<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission file number 0-20689
DRILEX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0438889
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15151 SOMMERMEYER
HOUSTON, TEXAS
77041
(Address of principal executive offices)
(Zip Code)
(713) 937-8888
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at November 1, 1996: 6,758,265
<PAGE>
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DRILEX INTERNATIONAL INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1996 and December 31,
1995 3
Consolidated Statement of Income for the three and nine months
ended September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1996 and 1995 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,324 $ 819
Receivables:
Trade, net of allowance for doubtful accounts of $959 and $933
at September 30, 1996 and December 31, 1995, respectively 20,586 20,994
Other 825 694
Inventories 9,969 8,259
Prepaid expenses and other current assets 1,160 1,217
------- -------
Total current assets 35,864 31,983
Property and equipment, net of accumulated depreciation of $7,696 and
$4,732 at September 30, 1996 and December 31, 1995, respectively 30,663 27,557
Goodwill, net of accumulated amortization of $439 and $170
at September 30, 1996 and December 31, 1995, respectively 13,882 14,151
Other assets, net of accumulated amortization of $1,212 and $686
at September 30, 1996 and December 31, 1995, respectively 3,560 4,063
------- -------
$83,969 $77,754
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,532 $ 8,706
Accrued compensation and related benefits 1,404 1,550
Accrued taxes, other than on income 435 1,064
Accrued income taxes 1,013 476
Other accrued liabilities 526 936
Long-term debt, current maturities 2,471 5,886
------- -------
Total current liabilities 16,381 18,618
Long-term debt, less current maturities 8,155 32,467
Other noncurrent liabilities 2,108 2,182
------- -------
Total liabilities 26,644 53,267
------- -------
Commitments and contingencies
Minority interests 847 805
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 25,000,000 shares authorized; shares
issued: September 30, 1996 - 6,753,740 and December 31, 1995 -
4,381,205 68 44
Additional paid-in capital 50,719 19,845
Retained earnings 5,691 3,793
------- -------
Total stockholders' equity 56,478 23,682
------- -------
$83,969 $77,754
======= =======
</TABLE>
See condensed notes to consolidated financial statements.
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------
1996 1995 1996 1995
-------------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Rental and service $15,253 $11,744 $48,392 $29,471
Equipment sales 4,822 2,749 9,733 7,892
------- ------- ------- -------
20,075 14,493 58,125 37,363
------- ------- ------- -------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service 9,617 7,159 31,045 18,464
Equipment sales 1,896 1,535 4,193 4,006
Selling, general and administrative expenses 4,464 3,379 13,189 9,095
Depreciation and amortization 1,679 1,009 4,840 2,704
------- ------- ------- -------
17,656 13,082 53,267 34,269
------- ------- ------- -------
Operating income 2,419 1,411 4,858 3,094
Interest expense (188) (501) (1,827) (1,147)
------- ------- ------- -------
Income before income taxes and minority interests 2,231 910 3,031 1,947
Provision for income taxes (803) (328) (1,091) (701)
Minority interests (149) (8) (42) (106)
------- ------- ------- -------
Net income $ 1,279 $ 574 $ 1,898 $ 1,140
======= ======= ======= =======
Net income per common and common equivalent share $.19 $.13 $.36 $.26
======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding (in thousands) 6,850 4,379 5,316 4,370
======= ======= ======= =======
</TABLE>
See condensed notes to consolidated financial statements.
-4-
<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,898 $ 1,140
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,840 2,704
Minority interests 42 106
Net losses (gains) on disposition of property and equipment (1,287) 1,073
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in accounts payable 1,826 1,441
Decrease (increase) in prepaid expenses and other assets 273 (238)
Decrease (increase) in receivables 229 (4,366)
Increase in inventories (5,330) (4,246)
Increase (decrease) in accrued and other liabilities (878) 2,794
-------- -------
Net cash provided by operating activities 1,613 408
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and equipment 3,701 251
Capital expenditures (6,136) (3,333)
Acquisition of Sharewell, Inc., net of cash acquired -- (3,727)
-------- -------
Net cash used for investing activities (2,435) (6,809)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 28,554 --
Net borrowings under revolving credit agreements 7,150 2,000
Principal payments on long-term debt (32,377) (4,271)
Proceeds from issuance of long-term debt -- 11,000
Purchases of common stock -- (1,026)
-------- -------
Net cash provided by financing activities 3,327 7,703
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,505 1,302
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819 949
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,324 $ 2,251
======== =======
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of drilling equipment parts from inventories to property
and equipment $ 3,620 $ 2,227
Conversion of promissory note into shares of common stock 2,500 --
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill -- 26,257
Amount due in connection with acquisition of ENSCO Technology
Company net assets, net of cash acquired -- 11,488
Issuance of long-term debt -- 10,792
Issuance of long-term debt to reacquire equity interest in subsidiary -- 2,154
Issuance of warrants -- 250
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,908 $ 900
Income taxes paid 522 458
</TABLE>
See condensed notes to consolidated financial statements.
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DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements. Accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements for the fiscal year ended December 31, 1995,
and related notes thereto, included in the Registration Statement on Form S-1,
as amended (Reg. No. 333-03405), filed by Drilex International Inc. with the
Securities and Exchange Commission. All references herein to the "Company"
include Drilex International Inc. and its subsidiary companies unless otherwise
indicated or the context otherwise requires.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at September 30, 1996,
the consolidated results of operations for the three and nine months ended
September 30, 1996 and 1995 and consolidated cash flows for the nine months
ended September 30, 1996 and 1995. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December
15, 1995. The adoption of SFAS 121 by the Company in 1996 did not have a
material impact on its consolidated financial statements.
2. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS OF DOLLARS)
Drilling equipment parts $9,223 $7,573
Work in process 746 686
------ ------
$9,969 $8,259
====== ======
-6-
<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following (see Note 4):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility $ 5,050 $ 9,200
Term Note -- 16,578
Promissory Note payable to Posi-Trak Mud Motors, Inc. 1,333 1,333
Promissory Note payable to Cobb Directional Drilling Company, Inc. 500 750
Promissory Notes payable to former stockholders of Sharewell 3,743 4,431
Promissory Note payable to ENSCO Technology -- 3,561
Convertible Promissory Note payable to ENSCO Technology -- 2,500
------- -------
10,626 38,353
Less: current maturities (2,471) (5,886)
------- -------
$ 8,155 $32,467
======= =======
</TABLE>
On September 16, 1996, the Company entered into an amended and
restated credit agreement with a bank (the "Bank Credit Agreement") which
replaced the Company's previous bank credit agreement. The Bank Credit
Agreement consists of an unsecured revolving line of credit (the "Revolving
Credit Facility") which matures on September 30, 1999. The Revolving Credit
Facility provides for borrowings of up to $15,000,000, of which up to $3,000,000
may be used for letters of credit. As of September 30, 1996, $9,611,000 was
available for borrowing under the Revolving Credit Facility, of which $2,661,000
was available for letters of credit. Borrowings under the Revolving Credit
Facility bear interest at a rate per annum, at the Company's election, equal to
(i) a Eurodollar or Eurosterling interbank offered rate plus 3/4% or (ii) the
bank's prime rate. The Bank Credit Agreement requires the Company to maintain
certain financial covenants and places restrictions on the Company's ability to,
among other things, incur debt and liens, pay dividends, enter into unrelated
lines of business, undertake transactions with affiliates and make investments.
4. STOCKHOLDERS' EQUITY
In July 1996, the Company consummated its initial public offering of
common stock at a price to the public of $16 per share (the "Offering"). The
Company sold 2,000,000 shares of its common stock and received proceeds of
$29,760,000 (after underwriting discounts of $2,240,000 but before other
expenses of the Offering, which amounted to approximately $1,420,000). As part
of the Offering, ENSCO International Incorporated, the holder of a Convertible
Promissory Note issued by the Company in connection with the acquisition of the
assets of ENSCO Technology (the "ENSCO Technology Acquisition"), converted such
note into 361,962 shares of the Company's common stock and sold those shares to
the public. The Company did not receive any proceeds from the sale of ENSCO
International Incorporated's shares. The Company used the proceeds that it
received from the Offering to: (i) retire the outstanding principal amounts on
the term note under the previous bank credit agreement and a promissory note
issued in connection with the ENSCO Technology Acquisition, along with accrued
interest on such notes through the date of retirement; and (ii) repay
$11,300,000 of outstanding borrowings under the revolving credit facility of the
previous bank credit agreement. In connection with the retirement of the term
note, the Company terminated a related interest rate swap agreement, resulting
in cash proceeds to the Company of approximately $57,000.
-7-
<PAGE>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The underwriting discounts and other expenses of the Offering are reflected
as a reduction of the proceeds from the Offering in additional paid-in capital
on the Company's consolidated balance sheet as of September 30, 1996. A related
accrual for unpaid expenses of approximately $156,000 is included in other
accrued liabilities.
5. PER SHARE INFORMATION
Per share information is based on the weighted average number of
common shares outstanding during each period and, if dilutive, the weighted
average number of common equivalent shares resulting from the assumed conversion
of outstanding stock options and warrants. Shares issued by the Company during
the one-year period prior to the filing of its Registration Statement (see Note
4) have been included in the computation of weighted average shares from the
date of inception (using the treasury stock method and the anticipated initial
public offering price).
6. CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently determine
the ultimate costs that may be incurred, management believes the resolution of
such uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the Company's
financial condition as of September 30, 1996 and its results of operations for
the three-month and nine-month periods ended September 30, 1996 and 1995.
Statements regarding future financial performance and results and the other
statements that are not historical facts contained in this discussion are
forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including but not limited to the uncertainties
relating to exploration and development decisions to be made in the future by
oil and gas exploration and development companies, market factors, the market
price of oil and natural gas, future operations and costs, unanticipated
technological changes and other factors detailed in the Company's Registration
Statement on Form S-1, as amended (Reg. No. 333-03405) (the "Registration
Statement"), filed with the Securities and Exchange Commission. This discussion
should be read in conjunction with the response to Part I, Item 1 of this report
and the Consolidated Financial Statements of the Company, including the Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Registration Statement. Any capitalized
terms used but not defined in this Item have the same meaning given to them in
the Registration Statement.
RESULTS OF OPERATIONS
The Company's business is somewhat seasonal, since domestic oil and gas
drilling activities are generally lower in the first and second quarters.
Adverse weather conditions can curtail operations in certain regions during
different parts of the year. Accordingly, the Company's results of operations
for any one quarter are not necessarily indicative of results to be expected for
the full year.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
------------------------------ ---------------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
OF NET OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------------- -------------- ------------- ------------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $20,075 100.0% $14,493 100.0% $58,125 100.0% $37,363 100.0%
Operating expenses:
Costs of sales and operations 11,513 57.4 8,694 60.0 35,238 60.6 22,470 60.1
Selling, general and
administrative expenses 4,464 22.2 3,379 23.3 13,189 22.7 9,095 24.4
Depreciation and amortization 1,679 8.4 1,009 7.0 4,840 8.3 2,704 7.2
------- ----- ------- ----- ------- ----- ------- -----
Operating income 2,419 12.0 1,411 9.7 4,858 8.4 3,094 8.3
Interest expense (188) (.9) (501) (3.4) (1,827) (3.2) (1,147) (3.1)
------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes
and minority interests 2,231 11.1 910 6.3 3,031 5.2 1,947 5.2
Provision for income taxes (803) (4.0) (328) (2.3) (1,091) (1.9) (701) (1.9)
Minority interests (149) (.7) (8) -- (42) -- (106) (.3)
------- ----- ------- ----- ------- ----- ------- -----
Net income $ 1,279 6.4% $ 574 4.0% $ 1,898 3.3% $ 1,140 3.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Comparison of Three Months Ended September 30, 1996 and 1995
Consolidated revenues for the three months ended September 30, 1996 were
$20.1 million, an increase of 39% from revenues of $14.5 million for the
corresponding period in the prior year. The $5.6 million increase was primarily
attributable to the ENSCO Technology Acquisition (which was effective as of
September 30, 1995) and approximately $2 million in product sales and associated
service work to the Far East. Increased precision drilling services revenues in
Venezuela, Alaska and Argentina were offset by decreased revenues from the North
Sea and from the Company's trenchless services operations. For the third quarter
of 1996, rental and service revenues in Texas and Louisiana were lower than
anticipated due, in part, to weather-related disruptions in Texas, measurement-
while-drilling (MWD) equipment failures in the deep and hot sections of the
Austin Chalk formation and the consolidation of operations in Louisiana.
-9-
<PAGE>
Costs of sales and operations increased from $8.7 million in the third
quarter of 1995 to $11.5 million in the third quarter of the current year. This
increase is primarily attributable to the ENSCO Technology Acquisition and the
sales to the Far East. As a percentage of revenues, costs of sales and
operations decreased from 60.0% in the third quarter of 1995 to 57.4% in the
third quarter of the current year. The decrease in costs of sales and
operations as a percentage of revenues is primarily attributable to unusually
high margins associated with the Far East sales, partially offset by the
operations acquired in the ENSCO Technology Acquisition. ENSCO Technology's
margins have historically been less than the Company's pre-existing oilfield
drilling services (excluding the ENSCO Technology and Sharewell Acquisitions)
due to higher costs associated with MWD equipment and third-party motor rentals.
During the third quarter of 1996, the Company completed the consolidation of
certain facilities from the Cobb and Sharewell Acquisitions with the Company's
existing facilities in Louisiana and the United Kingdom, respectively. The
Company also deployed MWD equipment to areas that were previously renting third-
party MWD units. Five additional MWD systems have been purchased for delivery in
the fourth quarter of 1996 to support the Company's Venezuelan and Louisiana
Gulf Coast operations. To optimize the expanded operations, the Company is
combining its guidance instrumentation support services into a single Houston
facility. This centralization of personnel, controls and procedures is expected
to reduce costs, enhance guidance instrument performance and improve service
delivery.
Selling, general and administrative expenses increased from $3.4 million in
the third quarter of 1995 to $4.5 million in the third quarter of 1996. As a
percentage of revenues, such expenses decreased from 23.3% in the third quarter
of 1995 to 22.2% in the third quarter of 1996. The dollar increase in selling,
general and administrative expenses is primarily attributable to the ENSCO
Technology Acquisition. Corporate overhead increased $0.3 million, largely due
to additional personnel costs associated with the support of these newly
acquired operations.
Depreciation and amortization increased from $1.0 million in the third
quarter of 1995 to $1.7 million in the third quarter of 1996. This increase was
primarily associated with the ENSCO Technology Acquisition and net additions to
property and equipment.
Interest expense decreased from $0.5 million in the third quarter of 1995 to
$0.2 million in the third quarter of 1996. Beginning in the third quarter of
1996, interest expense has been substantially reduced as a result of retiring
approximately $32.2 million in debt in connection with the Offering (see Notes 3
and 4 of the Condensed Notes to Consolidated Financial Statements).
Comparison of Nine Months Ended September 30, 1996 and 1995
Consolidated revenues for the nine months ended September 30, 1996 were $58.1
million, an increase of 56% from revenues of $37.4 million for the corresponding
period in the prior year. The $20.7 million increase was primarily attributable
to the ENSCO Technology Acquisition, the $2 million in Far East sales and a full
nine months of operations associated with the Sharewell Acquisition (which was
effective as of May 5, 1995). Increased precision drilling services revenues in
Venezuela, the Louisiana Gulf Coast, Oklahoma and Alaska were largely offset by
decreased revenues from the North Sea and Argentina.
Costs of sales and operations increased from $22.5 million in the first nine
months of 1995 to $35.2 million in the first nine months of the current year.
This increase is largely attributable to the ENSCO Technology Acquisition, along
with a full nine months of operations associated with the Sharewell Acquisition.
As a percentage of revenues, costs of sales and operations increased from 60.1%
in the first nine months of 1995 to 60.6% in the first nine months of the
current year. The increase in costs of sales and operations as a percentage of
revenues is primarily attributable to the operations acquired in the ENSCO
Technology Acquisition, as
-10-
<PAGE>
discussed above, and the Sharewell Acquisition, partially offset by the
unusually high margins associated with the Far East sales. Sharewell's margins
were lower than the Company's pre-existing oilfield drilling services due to
sales of third-party equipment. Included in costs of sales and operations for
the first nine months of the current year are incremental engineering project
costs of approximately $0.3 million for the replacement of third-party drilling
motors with Drilex motors.
Selling, general and administrative expenses increased from $9.1 million in
the first nine months of 1995 to $13.2 million in the first nine months of 1996.
As a percentage of revenues, such expenses decreased from 24.4% in the first
nine months of 1995 to 22.7% in the first nine months of 1996. The dollar
increase in selling, general and administrative expenses is primarily
attributable to the ENSCO Technology Acquisition, along with a full nine months
of expenses associated with the Sharewell Acquisition. Corporate overhead
increased $0.9 million, primarily for additional personnel costs associated with
the support of these newly acquired operations. Also included in selling,
general and administrative expenses for the first nine months of 1996 is a
charge of approximately $0.3 million for an increase of the Company's allowance
for doubtful accounts related primarily to two Australian customers of
Sharewell. The impact of this charge on the Company's net income was
approximately $150,000.
Depreciation and amortization increased from $2.7 million in the first nine
months of 1995 to $4.8 million in the first nine months of 1996. This increase
was primarily associated with the ENSCO Technology and Sharewell Acquisitions.
Interest expense increased from $1.1 million in the first nine months of 1995
to $1.8 million in the first nine months of 1996. This increase was primarily
due to debt incurred in connection with the ENSCO Technology and Sharewell
Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $19.5 million,
compared to working capital of $13.4 million at December 31, 1995. This increase
primarily reflects the retirement of current maturities of debt with proceeds
from the Offering (as discussed below) along with increased cash from
operations.
Capital expenditures for the first nine months of 1996 were $6.1 million.
These expenditures included $3.9 million for acquisitions of new MWD systems and
replacement of "lost-in-hole" MWD systems. The Company expects to spend
approximately $3.1 million for capital expenditures during the remaining three
months of 1996. Such expenditures are expected to relate primarily to
acquisitions of new MWD systems.
During the remainder of 1996, the Company expects to fund its working
capital, anticipated capital expenditures and debt maturity requirements
primarily through cash provided by operating activities and available revolving
credit borrowing capacity. The Company carries substantial inventory and
accounts receivable, and will require increased working capital as its revenues
grow.
In July 1996, the Company consummated the Offering at a price to the public
of $16 per share. The Company sold 2,000,000 shares of its common stock and
received proceeds of $29.8 million (after underwriting discounts of $2.2 million
but before other expenses of the Offering, which amounted to approximately $1.4
million). As part of the Offering, ENSCO International Incorporated, the holder
of a Convertible Promissory Note issued by the Company in connection with the
ENSCO Technology Acquisition, converted such note into 361,962 shares of the
Company's common stock and sold those shares to the public. The Company did not
receive any proceeds from the sale of ENSCO International Incorporated's shares.
The Company used the proceeds that it received from the Offering to: (i) retire
the outstanding principal amounts on the term note under the previous bank
credit agreement and a promissory note issued in connection with the ENSCO
Technology
-11-
<PAGE>
Acquisition, along with accrued interest on such notes through the date of
retirement; and (ii) repay $11.3 million of outstanding borrowings under the
revolving credit facility of the previous bank credit agreement. In connection
with the retirement of the term note, the Company terminated a related interest
rate swap agreement. The termination of such swap agreement resulted in the
Company receiving cash proceeds of approximately $57,000.
On September 16, 1996, the Company entered into an amended and restated
credit agreement with a bank (the "Bank Credit Agreement") which replaced the
Company's previous bank credit agreement. The Bank Credit Agreement consists of
an unsecured revolving line of credit (the "Revolving Credit Facility") which
matures on September 30, 1999. The Revolving Credit Facility provides for
borrowings of up to $15.0 million, of which up to $3.0 million may be used for
letters of credit. As of November 1, 1996, $9.0 million was available for
borrowing under the Revolving Credit Facility, of which $2.9 million was
available for letters of credit. Borrowings under the Revolving Credit Facility
bear interest at a rate per annum, at the Company's election, equal to (i) a
Eurodollar or Eurosterling interbank offered rate plus 3/4% or (ii) the bank's
prime rate. The Bank Credit Agreement requires the Company to maintain certain
financial covenants and places restrictions on the Company's ability to, among
other things, incur debt and liens, pay dividends, enter into unrelated lines of
business, undertake transactions with affiliates and make investments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The adoption of SFAS 121 by the
Company in 1996 did not have a material impact on its consolidated financial
statements.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 Amended and Restated Credit Agreement dated as of September 16,
1996 among the Company, Drilex Systems, Inc., Cobb Directional
Drilling Company, L.L.C., Sharewell, Inc., Drilex Systems Limited
and Texas Commerce Bank National Association, as lender.
4.2 Dollar Note dated September 16, 1996 of the Company, Drilex
Systems, Inc., Sharewell, Inc. and Cobb Directional Drilling
Company, L.L.C. payable to the order of Texas Commerce Bank
National Association.
4.3 Interest Rate Agreement dated as of September 16, 1996 among Texas
Commerce Bank National Association, the Company, Drilex Systems,
Inc., Cobb Directional Drilling Company, L.L.C., Sharewell, Inc.
and Drilex Systems Limited.
11.1 Computation of Net Income Per Common and Common Equivalent Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
DRILEX INTERNATIONAL INC.
Date: November 12, 1996 By: /s/ JOHN FORREST
-------------------------------------------
John Forrest
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1996 By: /s/ G. BRUCE BROUSSARD
-------------------------------------------
G. Bruce Broussard
Vice President - Finance and Administration
and Secretary
(Principal Financial Officer and Principal
Accounting Officer)
-14-
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
DRILEX INTERNATIONAL INC.,
DRILEX SYSTEMS, INC.,
COBB DIRECTIONAL DRILLING COMPANY, L.L.C.,
SHAREWELL, INC.
AND
DRILEX SYSTEMS LIMITED
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
DATED AS OF SEPTEMBER 16, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions....................................................................................... 1
1.1 Defined Terms..................................................................................... 1
1.2 Other Terms and References........................................................................13
2. The Credits.......................................................................................14
2.1 Dollar Loans......................................................................................14
2.2 Letter of Credit..................................................................................14
2.3 Pound Loans.......................................................................................15
2.4 Mandatory Prepayments.............................................................................16
2.5 Voluntary Commitment Reductions...................................................................16
2.6 Commitment Fees...................................................................................16
2.7 Payments..........................................................................................16
2.8 Capital Adequacy..................................................................................17
3. Guaranty.................................................................................................17
3.1 Guaranty of Pound Note............................................................................17
3.2 Modifications, Etc................................................................................18
3.3 Waivers...........................................................................................18
3.4 Payment Guaranty..................................................................................19
3.5 Subrogation.......................................................................................19
4. Conditions...............................................................................................19
4.1 All Extensions of Credit..........................................................................19
4.2 First Loan........................................................................................20
5. Representations and Warranties...........................................................................20
5.1. Organization......................................................................................20
5.2 Financial Statements..............................................................................20
5.3 Enforceable Obligations; Authorization............................................................20
5.4 Other Debt........................................................................................21
5.5 Litigation........................................................................................21
5.6 Title.............................................................................................21
5.7 Taxes.............................................................................................21
5.8 Regulation U......................................................................................21
5.9 Subsidiaries......................................................................................21
5.10 Representations by Others.........................................................................21
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.11 No Misrepresentation or Omission..................................................................22
6. Affirmative Covenants....................................................................................22
6.1 Taxes, Existence, Regulations, Property, etc......................................................22
6.2 Financial Statements and Information..............................................................22
6.3 Financial Tests...................................................................................23
6.4 Inspection........................................................................................23
6.5 Further Assurances................................................................................23
6.6 Books and Records.................................................................................23
6.7 Insurance.........................................................................................23
6.8 Notice of Certain Matters.........................................................................23
6.9 Use of Proceeds...................................................................................23
7. Negative Covenants.......................................................................................24
7.1 Debt..............................................................................................24
7.2 Liens.............................................................................................24
7.3 Contingent Liabilities............................................................................25
7.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets...............................25
7.5 Redemption, Dividends and Distributions...........................................................26
7.6 Nature of Business................................................................................26
7.7 Transactions with Related Parties.................................................................26
7.8 Loans and Investments.............................................................................26
7.9 ERISA.............................................................................................26
7.10 Subsidiaries......................................................................................27
8. Events of Default and Remedies...........................................................................27
8.1 Events of Default.................................................................................27
8.2 Remedies Cumulative...............................................................................29
9. Miscellaneous............................................................................................29
9.1 No Waiver.........................................................................................29
9.2 Notices...........................................................................................29
9.3 Governing Law.....................................................................................30
9.4 Survival; Parties Bound; Term.....................................................................30
9.5 Counterparts......................................................................................31
9.6 Captions..........................................................................................31
9.7 Expenses..........................................................................................31
9.8 Indemnification...................................................................................32
9.9 Entire Agreement..................................................................................32
9.10 Severability......................................................................................32
9.11 Disclosures.......................................................................................32
9.12 Obligations of Dollar Borrowers Are Joint And Several.............................................32
9.13 Amendment and Restatement.........................................................................32
</TABLE>
ii
<PAGE>
Exhibit A - Dollar Note
Exhibit B - Pound Note
Exhibit C - Request for Dollar Loan
Exhibit D - Request for Pound Loan
Exhibit E - Opinion of Baker & Botts, L.L.P.
Exhibit F - Opinion of Iain Smith & Co.
Exhibit G - Certificate of No Default
Exhibit H - Shareco Acquisition Notes
Exhibit I - Certain Notes Held by Dollar Borrowers
Appendix I - Subsidiaries
iii
<PAGE>
CREDIT AGREEMENT
----------------
This Credit Agreement (this "Agreement") dated as of September 16, 1996,
among DRILEX INTERNATIONAL INC. ("Parent"), a Delaware corporation (formerly
Drilex Holdings Corp.); DRILEX SYSTEMS, INC. ("DSI"), a Texas corporation; COBB
DIRECTIONAL DRILLING COMPANY, L.L.C. ("Cobb"), a Delaware limited liability
company; SHAREWELL, INC. ("Sharewell"), a Delaware corporation (formerly
Shareco, Inc. ("Shareco")); DRILEX SYSTEMS LIMITED ("DSL"), a company
incorporated in Scotland under the Companies Act, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION (the "Lender"), a national banking association;
W I T N E S S E T H:
-------------------
THAT, in consideration of the mutual covenants, agreements and undertakings
herein contained, the parties hereto agree as follows:
1. Definitions.
-----------
1.1 Defined Terms. Unless a particular word or phrase is otherwise
defined or the context otherwise requires, capitalized words and phrases used in
the Credit Documents have the meanings provided below.
Accounts shall have the meaning assigned to it in the Texas Business and
Commerce Code in force on the date hereof.
Accounts Component shall mean 80% of the Eligible Accounts of the Dollar
Borrowers and their Subsidiaries.
Affiliate shall mean any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
Annual Financial Statements shall mean the annual financial statements of a
Person for its fiscal year, including all notes thereto, accompanied by a report
and opinion of independent certified public accountants satisfactory to the
Lender, which shall (a) state that such financial statements, in the opinion of
such accountants, present fairly, in all material respects, the financial
position of such Person as of the date thereof and the results of its operations
for the period
<PAGE>
covered thereby in conformity with generally accepted accounting principles,
consistently applied, and (b) not express a doubt as to the ability of such
Person to continue as a going concern.
Application shall mean, as of any date, an application and agreement for
substantially in the form then used by the Lender in connection with its
issuance of commercial or standby (as the case may be) letters of credit; to the
extent that an Application is inconsistent with the terms of this Agreement,
this Agreement shall control.
Approved Progress Billings shall mean progress billings (not including
retention) to general contractors on projects for American Telephone & Telegraph
Company; Dow Chemical Company; Radian International, L.L.C.; MCI Communications
Corp.; Sprint Communications Company L.P.; Southwestern Bell Corporation;
Bellsouth Telecommunications, Inc., and their respective Affiliates.
Borrowers shall mean Parent, DSI, Cobb, Sharewell and DSL.
Borrowing Base shall mean (a) the Accounts Component plus (b) the Inventory
Component; provided, however, that no Property of any Subsidiary organized
outside the United States shall be included in the calculation of the Borrowing
Base unless such Subsidiary is a Qualified Foreign Subsidiary.
Business Day shall mean a day when the principal banking building of the
Lender is open for business in Houston, Texas.
Capital Expenditures shall mean expenditures for fixed or capital assets
(including expenditures for maintenance, repairs and replacements) that are
required to be capitalized on a balance sheet prepared in accordance with Good
Accounting Practices, as determined in accordance with Good Accounting Practice,
excluding expenditures for the acquisition of a business and net of proceeds
from the sale of equipment which was capitalized in accordance with Good
Accounting Practices.
Cash Collateral shall mean (a) securities issued or directly, fully and
unconditionally guaranteed or insured by the USA or any agency or
instrumentality thereof (provided that the full faith and credit of the USA is
pledged in support thereof) having maturities of not more than one year from the
date of issue; (b) dollar time deposits and certificates of deposit of (1) the
Lender or (2) any commercial bank reasonably acceptable to the Lender; (c)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (a) above entered into with any bank
meeting the qualifications specified in clause (b) above, provided that the
terms of such agreements comply with the guidelines set forth in the Federal
Financial Institution Examination Counsel Supervisory Policy--Repurchase
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985, and (d)
commercial paper or other Dollar obligations issued by the ultimate
2
<PAGE>
parent Corporation of (1) the Lender or (2) any commercial bank reasonably
acceptable to the Lender; provided in each case that such Investment is subject
to a Security Document, in Proper Form and in favor of the Lender, and the
interest of the Lender therein is duly perfected.
Cobb Acquisition Documents shall mean the Posi-Trak Acquisition Note, the
Stock Acquisition Notes and the other documents and instruments executed in
connection with (i) the transactions contemplated in that certain Letter of
Intent dated August 16, 1994 executed by and between Parent and Cobb Directional
Drilling Company, Inc., including the definitive agreement of purchase
contemplated thereby and/or (ii) the acquisition by Parent and DSI of all of the
interests of Cobb Directional Drilling Company, Inc. in and to Cobb. Each of
the Cobb Acquisition Documents shall be in Proper Form.
Code shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
Collateral shall mean all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Security Documents, or intended so to
be pursuant to the Credit Documents.
Commitment Fees shall have the meaning ascribed to it in Section 2.6.
Commitments shall mean the Dollar Available Commitment and the Pound
Available Commitment.
Common Stockholders' Equity shall mean the difference of (a) Equity minus
(b) preferred stock.
Corporations shall mean corporations, partnerships, limited liability
companies, joint ventures, joint stock associations, business trusts and other
business entities.
Credit Documents shall mean this Agreement, the Notes, all Applications,
all Security Documents, the Interest Rate Agreement, each Interest Rate Risk
Agreement, all instruments, certificates and agreements now or hereafter
executed or delivered to the Lender pursuant to any of the foregoing.
Debt shall mean, as of any date and for any Person, the Indebtedness of
such Person for borrowed money (including principal obligations under
capitalized leases but excluding deferred income taxes, deferred pension
liabilities and other deferred expenses and reserves).
Debt to Capitalization Ratio shall mean, as of any date, the ratio
(expressed as a percentage) of (a) Debt of Parent (on a consolidated basis) as
of such date to (b) the sum of (1)
3
<PAGE>
Debt of Parent (on a consolidated basis) as of such date plus (2) Equity of
Parent (on a consolidated basis) as of such date.
Dollar Available Commitment shall mean the Commitment of the Lender to make
Dollar Loans described in Section 2.1; at any time, the Dollar Available
Commitment is (a) the lesser of (1) the Maximum Dollar Commitment at such time
and (2) the Dollar Borrowing Base at such time minus (b) the Letter of Credit
Exposure at such time.
Dollar Borrowers shall mean Parent, DSI, Cobb and Sharewell.
Dollar Borrowing Base shall mean (a) the Borrowing Base minus (b) the
Dollar Equivalent of the outstanding principal balance of the Pound Note.
Dollar Equivalent shall mean the equivalent in Dollars of Pounds as
determined by using the quoted spot rate at which the Lender (or any Affiliate
of the Lender) offers to exchange Dollars for Pounds in New York City at 10:00
a.m. (Houston time) two Business Days before the date on which such equivalent
is to be determined.
Dollar Exposure shall mean the sum of (a) the outstanding principal balance
of the Dollar Note plus (b) the Letter of Credit Exposure.
Dollar Loans shall mean the Loans described in Section 2.1.
Dollar Note shall mean the promissory note of the Dollar Borrowers
described in Section 2.1, and any and all renewals, extensions, modifications,
rearrangements and replacements thereof and any and all substitutions therefor.
Dollars and $ shall mean the lawful currency of the USA.
EBITDA shall mean Net Income after taxes, plus (a) depreciation, depletion,
obsolescence and amortization of Property (including goodwill and other
intangibles); (b) tax expense; (c) interest expense, (d) minority interests, and
(e) capitalized lease expense, all determined in accordance with Good Accounting
Practice.
Eligible Accounts shall mean all Qualifying Accounts Receivable of the
Dollar Borrowers and their Subsidiaries which are not more than 90 days (or 120
days, if a Foreign Account Debtor) past invoice date, excluding (a) those
Accounts which are obligations of Affiliates of any Borrower; (b) all Accounts
of an Account debtor if 20% or more (measured by amount) of such Accounts (not
including retainage) are outstanding more than 90 days (or 120 days, if such
Account debtor is a Foreign Account Debtor) after the invoice date thereof; (c)
the excess of all Accounts of an Account debtor and its Affiliates over 20% of
all Accounts of all Dollar Borrowers (on a consolidated basis) if such
concentration with respect to an Account debtor has been in
4
<PAGE>
continuous effect for more than 90 days; (d) progress billings other than
Approved Progress Billings, and (e) those Accounts which are obligations of the
USA and its instrumentalities.
Equity shall mean stockholders equity, including (a) preferred stock; (b)
common stock; (c) paid in capital in excess of par; (d) retained earnings (net
of any reserves of retained earnings), and (e) cumulative translation
adjustment.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
Event of Default shall mean any of the events specified as an event of
default in any Credit Document, provided there has been satisfied any
requirement in connection with such event for the giving of notice, or the lapse
of time, or the happening of any further condition, event or act, and Default
shall mean any of such events, whether or not any such requirement has been
satisfied.
Financial Statements shall mean the financial statements of a Person,
including all notes (if any) thereto, which shall include a balance sheet as of
the date of such financial statements and an income statement and a statement of
cash flows for the fiscal period (quarter, year-to-date or year, as the case may
be) then ending, all setting forth in comparative form the corresponding figures
from such period of the preceding year and prepared in accordance with Good
Accounting Practice.
Financing Statements shall mean all such Uniform Commercial Code financing
statements as the Lender shall reasonably require, in Proper Form, duly executed
by the Dollar Borrowers or others to give notice of and to perfect or continue
perfection of the Lender's security interest in all Collateral.
Fixed Charge Coverage Ratio shall mean, as of any date, the ratio of (a)
the difference of (1) EBITDA minus (2) cash tax expense to (b) Fixed Charges, in
each case of Parent (on a consolidated basis). For purposes of this ratio, (i)
EBITDA and cash tax expense shall be computed as of any date for the 12 months
ending on such date (but if such date is before October 5, 1996, then EBITDA of
ENSCO Technology Company shall be included in the foregoing calculation of
Parent as if it had been acquired and consolidated 12 months prior to the
calculation date) and (ii) Fixed Charges shall be computed as of any date for
the 12 months ending on such date (but for months prior to July 2, 1996, such
calculation shall exclude all scheduled principal payments and cash interest
expense on the Loans, those certain promissory notes dated as of September 30,
1995 and January 1, 1996 executed by the Parent payable to the order of ENSCO
Technology Company in the original principal amounts of $2,500,000 and
$3,561,000, respectively, and that certain promissory note dated as of September
29, 1995 executed by the Dollar Borrowers payable to the order of Lender in the
original principal amount of $17,450,000).
5
<PAGE>
Fixed Charges shall mean (a) scheduled principal payments (not including
mandatory prepayments based on financial results) on all Debt other than the
Loans; (b) cash interest expense; (c) Net Capital Expenditures, and (d)
dividends (other than stock dividends) by Parent to any of its shareholders to
the extent actually distributed or paid.
Foreign Account Debtor shall mean any Person other than (a) an individual
living in the USA; (b) a Corporation organized under the laws of the USA or one
of the States of the USA, or (c) a Person with substantial Property in the USA.
Good Accounting Practice shall mean generally accepted accounting
principles consistently applied (except for changes approved by such Person's
independent auditors and with prior written notice to the Lender).
Governmental Authority shall mean any foreign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any agency, department, commission,
board, bureau, court or other tribunal having jurisdiction over the Lender or
any Borrower, any Subsidiary of any Borrower or their respective Property.
Indebtedness shall mean and include, without duplication, (a) all items
which in accordance with Good Accounting Practice would be included on the
liability side of a balance sheet on the date as of which Indebtedness is to be
determined (excluding capital stock, minority interests, surplus, surplus
reserves, deferred credits, accrued taxes and other accruals in the ordinary
course of business that do not relate to borrowed money); (b) all guaranties,
endorsements and other contingent obligations in respect of, or any obligations
to purchase or otherwise acquire, items described in clause (a) above of others,
and (c) all items described in clauses (a) and (b) above secured by any Lien
existing on any interest of the Person with respect to which Indebtedness is
being determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed; provided that such term
shall not mean or include any Indebtedness in respect of which monies sufficient
to pay and discharge the same in full (either on the expressed date of maturity
thereof or on such earlier date as such Indebtedness may be duly called for
redemption and payment) shall be deposited with a depository, agency or trustee
acceptable to the Lender in trust for the payment thereof.
Interest Rate Agreement shall mean that certain Interest Rate Agreement of
even date herewith among the Borrowers and the Lender relating to the Notes.
Interest Rate Risk Agreement shall mean an interest rate swap agreement,
interest rate cap agreement or similar arrangement entered into between any
Borrower and one or more financial institutions for the purpose of reducing such
Borrower's exposure to interest rate risk and not for speculative purposes, as
it may from time to time be amended, modified, restated or supplemented from
time to time.
6
<PAGE>
Interest Rate Risk Indebtedness shall mean all obligations and Indebtedness
of any Borrower with respect to the program for the hedging of interest rate
risk provided for in any Interest Rate Risk Agreement.
Inventory shall have the meaning assigned to it in the Texas Business and
Commerce Code in force on the date hereof.
Inventory Component shall mean the lesser of (i) the Accounts Component
or (ii) the Possible Inventory Component.
Investment shall mean the purchase or other acquisition of any securities
or Debt of, or the making of any loan, advance, transfer of Property or capital
contribution to, or the incurring of any liability, contingently or otherwise,
in respect of the Debt of, any Person.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
Letter of Credit Commitment shall mean the least of (a) the Maximum
Commitment; (b) the Dollar Borrowing Base and (c) $3,000,000.
Letter of Credit Exposure shall mean, as of any date, the aggregate
outstanding face amount of all Letters of Credit as of such date.
Letters of Credit shall mean all letters of credit issued pursuant to this
Agreement.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract to
secure the payment or performance of an obligation to a third party, and shall
include any such reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other title exceptions.
Loan shall mean each advance of funds pursuant to this Agreement.
Maximum Commitment shall mean $15,000,000, subject to reduction as provided
in Section 2.5.
Maximum Dollar Commitment shall mean (a) the Maximum Commitment minus (b)
the Dollar Equivalent of the outstanding principal balance of the Pound Note.
Maximum Pound Commitment shall mean the lesser of (a) the Possible Pound
Commitment and (b) the Nominal Pound Commitment.
7
<PAGE>
Net Capital Expenditures shall mean, for any period, the excess (if any) of
(a) Capital Expenditures of such period over (b) the net cash proceeds received
by the Dollar Borrowers in connection with the sale of their common stock,
preferred stock and Subordinated Indebtedness and applied, during such period,
to pay Capital Expenditures minus expenditures for the acquisition of a business
during such period; in no event may "Net Capital Expenditures" be negative.
"Net Capital Expenditures" shall not include Capital Expenditures which are paid
by customers of the applicable Borrower resulting from "lost in hole" equipment.
The computation under item (b) above shall specifically include expenditures for
certain measurement-while-drilling equipment amounting to $2,378,000 for the
month of September, 1996 and $2,336,000 for the month of November, 1996.
Net Income shall mean gross revenues and other proper income credits, less
all proper income charges, including taxes on income, all determined in
accordance with Good Accounting Practice; provided that there shall not be
included in such revenues (a) any income representing the excess of equity in
any Subsidiary at the date of acquisition over the investment in such
Subsidiary; (b) any equity in the undistributed earnings of any Person which is
not a Subsidiary; (c) any earnings of any Subsidiary for any period prior to the
date such Subsidiary was acquired; (d) any gains resulting from the write-up of
assets; (e) any proceeds of any life insurance policy, or (f) any gain which is
classified as "extraordinary" in accordance with Good Accounting Practice; and
provided further that capital gains may be included in revenues only to the
extent of capital losses.
Nominal Pound Commitment shall mean (Pounds)750,000, subject to reduction
as provided in Section 2.5.
Notes shall mean the Dollar Note and the Pound Note.
Obligations shall mean the obligations of the Borrowers for the Loans, the
Letter of Credit Exposure and the other amounts payable by the Borrowers under
this Agreement or the other Credit Documents.
Organizational Documents shall mean, with respect to (a) a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; (b) a partnership, the partnership agreement establishing such
partnership; (c) a joint venture, the joint venture agreement establishing such
joint venture; (d) a trust, the instrument establishing such trust, and (e) any
other type of entity, the analogous documents creating such entity and by which
it is governed; in each case including any and all modifications thereof as of
the date of the Credit Document referring to such Organizational Document and
any and all future modifications thereof which are consented to by the Lender.
Permitted Dividends shall mean (i) dividends paid by any Subsidiary of a
Borrower to such Borrower (or to a Subsidiary of such Borrower, in the case of
indirect Subsidiaries of such Borrower), (ii) dividends paid by any Subsidiary
of a Borrower to a holder of a minority interest
8
<PAGE>
in such Subsidiary, but not exceeding the pro rata equivalent of dividends paid
by such Subsidiary during the applicable period pursuant to clause (i) of this
definition (i.e. if dividends of $900,000 are paid by such Subsidiary during the
applicable period pursuant to clause (i) of this definition, a 10% minority
shareholder shall be permitted to receive a dividend of $100,000 [($900,000 /
90) x 10]); provided, however, that the right to pay dividends to a minority
shareholder pursuant to this clause (ii) shall be suspended at such time as the
aggregate dividends paid by the applicable Subsidiary shall reduce such
Subsidiary's Equity to zero, and (iii) dividends paid by Parent not exceeding,
in any fiscal year, the Net Income of Parent for such fiscal year. Permitted
Dividends may be distributed so long as no Default or Event of Default shall
have occurred hereunder.
Permitted Investment Securities shall mean (a) readily marketable
securities issued or fully guaranteed by the United States of America or any
agency thereof; (b) commercial paper rated "P-2" or better by Moody's Investors
Service, Inc. or "A-2" or better by Standard and Poor's Ratings Services (or
their equivalent by another nationally recognized statistical ratings
organization); (c) certificates of deposit or repurchase certificates issued by
financial institutions reasonably acceptable to the Lender, all of the foregoing
not having a maturity of more than one year from the date of issuance thereof;
(d) repurchase agreements with respect to (and secured by a pledge of)
securities described in clauses (a) through (c) above and entered into with any
commercial bank described in clause (c) above or any securities broker-dealer of
recognized regional or national standing; (e) money market or mutual funds
sponsored by any securities broker-dealer of recognized national standing (or an
affiliate thereof) having an investment policy that requires substantially all
of the invested assets of such fund to be invested in Investments described in
any one or more of the foregoing clauses of this definition, and (f) securities
received in settlement of liabilities created in the ordinary course of
business.
Permitted Liens shall mean the Liens permitted by Section 7.2 hereof.
Person shall mean any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan shall mean any plan subject to Title IV of ERISA and maintained for
employees of the Borrower or of any member of a "controlled group of
corporations", as such term is defined in the Code, of which any Borrower or any
of their respective Subsidiaries is a part, or any such plan to which any of
them is required to contribute on behalf of its employees.
Posi-Trak Acquisition Note shall mean a promissory note, in Proper Form, in
a principal amount not exceeding $1,333,340 executed or to be executed by Parent
payable to Posi-Trak Mud Motors, Inc.
Possible Inventory Component shall mean 35% of the net book value of the
Inventory of the Dollar Borrowers and their Subsidiaries.
9
<PAGE>
Possible Pound Commitment shall mean the Sterling Equivalent of (a) the
Maximum Commitment minus (b) the Dollar Exposure.
Pound Available Commitment shall mean the Commitment of the Lender to make
Pound Loans described in Section 2.3; at any time, the Pound Available
Commitment is the lesser of (a) the Maximum Pound Commitment and (b) the Pound
Borrowing Base.
Pound Borrowing Base shall mean the Sterling Equivalent of (a) the
Borrowing Base minus (b) the Dollar Exposure.
Pound Loans shall mean the Loans described in Section 2.3.
Pound Note shall mean the promissory note of DSL described in Section 2.3,
and any and all renewals, extensions, modifications, rearrangements and
replacements thereof and any and all substitutions therefor.
Pounds and (Pounds) shall mean the lawful currency of the United Kingdom.
Proper Form shall mean in form and substance reasonably satisfactory to the
Lender.
Property shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
Qualified Foreign Subsidiary shall mean (i) Drilex Systems, S.A., (ii) any
Subsidiary of a Dollar Borrower organized in the United Kingdom or Canada and
(iii) such other Subsidiaries of a Dollar Borrower organized outside the United
States as the Lender may from time to time approve.
Qualifying Accounts Receivable shall mean all Accounts meeting all of the
following criteria as of the date of any determination of Qualifying Accounts
Receivable: (a) the Account shall be (1) due and payable not more than 60 days
from the date of the invoice or agreement evidencing same and (2) billed within
60 days after the shipment of the goods or the rendering of services giving rise
to the Account; (b) the Account shall arise from the performance of services by
the obligee of the Account which have been fully and satisfactorily performed,
or from the absolute sale of goods by the obligee of the Account in which such
obligee had the sole and complete ownership, and the goods have been shipped and
delivered to the Account debtor, evidencing which such obligee has possession of
shipping and delivery receipts; (c) the Account is not subject to set-off,
counterclaim, defense, allowance or adjustment other than discounts for prompt
payment shown on the invoice or to dispute, objection or complaint by the
Account debtor concerning its liability on the Account, and the goods, the sale
of which gave rise to the Account, have not been returned, rejected, lost or
damaged; (d) the Account arose in the ordinary course of business of the obligee
thereon, and (e) no notice of bankruptcy, insolvency or financial embarrassment
of the Account debtor has been received by the obligee of such Account; provided
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that each determination of a Qualifying Account Receivable shall exclude any
portion of an Account which is to be retained pending the completion of the
relevant project.
Quarterly Financial Statements shall mean the quarterly Financial
Statements of a Person.
Secretary's Certificate shall mean a certificate of the Secretary or an
Assistant Secretary (or similar officer) of a Corporation as to (a) the
resolutions of the Board of Directors (or similar body) of such Corporation
authorizing the execution, delivery and performance of the Credit Documents to
be delivered by such Corporation; (b) the incumbency and signature of the
officer of such Corporation executing such Credit Documents on behalf of such
Corporation, and (c) the Organizational Documents of such Corporation.
Security Documents shall mean this Agreement and any and all other
agreements, deeds of trust, mortgages, chattel mortgages, security agreements,
pledges, guaranties, assignments of production or proceeds of production,
assignments of income, assignments of contract rights, assignments of
partnership interest, assignments of royalty interests, assignments of
performance, completion or surety bonds, standby agreements, subordination
agreements, undertakings and other instruments and Financing Statements now or
hereafter executed and delivered by any Person (other than solely by the Lender
and/or any other creditor participating in the Loans evidenced by the Notes or
any collateral or security therefor) in connection with, or as security for the
payment or performance of, any indebtedness under this Agreement.
Shareco Acquisition Documents shall mean the Shareco Acquisition Notes and
the other documents and instruments executed in connection with the transactions
contemplated in that certain Stock Purchase Agreement dated May 5, 1995 executed
by and between Parent and the holders of shares and options to purchase shares
of Shareco. Each of the Shareco Acquisition Documents shall be in Proper Form.
Shareco Acquisition Notes shall mean the promissory notes described on
Exhibit H hereto.
Shareco (UK) shall mean Sharewell Horizontal Systems, Ltd., a company
incorporated under the laws of the United Kingdom.
Sterling Equivalent shall mean the equivalent in Pounds of Dollars as
determined by using the quoted spot rate at which the Lender (or any Affiliate
of the Lender) offers to exchange Pounds for Dollars in New York City at 10:00
a.m. (Houston time) two Business Days before the date on (or as of) which such
equivalent is to be determined.
Stock Acquisition Notes shall mean promissory notes, in Proper Form, in an
aggregate principal amount not exceeding $2,154,000 executed or to be executed
by Parent payable to Cobb Directional Drilling Company, Inc. executed in
connection with the acquisition by Parent and DSI of all of the interests of
Cobb Directional Drilling Company, Inc. in and to Cobb.
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Subsidiary shall mean, as to a particular parent Corporation, any
Corporation of which 50% or more of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by, such parent Corporation, or by one or more of its Affiliates.
Subordinated Indebtedness shall mean all Indebtedness of any Dollar
Borrower, now or hereafter existing, which is subordinated (on terms and
conditions acceptable to the Lender and by documents in Proper Form) to all
Indebtedness of the Dollar Borrowers to the Lender.
Tangible Net Worth shall mean the difference of (a) Parent's Common
Stockholders' Equity (on a consolidated basis) minus (b) all of its intangibles,
including (1) deferred charges; and (2) the aggregate of all amounts appearing
on the assets side of any such balance sheet for franchises, licenses, permits,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
treasury stock, experimental or organizational expenses and other like
intangibles.
Tangible Net Worth Increment shall mean, for any fiscal year (or portion
thereof) of Parent, the sum of (1) the aggregate of the net cash proceeds
received by the Dollar Borrowers in connection with the sale of their common
stock, preferred stock and Subordinated Indebtedness during such year (or the
applicable portion thereof) plus (2) either (a) 50% of the aggregate Net Income
of Parent (on a consolidated basis) for such year (or the applicable portion
thereof), if Parent (on a consolidated basis) has an aggregate positive Net
Income for such year (or the applicable portion thereof), or (b) in all other
cases, zero.
Tangible Net Worth Requirement shall mean, as of any date, (a) for the
period from the date hereof through December 31, 1996, $32,000,000, (b) for the
Parent's fiscal year 1997, the sum of $32,000,000 plus the Tangible Net Worth
Increment (on a consolidated basis) for the third and fourth fiscal quarters of
the Parent's fiscal year 1996 (but excluding from said Tangible Net Worth
Increment the net cash proceeds from the Parent's initial public offering of
common stock on July 9, 1996) and (c) for each subsequent fiscal year of the
Parent, beginning on January 1, 1998, the sum of the Tangible Net Worth
Requirement for the Parent's fiscal year 1997 plus the aggregate of the Tangible
Net Worth Increments for the Parent's fiscal year 1997 and all subsequent
completed fiscal years of Parent (on a consolidated basis).
Termination Date shall mean the earlier of (a) September 30, 1999 or (b)
the date specified by the Lender in accordance with Section 8.1.
Unused Dollar Commitment shall mean, as of any date, the difference of (a)
the Dollar Available Commitment minus (b) the outstanding principal balance of
the Dollar Note.
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Unused Maximum Commitment shall mean, as of any date, the difference of (a)
the Maximum Commitment minus (b) the sum of (1) the Dollar Exposure plus (2) the
Dollar Equivalent of the outstanding principal balance of the Pound Note.
Unused Pound Commitment shall mean, as of any date, the difference of (a)
the Pound Available Commitment minus (b) the then-outstanding principal balance
of the Pound Note.
USA shall mean the United States of America.
1.2 Other Terms and References. Except where specifically otherwise
provided in the Credit Documents:
(a) Each of the following terms shall have the meaning ascribed to it in
the Texas Uniform Commercial Code on the date hereof:
accessions, continuation statement, fixtures, general intangibles, goods,
proceeds, security interest and security agreement.
(b) Any term defined in the Interest Rate Agreement and used in this
Agreement but not otherwise defined herein shall have the meaning ascribed to it
in the Interest Rate Agreement.
(c) Any accounting term not otherwise defined shall have the meaning
ascribed to it under Good Accounting Practice.
(d) All financial measurements shall be computed without duplication, on a
consolidated basis (unless otherwise specified) and in accordance with Good
Accounting Practice. All calculations of amounts and ratios with respect to each
covenant contained in the Credit Documents shall be carried out to the precision
implied in such covenant; e.g., if a ratio is expressed in a covenant as "at
least 1.00 to 1" then such ratio shall be rounded to the nearest 0.01, while if
a ratio is expressed in a covenant as "at least 1.0 to 1" then such ratio shall
be rounded to the nearest 0.1.
(e) Unless otherwise specified, all references to time shall be references
to Houston time.
(f) Wherever the term "including" or any of its correlatives appears in a
Credit Document, it shall be read as if it were written "including (by way of
example and without limiting the generality of the subject or concept referred
to)".
(g) Wherever the word "herein" or "hereof" is used in a Credit Document, it
is a reference to that entire Credit Document and not just to the subdivision of
it in which the word is used.
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(h) References in a Credit Document to Section and Article numbers are
references to the Sections and Articles, respectively, of such Credit Document.
(i) References in a Credit Document to Exhibits, Schedules, Riders, Annexes
and Appendices are to the Exhibits, Schedules, Riders, Annexes and Appendices to
such Credit Document, and they shall be deemed incorporated into such Credit
Document by reference.
(j) Any term defined in the Credit Documents which refers to a particular
agreement, instrument or document shall also mean, refer to and include all
modifications, amendments, supplements, restatements, renewals, extensions and
substitutions of the same; provided that nothing in this Section shall be
construed to authorize any such modification, amendment, supplement,
restatement, renewal, extension or substitution except as may be permitted by
other provisions of the Credit Documents.
(k) Defined terms may be used in the singular or plural, as the context
requires.
(l) The pronouns used in the Credit Documents are in the neuter gender but
shall be construed as feminine, masculine or neuter, as the context requires.
2. The Credits.
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2.1 Dollar Loans. Subject to the terms and conditions hereof, the Lender
agrees to make Dollar Loans to the Dollar Borrowers from time to time before the
Termination Date, not to exceed at any one time outstanding the Dollar Available
Commitment, the Dollar Borrowers having the right to borrow, repay and reborrow.
Each Dollar Loan shall be in an amount of at least $250,000 or the Unused Dollar
Commitment, whichever is less. Each repayment of the Dollar Loans shall be in
an amount of at least $250,000 or the principal balance of the Dollar Note,
whichever is less. The Dollar Loans shall be evidenced by the Dollar Note
substantially in the form of Exhibit A.
2.2 Letter of Credit.
-----------------
(a) Issuance. Subject to the terms and conditions hereof, the Lender
agrees to issue Letters of Credit for the account of the Dollar Borrowers from
time to time before the Termination Date, in such face amount, with such expiry
date (provided that no Letter of Credit shall have an expiry date beyond one
year from the date of issuance) and for the benefit of such beneficiary as the
Dollar Borrowers may designate in the related Application; provided that (x) the
Letter of Credit Exposure may never exceed the Letter of Credit Commitment and
(y) the principal balance of the Dollar Note shall not exceed the Dollar
Available Commitment after giving effect to such Letter of Credit.
(b) Fees. As a condition precedent to the issuance of each Letter of
Credit, the Dollar Borrowers agree to pay the Lender the (1) usual and customary
fees of the Lender for each
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issuance, extension, amendment and wire advice of and drawing under a Letter of
Credit and (2) a fee equal to the greater of (i) $250 for each Letter of Credit
or (ii) 1% per annum (calculated on the basis of the actual number of days to
elapse in a year composed of 360 days) of the face amount of such Letter of
Credit to its date of expiry.
(c) Cash Collateral. Upon the occurrence of the Termination Date (whether
by the passage of time or otherwise), the Dollar Borrowers will immediately
either (1) provide the Lender with Cash Collateral in an amount equal to the
Letter of Credit Exposure at such time or (2) provide the Lender with one or
more back-up letters of credit, with face amounts corresponding to the
outstanding face amounts of the outstanding Letters of Credit and expiry dates
at least one month beyond the expiry dates of the corresponding outstanding
Letters of Credit, such back-up letters of credit to be in Proper Form and
issued by financial institutions acceptable to the Lender. If the Letter of
Credit Exposure ever exceeds the Letter of Credit Commitment, the Dollar
Borrowers will immediately (1) provide the Lender with Cash Collateral equal to
the amount of such excess or (2) obtain from the beneficiaries of Letters of
Credit a reduction in the aggregate amount of such Letters of Credit at least
equal to the amount of such excess (or a combination thereof). In the event
that any Borrower deposits Cash Collateral pursuant to the immediately preceding
sentence and the Letter of Credit Exposure is thereafter reduced below the
Letter of Credit Commitment at such time, the Lender will upon request of the
Borrowers promptly return to the Borrowers Cash Collateral in the amount of such
shortfall.
(d) Additional Conditions. The issuance by the Lender of each Letter of
Credit shall be subject to the additional conditions precedent that (1) such
Letter of Credit shall be in such form and contain such terms as shall be
reasonably satisfactory to the Lender; (2) the Dollar Borrowers shall have
executed and delivered such other instruments and agreements relating to such
Letter of Credit as the Lender shall have reasonably requested, and (3) the
terms of such Letter of Credit are not inconsistent with the terms of this
Agreement.
(e) Indemnification. The Dollar Borrowers hereby indemnify, release and
hold the Lender and its shareholders, directors, officers, employees and agents
harmless from and against any and all claims and damages, losses, liabilities,
costs or expenses which any of them may incur (or which may be claimed against
any of them by any Person whatsoever) to which any of them may become subject
arising out of or based upon the execution and delivery or transfer of or
payment or failure to pay under any Letter of Credit, WHETHER THROUGH THE
ALLEGED OR ACTUAL NEGLIGENCE OF SUCH PERSON OR OTHERWISE; except and to the
extent that the same results from the willful misconduct, gross negligence or
bad faith of such Person.
2.3 Pound Loans. Subject to the terms and conditions hereof, the Lender
agrees to make Pound Loans to DSL from time to time before the Termination Date,
not to exceed at any one time outstanding the Pound Available Commitment, DSL
having the right to borrow, repay and reborrow. Each Pound Loan shall be in an
amount of at least (Pounds)100,000 or the Unused Pound Commitment, whichever is
less. Each repayment of the Pound Loans shall be in an amount of
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at least (Pounds)100,000 or the principal balance of the Pound Note, whichever
is less. The Pound Loans shall be evidenced by the Pound Note, substantially in
the form of Exhibit B.
2.4 Mandatory Prepayments. If the principal balance of the Dollar Note
ever exceeds the Dollar Available Commitment or the principal balance of the
Pound Note ever exceeds the Pound Available Commitment, then the relevant
Borrower shall immediately (1) make a prepayment on the relevant Note in the
amount of such excess or (2) obtain from the beneficiaries of any outstanding
Letters of Credit a reduction in the aggregate amount of such Letters of Credit
(or a combination thereof).
2.5 Voluntary Commitment Reductions. At any time and from time to time,
upon five Business Days' notice, (a) the Dollar Borrowers may reduce the Maximum
Commitment by an integral multiple of $500,000; (b) DSL may reduce the Nominal
Pound Commitment by an integral multiple of (Pounds)250,000; (c) the Dollar
Borrowers may terminate the Dollar Commitment, and (d) DSL may terminate the
Pound Commitment; provided that such reduction or termination (x) may not cause
(1) the maximum amount permissible to be outstanding under either Note pursuant
to the terms of the Credit Documents to be less than the then-outstanding
principal balance of such Note or (2) the Letter of Credit Exposure to exceed
the Letter of Credit Commitment and (y) shall be permanent, and the relevant
Commitment may not thereafter be increased or restored.
2.6 Commitment Fees. In consideration of (a) the Maximum Commitment, the
Dollar Borrowers agree to pay a fee of 1/4% per annum on the daily average
Unused Maximum Commitment; such fee (the "Commitment Fee") shall be (x) computed
on the basis of the actual number of days elapsed in a year composed of 360 days
and (y) payable in arrears on the last Business Day of each January, April, July
and October and on the Termination Date. From the effective day of any
reduction or termination in accordance with Section 2.5, the several obligations
of the Dollar Borrowers to pay the Commitment Fee shall be correspondingly
reduced.
2.7 Payments. Unless otherwise expressly provided therein, all payments
of principal, interest and other fees and amounts due from any Borrower under
the Credit Documents shall be made in immediately available funds to the Lender
at its principal banking building in Houston, Harris County, Texas, by no later
than 12:00 noon on the date when due; each payment made after that time shall be
considered for all purposes (including the payment of interest, to the extent
not prohibited by law) as having been made on the next succeeding Business Day.
If any payment or prepayment becomes due and payable on a day which is not a
Business Day, then the date for the payment thereof shall be extended to the
next succeeding Business Day, and interest shall be payable thereon at the then-
applicable rate per annum during such extension. All amounts paid or payable
under the Credit Documents (a) by the Dollar Borrowers shall be denominated in
Dollars, and any payment in Pounds shall be credited for the Dollar Equivalent
thereof, and (b) by DSL shall be denominated in Pounds, and any payment in
Dollars shall be credited for the Sterling Equivalent thereof.
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2.8 Capital Adequacy.
(a) If after the date of this Agreement, the Lender shall have determined
that the adoption or effectiveness of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Lender's capital as a consequence
of its obligations under the Credit Documents to a level below that which the
Lender could have achieved but for such adoption, change or compliance (taking
into consideration the Lender's policies with respect to capital adequacy) by an
amount reasonably deemed by the Lender to be material, then from time to time,
the Dollar Borrowers shall pay to the Lender such additional amount or amounts
as will compensate the Lender for such reduction.
(b) A certificate of the Lender setting forth such amount or amounts as
shall be necessary to compensate the Lender as specified in Section 2.8 (a)
shall be delivered as soon as practicable to the Dollar Borrowers and shall be
conclusive and binding, absent manifest error. The Dollar Borrowers shall pay
the Lender the amount shown as due on any such certificate within 15 days after
the Lender delivers such certificate. In preparing such certificate, the Lender
may employ such assumptions and allocations of costs and expenses as it shall in
good faith deem reasonable and may use any reasonable averaging and attribution
method.
(c) A Dollar Borrower's obligations under this Section shall survive the
payment of the such Dollar Borrower's Loans and the termination of such Dollar
Borrower's Commitment; provided that any request for compensation pursuant to
this Section must be made on or before six (6) months after the Lender incurs
the applicable material reduction in rate of return or the Lender shall be
deemed to have waived the right to such compensation.
3. Guaranty.
3.1 Guaranty of Pound Note. The Dollar Borrowers unconditionally
guarantee unto the Lender the payment of the principal of and accrued interest
on the Pound Note when due (whether at the stated maturity, by acceleration or
otherwise) and all other amounts owing by DSL to the Lender pursuant to the
Credit Documents, all in accordance with the terms thereof (collectively, the
"Pound Obligations"). This guaranty is unconditional and absolute, and if for
any reason all or any portion of the Pound Obligations shall not be paid
promptly when due, the Dollar Borrowers will immediately pay the same to the
Lender, regardless of any defense, right of set-off or counterclaim which DSL
may have or assert, and regardless of whether the Lender or any other Person
shall have taken any steps to enforce any rights against DSL or any other Person
to collect such sum, and regardless of any other condition or contingency. This
guaranty
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by the Dollar Borrowers shall also cover all reasonable expenses incurred by the
Lender in enforcing payment of the Pound Obligations, including this Article.
3.2 Modifications, Etc. The obligations, covenants, agreements and duties
of the Dollar Borrowers under this Article shall in no way be affected or
impaired by reason of the happening from time to time of any of the following
with respect to the Credit Documents, without the necessity of any notice to, or
further consent of, the Dollar Borrowers, to the fullest extent permitted by
applicable law: (a) the release or waiver, by operation of law or otherwise, of
the performance or observance by DSL or any other co-guarantor, surety, endorser
or other obligor of any express or implied agreement, covenant, term or
condition in any Credit Document to be performed or observed by such party; (b)
the extension of the time for the payment of all or any portion of the Pound
Obligations or the extension of time for the performance of any other
obligations of DSL under, arising out of, or in connection with the Credit
Documents; (c) the supplementing, modification or amendment (whether material or
otherwise) of any of the Credit Documents (with respect to the obligations of
DSL) or any of the obligations of DSL or any other surety or co-guarantor for
DSL set forth in the Credit Documents; (d) any failure, omission, delay or lack
of diligence on the part of the Lender or any other Person, to enforce, assert
or exercise any right, privilege, power or remedy conferred on the Lender or any
other Person in any of the Credit Documents, or any action on the part of the
Lender or such other Person granting indulgence or extension of any kind; (e)
the release of any Lien or the release, modification, waiver or failure to
enforce any Lien, insurance agreement, bond or other guaranty, surety or
indemnity agreement whatsoever; (f) the release, modification, waiver or failure
to enforce any right, benefit, privilege or interest under any contract or
agreement, under which the rights of DSL under the Credit Documents or any other
obligor have been collateral or absolutely assigned, or a Lien which has been
granted, to the Lender as direct or indirect security for payment of all or any
part of the Pound Obligations or performance of any obligations of DSL under the
Credit Documents; (g) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, marshaling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, DSL under the Credit Documents, or any other surety or
co-guarantor for DSL under the Credit Documents or any of the Property of DSL or
of any other surety or co-guarantor for DSL under the Credit Documents; (h) any
invalidity of or defect or deficiency in any of the Credit Documents or failure
to acquire, perfect or maintain perfection of any Lien securing payment of the
Pound Obligations, or any portion thereof, or performance of DSL's or any other
Person's obligations under the Credit Documents, or (i) the settlement or
compromise of all or any part of Pound Obligations.
3.3 Waivers. The Dollar Borrowers hereby waive, to the fullest extent
permitted by applicable law, (a) marshaling of assets and liabilities; (b) sale
in inverse order of alienation; (c) notice of acceptance of this guaranty and of
any liability to which it applies or may apply; (d) presentment; (e) demand for
payment; (f) protest; (g) notice of nonpayment; (h) notice of dishonor; (i)
notice of acceleration; (j) notice of intent to accelerate; (k) all other
notices and demands, collection suit and the taking of any other action by the
Lender, and (l) all rights to
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which it may be entitled under any applicable suretyship law, including Article
34 of the Texas Business and Commerce Code; Section 17.001 of the Texas Civil
Practice and Remedies Code, and Rule 31 of the Texas Rules of Civil Procedure.
3.4 Payment Guaranty. This is a guaranty of payment and not of
collection, and the Dollar Borrowers waive any right to require that any action
be brought against DSL or any other Person. Should the Lender seek to enforce
the obligations of the Dollar Borrowers under this Article by action in any
court, the Dollar Borrowers waive any necessity, substantive or procedural, that
a judgment previously be rendered against DSL or any other Person or that DSL or
any other Person be joined in such cause or that a separate action be brought
against DSL or any other Person; the obligations of the Dollar Borrowers under
this Article are several from those of DSL or any other Person, including any
other surety or co-guarantor for DSL, and are primary obligations concerning
which the Dollar Borrowers are each a principal obligor. All waivers herein
contained shall be without prejudice to the Lender at its option to proceed
against the Dollar Borrowers, DSL or any other Person, whether by separate
action or by joinder. The Dollar Borrowers agree that this guaranty shall not
be discharged except by (a) payment of the Pound Note in full; (B) termination
of all obligations of the Lender to make Pound Loans, and (c) complete
performance of all obligations of the Dollar Borrowers contained in this
Article.
3.5 Subrogation. Notwithstanding any payment or payments made by the
Dollar Borrowers under this Article or any set-off or application of funds of
the Dollar Borrowers by the Lender with respect to the Pound Note, the Dollar
Borrowers shall not be entitled to exercise any subrogation in respect of the
rights of the Lender against DSL or any collateral security or rights of offset
held by the Lender for the payment of the obligations of DSL under the Credit
Documents until such time as all Indebtedness owing to the Lender under this
Agreement and the other Credit Documents shall have been paid in full and the
obligation of the Lender to make further advances hereunder shall have
terminated.
4. Conditions.
4.1 All Extensions of Credit. The obligation of the Lender to make any
Loan or issue any Letter of Credit is subject to (a) the accuracy in all
material respects of all representations and warranties of the Borrowers on the
date of such extension of credit; (b) the performance in all material respects
by the Borrowers of their respective obligations under the Credit Documents, and
(c) the satisfaction in all material respects of the following further
conditions: (1) the Lender shall have received the following, all of which shall
be duly executed and in Proper Form: (A) in the case of a Dollar Loan, a Request
for Dollar Loan, substantially in the form of Exhibit C, no later than the
applicable Rate Designation Date; (B) in the case of a Pound Loan, a Request for
Pound Loan, substantially in the form of Exhibit D, no later than the applicable
Rate Designation Date; (C) in the case of a Letter of Credit, the Lender shall
have received the related Application at least three Business Days before the
date (which shall be a Business Day) the Letter of Credit is to be issued, and
(D) such other documents as the Lender may reasonably require; (2) before such
extension of credit, there shall have occurred, in the sole opinion of the
Lender, no material
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adverse change in the assets, liabilities, financial condition, business or
affairs of the Dollar Borrowers and their Subsidiaries, taken as a whole; (3) no
Default or Event of Default shall have occurred and be continuing, and (4) such
extension of credit shall not be prohibited by, or subject the Lender to any
penalty or onerous condition under, any Legal Requirement.
4.2 First Loan. In addition to the matters described in Section 4.1, the
obligation of the Lender to make the first Loan hereunder is subject to the
receipt by the Lender of each of the following, in Proper Form: (a) the Notes;
(b) a Secretary's Certificate for each Borrower; (c) a certificate from the
appropriate Governmental Authorities as to the existence, authority to do
business and good standing of the Borrowers; (d) legal opinions from Baker &
Botts, L.L.P. and Iain Smith & Co. substantially in the forms of Exhibits E and
F, respectively, and (e) a calculation of the initial Dollar Borrowing Base and
the initial Pound Borrowing Base, and to the further condition that, at the time
of the initial Loan, all legal matters incident to the transactions herein
contemplated shall be satisfactory to Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P, counsel for the Lender.
5. Representations and Warranties.
To induce the Lender to enter into this Agreement and to make the Loans and
issue the Letters of Credit, the Borrowers represent and warrant as follows:
5.1 Organization. Each of the Dollar Borrowers and their Subsidiaries (a)
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all power and authority to conduct its
business as presently conducted, and (c) is duly qualified to do business and in
good standing in all jurisdictions where such qualification is necessary or
desirable and where the failure to be so qualified would reasonably be expected
to have a material adverse effect on the assets, liabilities, financial
condition, business or affairs of the Dollar Borrowers and their Subsidiaries,
taken as a whole.
5.2 Financial Statements. The Financial Statements delivered to the
Lender fairly present, in all material respects, in accordance with Good
Accounting Practice, the financial condition and the results of operations of
the Dollar Borrowers and their Subsidiaries as at the dates and for the periods
indicated. Except as heretofore disclosed to the Lender, no material adverse
change has occurred in the assets, liabilities, financial condition, business or
affairs of the Dollar Borrowers and their Subsidiaries, taken as a whole, since
the dates of such Financial Statements. None of the Borrowers is subject to any
instrument or agreement materially and adversely affecting its financial
condition, business or affairs.
5.3 Enforceable Obligations; Authorization. The Credit Documents are
legal, valid and binding obligations of the Borrowers, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy, insolvency
and other similar laws affecting creditors' rights generally and by general
equitable principles. The execution, delivery and performance of the Credit
Documents (a) have all been duly authorized by all necessary action; (b) are
within the
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power and authority of the Borrowers; (c) do not and will not contravene or
violate any applicable Legal Requirement or the Organizational Documents of the
Borrowers; (d) do not and will not result in the breach of, or constitute a
default under, any agreement or instrument by which any Borrower or any of their
respective Property may be bound or affected, and (e) do not and will not result
in the creation of any Lien upon any Property of any of the Borrowers except as
expressly contemplated therein. All necessary permits, registrations and
consents for such making and performance have been obtained.
5.4 Other Debt. None of the Dollar Borrowers nor any of their
Subsidiaries is in default in the payment of any other Debt or under any
agreement, mortgage, deed of trust, security agreement or lease to which it is a
party which would reasonably be expected to have a material adverse effect on
the assets, liabilities, financial condition, business or affairs of the Dollar
Borrowers and their Subsidiaries, taken as a whole.
5.5 Litigation. Except as disclosed to the Lender, there is no litigation
or administrative proceeding pending or, to the knowledge of any Borrower,
threatened against, nor any outstanding judgment, order or decree affecting, any
Dollar Borrower or any of their Subsidiaries before or by any Governmental
Authority. None of the Dollar Borrowers nor any of their Subsidiaries is in
default with respect to any judgment, order or decree of any Governmental
Authority.
5.6 Title. Except as disclosed to the Lender, the Dollar Borrowers and
each of their Subsidiaries has good and marketable title to its respective
Property, free and clear of all material Liens other than Permitted Liens.
5.7 Taxes. The Dollar Borrowers and each of their Subsidiaries has filed
all tax returns required to have been filed and paid all taxes shown thereon to
be due, except those for which extensions have been obtained and those which are
being contested in good faith.
5.8 Regulation U. None of the proceeds of any Loan will be used for the
purpose of purchasing or carrying directly or indirectly any margin stock or for
any other purpose would constitute this transaction a "purpose credit" within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System.
5.9 Subsidiaries. As of the date of this Agreement, the Dollar Borrowers
have no Subsidiaries other than as listed on Appendix I. As of the date of this
Agreement, each such Subsidiary is owned by the Dollar Borrowers in the
percentages set forth on Appendix I.
5.10 Representations by Others. All statements made by or on behalf of any
Borrower in connection with any Credit Document shall constitute representations
and warranties of the Borrowers hereunder.
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5.11 No Misrepresentation or Omission. No representation or statement by
or on behalf of any Borrower to the Lender in connection with the negotiation of
the Credit Documents or the transactions contemplated thereby as of the
respective dates of delivery thereof to the Lender (or as of the date as to
which such information speaks, as applicable), contains (or will contain) any
untrue statement of material fact, or omits (or will omit) to state a material
fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. There is no fact
(other than facts of general applicability to the Borrowers and others in the
same industry as the Borrowers) which materially and adversely affects (or in
the future may, as far as any Borrower can now foresee, materially and adversely
affect) the assets, liabilities, financial condition, business or affairs of the
Dollar Borrowers and their Subsidiaries, taken as a whole.
6. Affirmative Covenants.
Each Borrower covenants and agrees with the Lender that before the
termination of this Agreement it will do, cause each of its Subsidiaries to do,
and if necessary cause to be done, each and all of the following:
6.1 Taxes, Existence, Regulations, Property, etc. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested in good faith and reserves have been established therefor; (b) do
all things necessary to preserve its corporate existence, qualifications, rights
and franchises in all jurisdictions where such qualification is necessary or
desirable and where the failure to do so would reasonably be expected to have a
material adverse effect on the assets, liabilities, financial condition,
business or affairs of the Dollar Borrowers and their Subsidiaries, taken as a
whole; (c) comply in all material respects with all applicable Legal
Requirements in respect of the conduct of its business and the ownership of its
Property where the failure to do so would reasonably be expected to have a
material adverse effect on the assets, liabilities, financial condition,
business or affairs of the Dollar Borrowers and their Subsidiaries, taken as a
whole, and (d) subject to force majeure and ordinary wear and tear, cause its
Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably necessary to
conduct its business properly and efficiently.
6.2 Financial Statements and Information. Furnish to the Lender three
copies of each of the following: (a) as soon as available and in any event
within 120 days after the end of each fiscal year of the Dollar Borrowers,
Annual Financial Statements of Parent, together with a reconciliation of the
same to the Quarterly Financial Statements of the Parent with the same date; (b)
as soon as available and in any event within 45 days after the end of each
quarter of each fiscal year of the Dollar Borrowers, Quarterly Financial
Statements of the Parent; (c) concurrently with the Financial Statements
provided for in Section 6.2(b), a Certificate of No Default, substantially in
the form of Exhibit G (accompanied by evidence reasonably satisfactory to Lender
supporting the information set forth in such Certificate of No Default), and (d)
such other information
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relating to the financial condition and affairs of the Dollar Borrowers and
their Subsidiaries as the Lender may request from time to time.
6.3 Financial Tests. Have and maintain at all times (a) a Tangible Net
Worth of Parent (on a consolidated basis) at least equal to the Tangible Net
Worth Requirement; (b) a Debt to Capitalization Ratio of Parent (on a
consolidated basis) of not more than 40%, and (c) a Fixed Charge Coverage Ratio
of Parent (on a consolidated basis) of at least 1.25 to 1.
6.4 Inspection. Permit the Lender to inspect its Property, to examine its
files, books and records and make and take away copies thereof, and to discuss
its affairs with its officers and accountants, all at such times and intervals
and to such extent during normal business hours as the Lender may reasonably
desire.
6.5 Further Assurances. Promptly execute and deliver any and all other
and further instruments which may be reasonably requested by the Lender to cure
any defect in the execution and delivery of any Credit Document or more fully to
describe particular aspects of each Borrower's agreements set forth in the
Credit Documents or so intended to be.
6.6 Books and Records. Maintain books of record and account in accordance
with Good Accounting Practice.
6.7 Insurance. Maintain insurance with such insurers, on such of its
properties, in such amounts and against such risks as is customarily maintained
by other Persons of similar size engaged in similar businesses, and furnish the
Lender satisfactory evidence thereof promptly upon request.
6.8 Notice of Certain Matters. Notify the Lender immediately upon
acquiring knowledge of the occurrence of any of the following: (a) the
institution or threatened institution of any lawsuit or administrative
proceeding (including any tax assessment) affecting any Dollar Borrower or any
of their Subsidiaries that would reasonably be expected to have a material
adverse effect on the assets, liabilities, financial condition, business or
affairs of the Dollar Borrowers and their Subsidiaries, taken as a whole; (b)
any material adverse change in the assets, liabilities, financial condition,
business or affairs of the Dollar Borrowers and their Subsidiaries, taken as a
whole, or (c) any Event of Default or any Default. A Borrower will notify the
Lender in writing at least 30 days before the date that such Borrower changes
its name or the location of its chief executive office or principal place of
business or the place where it keeps its books and records.
6.9 Use of Proceeds. The proceeds of the Loans will be used for general
corporate purposes.
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7. Negative Covenants.
Each Borrower covenants and agrees with the Lender that before the
termination of this Agreement it will not, and will not suffer or permit any of
their Subsidiaries to, do any of the following:
7.1 Debt. Create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Debt, whether direct, indirect, absolute, contingent or otherwise, except
the following: (a) Debt to the Lender; (b) Debt secured by Liens permitted by
Section 7.2; (c) other liabilities existing on the date of this Agreement and
heretofore disclosed to the Lender, and all renewals and extensions (but not
increases) thereof; (d) current accounts payable and unsecured current
liabilities, not the result of borrowing, to vendors, suppliers and Persons
providing services, for expenditures for goods and services normally required by
it in the ordinary course of business and on ordinary trade terms; (e) unsecured
Debt owing by (1) the Dollar Borrowers to any of their Subsidiaries; (2) any of
their Subsidiaries to the Dollar Borrowers, and (3) any Subsidiary of the Dollar
Borrowers to another Subsidiary of the Dollar Borrowers; (f) the Posi-Trak
Acquisition Note and the Stock Acquisition Notes, and all renewals and
extensions (but not increases) thereof; (g) the Shareco Acquisition Notes, and
all renewals and extensions (but not increases) thereof; (h) other unsecured
Debt of Parent, not to exceed $5,000,000 in the aggregate at any one time
outstanding; (i) Interest Rate Risk Indebtedness, and (j) other unsecured Debt,
not to exceed $1,000,000 in the aggregate (for the Dollar Borrowers and their
Subsidiaries) at any one time outstanding.
7.2 Liens. Create or suffer to exist any Lien upon any of its Property
now owned or hereafter acquired, or acquire any Property upon any conditional
sale or other title retention device or arrangement or any purchase money
security agreement; or in any manner directly or indirectly sell, assign, pledge
or otherwise transfer any of its accounts or contract rights; provided that any
Dollar Borrower or any of their Subsidiaries may create or suffer to exist: (a)
materialmen's, artisans' or mechanics' Liens arising in the ordinary course of
business, and Liens for taxes, but only to the extent that payment thereof shall
not at the time be due or are being contested in good faith and by appropriate
proceeding; (b) Liens in effect on the date hereof and disclosed to the Lender,
provided that neither the Indebtedness secured thereby nor the Property covered
thereby shall increase; (c) Liens in favor of the Lender, including, without
limitation, Liens securing Interest Rate Risk Indebtedness owed to the Lender
(but not to any to any other Person); (d) purchase money Liens on Property to be
acquired, but only if (1) the Debt secured thereby does not exceed the purchase
price of such Property and (2) the aggregate amount of such Debt does not exceed
$1,000,000 in the aggregate (for the Dollar Borrowers and their Subsidiaries) at
any one time outstanding; (e) Liens covering the equity interest in Cobb owned
by Parent and DSI and securing the Posi-Trak Acquisition Note and/or the Stock
Acquisition Notes, and all renewals and extensions (but not increases) thereof;
(f) Liens consisting of pledges or deposits made in connection with obligations
of the Borrowers or their Subsidiaries incurred in the ordinary course of
business under unemployment insurance, social security, workers' compensation
laws or similar legislation; (g) Liens consisting of security interests, pledges
or
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deposits of property to secure the performance of bids, tenders, trade contracts
(other than contracts evidencing or constituting Indebtedness for the payment of
money), leases, licenses, franchises, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (h) Liens consisting
of deposits of property to secure (or in lieu of) surety, appeal or customer
bonds in proceedings to which the Borrowers or their Subsidiaries is a party in
the ordinary course of business; (i) Liens created by, resulting from or arising
in connection with any litigation or legal proceeding involving the Borrowers or
their Subsidiaries (excluding any attachment prior to judgment, judgment lien or
attachment in aid of execution on a judgment to the extent the amount of the
related judgments, in the aggregate, exceed $500,000 which is not covered by
insurance) which is currently being diligently contested in good faith by
appropriate proceedings; provided that adequate reserves with respect thereto
are maintained on the books of the Borrowers or their Subsidiaries in accordance
with Good Accounting Practices; (j) Liens upon any property hereafter acquired
by the Borrowers or their Subsidiaries (the "Acquiring Entity") to secure
Indebtedness in existence on the date of such acquisition (but not incurred or
created in connection with such acquisition), which Indebtedness is assumed by
such Acquiring Entity simultaneously with such acquisition, which Liens extend
only to such property so acquired and with respect to which Indebtedness none of
the Borrowers or any Subsidiary (other than the Acquiring Entity) has any
obligations; (k) normal encumbrances and restrictions on title which do not
secure Debt and which do not have a material adverse affect on the assets,
liabilities, financial condition, business or affairs of the Dollar Borrowers
and their Subsidiaries, taken as a whole, and (l) any Lien created by or
resulting from any extension, renewal, modification, refinancing, in whole or in
part, of any indebtedness or other financing giving rise to a Lien permitted by
subparagraphs (a) through (k) above, if limited to the same property or any
portion thereof subject to, and securing not more than the amount secured by,
the Lien previously securing the Indebtedness or other financing so extended,
renewed, modified or refinanced.
7.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
guarantees, letters of credit and other such obligations in favor of the Lender;
(c) contingent obligations with respect to surety bonds obtained in the ordinary
course of business; (d) the Letters of Credit; (e) indemnities, warranties and
other contingent obligations arising in the ordinary course of business in
connection with the purchase, sale or other disposition of assets or properties
or the delivery of services; (f) indemnity obligations arising by operation of
law in the ordinary course of business; (g) other guarantees of Debt, provided
that the aggregate amount of such Debt so guaranteed may not exceed $500,000 in
the aggregate (for the Dollar Borrowers and their Subsidiaries) at any one time
outstanding, and (h) contingent obligations heretofore disclosed to the Lender.
7.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets.
In any single transaction or series of transactions, directly or indirectly: (a)
liquidate or dissolve; (b) be a party to any merger or consolidation, unless a
Dollar Borrower (if any Dollar Borrower is involved in
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the transaction) or DSL (if DSL, but no Dollar Borrower, is involved in the
transaction) is the survivor; (c) sell, convey or lease all or any substantial
part of its assets, except for sale of Inventory in the ordinary course of
business or other property not necessary or useful in the conduct of such
Person's business, or (d) except as permitted under Section 7.2, pledge,
transfer or otherwise dispose of any shares of capital stock of a Subsidiary or
any Debt of a Subsidiary, or permit any Subsidiary to issue any additional
shares of capital stock other than to the Dollar Borrowers or their
Subsidiaries, or to acquire any shares of capital stock of any Dollar Borrower
or any of their Subsidiaries.
7.5 Redemption, Dividends and Distributions. At any time (a) redeem,
retire or otherwise acquire, directly or indirectly, any shares of its capital
stock; (b) pay any dividend (except Permitted Dividends), or (c) make any other
distribution of any Property or cash to stockholders as such (except Permitted
Dividends).
7.6 Nature of Business. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
7.7 Transactions with Related Parties. Except for the transactions and
agreements under the Cobb Acquisition Documents, enter into any transaction or
agreement with any officer, director or holder of any outstanding capital stock
of any Dollar Borrower or any of their Subsidiaries (or any Affiliate of any
such Person) unless the same is upon terms substantially similar to those
obtainable from wholly unrelated sources.
7.8 Loans and Investments. Make any loan, advance, extension of credit or
capital contribution to, or have any Investment in, any Person, or make any
commitment to make any such extension of credit or Investment, except (a)
Permitted Investment Securities; (b) travel advances and other prepaid business
expenses in the ordinary course of business to officers and employees; (c) the
stock of Subsidiaries as in effect on the date hereof and as heretofore
disclosed to the Lender; (d) Investments by any Borrower or any of its
Subsidiaries to or in any other Borrower; (e) other Investments (including
loans) by the Borrowers or any of their Subsidiaries, not to exceed $3,000,000
in the aggregate at any one time outstanding, in other entities which are
primarily engaged in businesses substantially similar to the businesses
conducted by the Borrowers and their Subsidiaries on the date hereof or other
businesses primarily engaged in the design, manufacture, sale or distribution of
equipment or products primarily used in the exploration for, or production or
transportation of, oil and gas or used primarily in the petrochemical, chemical,
refining, mining, environmental remediation or trenchless application business;
(f) Investments acquired in settlement of claims and disputes, and (g) the loans
evidenced by the promissory notes described on Exhibit I hereto.
7.9 ERISA. At any time permit any Plan to (a) engage in any "prohibited
transaction" as defined in ERISA; (b) incur any "accumulated funding deficiency"
as defined in ERISA, or (c) be terminated in a manner which could result in the
imposition of a Lien on any Property of any Dollar Borrower or any of their
Subsidiaries pursuant to ERISA.
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7.10 Subsidiaries. The Borrowers will not form or acquire any
Subsidiaries without first giving the Lender prior written notice thereof. Each
Subsidiary formed or acquired after the date hereof which is organized in the
United States shall be required to execute and deliver to the Lender a guaranty,
in Proper Form, pursuant to which such Subsidiary guarantees payment of the
Obligations.
8. Events of Default and Remedies.
8.1 Events of Default. If any of the following events shall occur, then
the Lender may do any or all of the following: (1) without notice to any
Borrower, declare either or both of the Notes to be, and thereupon such Note(s)
shall forthwith become, immediately due and payable, together with all accrued
interest thereon and any Commitment Fee hereunder, without notice of any kind,
notice of acceleration or of intention to accelerate, presentment and demand or
protest, all of which are hereby expressly waived; (2) without notice to any
Borrower, terminate either or both of the Commitments; (3) by notice in writing
to the Borrowers, accelerate the Termination Date to a date as early as the date
of the notice; (4) exercise its rights of offset against each account and all
other Property of any of the Borrowers in the possession of the Lender, which
right is hereby granted by the Borrowers to the Lender, and (5) exercise any and
all other rights pursuant to the Credit Documents:
(a) A Borrower shall fail to pay or prepay any principal of the Note made
by it as and when due;
(b) A Borrower shall fail to pay any interest on the Note made by it or any
Commitment Fee or any other obligation hereunder payable by it as and within
three Business Days of when due; or
(c) Any Dollar Borrower or any of their Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any principal of or interest
on any other Debt having a principal amount outstanding in excess of $500,000,
or an "event of default" (however denominated) shall have occurred which gives
the holder of such Debt the legal ability to accelerate its maturity; or
(d) Any representation or warranty made in connection with any Credit
Document shall prove to have been incorrect, false or misleading in any material
respect when made; or
(e) Default shall occur in the punctual and complete performance of any
covenant contained in Section 6.3 or Section 7 of this Agreement or any other
negative covenant set forth in this Agreement or in any other Credit Document;
or
(f) Default shall occur in the punctual and complete performance of any
other covenant of a Borrower or any other Person (other than the Lender)
contained in any Credit Document and
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the same shall remain uncured for ten days after the Lender gives notice thereof
to the Borrowers; or
(g) Final judgment for the payment of money shall be rendered against any
Dollar Borrower or any of their Subsidiaries in excess of $500,000 in the
aggregate which is not covered by insurance and the same shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed; or
(h) Any order shall be entered in any proceeding against any Dollar
Borrower or any of their Subsidiaries decreeing the dissolution, liquidation or
split-up thereof, and such order shall remain in effect for 30 days; or
(i) The occurrence of an Event of Default under any Credit Document; or
(j) Any Dollar Borrower or any of their Subsidiaries shall make a general
assignment for the benefit of creditors or shall petition or apply to any
tribunal for the appointment of a trustee, custodian, receiver or liquidator of
all or any substantial part of its business, estate or assets or shall commence
any proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect; or
(k) Any such petition or application shall be filed or any such proceeding
shall be commenced against any Dollar Borrower or any of their Subsidiaries and
any Dollar Borrower or such Subsidiary by any act or omission shall indicate
approval thereof, consent thereto or acquiescence therein, or an order shall be
entered appointing a trustee, custodian, receiver or liquidator of all or any
substantial part of the assets of any Dollar Borrower or any of their
Subsidiaries or granting relief to any Dollar Borrower or any of their
Subsidiaries or approving the petition in any such proceeding, and such order
shall remain in effect for more than 30 days; or
(l) Any Dollar Borrower or any of their Subsidiaries shall fail generally
to pay its debts as they become due or suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
substantial part of its Property which is not released, stayed, bonded or
vacated within 30 days after its issue or levy; or
(m) Any Dollar Borrower or any of their Subsidiaries shall have concealed,
removed, or permitted to be concealed or removed, any part of its Property, with
intent to hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its Property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or shall have made any
transfer of its Property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or
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(n) DSI shall cease to own, directly or indirectly, all the indicia of
equity rights (whether issued and outstanding capital stock or otherwise) of
DSL; Parent shall cease to own, directly or indirectly, all the indicia of
equity rights (whether issued and outstanding capital stock or otherwise) of
DSI, Cobb or Shareco; or
(o) any default or event of default shall occur under (1) the Posi-Trak
Acquisition Note, (2) the Stock Acquisition Notes, (3) the Shareco Acquisition
Notes, or (4) any renewal, extension, modification or supplement of any of the
foregoing, and such default or event of default shall not be cured within any
applicable cure period provided with respect thereto.
8.2 Remedies Cumulative. No remedy, right or power conferred upon the
Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
9. Miscellaneous.
9.1 No Waiver. No waiver of any Default shall be deemed to be a waiver of
any other Default. No failure to exercise or delay in exercising any right or
power under any Credit Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power preclude any further or
other exercise thereof or the exercise of any other right or power. The Lender
may remedy any Default without waiving the Default remedied. Acceptance by the
Lender of a payment in an amount less than the amount then due shall be deemed
an acceptance on account only and shall not in any way affect the existence of a
Default. No amendment, modification or waiver of any Credit Document shall be
effective unless the same is in writing and signed by the Person against whom
such amendment is sought to be enforced. No notice to or demand on a Borrower
or any other Person shall entitle any Borrower or any other Person to any
other or further notice or demand in similar or other circumstances.
9.2 Notices. All notices under the Credit Documents shall be in writing
and either (1) delivered against receipt therefor; (2) mailed by registered or
certified mail, return receipt requested, or (3) sent by telecopy, in each case
addressed as follows:
(a) If to any Borrower, to:
Drilex International Inc.
15151 Sommermeyer
Houston, Texas 77041
Attention: Vice President, Finance and Administration
Telecopy No.: (713) 849-0019
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(b) If to the Lender, to:
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Manufacturing and Oilfield Service Division
Telecopy No.: (713) 216-4227
with a copy to:
Texas Commerce Bank National Association
P. O. Box 2558
Houston, Texas 77252
Attention: Manager, Loan Agreements Section
or to such other address as a party may designate. Notices shall be deemed to
have been given (whether actually received or not) when delivered (or, if
mailed, on the next Business Day); however, the notices required or permitted by
Sections 2.5 and 4.1 hereof shall be effective only when actually received by
the Lender. Actual notice, however and from whomever given or received, shall
always be effective when received.
9.3 Governing Law. Unless otherwise specified therein, each Credit
Document shall be governed by and construed in accordance with the laws of the
State of Texas and the USA. Each Borrower hereby irrevocably (a) agrees that any
legal proceeding against the Lender arising out of or in connection with any
Credit Document shall be brought in the district courts of Harris County, Texas,
or in the United States District Court for the Southern District of Texas,
Houston Division (collectively, the "Specified Courts"); (b) submits to the non-
exclusive jurisdiction of the Specified Courts; (c) agrees and consents that
service of process may be made upon it in any proceeding arising out of the
Credit Documents or any transaction contemplated thereby by service of process
as provided by Texas law; (d) waives, to the fullest extent not prohibited by
law, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of any Credit Document or the
transactions contemplated thereby in the Specified Courts, and (e) waives any
claim that any such suit, action or proceeding in any Specified Court has been
brought in an inconvenient forum. DSL hereby appoints DSI as DSL's agent for
service of process. All of the obligations of the Borrowers under the Credit
Documents are performable in Harris County, Texas.
9.4 Survival; Parties Bound; Term. All representations, warranties,
covenants and agreements made by or on behalf of the Borrower in connection
herewith shall survive the execution and delivery of the Credit Documents, and
shall bind the Borrowers and their respective successors, trustees, receivers
and assigns and inure to the benefit of the successors and assigns of the
Lender, provided that the separate undertakings of the Lender hereunder to make
Loans to the Borrowers shall not inure to the benefit of any successor or assign
of any Borrower. The term
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of this Agreement shall be until the final maturity of all of the Notes, the
expiry of all Letters of Credit, the termination of all of the Commitments and
the payment of all amounts due under the Credit Documents. The Borrowers agree
that if at any time all or any part of any payment previously applied by the
Lender to any Loan or other obligation hereunder is or must be returned by or
recovered from the Lender for any reason (including the order of any bankruptcy
court), the Credit Documents shall automatically be reinstated to the same
effect as if the prior application had not been made, and each Borrower hereby
agrees to indemnify each such payee against, and to save and hold each such
payee harmless from, any required return by or recover from each such payee of
any such payment previously made by such Borrower because of such payment being
deemed preferential under applicable Legal Requirements, or for any other
reason.
9.5 Counterparts. Each Credit Document may be executed in several
identical counterparts, and by the parties thereto on separate counterparts, and
each counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
9.6 Captions. The headings and captions appearing in the Credit Documents
have been included solely for convenience and shall not be considered in
construing the Credit Documents.
9.7 Expenses. Any provision to the contrary notwithstanding, and whether
or not the transactions contemplated by this Agreement shall be consummated, the
Dollar Borrowers shall pay on demand all out-of-pocket expenses (including,
without limitation, the fees and expenses of counsel for the Lender) reasonably
incurred in connection with (a) the negotiation, preparation, execution, filing,
recording, refiling, re-recording, modification, supplementing and waiver of the
Credit Documents (provided that the Borrowers may condition their agreement to
enter into any such modification, supplement or waiver upon such expenses not
exceeding a specified amount or any similar condition); (b) the making,
servicing and collection of the Loans; (c) the evaluating, monitoring,
administering and protecting any of the Collateral; (d) the realizing upon the
Collateral and all costs and expenses relating to the Lender's exercising any of
its rights and remedies under any of the Credit Documents or at law, and (e) the
performance by the Lender (in a Borrower's name or otherwise) of any agreement,
covenant or obligations of a Borrower under the Credit Documents which such
Borrower had not performed, in each case including all appraisal fees,
consulting fees, filing fees, taxes, brokerage fees and commissions and Uniform
Commercial Code search fees; provided that no right or option granted by a
Borrower to the Lender pursuant to any Credit Document shall be deemed to impose
or admit a duty on the Lender to supervise, monitor or control any aspect of the
character or condition of any of the Collateral or any operations conducted in
connection with it for the benefit of any Borrower or any other Person.
Interest shall accrue on all such expenses from the date of demand therefor at
the lesser of (1) the Past Due Rate or (2) the Highest Lawful Rate if such
expenses are not reimbursed within 15 days after such date of demand. The
obligations of the Dollar Borrowers under Section 2.2(e), this Section and the
following Section shall survive the termination of this Agreement.
31
<PAGE>
9.8 Indemnification. The Dollar Borrowers agree to indemnify, defend and
hold the Lender and its shareholders, directors, officers, employees and agents
(collectively, the "Indemnified Persons") harmless from and against any and all
loss, liability, obligation, damage, penalty, judgment, claim, deficiency and
expense (including interest, penalties, attorneys' fees and amounts paid in
settlement) to which any of them may become subject arising out of or based upon
the Credit Documents, WHETHER THROUGH THE ALLEGED OR ACTUAL NEGLIGENCE OF SUCH
PERSON OR OTHERWISE, except and to the extent that the same results from the
gross negligence, willful misconduct or bad faith of such Indemnified Person.
9.9 Entire Agreement. The Credit Documents embody the entire agreement
between the Borrowers and the Lender and supersedes all prior proposals,
agreements and understandings relating to the subject matter hereof.
9.10 Severability. If any provision of any Credit Document shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby. Each waiver in the Credit Documents is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed against
the Lender for having bargained for and obtained it.
9.11 Disclosures. Every reference in the Credit Documents to disclosures
of any Borrower to the Lender, to the extent that such references refer to
disclosures at or before the execution of this Agreement, shall be deemed
strictly to refer only to written disclosures delivered to the Lender in an
orderly manner concurrently with the execution hereof.
9.12 Obligations of Dollar Borrowers Are Joint And Several. All of the
liabilities and obligations of the Dollar Borrowers under this Agreement and
under the other Credit Documents shall be joint and several. Each of the
Borrowers represents and warrants that such Borrower has not been required to
become jointly and severally liable for the obligations of any other Person
under this Agreement as a condition to such Borrower's receipt of any loan or
other extension of credit made pursuant to this Agreement, the Credit Documents,
or any other document executed in connection therewith.
9.13 Amendment and Restatement. This Agreement amends and restates in its
entirety that certain Credit Agreement dated September 29, 1995 executed by and
among the Lender and Drilex Systems, Inc., Drilex Holdings Corp., Sharewell,
Inc., Cobb Directional Drilling Company, L.L.C. and Drilex Systems Limited, as
amended.
THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
32
<PAGE>
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
DRILEX INTERNATIONAL INC.,
a Delaware corporation
By:/s/ John Forrest
---------------------------
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
By:/s/ John Forrest
---------------------------
John Forrest,
President
33
<PAGE>
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex International Inc., a Delaware
corporation, Member
By:/s/ John Forrest
-----------------------------
John Forrest,
President
By: Drilex Systems, Inc., a Delaware
corporation, Member
By:/s/ John Forrest
------------------------------
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
By:/s/ John Forrest
--------------------------------
John Forrest,
Chief Executive Officer
34
<PAGE>
DRILEX SYSTEMS LIMITED,
a company incorporated in Scotland under the
Companies Act
WITNESSES to
execution by Drilex
Systems Limited:
By:/s/ John Forrest
--------------------------------
John Forrest,
Director
/s/ G. Bruce Broussard
- ----------------------------
Name: G. Bruce Broussard
Address: 15151 Sommermeyer
Houston, Tx. 77041
Occupation: V.P. Finance
/s/ Angie Kreutzfeldt
- ---------------------------
Name: Angie Kreutzfeldt
Address: 15151 Sommermeyer
Houston, Tx 77041
Occupation: Exec. Secretary
35
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION,
a national banking association
By:/s/ Michael V. Addy
----------------------------
Name: Michael V. Addy
--------------------------
Title: Executive Vice President
-------------------------
Exhibit A - Dollar Note
Exhibit B - Pound Note
Exhibit C - Request for Dollar Loan
Exhibit D - Request for Pound Loan
Exhibit E - Opinion of Baker & Botts, L.L.P.
Exhibit F - Opinion of Iain Smith & Co.
Exhibit G - Certificate of No Default
Exhibit H - Shareco Acquisition Notes
Exhibit I - Certain Notes Held by Dollar Borrowers
Appendix I - Subsidiaries
36
<PAGE>
DOLLAR NOTE
$15,000,000 Houston, Texas September 16, 1996
FOR VALUE RECEIVED, DRILEX INTERNATIONAL INC. (formerly Drilex Holdings
Corp.), a Delaware corporation, DRILEX SYSTEMS, INC., a Texas corporation,
SHAREWELL, INC. (formerly Shareco, Inc. ("Shareco")), a Delaware corporation,
and COBB DIRECTIONAL DRILLING COMPANY, L.L.C., a Delaware limited liability
company (collectively "Makers"), jointly and severally, promise to pay to the
order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Payee"), a national banking
association, at its principal banking building in the City of Houston, Harris
County, Texas, or at such other place as the holder of this note may hereafter
designate in writing, in immediately available funds and in lawful money of the
USA, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) (or the unpaid
balance of all principal advanced against this note, if that amount is less),
together with interest on the unpaid principal balance of this note from time to
time outstanding until maturity at the rate or rates provided in the Interest
Rate Agreement of even date herewith among Payee and Makers (as amended,
supplemented and restated, the "Interest Rate Agreement") and interest on all
past due amounts, both principal and accrued interest, at the Past Due Rate;
provided that for the full term of this note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the debt evidenced hereby shall not exceed
the Highest Lawful Rate.
This note is the Dollar Note which has been issued pursuant to the terms of
that certain Amended and Restated Credit Agreement (as amended, supplemented and
restated, the "Credit Agreement") dated as of September 16, 1996 among Makers;
Drilex Systems Limited, and Payee, to which reference is made for all purposes.
Any term defined in the Credit Agreement and used in this note shall have the
meaning ascribed to it in the Credit Agreement. Advances against this note by
Payee or other holder hereof shall be governed by the Credit Agreement and the
Interest Rate Agreement. Payee is entitled to the benefits of and security
provided for in the Credit Agreement. Such security includes those certain
Security Agreements of even date therewith between the respective Makers and
Payee.
The principal of this note shall be due and payable on the Termination
Date, the final maturity of this note. Accrued and unpaid interest shall be due
and payable as provided in the Interest Rate Agreement.
Subject to the provisions of the Credit Agreement, Makers may at any time
pay the full amount or any part of this note without payment of any premium or
fee.
Page 1 of 4 Pages
<PAGE>
The unpaid principal balance of this note at any time shall be the total of
all principal lent or advanced against this note less the sum of all principal
payments and permitted prepayments made on this note by or for the account of
Makers. All loans and advances and all payments and permitted prepayments made
hereon may be endorsed by the holder of this note on the schedule which is
attached hereto (and hereby made a part hereof for all purposes) or otherwise
recorded in the holder's records; provided that any failure to make notation of
(a) any advance shall not cancel, limit or otherwise affect Makers' obligations
or any holder's rights with respect to that advance, or (b) any payment or
permitted prepayment of principal shall not cancel, limit or otherwise affect
Makers' entitlement to credit for that payment as of the date received by the
holder.
Subject to the provisions of the Credit Agreement, Makers may use all or
any part of the credit provided to be evidenced by this note at any time before
the Termination Date. Makers may borrow, repay and reborrow and there is no
limit on the number of advances against this note so long as the total unpaid
principal at any time outstanding does not exceed the Dollar Available
Commitment.
The occurrence of an Event of Default shall constitute default under this
note, whereupon the holder hereof may elect to exercise any or all rights,
powers and remedies afforded (a) under the Credit Documents and (b) by law,
including the right to accelerate the maturity of this entire note.
If any holder of this note retains an attorney in connection with any such
default or to collect, enforce or defend this note or any papers intended to
secure or guarantee it in any lawsuit or in any probate, reorganization,
bankruptcy or other proceeding, or if Makers sue any holder in connection with
this note or any such papers and do not prevail, then Makers agree to pay to
each such holder, in addition to principal and interest, all reasonable costs
and expenses incurred by such holder in trying to collect this note or in any
such suit or proceeding, including reasonable attorneys' fees.
Makers and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such Person agrees that its liability on or with
respect to this note shall not be affected by any release of or change in any
guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
Page 2 of 4 Pages
<PAGE>
This note is given in renewal, extension and rearrangement, and not in
extinguishment, of that certain promissory note (the "Renewed Note") dated
September 29, 1995, made by Drilex Systems, Inc., Drilex Holdings Corp.,
Sharewell, Inc. and Cobb Directional Drilling Company, L.L.C., payable to the
order of Payee and in the maximum principal amount of Thirteen Million Dollars
($13,000,000).
This note shall be governed by and construed in accordance with the laws of
the State of Texas and the USA from time to time in effect. Harris County,
Texas shall be a proper place of venue for suit hereon.
DRILEX INTERNATIONAL INC.,
a Delaware corporation
By: /s/ JOHN FORREST
-------------------------------------
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/ JOHN FORREST
--------------------------------------
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
By: /s/ JOHN FORREST
--------------------------------------
John Forrest,
Chief Executive Officer
Page 3 of 4 Pages
<PAGE>
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex International Inc.,
a Delaware corporation,
Member
By: /s/ JOHN FORREST
-------------------------------------
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
By: /s/ JOHN FORREST
-------------------------------------
John Forrest,
President
Page 4 of 4 Pages
<PAGE>
INTEREST RATE AGREEMENT
This Interest Rate Agreement (as amended, supplemented and restated, this
"Agreement") dated as of September 16, 1996 among TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Lender"); DRILEX INTERNATIONAL INC. ("Parent") (formerly,
Drilex Holdings Corp.), DRILEX SYSTEMS, INC. ("DSI"), COBB DIRECTIONAL DRILLING
COMPANY, L.L.C. ("Cobb"), SHAREWELL, INC. ("Sharewell") (formerly Shareco, Inc.)
and DRILEX SYSTEMS LIMITED ("DSL");
W I T N E S S E T H:
-------------------
WHEREAS, Parent, DSI, Cobb, Sharewell and DSL (collectively, the
"Borrowers") and the Lender executed and delivered that certain Amended and
Restated Credit Agreement (as amended, supplemented and restated, the "Credit
Agreement") of even date herewith;
WHEREAS, pursuant to the Credit Agreement, Parent, DSI, Cobb and Sharewell
(collectively, the "Dollar Borrowers") executed and delivered the Dollar Note
and DSL has executed and delivered the Pound Note; and
WHEREAS, for convenience, the Borrowers and the Lender desire to gather the
provisions of the Credit Documents relating solely to interest on the Notes,
including the selection of interest rate options, into a supplemental agreement;
NOW, THEREFORE, in consideration of the execution and delivery of the
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
-----------
1.1 Credit Agreement. Any term defined in the Credit Agreement and used
in this Agreement shall have the meaning ascribed to it in the Credit Agreement.
Section 1.2 and Article 9 of the Credit Agreement are incorporated herein by
reference, mutatis mutandis.
1.2 Defined Terms. Unless a particular word or phrase is otherwise
defined or the context otherwise requires, capitalized words and phrases used in
this Agreement have the meaning provided below.
Adjusted Eurodollar Interbank Rate shall mean, with respect to each
Interest Period applicable to a Eurodollar Rate Borrowing, a rate per annum
equal to the quotient, expressed as a percentage, of (a) the Eurodollar
Interbank Rate with respect to such Interest Period divided by
<PAGE>
(b) the difference of (1) 1.0000 minus (2) the Eurodollar Reserve Requirement in
effect on the first day of such Interest Period.
Base Rate shall mean for any day a rate per annum (rounded upwards, if
necessary, to the nearest 1/8%, except for the Highest Lawful Rate, which shall
never be rounded upwards) equal to the lesser of (a) the Prime Rate for that day
or (b) the Highest Lawful Rate.
Base Rate Borrowing shall mean that portion of the principal balance of the
Dollar Loans at any time bearing interest at the Base Rate.
Base Rate Interest Payment Dates shall mean the last Business Day of each
January, April, July and October.
Chapter One shall mean Chapter One of the Texas Credit Code, as in effect
on the date the document using such term was executed.
Euro Borrowing shall mean either a Eurodollar Rate Borrowing or a
Eurosterling Rate Borrowing, as appropriate.
Euro Business Day shall mean a Business Day on which transactions in Dollar
or Pound deposits (as appropriate) between banks may be carried on in the
Eurodollar Interbank Market or the Eurosterling Interbank Market (as
appropriate).
Euro Rate shall mean either a Eurodollar Rate or a Eurosterling Rate, as
appropriate.
Eurodollar Interbank Market shall mean whatever Eurodollar interbank market
may be selected by the Lender in its reasonable discretion.
Eurodollar Interbank Rate shall mean, for each Interest Period, the rate of
interest per annum determined by the Lender to be the arithmetic average of the
rates per annum in accordance with the then-existing practice in the Eurodollar
Interbank Market for the offering to the Lender (at or before 10:00 a.m., local
time, in the Eurodollar Interbank Market on the date two Euro Business Days
before the first day of such Interest Period) by one or more prime banks
(selected by the Lender in its sole discretion) in the Eurodollar Interbank
Market, of deposits in Dollars for delivery on the first day of such Interest
Period and having a maturity equal to the length of such Interest Period and in
an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing
to which such Interest Period relates. Each determination by the Lender of the
Eurodollar Interbank Rate shall be conclusive and binding, absent manifest
error, and may be computed using any reasonable averaging and attribution
method.
2
<PAGE>
Eurodollar Rate shall mean for any day a rate per annum (rounded upwards,
if necessary, to the nearest 1/8%, except for the Highest Lawful Rate, which
shall never be rounded upwards) equal to the lesser of (a) the sum of (1) the
Adjusted Eurodollar Interbank Rate in effect on the first day of the Interest
Period for the applicable Eurodollar Rate Borrowing plus (2) the applicable
Margin Percentage from time to time in effect or (b) the Highest Lawful Rate.
Each Eurodollar Rate is subject to adjustments for reserves and other matters as
provided for in Section 2.3.
Eurodollar Rate Borrowing shall mean each portion of the principal balance
of the Dollar Loans at any time bearing interest at a Eurodollar Rate pursuant
to a Rate Designation Notice.
Eurodollar Reserve Requirement shall mean, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next higher
.0001) which is in effect on such day for determining all reserve requirements
(including, without limitation, basic, supplemental, marginal and emergency
reserves) applicable to "Eurocurrency liabilities," as currently defined in
Regulation D, all as specified by any Governmental Authority, including those
imposed under Regulation D. Each determination of the Eurodollar Reserve
Requirement by the Lender shall be conclusive and binding, absent manifest
error, and may be computed using any reasonable averaging and attribution
method.
Eurosterling Interbank Market shall mean whatever Eurosterling interbank
market may be selected by the Lender in its sole discretion.
Eurosterling Interbank Rate shall mean, for each Interest Period, the rate
of interest per annum (rounded upwards to the nearest 1/8%) determined by the
Lender to be the arithmetic average of the rates per annum in accordance with
the then-existing practice in the Eurosterling Interbank Market for the offering
to the Lender (at or before 10:00 a.m., local time, in the Eurosterling
Interbank Market on the date two Euro Business Days before the first day of such
Interest Period) by one or more prime banks (selected by the Lender in its sole
discretion) in the Eurosterling Interbank Market, of deposits in Pounds for
delivery on the first day of such Interest Period and having a maturity equal to
the length of such Interest Period and in an amount equal (or as nearly equal as
may be) to the Eurosterling Rate Borrowing to which such Interest Period
relates. Each determination by the Lender of the Eurosterling Interbank Rate
shall be conclusive and binding, absent manifest error, and may be computed
using any reasonable averaging and attribution method.
Eurosterling Rate shall mean for any day a rate per annum equal to the
lesser of (a) the sum of (1) the Eurosterling Interbank Rate in effect on the
first day of the Interest Period for the applicable Eurosterling Rate Borrowing
plus (2) the applicable Margin Percentage from time to time in effect or (b) the
Highest Lawful Rate. Each Eurosterling Rate is subject to adjustments for
reserves and other matters as provided for in Section 2.3.
3
<PAGE>
Eurosterling Rate Borrowing shall mean each portion of the principal
balance of the Pound Loans at any time bearing interest at a Eurosterling Rate
pursuant to a Rate Designation Notice.
Excess Interest Amount shall mean, on any day, the amount by which (a) the
amount of all interest which would have accrued before such day on the
outstanding principal of a Note (had the Stated Rate at all times been in effect
without limitation by the Highest Lawful Rate) exceeds (b) the aggregate amount
of interest actually paid to the Lender on such Note on or before such day.
Funding Loss shall mean, with respect to (a) a Borrower's payment or
prepayment of principal of a Euro Borrowing on a day other than the last day of
the applicable Interest Period; (b) a Borrower's failure to borrow a Euro
Borrowing on the date specified by such Borrower; (c) a Borrower's failure to
make any a prepayment of a Euro Borrowing on the date specified by such
Borrower, or (d) any cessation of a Euro Rate to apply to the Loans or any part
thereof pursuant to Section 2.3, in each case whether voluntary or involuntary,
any loss, expense, penalty, premium or liability reasonably incurred by the
Lender (including but not limited to any loss or expense reasonably incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund or maintain a Loan).
Highest Lawful Rate shall mean the maximum nonusurious rate of interest
permitted to be charged by applicable federal or Texas law (whichever shall
permit the higher lawful rate) from time to time in effect. At all times, if
any, as Chapter One shall establish the Highest Lawful Rate, the Highest Lawful
Rate shall be the "indicated rate ceiling" (as defined in Chapter One) from time
to time in effect.
Interest Options shall mean the Base Rate, each Eurodollar Rate and each
Eurosterling Rate, and "Interest Option" shall mean either of them.
Interest Payment Dates shall mean for (a) Base Rate Borrowings, the Base
Rate Interest Payment Dates and (b) Euro Borrowings, the end of the applicable
Interest Period and, with respect to a six-month Interest Period, on the date
which would have been the end of a three-month Interest Period if such an
Interest Period had been selected; in each case, Interest Payment Date shall
also mean the maturity date (whether by acceleration or otherwise) of a Note.
Interest Period shall mean, for each Euro Borrowing, a period commencing on
the date such Euro Borrowing began and ending on the numerically corresponding
day which is one, two, three or six months thereafter; provided that (a) any
Interest Period with respect to a Euro Borrowing which would otherwise end on a
day which is not a Euro Business Day shall be extended to the next succeeding
Euro Business Day, unless such Euro Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding Euro
Business Day; (b) any Interest Period with respect to a Euro Borrowing which
begins on the last
4
<PAGE>
Euro Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Euro Business Day of the appropriate calendar
month; (c) no Interest Period shall ever extend beyond the stated maturity of
the Note evidencing such Euro Borrowing, and (d) Interest Periods shall be
selected by each Borrower in such a manner that the Interest Period with respect
to any portion of the Loans which shall become due shall not extend beyond such
due date.
Margin Percentage means:
(a) On any day prior to October 1, 1996, (1) 0.00% with respect to Base
Rate Borrowings and (2) 0.75% with respect to Euro Borrowings.
(b) On and after October 1, 1996, the applicable per annum percentage set
forth at the appropriate intersection in the table shown below, based on the
Debt to Capitalization Ratio as of the last day of the most recently ended
fiscal quarter of Parent calculated by the Lender as soon as practicable after
receipt by the Lender of all financial reports required under the Credit
Agreement with respect to such fiscal quarter (including a Certificate of No
Default as therein provided) (provided, however, that if the Margin Percentage
is increased as a result of the reported Debt to Capitalization Ratio, such
increase shall be retroactive to the date that Borrowers were obligated to
deliver such financial reports to the Lender pursuant to the terms of the Credit
Agreement and provided further, however, that if the Margin Percentage is
decreased as a result of the reported Debt to Capitalization Ratio, and such
financial reports are delivered to the Lender not more than ten (10) calendar
days after the date required to be delivered pursuant to the terms of the Credit
Agreement, such decrease shall be retroactive to the date that Borrowers were
obligated to deliver such financial reports to the Lender pursuant to the terms
of the Credit Agreement):
<TABLE>
<CAPTION>
Euro
Debt to Borrowings Margin Base Rate Borrowings
Capitalization Ratio Percentage Margin Percentage
- -------------------------------- ----------------- --------------------
<S> <C> <C>
Greater than 30% 1.125 0.00
Less than or equal to 30% 0.75 0.00
</TABLE>
Past Due Rate shall mean the lesser of the Highest Lawful Rate or a rate
per annum equal to the Prime Rate plus 3% per annum.
5
<PAGE>
Prime Rate shall mean the prime rate as announced from time to time by the
Lender. Without notice to either Borrower or any other Person, the Prime Rate
shall change automatically from time to time as and in the amount by which said
prime rate shall fluctuate, with each such change to be effective as of the date
of each change in such prime rate. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually charged to any
customer. The Lender may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
Rate Designation Date shall mean 10:00 a.m. on that Business Day which is
(a) in the case of Base Rate Borrowings, the date of such borrowing or (b) in
the case of Euro Borrowings, the date three Euro Business Days preceding the
first day of any proposed Interest Period.
Rate Designation Notice shall mean (a) in the case of a new Loan, a Request
for Loan or (b) otherwise, a written notice substantially in the form of
Exhibit A.
Regulation D shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and includes any successor or
other regulation relating to reserve requirements applicable to member banks of
the Federal Reserve System.
Stated Rate means the effective weighted average per annum rate of interest
applicable to a Note; provided that if on any day such rate shall exceed the
Highest Lawful Rate for that day, the Stated Rate shall be fixed at the Highest
Lawful Rate on that day and on each day thereafter until the total amount of
interest accrued at the Stated Rate on the unpaid principal balance of such Note
equals the total amount of interest which would have accrued if there had been
no Highest Lawful Rate. Without notice to either Borrower or any other Person,
the Stated Rate shall automatically fluctuate upward and downward in accordance
with the provisions of this definition.
Taxes shall mean any governmental tax, levy, impost, duty, charge or fee.
Texas Credit Code shall mean Title 79, Texas Revised Civil Statutes, 1925,
as amended.
2. Interest Options for Loans.
--------------------------
2.1 Options Available. The outstanding principal balance of the Dollar
Note shall bear interest at the lesser of (a) the Base Rate or (b) the Highest
Lawful Rate and each Pound Loan shall bear interest at the lesser of (a) the
Eurosterling Rate for the date of such Loan and with an Interest Period of one
month or (b) the Highest Lawful Rate; provided that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2)
6
<PAGE>
subject to the provisions hereof, the Dollar Borrowers shall have the
option of having all or any portion of the principal balance of the Dollar Note
from time to time outstanding bear interest at a Eurodollar Rate and DSL shall
have the option of having all or any portion of the principal balance of the
Pound Note from time to time outstanding bear interest at a Eurosterling Rate
with a different Interest Period. The records of the Lender with respect to
Interest Options, Interest Periods and the amounts of Loans to which they are
applicable shall be binding and conclusive, absent manifest error. Interest on
the Loans shall be calculated at the Base Rate or a Eurosterling Rate with a
one-month Interest Period, as the case may be, except where it is expressly
provided pursuant to this Agreement that a Euro Rate (including a different
Eurosterling Rate) is to apply. Interest on the amount of each advance against a
Note shall be computed on the amount of that advance and from the date it is
made. Notwithstanding anything in this Agreement to the contrary, for the full
term of a Note the interest rate produced by the aggregate of all sums paid or
agreed to be paid to the holder of such Note for the use, forbearance or
detention of the debt evidenced thereby shall not exceed the Highest Lawful
Rate.
2.2 Designation and Conversion. A Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. Provided that no Event of Default has occurred and is continuing and
subject to the last sentence of Section 2.1 and the provisions of Section 2.3, a
Borrower may elect to have a Euro Rate apply or continue to apply to all or any
portion of the principal balance of the Note made by such Borrower. Each change
in Interest Options shall be a conversion of the rate of interest applicable to
the specified portion of a Loan, but such conversion shall not change the
outstanding principal balance of the Note evidencing such Loan. The Interest
Options shall be designated or converted in the manner provided below:
(a) A Borrower shall give the Lender a Rate Designation Notice. Each Rate
Designation Notice shall be irrevocable and shall be given to the Lender no
later than the applicable Rate Designation Date.
(b) No more than three Eurodollar Rate Borrowings shall be in effect at any
time.
(c) No more than three Eurosterling Rate Borrowings shall be in effect at
any time.
(d) Each designation or conversion of a Euro Borrowing shall occur on a
Euro Business Day.
(e) Except as provided in Section 2.3, no Euro Borrowing shall be converted
on any day other than the last day of the applicable Interest Period.
(f) Each Eurodollar Rate Borrowing shall be in the amount of at least
$250,000.
7
<PAGE>
(g) Each Eurosterling Rate Borrowing shall be in the amount of at least
(Pounds)100,000.
2.3 Special Provisions Applicable to Euro Borrowings.
------------------------------------------------
(a) Options Unlawful. If the adoption of any applicable Legal Requirement
or any change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by the Lender
with any request or directive (whether or not having the force of law) of any
Governmental Authority shall at any time make it unlawful or impossible for the
Lender to permit the establishment of or to maintain any Euro Borrowing, the
commitment of the Lender to establish or maintain such Euro Borrowing shall
forthwith be canceled and the relevant Borrower shall forthwith, upon demand by
the Lender to such Borrower, (1) convert any Euro Borrowing with respect to
which such demand was made to a Base Rate Borrowing, if such Euro Borrowing is a
Eurodollar Rate Borrowing; (2) pay all accrued and unpaid interest to date on
the amount so converted, and (3) pay any amounts required to compensate the
Lender for any additional reasonable cost or expense which the Lender may incur
as a result of such adoption of or change in such Legal Requirement or in the
interpretation or administration thereof and any Funding Loss which the Lender
may incur as a result of such conversion. If, when the Lender so notifies the
Dollar Borrowers, the Dollar Borrowers have given a Rate Designation Notice
specifying a Eurodollar Rate Borrowing but the selected Interest Period has not
yet begun, such Rate Designation Notice shall be deemed to be of no force and
effect, as if never made, and the balance of the Dollar Loans specified in such
Rate Designation Notice shall bear interest at the Base Rate until a different
available Interest Option shall be designated in accordance herewith.
(b) Increased Cost of Borrowings. If the adoption after the date hereof of
any applicable Legal Requirement or any change after the date hereof in any
applicable Legal Requirement or in the interpretation or administration thereof
by any Governmental Authority or compliance by the Lender with any request or
directive (whether or not having the force of law) of any Governmental Authority
shall at any time as a result of any portion of the principal balance of a Note
being maintained on the basis of a Euro Rate:
(1) subject the Lender (or make it apparent that the Lender is
subject) to any Taxes, or any deduction or withholding for any Taxes, on or from
any payment due under any Euro Rate Borrowing or other amount due hereunder,
other than any income and franchise taxes; or
(2) change the basis of taxation of payments due from a Borrower to
the Lender under any Euro Borrowing (otherwise than by a change in the rate of
taxation of the overall net income of the Lender); or
8
<PAGE>
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement included in the
calculation of the applicable Euro Rate), special deposit requirement or similar
requirement (including state law requirements and Regulation D) imposed,
modified, increased or deemed applicable by any Governmental Authority against
assets held by the Lender, or against deposits or accounts in or for the account
of the Lender, or against loans made by the Lender, or against any other funds,
obligations or other property owned or held by the Lender; or
(4) impose on the Lender any other condition regarding any Euro
Borrowing;
and the result of any of the foregoing is to materially increase the cost to the
Lender of agreeing to make or of making, renewing or maintaining such Euro
Borrowing, or materially reduce the amount of principal or interest received by
the Lender then, upon demand by the Lender, the relevant Borrower shall pay to
the Lender, from time to time as specified by the Lender, additional amounts
which shall compensate the Lender for such increased cost or reduced amount. The
determination by the Lender of the amount of any such increased cost, increased
reserve requirement or reduced amount shall be conclusive and binding, absent
manifest error, and may be prepared using any reasonable averaging and
attribution methods. The relevant Borrower shall have the right, if it receives
from the Lender any demand referred to in this paragraph, upon three Business
Days' notice to the Lender, either (1) to repay in full (but not in part) any
Euro Borrowing with respect to which such notice was given, together with any
accrued and unpaid interest thereon, or (2) to convert any Euro Borrowing which
is the subject of the demand to a Base Rate Borrowing, if such Euro Borrowing is
a Eurodollar Rate Borrowing; provided that any such repayment or conversion
shall be accompanied by payment of (x) the amount required to compensate the
Lender for the increased cost or reduced amount referred to in this paragraph;
(y) all accrued and unpaid interest to date on the amount so repaid or
converted, and (z) any Funding Loss which the Lender may incur as a result of
such repayment or conversion.
(c) Inadequacy of Pricing and Rate Determination. If for any reason the
Lender shall have reasonably determined (which determination shall be conclusive
and binding upon the Borrowers) that:
(1) the Lender is unable through its customary general practices to
determine any applicable Euro Rate, or
(2) by reason of circumstances affecting the Eurodollar Interbank
Market or the Eurosterling Interbank Market, as appropriate, generally, the
Lender is not being offered deposits in Dollars or Pounds (as the case may be)
in such market through its customary general practices, for the applicable
Interest Period and in an amount equal to the amount of any applicable Euro
Borrowing requested by a Borrower, or
9
<PAGE>
(3) any applicable Euro Rate will not adequately and fairly reflect
the cost to the Lender of making and maintaining such Euro Borrowing hereunder
for any proposed Interest Period, then the Lender shall give the relevant
Borrower notice thereof and thereupon, (A) any Rate Designation Notice
previously given by such Borrower designating the applicable Euro Borrowing or
Base Rate Borrowing which has not commenced as of the date of such notice from
the Lender shall be deemed for all purposes hereof to be of no force and effect,
as if never given, and either (B) until the Lender shall notify such Borrower
that the circumstances giving rise to such notice from the Lender no longer
exist (which notice shall be given promptly to such Borrower after the Lender
becomes aware thereof), each Rate Designation Notice requesting a Eurodollar
Rate shall be deemed a request for a Base Rate Borrowing, and any applicable
Euro Borrowing then outstanding shall be converted, without any notice to or
from such Borrower, upon the termination of the Interest Period then in effect
with respect to it, to a Base Rate Borrowing, or (C) until the Lender shall
notify DSL that the circumstances giving rise to such notice from the Lender no
longer exist (which notice shall be given promptly to DSL after the Lender
becomes aware thereof), each Rate Designation Notice from DSL shall be deemed a
request for a Eurosterling Rate Borrowing with a one-month Interest Period.
(d) Funding Losses. Each Borrower shall indemnify the Lender against and
hold the Lender harmless from any Funding Loss with respect to the Loans
received, and the Note made, by such Borrower. A certificate as to any
additional amounts payable pursuant to this paragraph submitted by the Lender to
the relevant Borrower shall be conclusive and binding upon such Borrower, absent
manifest error, and may be prepared using any reasonable averaging and
attribution methods.
(e) Application of Prepayments. If a Borrower makes a prepayment on a Note
and any Euro Borrowing is outstanding under that Note, then, notwithstanding
anything in the Credit Documents to the contrary, such prepayment shall be
applied as follows:
(1) if such prepayment is voluntary, it shall be applied first to the
outstanding principal of the Base Rate Borrowings (if any), then to unpaid
accrued interest on the Base Rate Borrowings and then to Euro Borrowings;
prepayments on Euro Borrowings shall be applied first to unpaid accrued interest
on the Euro Borrowings in inverse order of their respective Interest Payment
Dates and then to the outstanding principal of the Euro Borrowings in such
manner as shall minimize the resulting Funding Losses (with the Funding Loss to
be deducted from a prepayment before applying such prepayment to the principal
of a Euro Borrowing); or
(2) if such prepayment is mandatory, it shall be applied first to the
outstanding principal of the Base Rate Borrowings (if any), then to Euro
Borrowings in such manner as shall minimize the resulting Funding Losses (with
the Funding Loss plus accrued and unpaid interest
10
<PAGE>
on a prepaid Euro Borrowing to be added to the amount of any mandatory principal
prepayment required by the Credit Agreement).
(f) Obligations Survive. A Borrower's obligations under this Section shall
survive the payment of the such Borrower's Loans and the termination of such
Borrower's Commitment; provided that any request for compensation pursuant to
Section 2.3(b), (c) or (d) must be made on or before six (6) months after the
Lender incurs such reduction, expense or loss referred to or the Lender shall be
deemed to have waived the right to such compensation.
2.4 Interest Payments. Interest on each Loan shall be due and payable on
each Interest Payment Date and upon the payment or prepayment of such Loan,
except that (a) accrued interest payable at the Past Due Rate shall be due and
payable from time to time on demand of the Lender and (b) accrued and unpaid
interest on any amount converted pursuant to Section 2.3 shall be paid on the
amount so converted in accordance with Section 2.3.
3. Miscellaneous.
-------------
3.1 Funding Offices. The Lender may, if it so elects, fulfill its
obligation as to any Euro Borrowing by causing a branch or Affiliate of the
Lender to make such Loan and may transfer and carry such Loan at, to or for the
account of any branch office or Affiliate of the Lender; provided that in such
event for the purposes of this Agreement such Loan shall be deemed to have been
made by the Lender, and the obligation of the relevant Borrower to repay such
Loan shall nevertheless be to the Lender, and shall be deemed held by it for the
account of such branch or Affiliate; and provided further that the Lender shall
use reasonable efforts to select among funding offices available to it in such
manner as will reduce or eliminate any Taxes which otherwise would be payable by
such Borrower.
3.2 Adjustments Automatic; Calculation Year. Without notice to the
Borrowers or any other Person, each rate (other than any Eurodollar Rate)
required to be calculated or determined under this Agreement shall automatically
fluctuate upward and downward in accordance with the provisions of this
Agreement. Interest at the Prime Rate shall be computed on the basis of the
actual number of days elapsed in a year consisting of 365 or 366 days, as the
case may be. All other interest required to be calculated or determined under
this Agreement shall be computed on the basis of the actual number of days
elapsed in a year consisting of 360 days, unless the Highest Lawful Rate would
thereby be exceeded, in which event, to the extent necessary to avoid exceeding
the Highest Lawful Rate, the applicable interest shall be computed on the basis
of the actual number of days elapsed in the applicable calendar year in which
accrued.
3.3 Funding Sources. Notwithstanding any provision of this Agreement to
the contrary, the Lender shall be entitled to fund and maintain its funding of
all or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this
11
<PAGE>
Agreement all determinations hereunder shall be made as if the Lender had
actually funded and maintained each Euro Borrowing during each Interest Period
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Euro Rate for such
Interest Period.
3.4 No Usury Intended. The Borrowers and the Lender intend to strictly
comply with all applicable Legal Requirements, including usury laws.
Accordingly, the provisions of this Section shall govern and control over every
other provision of any Credit Document which conflicts or is inconsistent with
this Section, even if such provision states that it controls. As used in this
Section, the term "interest" includes the aggregate of all charges, fees,
benefits or other compensation which constitute interest under applicable law;
provided that, to the maximum extent not prohibited by applicable law, (a) any
non-principal payment shall be characterized as an expense or as compensation
for something other than the use, forbearance or detention of money, and not as
interest; (b) all interest at any time contracted for, reserved, charged or
received with respect to a Note shall be amortized, prorated, allocated and
spread, in equal parts during the full term of such Note; (c) all Loans to a
Borrower shall be treated as but a single extension of credit (and each Borrower
and the Lender agree that such is the case and that provisions in the Credit
Documents for multiple Loans to such Borrower is for convenience only), and (d)
the parties shall exclude voluntary prepayments and the effects thereof. In no
event shall either Borrower or any other Person be obligated to pay, or the
Lender have any right or privilege to reserve, receive or retain, (x) any
interest in excess of the maximum amount of nonusurious interest permitted under
the laws of the State of Texas or other applicable laws (if any) of the USA or
any other jurisdiction, (y) any unearned interest or (z) total interest in
excess of the amount which the Lender could lawfully have contracted for,
reserved, received, retained or charged and the interest been calculated for the
full term of the Loans at the Highest Lawful Rate. None of the terms and
provisions contained in the Credit Documents which directly or indirectly relate
to interest shall ever be construed without reference to this Section or be
construed to create a contract to pay for the use, forbearance or detention of
money at an interest rate in excess of the Highest Lawful Rate.
3.5 Chapter 15. Each Borrower and the Lender agree that Chapter 15 of the
Texas Credit Code shall not apply to any Credit Document or any Loan.
3.6 Use of Loans. Each Borrower represents and warrants to the Lender
that all of the Loans are and will be for business, commercial, investment or
other similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One.
3.7 Excess Payments. If the term of any Loan is shortened by reason of
acceleration of maturity as a result of any Event of Default or by any other
cause, or by reason of any prepayment (voluntary or mandatory), and if for that
(or any other) reason the Lender at any time,
12
<PAGE>
including but not limited to the stated maturity, is owed or receives (and/or
has received) interest in excess of interest calculated at the Highest Lawful
Rate, then and in any such event all of any such excess interest shall be
canceled automatically as of the date of such acceleration, repayment or other
event which produces the excess, and, if such excess interest has been paid to
the Lender, it shall be credited pro tanto against the then-outstanding
principal balance of the obligations of the payor thereof to such Person,
effective as of the date or dates when the event occurs which causes it to be
excess interest, until such excess is exhausted or all of such principal has
been fully paid and satisfied, whichever occurs first, and any remaining balance
of such excess shall be promptly refunded to its payor.
3.8 Recapture. If as of any Interest Payment Date the Lender does not
receive payment in full of interest computed at the Stated Rate (computed
without regard to any limitation by the Highest Lawful Rate) because the Stated
Rate (as so computed) exceeds or has exceeded the Highest Lawful Rate, the
relevant Borrower shall pay to the Lender, in addition to interest otherwise
required, on each Interest Payment Date thereafter, the Excess Interest Amount
(calculated as of each such subsequent Interest Payment Date); provided that in
no event shall either Borrower be required to pay, for any computation period,
interest at a rate exceeding the Highest Lawful Rate applicable to and effective
during such period.
3.9 UK Taxes. The obligations of DSL to the Lender under the Credit
Documents will be discharged only to the extent of funds received by the Lender,
without set-off or counterclaim and free and clear of and without deduction or
withholding for or on account of any present or future Tax (collectively, "UK
Taxes") imposed, levied, assessed or required to be withheld by any government,
political subdivision or taxing authority (collectively, the "UK Authorities")
of the United Kingdom. The Lender agrees to file appropriate documents with the
UK Authorities promptly after request by DSL to enable DSL to obtain an
exemption from the payment of UK Taxes and deliver evidence thereof to DSL.
Within 30 days after each date scheduled for a payment of principal, interest or
both under the Credit Documents which is subject to any UK Tax, DSL shall
furnish the Lender with the originals or certified copies of official receipts
or other evidence in Proper Form evidencing the payment of UK Taxes when due.
3.10 Amendment and Restatement. This Agreement amends and restates in its
entirety that certain Interest Rate Agreement dated as of September 29, 1995
executed by and among Lender, Drilex Holdings Corp., DSI, Cobb, Sharewell and
DSL.
13
<PAGE>
EXECUTED as of the date first set forth above.
DRILEX INTERNATIONAL INC.,
a Delaware corporation
By: /s/ John Forrest
----------------------------
John Forrest,
President
14
<PAGE>
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/ John Forrest
----------------------------
John Forrest,
President
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex International Inc.,
a Delaware corporation,
Member
By: /s/ John Forrest
----------------------------
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
By: /s/ John Forrest
----------------------------
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
By: /s/ John Forrest
----------------------------
John Forrest,
Chief Executive Officer
15
<PAGE>
DRILEX SYSTEMS LIMITED,
a company incorporated in Scotland under the
Companies Act
WITNESSES to
execution by Drilex Systems
Limited:
By: /s/ John Forrest
----------------------------
John Forrest,
Director
/s/ G. Bruce Broussard
- -----------------------------
Name: G. Bruce Broussard
Address: 15151 Sommermeyer
Houston, Texas 77041
Occupation: V.P.--Finance
/s/ Angie Kreutzfeldt
- -----------------------------
Name: Angie Kreutzfeldt
Address: 15151 Sommermeyer
Houston, Texas 77041
Occupation: Exec. Secretary
16
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION,
a national banking association
By: /s/ Michael V. Addy
--------------------------------
Name: Michael V. Addy
Title: Executive Vice President
Exhibit A - Rate Designation Notice
17
<PAGE>
RATE DESIGNATION NOTICE
Drilex International Inc.; Drilex Systems, Inc.; Cobb Directional
Drilling Company, L.L.C.; Sharewell, Inc.; Drilex Systems Limited, and Texas
Commerce Bank National Association executed and delivered that certain Interest
Rate Agreement (as amended, supplemented and restated, the "Interest Rate
Agreement") dated as of September 16, 1996. Any capitalized term used herein
and not otherwise defined herein shall have the meaning ascribed to it in the
Interest Rate Agreement.
In accordance with the Interest Rate Agreement, a Borrower hereby
notifies the Lender of the exercise of an Interest Option.
A. Current borrowing
-----------------
1. Applicable Note (check one):
[ ] Dollar Note [ ] Pound Note
---- ----
2. Amount of the existing Base Rate Borrowings or the expiring Euro
Borrowing covered by this Rate Designation Notice:
$/(Pound)_______________
3. Expiration of current Interest Period, if applicable:
________________, 199__
B. Proposed election
-----------------
1. Amount of the new Base Rate Borrowings (not available for Pound
Loans) or the new Euro Borrowing covered by this Rate
Designation Notice (repeat this Section B if the existing Base
Rate Borrowings or expiring Euro Borrowing is to be divided
between Base Rate Borrowings and/or Euro Borrowing(s)):
$/(Pounds)___________________
2. Date Interest Option is to be effective:_________, 199__
3. Interest Option to be applicable (check one):
[ ] Base Rate (not available to DSL)
[ ] Euro Rate
EXHIBIT A
<PAGE>
4. Interest Period (if applicable) (check one):
[ ] one month [ ]three months
[ ] two months [ ]six months
The Borrowers represent and warrant that the Interest Option and
Interest Period selected above comply, in all material respects, with all
provisions of the Interest Rate Agreement and that there exists no Default or
Event of Default.
Date:______________,199__
[SIGNATURE ON BEHALF OF ALL
---
BORROWERS]
EXHIBIT A
<PAGE>
EXHIBIT 11.1
DRILEX INTERNATIONAL INC.
COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net income $ 1,279 $ 574 $ 1,898 $ 1,140
========== ==========
Interest expense on Convertible Promissory Note,
net of tax -- 66
---------- ----------
As adjusted for fully diluted computation $ 1,279 $ 1,964
========== ==========
Weighted average common shares outstanding 6,702,393 3,930,772 5,158,459 3,977,609
Incremental effect of shares issued during the
twelve months prior to the filing date of
the Registration Statement -- 277,597 -- 277,921
Incremental shares attributable to outstanding
stock options and warrants 147,708 171,049 157,388 114,127
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 6,850,101 4,379,418 5,315,847 4,369,657
========== ==========
Incremental shares attributable to conversion
of Convertible Promissory Note 7,869 243,931
---------- ----------
As adjusted for fully diluted computation 6,857,970 5,559,778
========== ==========
Net income per common and common equivalent share:
Primary $ .19 $ .13 $ .36 $ .26
========== ========== ========== ==========
Fully diluted $ .19 $ .35
========== ==========
</TABLE>
Note: The computations in this exhibit are presented in accordance with
Regulation S-K, Item 601(b)(11). Under the provisions of Accounting
Principles Board Opinion No. 15, the fully diluted amounts are not
presented in the Company's Consolidated Statement of Income, since such
amounts are not dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of income and is
qualified in its entirety by reference to such consolidated financial statements
together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,324
<SECURITIES> 0
<RECEIVABLES> 21,545
<ALLOWANCES> 959
<INVENTORY> 9,969
<CURRENT-ASSETS> 35,864
<PP&E> 38,359
<DEPRECIATION> 7,696
<TOTAL-ASSETS> 83,969
<CURRENT-LIABILITIES> 16,381
<BONDS> 8,155
0
0
<COMMON> 68
<OTHER-SE> 56,410
<TOTAL-LIABILITY-AND-EQUITY> 83,969
<SALES> 9,733
<TOTAL-REVENUES> 58,125
<CGS> 4,193
<TOTAL-COSTS> 35,238
<OTHER-EXPENSES> 18,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,827
<INCOME-PRETAX> 3,031
<INCOME-TAX> 1,091
<INCOME-CONTINUING> 1,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,898
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
