGED NEGLIGENCE (WHETHER SOLE, COMPARATIVE, CONTRIBUTORY OR
OTHERWISE) OF ANY OF THE INDEMNIFIED PARTIES, ALL OF WHICH RISKS ARE HEREBY
ASSUMED BY BORROWER. THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 8.4 AND
UNDER SECTION 8.3 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF
THE NOTES AND ALL OTHER OBLIGATIONS. TO THE EXTENT THAT THE FOREGOING
INDEMNIFICATION MAY BE DEEMED UNENFORCEABLE, IN WHOLE OR IN PART, FOR ANY REASON
WHATSOEVER, INCLUDING BECAUSE IT IS VIOLATIVE OF LAW OR PUBLIC POLICY AS
DETERMINED BY A FINAL, NON-APPEALABLE JUDGMENT OR ORDER OF A COURT OF COMPETENT
JURISDICTION, THE BORROWER AGREES TO CONTRIBUTE THE MAXIMUM PORTION THAT IT IS
NOT PROHIBITED TO PAY UNDER APPLICABLE LAW, TO THE PAYMENT AND SATISFACTION OF
THE SUBJECT TRANSACTIONS; PROVIDED, HOWEVER AN INDEMNIFIED PARTY SHALL NOT BE
ENTITLED TO INDEMNIFICATION FOR INDEMNIFIED COSTS TO THE EXTENT SUCH INDEMNIFIED
COSTS ARE DIRECTLY CAUSED BY A BREACH OF ITS MATERIAL OBLIGATIONS UNDER ANY LOAN
DOCUMENT OR ITS OWN NEGLIGENCE OR
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WILFUL MISCONDUCT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION.
SECTION 8.5 SHARING OF SET-OFFS. The Borrower hereby grants to the Bank
the right of set-off, to secure repayment of the Obligations, upon any and all
monies, securities or other Property of the Borrower and the proceeds therefrom,
now or hereafter held or received by or in transit to the Bank or any of its
respective agents, from or for the account of the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and also
upon any and all deposits (general or special) and credits of the Borrower, and
any and all claims of the Borrower against the Bank at any time existing.
SECTION 8.6 AMENDMENTS AND WAIVERS. All modifications, consents,
amendments, waivers and the like of any provision of any Loan Document, or
consent to any departure by the Borrower therefrom (collectively, the foregoing
are referred to in this Section 8.6 as a "modification"), shall be effective
only if the same is in a writing in form, scope and substance, and subject to
conditions and requirements, if any, acceptable to the Bank, and if so
acceptable, is signed by the Borrower and the Bank.
SECTION 8.7 SUCCESSORS AND ASSIGNS; PARTICIPATIONS ASSIGNMENTS.
(a) The Loan Documents shall be binding upon, and inure to the benefit
of the parties thereto and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or obligations under
any Loan Document without the prior written consent of the Bank.
(b) Neither this Agreement nor any other Loan Document, nor any benefits
hereunder or thereunder, shall inure to or for the benefit of any Person that is
not a signatory party hereto, other than any of such Persons that are expressly
named or designated as indemnitees, releasees or exculpatees herein. All
conditions to make Loans and issue Letters of Credit hereunder and all
covenants, warranties, representations, and other terms and provisions of, and
applicable to, the Borrower in each Loan Document are imposed solely and
exclusively for the benefit of the Bank, and its respective successors and
assigns. No other Person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that no Loans
will be made or Letters of Credit issued in the absence of strict compliance
with any or all of such conditions; and no other Person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, covenants,
warranties, representations and other terms and provisions. Any of such
conditions, and the breach of, or noncompliance with, any such covenants,
warranties, representations and other terms and provisions may be freely waived
in whole or in part by the Bank (subject to applicable provisions hereof) at any
time if in its or their (as applicable) sole discretion it or they (as
applicable) deem it advisable to do so. No such conditions, covenants,
warranties, representations or other terms or provisions are intended to
release, or authorize or permit a breach by, the Borrower of any of its
obligations and requirements to any third Person, or any noncompliance
therewith, or to evidence the contractual interference therewith by the Bank.
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(c) Subject to the provisions of this Section 8.7, the Bank may in the
ordinary course of its business, without notice to or consent from the Borrower,
and in accordance with applicable Law, at any time sell to one or more Qualified
Banks (each a "Participant") participating interests in all or any part of any
Loans, or in the Commitments, of such Bank. In the event of any such sale by the
Bank to a Participant, (i) the Bank shall remain the "Bank" for all purposes
under this Agreement, and the Participant shall not constitute the "Bank"
hereunder, (ii) the Bank's obligations under this Agreement shall remain
unchanged, (iii) the Bank shall remain solely responsible for the performance of
its obligations under this Agreement, (iv) the Bank shall remain the holder of
any Note and the obligor to fund its respective Commitments for all purposes
under this Agreement, and(v) the Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank's rights and obligations
under this Agreement and the other Loan Documents. Participants shall have no
rights under this Agreement or any of the Loan Documents, other than rights of
set off(and attendant obligations) expressly set forth herein. The Bank shall
not sell any participating interest under which the Participant shall have, and
no Participant shall have, any rights to vote on any modification (as such term
is defined in Section 8.6) of this Agreement or any other Loan Document, and any
agreement between the Bank and any Participant granting any Participant any
voting rights shall be void AB INITIO. Except in the case of the sale of a
participating interest to a bank, the relevant participation agreement shall not
permit the Participant to transfer, pledge, assign, sell participations in, or
encumber its portion of, the Commitments or the Loans.
(d) Contemporaneously with the execution of this Agreement by both
parties hereto, the Bank has, with the knowledge and consent of Borrower,
transferred and assigned to First Security Bank of New Mexico, N.A., a national
banking association (the "Purchaser"), 50% of the Bank's Commitment and 50% of
all other rights and obligations of the Bank under the Loan Documents; and
Purchaser has assumed 50% of such Commitment, rights and obligations pursuant to
and as more specifically provided in the assignment and assumption agreement in
the form of Exhibit H attached hereto and made a part hereof for all purposes.
Purchaser shall for all purposes be a bank party to this Agreement and have 50%
of the rights and obligations of the Bank under this Agreement to the same
extent as if Purchaser were an original party hereto with 50% of the Commitment
asset forth in the assignment and assumption agreement, and Bank shall be
released from a corresponding 50% of its Commitment, rights and obligations
under this Agreement. No further consent or action by Borrower or the Bank shall
be required. However, pursuant to the terms of this Agreement and the assignment
and assumption agreement, all payment, reporting and notification obligations of
Borrower hereunder shall be satisfied by Borrower delivering all such payments,
reports and notices to transferor Bank in accordance with the terms of this
Agreement. No such payments, reports or notices need be delivered by Borrower to
Purchaser, but shall be delivered to transferor Bank by Purchaser pursuant to
the terms of the assignment and assumption agreement. All notices to be
delivered by Bank to Borrower hereunder shall also be delivered by transferor
Bank to Borrower pursuant to the terms of this Agreement and the assignment and
assumption agreement.
(e) The Borrower authorizes the Bank to disclose to any Participant and
the Purchaser (each a "Transferee") and any prospective Participant any and all
financial information in the Bank's possession concerning the Borrower which has
been delivered to the Bank by or on behalf of it
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pursuant to this Agreement or which has been delivered to the Bank by them in
connection with the Bank's credit evaluation prior to entering into this
Agreement.
(f) No Transferee shall be entitled to receive any greater payment under
this Agreement than the transferor Bank would have been entitled to receive with
respect to the rights assigned.
(g) Notwithstanding any other provisions of this Section 8.7, no
transfer or assignment of the interests or obligations of the Bank hereunder or
any grant of participations therein shall be permitted if such transfer,
assignment or grant would require any Borrower to file a registration statement
with the Securities and Exchange Commission or to qualify the Loans under
the"Blue Sky" laws of any state.
(h) Each person that becomes a Bank pursuant to an assignment permitted
by Section 8.7(d) will, upon its becoming party to this Agreement, represent
that it is a Qualified Bank, and that it will make or acquire Loans only for its
own account in the ordinary course of its business; provided, however, that
subject to the preceding provisions of this Section 8.7, the disposition of any
promissory notes or other evidences of or interests in Obligations held by it
shall at all times be within its exclusive control.
SECTION 8.8 MAXIMUM INTEREST RATE. It is the intent of the parties
hereto that each of the Bank and the Borrower in the execution, delivery and
performance of all Loan Documents, the transactions provided for therein and
contemplated thereby, and all matters incidental and related thereto and arising
therefrom, shall comply and conform strictly with Applicable Law from time to
time in effect. In furtherance thereof, the Bank and the Borrower stipulate and
agree that none of the terms and provisions contained in, or pertaining to, the
Loan Documents shall ever be construed to create a contract to pay for the use
or forbearance or detention of money with interest at a rate or in an amount in
excess of the Maximum Rate or maximum amount of interest permitted or allowed to
be contracted for, charged, received, taken or reserved under said Laws. For
purposes of each Loan Document, (i) "interest" shall include the aggregate of
all amounts which constitute or are deemed to constitute interest under the Laws
of the State of Texas or, to the extent they may apply, the Laws of the United
States of America, that are contracted for, chargeable, receivable(whether
received or deemed to have been received), taken or reserved under each such
document, and (ii) all computations of the maximum amount of interest permitted
or allowed under Applicable Law will be made on the basis of the actual number
of days elapsed over a 365 or 366 day year, whichever is applicable. Neither the
Borrower nor any other person shall ever be required to pay unearned interest
on, or with respect to any of, the Loan Documents and shall never be required to
pay interest on, or with respect to any of, the Loan Documents at a rate or in
an amount in excess of the Maximum Rate or maximum amount of interest that may
be lawfully contracted for, charged, received, taken or reserved under
Applicable Law, AND THE PROVISIONS OF THIS PARAGRAPH SHALL CONTROL OVER ALL
OTHER PROVISIONS OF THE LOAN DOCUMENTS. If the effective rate or amount of
interest which would otherwise be payable under the Loan Documents would exceed
the Maximum Rate or maximum amount of interest the Bank or any other holder of
any Note or other Obligations is allowed by Applicable Law to charge, contract
for, take, reserve or receive, or in the event the Bank or any
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holder of any Note or other Obligations shall charge, contract for, take,
reserve or receive monies that are deemed to constitute interest which would, in
the absence of this provision, increase the effective rate or amount of interest
payable under the Loan Documents to a rate or amount in excess of that permitted
or allowed to be charged, contracted for, taken, reserved or received under
Applicable Law then in effect, then the principal amount of such Note or other
Obligations or the amount of interest which would otherwise be payable
thereunder shall be payable at, or reduced to, as applicable, the maximum amount
allowed pursuant to the then applicable indicated (weekly) rate ceiling referred
to herein above at the definition of the term Applicable Law, or if no such
ceiling is then in effect, as authorized and allowed under said Laws as now or
hereafter construed by the courts having jurisdiction, and all such monies so
charged, contracted, for, received, taken or reserved that are deemed to
constitute interest in excess of the Maximum Rate or maximum amount of interest
permitted by Applicable Law shall be immediately returned or credited to the
account of such Borrower upon such determination.
SECTION 8.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT,
THE NOTE AND EACH OTHER LOAN DOCUMENT (INCLUDING ITS AND THEIR VALIDITY,
ENFORCEABILITY AND INTERPRETATION) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO ANY
CONFLICTS OF LAW PRINCIPLES) AND TO THE EXTENT CONTROLLING, THE FEDERAL LAWS OF
THE USA; PROVIDED THAT (I) THE PROVISION OF CHAPTER 15 OF THE TEXAS CREDIT CODE
(VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069-15.01 ET SEQ.) ARE EXPRESSLY
DECLARED BY THE PARTIES NOT TO BE APPLICABLE TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED BY ANY OF THEM, AND (II) THE LAWS OF THE STATE OF
TEXAS AND/OR THE UNITED STATES OF AMERICA SHALL NOT LIMIT THE AMOUNT OR RATE OF
INTEREST WHICH THE HOLDER OF ANY NOTE MAY CONTRACT FOR, CHARGE, RECEIVE,
COLLECT, TAKE, RESERVE AND/OR APPLY IF OTHER APPLICABLE LAWS PERMIT AT ANY TIME
A HIGHER AMOUNT OR RATE. THE PARTIES EXPRESSLY ACKNOWLEDGE THAT (Y) THEY INTEND
THAT THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY THE
PROVISIONS (INCLUDING, WITHOUT LIMITATION, THE RIGHT OF THE PARTIES TO SELECT
THE GOVERNING LAW) OF THE UNIFORM COMMERCIAL CODE AND NOT BY COMMON LAW AND (Z)
THE STATE OF TEXAS BEARS A REASONABLE RELATIONSHIP TO THIS TRANSACTION AND NO
OTHER STATE HAS A MATERIALLY GREATER INTEREST IN THIS TRANSACTION THAN THE STATE
OF TEXAS. EACH BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS (SAN ANTONIO
DIVISION) AND OF ANY TEXAS STATE COURT SITTING IN BEXAR COUNTY, TEXAS FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
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SECTION 8.10 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, and by each of the parties hereto on separate
counterparts, all of which taken together shall constitute one and the same
instrument. This Agreement shall become effective when the Bank shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 8.11 INDEPENDENCE OF COVENANTS. Each covenant and agreement of
the Borrower under each Loan Document shall be given independent effect so that,
if a particular action or condition is prohibited or required by any covenant,
the fact that it would be permitted by an exception to, or be otherwise within
the limitations of, another covenant shall not avoid the occurrence of a Default
or Event of Default if such action is taken or condition exists.
SECTION 8.12 SURVIVAL. The Obligations of the Borrower under Sections
8.3, 8.4, 8.8, 8.18 and 8.20 shall survive the termination of this Agreement,
the payment of all other Obligations and the termination of the Commitment. The
representations and warranties set forth in this Agreement and each of the other
Loan Documents shall survive the execution, delivery and performance of this
Agreement and the other Loan Documents and shall continue until one year after
the later of (i) the repayment of the Obligations and (ii) the date on which the
Bank's obligations to make Loans shall have fully and finally terminated; and
any investigation at any time by or on behalf of the Bank shall not diminish any
of their respective rights to rely thereon.
SECTION 8.13 SEVERABILITY. Incase any one or more of the provisions or
part of a provision contained in any Loan Document shall for any reason be held
to be invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall be deemed not to affect any
other jurisdiction or any other provision or part of a provision of any Loan
Document, but such Loan Document shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid or
illegal or unenforceable had never been contained herein and such provision or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible.
SECTION 8.14 GOVERNMENTAL REGULATION. Anything contained in any Loan
Document to the contrary notwithstanding, the Borrower acknowledges and agrees
that the Bank shall not be obligated (i) to extend or fund any credit or other
financial accommodation to, or for the benefit of, the Borrower in an amount, or
(ii) to perform any other agreement or obligation to, or for the benefit of, the
Borrower in any regard, in contradiction or violation of any limitation or
prohibition provided by any applicable statute or regulation, or any
interpretation, ruling, decision, opinion or other pronouncement in respect
thereto (whether or not having the effect of law), which any of them believes is
applicable.
SECTION 8.15 NO CONTROL. None of the covenants, terms or other
provisions of any Loan Document or any document executed in conjunction
therewith or related thereto shall, or shall be deemed to, give the Bank rights
or powers to exercise control over, or participate in the management of, the
business, affairs, operations or management of the Borrower or any of its
respective Property, including any right or power to influence or affect any of
its treatment,
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transportation, storage or disposal of toxic and/or hazardous waste, substances
or constituents. The relationship between the Borrower and the other parties
hereto created by this Agreement and each of the other Loan Documents is only
that of debtor-creditor (with or without security as applicable), and the Rights
of such other parties hereunder and thereunder are limited to the rights to
receive payment of the Obligations and to exercise the Rights provided herein
and therein and in any other document executed in conjunction herewith or
therewith or related hereto or thereto.
SECTION 8.16 RENEWALS, EXTENSIONS, REARRANGEMENTS, TERMINATION, ETC.
With respect to each and every (i) renewal, extension, increase and
rearrangement, if any, of the Obligations, or any part thereof, and (ii)
amendment, modification, supplement, restatement, waiver and consent, if any, of
or to this Agreement or any other Loan Document, all provisions of this
Agreement and the other Loan Documents shall apply with equal force and effect
to each such event or circumstance, except to the extent, if any, expressly set
forth in connection with each such event or circumstance; provided, however, the
foregoing is not intended in any regard to convey, acknowledge or otherwise
evidence on the part of the Bank, expressly or by implication, any present
consent or agreement to any such event or circumstance occurring subsequent to
the date hereof, it being acknowledged and agreed that the entry by the parties
hereto to any such events or circumstances shall be evaluated as they occur and
subject to the other provisions of the Loan Documents, as same may be
applicable. Except as expressly provided therein, all Loan Documents shall
remain in effect until full and complete payment of all Obligations, termination
of all commitments and obligations of the Bank to make or extend any credit or
financial accommodation to, or for the benefit of, any Borrower, and receipt by
the Bank, or any of the foregoing Persons, if so requested, of such written
assurances of each Borrower and any other designated Person or Persons that no
other claims, rights, defenses, liabilities or obligations exist in respect
hereto or against any of them or any other Indemnified Party.
SECTION 8.17 CONFLICTS. In the event of any inconsistency or conflict
between the terms of this Agreement and the terms of any other Loan Document,
the terms of this Agreement shall control.
SECTION 8.18 CONFIDENTIALITY. The Bank agrees to use reasonable
precautions to keep confidential, in accordance with customary procedures for
handling confidential information of this nature and in accordance with safe and
sound banking practices, any non-public information supplied to it by the
Borrower pursuant to this Agreement which is identified by the Borrower as being
confidential at the time the same is delivered to the Bank, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to
counsel for the Bank, (iii) to bank examiners, auditors or accountants of the
Bank, (iv) to any other Bank, (v) in connection with any litigation to which the
Bank is a party, provided, further, that, unless specifically prohibited by
applicable Law or court order, the Bank shall, at least five Business Days prior
to disclosure thereof, notify the Borrower of any request for disclosure of any
such non-public information (A) by any governmental agency or representative
thereof(other than any such request in connection with an examination of the
Bank's financial condition by such governmental agency) or (B) pursuant to legal
process, or (vi) to any Transferee (or prospective
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<PAGE>
Transferee) so long as such Transferee (or prospective Transferee) agrees in
writing to handle such information confidentially.
SECTION 8.19 PROVISIONS CONCERNING LOCK BOX. Borrower does hereby
irrevocably appoint the Bank as each Company's attorney-in-fact and hereby
grants to the Bank an unrestricted and unqualified power of attorney, coupled
with an interest, to endorse or sign the name of each Company (as appropriate)
on all checks or drafts payable to each Company or to their respective orders,
to take possession of all collections, receipts or other documents whatsoever,
and to take possession of and open mail addressed to each Company and remove
therefrom any payment on account (prior to delivering such mail to the
Companies, as appropriate with respect to any and all Accounts Receivable or
other claims owned by each Company at any time, of whatever nature, however or
from whatever source arising. The Companies have or will set up a lock box with
the Bank, by executing at Closing, a separate lock box agreement with the Bank
in a form acceptable to the Bank, and deliver or cause to be delivered, all keys
to such lock box to the Bank. The lock box shall be and remain under the
exclusive control of the Bank. Immediately after the Closing, each of the
Companies will direct each of its Account Debtors to make payments due under or
with respect to any and all of each Company's Accounts Receivable directly to
the lock box. All receipts from the lock box shall be deposited to each
Company's account (as appropriate) in accordance with the separate lock box
agreement so long as there is no Default hereunder. Upon the occurrence of a
Default hereunder, the Bank shall have the right, and the Borrower hereby
authorizes the Bank, to deposit into a special collateral account to be
established and maintained with the Bank, all checks, drafts and cash payments
received in said lock box. All deposits in said collateral account shall
constitute proceeds of Collateral and shall not constitute payment of any
Indebtedness owing to the Bank by the Borrower. At its option, the Bank may, at
any time, apply finally collected funds on deposit in said collateral account to
the payment of the Indebtedness of Borrower to the Bank in such order of
application as the Bank may determine or, at the sole discretion of the Bank,
the Bank may permit any Company (as appropriate) to withdraw all or any part of
the balance on deposit in said collateral account. Upon the occurrence of a
Default hereunder, the Companies will promptly deliver to the Bank, for deposit
into the collateral account, all payments on account and chattel paper received
by any of them representing payments on or evidence of any of their respective
Accounts Receivable. All such payments shall be delivered to the Bank in the
form received(except for a Company's endorsement where necessary). Until so
deposited, all payments on account and any chattel paper received by any of the
Companies shall be held in trust by such Company for and as the property of the
Bank and shall not be commingled with any other funds or Property whatsoever.
SECTION 8.20 PAYMENTS SET ASIDE. To the extent that the Borrower makes a
payment or payments to the Bank (or its Transferee), or the Bank (or its
Transferee) enforces any Lien or exercises its right of setoff, and such payment
or payments or the proceeds of such enforcement or setoff, or any part thereof,
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other Person
under any Debtor Laws or equitable cause, then, to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied, and all
rights and remedies therefor, shall be revived and shall continue in full
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<PAGE>
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
SECTION 8.21 LIMITATION OF LIABILITY; COMMENCEMENT OF ACTIONS. To the
extent not prohibited by applicable Law, no claim may be made by or on behalf of
the Borrower or any other Person against the Bank or any other Indemnified Party
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract arising out of or related to the transactions
contemplated by any Loan Document, or any act, omission, or event occurring in
connection therewith (whether any of such is a claim based on contract, tort,
duty imposed by law or otherwise), and Borrower hereby waives, releases, and
agrees not to sue, or commence or authorize the commencement of any Litigation,
upon any claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor. Further, any claim made by or on
behalf of the Borrower or any other Person against the Bank or any other
Indemnified Party shall be barred unless it is asserted by the commencement of
an action or proceeding in a court as prescribed in Section 8.9 by the filing of
a complaint therein within one year after the first act, occurrence or omission
upon which such claim or cause of action, or any part thereof, is based,
discovered or, in the exercise of reasonable diligence, should have been
discovered; and the Borrower agrees that such period of time is a reasonable and
sufficient time for it to investigate and act upon any such claim or cause of
action. The provisions of this Section 8.20 shall survive any termination,
howsoever occurring, of this Agreement and each Loan Document and the full and
final payment of the Notes and the other Obligations.
SECTION 8.22 REVIEW. The Borrower acknowledges and represents to the
Bank that Borrower has reviewed this Agreement and each other Loan Document, has
had the benefit of legal counsel of its own choice throughout its review and
negotiation of this Agreement and each other Loan Document, has been afforded an
opportunity to review and negotiate this Agreement and each other Loan Document
with the advice of its legal counsel, and is fully informed and knowledgeable of
the terms, provisions, rights and effects of this Agreement and each other Loan
Document. In furtherance of the foregoing, but not in limitation thereof, the
Borrower acknowledges and agrees that each Loan Document should be and shall be
construed as if jointly drafted by the parties hereto.
SECTION 8.23 THIS AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND ALL OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER COVERED HEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the day and year
first above written.
BORROWER:
DAWSON PRODUCTION SERVICES, INC.
/s/ MICHAEL E. LITTLE
Michael E. Little
Chairman, President and
Chief Executive Officer
BANK:
THE FROST NATIONAL BANK
By: Signature illegible
Name:____________________________________
Title:___________________________________
36
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ANNEX A
THE FROST NATIONAL BANK
1. Domestic Lending Office:
The Frost National Bank
100 West Houston Street
San Antonio, Texas 78205
2. Commitment: $50,000,000.00
3. Total Commitment: $50,000,000.00
4. Information for Notices:
The Frost National Bank
100 West Houston Street
San Antonio, Texas 78205
Attention: Jim Crosby
Phone: (210) 220-5346
Fax: (210) 220-4626
5. Account Number: _______________________________
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ANNEX A
Address for Borrower:
Dawson Production Services, Inc.
901 N.E. Loop 410, Suite 700
San Antonio, Texas 78209
Attention: Chief Financial Officer
Phone: 210-828-1838
Fax: 210-930-3345
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ANNEX B
CERTAIN DEFINITIONS
As used herein, the following terms shall have the respective meanings assigned
to them as follows:
"ACCEPTABLE ACCOUNT RECEIVABLE" means an Account Receivable as to which
payment is due not more than 90 days from the original date of invoice and as to
which payment in accordance with such terms is not delinquent or past due. If
payment of any Account Receivable is due more than 90 days after the date of
invoice, or with respect to any Accounts Receivable, if payment by the Account
Debtor is not made when due, the Account Receivable shall not be deemed, or
shall no longer be, an "Acceptable Account Receivable" for purposes of this
Agreement.
"ACCOUNT DEBTOR" means, with respect to any Account Receivable, the
Person obligated to pay such Account Receivable.
"ACCOUNT RECEIVABLE" means any intangible property or right owned by any
Company at any time consisting, in whole or part, of a legally enforceable right
to receive from any Person, or require the payment by any Person of, a certain
amount of money whenever arising, however or whenever acquired or evidenced,
whether due or to become due, and whether or not earned by performance,
including but not limited to, obligations evidenced by notes, installment
purchase agreements, accounts, and/or contracts, and all contract rights,
chattel paper, instruments and general intangibles, excluding, however, any such
intangible property or rights arising solely from services rendered or materials
provided by a Company outside of the USA to any Person not domiciled in the USA.
"ACQUISITION" means the following: (i) the purchase or acquisition by
any Person of all of (A) the capital stock of a corporation, (B) the membership
interests of a limited liability company or (C) the partnership interests of a
general or limited partnership, provided that each such transaction results in
such Person possessing the power to control the management and policies of such
corporation or (ii) the acquisition of the assets of a going concern business
(as defined in accordance with GAAP).
"ACQUISITION TARGET" means the Person which is the subject of an
Acquisition by Borrower.
"AFFILIATE" means any Person who, directly or indirectly, controls, is
controlled by or is under common control with the relevant Person. For the
purposes of this definition, "control"(including, with correlative meanings, the
terms "controlled by" and "under common control with"),as used with respect to
any Person, means a member of the board of directors, a partner or an officer of
such Person, or any other Person with possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, through the ownership (of record, as trustee or by proxy) of Voting
Shares, through a management contract, or otherwise. Any Person owning or
controlling directly or indirectly 10% or more of the Voting Shares, or other
equity interests of another Person shall be deemed to be an Affiliate of such
Person.
Annex B-1
<PAGE>
"AGREED MAXIMUM RATE" means a per annum rate of interest equal to 5.0%
plus the Base Rate, which Agreed Maximum Rate shall apply only during a period
while there is no Maximum Rate applicable to the transactions contemplated
hereby.
"AGREEMENT", "HEREOF","HERETO", "HEREIN", "HEREUNDER" and words of
similar import means this Agreement as a whole, and not any particular article
or section.
"AGREEMENT" means this Credit Agreement, as the same may be amended,
modified or supplemented from time to time.
"APPLICABLE LAW" means, with respect to the Bank, the law in effect,
from time to time, applicable to this loan transaction and each Loan Document
which lawfully permits the contracting for, taking, reserving, receiving,
charging and/or collection of the maximum lawful, non-usurious rate of interest
by such Person on each Loan Document and the transactions evidenced thereby, and
arising in connection therewith (including, but without limitation, the
Notes),including laws of the State of Texas, to the extent controlling, the laws
of the United States of America, and laws of any jurisdiction whose laws may be
mandatorily applicable to such Person, notwithstanding other provisions of any
Loan Document or laws of the United States of America applicable to such Person
and the transaction contemplated hereby, which would permit such Person to
contract for, take, reserve, receive, charge or collect a greater amount of
interest then under such jurisdiction's law. To the extent that Applicable Law
is determined by reference to Article 1.04, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, the interest ceiling applicable hereto and in
connection herewith shall be the "indicated" (weekly) rate ceiling as defined in
said Article 1.04; provided however, it is agreed that the terms hereof,
including the rate, or index, formula or provision of law used to compute the
rate in connection herewith, will be subject to the revisions as to current and
future balances, from time to time, pursuant to Applicable Law. IT IS FURTHER
AGREED THAT IN NO EVENT SHALL CHAPTER 15 OF SUBTITLE 3, TITLE 79, REVISED CIVIL
STATUTES OF TEXAS, 1925, AS AMENDED, APPLY TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS EVIDENCED THEREBY, OR ARISING IN CONNECTION THEREWITH.
"APPLICABLE MARGIN" means, with respect to any Loan, the following per
annum percentages determined by the Bank as follows:
(a) The Applicable Margin shall be equal to the percentage set forth
below based upon the ratio of Total Funded Debt to Consolidated EBITDA as of the
end of each Fiscal Quarter with respect to the four fiscal-quarter period ending
on as of the end of such Fiscal Quarter:
================================================================================
LIBOR Spread
Ratio of Total Funded Debt to Consolidated EBITDA
Less than 3.00 to 1.00 1.75%
Annex B-2
<PAGE>
Greater than or equal to 3.00 to 1.00 but less than 4.00 to 1.00 2.00%
Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00 2.25%
Greater than or equal to 4.50 to 1.00 but less than 5.00 to 1.00 2.50%
Equal to 5.00 to 1.00 2.75%
================================================================================
(b) Each determination of the Applicable Margin determined
pursuant to subsection (a) above shall be determined by the Bank within
10 days after the delivery to it of a certificate required by Section
5.1(g). Promptly upon each such determination, the Bank shall notify the
Borrower of such determination. Each change in the Applicable Margin
shall remain effective until the next such determination.
"AUTHORIZED OFFICER" means (i) as to Borrower, the president, chief
financial officer or controller of the Borrower and (ii) as to any other
Company, the president, chief financial officer or controller of such Company.
"BANK" has the meaning set forth in the introductory paragraph of this
Agreement.
"BASE RATE" means the interest applicable to the Loans selected by the
Borrower pursuant to Section 2.4(a).
"BORROWER" has the meaning set forth in the introductory paragraph of
this Agreement.
"BORROWING" means a borrowing requested pursuant to a Consolidated
Borrowing Base Certificate.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in San Antonio, Texas are authorized or required by law
to close.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use)real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP.
"CHANGE IN CONTROL" of a subject Person means, (i)any other Person who,
on the Closing Date, is not the "beneficial owner" (as that term is used in
Rules 13d-3 and 13d-5 under the Exchange Act) of at least 40% of the combined
voting power of the then outstanding voting securities of the subject Person
normally entitled to vote in elections of directors becomes the "beneficial
owner" (as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act) of
at least 40% of the combined voting power of the then outstanding voting
securities of the subject Person normally entitled to vote in elections of
directors; or (ii) during any period of 12 consecutive months, Continuing
Directors of
Annex B-3
<PAGE>
the subject Person cease for any reason (other than death or disability) to
constitute a majority of the Board of Directors of the subject Personr (sic)
then in office.
"CLOSING DATE" means February 20, 1997.
"CODE" means the Internal Revenue Code of 1986, as heretofore and
hereafter amended, or any successor statute.
"COLLATERAL" means all Accounts Receivable now owned or hereafter
acquired by the Companies, together with all additions and accessions thereto
and the proceeds thereof.
"COMMITMENT" means as to the Bank and on each relevant date of
determination, the obligation of the Bank to make Loans to Borrower and issue
Letters of Credit for the benefit of Borrower and any of its Subsidiaries, on
and subject to the terms and conditions set forth in this Agreement, up to an
aggregate principal amount of Loans which when added to the face amount of all
outstanding Letters of Credit, do not exceed the lesser of (i) the Consolidated
Borrowing Base, or (ii) the sum of $50,000,000.00. However, the aggregate face
amount of all outstanding Letters of Credit shall never exceed $10,000,000.00.
"COMPANIES" means Borrower and all of its respective present and future
direct and indirect Subsidiaries, and "COMPANY" means any one of them.
"CONSOLIDATED BORROWING BASE" shall be an amount equal to 80% of
aggregate Acceptable Accounts Receivable by all Companies less than 90 days from
the date of invoice, as determined by the Bank after its review of the most
recent Consolidated Borrowing Base Certificate and aging schedule of Accounts
Receivable received from Borrower.
"CONSOLIDATED BORROWING BASE CERTIFICATE" has the meaning set forth in
Section 2.2(b)(1).
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, all capital
expenditures of the Companies made during such period, as determined in
accordance with GAAP, excluding, however, capital expenditures for Acquisitions.
"CONSOLIDATED CAPITAL LEASE OBLIGATIONS" means the Capital Lease
Obligations of the Companies determined on a consolidated basis.
"CONSOLIDATED CURRENT ASSETS" means, at any time, the current assets of
the Companies, determined on a consolidated basis.
"CONSOLIDATED CURRENT LIABILITIES" means, at any time, the current
liabilities of the Companies determined, on a consolidated basis.
Annex B-4
<PAGE>
"CONSOLIDATED EBITDA" means, the net income for the four prior quarters
(plus or minus any extraordinary charges or credits) of the Companies determined
on a consolidated basis(including actual, historical income for any Acquisition
Target acquired during such forequarters), PLUS (i) the aggregate amount of all
income tax expense for such period, PLUS(ii) interest expense for such period,
PLUS (iii) the interest component of payments under Capital Lease Obligations,
PLUS (iv) the aggregate amount deducted in determining consolidated net income
for such period for depreciation and amortization of Property.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date, the Tangible
Net Worth of the Companies on a consolidated basis.
"CONTESTED CLAIM" means any Tax, Indebtedness or other claim or
liability, (i) the validity or amount of which is being diligently contested in
good faith by any Company by appropriate proceedings being diligently
prosecuted, (ii) for which adequate reserves, if required by GAAP, have been
established by such Company and (iii) with respect to which any right to execute
upon or sell any Property or assets of any Company has not matured or has been
and continues to be effectively enjoined, superseded or stayed.
"CONTINUING DIRECTORS" means any member of the Board of Directors of
Borrower on the date of this Agreement, any director elected since the date
thereof in any annual meeting of the shareholders upon the recommendation of the
Board of Directors of Borrower or any other member of the Board of Directors of
Borrower who will be recommended or elected to succeed a Continuing Director by
a majority of Continuing Directors who are then members of the Board of
Directors of Borrower.
"CREDIT EVENT" means the making of any Loan or any extension thereof or
other amendment or modification thereto.
"DEBTOR LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar Laws, or general equitable principles, from time to time in effect,
affecting the Rights of creditors generally or providing for relief to debtors.
"DEFAULT" means any of the events specified in Section 7.1, regardless
of whether there shall have occurred any passage of time or giving of notice or
both that would be necessary in order to constitute such event an Event of
Default.
"DEFAULT RATE" means, at the time in question, the lesser of (i) the
Base Rate, as in effect for each day during such time, plus 5.0% and (ii) the
Maximum Rate.
"DIVIDENDS" means, in respect of any corporation, limited liability
company or similar Person, cash distributions or any other distributions
(whether in cash, Property or obligations) on, or in
Annex B-5
<PAGE>
respect of, any class of capital stock of such entity, except for distribution
made solely in shares of common stock.
"DOJ" means the United States Department of Justice.
"DOMESTIC LENDING OFFICE" means, with respect to the Bank, the office of
such Bank specified as its "Domestic Lending Office" opposite its name on Annex
A attached hereto and made apart hereof or such other office of the Bank as the
Bank may from time to time specify to the Borrower and the Bank.
"EBITDA" means, for any period, the net income for the four prior
quarters (plus or minus any extraordinary charges or credits) of a Person, PLUS
(i) the amount of all income tax expense of such Person for such period, PLUS
(ii) interest expense of such Person for such period, PLUS (iii) the interest
component of payments by such Person under Capital Lease Obligations, PLUS (iv)
the amount deducted in determining consolidated net income of such Person for
such period for depreciation and amortization of Property.
"ENVIRONMENTAL COMPLAINT" means any third party(including private
parties, governmental agencies, and employees) action, lawsuit, claim, demand,
event, condition, report, investigation or proceeding which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, groundwater, or land; (iii) generation, handling, treatment, storage,
disposal, or transportation of Hazardous Materials; (iv) exposure to Hazardous
Materials; or (v)non-compliance with any Environmental Law.
"ENVIRONMENTAL LAW" shall mean any federal, state, or local law,
statute, ordinance, or regulation pertaining to health, industrial hygiene, or
the environmental conditions, including without limitation, (i) the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984, as now or hereafter amended (42 U.S.C. ss. 6901 ET SEQ.);
(ii) the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, as
now or hereafter amended(42 U.S.C. ss. 9601 ET SEQ.); (iii) the Clean Water Act,
as now or hereafter amended (33 U.S.C. ss. 1251 ET SEQ.); (iv) the Toxic
Substances Control Act, as now or hereafter amended (15 U.S.C. ss. 2601 ET
SEQ.); (v) the Clean Air Act, as now or hereafter amended (42 U.S.C. ss. 7401 ET
SEQ.), Texas Solid Waste Disposal Act (V.T.C.A. Health and Safety Code ss.
361.001 ET SEQ.) and the Texas Water Code (V.T.C.A. Water Code ss.ss.
26.001-26.407); (vi) all regulations promulgated under any of the foregoing;
(vii) any local, state or foreign law, statute, regulation or ordinance
analogous to any of the foregoing; and (viii) any other federal, state, local,
or foreign law (including any common law), statute, regulation, or ordinance,
regulating, prohibiting, or otherwise restricting the placement, discharge,
release, threatened release, generation, treatment, or disposal upon or into any
environmental media of any substance, pollutant, or waste which is now or
hereafter classified or considered to be hazardous or toxic to human health or
the environment.
Annex B-6
<PAGE>
"ENVIRONMENTAL LIABILITY" means any claim, demand, obligation, cause of
action, accusation, allegation, order, violation, damage, injury, judgment,
penalty or fine, cost of enforcement, cost of remedial action or any other cost
or expense whatsoever, including reasonable attorneys' fees and disbursements,
resulting from the violation or alleged violation of any Environmental Law, the
storage, handling, transportation or release of Hazardous Materials, or the
imposition of any Environmental Lien.
"ENVIRONMENTAL LIEN" means a Lien in favor of a Governmental Authority
or other Person (i) for any liability under an Environmental Law or (ii) for
damages arising from or costs incurred by such Governmental Authority or other
person in response to a release or threatened release of hazardous or toxic
waste, substance or constituent into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all presently effective and future regulations issued
pursuant thereto.
"EVENT OF DEFAULT" has the meaning set forth in Section 7.1.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FISCAL MONTH" and "FISCAL QUARTER" and "FISCAL YEAR" refer to the
fiscal month and fiscal quarter and fiscal year of the Borrower.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"GOVERNMENTAL AUTHORITY" means, whether now or hereafter constituted
and/or existing, (i) any government or nation, (ii) any state, province,
commonwealth, territory, possession, county, parish, town, township, city or
municipality, (iii) any other Person or entity that exercises executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to, government, (iv) any political or other authority, district or subdivision
of any of the Persons or entities referred to in the preceding clauses (i), (ii)
and (iii), (v) any court, tribunal, panel, board, commission, department,
agency, bureau, examiner or instrumentality of the Persons or entities referred
to in the preceding clauses (i), (ii), (iii) and (iv), and (vi) any arbitrator,
mediator or arbitration and/or mediation panel, board or the like, whether
impaneled pursuant to Laws, by contract or otherwise.
"GUARANTEE" means, directly or indirectly (without duplication): (i)
guarantee or guaranty, as applicable, an endorsement, an assumption, or an
undertaking, an understanding or a contingent agreement or other agreement
(hereinafter in this definition, the foregoing shall be collectively
Annex B-7
<PAGE>
referred to as "any agreement", or "any other agreement", as the context may
require) to purchase or acquire, or to furnish funds or Property for the payment
or maintenance of, or otherwise to be or become liable (contingently,
irrevocably, absolutely or otherwise) under or with respect to, or to perform or
cause to be performed, the Indebtedness (or any Property constituting security
therefor), other obligations and liabilities, net worth, capital requirements,
working capital, earnings, financial condition or position, or financial
covenants of any Person, or the redemption or repurchase obligations of any
Person's capital stock, warrants or stock or other equity, partnership or
similar capital equivalents, or any class or nature; (ii) a guarantee of, or any
other agreement for, the payment of dividends or other distributions upon the
stock, equity, partnership or other interests of any Person; (iii) any agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of its obligations or Indebtedness, or to provide assurances thereof to
any creditor or other obligee of a debtor; (iv) any agreement to assure a
creditor or other obligee against any loss, including but without limitation,
causing a bank or other Person to issue a letter of credit or other similar
instrument for the benefit of another Person; or (v) any agreement commonly
known as or referred to as a "comfort"or "keepwell" letter or agreement;
provided however, in no event shall "Guarantee" include endorsements for
collection or deposit made in the ordinary course of business. The terms
"Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning.
"GUARANTY AGREEMENT" means a full and unconditional Guarantee of all
Obligations by all Subsidiaries of Borrower in the form attached hereto as
Exhibit E.
"GOVERNING DOCUMENTS" means (i) as to any corporation, the articles of
incorporation and bylaws of such corporation (including any amendments or
modifications), (ii) as to any limited liability company, the articles of
organization and regulations of such limited liability company(including any
amendments or modifications), (iii) as to any limited partnership, the
certificate of limited partnership and the limited partnership agreement of such
limited partnership (including any amendments or modifications) and (iv) as to
any general partnership, the partnership agreement of such partnership
(including any amendments or modifications).
"HAZARDOUS DISCHARGE" means the happening of any event, status or
circumstance involving the use, storage, spill, transportation, removal,
disposal, discharge or cleanup of any Hazardous Material.
"HAZARDOUS MATERIAL" means (i) any hazardous substance defined in the
Comprehensive Response, Compensation and Liability Act 42 U.S.C. Section 9601 et
seq.; (ii) any substance the presence of which on any Property requires
reporting or remediation under any Environmental Law; (iii) gasoline, diesel
fuel, fuel oil, motor oil and any other petroleum hydrocarbons, including any
additives or other byproducts associated therewith; and (iv) asbestos and
asbestos-containing materials in any form.
"HSR ACT" means the Hart-Scott Rodino Antitrust Improvements Act of
1976, as amended and the rules and regulations thereunder.
Annex B-8
<PAGE>
"INDEBTEDNESS" means, for any Person (without duplication),any
liability, indebtedness or obligation, contingent or otherwise, of such Person:
(i) for borrowed money (whether by loan or the issuance and sale of debt
securities or instruments or the sale of Property to another Person subject to
an understanding or agreement, contingent or otherwise, to repurchase such
Property from such Person); (ii) evidenced by bonds, notes, debentures or
similar instruments; (iii)representing the deferred purchase or acquisition
price of Property or services, including trade accounts payable; (iv) with
respect to amounts or obligations Guaranteed or Indebtedness of another secured
by a Lien on the Property of such Person, whether or not the respective
indebtedness or obligations so secured have been assumed by such Person; (v)
with respect to reimbursement of, or payment in respect to, letters of credit,
bankers' acceptances, surety or other bonds or similar instruments issued or
credit transactions; (vi) for any Guarantee of such Person; (vii) under, or in
respect of, an interest rate swap, cap or collar agreement or similar
arrangement providing for the transfer or mitigation of interest or currency
risks generally or under specific contingencies; (viii) under leases serving asa
source of financing or otherwise capitalized in accordance with GAAP; (ix) under
sales or other title retention agreements; (x) under, or in respect of, any
indemnity and similar obligations, howsoever arising, including, indemnities
incurred or arising in connection with the purchase, sale or use of Property,
the scope of which indemnity is unlimited, unqualified or unquantifiable, or
exceeds the fair market value of the Property being purchased, sold or used, or
pertains to Environmental Liability or to the negligence, actions, omissions or
other activities of any Person; (xi) under, or in respect of, any partnership,
joint venture or similar entity in which such Person is a general partner, joint
venturer or similar participant; (xii) in respect of unfunded vested benefits
under any Plan;(xiii) to redeem, repurchase, retire or otherwise acquire any
shares of capital stock, warrants, stock equivalents or other evidences of
equity of any class or nature of such person, or to set apart any money or other
Property for a defeasance, sinking or analogous fund for any Dividend or
distribution thereon, or for any redemption, repurchase, retirement or other
acquisition thereof; or (xiv) which would under GAAP be shown on such Person's
balance sheet as a liability.
"INTEREST PERIOD" means with respect to each Borrowing, the period
commencing on the date of such Borrowing and ending on the date when the
interest rate prescribed in Section 2.4(a) changes and commencing on the next
calendar day at the interest rate resulting from such change until the next such
change.
"INVESTMENT" in any Person means any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the guarantee of any Indebtedness of such
Person or the subordination of any claim against such Person to other
Indebtedness of such Person.
"JUDGMENT" means any judgment, order, subpoena, levy, abstract,
mandamus, decree, injunction, restraining order or other directive, demand or
the like, of any Governmental Authority, howsoever issued by it (whether
pursuant to its equity rights or powers, or otherwise).
Annex B-9
<PAGE>
"LAWS" means all applicable statutes, laws, ordinances, regulations,
rules, directives, guidelines, interpretations, rulings, orders, requirements,
determinations, judgments, writs, injunctions, decrees and other similar
pronouncements or directives of any Governmental Authority, and "LAW" means each
of the foregoing.
"LEGAL RIGHTS" means, with respect to a Person, and to such Person's
business, operations and Property, all licenses, permits, certificates
franchises, authorizations, consents, approvals, patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, copyrights,
service marks, applications, registrations and other similar rights, privileges
and authorities, used or useful and required of such Person and/or for such
Person to own and/or operate its business and Property.
"LENDING OFFICE" means, as to the Bank, its Domestic Lending Office.
"LETTER OF CREDIT" means any standby letter of Credit issued by the Bank
in favor of any third-party beneficiary, with a term not to exceed one year from
date of issue, and in such amount as may be requested by the Borrower, including
any letter of credit issued at the Borrower's request on behalf of any of its
Subsidiaries.
"LETTER OF CREDIT INFORMATION FORM" has the meaning set forth in Section
2.2(b)(2).
"LIEN" means any lien, mortgage, tax lien, pledge, encumbrance,
Environmental Lien, easement, restriction, right-of-way, charge or adverse claim
affecting title or use of, or resulting in an encumbrance against, Property of a
Person, or a security interest, conditional sale or title retention arrangement,
or any other interest in Property designed to secure the repayment of a
liability or the performance of an obligation or agreement, whether arising by
agreement, under any Law or otherwise, including, without limitation, any lease
in the nature thereof, any option, right of first refusal or other similar
agreement to sell, and any filing of, or agreement to give, any financing
statement under the UCC or equivalent statute in any jurisdiction or any other
instrument that evidences the creation, perfection, continuation, notice and/or
other aspect of a present or future Lien or asserted Lien.
"LITIGATION" means any proceeding, (judicial, arbitral, mediation or
otherwise) claim, complaint, demand, lawsuit, hearing, inquiry and/or
investigation conducted or threatened by or before any Governmental Authority.
"LOANS" means the outstanding balance of all advances by the Bank to the
Borrower pursuant to its Commitment, including such amounts as may be advanced
by the Bank to honor Letters of Credit presented for collection.
"LOAN DOCUMENTS" means this Agreement, each Note and any and all other
agreements, documents, promissory notes, instruments, reports, opinions,
requests, certificates, notices, filings and all other documents, instruments,
agreements and writings, now or hereafter executed or delivered pursuant to, or
in connection with, this Agreement, or the transactions provided for herein
Annex B-10
<PAGE>
or contemplated hereby, or in or by any other Loan Document, each of the
foregoing being in form, scope and substance satisfactory to the Bank.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which,
individually or in the aggregate with other circumstances or events, (i) could
have any material adverse effect whatsoever upon the validity, performance,
perfection or enforceability of any Loan Documents, or(ii) could be material and
adverse to the financial condition, business, operations or prospects of the
Companies, taken as a whole, or the Property of the Companies, taken as a whole,
(iii) could impair the ability of any Company to fulfill promptly and completely
its obligations under any of the Loan Documents to which is a party, or (iv)
could result in or cause a Default or an Event of Default.
"MAXIMUM RATE" means, with respect to the Bank and on any and with
respect to each day, the maximum lawful non-usurious rate of interest (if any)
which, under Applicable Law, it is permitted or authorized to contract for,
charge, collect, receive, take or reserve from the Borrower on its Notes or
other Obligations owed or owing to it, as the case may be, from time to time in
effect, including changes in such Maximum Rate attributable to changes under
Applicable Law which permit a greater rate of interest to be contracted for,
charged, collected, received, taken or reserved as of the effective dates of the
respective changes.
"NEGATIVE PLEDGE" means any term, provision, agreement, contract or
undertaking that, directly or indirectly, (i) precludes or restricts, or
purports to preclude or restrict, the imposition or voluntary creation of, a
Lien on Property, or (ii) upon the imposition or voluntary creation of a Lien on
Property, requires the owner, lessee or other interest holder therein or thereto
to incur an obligation (payment, performance, creation of a Lien or otherwise)
to a Person, or requires such owner, lessee or other interest holder to provide,
or cause to be provided, any assurances or security to a Person, which
assurances and security did not theretofore exist and/or was not theretofore
required, whether such assurances or security consist of collateral, guaranties,
modifications or supplements to then existing agreements, new agreements, or
otherwise.
"NOTE" means a promissory note executed by Borrower pursuant to Section
2.3(a), substantially in the form of Exhibit "D" hereto and otherwise in form
and substance satisfactory to the Bank, payable to the order of the Bank or any
Purchaser and evidencing the obligation of Borrower to repay the Loans and any
Letter of Credit funded by Bank on behalf of the Borrower or any of its
Subsidiaries.
"NOTICE OF DEFAULT" has the meaning set forth in Section 7.2.
"OBLIGATIONS" means all obligations, indebtedness, fees, expenses,
costs, indemnities and other indemnification obligations, and liabilities of the
Borrower to the Bank, now existing or hereafter arising, whether direct or
indirect, related or unrelated, fixed or contingent, liquidated or unliquidated,
joint, several or joint or several, or otherwise, and all renewals, extensions,
increases, refinancings, rearrangements or modifications thereof, or any part
thereof, arising pursuant to, or in connection with, this Agreement or any other
Loan Document, and all interest accruing thereon (including,
Annex B-11
<PAGE>
without limitation, interest which, but for the filing of a petition in
bankruptcy with respect to such Borrower, would accrue on such Obligations), and
attorneys' fees incurred in the enforcement or collection thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor
to all or any of the Pension Benefit Guaranty Corporation's functions under
ERISA.
"PARTICIPANT" has the meaning set forth in Section 8.7(c).
"PERMITTED INDEBTEDNESS" has the meaning stated in Section 6.2.
"PERMITTED LIENS" means: (i) Liens imposed by mandatory provisions of
Law such as carrier's, material men's, mechanics', warehousemen's, landlord's
and other like Liens arising in the ordinary course of business, securing
Indebtedness not yet due, (ii) Liens for Taxes, if the same are not yet due and
payable or qualify as a Contested Claim, (iii) encumbrances consisting of minor
zoning restrictions, easements or other restrictions on the use of real
Property, provided that such items do not or will not impair or interfere with
the use of such Property for the purposes intended or the value thereof, and
(iv) pledges or deposits in connection with or to secure worker's compensation,
unemployment insurance, pensions or other employee benefits, or public or
statutory obligations.
"PERSON" includes any individual, corporation, company, joint venture,
general or limited partnership, trust, organization, association, limited
liability partnership, limited liability company or other entity (whether or not
incorporated), or Governmental Authority.
"PLAN" means any plan subject to Title IV of ERISA and maintained at any
time since January 1, 1986 for employees of any Company or of any member of a
"controlled group of corporations" or "trade or business," as such terms are
defined in Section 414(b) or (c) of the Code, of which any Company is a member,
or any plan subject to Title IV of ERISA to which any Company is required to
contribute, or has been required to contribute at any time since January 1,
1986, on behalf of its employees.
"PRIME RATE" means the prime rate of interest charged by the Bank as
established and changed from time to time, and any such change shall become
effective without prior notice to Borrower, automatically as of the opening of
business on the date of such change. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually charged by the Bank
to any customer. If the Prime Rate is no longer available as an index, Bank, in
its sole discretion, shall choose a new index to be used hereunder. Bank will
select such new index based on what Bank deems to be comparable similar
information or history. Bank will attempt to give Borrower notice of this
choice, however, Bank's failure to give such notice shall not effect or
invalidate Bank's choice of the new index. Borrower, upon request by the Bank,
agrees to execute an acknowledgment of the new index.
Annex B-12
<PAGE>
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible (including, without
limitation, Legal Rights).
"PURCHASER" has the meaning set forth in Section 8.7(d).
"QUALIFIED BANK" means any commercial bank located in the USA, which is
organized under the laws of the USA or any state thereof, insures its deposits
with the Federal Deposit Insurance Corporation (or any successor) and has
capital, surplus and undivided profits aggregating at least $100,000,000.00 as
of the date of such commercial bank's most recent financial report.
"REGULATION D", "REGULATION G", "REGULATION T", "REGULATION U"
and"REGULATION X" mean Regulation D, G, T, U or X, as the case may be, of the
Board of Governors of the Federal Reserve System, or any successor or other
regulation hereafter promulgated by said Board to replace the prior Regulation
D, G, T, U or X and having substantially the same function.
"RIGHTS" means rights, remedies, powers and privileges.
"SELECTION OF INTEREST RATE FORM" has the meaning set forth in Section
2.2(a).
"SUBSIDIARY" means, for any Person, any corporation or other entity
(including, without limitation, any partnership or joint venture) (i) of which
at least a majority of the securities or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the board of
directors or other Persons having similar powers and/or performing similar
functions of such corporation or other entity (irrespective of whether or not at
any time securities or other ownership interests of any class or classes of such
corporation or other entity shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person, or (ii) of
which such Person is a general partner, joint venturer or similar capacity.
"TANGIBLE NET WORTH" means, as of any date, the total shareholders'
equity (including common stock and preferred stock [other than mandatorily
redeemable stock] at stated value, additional paid-in capital and retained
earnings after deducting treasury stock) which would appear on a balance sheet
of a Person prepared as of such date in accordance with GAAP, plus subordinated
debt, less the sum of the following: (i) deferred assets, other than prepaid
insurance and prepaid taxes,(ii) intellectual property rights, (iii) goodwill
and experimental expenses, (iv) unamortized debt discount expense, (v) assets
located, and notes and receivables due from obligors domiciled outside of the
USA and (vi) costs in excess of fair value of the net assets acquired.
"TAXES" means all taxes, assessments, fees, levies, imposts, duties,
penalties or other charges of any nature whatsoever from time to time or at any
time imposed by any Law or any Governmental Authority, whether on income,
profits, Property, sales, use, excise, franchises, capital, ownership,
operations or otherwise.
Annex B-13
<PAGE>
"TEMPORARY CASH INVESTMENT" means any Investment in (i)direct
obligations of the USA or any agency thereof, or obligations fully guaranteed by
the USA or any agency thereof(including indirect investments in such obligations
through repurchase agreements with the Bank or any Qualified Bank), provided
that such obligations mature within 30 days of the date of acquisition thereof,
(ii) commercial paper rated in the highest grade by two or more national credit
rating agencies and maturing not more than 30 days from the date of acquisition
thereof, (iii)time deposits with, and certificates of deposit and banker's
acceptances issued by, the Bank, (iv)commercial paper maturing not more than 30
days from the acquisition thereof issued by the Bank (or the parent of any Bank)
and (v) Eurodollar investments made available through the Bank.
"TOTAL FUNDED DEBT" means, as of any time, the outstanding principal
balance of (i) the Notes PLUS (iii) any other borrowed-money Indebtedness of any
Company on a consolidated basis.
"TRANSFEREE" has the meaning set forth in Section 8.7(e).
"UCC" means the Uniform Commercial Code of the State of Texas and of any
other state to the extent Texas Law requires application of the same.
"USA" means the United States of America.
"VOTING SHARES" of any corporation means shares of any class or classes
(however designated) having ordinary voting power for the election of at least a
majority of the members of the Board of Directors (or other governing bodies) of
such corporation.
"WALL STREET JOURNAL LONDON INTERBANK OFFERED RATE"shall mean the London
Interbank Offered Rate (LIBOR) for one month quoted in the most recently
published issue OF THE WALL STREET JOURNAL in the "Money Rates" column. Any
change therein shall become effective without prior notice to Borrower,
automatically as of the opening of business on the date of such change. If the
Wall Street Journal London Interbank Offered Rate ceases to be made available by
the publisher, or any successor to the publisher of THE WALL STREET JOURNAL, the
interest rate will be determined by using a comparable index. If more than one
Wall Street London Interbank Offered Rate for one month is quoted, the higher
rate shall apply. The Wall Street Journal London Interbank Offered Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer.
Annex B-14
<PAGE>
ANNEX C
CONDITIONS PRECEDENT: INITIAL LOAN
(a) AGREEMENT AND SCHEDULES. This Agreement duly executed by Borrower,
and all Schedules, duly and fully completed, that are provided for in this
Agreement.
(b) NOTES. Notes duly executed by Borrower in favor of the Bank and each
Purchaser in the respective amount of the Commitment of each to lend under this
Agreement.
(c) SECURITY AGREEMENTS. Security Agreements duly executed by all
Companies granting the Bank a first and prior security interest in and to the
Collateral.
(d) FINANCING STATEMENTS. UCC-1 Financing Statements duly executed by
all Companies and covering the Collateral.
(e) GUARANTY AGREEMENT. A Guaranty Agreement with a full and
unconditional Guarantee of all Loans executed by each Subsidiary of Borrower in
the form attached hereto as Exhibit E.
(f) OPINION OF COUNSEL TO THE COMPANIES. Opinion of legal counsel for
the Companies in the form of Exhibit F.
(g) SELECTION OF INTEREST RATE FORM, CONSOLIDATED BORROWING BASE
CERTIFICATE AND OTHER CERTIFICATES. A Selection of Interest Rate Form and
Consolidated Borrowing Base Certificate duly completed and executed by Borrower
and a Compliance Certificate in the form of Exhibit G duly completed and
executed by Borrower.
(h) SECRETARY CERTIFICATE. With respect to each Company, a Certificate
signed by the secretary of such Company, which secretary's office and signature
shall be confirmed by another officer of such Company, dated and effective as of
the Closing Date attaching thereto or containing therein, and certifying as to
the following: (i) corporate resolutions, as in effect and neither revoked nor
rescinded, duly adopted by the board of directors of such Company authorizing
the execution, delivery and performance of the Loan Documents to which it is or
will be a party, and the transactions contemplated thereby; (ii) true and
correct copies of the charter, bylaws and other internal governance documents,
as amended and in effect, of such Company; and (iii) names, incumbency and
specimen signatures of the officers of such Company authorized to execute and
deliver the Loan Documents to which such Company is a party.
(i) OFFICIAL CERTIFICATES. With respect to each Company, Certificates as
to incorporation, existence and good standing for such Company issued by the
Secretary of State (and/or other appropriate official) of the state of
incorporation of such Company and certificates of foreign qualification and good
standing (or other similar instruments) for such Company, issued by the
Secretary of State (and/or other appropriate official) of each of the states
wherein such Company is or should be qualified to do business as a foreign
corporation, each of the foregoing certificates being
Annex C-1
<PAGE>
dated within 10 days prior to the date of the Closing Date.
(j) ARTICLES OF INCORPORATION, CHARTER AND BYLAWS. A copy of the
Certificate or Articles of Incorporation of each Company and all amendments
thereto, certified by the Secretary of State of the state of incorporation of
such Company as being true, correct and complete, and being dated within 10 days
prior to the Closing Date.
(k) LITIGATION REPORT. A report of counsel to each Company describing
all pending or threatened Litigation by or against any Company or any of its
Property (including litigation for which any Company will be responsible after
the Closing Date). There shall be no outstanding order or injunction of any
Governmental Authority which would prohibit (i) the execution, delivery or
performance, now or hereafter, of any Loan Document or (ii) any of the
transactions contemplated by the Loan Documents.
(l) ENVIRONMENTAL REPORTS. Copies of all environmental surveys or
reports relating to real Property owned or leased by any Company (i) which have
heretofore been performed or prepared (each of which is described in Schedule
4.20 hereof) and (ii) additional reports or surveys in form, scope and substance
satisfactory to the Bank.
(m) INSURANCE CERTIFICATES. A certificate from each insurer or duly
authorized insurer's agent of each Company setting forth a listing of all
insurance coverage of such Company and reflecting that the policies evidencing
such coverage conforms to the requirements of this Agreement and each of the
other Loan Documents, including, without limitation, loss payable endorsements
in favor of the Bank and notification of cancellation and modification
endorsements as specified in Section 5.10. In addition, each Company shall
deliver a certificate executed by an Authorized Officer of such Company setting
forth the insurance obtained by such Company in accordance with the requirements
of Section 5.10 and certifying that such insurance is in full force and effect
and that all premiums then due and payable thereon have been paid.
(n) FINANCIAL STATEMENTS. Copies of financial statements of the
Companies for the most recent period required under Section 5. l.
(o) UCC REPORTS. Copies of the results of Uniform Commercial Code
searches showing all financing statements and other documents or instruments on
file against each Company in the appropriate central and local offices of the
relevant jurisdictions, each such search to be through a search period ending as
of a date no more than 10 days prior to the Closing Date.
(p) REGULATORY AND OTHER APPROVALS. Evidence that all necessary
approvals or consents of Governmental Authorities and all other Persons have
been obtained.
(q) COMPLIANCE WITH LAWS. Evidence that each Company has complied with
all Laws necessary to consummate the transactions contemplated by this Agreement
and each of the other Loan Documents.
Annex C-2
<PAGE>
(r) FEES. Payment of (i) the fees payable to the Bank pursuant to
Section 2.5 on the Closing Date by Borrower, and (ii) fees of counsel to the
Bank payable by the Borrower in connection with the preparation, negotiation and
closing of the transactions contemplated by this Agreement.
(s) ADDITIONAL DOCUMENTATION. Such additional approvals, opinions,
documents, instruments, reports, certifications and/or agreements as the Bank or
its counsel may reasonably request.
Annex C-3
<PAGE>
Exhibit A
<PAGE>
SELECTION OF INTEREST RATE FORM
DAWSON PRODUCTION SERVICES, INC.
TO: THE FROST NATIONAL BANK, as the Bank under the Credit Agreement dated
February ____, 1997 (including any amendments or modifications thereof,
the "Credit Agreement") between Dawson Production Services, Inc.
("Borrower") and The Frost National Bank. Unless otherwise defined
herein, terms defined in the Credit Agreement shall have the same
meanings in this Selection of Interest Rate Form.
BASE RATE FOR ALL LOANS (WHICH WILL BE THE ESTABLISHED INTEREST RATE FOR THE
TERM OF THE NOTES UNLESS A NOTE RATE IS SELECTED PURSUANT TO THE TERMS OF THE
CREDIT AGREEMENT):
Check one:
_____ Prime Rate;
_____ Applicable Margin, plus Wall Street Journal London Interbank
Offered Rate;
But not to exceed the Maximum Rate.
The undersigned certifies that he is the _________________________ of
Borrower and that as such he is authorized to execute this certificate on behalf
of Borrower.
DATED: _______________, 19__.
DAWSON PRODUCTION SERVICES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
EXHIBIT A
<PAGE>
Exhibit B
<PAGE>
CONSOLIDATED BORROWING BASE CERTIFICATE
DAWSON PRODUCTION SERVICES, INC.
TO: The Frost National Bank
FROM: Dawson Production Services, Inc.
DATE: ___________________________
RE: Credit Agreement dated _____________, 1997, (including any amendments or
modifications thereof, the "Credit Agreement") by and between Dawson
Production Services, Inc. ("Borrower") and The Frost National Bank.
This Consolidated Borrowing Base Certificate is delivered pursuant to
Section 5.1(c) of the Credit Agreement. All capitalized terms used but not
defined herein shall have the respective meaning specified in the Credit
Agreement.
For the purposes of determining the Consolidated Borrowing Base, the
undersigned does hereby certify the following as of __________________, 1997:
TOTAL ACCOUNTS RECEIVABLE OF THE COMPANIES
AS OF THE END OF THE FISCAL MONTH $__________________________
LESS:
INELIGIBLE ACCOUNTS RECEIVABLE AS OF THE END
OF THE FISCAL MONTH DETERMINED WITHOUT
DUPLICATION -__________________________
TOTAL ACCEPTABLE ACCOUNTS RECEIVABLE FOR
COMPANIES FOR THE FISCAL MONTH $__________________________
MULTIPLIED BY 80% X 80%
EQUALS CONSOLIDATED BORROWING BASE AT END
OF FISCAL MONTH $
==========================
- - - - - -
EXHIBIT B
<PAGE>
ENTER THE LESSER OF 1) CONSOLIDATED BORROWING
BASE AS CALCULATED ABOVE OR 2) $50,000,000.00 $__________________________
LESS:
AGGREGATE PRINCIPAL AMOUNTS OF LOANS
OUTSTANDING UNDER CREDIT FACILITY -__________________________
AGGREGATE OUTSTANDING AMOUNT OF ISSUED
LETTERS OF CREDIT UNDER CREDIT FACILITY -__________________________
EQUALS AMOUNT AVAILABLE (OR PAYDOWN
REQUIRED) FOR BORROWING UNDER THE NOTE SUBJECT
TO THE TERMS OF THE CREDIT AGREEMENT, IF POSITIVE,
OR AMOUNT TO BE REPAID, IF NEGATIVE $
==========================
- - - - -
REQUESTED AMOUNT OF LOAN $
==========================
REQUIRED AMOUNT OF PAYDOWN $
==========================
- - - - -
THE UNDERSIGNED CERTIFIES THAT HE/SHE IS THE _________________OF
BORROWER AND THAT AS SUCH IS AUTHORIZED TO EXECUTE THIS CERTIFICATE ON BEHALF OF
BORROWER AND FURTHER CERTIFIES THAT THE ABOVE INFORMATION AND COMPUTATIONS ARE
TRUE AND CORRECT AS OF THE DATE HEREOF, AND THAT NO DEFAULT OF EVENT OR DEFAULT
HAS OCCURRED AND IS CONTINUING UNDER THE CREDIT AGREEMENT.
DAWSON PRODUCTION SERVICES, INC.
BY:____________________________________
NAME: _________________________________
TITLE:_________________________________
2
<PAGE>
Exhibit C
<PAGE>
LETTER OF CREDIT INFORMATION FORM
DAWSON PRODUCTION SERVICES, INC.
TO: THE FROST NATIONAL BANK, as the Bank under the Credit Agreement
dated February ____, 1997 (including any amendments or modifications
thereof, the "Credit Agreement") between Dawson Production Services,
Inc. ("Borrower") and The Frost National Bank. Unless otherwise defined
herein, terms defined in the Credit Agreement shall have the same
meanings in this Letter of Credit Information Form.
REQUESTED LETTER OF CREDIT:
APPLICANT: ____________________________________________________________________
APPLICANT'S ADDRESS: _________________________________________________________
_______________________________________________________________________________
BENEFICIARY: __________________________________________________________________
BENEFICIARY'S ADDRESS: _______________________________________________________
_______________________________________________________________________________
AMOUNT: _______________________________________________________________________
EXPIRATION DATE: _____________________________________________________________
PURPOSE: _____________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
TERM OF PAYMENT: ______________________________________________________________
_______________________________________________________________________________
DOCUMENTATION REQUIRED TO DRAW: ______________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
EXHIBIT C
<PAGE>
The undersigned certifies that he is the _______________________________
of Borrower and that as such he is authorized to execute this certificate on
behalf of Borrower.
DATED: _________________________,19___.
DAWSON PRODUCTION SERVICES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
2
<PAGE>
Exhibit D
<PAGE>
REVOLVING NOTE
$50,000,000.00 San Antonio, Texas February ____,1997
For value received, DAWSON PRODUCTION SERVICES, INC., a Texas
corporation(the "Maker"), irrevocably and unconditionally promises to pay to the
order of THE FROST NATIONAL BANK (the "Bank"), at its principal office at 100 W.
Houston Street, San Antonio, Bexar County, Texas 78205, the principal sum of
FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00), or such lesser amount as
shall equal the aggregate unpaid principal amount of the Loans made by the Bank
to the Maker pursuant to the terms of the Credit Agreement referred to below, in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided for in the Credit Agreement,
and to pay interest on the unpaid principal amount of the Loan at such office,
in like money and funds until it is paid in full, at the rates and on the dates
provided for in the Credit Agreement. All capitalized terms used but not defined
herein shall have the meanings set forth in the Credit Agreement referred to
below.
The unpaid principal balance of the Loan under this Note from time to
time outstanding shall be due and payable as set forth in the Credit Agreement.
This Revolving Note is executed by the Maker and is referred to in,
governed by, and entitled to the benefits of, the Credit Agreement dated as of
February ____, 1997, between the Maker and The Frost National Bank (as amended,
restated, supplemented, renewed, extended or otherwise modified from time to
time, "Credit Agreement"), to which reference is made for all relevant intents
and purposes, including for a statement of the rights and obligations of the
Bank and the duties and obligations of the Maker in relation thereto, including
scheduled payments and mandatory and voluntary prepayments hereof, interest rate
and amount limitations and the acceleration of the maturity hereof. However,
neither the foregoing reference to the Credit Agreement nor to any provision
thereof or referred to therein, shall affect or impair the irrevocable, absolute
and unconditional obligation of the Maker to pay principal of, and interest on,
this Note when due. Unless the maturity of this Note shall have sooner occurred,
the outstanding principal balance of this Note and all accrued and unpaid
interest thereon shall be finally and fully payable on February ____, 1999.
The date, amount and interest rate of the Loan made by the Bank to the
Maker, and each payment made on account of the principal thereof, and accrued
interest thereon, shall be recorded by the Bank on its books and prior to any
transfer of this Note, endorsed by the Bank on a schedule attached hereto or any
continuation thereof. The Bank's failure to make or error in making any such
recordations or endorsements shall not diminish, reduce or relieve the Maker's
obligation to pay (i) all Loans made by the Bank to the Maker and then
outstanding and (ii) all accrued and earned interest on the amounts thereof from
time to time outstanding and unpaid, pursuant to this Note.
The Maker and all sureties, endorsers, guarantors and other Persons ever
liable for the payment of any sums payable on this Note, jointly and severally,
waive notice, demand, notice of
EXHIBIT D
<PAGE>
presentment, presentment, presentment for payment, demand for payment,
non-payment, notice of dishonor, dishonor, NOTICE OF INTENT TO ACCELERATE
MATURITY, NOTICE OF ACCELERATION OF MATURITY, notice of intent to demand,
protest, notice of protest, grace and all formalities and other notices of any
and every kind, and filing of suit or diligence in collecting this Note or
enforcing(in whole or part) any security or guaranty now or hereafter for the
payment of this Note, and consent and agree to any partial or full substitution,
exchange or release of any such security or guaranty or the partial or full
release of any Person primarily or secondarily liable hereon, and consent and
agree that it will not be necessary for any holder hereof, in order to enforce
payment by it of this Note to first institute suit or exhaust its remedies
against the Maker or any other Persons liable herefor, or to enforce it rights
against any such security herefor or guarantor or any other Person with respect
hereto, and consent to any or all extensions, increases or renewals or
postponements, modifications or rearrangements of time or payment of this Note
or any other indulgence with respect hereto, without notice thereof to, or
consent thereto from, any of them.
This Note is subject to the terms of the Credit Agreement and the
Assignment and Assumption Agreement attached as Exhibit H thereto. Except as
provided by Section 8.7 of the Credit Agreement, this Note may not be assigned
by the Bank to any Person.
This Note (including its validity, enforceability and interpretation)
shall be governed by, and construed in accordance with, the laws of the State of
Texas (without regard to conflict of law principles) and, to the extent
controlling, the federal laws of the USA.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
DAWSON PRODUCTION SERVICES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
2
<PAGE>
Exhibit E
<PAGE>
GUARANTY AGREEMENT
DATE: FEBRUARY _____, 1997
GUARANTOR: TAYLOR COMPANIES, INC., a Texas corporation, DAWSON PRODUCTION
SERVICES DE MEXICO, S.A., a corporation organized under the laws of
the Estados Unidos de Mexico, DAWSON PRODUCTION PARTNERS, L.P., a
Delaware limited partnership, DAWSON PRODUCTION MANAGMENT, INC., a
Delaware corporation, and DAWSON PRODUCTION ACQUISITION CORP., a
Delaware corporation, JOINTLY AND SEVERALLY (collectively, the
"Guarantor")
GUARANTOR'S ADDRESS FOR NOTICE: 901 N.E. LOOP 410, SUITE 700
SAN ANTONIO, TEXAS 78209
LENDER: THE FROST NATIONAL BANK
LENDER'S ADDRESS: 100 WEST HOUSTON STREET
SAN ANTONIO, TEXAS 78205
BORROWER: DAWSON PRODUCTION SERVICES, INC., a Texas corporation
NOTE: That certain Revolving Note of even date herewith, in the principal amount
of $50,000,000.00, executed by Borrower, and payable to the order of Lender as
therein provided, and any other Revolving Note issued to a "Purchaser" pursuant
to the terms of that certain Credit Agreement of even date herewith (the "Credit
Agreement"), executed by and between Borrower and Lender.
LOAN DOCUMENTS: The Credit Agreement; the Security Agreements of even date
herewith, executed by Borrower, the Guarantor and Lender, and all other security
agreements, assignments, and other documents executed by Borrower for the
benefit of Lender to secure the Note creating a lien and security interest
against the personal property described therein (the"Collateral"); any other
Guaranty Agreements or surety agreements executed in favor of Lender and
guaranteeing the Note; and any other loan agreement or other agreement,
document, or instrument executed by Borrower or any Guarantor in connection with
the loan evidenced by the Note.
1. STATEMENT OF GUARANTY. For valuable consideration, the receipt and
sufficiency of which Guarantor acknowledges, Guarantor hereby jointly,
severally, absolutely, irrevocably, and unconditionally guarantees to Lender the
prompt payment and performance of the following (collectively, the
"Indebtedness"): (a) any and all sums becoming due and payable pursuant to the
Note, including without limitation any and all interest thereon (other than such
interest as may be in excess of the maximum lawful amount), late charges, and
costs of collection (including reasonable attorney's fees); (b) any and all
obligations, warranties, representations, covenants and agreements made by
Borrower in connection with the Loan Documents; (c) all other sums and
indebtedness described in or secured by the Loan Documents; (d) any and all
other sums becoming due and payable by Borrower to Lender as a result of
advances made by Lender pursuant to the terms of the Loan Documents, including
without limitation the repayment of any future advances made by Lender to
Borrower and the repayment of any sums advanced for the protection of Lender's
security pursuant to the Loan Documents; and (e) any and all renewals,
extensions, replacements, rearrangements, substitutions, or modifications of all
or any part of the Indebtedness.
EXHIBIT E
<PAGE>
2. NATURE OF GUARANTY. Guarantor agrees that this Guaranty is an
absolute, complete, continuing, unconditional and irrevocable guaranty of
payment and performance of the Indebtedness.
3. RENEWALS AND EXTENSIONS. This Guaranty applies to, and the
Indebtedness shall additionally mean and refer to, any and all renewals,
extensions, modifications, alterations, refinancings and rearrangements of all
or any part of the Indebtedness.
4. BENEFITS TO GUARANTOR. Guarantor acknowledges, warrants and
represents to Lender that Guarantor will derive or expects to derive financial
and other benefits, directly or indirectly, from the Indebtedness and from each
and every renewal, extension, modification, alteration, refinancing,
rearrangement, release of collateral or other relinquishment of legal rights
made or granted or to be made or granted by Lender to Borrower. If Guarantor is
a corporation, Guarantor additionally acknowledges, warrants and represents to
Lender that this Guaranty may be expected to benefit Guarantor, directly or
indirectly, and that the board of directors (if applicable) of Guarantor has
adopted appropriate resolutions so certifying.
5. INDUCEMENT TO LENDER. Guarantor acknowledges that this Guaranty is
given to induce Lender to extend credit to Borrower which would not be extended
except in reliance upon this Guaranty.
6. TERMS OF GUARANTY AND INDEBTEDNESS. This Guaranty contains the entire
agreement between Guarantor and Lender with respect to Guarantor's guarantee of
the Indebtedness; provided, however, this Guaranty is in addition to and does
not replace, cancel, modify, impair, or affect any other guaranty executed by
Guarantor and now or hereafter held by Lender that relates to Borrower or any
other person or entity. No representations or agreements have been made by
Lender to Guarantor except as contained in this Guaranty. Guarantor has read and
understands the implications of this Guaranty. Guarantor agrees to the terms,
provisions and conditions of the Note, the Loan Documents which may have been or
may hereafter be executed by Borrower or other persons evidencing, securing or
in connection with the Indebtedness or any part thereof, and agrees that
Guarantor's liability shall in no manner be affected, impaired or released by
reason of any term, provision or condition of the Note, the Loan Documents or
loan agreement or by the failure, refusal or omission of Lender to enforce or
observe any of same or by any action taken or omitted to be taken by Lender
pursuant thereto or in connection therewith.
7. PAYMENT BY GUARANTOR. In each event that all or any portion of the
Indebtedness shall become due and remain unpaid (however the maturity may have
occurred), Guarantor will, upon demand, pay the amount due to Lender (other than
any interest as may be in excess of the Maximum lawful amount), without notice
having been given to Guarantor previous to such demand of the acceptance by
Lender of this Guaranty or of the creating or incurring of such indebtedness.
Guarantor specifically agrees that it shall not be necessary or required in
order to enforce any obligations under this Guaranty that Lender has made demand
for payment upon Borrower or any other person liable on the Indebtedness for
payment thereof or has presented same for payment by Borrower or any other
person liable thereon or has made protest thereof or has given notice to
Borrower or any other party liable thereon of the maturity or nonpayment of the
Indebtedness. All amounts becoming payable by Guarantor to Lender under this
Guaranty shall be payable at Lender's Address stated above, or at such other
address as directed by Lender in written notice to Guarantor. All payments made
upon the Indebtedness at any time shall be deemed to have been paid by Borrower
unless express notice in writing is given to Lender at the time of payment by
Guarantor that Lender has been paid by Guarantor.
Page 2
<PAGE>
8. SUIT ON GUARANTY. Suit may be brought by Lender against Guarantor
alone, or jointly and severally against Guarantor and any one or more other
guarantors of the Indebtedness, without impairing the rights of Lender against
Borrower or other guarantors of the Indebtedness.
9. COSTS OF COLLECTION. Guarantor agrees to pay all costs of collection,
including attorney's fees and expense, if this Guaranty is placed in the hands
of an attorney for collection or is collected through any court.
10. WAIVER BY GUARANTOR. Guarantor specifically waives any notice of
acceptance of this Guaranty by Lender and of the creation, advancement,
increase, existence, renewal, extension, modification, refinancing or
rearrangement of the Indebtedness, or any indulgence with respect to the
Indebtedness, or any part thereof, and of nonpayment thereof or default thereon.
Guarantor waives grace, demand, protest, presentment, and notice of intent to
accelerate the maturity of the Indebtedness, notice of acceleration of the
maturity of the Indebtedness, demand, protest, or presentment with respect to
the Indebtedness, and Guarantor waives notice of the amount of the Indebtedness
outstanding at any time. Guarantor agrees that the maturity of the Indebtedness,
or any part thereof, may be accelerated, renewed, extended, modified,
refinanced, rearranged or any other indulgence may be granted with respect
thereto by Lender at its will or as may be agreeably Borrower without notice to
or further consent by Guarantor at any time. Guarantor agrees that Guarantor
shall not be considered a "Debtor" as defined in Section 9.105 of the Texas
Business and Commerce Code or Section 51.002 of the Texas Property Code.
11. GUARANTOR'S DIRECT LIABILITY. Lender shall not be required, before
or as a condition of enforcing the liability of Guarantor under this Guaranty,
or requiring payment of the Indebtedness by Guarantor hereunder, or at any time
thereafter, to do any of the following:
(a) proceed to obtain or assert a claim for personal judgment
against Borrower for the Indebtedness or make any effort at collection
of the Indebtedness from Borrower;
(b) foreclose against or seek to realize upon the Collateral or
any security now or hereafter existing for the Indebtedness;
(c) file suit or proceed to obtain or assert a claim for
personal judgment against any other party (including any maker,
guarantor, endorser or surety) liable for the Indebtedness or make any
effort at collection of the Indebtedness from any such other party;
(d) exercise or assert any other right or remedy to which Lender
is or may be entitled in connection with the Indebtedness or any
security or other guaranty therefor;
(e) assert or file any claim against the assets or estate of
Borrower or other person liable for the Indebtedness, or any part
thereof;
(f) take any action against Borrower or any other person, to
exhaust its remedies against endorsers, the Collateral or other
collateral or security, or to resort to any balance of any deposit
account or credit on the books of Lender in favor of Borrower or any
other person; or
(g) pursue any other remedies Lender may have in connection with
the Indebtedness.
12. OBLIGATIONS NOT IMPAIRED. Guarantor's obligations under this
Guaranty shall not be released, diminished, impaired, reduced, or adversely
affected, and Guarantor waives any common
Page 3
<PAGE>
law, equitable, statutory or other rights that Guarantor might otherwise have,
as a result of any of the following:
(a) any full or partial release of the liability of Borrower,
any other guarantor of the Indebtedness, or any other person primarily
or secondarily liable on the Indebtedness, or any part thereof
(including any maker, endorser, guarantor or surety), whether such
liability is direct or indirect, joint, several, or joint and several,
it being recognized, acknowledged and agreed that Guarantor may be
required to pay the Indebtedness in full without assistance of any other
party, and Guarantor has not been induced to enter into this Guaranty on
the basis of an understanding or agreement that other parties will at
all times be liable to pay the Indebtedness, or that Lender will look to
other parties to pay the Indebtedness; provided, however, nothing in
this Guaranty shall waive or release, either expressly or impliedly, any
rights of subrogation, reimbursement or contribution that Guarantor may
have, after payment in full of the Indebtedness, against others liable
under the Indebtedness, but Guarantor's rights of subrogation,
reimbursement and contribution are secondary, subordinate and inferior
to the rights and claims of Lender;
(b) the voluntary or involuntary liquidation, sale or other
disposition of all or substantially all of the assets of Borrower, or
any receivership, insolvency, bankruptcy, reorganization or other
similar proceedings affecting Borrower or any of its assets;
(c) any impairment, modification, release or limitation of
liability of Borrower, or stay of foreclosure or other lien enforcement
proceedings against Borrower, or Borrower's property, or Borrower's
estate in bankruptcy, or any modification, discharge or extension of the
Indebtedness resulting from the operation of any present or future
provision of the Federal Bankruptcy Code or other bankruptcy laws, or
from the decision of any court, it being recognized, acknowledged and
agreed that Guarantor shall remain liable on the Indebtedness,
notwithstanding any act, omission or thing which might, but for the
provisions hereof, otherwise operate as a legal or equitable discharge
of Guarantor;
(d) any release of, subordination of, or substitution of any
security or other guaranty now or hereafter held by Lender for payment
of the Indebtedness, or of any part thereof;
(e) Lender's failure to use diligence or care in preserving the
liability of any person on the Indebtedness, or in bringing suit to
enforce collection of the Indebtedness;
(f) the addition of another guarantor or guarantors of the
Indebtedness;
(g) the substitution or withdrawal of collateral or release of
security;
(h) any renewal, extension, modification, alteration,
refinancing or rearrangement of or any other indulgence with respect to
the Indebtedness, or any part thereof;
(i) the exercise, failure to exercise, delay, omission or lack
of diligence or care by Lender in exercising any right or power
conferred upon Lender in this Guaranty, the Note, the Security
Agreement, or any Loan Document evidencing, securing or relating to the
Note or by law or in equity;
(j) Borrower's not being liable for the Indebtedness because the
act of creating the Indebtedness is ultra vires, or the officers or
persons creating the Indebtedness acted in
Page 4
<PAGE>
excess of their authority, or for any reason the Indebtedness cannot be
enforced against Borrower;
(k) any payment by Borrower to Lender if such payment is held to
constitute a preference under the Federal Bankruptcy Code or other
bankruptcy laws, or if for any other reason Lender is required to refund
such payment to Borrower or pay the amount thereof to any other party;
(l) Guarantor's being or becoming liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than
under this Guaranty; or
(m) the invalidity, illegality or unenforceability of all or any
part of the Indebtedness, for any reason whatsoever, including without
limitation the fact that the Note or other Loan Documents pertaining to
the Indebtedness have been forged or otherwise are irregular or not
genuine or authentic.
13. APPLICATION OF PAYMENTS. If Lender should collect or receive any
payments from any person other than Guarantor, or funds which are not
specifically required by law or agreement to be applied to the Indebtedness,
then Lender may, in Lender's sole discretion, apply such payments to any
indebtedness of Borrower other than the Indebtedness. Guarantor agrees that
Lender may apply payments or other funds received by Lender from Borrower, from
any other party obligated on the Indebtedness, from the liquidation of any
collateral now or hereafter securing the Indebtedness, or from any other source,
including without limitation, insurance proceeds and condemnation, to the
Indebtedness in any manner or order as Lender may deem appropriate in its sole
and absolute discretion.
14. COLLECTION OF INDEBTEDNESS. Guarantor expressly waives any right to
the benefit of or to require or control application of any security or the
proceeds of any security now existing or hereafter obtained by Lender as
security for the Indebtedness, or any part thereof, and agrees that Lender shall
have no duty to apply to the Indebtedness any monies, payments or other property
at any time received by or paid to or in the possession of Lender, except as
Lender shall determine in its sole discretion. Guarantor specifically agrees
that Guarantor shall not have any recourse or action against Lender by reason of
any action Lender may take or omit to take in connection with the Indebtedness,
the collection of any sums or amounts herein mentioned, or in connection with
any security for or any other guaranty of the Indebtedness.
15. SUBORDINATION. Guarantor subordinates all indebtedness owing to
Guarantor from Borrower to the Indebtedness. Guarantor further subordinates any
liens or security interest it may have in the collateral or security of Borrower
(or any other party) to the liens and security interests in favor of Lender
securing the Indebtedness. Guarantor agrees not to accept any payments or
satisfaction of any kind of any indebtedness of Borrower to Guarantor. If
Guarantor should receive any such payment or satisfaction for indebtedness of
Borrower to Guarantor in violation of the above terms, Guarantor agrees to
deliver the payment or satisfaction to Lender, and until delivered, Guarantor
agrees to hold the same in trust for Lender.
16. FINANCIAL INFORMATION. Guarantor warrants and represents to Lender
that all financial statements and cash flow statements delivered by or on behalf
of Guarantor prior to the date hereof are true and correct, that there are no
material adverse changes as of the date of This Guaranty, and that the execution
of this Guaranty does not render Guarantor insolvent.
17. NOTICE OF LITIGATION, CLAIMS, AND FINANCIAL CHANGE. Guarantor shall
promptly inform Lender of any litigation against Guarantor or affecting any
security for the Indebtedness which, if
Page 5
<PAGE>
determined adversely, might have a material adverse effect upon the financial
condition of Guarantor or upon such security or might cause a default under any
of the documents evidencing, securing or governing the Indebtedness, any claim
or controversy which might become the subject of litigation, and any material
adverse change in the financial condition of Guarantor.
18. USURY DISCLAIMER. No provision herein or in any promissory note,
security instrument, or any other loan agreement executed by Borrower or
Guarantor evidencing the Indebtedness shall be construed to be or to create a
contract by Guarantor to pay, as consideration for the use, forbearance, or
detention of money, interest in excess of the rate or amount allowed by Law. If
any excess of interest in such respect is provided for herein or in any such
promissory note, security instrument, or any other loan agreement, the
provisions of this Section shall govern, and neither Borrower nor Guarantor
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the amount permitted by applicable law. The intention of the
parties is to conform strictly to the usury laws now in force, and all
promissory notes and Loan Documents executed by Borrower or Guarantor evidencing
the Indebtedness shall be held subject to reduction to the amount allowed under
said usury laws as now or hereafter construed by the courts having jurisdiction.
19. TRANSFERABILITY. This Guaranty is intended for and shall inure to
the benefit of Lender and each and every other person who shall from time to
time be or become the owner or holder of any of the Indebtedness, and each and
every reference herein to Lender shall also include and refer to each and every
successor or assignee of Lender at any time holding or owning any part of or
interest in any part of the Indebtedness. This Guaranty shall be transferable
and negotiable, with the same force and effect and to the same extent that the
Indebtedness is transferable, it being understood and stipulated that upon the
assignment or transfer by Lender of any of the Indebtedness the legal holder or
owner of the Indebtedness (or part thereof or interest therein transferred or
assigned by Lender) shall also, unless provided otherwise by Lender in its
transfer or assignment, have and may exercise all of the rights granted to
Lender under this Guaranty to the extent of the part of or interest in the
Indebtedness assigned or transferred to said person. Guarantor expressly waives
notice of transfer or assignment of the Indebtedness, or any part thereof, or of
the rights of Lender hereunder. Notwithstanding anything in this Section to the
contrary, all Indebtedness to Lender shall be paid in full first, before any
assignee or transferee shall receive any benefits of This Guaranty.
20. INFORMATION CONCERNING GUARANTOR. Guarantor acknowledges and agrees
that Lender may transfer the Indebtedness or partial interests therein to one or
more transferees or participants. Guarantor authorizes Lender to disseminate any
information Lender has pertaining to the Indebtedness, including, without
limitation, credit information on Guarantor, to any such transferee or
participant or prospective transferee or participant.
21. BINDING ON OTHERS. This Guaranty shall be binding upon Guarantor and
Guarantor's heirs, legal representative, personal representatives, executors,
administrators, successors and assigns.
22. MODIFICATION OR CONSENT. No modification, consent or waiver of any
provision of this Guaranty shall be effective unless the modification, consent
or waiver is in writing and signed by an officer of Lender, and then shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on Guarantor in any case shall, of itself, entitle Guarantor
to any other or further notice or demand in similar or other circumstances. No
delay or omission by Lender in exercising any power or right under this Guaranty
shall impair any such right or power or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such power
preclude other or further exercise thereof, or the exercise of any other right
or power under this Guaranty. All rights and remedies of Lender under this
Guaranty are cumulative of each other and of every other right or remedy which
Lender may otherwise have at law or in equity
Page 6
<PAGE>
or under any other contract or document, and the exercise of one or more rights
or remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
23. WAIVER OF CERTAIN STATUTORY PROVISIONS. Guarantor hereby waives all
rights to which Guarantor may be or might otherwise become entitled to with
respect to the provisions of Sections 34.02 and 34.03 of the Texas Business and
Commerce Code, as amended, and agrees that the rights of Guarantor pursuant to
the provisions of Section 34.04 of the Texas Business and Commerce Code, as
amended, shall be subject to, secondary, subordinate and inferior in all
respects to the rights of Lender pursuant to this Guaranty.
24. NOTICES. Any notice or demand to Guarantor may be given and shall
conclusively be deemed and considered to have been given and received upon the
deposit thereof, in writing, in the United States mail, duly stamped and
addressed to Guarantor at Guarantor's Address For Notice stated above, but
actual notice, however given or received, shall always be effective. The last
preceding sentence shall not be construed in any way to affect or impair any
waiver of notice or demand herein provided or to require giving of notice or
demand to or upon Guarantor in any situation or for any reason.
25. GOVERNING LAW AND PLACE OF PERFORMANCE. GUARANTOR AGREES THAT THIS
GUARANTY IS GOVERNED BY THE LAWS OF THE UNITED STATES AND THE STATE OF TEXAS.
This Guaranty is performable in Bexar County, Texas, and Guarantor hereby waives
the right to be sued elsewhere.
26. HEADINGS. Section headings of this Guaranty are inserted for
convenience of reference only, and shall not alter, define, or be used in
construing the text of such sections.
27. PRONOUNS. As used herein and when required by the context, each
number (singular and plural) shall include all numbers, and each gender shall
include all genders, and unless the context otherwise requires the word "person"
or "party" shall include "person, corporation, firm, partnership or
association".
28. NOTICE OF INVALIDITY OF ORAL AGREEMENTS. THIS WRITTEN AGREEMENT
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.
GUARANTOR:
TAYLOR COMPANIES, INC.
By:_________________________________________
Its:________________________________________
DAWSON PRODUCTION SERVICES DE MEXICO, S.A.
By:_________________________________________
Its:________________________________________
Page 7
<PAGE>
DAWSON PRODUCTION MANAGEMENT, INC.
By:_________________________________________
Its:________________________________________
DAWSON PRODUCTION PARTNERS, L.P.
By Its General Partner,
DAWSON PRODUCTION MANAGEMENT, INC.
By:_________________________________________
Its:________________________________________
DAWSON PRODUCTION ACQUISITION, CORP.
By:_________________________________________
Its:________________________________________
THE STATE OF TEXAS ss.
COUNTY OF ________________ ss.
The foregoing instrument was acknowledged before me on this _____ day of
February, 1997, by ______________________________________,
_____________________________ of TAYLOR COMPANIES, INC., a Texas corporation, on
behalf of said corporation.
---------------------------------
Notary Public in and for the
State of Texas
My commission expires:_______________
Page 8
<PAGE>
THE STATE OF TEXAS ss.
COUNTY OF ________________ ss.
The foregoing instrument was acknowledged before me on this _____ day of
February, 1997, by ______________________________________,
_____________________________ of DAWSON PRODUCTION SERVICES DE MEXICO, S.A., a
corporation organized under the laws of the Estados Unidos de Mexico, on behalf
of said corporation.
---------------------------------
Notary Public in and for the
State of Texas
My commission expires:_______________
THE STATE OF TEXAS ss.
COUNTY OF ________________ ss.
The foregoing instrument was acknowledged before me on this _____ day of
February, 1997, by ______________________________________,
_____________________________ of DAWSON PRODUCTION MANAGEMENT, INC., a Delaware
corporation, on behalf of said corporation.
---------------------------------
Notary Public in and for the
State of Texas
My commission expires:_______________
THE STATE OF TEXAS ss.
COUNTY OF ________________ ss.
The foregoing instrument was acknowledged before me on this _____ day of
February, 1997, by ______________________________________,
_____________________________ of DAWSON PRODUCTION MANAGEMENT, INC., a Delaware
corporation, as General Partner of DAWSON PRODUCTION PARTNERS, L.P., a Delaware
limited partnership, on behalf of said limited partnership.
---------------------------------
Notary Public in and for the
State of Texas
My commission expires:_______________
Page 9
<PAGE>
THE STATE OF TEXAS ss.
COUNTY OF ________________ ss.
The foregoing instrument was acknowledged before me on this _____ day of
February, 1997, by ______________________________________,
_____________________________ of DAWSON PRODUCTION ACQUISITION CORP., a Delaware
corporation, on behalf of said corporation.
---------------------------------
Notary Public in and for the
State of Texas
My commission expires:_______________
Page 10
<PAGE>
Exhibit F
<PAGE>
Draft Dated
02/21/97, 2:42pm
Frost National Bank
400 Frost Bank Tower
100 West Houston Street
San Antonio, Texas 78205
Ladies and Gentlemen:
We have acted as counsel to Dawson Production Services, Inc.
("Borrower") and Taylor Companies, Inc. and Dawson Production Acquisition Corp.,
a Delaware corporation, Taylor Companies, Inc., a Texas corporation, Dawson
Production Partners, L.P., f/k/a Pride Land Operations, L.P., a Delaware limited
partnership, Dawson Production Management, Inc., f/k/a Pride Land GP, Inc., a
Delaware corporation, Dawson Production Services de Mexico, S.A. De C.V., a
Mexican corporation and Mobley Vehicle Acquisition Corp., a Texas corporation
(collectively referred to as "Guarantors") in connection with the preparation,
execution and delivery of the Credit Agreement (the "Credit Agreements) dated as
of February __, 1997 between the Borrower and Frost National Bank ("Lender") and
the transactions contemplated by the Credit Agreement. This opinion is being
furnished to you pursuant to the Credit Agreement. Capitalized terms used herein
without definition have the same meanings as in the Credit Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law. As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the federal Law of the United States and the Law of the State of
Texas (including, to the limited extent provided herein, the Law of the State of
Texas dealing with the legal issues described in the Accord).
1. DOCUMENTS REVIEWED.
1.1 TRANSACTION DOCUMENTS. As counsel to the Borrower, we have reviewed
copies provided to us of the following documents and instruments dated as of
February __, 1997, unless otherwise stated (collectively, the "Transaction
Documents"):
(a) Credit Agreement;
<PAGE>
(b) Revolving Note (the "Note") executed by the Borrower and payable
to the order of Lender;
(c) Security Agreements (the "Security Agreements"), executed by the
Borrower and each of the Guarantors;
(d) Guaranty executed by each of the Guarantors; and
(e) Financing Statements (Form UCC-1) executed by the Borrower and
Guarantors to be filed in the office of the Secretary of State
of Texas, (the "Financing Statement").
2. QUALIFICATIONS OF FACTUAL AND LEGAL EXAMINATIONS.
2.1 FACTUAL MATTERS. We have relied as to certain factual matters solely
on the representations and warranties of the Borrower and Guarantors set forth
in the Transaction Documents and the certificates of officers of Borrower and
Guarantors set forth below and have made no other investigation or inquiry other
than to review the following:
(a) Articles of Incorporation and Bylaws of Borrower and Guarantors.
(b) Certificate of Existence issued by the Secretary of State of
Texas and Certificates of Good Standing issued by the
Comptroller of Public Accounts of Texas with respect to Borrower
and Guarantors.
(c) Unanimous Written Consent of Borrower and Guarantors dated
February ___, 1997, executed by the directors of Borrower and
Guarantors.
(d) Certificate of Incumbency and Resolutions for Borrower and
Guarantors dated February ___, 1997.
2.2 GENERAL QUALIFICATIONS. The General Qualifications are applicable to
the opinions expressed in the Opinion Letter. In addition, the enforceability of
certain of the remedial, waiver, subrogation and other provisions of the
Transaction Documents is further subject to all applicable constitutional,
legislative, judicial and administrative provisions, statutes, decisions, ruling
and other laws; however, such laws do not, in our opinion, substantially
interfere with the practical realization of the benefits expressed in the
Transaction Documents (except for the economic consequences of any procedural
delay which may result from such laws).
2.3 OTHER QUALIFICATIONS. You are hereby notified that (a) we do not
consider you to be our client in the matter to which this opinion relates, (b)
neither the Texas Code of Professional
2
<PAGE>
Responsibility nor current case law clearly articulates the circumstances under
which an attorney may give a legal opinion to a person other than the attorney's
own client, (c) a court might determine that it is improper for us to issue, and
for you to rely upon, a legal opinion issued by us when we have acted as counsel
to the Borrower and Guarantors in connection with the Credit Agreement, and (d)
you may wish to obtain a legal opinion from your own legal counsel as to the
matters addressed in this opinion letter.
3. OPINIONS.
Based upon and subject to the foregoing and the other qualifications and
limitations stated herein, we are of the opinion that:
3.1 ORGANIZATION AND AUTHORITY OF THE BORROWER. The Borrower is duly
organized, validly existing and in good standing as a corporation in the State
of Texas and the execution and delivery of the Transaction Documents to which
the Borrower is a party have been duly authorized by all necessary corporate
action.
3.2 ORGANIZATION AND AUTHORITY OF GUARANTORS. The corporate Guarantors
are duly organized, validly existing and in good standing as corporations under
the laws of the respective jurisdictions of incorporation shown in the Guaranty.
The execution and delivery by corporate Guarantors of the Transaction Documents
to which corporate Guarantors are parties have been duly authorized by all
necessary corporation action. The limited partnership guarantors are duly
organized, validly existing and in good standing as partnerships under the laws
of the respective jurisdictions of formation shown in the Guaranty. The
execution and delivery by the limited partnership Guarantors of the transaction
documents to which the limited partnership Guarantors are parties have been duly
authorized by all necessary partnership action.
3.3 ENFORCEABILITY OF TRANSACTION DOCUMENTS. The Transaction Documents
to which the Borrower is a party are binding upon and enforceable against the
Borrower. The Transaction Documents to which Guarantors are parties are binding
upon and enforceable against Guarantors.
3.4 NO VIOLATION OF LAW. The execution and delivery of the Transaction
Documents to which the Borrower and Guarantors are parties, and the performance
of their respective obligations thereunder do not violate applicable provisions
of statutory law or regulation.
3.5 SECURITY INTERESTS IN PERSONAL PROPERTY. The provisions of the
Security Agreement are effective to create in favor of Lender a valid security
interest in all right, title and interest of the Borrower and Guarantors in that
portion of the Collateral described in each thereof in which a security interest
may be created under Chapter 9 of the Texas Business and Commerce Code (the
"Code"). Upon the filing of the appropriate Financing Statement in the office
of the Secretary of State of Texas, the Security Agreement will constitute a
fully perfected lien on, and security
3
<PAGE>
interest in, all rights, title and interest of the Borrower and Guarantors, as
the case may be, in all of the Collateral described in each thereof in which
Borrower and Guarantors have an interest and in which a security interest may be
perfected by filing financial statements under Chapter 9 of the Code with the
Secretary of State of Texas.
3.6 USURY. The Loan, as reflected in the Transaction Documents, is not
usurious under applicable law.
4. ASSUMPTIONS CONCERNING PERFECTION OF
SECURITY INTERESTS UNDER THE CODE
With respect to the Opinions stated in paragraphs 3.3 and 3.5 above, the
following assumptions are applicable:
4.1 ASSUMPTIONS REGARDING FINANCING STATEMENT. For purposes of this
opinion, we have assumed (i) the accuracy of the name of the record owner of any
property and the description thereof, and (ii) the proper filing of the
Financing Statement in the offices in which it is to be filed.
4.2 ASSUMPTIONS CONCERNING COLLATERAL. We have also assumed that (i) the
Borrower and Guarantors, as the case may be, have good and sufficient title to
the collateral, (ii) the Borrower and Guarantors, as the case may be, have
"rights in the collateral" as that term is used in Section 9.203 of the Code,
(iii) value has been given within the meaning of Section 9.203 of the Code, and
(iv) the chief executive office of the Borrower and Guarantors is located at 901
N.E. Loop 410, Suite 700, San Antonio, Texas 78209-1306.
5. QUALIFICATIONS TO OPINIONS REGARDING PERFECTION OF
SECURITY INTERESTS UNDER CHAPTER 9 OF THE CODE
With respect to the opinions stated in paragraphs 3.3 and 3.5 above, the
Opinions concerning the security interests of Lender in the collateral are
qualified as follows:
5.1 EXCLUSIONS. We express no opinion regarding the accuracy or
completeness of any property descriptions contained in the Transaction Documents
or the title to any assets pledged to Lender by Borrower and Guarantors.
5.2 OTHER QUALIFICATIONS.
(a) The continuation of any security interest and perfection of any
security interest in collateral consisting of proceeds is limited to the extent
set forth in Section 9.306 of the Code;
4
<PAGE>
(b) Continuation statements complying with the Code must be filed with
the filing offices in which each financing statement was filed not more than six
months prior to the expiration of a five year period dating from the date of
filing of the financing statement (or otherwise within the time permitted by
Section 9.403 and the Code) and subsequent continuation statements must be filed
within six months prior to the end of each subsequent five year period and
amendments or supplements to the financing statements and or additional
financing statements may be required to be filed in the event of a change of
name, identity or organizational structure of the debtor or if the debtor
changes the jurisdiction of its place of business (or, if it has more than one
place of business its chief executive office) or the jurisdiction in which
collateral is located;
(c) In the case of property which becomes collateral after the date
hereof, Section 552 of the Federal Bankruptcy Code limits the extent to which
property acquired by a debtor after the commencement of a case under the Federal
Bankruptcy Code may be subject to a security interest arising from the security
agreement entered into by the debtor before the commencement of the case;
(d) We express no opinion as to the priority of any security interest.
(e) The enforceability of the Transaction Documents may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
similar laws effecting the enforcement of creditors' rights generally; (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity); (iii) matters of public policy;
(iv) the rights of the United States under the Federal Tax Lien Act of 1966, as
amended; and (v) other applicable laws and procedures which may affect the
remedies provided therein, but which do not, in our judgment, make such remedies
as a whole inadequate for the practical realization of the rights and benefits
provided thereby, although they may result in delays thereof (and we express no
opinion as to the economic consequences, if any, of any such delays).
(f) Provisions of the Transaction Documents which permit the Bank to
take action or make determinations may be subject to a requirement that such
action be taken or such determinations be made on a reasonable basis and in good
faith.
(g) Further, the opinions expressed herein are based on statutory law
and judicial decisions that are controlling on the date of this letter, and we
do not assume any responsibility to advise you of any future changes in our
opinions which may result from statutory enactments, court or administrative
decisions, or other governmental promulgations occurring after the date of this
opinion letter.
5.3 LENDER'S ACTIONS. We express no opinion as to the perfection of the
security interest in any Collateral to the extent Lender consented to any
security interest in favor of any
5
<PAGE>
other party or has authorized the disposition of any Collateral or released or
subordinated Lender's security interest therein.
5.4 LIMITED TO TRANSACTION DOCUMENTS. Our Opinions concerning the
creation and perfection of the security interest in the Collateral are in all
cases limited to the obligations under the Transaction Documents and such future
advances as are made thereunder in accordance with the terms of the Transaction
Documents; no Opinion is expressed as to the effectiveness of the Transaction
Documents to grant and create a security interest with respect to any
indebtedness other than that created by borrowings under the Transaction
Documents.
5.5 AFTER ACQUIRED PROPERTY. Our opinion with respect to the perfection
of any security interest in documents, instruments and goods in which the
Borrower and Guarantors acquire rights after the date hereof is limited to
property (a) which is located in Texas when the Borrower and Guarantors acquire
rights therein or (b) in which Lender has a purchase money security interest and
(i) which Lender, Borrower and Guarantors understand, at the time the Borrower
and Guarantors acquire rights therein, will be kept in Texas and (ii) which
arrives in Texas within thirty days after the Lender receives possession
thereof.
6. QUALIFICATIONS AND ASSUMPTIONS REGARDING OPINION REGARDING USURY.
The Opinions stated in paragraphs 3.3 and 3.6 above are qualified as
follows:
6.1 Transaction Documents. Our opinions in paragraphs 3.3 and 3.6 above
deal only with the issue of whether Lender has contracted for usurious interest
as reflected by the Transaction Documents. We express no opinion as to whether
Lender may charge or receive usurious interest after the date of execution of
the Transaction Documents. Lender must observe any limitations contained in the
Transactions Documents on the amount of interest which it can charge or receive.
6.2 COMMITMENT FEE/LOAN FEE. A court could determine that the
compensation designated as a "commitment fee" or as a "loan fee" in the Credit
Agreement should instead be characterized as interest on the Loan or should be
construed as reducing the amount of principal available to the Borrower under
the Loan and we have assumed that such characterization or construction would
not cause the Loan to be usurious.
6.3 OTHER CHARGES. In HARDWICK V. AUSTIN GALLERY OF ORIENTAL RUGS. INC.,
779 S.W.2d 438 (Text App. -- Austin 1989, writ ref'd), the court held that a
charge of interest in excess of the interest which the maker of the note agreed
to pay was usurious even though the total interest charged on the note was below
the statutory limit. The court based its holding on the conclusion that any
amount of interest charged over the interest provided for in the note was
automatically usurious under Texas law. While the holding in HARDWICK appears to
be contrary to prior law and
6
<PAGE>
also appears to render the spreading doctrine and statute ineffective with
respect to unilateral charges, the Supreme Court of Texas refused to hear an
appeal of the (lower) appellate court's decision. Accordingly, present case law
provides no clear guidance for predicting the enforceability of such spreading
doctrine and statute and, thus, we are expressing no opinion herein as to (a)
the effect of the HARDWICK decision on the Transaction Documents, (b) whether
the spreading provisions of the Transactions Documents are enforceable in the
context of the facts addressed in HARDWICK, and (c) whether a fact scenario
under the Loan similar to that presented in HARDWICK would render the Loan
usurious.
This Opinion Letter may be relied upon by you only in connection with
the Transaction and may not be used or relied upon by you or any other person
for any purpose whatsoever, except to the extent authorized in the Accord,
without in each instance our prior written consent.
Very truly yours,
JENKENS & GILCHRIST,
A Professional Corporation
By: ________________________
Authorized Signatory
By: ________________________
Authorized Signatory
7
<PAGE>
Exhibit G
<PAGE>
INITIAL AND QUARTERLY
COMPLIANCE CERTIFICATE
FOR USE ON OR BEFORE MARCH 31, 1998
TO: THE FROST NATIONAL BANK, as the Bank under the Credit Agreement dated as of
____________, 1997 (including any amendments or modifications thereof, the
"Credit Agreement"), between Dawson Production Services, Inc., a _______________
corporation ("Borrower") and the FROST NATIONAL BANK, a national banking
association. Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings in this Compliance Certificate.
This Compliance Certificate is delivered pursuant to Section 5.1(g) of
the Credit Agreement and relates to the Companies' compliance with the covenants
set forth in Section 6.1 of the Credit Agreement. This Compliance Certificate
contains "short-hand" descriptions of such covenants. The precise descriptions
of such covenants, including defined terms used in connection therewith, are
more fully set forth in the Credit Agreement, which shall control to the extent
of any inconsistency with the "short-hand" descriptions used herein.
This Initial and Quarterly Compliance Certificate is prepared on a pro
forma basis to give effect to (i) the Companies' acquisition of all partnership
interests in Pride Land Operations, L.P., a Delaware limited partnership, (ii)
the Companies' acquisition of all issued and outstanding capital stock of Taylor
Companies, Inc., a Texas corporation, and (iii) the Borrower's sale of
$140,000,000.00 of 9-3/8% senior notes and 4,689,773 shares of common stock, as
if each of "(i)" through "(iii)" had occurred at the beginning of the period
represented.
1. The Companies are in compliance with the covenants set forth in
Section 6.1 of the Credit Agreement for the Fiscal Quarter or Fiscal Year ended
____________, ______ (the "Determination Date"):
SECTION 6.1(A): CURRENT RATIO(COMPANIES) AS OF
DETERMINATION DATE:
(1) current assets (GAAP) of the Companies
determined on a consolidated basis $____________
(2) current liabilities (GAAP) of the Companies
determined on a consolidated basis $____________
RATIO: (1) to (2) ____ to _____
MINIMUM RATIO: 1.50 to 1.00
SECTION 6.1(B): MINIMUM TANGIBLE NET WORTH (COMPANIES)
AS OF DETERMINATION DATE:
(1) net worth (GAAP)of the Companies determined
on a consolidated basis $____________
EXHIBIT G-1
<PAGE>
(2) subordinated debt $____________
(3) value of intangible assets of the Companies $____________
(1) plus (2) minus (3) $____________
MINIMUM REQUIRED: $50,000,000
SECTION 6.1(C): TOTAL LIABILITIES, LESS SUBORDINATED DEBT,
TO CONSOLIDATED NET WORTH AS OF
DETERMINATION DATE:
(1) total liabilities $____________
(2) subordinated debt $____________
(3) total senior liabilities: (1) MINUS (2) $____________
(4) Tangible Net Worth of the Companies
on a consolidated basis $____________
RATIO: (3) to (4) _____ to ____
MAXIMUM RATIO: 3.00 to 1.00
SECTION 6.1(D): TOTAL FUNDED DEBT TO EBITDA FOR THE FOUR
FISCAL QUARTERS ENDED AS OF THE
DETERMINATION DATE:
(1) unpaid principal balance of Notes $____________
(2) unpaid principal amount of other
borrowed-money Indebtedness of any
Company determined on a consolidated
basis $____________
(3) TOTAL FUNDED DEBT: (1) PLUS (2) $____________
(4) net income of the Companies determined on a
consolidated basis (GMP) $____________
(5) interest expense with respect to Loans $____________
2
<PAGE>
(6) interest component of payments under
Capital Lease Obligations $____________
(7) income tax expense $____________
(8) depreciation/amortization expense $____________
(9) EBITDA: sum of (4) through (8) $____________
RATIO: (3) to (9) _____ to ____
MAXIMUM RATIO: 5.50 to 1.00
Do above figures include pro forma adjustments for
Acquisitions? _____NO _____YES
If answer is YES, attach explanation of adjustments.
SECTION 6.1(E): INTEREST/EBITDA RATIO FOR THE FOUR FISCAL
QUARTERS ENDED AS OF THE DETERMINATION DATE:
(1) interest accrued on Total Funded Debt plus
current portion of long term indebtedness of
Borrower, including current portion of
Consolidated Capital Lease Obligations $____________
(2) net income of the Companies determined on a
consolidated basis (GAAP) $____________
(3) interest expense with respect to Loans $____________
(4) interest component of payments under
Capital Lease Obligations $____________
(5) income tax expense $____________
(6) depreciation/amortization expense $____________
(7) EBITDA: sum of (2) through (6) $____________
RATIO: (1) to (7) _____ to ____
MINIMUM RATIO: 1.50 to 1.00
3
<PAGE>
SECTION 6.1(F): WORKING CAPITAL
FOR ANY FISCAL QUARTER DETERMINATION DATE:
(1) current assets of the Companies determined
on a consolidated basis (GAAP), MINUS
(2) consolidated current liabilities of the
Companies (GAAP) $______________
MINIMUM AMOUNT: $10,000,000.00
SECTION 6.1(G): CAPITAL EXPENDITURES
FOR FISCAL YEAR ENDING MARCH 31, 1996 OR THEREAFTER:
capital expenditures of the Companies determined
on a consolidated basis (GAAP) $______________
MAXIMUM AMOUNT: $15,000,000.00
2. Borrower hereby certifies, warrants and represents to the Bank
as follows:
(a) the representations and warranties contained and referred to
in Article 4 of the Credit Agreement (other than those by their
terms limited to a specific date) are true and correct in all
material respects as of the date hereof, with the same force and
effect as though made on and as of the date hereof and thereof;
(b) no event has occurred since the date of the most recent
financial statements delivered pursuant to Section 5.1 of the
Credit Agreement (or if this Borrowing request precedes the
delivery of such financial statements, ____________, 1997) that
has caused a Material Adverse Effect;
(c) as of the date hereof, there does not exist any Default or
Event of Default; and
(d) as of the date hereof, no change or event has occurred that
might cause a Material Adverse Effect.
3. The undersigned certifies that he/she is the [president] [chief
financial officer] of Borrower, and that as such he/she is familiar with the
terms of the Credit Agreement, has knowledge of all information required to
deliver this certificate and is authorized to execute this certificate on behalf
of Borrower.
DATED: _________________________, 19___.
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DAWSON PRODUCTION SERVICES, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
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QUARTERLY COMPLIANCE CERTIFICATE
FOR USE AFTER MARCH 31, 1998
TO: THE FROST NATIONAL BANK, as the Bank under the Credit Agreement dated as
of ____________, 1997 (including any amendments or modifications
thereof, the "Credit Agreement"), between Dawson Production Services,
Inc., a _______________ corporation ("Borrower") and THE FROST NATIONAL
BANK, a national banking association. Unless otherwise defined herein,
terms defined in the Credit Agreement shall have the same meanings in
this Compliance Certificate.
This Compliance Certificate is delivered pursuant to Section 5.1(g) of
the Credit Agreement and relates to the Companies' compliance with the covenants
set forth in Section 6.1 of the Credit Agreement. This Compliance Certificate
contains "short-hand" descriptions of such covenants. The precise descriptions
of such covenants, including defined terms used in connection therewith, are
more fully set forth in the Credit Agreement, which shall control to the extent
of any inconsistency with the "short-hand" descriptions used herein.
1. The Companies are in compliance with the covenants set forth in
Section 6.1 of the Credit Agreement for the Fiscal Quarter or Fiscal Year ended
____________, ______ (the "Determination Date"):
SECTION 6.1(A): CURRENT RATIO(COMPANIES) AS OF
DETERMINATION DATE:
(1) current assets (GAAP) of the Companies
determined on a consolidated basis $____________
(2) current liabilities (GAAP) of the Companies
determined on a consolidated basis $____________
RATIO: (1) to (2) ____ to _____
MINIMUM RATIO: 1.50 to 1.00
SECTION 6.1(B): MINIMUM TANGIBLE NET WORTH (COMPANIES)
AS OF DETERMINATION DATE:
(1) net worth (GAAP)of the Companies determined
on a consolidated basis $____________
(2) subordinated debt $____________
(3) value of intangible assets of the Companies $____________
(1) plus (2) minus (3) $____________
MINIMUM REQUIRED: $50,000,000
EXHIBIT G-2
<PAGE>
SECTION 6.1(C): TOTAL LIABILITIES, LESS SUBORDINATED DEBT,
TO CONSOLIDATED NET WORTH AS OF
DETERMINATION DATE:
(1) total liabilities $_____________
(2) subordinated debt $_____________
(3) total senior liabilities: (1) MINUS (2) $_____________
(4) Tangible Net Worth of the Companies
on a consolidated basis $_____________
RATIO: (3) to (4) _____ to _____
MAXIMUM RATIO: 3.00 to 1.00
SECTION 6.1(D): TOTAL FUNDED DEBT TO EBITDA FOR THE FOUR
FISCAL QUARTERS ENDED AS OF THE
DETERMINATION DATE:
(1) unpaid principal balance of Notes $____________
(2) unpaid principal amount of other
borrowed-money Indebtedness of any
Company determined on a consolidated
basis $____________
(3) TOTAL FUNDED DEBT: (1) PLUS (2) $____________
(4) net income of the Companies determined on a
consolidated basis (GMP) $____________
(5) interest expense with respect to Loans $____________
(6) interest component of payments under
Capital Lease Obligations $____________
(7) income tax expense $____________
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(8) depreciation/amortization expense $____________
(9) EBITDA: sum of (4) through (8) $____________
RATIO: (3) to (9) _____ to ____
MAXIMUM RATIO: 5.00 to 1.00
Do above figures include pro forma adjustments for
Acquisitions? _____NO _____YES
If answer is YES, attach explanation of adjustments.
SECTION 6.1(E): INTEREST/EBITDA RATIO FOR THE FOUR FISCAL
QUARTERS ENDED AS OF THE DETERMINATION DATE:
(1) interest accrued on Total Funded Debt plus current portion of
long term indebtedness of Borrower, including current portion of
Consolidated Capital
Lease Obligations $____________
(2) net income of the Companies determined on a
consolidated basis (GAAP) $____________
(3) interest expense with respect to Loans $____________
(4) interest component of payments under
Capital Lease Obligations $____________
(5) income tax expense $____________
(6) depreciation/amortization expense $____________
(7) EBITDA: sum of (2) through (6) $____________
RATIO: (1) to (7) _____ to ____
MINIMUM RATIO: 1.50 to 1.00
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SECTION 6.1(F): WORKING CAPITAL
FOR ANY FISCAL QUARTER DETERMINATION DATE:
(1) current assets of the Companies determined
on a consolidated basis (GAAP), MINUS
(2) consolidated current liabilities of the
Companies (GAAP) $______________
MINIMUM AMOUNT: $10,000,000.00
SECTION 6.1(G): CAPITAL EXPENDITURES
FOR FISCAL YEAR ENDING MARCH 31, 1996 OR THEREAFTER:
capital expenditures of the Companies determined
on a consolidated basis (GAAP) $______________
MAXIMUM AMOUNT: $15,000,000.00
2. Borrower hereby certifies, warrants and represents to the Bank
as follows:
(a) the representations and warranties contained and referred to
in Article 4 of the Credit Agreement (other than those by their
terms limited to a specific date) are true and correct in all
material respects as of the date hereof, with the same force and
effect as though made on and as of the date hereof and thereof;
(b) no event has occurred since the date of the most recent
financial statements delivered pursuant to Section 5.1 of the
Credit Agreement (or if this Borrowing request precedes the
delivery of such financial statements, ____________, 1997) that
has caused a Material Adverse Effect;
(c) as of the date hereof, there does not exist any Default or
Event of Default; and
(d) as of the date hereof, no change or event has occurred that
might cause a Material Adverse Effect.
3. The undersigned certifies that he/she is the [president] [chief
financial officer] of Borrower, and that as such he/she is familiar with the
terms of the Credit Agreement, has knowledge of all information required to
deliver this certificate and is authorized to execute this certificate on behalf
of Borrower.
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DATED: _________________________, 19___.
DAWSON PRODUCTION SERVICES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
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Exhibit H
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made and entered into as of
the ______ day of February, 1997, by and between THE FROST NATIONAL BANK, a
national banking association (the "Transferor/Agent"), with its principal office
at 100 West Houston Street, San Antonio, Texas 78205, and FIRST SECURITY BANK OF
NEW MEXICO, N.A., a national banking association (the "Transferee"), with its
principal office at 40 First Plaza, N.W., Albuquerque, New Mexico 87103,
W I T N E S S E T H:
WHEREAS, Transferor/Agent and Transferee have committed to make
available to Dawson Production Services, Inc., a Texas corporation (the
"Borrower"), a revolving credit facility (the "Loans") in the principal amount
of up to $50,000,000.00, pursuant to the terms of that certain Credit Agreement
dated as of February _____, 1997 (the "Credit Agreement"), between the Borrower
and the Transferor/Agent, for the purposes of (i) supporting Accounts Receivable
of the Borrower and its Subsidiaries, (ii) funding Letters of Credit for up to
$10,000,000.00 for the Borrower and its Subsidiaries, and (iii) providing for
certain working capital needs of the Borrower and its Subsidiaries; and
WHEREAS, unless otherwise defined in this Agreement, capitalized terms
used herein shall have the meanings assigned to such terms in the Credit
Agreement; and
WHEREAS, the Loans will be evidenced by Notes secured by all Accounts
Receivable of the Borrower and its Subsidiaries and Guaranties executed by all
Subsidiaries of the Borrower (the Credit Agreement, the Notes, the Security
Agreements, the Guaranty and all other documents pertaining to the Loans are
herein collectively referred to as the "Loan Documents"); and
WHEREAS, in order to properly reflect the joint Commitment and
obligations of the Transferor/Agent and the Transferee, Transferor/Agent desires
to transfer and assign to Transferee a fifty percent (50%) undivided interest in
and to the rights and obligations of the Bank under the Loan Documents, leaving
Transferor/Agent with a fifty percent (50%) undivided interest in and to such
rights and obligations, and Transferee desires to assume its fifty percent (50%)
undivided interest in and to the rights and obligations of the Bank under the
Loan Documents pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises between the parties hereinafter contained, Transferor/Agent and
Transferee hereby covenant and agree as follows:
EXHIBIT H
<PAGE>
I.
ASSIGNMENT AND ASSUMPTION
For the consideration set forth herein, the receipt and sufficiency of
which are hereby acknowledged, Transferor/Agent hereby transfers and assigns,
and Transferee hereby assumes, an undivided fifty percent (50%) interest (its
"Pro Rata Share") in and to the rights and obligations of the Bank under the
Loan Documents, including, but not limited to, all Commitment fees, Loan fees,
Letter of Credit fees, principal and interest payments actually received by
Transferor/Agent under the Loan Documents, and any other amounts received by
Transferor/Agent as herein provided, based on amounts actually advanced to the
Borrower by Transferor/Agent and Transferee. The rights of the Transferee to its
Pro Rata Share transferred and assigned hereunder exist solely as a result of
this Agreement. Except for the obligation of Transferor/Agent to account for
payments received by it or as otherwise specifically provided herein, the
transfer and assignment of the Pro Rata Share hereunder shall be without
recourse against, or representation or warranty by, Transferor/Agent.
II.
CONSIDERATION
In consideration for the transfer and assignment of its Pro Rata Share,
Transferee agrees to pay to Transferor/Agent in immediately available funds, on
the date each advance is made under the Loan Documents, an amount equal to its
Pro Rata Share of such advance. In order to enable Transferee to make the
payments required herein, Transferor/Agent agrees to give Transferee notice of
each advance under the Loan Documents promptly upon receipt by Transferor/Agent
of notice thereof in accordance with the Loan Documents. All payments must be
made prior to 2:00 P.M., San Antonio time, on the date due by debit to
Transferee's account with Transferor/Agent or by wire transfer of funds to
Transferor/Agent, as follows:
ABA Routing No.: 114000093
Attention: James B. Crosby
Reference: Dawson Production Services, Inc.
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III.
PARTIAL PAYMENTS
If the Borrower makes only a partial principal, interest or fee payment
to Transferor/Agent under the Loan Documents, Transferee shall be entitled to
receive an amount equal to the product of (a) the amount Transferee would have
been entitled to receive from Transferor/Agent if the Borrower had made a full
principal, interest or fee payment under the Loan Documents, times (b) a
fraction (i) the numerator of which is the amount of the partial principal,
interest or fee payment made by the Borrower to Transferor/Agent under the Loan
Documents, and (ii) the denominator of which is the amount of the full
principal, interest or fee payment that the Borrower was obligated to pay Bank
under the Loan Documents.
IV.
PAYMENTS TO TRANSFEREE
Transferee's share of each interest, principal or fee payment shall be
paid to Transferee by wire transfer of funds to Transferee, as follows:
ABA Routing No.: 107000275
Attention: James Bertram
Reference: Dawson Production Services, Inc.
(a) on the same day Transferor/Agent shall have received the applicable payment
in good funds from the Borrower, provided such payment is received by
Transferor/Agent prior to the applicable time for payment specified in the Loan
Documents or, if no such time is specified, prior to 12:00 Noon, San Antonio
time, on such day, or (b) on the Business Day next following the day on which
Transferor/Agent receives such payment in good funds, if such payment is
received later than such time. As used herein, the term "Business Day" shall
mean any day which is not a Saturday, Sunday or a legal holiday on which banking
institutions in the State of Texas are authorized by law to close.
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V.
LETTERS OF CREDIT
Upon the date of issuance by Transferor/Agent of a Letter of Credit
under the terms of the Credit Agreement, Transferor/Agent shall be deemed,
without further action by any party hereto, to have transferred and assigned to
Transferee, and Transferee shall be deemed, without further action by any party
hereto, to have assumed, its Pro Rata Share of the rights and obligations of
Transferor/Agent in and to such Letter of Credit. Upon Transferor/Agent's
receipt of a Letter of Credit Information Form, Transferor/Agent shall promptly
notify Transferee of the contents thereof. The issuance by Transferor/Agent of
each Letter of Credit shall be subject to the condition precedent that such
Letter of Credit shall be in such form, contain such terms and support such
transactions as shall be reasonably satisfactory to Transferor/Agent and
Transferee. Transferor/Agent shall promptly notify Transferee in the event any
Letter of Credit is presented for payment. On the date of such notice (or if
such notice is given after 12:00 Noon, San Antonio time, on such date, on the
next succeeding Business Day), Transferee shall, without regard to the existence
of a Default or an Event of Default, pay to Transferor/Agent an amount equal to
Transferee's Pro Rata Share of such amount as Transferor/Agent is required to
fund under the terms of the Letter of Credit, together with interest on such Pro
Rata Share for each day from the date the Transferor/Agent pays such draw to the
date of payment by Transferee at a rate of interest per annum equal to the
Federal Funds Rate, as defined in Paragraph VII below.
VI.
ADDITIONAL COLLATERAL; SETOFF
Transferee shall have no interest in any property taken as collateral
security for any other loan or loans made to Borrower by Transferor/Agent, or in
any property now or hereafter in Transferor/Agent's possession or control that
may be or become collateral security for any such loan by reason of the general
description contained in any general loan or collateral agreement held by
Transferor/Agent or by reason of any right of setoff, counterclaim, banker's
lien or otherwise. In the event the Loans are cross-collateralized with any
other loan or loans made to Borrower by Transferor/Agent, proceeds from the
liquidation of Collateral shall be applied first to fully repay the Loans prior
to application to repayment of any such other loan or loans to Borrower from
Transferor/Agent.
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VII.
PAYMENTS ON ACCOUNT; RETURNS
Transferor/Agent may, but shall not be obligated to, transfer funds to
Transferee which may be due from the Borrower on the date so due prior to
receipt from the Borrower. If any portion of funds are not then received from
the Borrower, Transferee shall, on demand by Transferor/Agent, repay its Pro
Rata Share of the amount not received to Transferor/Agent at the Federal Funds
Rate. "Federal Funds Rate" means the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System in effect
at the Federal Reserve Bank in San Antonio, Texas, as determined on any basis
reasonably selected by the Transferor/Agent. The Federal Funds Rate applicable
each day shall be the Federal Funds Rate reported as applicable to federal funds
transactions on that date. In the case of a Saturday, Sunday or legal holiday,
the Federal Funds Rate shall be the rate applicable to federal funds
transactions on the immediately preceding day for which the Federal Funds Rate
is determined.
VIII.
REPAYMENTS TO THE BORROWER
Transferee shall repay to Transferor/Agent any sums paid to
Transferor/Agent by the Borrower and distributed by Transferor/Agent to
Transferee which Transferor/Agent shall be required to return to the Borrower or
to any receiver, trustee or custodian for the Borrower. In the event Transferee
fails or refuses to make any such payment or fails or refuses to pay its Pro
Rata Share of the Loans to Transferor/Agent directly or through offset by
Transferor/Agent against funds of Transferee on deposit in Transferee's account
or accounts at Transferor/Agent (against which Transferor/Agent is hereby
specifically authorized to offset for such purposes), then, in addition to any
of its rights at law or in equity, Transferor/Agent shall be entitled to fund
Transferee's Pro Rata Share of such payment and offset against Transferee's Pro
Rata Share all sums received by Transferor/Agent hereunder until reimbursed
therefor by Transferee. Furthermore, any such amount paid by Transferor/Agent on
behalf of Transferee shall be payable to Transferor/Agent on written demand
therefor, and shall bear interest for each day from the date of such payment
until it is repaid by Transferee at the Federal Funds Rate.
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IX.
FEES AND EXPENSES
Transferee shall pay its Pro Rata Share of all reasonable attorneys'
fees and other expenses incurred by Transferor/Agent in connection with the
enforcement of the Obligations of Borrower under any of the Loan Documents.
Transferee shall be entitled to its Pro Rata Share of any payments subsequently
received by Transferor/Agent with respect to fees and expenses paid by
Transferee.
X.
BORROWER INFORMATION; INDEPENDENT CREDIT ANALYSIS
To the extent not already provided or made available to Transferee, and
as often as is reasonably requested by Transferee, Transferor/Agent shall
provide Transferee with(a) copies of all Loan Documents; (b) such information as
is then in Transferor/Agent's possession with respect to the current status of
principal and interest payments and interest accruals with respect to the Loans;
(c) copies of all current financial statements from the Borrower and all
guarantors then in Transferor/Agent's possession; and (d) other current factual
information and data in or coming into the possession of Transferor/Agent and
either submitted under the terms of the Loan Documents or otherwise bearing on
the continuing creditworthiness of the Borrower; provided, that nothing
contained in this Paragraph shall impose any liability upon Transferor/Agent for
its failure to provide Transferee any of such Loan Documents, information,
financial statements or other data unless such failure constitutes willful
misconduct or gross negligence on the part of Transferor/Agent; and provided
further, that Transferor/Agent shall not be obligated to provide Transferee with
any information in violation of the law or any contractual restrictions on the
disclosure thereof. Transferee has specifically consented and agreed to the
provisions of Section 8.7(d) of the Credit Agreement. Transferee hereby
acknowledges, agrees and represents: (i) that Transferee has conducted or shall
conduct an independent credit analysis of the Borrower and an investigation or
assessment of risk with respect to the Loans to satisfy itself that its Pro Rata
Share of the Loans is a credit which Transferee would make acting alone,
(ii)that Transferor/Agent has not provided to Transferee, and Transferee has not
relied on or used in any other way, any credit analysis of the Borrower prepared
by Transferor/Agent or an investigation or assessment of risk with respect to
the Commitment prepared by Transferor/Agent, and (iii) Transferee has
independently and without reliance upon Transferor/Agent, and based upon such
documents and information as Transferee deemed appropriate, made its own
decision to enter into this Agreement. Transferor/Agent represents
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and warrants that it has no current actual knowledge that any information,
reports, representations or warranties provided by or on behalf of Borrower in
connection with the Loans are incorrect in any material respect.
XI.
LEGAL RELATIONSHIP OF THE PARTIES
A. APPOINTMENT OF AGENT. Transferor/Agent is hereby appointed agent for
the parties to act as herein specified, and acting in the manner into the extent
provided in this Article XI, Transferor/Agent accepts such appointment.
Transferor/Agent is hereby irrevocably authorized to receive payments of
principal, interest and other amounts due under the Loan Documents and otherwise
to take such action on behalf of the parties, to exercise such powers and to
perform such duties under the Loan Documents as are specifically delegated to,
or required of the Bank by the terms of the Loan Documents, together with all
other powers reasonably incidental thereto, which authorization permits the
Transferor/Agent to perform any of its duties under the Loan Documents by or
through its agents, attorneys or employees. The Transferor/Agent shall have no
duties or responsibilities except those expressly set forth with respect to it
in this Agreement and the Loan Documents. The relationship of the
Transferor/Agent to the Transferee is only that of one entity acting solely as
an administrative agent for another, and nothing in this Agreement or the Loan
Documents, express or implied, is intended to, or shall be construed to,
constitute the Transferor/Agent a trustee or other fiduciary for the Transferee,
or any holder of any of the Notes, nor to impose on the Transferor/Agent duties
and obligations other than those expressly provided for in this Agreement and
the Loan Documents. As to any matters not expressly provided for in this
Agreement or the Loan Documents and any matters to which either this Agreement
or the Loan Documents place within the discretion of the Transferor/Agent, the
Transferor/Agent shall not be required to exercise any discretion or take any
action (and it may request instructions from the parties with respect to any
such matter), in which case it shall be required to act or refrain from acting
(and shall be fully protected and free from liability to the parties in so
acting or refraining from acting)upon the instructions of the parties (including
itself), and such instructions shall be binding upon all parties; provided,
however, (I) the Transferor/Agent shall in all cases be fully justified in
failing or refusing to act under this Agreement or any Loan Documents unless it
shall be indemnified to its satisfaction by the parties against any and all
liability and expense(other than any such liability or expense proximately
caused by the Transferor/Agent's gross negligence or willful misconduct as
determined by a final judgment) which may be incurred by reason of taking or
continuing to take any such action, and (ii) the Transferor/Agent shall not in
any event be required to take any action which (A) is contrary to this
Agreement, any
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Loan Document or Laws, or (B) exposes it to a risk of personal liability that it
considers unreasonable.
B. DECISIONMAKING. Approval by both Transferor/Agent and Transferee
shall be required with respect to all discretionary decisions of a material
nature that must be made by the Bank under the terms of the Loan Documents.
Immaterial discretionary decisions shall be made by Transferor/Agent acting in
its discretion and in the best interests of the parties. As used in this
subsection, the phrase "discretionary decisions of a material nature" includes
any action, decision, agreement or commitment to the Borrower as to the Loans,
the Credit Agreement or any other Loan Documents which would:
(1) Modify the interest rate, payment, or maturity terms of the
Loans;
(2) Renew, modify or extend the Loans;
(3) Waive, amend or modify any provision, condition, or requirement
of the Notes, the Credit Agreement or any other Loan Documents;
(4) Release or substitute any Collateral or security for the Loans
whether or not evidenced by any Loan Documents securing
repayment of the Loans;
(5) Waive any condition, requirement, obligations, or restriction of
the Borrower under the Notes, the Credit Agreement or the other
Loan Documents;
(6) Release, compromise, discharge, settle or agree to satisfaction
of the Loans in whole or in part;
(7) Release, limit, discharge, settle or agree to satisfaction of
the liability of the Borrower or of any guarantor;
(8) Declare an Event of Default or take any action to enforce the
Bank's rights against the Borrower, any guarantor, or any
Collateral under the Notes, the Credit Agreement or any other
Loan Documents.
In the event Transferor/Agent and Transferee cannot agree to a discretionary
decision of a material nature, Transferor/Agent shall have the right, but not
the obligation, to purchase Transferee's Pro Rata Share for a purchase price
equal to Transferee's Pro Rata Share of outstanding Loans and all unpaid
interest thereon in accordance with the provisions hereof. Alternatively, any
impasse or inability to agree as to a discretionary decision of a material
nature shall be settled by mediation or by mandatory binding arbitration using
the expedited
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Commercial Arbitration Rules of the American Arbitration Association, or any
other arbitration procedure or rules to which the parties agree.
C. EXCULPATION; AGENT'S RELIANCE. AS AMONG THE PARTIES, NEITHER THE
TRANSFEROR/AGENT NOR ANY OF ITS AFFILIATES, NOR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, AGENTS, ATTORNEYS, INSURERS, OR EMPLOYEES, NOR ANY OF THEIR
SUCCESSORS, HEIRS, LEGAL REPRESENTATIVES OR ASSIGNS (COLLECTIVELY, THE "AGENT
INDEMNITEES"), SHALL EVER BE LIABLE FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN
BY ANY OF THEM UNDER OR IN CONNECTION WITH ANY LOAN DOCUMENT, INCLUDING THEIR
OWN NEGLIGENCE OF ANY KIND, EXCEPT THAT EACH SHALL BE RESPECTIVELY LIABLE FOR
ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED BY A FINAL
JUDGMENT. Without limiting the generality of the foregoing or any other
provision of any Loan Document, the Transferor/Agent: (I) may treat the payee of
any Note as the holder thereof until the Transferor/Agent receives and accepts
an assignment and acceptance reasonably satisfactory to the Transferor/Agent;
(ii) may consult with legal counsel (including counsel for any Company),
independent public accountants and other experts and advisors selected by it and
shall be fully protected and free from liability to all parties for any action
taken or omitted to be taken in good faith by it in accordance with the advise
of such counsel, accountants, experts or advisors; (iii)makes no warranty or
representation to any party and shall not be responsible to any party for any
statements, recitals, information, warranties or representations made in or in
connection with any Loan Document, or in any communication or writing made or
delivered in connection therewith; (iv) shall not have any duty to ascertain, to
inquire or to keep itself informed as to the financial condition of the
Companies or any of them or the performance or observance of the terms,
covenants or conditions of any Loan Documents on the part of any Person or to
inspect the Collateral (including the books and records); (v) shall not be
responsible to the parties for the financial condition of the Companies or any
of them or the due execution, legality, validity, enforceability,
collectibility, genuineness, sufficiency or value of any Loan Document or
instrument or other document furnished in connection therewith or the creation,
perfection, continued creation or perfection, or priority, of any security
interest purported to be created by any Loan Document, or any other instrument
or document furnished pursuant hereto or thereto; and (vi) may rely, and shall
be fully protected and free from liability to all parties in relying (A) upon
the representations and warranties of any Company and the parties in exercising
its powers thereunder, and (B) upon any notice, consent, certificate, statement,
resolution, instrument or other writing (which may be by telegram, cable,
telecopy, facsimile, telex, mail, or telephone) believed by it to be genuine and
signed, sent, communicated or otherwise made by the proper Person.
D. DEFAULTS. The Transferor/Agent shall not be deemed to have knowledge
of the occurrence of a Default or Event of Default (other than the non-payment
of principal of or
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<PAGE>
interest on Loans or of fees in connection therewith) unless the
Transferor/Agent has received written notice from any party specifying the
occurrence of such Default or event of Default and stating that such notice is a
"Notice of Default". In the event that the Transferor/Agent receives a Notice of
Default, it shall give prompt notice thereof to the parties (and shall give each
party prompt notice of any non-payment). The Transferor/Agent shall take such
action with respect to such Default or Event of Default as shall be directed
jointly by parties after due consultation; provided that, unless and until the
Transferor/Agent shall have received such directions, the Transferor/Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or event of Default as it shall in its sole
and absolute discretion deemed advisable and in the best interest of the
parties. Each party hereto agrees to use its best efforts to immediately inform
the other party of any Default or Event of Default of which it becomes aware.
E. RIGHTS AS A BANK. Subject to the terms and provisions of this
Agreement, The Frost National Bank (and any successor acting as
Transferor/Agent) in its capacity as a party hereto shall have the same rights
and powers hereunder as any other party and may exercise same as though it were
not the Transferor/Agent, and the terms "party,""parties," "holders of Notes,"
or similar terms shall, unless otherwise expressly indicated, include The Frost
National Bank (and any successor acting as Transferor/Agent) in its individual
capacity. The Frost National Bank (and any successor acting as the
Transferor/Agent) and its Affiliates may accept deposits from, lend money to,
act as trustees under indentures or as transfer agent in respect to capital
stock and generally engage in any kind of banking, trust, investment, financial
advisory or other business with the Borrower and its respective Affiliates, and
may accept fees and other consideration from Borrower and its respective
Affiliates for services in connection with any of the foregoing or otherwise,
all as though it were not the Transferor/Agent hereunder and without having to
account for the same to the parties hereto.
F. INDEMNIFICATION. EACH PARTY AGREES TO INDEMNIFY, REIMBURSE, AND HOLD
HARMLESS EACH AGENT INDEMNITEE (TO THE EXTENT NOT INDEMNIFIED AND REIMBURSED, ON
DEMAND, BY BORROWER), RATABLY ACCORDING TO ITS PRO RATA SHARE, FROM AND AGAINST
ALL LOSSES, LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, SUITS, JUDGMENTS, DEMANDS, SETTLEMENTS, COSTS, DISBURSEMENTS OR
EXPENSES (INCLUDING FEES AND EXPENSES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND
ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS PARAGRAPH THE FOREGOING IS
COLLECTIVELY REFERRED TO AS THE "LIABILITIES AND COSTS"), WHICH TO ANY EXTENT
(IN WHOLE OR PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST, SUCH
AGENT INDEMNITEE IN ANY WAY RELATING TO, OR RISING OUT OF, THE LOAN DOCUMENTS
AND THE TRANSACTION AND EVENTS (INCLUDING THE ENFORCEMENT THEREOF) AT ANY TIME
ASSOCIATED THEREWITH OR
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CONTEMPLATED THEREIN (INCLUDING ANY VIOLATION OR NON-COMPLIANCE WITH ANY
ENVIRONMENTAL LAWS BY ANY PERSON OR ANY LIABILITIES OR DUTIES OF ANY PERSON WITH
RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT) OR AS
A RESULT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY SUCH AGENT INDEMNITEE,
INCLUDING ITS NEGLIGENCE OF ANY KIND, OTHER, THAN AS PROVIDED IN THE FOLLOWING
PROVISO, THE GROSS NEGLIGENCE OF AN AGENT INDEMNITEE; PROVIDED THAT NO PARTY
SHALL BE LIABLE FOR ANY PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH ARE
PROXIMATELY CAUSED BY THE AGENT INDEMNITEE'S OWN INDIVIDUAL GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, EACH PARTY AGREES, IN PROPORTION TO ITS PRO RATA
SHARE, TO REIMBURSE THE AGENT INDEMNITEE PROMPTLY UPON ITS DEMAND FOR ANY COSTS
AND EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES AND OTHER CHARGES) INCURRED
BY THE AGENT INDEMNITEE IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVISE IN RESPECT OF
THEIR RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, OR ANY OF THEM, OR
ANY OTHER DOCUMENTS CONTEMPLATED BY THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
AGENT INDEMNITEE IS NOT REIMBURSED ON DEMAND, FOR SUCH AMOUNTS BY BORROWER. Each
party's obligations under this paragraph shall survive the termination of this
Agreement.
G. CHANGE OF CONTROL OF TRANSFEREE. If at any time prior to maturity of
the Loans, there is a Change of Control with respect to Transferee,
Transferor/Agent shall have the right, but not the obligation, to purchase
Transferee's Pro Rata Share for a purchase price equal to Transferee's Pro Rata
Share of outstanding Loans and all unpaid interest thereon in accordance with
the provisions hereon.
XII.
PERFORMANCE THROUGH REPRESENTATIVES
Transferor/Agent may perform any of its duties hereunder by or through
officers, directors, employees, attorneys or agents (collectively,
"Representatives"), and Transferor/Agent and its Representatives shall be
entitled to rely, and shall be fully protected in relying, upon any
communication or document believed by them to be genuine and correct
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and to have been signed or made by the proper Person and, with respect to legal
matters, upon the opinion of counsel jointly selected by Transferor/Agent and
Transferee.
XIII.
DUTY OF CARE
Neither Transferor/Agent nor any of its Representatives shall be liable
for any action taken or omitted to be taken by it or them under this Agreement
or any Loan Document in good faith and believed by it or them to be within the
discretion or power conferred upon it or them by this Agreement or any Loan
Document, or be responsible for the consequences or any error of judgment.
Transferor/Agent will exercise the same care in administering the Loan Documents
as it exercises with respect to similar transactions entered into solely for its
own account and shall otherwise have no liability or responsibility to
Transferee except for actions taken or omitted to be taken by Transferor/Agent
which constitute willful misconduct or gross negligence. Transferor/Agent shall
not be responsible in any manner to Transferee for (a) the effectiveness,
enforceability, genuineness, validity or due execution of this Agreement, any of
the Loan Documents, or any other documents, agreements or instruments, (b) any
representation, warranty, document, certificate, report or statement therein
made or furnished under or in connection with any of the Loan Documents, (c) the
adequacy of collateral, if any, for the obligations of the Borrower under the
Loan Documents, or (d) the existence, priority or perfection of any lien or
security interest, if any, granted or purported to be granted in connection with
any of the Loan Documents.
XIV.
NOT A LOAN; NO DUTY TO REPURCHASE
No amount paid by Transferee for its Pro Rata Share shall be considered
a loan by Transferee to Transferor/Agent. Transferor/Agent shall have no
obligation whatsoever to repurchase the Pro Rata Share upon any default by the
Borrower under any of the Loan Documents or at any other time.
XV.
AMENDMENTS, WAIVERS, ETC.
Transferor/Agent may not enter into any amendment or modification of, or
waive compliance with the terms of, any Loan Document without the prior written
consent of Transferee. Transferor/Agent will, with reasonable promptness, notify
Transferee of any
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material default with respect to the Loans of which Transferor/Agent is actually
aware and of any other matters which, in its judgment, materially affect the
interest of Transferee in respect of the Loans, but Transferor/Agent shall not
in any event be liable to Transferee for Transferor/Agent's failure to do so.
XVI.
TRANSFEREE'S REPRESENTATIONS
Transferee represents and warrants to Transferor/Agent that:
(a)Transferee is purchasing its Pro Rata Share hereunder for its own account in
respect of a commercial transaction made in the ordinary course of its business
and not with a view to or in connection with any subdivision, resale or
distribution thereof, except, however, the sale of participations in its Pro
Rata Share to certain Affiliates of Transferee; (b) Transferee is engaged in the
business of entering into commercial lending transactions (including
transactions of the nature contemplated herein) and can bear the economic risk
related to the purchase of the same; and (c) Transferee does not consider the
acquisition of its Pro Rata Share hereunder to constitute the "purchase" or
"sale" of a "security"within the meaning of any federal or state securities
statute or law, or any rule or regulation under any of the foregoing.
XVII.
RELIANCE BY OTHERS
Borrower shall be considered a third-party beneficiary of this Agreement
and may rely upon same. None of the provisions of this Agreement shall inure to
the benefit of any Person other than the Transferor/Agent, the Transferee and
Borrower; consequently, no person other than the Transferor/Agent, Transferee
and Borrower shall be, entitled to rely upon or raise as a defense, in any
manner whatsoever, the failure of Transferor/Agent or Transferee to comply with
the provisions of this Agreement. Neither Transferor/Agent nor Transferee shall
incur any liability to any person other than Borrower for any act or omission of
the other party hereto.
XVIII.
NOT A PARTNERSHIP
Neither the execution of this Agreement, the sharing in the Loan
Documents, nor any agreement to share in profits or losses arising as a result
of the transactions contemplated
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hereby is intended to be or to create, and the foregoing shall be construed not
to be or to create, any partnership, joint venture or other joint enterprise
between Transferor/Agent and Transferee; and neither the execution of this
Agreement nor the management and administration of the Loan Documents and the
related documents by Transferor/Agent, nor any other right, duty or obligation
of Transferor/Agent under or pursuant to this Agreement is intended to be or
create any express, implied or constructive trust or other fiduciary
relationship between Transferor/Agent and Transferee.
XIX.
WAIVERS
No delay or omission by any party to exercise any right under this
Agreement shall impair such right, nor shall it be construed to be a waiver
thereof. No waiver of any single breach or default under this Agreement shall be
deemed a waiver of any other breach or default. Any waiver, consent or approval
under this Agreement must be in writing to be effective.
XX.
RECOVERY OF COSTS
In the event of any action to enforce the provisions of this Agreement
against a party hereto, the prevailing party shall be entitled to recover all
costs and expenses incurred in connection therewith, including, without
limitation, reasonable attorneys' fees and expenses.
XXI.
SEVERABILITY
The illegality or unenforceability of any provision of this Agreement
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement.
XXII.
NOTICES
All notices, requests and other communications to any party hereto shall
be in writing or by telephone confirmed the same day at writing on or before
12:00 noon (San Antonio
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time) (including bankwire, telecopy, telex or similar writing) and shall be
given to such party at its address, telecopy or telex number set forth in Annex
A or such other address, telecopy or telex number as such party may hereafter
specify for the purpose of notice hereunder. Each such notice, request or other
communication shall be effective (I) if given by telex, when such telex is
transmitted to the telex number specified pursuant to this Agreement and the
appropriate answer back is received, (ii) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified pursuant to this
Agreement, and the sender has received electronic confirmation thereof, (iii) if
given by registered or certified mail, return receipt requested, 72 hours after
such confirmation is deposited in the mails with postage prepaid, addressed as
aforesaid, or (iv) if given by any other means, when delivered at the address
specified in this Agreement.
XXIII.
CONSTRUCTION
Whenever in this Agreement the singular number is used, the same shall
include the plural where appropriate, and vice versa; and words of any gender in
this Agreement shall include each other gender where appropriate.
XXIV.
GOVERNING LAW
THIS AGREEMENT IS PERFORMABLE IN BEXAR COUNTY, TEXAS, AND THE LAWS OF
THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA SHALL GOVERN THE RIGHTS
AND DUTIES OF THE PARTIES HERETO AND THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION HEREOF.
XXV.
GENERAL
All warranties, representations and covenants made by the parties herein
or in any certificate or other instrument delivered by a party on its behalf
under this Agreement shall be considered to have been relied upon by the parties
hereto and shall survive the execution, performance and delivery of this
Agreement and all other documents contemplated herein. All statements and any
such certificate or other instrument shall constitute warranties and
representations by the parties hereunder. The parties hereto agree to execute
and deliver, or cause to be executed and delivered, all such instruments and
take all such action as may be
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required in order to effectuate the purposes and to carry out the terms and
provisions of this Agreement.
XXVI.
ENTIRE AGREEMENT
This Agreement (a) embodies the entire agreement between the parties,
supersedes all prior agreements and understandings between such parties, if any,
relating to the subject matter hereof, and may be amended only by an instrument
in writing executed jointly by an authorized officer of each party hereto, and
(b) has been executed in a number of identical counterparts, each of which shall
be deemed an original for all purposes and all of which constitute,
collectively, one agreement; but, in making proof of this Agreement, it shall
not be necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective, duly authorized officers, as of the date first
above written.
TRANSFEROR/AGENT
THE FROST NATIONAL BANK
By:____________________________________
Name:__________________________________
Title:___________________________________
TRANSFEREE
FIRST SECURITY BANK OF NEW MEXICO
By:____________________________________
Name:__________________________________
Title:___________________________________
16
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered as of this 20th day
of February, 1997, by and between DAWSON PRODUCTION SERVICES, INC., a Texas
corporation ("Debtor"), whose address is 901 N.E. Loop 410, Suite 700, San
Antonio, Texas 78209, and THE FROST NATIONAL BANK ("Secured Party"), whose
address is 100 W. Houston Street, San Antonio, Texas 78205, who, for good and
valuable consideration, agree as follows:
ARTICLE I
AGREEMENT; INDEBTEDNESS
1.1 SECURITY INTEREST. Subject to the applicable terms of this Agreement,
for good and valuable consideration, the receipt and sufficiency of which Debtor
acknowledges, Debtor assigns and transfers to Secured Party, and grants to
Secured Party a continuing security interest in and lien upon, the Collateral
(as defined in Article II below) to secure the payment and the performance of
the Indebtedness (the "Security Interest").
1.2 INDEBTEDNESS. The following indebtedness and obligations (the
"Indebtedness") are secured by this Agreement:
(a) All debt, obligations, liabilities, and agreements of Debtor to
Secured Party, now or hereafter existing, arising directly between Debtor and
Secured Party or acquired outright, conditionally, or as collateral security
from another by Secured Party, absolute or contingent, joint or several, secured
or unsecured, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, including without
limitation that certain Revolving Note in the original principal amount of
$50,000,000.00, executed by DAWSON PRODUCTION SERVICES, INC., and payable to the
order of Secured Party, and all renewals, extensions, modifications, or
rearrangements of any of the foregoing.
(b) Secured Party's participation in any debt of Debtor to another
person.
(c) All costs incurred by Secured Party to obtain, preserve,
perfect, and enforce this Agreement and the Security Interest, to collect the
Indebtedness, and to maintain, preserve, collect, and enforce the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sale.
(d) Interest on the above amounts as agreed between Secured Party
and Debtor, or if there is no agreement, at the highest lawful rate.
(e) All debt, obligations and liabilities of DAWSON PRODUCTION
SERVICES, INC., (such party, together with the Debtor named above, being
hereinafter referred to collectively as "Debtor") to Secured Party of the kinds
described in this Section 1.2, now existing or hereafter arising.
ARTICLE II
COLLATERAL
2.1 DESCRIPTION OF COLLATERAL. The Security Interest is granted in the
following (the "Collateral"):
(a) All accounts receivable of Debtor, including any intangible
property or right now or hereafter owned by Debtor at any time consisting, in
whole or part, of a legally enforceable right to receive from any person, or
require the payment by any person of, a certain amount of money whenever
arising, however or whenever acquired or evidenced, whether due or to become
due, and whether or not earned by performance, including, but not limited to,
obligations evidenced by notes, installment purchase agreements, accounts,
and/or contracts, and all contract rights, chattel paper, instruments and
general intangibles.
(b) All policies of insurance covering the Collateral and proceeds
thereof.
SECURITY AGREEMENT Page 1
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(c) All security for the payment of any of the Collateral, and all
goods which gave or will give rise to any of the Collateral or are evidenced,
identified, or represented therein or thereby.
(d) All property similar to the above hereafter acquired by Debtor.
(e) All proceeds of the items described in subsections (a) through
(d) of this Section 2.1.
2.2 AFTER ACQUIRED CONSUMER GOODS. The Security Interest shall attach to
after acquired consumer goods only to the extent permitted by Section 9.204(b)
of the Texas Business and Commerce Code (Texas UCC).
ARTICLE III
DEBTOR'S WARRANTIES
Debtor represents and warrants to Secured Party as follows:
3.1 FINANCING STATEMENTS. No financing statement covering the Collateral
is or will be on file in any public office, except the financing statements
relating to this Security Interest. In the past five (5) years, Debtor has not
used or done business under any name other than its legal name set forth on the
first page of this Agreement.
3.2 OWNERSHIP. Debtor owns, or will use the proceeds of any loans by
Secured Party to become the owner of, the Collateral free from any setoff,
claim, restriction, lien, security interest, or encumbrance except liens for
taxes not yet due and the Security Interest.
3.3 FIXTURES AND ACCESSIONS. None of the Collateral is affixed to real
estate or is an accession to any goods, or will become a fixture or accession,
except as expressly set out herein.
3.4 CLAIMS OF DEBTORS ON COLLATERAL. No account debtors and other obligors
whose debts or obligations are part of the Collateral have any right to setoffs,
counterclaims, or adjustments, or any defenses in connection therewith.
3.5 ACCURACY OF FINANCIAL STATEMENTS. All balance sheets, earnings
statements, and other financial data which have been or hereafter may be
furnished to Secured Party to induce it to permit the Indebtedness or to make
this Agreement or in conjunction herewith truly represent or shall truly
represent the financial condition and operations of Debtor as of the dates and
for the periods shown thereon; and all other information, reports, papers, and
data furnished to Secured Party are or shall be, at the time furnished, accurate
and correct in all respects and complete insofar as necessary to give Secured
Party a true and accurate knowledge of the subject matter.
3.6 POWER AND AUTHORITY. Debtor has full power and authority to make this
Agreement.
3.7 PRINCIPAL PLACE OF BUSINESS. Debtor's principal place of business and
chief executive office is at Debtor's address stated above in San Antonio, Bexar
County, Texas, and such address is also where Debtor keeps its books and
records.
3.8 LOCATION OF COLLATERAL. All instruments, chattel paper, securities,
and certificates of title comprising any part of the Collateral have been
delivered to Secured Party.
3.9 PERFECTION. Upon the filing of the UCC financing statements with the
Office of the Texas Secretary of State of Texas and in the offices of the County
Clerk of Bexar County, Texas, and upon Secured Party's obtaining possession of
all Debtor's documents, instruments, chattel paper, securities, and certificates
of title, and upon Secured Party's obtaining control of Debtor's Investment
Property, the Security Interest will constitute a valid and perfected lien upon
and security interest in the Collateral, subject to no equal or prior lien.
3.10 SOLVENCY. As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by Debtor at
the time of the execution of this Agreement, (i) Debtor is
SECURITY AGREEMENT Page 2
<PAGE>
and will be solvent, (ii) the fair saleable value of Debtor's assets exceeds and
will continue to exceed Debtor's liabilities (both fixed and contingent), (iii)
Debtor is paying and will continue to be able to pay its debts as they mature,
and (iv) if Debtor is not an individual, Debtor has and will have sufficient
capital to carry on Debtor's businesses and all businesses in which Debtor is
about to engage.
ARTICLE IV
DEBTOR'S COVENANTS
Debtor covenants and agrees that:
4.1 INDEBTEDNESS AND THIS AGREEMENT. Debtor shall pay the Indebtedness in
accordance with its terms and shall promptly perform all of his (or its)
agreements herein and in any other agreements between him (or it) and Secured
Party.
4.2 OWNERSHIP OF COLLATERAL. At the time Debtor grants to Secured Party a
security interest in any Collateral, Debtor shall be the absolute owner thereof
and shall have the right to grant such security interest. Debtor shall defend
the Collateral against all claims and demands of all persons at any time
claiming any interest therein adverse to Secured Party. Debtor shall keep the
Collateral free from all liens and security interests except those for taxes not
yet due and the Security Interest.
4.3 INSURANCE. Debtor shall insure the Collateral with companies
acceptable to Secured Party against such casualties and in such amounts as
Secured Party shall require. All insurance policies shall be written for the
benefit of Debtor and Secured Party as their interests may appear, or in other
form satisfactory to Secured Party, and such policies or certificates evidencing
the same shall be furnished to Secured Party. All policies of insurance shall
provide for written notice to Secured Party at least 10 days prior to
cancellation. Risk of loss or damage is Debtor's to the extent of any deficiency
in any effective insurance coverage. Secured Party is appointed Debtor's
attorney-in-fact to collect any return or unearned premiums or the proceeds of
such insurance and to endorse any draft or check payable to Debtor therefor.
4.4 MAINTENANCE. Debtor shall keep and maintain the Collateral in good
condition, reasonable wear and tear excepted.
4.5 SECURED PARTY'S COSTS. Debtor shall pay all costs necessary to obtain,
preserve, perfect, defend, and enforce this Security Interest, collect the
Indebtedness, and preserve, defend, enforce, and collect the Collateral,
including but not limited to taxes, assessments, insurance premiums, repairs,
reasonable attorney's fees and legal expenses, feed, rent, storage costs, and
expenses of sales. Whether Collateral is or is not in Secured Party's
possession, and without any obligation to do so and without waiving Debtor's
default for failure to make any such payment, Secured Party at its option may
pay any such costs and expenses, discharge encumbrances on the Collateral, and
pay for insurance of Collateral, and such payment shall be a part of the
Indebtedness. Debtor agrees to reimburse Secured Party on demand for any costs
so incurred.
4.6 INFORMATION AND INSPECTION. Debtor shall (i) furnish Secured Party any
financial statements of Debtor or reports to Debtor by accountants or others
pertaining to Debtor's business as soon as available, and any information with
respect to the Collateral requested by Secured Party; (ii) allow Secured Party
to inspect the Collateral, at any time and wherever located, and to inspect and
copy, or furnish Secured Party with copies of, all records relating to the
Collateral and the Indebtedness; (iii) furnish Secured Party such information as
Secured Party may request to identify inventory, accounts, and general
intangibles in Collateral, at the time and in the form requested by Secured
Party; and (iv) deliver upon request to Secured Party shipping and delivery
receipts evidencing the shipment of goods and invoices evidencing the receipt
of, and the payment for, inventory in Collateral.
4.7 ADDITIONAL DOCUMENTS. Debtor shall sign any papers furnished by
Secured Party which are necessary in the judgment of Secured Party to obtain,
maintain, and perfect the Security Interest and to enable Secured Party to
comply with the Federal Assignment of Claims Act or any other federal or state
law in order to obtain or perfect Secured Party's interest in collateral or to
obtain proceeds of collateral.
SECURITY AGREEMENT Page 3
<PAGE>
4.8 PARTIES LIABLE ON COLLATERAL. Debtor will preserve the liability of
all obligors on any Collateral, will preserve the priority of all security
therefor, and will deliver to Secured Party the original certificates of title
on all motor vehicles included in the Collateral. Secured Party shall have no
duty to preserve such liability or security, but may do so at the expense of
Debtor, without waiving Debtor's default.
4.9 MODIFICATION OF COLLATERAL. Without the written consent of Secured
Party, which consent shall not be unreasonably withheld, Debtor shall not agree
to any modification of any of the terms of any accounts, contracts, chattel
paper, general intangibles, or instruments constituting part of the Collateral.
4.10 RIGHT OF SECURED PARTY TO NOTIFY DEBTORS. At any time, whether Debtor
is or is not in default under this Agreement, Secured Party may notify persons
obligated on any Collateral to make payments directly to Secured Party and
Secured Party may take control of all proceeds of any Collateral. Until Secured
Party elects to exercise such rights, Debtor, as agent of Secured Party, shall
collect and enforce all payments owed on Collateral.
4.11 DELIVERY OF RECEIPTS OF SECURED PARTY; REJECTED GOODS. Debtor shall
deposit, upon receipt and in the form received, with any necessary endorsement,
all payments received as proceeds of Collateral, in a special bank account in a
bank of Secured Party's choice over which Secured Party alone shall have power
of withdrawal. The funds in said account shall secure the Indebtedness. Secured
Party is authorized to make any endorsement in Debtor's name and behalf. Pending
such deposit, Debtor shall not mingle any such payments with any of Debtor's
other funds or property, but will hold them separate and upon an express trust
for Secured Party. Secured Party may from time to time apply the whole or any
part of the funds in the special account against the Indebtedness. Unless
Secured Party notifies Debtor in writing that it dispenses with any one or more
of the following requirements, Debtor shall:
(a) inform Secured Party immediately of the rejection of goods,
delay in delivery or performance, or claim made, in regard to any Collateral;
(b) keep returned goods segregated from Debtor's other property, and
hold the goods as trustee for Secured Party until it has paid Secured Party the
amount loaned against the related account or chattel paper and deliver the goods
on demand to Secured Party; and
(c) pay Secured Party the unpaid amount of any account in Collateral
(i) if the account is not paid when due; (ii) if purchaser rejects the goods or
services covered by the account; or (iii) if Secured Party shall at any time
reject the account as unsatisfactory. Secured Party may retain the account in
Collateral. Secured Party may charge any deposit amount of Debtor with any such
amounts.
4.12 RECORDS OF COLLATERAL. Debtor at all times will maintain accurate
books and records covering the Collateral. Debtor immediately will mark all
books and records with an entry showing the absolute assignment of all accounts
in Collateral to Secured Party and Secured Party is hereby given the right to
audit the books and records of Debtor relating to Collateral at any time and
from time to time. The amounts shown as owed to Debtor on Debtor's books and on
any assignment schedule will be the undisputed amounts owing and unpaid. Debtor
shall disclose to Secured Party all agreements modifying any account,
instrument, or chattel pater.
4.13 DISPOSITION OF COLLATERAL. If disposition of any Collateral gives
rise to an account, chattel paper, or instrument, Debtor immediately shall
notify Secured Party, and upon request of Secured Party shall assign or endorse
the same to Secured Party. No Collateral may be sold, leased, manufactured,
processed, or otherwise disposed of by Debtor in any manner without the prior
written consent of Secured Party.
4.14 ACCOUNTS RECEIVABLE. Each account receivable constituting Collateral
will represent the valid and legally enforceable obligation of third parties and
shall not be evidenced by any instrument or chattel paper. In the event any
account shall give rise to any instrument or chattel paper, Debtor shall
immediately endorse the same to Secured Party and deliver all original such
instruments and chattel paper to Secured Party.
4.15 LOCATION OF ACCOUNTS. Debtor shall give Secured Party written notice
of each office of Debtor in which records of Debtor pertaining to accounts in
Collateral are kept, and of any change of any such
SECURITY AGREEMENT Page 4
<PAGE>
location. If no such notice is given, all records of Debtor pertaining to
accounts are and shall be kept at Debtor's address shown above.
4.16 NOTICE OF CHANGES. Debtor will notify Secured Party immediately of
any material change in the Collateral, of a change in Debtor's residence or
location, of a change in any matter warranted or represented by Debtor in this
Agreement or furnished to Secured Party, and of any Event of Default.
4.17 USE AND REMOVAL OF COLLATERAL. Debtor will not use the Collateral
illegally nor permit the Collateral to be affixed to real or personal property
without the prior written consent of Secured Party. Debtor will not permit any
of the Collateral to be removed from the locations specified herein without the
written consent of Secured Party.
4.18 POSSESSION OF COLLATERAL. If the Collateral is chattel paper,
documents, instruments, or investment securities or other instruments, Secured
Party may deliver a copy of this Agreement to the broker or seller thereof, or
any person in possession thereof, and such delivery shall constitute notice to
such person of Secured Party's security interest therein and shall constitute
Debtor's instruction to such person to deliver to Secured Party certificates or
other evidence of the same as soon as available. Debtor will deliver all
investment securities, other instruments, documents, and chattel paper which are
part of the Collateral and in Debtor's possession to the Secured Party
immediately, or if hereafter acquired, immediately following acquisition,
appropriately endorsed to Secured Party's order, or with appropriate, executed
powers. Debtor waives presentment, demand, notice of dishonor, protest, and all
other notices with respect thereto.
4.19 CHATTEL PAPER. Debtor has perfected or will perfect a security
interest by means satisfactory to Secured Party in goods covered by chattel
paper in Collateral.
4.20 CONSUMER CREDIT. If any Collateral or proceeds includes obligations
of third parties to Debtor, the transactions giving rise to the Collateral shall
conform in all respects to the applicable state or federal consumer credit law.
DEBTOR SHALL HOLD HARMLESS AND INDEMNIFY SECURED PARTY AGAINST ANY COST, LOSS,
OR EXPENSE INCLUDING ATTORNEY'S FEES, ARISING FROM DEBTOR'S BREACH OF THIS
COVENANT.
4.21 CHANGE OF NAME. Debtor shall not change its name (or any assumed name
or other name under which Debtor does business) or its corporate structure
unless at least thirty (30) days prior to the effective date of any such name
change, Debtor gives Secured Party written notice of such intended name change
and the new name or any change in its corporate structure. Debtor will not
change its principal place of business, chief executive office, or the place
where it keeps its books and records unless Debtor (i) shall have given Secured
Party thirty (30) days prior written notice thereof, and (ii) shall have taken
all action deemed necessary or desirable by Secured Party to cause the Security
Interest to be and remain perfected with the priority required by this
Agreement. Debtor shall execute all such documents and agreements (including
without limitation security agreements, financing statements, and amendments to
financing statements) as Secured Party may reasonably request in connection with
any such name change
4.22 NOTATION ON TITLE CERTIFICATES. If certificates of title are issued
or outstanding with respect to any of the Collateral, Debtor will cause the
Security Interest to be properly noted therein.
4.23 POWER OF ATTORNEY. Debtor appoints Secured Party as Debtor's
attorney-in-fact with full power in Debtor's name and behalf to do every act
which Debtor is obligated to do or may be required to do hereunder; however,
nothing in this section shall be construed to obligate Secured Party to take any
action hereunder.
4.24 DEBTOR'S WAIVERS. Debtor waives notice of the creation, advance,
increase, existence, extension, or renewal of, and of any indulgence with
respect to, the Indebtedness; waives notice of intent to accelerate, notice of
acceleration, notice of intent to demand, presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Indebtedness
outstanding at any time, notice of any change in financial condition of any
person liable for the Indebtedness or any part thereof, notice of any Event of
Default, and all other notices respecting the Indebtedness; and agrees that
maturity of the Indebtedness and any part thereof may be accelerated, extended,
or renewed one or more times by Secured Party in its discretion, without notice
to Debtor.
SECURITY AGREEMENT Page 5
<PAGE>
4.25 OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or any
other indulgence with respect to the Indebtedness or any part thereof, no
release of any security, no release of any person (including any maker,
endorser, guarantor, or surety) liable on the Indebtedness, no delay in
enforcement of payment, and no delay or admission or lack of diligence or care
in exercising any right or power with respect to the Indebtedness or any
security therefor or guaranty thereof or under this Agreement shall in other
manner impair or affect the rights of Secured Party under the law, under this
Agreement, or under any other agreement pertaining to the other security for the
Indebtedness, before foreclosing upon the Collateral for the purpose of paying
the Indebtedness. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and Debtor agrees
that Secured Party shall have no duty or obligation to Debtor to apply to the
Indebtedness any such other security or proceeds thereof.
ARTICLE V
RIGHTS AND POWERS OF SECURED PARTY
5.1 GENERAL. Secured Party before or after default without liability to
Debtor may: obtain from any person information regarding Debtor or Debtor's
business, which information any such person also may furnish without liability
to Debtor; require Debtor to give possession or control of any Collateral to
Secured Party; endorse as Debtor's agent any instruments, documents, or chattel
paper in Collateral or representing proceeds of Collateral; contact account
debtors directly to verify information furnished by Debtor; take control of
proceeds; release Collateral in its possession to any Debtor temporarily or
otherwise; require additional collateral; reject as unsatisfactory any property
hereafter offered by Debtor as Collateral; set standards from time to time to
govern what may be used as after-acquired collateral; designate, from time to
time, a certain percent of the Collateral as the loan value and require Debtor
to maintain the Indebtedness at or below such figure; take control of funds
generated by the Collateral, such as cash dividends, interest, and proceeds or
refunds from insurance, and use same to reduce any part of the Indebtedness and
exercise all other rights which an owner of such Collateral may exercise, except
the right to vote or dispose of Collateral before an Event of Default; at any
time transfer any of the Collateral or evidence thereof into its own name of
that of its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize upon Collateral, in its own
name or in the name of Debtor, as Secured Party may determine in its sole and
absolute discretion. Secured Party shall not be liable for failure to collect
any account or instrument, or for any act or omission on the part of the Secured
Party, its officers, agents, or employees, except willful misconduct. The
foregoing rights and powers of Secured Party will be in addition to, and not a
limitation upon, any rights and powers of Secured Party given by law, elsewhere
in this Agreement, or otherwise. If Debtor fails to maintain any required
insurance, to the extent permitted by applicable law Secured Party may (but is
not obligated to) purchase single interest insurance coverage for the Collateral
which insurance may at Secured Party's option (i) protect only Secured Party and
not provide any remuneration or protection for Debtor directly and (ii) provide
coverage only after the Indebtedness has been declared due as herein provided.
The premiums for any such insurance purchased by Secured Party shall be a part
of the Indebtedness and shall bear interest as provided in Section 1.2(d) above.
ARTICLE VI
DEFAULT
6.1 EVENTS OF DEFAULT. The following are events of default under this
Agreement ("Events of Default"):
(a) default in the timely payment of any part of the Indebtedness or
in performance or observance of the terms and conditions herein or in any other
agreement between Debtor and Secured Party, including any default under the
terms of that certain Credit Agreement dated February 20th, 1997, between Debtor
and Secured Party, relating to the Indebtedness;
(b) any warranty, representation, or statement made or furnished to
Secured Party by Debtor proves to have been false in any material respect when
made or furnished;
(c) acceleration of the maturity of debt of Debtor to any other
person;
SECURITY AGREEMENT Page 6
<PAGE>
(d) substantial change in any fact warranted or represented in this
Agreement or in any other agreement between Debtor and Secured Party or in any
statement, schedule, or other writing furnished in connection therewith;
(e) sale, loss, theft, destruction, encumbrance, or transfer of any
Collateral in violation hereof, or substantial damage to any Collateral;
(f) belief by Secured Party that the prospect of payment of the
Indebtedness or performance of this Agreement is impaired;
(g) death, incapacity, dissolution, merger, or consolidation,
termination of existence, insolvency or business failure of Debtor or any person
liable on the Indebtedness; commencement of proceedings for the appointment of a
receiver for any property of Debtor; commencement of any proceeding under any
bankruptcy or insolvency law by or against Debtor (or any corporate action shall
be taken to effect same), or any partnership of which Debtor is a partner, or by
or against any person liable upon the Indebtedness or any part thereof, or
liable upon Collateral;
(h) levy on, seizure, or attachment of any property of Debtor;
(i) a judgment against Debtor in excess of $500,000.00 becomes
final; or
(j) any liability or agreement of third parties to Debtor or on the
Collateral shall not be paid or performed in accordance with the terms thereof.
6.2 REMEDIES OF SECURED PARTY UPON DEFAULT. When an Event of Default
occurs, and at any time thereafter, Secured Party without notice or demand may
declare the Indebtedness in whole or part immediately due and may enforce
payment of the same and exercise any rights under the Texas UCC, rights and
remedies of Secured Party under this Agreement, or otherwise. Secured Party may
require Debtor to assemble the Collateral and make it available to Secured Party
at a place which is reasonably convenient to both parties. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or other intended disposition thereof is to be
made. Expenses of retaking, holding, preparing for sale, selling, leasing, or
the like shall include Secured Party's reasonable attorney's fees and legal
expenses. Secured Party shall be entitled to immediate possession of all books
and records evidencing any accounts or general intangibles or pertaining to
chattel paper covered by this Agreement and shall have the authority to enter
upon any premises upon which any of the same, or any Collateral, may be situated
and remove the same therefrom without liability. Secured Party may surrender any
insurance policies in Collateral and receive the unearned premium thereon.
Debtor shall be entitled to any surplus after payment of the Indebtedness and
shall be liable to Secured Party for any deficiency. The process of any
disposition after default available to satisfy the Indebtedness shall be applied
to the Indebtedness in such order and in such manner as Secured Party in its
discretion shall decide. If, in the opinion of Secured Party, there is any
question that a public sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party (i) may offer and sell securities
privately to purchasers who will agree to take them for investment purposes and
not with a view to distribution and who will agree to imposition of restrictive
legends on the certificates representing the security, or (ii) may sell such
securities in an intrastate offering under Section 3(a)(11) of the Securities
Act of 1933, and no sale so made in good faith by Secured Party shall be deemed
to be not "commercially reasonable" because so made.
ARTICLE VII
GENERAL
7.1 PARTIES BOUND. Secured Party's rights under this Agreement and the
Security Interest shall inure to the benefits of its successors and assigns, and
in the event of any assignment or transfer of any of the Indebtedness or the
Collateral, Secured Party thereafter shall be fully discharged from any
responsibility with respect to the Collateral so assigned or transferred, but
Secured Party shall retain all rights and powers hereby given with respect to
any of the Indebtedness or Collateral not so assigned or transferred. All
representations,
SECURITY AGREEMENT Page 7
<PAGE>
warranties, and agreements of Debtor if more than one are joint and several, and
all shall be binding upon the personal representatives, heirs, successors, and
assigns of Debtor.
7.2 WAIVER. No delay of Secured Party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right. No waiver by Secured Party of any right hereunder of
any default by Debtor shall be binding upon Secured Party unless in writing, and
no failure by Secured Party to exercise any power or right hereunder or waiver
of any default by Debtor shall operate as a waiver of any other or further
exercise of such right or power of any further default.
7.3 AGREEMENT CONTINUING. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Secured Party and Debtor shall be closed at any time, shall
be equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.
7.4 DEFINITIONS. Unless the context indicates otherwise, definitions in
the Texas UCC apply to words and phrases in this Agreement; if Texas UCC
definitions conflict, Chapter 9 definitions apply.
7.5 NOTICE. Notice shall be deemed reasonable if mailed postage prepaid at
least 5 days before the related action (or if the Texas UCC elsewhere specifies
a longer period, such longer period) to Debtor's address shown above.
7.6 INTEREST. No agreement relating to the Indebtedness shall be construed
to be a contract for or to authorize charging or receiving, or require the
payment or permit the collection of, interest at a rate or in an amount above
that authorized by law. Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law.
7.7 MODIFICATIONS. No provision hereof shall be modified or limited except
by a written agreement expressly referring hereto and to the provisions so
modified or limited and signed by Debtor and Secured Party, nor by course of
conduct, usage of trade, or by the law merchant.
7.8 SEVERABILITY. The unenforceability of any provision of this Agreement
shall not affect the enforceability or validity of any other provision.
7.9 GENDER AND NUMBER. Where appropriate, the use of one gender shall be
construed to include the others or any of them; and the singular number shall be
construed to include the plural, and vice versa.
7.10 APPLICABLE LAW AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING
TO THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA
APPLICABLE TO TRANSACTIONS IN THE STATE OF TEXAS. Except at otherwise stated,
this Agreement and the Security Interest shall be construed in accordance with
the Texas Uniform Commercial Code [Texas Business and Commerce Code ss. 1.01, ET
SEQ. ("Texas UCC"). This Agreement is performable by Debtor in the county of
Secured Party's address set out above.
7.11 FINANCING STATEMENT. A carbon, photographic, or other reproduction of
this security agreement or any financing statement covering the Collateral shall
be sufficient as a financing statement.
7.12 LIMITATIONS OF LAW. If any law prohibits or limits any charge or
expense provided for in this Agreement in connection with any loan secured
hereby, such charge or expense will not be made or incurred in connection with
such loan beyond the limits permitted by such law.
EXECUTED as of the 20th day of February, 1997.
SECURITY AGREEMENT Page 8
<PAGE>
DEBTOR:
DAWSON PRODUCTION SERVICES, INC.
By:/s/ Michael E. Little
Its:Michael E. Little, President
SECURED PARTY:
THE FROST NATIONAL BANK
By:/s/ Jim Crosby
Its:__________________________________
SECURITY AGREEMENT Page 9
EXHIBIT 11.1
DAWSON PRODUCTION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Primary Earnings Per Share
Net Income ................................................. $ 1,061,236 $ 1,372,998 $5,076,970
Preferred stock dividends .................................. (101,007) (88,273) --
----------- ----------- ----------
Income before extraordinary item ........................... 960,229 1,284,725 5,076,970
Extraordinary item ......................................... -- (513,819) --
----------- ----------- ----------
Net income applicable to common stock ...................... $ 960,229 $ 770,906 $5,076,970
----------- ----------- ----------
Shares used in earnings per share computation .............. 2,155,380 2,931,234 7,189,638
----------- ----------- ----------
Earnings per share ......................................... $ 0.45 $ 0.27 $ 0.71
----------- ----------- ----------
Fully Diluted Earnings Per Share
Net Income ................................................. $ 1,061,236 $ 1,372,998 $5,076,970
Interest on convertible debt, net of tax ................... 59,091 4,894 --
----------- ----------- ----------
Income before extraordinary item ........................... 1,120,327 1,377,892 5,076,970
Extraordinary item ......................................... -- (513,819) --
----------- ----------- ----------
Net income applicable to common stock ...................... $ 1,120,327 $ 864,073 $5,076,970
----------- ----------- ----------
Shares used in earnings per share computations ............. 2,648,740 3,207,622 7,189,638
----------- ----------- ----------
Earnings per share ......................................... $ 0.42 $ 0.27 $ 0.71
----------- ----------- ----------
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS-PRIMARY
Weighted average outstanding common shares ................. 1,399,577 2,471,712 7,055,491
Dilutive effect of stock and warrants issued within one year
prior to initial public offering ....................... 713,098 411,184 --
Average other common equivalent shares-dilutive effect of
warrant shares ......................................... 42,705 48,338 134,147
----------- ----------- ----------
Shares used in earnings per share computations ............. 2,155,380 2,931,234 7,189,638
----------- ----------- ----------
COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS-FULLY DILUTED
Weighted average outstanding common shares ................. 1,399,577 2,471,712 7,055,491
Dilutive effect of stock and warrants issued within one year
prior to initial public offering ....................... 713,098 411,184 --
Average other common equivalent shares-dilutive effect of
warrant shares ......................................... 42,705 48,338 134,147
Average shares attributable to preferred stock ............. 347,440 262,004 --
Average shares attributable to convertible debt ............ 145,920 14,384 --
----------- ----------- ----------
Shares used in earnings per share computation .............. 2,648,740 3,207,622 7,189,638
----------- ----------- ----------
</TABLE>
63
EXHIBIT 12.1
DAWSON PRODUCTION SERVICES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended March 31,
---------------------
1995 1996 1997
---- ---- ----
Earnings:
Income before income taxes ........... $1,742 $2,082 $ 8,420
Add back:
Interest expense ..................... 789 1,848 2,313
Amortization of debt issuance cost ... -- -- 74
Portion of rent expense representative
of interest factor ............... 58 84 122
------ ------ -------
Earnings as adjusted ..................... $2,589 $4,014 $10,929
====== ====== =======
Fixed charges:
Interest expense ..................... $ 789 $1,848 $ 2,313
Amortization of debt issuance cost ... -- -- 74
Portion of rent expense representative
of interest factor ............... 58 84 122
------ ------ -------
$ 847 $1,932 $ 2,509
====== ====== =======
Ratio of earnings to fixed charges ....... 3.1x 2.1x 4.4x
====== ====== =======
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Dawson Production Delaware
Management, Inc.
Dawson Production Delaware
Acquisition Corp.
Dawson Production Services Mexico
de Mexico, S.A. de C.V.
Ubicadora de Tecnicos, Mexico
S.A. de C.V.
Mobley Vehicle Acquisition Texas
Corp.
Taylor Companies, Inc. Texas
Dawson Production Delaware
Partners, L.P.
Dawson Production Delaware
Taylor, Inc.
65
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,330
<SECURITIES> 0
<RECEIVABLES> 31,476
<ALLOWANCES> (561)
<INVENTORY> 376
<CURRENT-ASSETS> 74,937
<PP&E> 165,476
<DEPRECIATION> 19,835
<TOTAL-ASSETS> 273,736
<CURRENT-LIABILITIES> 18,890
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 106,108
<TOTAL-LIABILITY-AND-EQUITY> 273,736
<SALES> 92,628
<TOTAL-REVENUES> 92,628
<CGS> 59,958
<TOTAL-COSTS> 59,958
<OTHER-EXPENSES> (697)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,313
<INCOME-PRETAX> 8,420
<INCOME-TAX> 3,343
<INCOME-CONTINUING> 5,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,077
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
