<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
---------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
DRILEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 1389 76-0438889
-------- ---- ----------
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
15151 SOMMERMEYER
HOUSTON, TEXAS 77041
(713) 937-8888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN FORREST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DRILEX CORPORATION
15151 SOMMERMEYER
HOUSTON, TEXAS 77041
(713) 937-8888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
J. DAVID KIRKLAND, JR. MARCUS A. WATTS
BAKER & BOTTS, L.L.P. LIDDELL, SAPP, ZIVLEY, HILL & LABOON,
3000 ONE SHELL PLAZA L.L.P.
HOUSTON, TX 77002-4995 TEXAS COMMERCE TOWER
(713) 229-1234 600 TRAVIS, SUITE 3400
HOUSTON, TEXAS 77002
(713) 226-1200
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED (1) PER SHARE (2) (2) FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................... 2,300,000 $19.00 $43,700,000 $15,069
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes 300,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
DRILEX CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
----------------------------------- ---------------------------------
<C> <C> <S>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Forepart of the Registration
Prospectus........................... Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front and Outside Back
Cover Pages of Prospectus;
Additional Information
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors;
Ratio of Earnings to Fixed Charges... The Company
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Underwriting
6. Dilution.............................. Dilution
7. Selling Security Holders.............. *
8. Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be
Registered........................... Description of Capital Stock
10. Interests of Named Experts and
Counsel.............................. *
11. Information with Respect to the Outside Front Cover Page of
Registrant........................... Prospectus; Prospectus Summary;
Risk Factors; The Company;
Dividend Policy; Dilution;
Capitalization; Selected
Historical Financial and Other
Data; Unaudited Pro Forma
Condensed Consolidated Statement
of Income; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business;
Management; Certain Transactions
and Relationships; Security
Ownership of Certain Beneficial
Owners and Management; Shares
Eligible for Future Sale;
Description of Capital Stock;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... *
</TABLE>
- --------
* Omitted from the Prospectus because item is inapplicable.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 9, 1996
PROSPECTUS
- ----------
2,000,000 SHARES
[LOGO OF DRILEX CORP. APPEARS HERE]
COMMON STOCK
-----------
All of the 2,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), offered hereby (the "Offering") are being sold by Drilex
Corporation ("Drilex" or the "Company"). The initial public offering price is
expected to be between $17.00 and $19.00 per share.
Prior to the Offering, there has been no public market for the Common Stock.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Company has applied to list the Common Stock on the Nasdaq National
Market under the symbol "DRLX."
SEE "RISK FACTORS" (BEGINNING ON PAGE 10) FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF THE COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------
Total(3)......................... $ $ $
- ---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several Underwriters an option for 30 days to
purchase up to an additional 300,000 shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about , 1996.
-----------
MERRILL LYNCH & CO.
CS FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
-----------
The date of this Prospectus is , 1996.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
[GRAPHICS TO COME]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This summary should be read in conjunction with, and is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, (i) information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised, (ii) all share and per share data in
this Prospectus have been adjusted to reflect an approximately 1.81-for-one
stock split of the Common Stock effected in May 1996, and (iii) industry data
relating to the worldwide drilling industry or precision drilling segment
excludes the Commonwealth of Independent States and China. The pro forma
amounts set forth in this Prospectus, unless otherwise indicated, reflect the
pro forma effects of the Sharewell Acquisition and the ENSCO Technology
Acquisition (each as defined herein) on the operations of the Company on the
basis set forth in the Unaudited Pro Forma Condensed Consolidated Statement of
Income of the Company included in this Prospectus.
THE COMPANY
BUSINESS OVERVIEW
Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield workover
operations, environmental remediation applications, and trenchless pipeline and
cable laying applications. Precision drilling involves the combined use of a
steerable downhole positive displacement drilling motor and a guidance system
to enable the controlled placement of a borehole through predetermined
locations. Drilex employs this technology to drill to depths ranging from near
surface to more than four miles. The Company's products and services include
comprehensive computerized well planning and engineering services, supervision
of drilling operations and project management, a full range of high performance
downhole positive displacement motor systems, guidance systems (such as
measurement-while-drilling ("MWD") instrument systems and steering tools), and
other related downhole tools. Oilfield applications accounted for approximately
86% of the Company's revenues (on a pro forma basis) in 1995. The Company
currently operates from 23 locations around the world and has approximately 390
employees.
Drilex was one of the pioneers in the development of downhole drilling motors
in the early 1980s and is now a worldwide leader in the design and manufacture
of high-performance, multi-lobed positive displacement drilling motors. A
positive displacement drilling motor, one of the key components in a precision
drilling project, is hydraulically powered by the drilling fluids pumped into
the wellbore during normal drilling operations. In addition to providing
directional control, a downhole drilling motor provides the primary rotational
power to the drill bit, in contrast to conventional vertical drilling, in which
spinning the drillstring at the surface is the primary method for rotating the
drill bit. The Company employs its drilling motors in its own service
operations and also provides motors for sale or rent under the internationally
recognized "Drilex" brand name to oil and gas exploration and development
companies and oilfield service contractors. Drilex has designed its drilling
motors to optimize flexibility, power and reliability, resulting in some of the
highest power and quality ratings in the industry. Drilex believes it is the
only independent company focused on providing precision drilling services that
designs and manufactures the primary components of its own drilling motors. The
Company believes that its ability to design and manufacture its own drilling
motors provides it with distinct competitive advantages, both in terms of the
performance characteristics of its motors and the quality of service that
Drilex is able to provide to its customers.
Industry Overview. Oilfield applications currently comprise the largest part
of the precision drilling market, which is a relatively new segment of the
overall drilling industry. Based on industry sources, the Company estimates
that the number of oil and gas wells drilled in the United States using
precision drilling technology increased 56% from 2,110 in 1990 to 3,288 in
1995. As a result of an overall decrease in oil and gas drilling activity, this
growth has resulted in the proportion of oil and gas wells drilled in the
United States employing
3
<PAGE>
precision drilling technology increasing from 7% in 1990 to 17% in 1995. This
growth has been driven primarily by the substantial cost savings, improvements
to drilling efficiency and enhancements to reservoir production that precision
drilling can provide to oilfield operators. The Company believes that these
factors will continue to produce growth in the market for precision drilling
services.
Precision drilling can be used to develop a field with multiple wells drilled
from the same offshore platform or, in environmentally sensitive areas (such as
the Alaskan North Slope), from fewer surface facilities than conventional
drilling would require. In addition, by drilling horizontally through a
formation characterized by multiple vertical fractures, well productivity can
be significantly increased and drilling costs can be reduced substantially
(because fewer wells are required compared to a vertical development program).
Recent developments in multilateral technology, which allow two or more
horizontal wells to be drilled from the same vertical wellbore, have further
enhanced well productivity and development efficiency.
The technological and operational advantages of precision drilling combined
with advances in the identification and location of hydrocarbons have made many
marginal or otherwise uneconomical or depleted reservoirs economically feasible
to produce. In addition, new "extended-reach" precision drilling technology
allows many smaller offshore reservoirs, which may not be economic to develop
on a stand-alone basis, to now be developed from existing offshore platforms.
Advances in subsurface geological analysis (such as 3-D seismic technologies
and computer-aided exploration ("CAEX") techniques), which have enhanced the
identification and location of hydrocarbon deposits, combined with recent
improvements in precision drilling technologies, are creating new opportunities
for precision drilling services. In addition, new "slim-hole" precision
drilling technology used in conjunction with small-diameter drill pipe or
coiled tubing (a substitute for drill pipe) is permitting operators to re-enter
old wells and drill from the existing wellbore to develop previously untapped
deposits.
Based on industry sources, the Company estimates that North and South America
currently represent more than 70% of the worldwide market for oilfield
precision drilling services (excluding the Commonwealth of Independent States
and China). The Company's oilfield activities are primarily focused on the
major precision drilling markets in the United States (including the Austin
Chalk formation and the U.S. Gulf of Mexico), Venezuela, the North Sea,
Argentina and Canada. The Company has a significant presence in each of these
markets.
Oilfield Precision Drilling Applications. The Company provides comprehensive
precision drilling services for oil and gas drilling and workover applications,
including computerized well planning, on-site drilling supervision, maintenance
and support, and post-well analysis. In many oilfield applications, precision
drilling techniques offer significant economic advantages over conventional
vertical drilling techniques, such as reduced drilling time and expense,
increased well production and enhanced reservoir recovery. The high torque,
speed and performance offered by current-generation downhole drilling motors
permit the use of precision drilling techniques as a practical alternative to
conventional drilling even for vertically drilled wells. Customers for oilfield
precision drilling services are concentrated primarily among major and large
independent oil and gas companies. Because of the complexity involved in
precision drilling, these customers typically rely on specialized precision
drilling service contractors to manage the entire process of drilling the
horizontal or directional portion of a well. Precision drilling services
require high performance drilling motors, sophisticated guidance systems and
analytical tools, and an experienced staff of wellsite and technical support
personnel. The Company's drilling motors operate in conjunction with various
guidance systems (including MWD instrument systems and steering tools) provided
by the Company or other oilfield service companies. While the Company has its
own line of steering instruments, which it assembles from sub-assemblies
obtained from various third parties, Drilex currently obtains its MWD
instrument systems from third-party manufacturers.
Environmental Remediation and Trenchless Applications. The Company has
applied its technical drilling capabilities to the development of new services
for the emerging environmental remediation and trenchless
4
<PAGE>
services markets. Drilex has become a leader in the use of shallow well
horizontal drilling for remediation applications, with a particular focus on
groundwater remediation activities. Horizontal drilling provides total cost and
performance advantages to conventional vertical drilling of sampling and
treatment wells, primarily because horizontal drilling requires fewer wells and
surface installation facilities and allows contaminants beneath fixed
structures to be reached. The Company's customers for environmental remediation
services include environmental service contractors, engineering consulting
firms, petrochemical companies, hydrocarbon transportation companies and
military and other governmental organizations.
The Company also provides precision drilling services and equipment and
related surveying services for trenchless pipeline and cable laying
applications, which primarily involve horizontal boring underneath city streets
and structures to enable the "trenchless" delivery of conduits in densely built
areas, as well as subsurface crossings of rivers, streams and other bodies of
water. Applications for trenchless services include subsurface installations of
fiber optics lines, cable systems and utility pipelines and wiring. Customers
for the Company's trenchless services include telephone and other utilities, as
well as general contractors.
The Company's environmental remediation and trenchless services operations
accounted for approximately 14% of the Company's revenues (on a pro forma
basis) in 1995. The Company believes the markets for these services offer
significant opportunities for growth, and they are not subject to the same
degree of cyclicality that affects the oil and gas exploration and development
market.
Product Rentals and Sales. In addition to manufacturing drilling motors for
use in its own service operations, the Company provides its full line of
manufactured drilling motors and related products for rent and for sale
directly to end users. Customers for product rentals and sales include oil and
gas exploration and development companies, environmental service contractors
and contractors engaged in providing trenchless services. The Company's third-
party rental revenues currently represent approximately 20% of the Company's
total revenues. Sales of drilling motors and other products to third parties
also currently account for approximately 20% of total revenues.
BUSINESS STRATEGY
The Company's business strategy is built upon Drilex's premier line of
downhole positive displacement drilling motors and emphasizes (i) providing the
highest quality oilfield precision drilling and related customer support
services in key geographic markets where demand for precision drilling services
is concentrated, (ii) maximizing delivery of its core products, either through
sales, rentals or alliance arrangements, into other geographic markets where
the Company does not focus its service efforts, and (iii) capitalizing on its
technical strengths by developing opportunities to deliver its core products
and services into emerging oilfield and non-oilfield markets where the
Company's technical expertise can provide significant advantages. The Company
also intends to explore additional opportunities for external growth through
acquisitions of businesses to complement the Company's existing operations.
Drilex intends to maintain its position as the leading independent provider
of oilfield precision drilling services by continuing its emphasis on
delivering responsive, reliable and high quality services in key geographic
markets. The Company currently concentrates its activities in the Austin Chalk
formation (a large formation extending from South Texas to parts of Louisiana),
the Gulf of Mexico, Venezuela, the North Sea, Argentina and Canada. Each of
these markets is characterized by substantial field development activity (as
opposed to new exploration activity) and a relatively high number of
technically challenging situations that require high quality precision drilling
operations. A recent independent market study conducted for the Company
confirmed the Company's belief that service quality, reliability of equipment,
localized knowledge of drilling conditions and experience and expertise of
field personnel are the most important factors in competing for business in
these markets. The Company believes that maintaining control over the entire
design, engineering and manufacturing
5
<PAGE>
processes for its drilling motors provides the Company with distinct advantages
in providing high quality service. The Company designs and builds its motors to
optimize precision, power and reliability. Drilex also maintains a flexible
manufacturing process that includes a continuous improvement program, which
produces quality and performance improvements that enable Drilex to meet the
leading-edge needs of its customers. In addition, the Company concentrates its
service activities in its key geographic markets in order to develop and
capitalize on the Company's local knowledge and to take advantage of the
regional experience and expertise of its drilling supervisors and other
technical field personnel, as well as to achieve scale operating efficiencies.
Furthermore, the high level of activity conducted by the Company in
concentrated geographic areas permits a focused application engineering effort,
which allows the Company to refine its products and services to meet the needs
of its customers on a more effective basis.
The Company also utilizes other distribution channels to maximize delivery of
its products to areas outside of its key geographic markets. Since its
inception, the Company has successfully marketed its drilling motors on a sale
and rental basis to oil and gas exploration and development companies and other
oilfield service contractors under the internationally recognized "Drilex"
brand name. These efforts have been particularly successful in the North Sea
market, where the Company has become an established provider of drilling motors
to operators and other service companies for various directional drilling and
coiled tubing applications. The Company intends to strengthen its existing
distribution channels and expand its product distribution in those markets
where the Company is not a significant service competitor. In particular, the
Company is in the process of establishing alliance arrangements with several
large oilfield service companies, which would permit these companies to include
Drilex motors in their comprehensive offerings of oilfield products and
services in certain markets where the Company does not focus its service
efforts.
The Company plans to continue to build upon its technical drilling
capabilities by further developing opportunities in emerging markets where the
Company's expertise can provide competitive advantages. In particular, the
Company believes that the development and rapid growth in the use of coiled
tubing for oilfield workover, redrilling and recompletion operations has
provided a significant opportunity for growth in the use of precision drilling
technology for slim-hole applications. The Company has become the leading
supplier of smaller diameter drilling motors and related equipment for coiled
tubing operations and intends to maintain this leadership position as coiled
tubing operations increasingly become a substitute for conventional drilling
operations. Drilex has also been successful in developing opportunities for
precision drilling in the environmental remediation and trenchless services
markets, which the Company believes offer significant opportunities for growth.
The Company is focusing its efforts on the high-end segments of these markets
and is pursuing long-term relationships with large customers that generate
substantial demand for services that can be provided by Drilex.
The Company continually reviews opportunities for growth through the
acquisition of other businesses to complement its existing operations. The
recent Cobb and ENSCO Technology Acquisitions expanded the Company's presence
in certain of its key geographic markets for oilfield precision drilling
services and provided the Company with significant opportunities to expand its
distribution of Drilex-manufactured motors by employing them in the newly
acquired operations. In addition, the ENSCO Technology Acquisition
significantly expanded the Company's MWD capabilities, providing the Company
additional opportunities to deploy its products and services. The Sharewell
Acquisition also provided the opportunity to expand the Company's product
distribution and significantly increased the Company's service capabilities in
the emerging environmental remediation and trenchless services markets. The
Company will continue to explore opportunities involving acquisitions of other
businesses to expand distribution of the Company's products and services, to
add key technologies, to gain access to attractive industry niches, and to
otherwise enhance its market presence.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock
offered................. 2,000,000
Shares of Common Stock
outstanding:
Before the Offering.... 4,391,778
After the Offering..... 6,391,778
Use of Proceeds.......... To repay long-term indebtedness, a substantial
portion of which was incurred in connection with
acquisitions, and for general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol........... DRLX
</TABLE>
RISK FACTORS
Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND OTHER DATA
The summary historical financial information presented below as of and for
the year ended December 31, 1995 and for the periods ended December 31, 1994,
March 30, 1994 and December 31, 1993, is derived from the audited consolidated
financial statements of the Company and its predecessor company, Drilex
Systems, Inc. ("DSI"). The summary unaudited pro forma financial information
presented below is derived from the Unaudited Pro Forma Condensed Consolidated
Statement of Income of the Company included elsewhere in this Prospectus and
gives effect to the Sharewell and ENSCO Technology Acquisitions and the
Offering. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of actual results of operations that would
have been achieved had the transactions been consummated on the dates reflected
in such assumptions, and is not necessarily indicative of future results of
operations. The summary historical and pro forma financial information below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Unaudited Pro Forma
Condensed Consolidated Statement of Income and the Consolidated Financial
Statements of the Company and of DSI, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY(C)
------------------------------------------- -----------------------
PRO FORMA MARCH 30, 1994 JANUARY 1,
YEAR ENDED YEAR ENDED (INCEPTION) TO 1994 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 30, DECEMBER 31,
1995 1995(A) 1994(B) 1994 1993
------------- -------------- -------------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues............ $73,557 $57,526 $25,209 $6,357 $25,871
Costs of sales and
operations............. 44,865 34,606 12,924 3,364 14,093
Selling, general and
administrative
expenses............... 16,150 13,448 6,711 2,029 8,286
Depreciation and
amortization........... 6,354(d) 4,492(d) 1,855 775 3,107
------- ------- ------- ------ -------
Operating income........ 6,188 4,980 3,719 189 385
Interest expense........ (933) (1,935) (478) (481) (1,893)
------- ------- ------- ------ -------
Income (loss) before
income taxes and
minority interests..... 5,255 3,045 3,241 (292) (1,508)
Provision for income
taxes.................. (1,892) (1,097) (1,166) (3) (152)
Minority interests...... (100) (164) (66) -- --
------- ------- ------- ------ -------
Net income (loss)....... $ 3,263 $ 1,784 $ 2,009 $ (295) $(1,660)
======= ======= ======= ====== =======
Net income per common
and common equivalent
share.................. $ .50 $ .40 $ .57
======= ======= =======
Weighted average common
and common equivalent
shares outstanding..... 6,576 4,411 3,507
OTHER DATA:
Capital expenditures.... $ 9,553 $ 5,408 $ 707 $ 195 $ 252
EBITDA(e)............... 12,542 9,472 5,574 964 3,492
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------
HISTORICAL AS ADJUSTED(F)
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......... $13,365 $21,228
Total assets............ 77,754 81,415
Long-term debt, less
current maturities..... 32,467 7,330
Total stockholders'
equity................. 23,682 56,682
</TABLE>
(footnotes on following page)
8
<PAGE>
- --------
(a) Results for the year are not comparable to prior periods due to the ENSCO
Technology and Sharewell Acquisitions.
(b) Results for the period are not comparable to prior years due to the Cobb
Acquisition.
(c) The predecessor company, DSI, was a wholly owned subsidiary of MascoTech,
Inc. prior to its acquisition by the Company on March 30, 1994. As a wholly
owned subsidiary of MascoTech, Inc., DSI was allocated interest and other
expenses by its parent. Earnings per share are not presented for periods
during which DSI was wholly owned by MascoTech, Inc.
(d) Effective April 1, 1995, the Company changed its estimated useful life for
certain drilling motor components from five to seven years. This change was
made to better reflect the estimated period during which these assets will
remain in service. The effect of this change was an increase in net income
of $248,000, or $.06 per share, for the year ended December 31, 1995.
(e) EBITDA means operating income (loss) plus depreciation and amortization.
EBITDA is not intended to represent cash flow, an alternative to net income
or any other measure of performance in accordance with generally accepted
accounting principles. Reference is made to the Consolidated Statement of
Cash Flows contained in the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus for a complete presentation
of cash flows from operating, investing and financing activities prepared
in accordance with generally accepted accounting principles.
(f) Gives effect to the Offering and the application of the net proceeds to the
Company therefrom (assumed to be $33.0 million) as described under "Use of
Proceeds." See "Capitalization."
9
<PAGE>
RISK FACTORS
Prospective purchasers of Common Stock should consider the following
factors, as well as the information contained elsewhere in the Prospectus.
RELIANCE ON THE OIL AND GAS INDUSTRY
The Company's business is substantially dependent upon the condition of the
oil and gas industry and the industry's willingness to spend capital on
drilling operations. The level of expenditures on such activities is generally
dependent on the prevailing view of future hydrocarbon product prices, which
are affected by the numerous factors affecting the supply and demand for oil
and gas, including worldwide economic activity, interest rates and the cost of
capital, environmental regulation, tax policies, political requirements of
national governments, coordination by the Organization of Petroleum Exporting
Countries ("OPEC"), the cost of producing oil and gas and technological
advances. Oil and gas prices and drilling activity have been characterized by
significant volatility in recent years. No assurance can be given that there
will not be continued volatility or that the future price of oil and gas will
be sufficient to support the level of drilling-related activities necessary
for the Company to grow or maintain its business.
RELIANCE ON NEW PRODUCT DEVELOPMENT AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The market for the Company's products and services is characterized by
changing technology. As a result, the Company's success is dependent upon its
ability to develop new products and services on a cost-effective basis and to
introduce them into the marketplace in a timely manner. Drilex intends to
continue committing financial resources and effort to the development of new
products and services. There can be no assurance that the Company will
successfully differentiate itself from its competitors, that the market will
consider the Company's products and services to be superior to its
competitors' products and services or that the Company will be able to adapt
to evolving markets and technologies, develop new products, or achieve and
maintain technological advantages. See "Business."
EXTENT OF PROTECTION OF PROPRIETARY TECHNOLOGIES
The Company relies upon, among other things, a combination of patent,
copyright and trade secret laws to protect its intellectual property rights
covering certain aspects of its products and services. There can be no
assurance that the steps taken by the Company to protect its proprietary
rights will be adequate to prevent misappropriation of its intellectual
property rights or independent development by others of competitive products
or services. In addition, the laws of certain foreign countries may not
protect such rights to the same extent as to the laws of the United States.
Litigation, which could demand financial and management resources, may be
necessary to enforce patents or other intellectual property rights of the
Company. See "Business--Patents and Other Intellectual Property."
DEPENDENCE ON CERTAIN THIRD-PARTY SUPPLIERS
The Company's two independent suppliers for MWD instrument systems are
essentially the only two sources for such equipment available to the Company.
The Company's reliance on these limited sources subjects it to the risks of,
among other things, delays in the receipt of desired quantities of MWD
equipment (as a result of manufacturing delays or other reasons) and increases
in prices for such equipment. The Company also relies on single suppliers for
the stator molding and the thrust bearings used in the manufacture of its
downhole positive displacement motors. While the Company does not anticipate
any difficulties in continuing to obtain product from these single suppliers,
the Company believes that adequate alternative sources are available should
the need arise. Such alternative sources may, however, involve increased costs
to the Company and shipment delays. See "Business--Products and Services" and
"--Engineering and Manufacturing."
10
<PAGE>
RELIANCE ON SIGNIFICANT CUSTOMERS
The Company's business is dependent on securing and maintaining customers by
delivering prompt, reliable and high quality service and reliable, high-
performance products. For the year ended December 31, 1995, one of the
Company's customers accounted for approximately 10% of the Company's revenues.
While the Company is not dependent on any one customer, the loss of one or
more of its significant customers could, at least on a short-term basis, have
a material adverse effect on the Company's results of operations. See
"Business--Customers."
OPERATIONAL HAZARDS AND INSURANCE
The Company's operations are subject to many hazards inherent in the
drilling and workover of oil and gas wells (including explosions, blow-outs,
reservoir damage, loss of well control, cratering and fires), the occurrence
of which could result in the suspension of drilling operations, damage to or
destruction of equipment and injury or death to field personnel. Damage to the
environment could also result from operations that may involve the Company or
its products. The Company maintains insurance coverage in such amounts and
against such risks as it believes to be in accordance with normal industry
practice. Such insurance does not, however, provide coverage for all
liabilities (including liabilities for certain events involving pollution),
and there can be no assurance that such insurance will be adequate to cover
all losses or liabilities that may be incurred by the Company in its
operations. Moreover, no assurance can be given that the Company will, in the
future, be able to maintain insurance at levels it deems adequate and at rates
it considers reasonable or that any particular types of coverage will be
available.
RISKS OF INTERNATIONAL OPERATIONS
Drilex maintains facilities in five countries and, from time to time,
conducts operations in numerous other countries. On a pro forma basis, the
Company's non-U.S. operations accounted for approximately 23% of the Company's
revenues during the year ended December 31, 1995 (and the Company's operations
in Venezuela accounted for approximately 39% of these foreign-sourced
revenues). The Company's business outside the United States is subject to
various risks of international operations that are beyond its control, such as
instability of foreign economies and governments, currency fluctuations,
overlap of different tax structures, risks of expropriation, and changes in
laws and policies affecting trade and investment. The Company attempts to
limit its exposure to foreign currency fluctuations by limiting the amount by
which its foreign contracts are denominated in a currency other than U.S.
dollars to an amount generally equal to expenses expected to be incurred in
such foreign currency. The Company has not historically engaged in and does
not currently intend to engage in any significant hedging or currency trading
transactions designed to compensate for adverse currency fluctuations.
COMPETITION
The industry in which the Company operates is highly competitive. Several of
the Company's competitors are divisions or subsidiaries of companies that are
substantially larger and have greater financial and other resources than the
Company. See "Business--Competition."
POTENTIAL FUTURE SALES OF SHARES
Upon completion of the Offering, DRLX Partners, L.P. will own 4,119,207
shares of Common Stock, constituting approximately 64.4% of the then
outstanding shares of Common Stock. DRLX Partners, L.P., together with each of
the Company's directors and executive officers, have agreed not to sell or
otherwise voluntarily dispose of any Common Stock for a period of 120 days
after the date of this Prospectus without the prior consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), as representative of
the Underwriters, with certain exceptions. After such period all or any of
such shares may be sold pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
11
<PAGE>
exemption from the registration requirements under the Securities Act. The
Company has entered into agreements with DRLX Partners, L.P. and certain other
stockholders that provide such stockholders with certain rights to have their
shares of Common Stock registered under the Securities Act, in order to permit
the public sale of such shares. See "Certain Relationships and Related
Transactions--Registration Rights Agreement." In addition, shares of Common
Stock held by the Company's existing stockholders will be eligible for resale
in the future pursuant to Rule 144 promulgated under the Securities Act. Sales
or the possibility of sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market price of the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."
INFLUENCE OF PRINCIPAL STOCKHOLDER AND MANAGEMENT
Upon completion of the Offering, DRLX Partners, L.P. will beneficially own
approximately 64.4% of the outstanding Common Stock. Accordingly, such
stockholder would have the ability to control matters requiring stockholder
approval, including the election of directors and certain extraordinary
transactions. See "Security Ownership of Certain Beneficial Owners and
Management."
DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL EMPLOYEES
The Company's success will continue to depend to a significant extent on its
executive officers and other key management personnel. The loss of one or more
of these individuals could have a material adverse effect on the Company. In
addition, the Company's success is also substantially dependent upon its
ability to attract and retain qualified drilling supervisors and other
technical field personnel. Although the Company has never experienced a
prolonged shortage of qualified personnel in any of its operations (and does
not currently anticipate any such shortage), if demand for precision drilling
services were to increase rapidly, retention of qualified field personnel
might become more difficult without significant increases in compensation. See
"Business--Employees" and "Management."
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulation, including those relating to oilfield operations, worker safety and
the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas
for economic or other policy reasons could adversely affect the Company's
operations by limiting demand for precision drilling services. The Company
cannot determine to what extent its future operations and earnings may be
affected by new legislation, new regulations or changes in existing
regulations.
The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for the environmental damage without regard to negligence or fault on
the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties, and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. See "Business--
Governmental Regulation and Environmental Matters."
12
<PAGE>
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK AUTHORIZED FOR ISSUANCE
The authorized capital stock of the Company includes unissued shares of
preferred stock, par value $.01 per share ("Preferred Stock"). The Board of
Directors is authorized to provide for the issuance of Preferred Stock in one
or more series and to fix the designations, preferences, powers and relative,
participating, optional and other rights and restrictions thereof.
Accordingly, the Company may issue a series of Preferred Stock in the future
that will have preference over the Common Stock with respect to the payment of
dividends and upon liquidation, dissolution, winding up or otherwise, or which
may have significant voting rights. In addition, the ability of the Board of
Directors to set the terms of Preferred Stock could have the effect of
discouraging unsolicited acquisition proposals. See "Description of Capital
Stock--Preferred Stock."
POSSIBLE ANTITAKEOVER EFFECTS
The Company's Restated Certificate of Incorporation and Bylaws and the
Delaware General Corporation Law contain provisions that may have the effect
of delaying, deferring or preventing a change of control of the Company. These
provisions, among other things, provide for a classified Board of Directors
with staggered terms, restrict the ability of stockholders to take action by
written consent, impose certain supermajority voting requirements, authorize
the Board of Directors to set the terms of Preferred Stock and impose
restrictions on business combinations with certain interested parties. See
"Description of Capital Stock."
NO ANTICIPATED DIVIDENDS ON COMMON STOCK
The Company's Board of Directors does not currently anticipate authorizing
the payment of dividends in the foreseeable future. In addition, the payment
of dividends is prohibited by the terms of certain of the Company's existing
financing arrangements. See "Dividend Policy."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price was determined by negotiation among the Company and representatives of
the Underwriters and may not be indicative of the market price for the Common
Stock after the Offering. For a discussion of the factors considered in
determining the initial public offering price, see "Underwriting." The trading
price of the Common Stock may be subject to significant fluctuations in
respect to variations in the Company's results of operations, actual or
anticipated announcements of technical innovations or new products and
services by the Company or its competitors, general conditions in the oilfield
services industry and regional economies, and other events or factors. In
addition, the global stock markets have from time to time experienced extreme
price and volume fluctuations, which in the future could adversely affect the
market price of the Common Stock.
DILUTION
The initial public offering price is substantially higher than the book
value per outstanding share of Common Stock and the effective price per share
paid by DRLX Partners, L.P. and other current stockholders to purchase their
interests in the Company. Purchasers of the shares of Common Stock offered
hereby will, therefore, incur immediate dilution. See "Dilution."
13
<PAGE>
THE COMPANY
Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield
workover operations, environmental remediation applications, and trenchless
pipeline and cable laying applications. Precision drilling involves the
combined use of a steerable downhole positive displacement drilling motor and
a guidance system to enable the controlled placement of a borehole through
predetermined locations. Drilex employs this technology to drill to depths
ranging from near surface to more than four miles. The Company's products and
services include comprehensive computerized well planning and engineering
services, supervision of drilling operations and project management, a full
range of high performance downhole positive displacement motor systems,
guidance systems (such as MWD instrument systems and steering tools), and
other related downhole tools. Oilfield applications accounted for
approximately 86% of the Company's revenues (on a pro forma basis) in 1995.
The Company currently operates from 23 locations around the world and has
approximately 390 employees.
Drilex was one of the pioneers in the development of downhole drilling
motors in the early 1980s and is now a worldwide leader in the design and
manufacture of high-performance, multi-lobed positive displacement drilling
motors. A positive displacement drilling motor, one of the key components in a
precision drilling project, is hydraulically powered by the drilling fluids
pumped into the wellbore during normal drilling operations. In addition to
providing directional control, a downhole drilling motor provides the primary
rotational power to the drill bit, in contrast to conventional vertical
drilling, in which spinning the drillstring at the surface is the primary
method for rotating the drill bit. The Company employs its drilling motors in
its own service operations and also provides motors for sale or rent under the
internationally recognized "Drilex" brand name to oil and gas exploration and
development companies and oilfield service contractors. Drilex has designed
its drilling motors to optimize flexibility, power and reliability, resulting
in some of the highest power and quality ratings in the industry. Drilex
believes it is the only independent company focused on providing precision
drilling services that designs and manufactures the primary components of its
own drilling motors. The Company believes that its ability to design and
manufacture its own drilling motors provides it with distinct competitive
advantages, both in terms of the performance characteristics of its motors and
the quality of service that Drilex is able to provide to its customers.
Drilex was originally formed in Scotland in 1981 to design, manufacture and
rent a series of downhole drilling motors based on early technology licensed
from the Ministry of Oil of the Union of Soviet Socialist Republics. In
connection with the introduction of Drilex motors into the U.S. markets in
1982, DSI established an association with Grant Oil Tool Company ("Grant"), a
subsidiary of MascoTech, Inc. ("MascoTech"). In January 1984, MascoTech
acquired DSI and integrated its product lines with the other oilfield product
lines of Grant. In 1989, MascoTech split out DSI as an autonomous unit within
the MascoTech group of energy companies. On March 31, 1994, a group of
investors, consisting of DRLX Partners, L.P. and John Forrest (a founder of
DSI and the current President and Chief Executive Officer of the Company),
purchased DSI (the "DSI Acquisition") from MascoTech following MascoTech's
decision to exit the oilfield services business. The Company has since grown
substantially through the expansion of its product and service offerings and
the acquisitions of complementary businesses.
On September 30, 1994, the Company acquired substantially all of the fixed
assets of Cobb Directional Drilling Company, Inc. ("Cobb") and its affiliate,
Posi-Trak Mud Motors, Inc. ("Posi-Trak"), in an asset purchase transaction
(the "Cobb Acquisition") with a purchase price of approximately $8.2 million,
consisting of approximately $3.6 million in cash, a $1.3 million promissory
note due September 1997, the issuance of 241,307 shares of Common Stock (then
valued at $1.3 million) and a one-third equity interest (then valued at $2.0
million) in Cobb Directional Drilling Company, L.L.C., a subsidiary of the
Company formed to hold the assets acquired in the transaction. The Company
also entered into a five-year employment agreement with Mr. Archie A. Cobb,
III, the owner of Cobb and Posi-Trak. On March 23, 1995, the Company
repurchased 144,785 of such 241,307 shares of Common Stock and the one-third
equity interest in Cobb Directional Drilling Company, L.L.C. for a combined
purchase price consisting of approximately $1.0 million in cash, a $1.0
million
14
<PAGE>
amortizing note with a final maturity in 1998, and a $1.2 million short-term
note due July 1995 (which was paid at maturity). Cobb was founded in 1979 by
Mr. Cobb and became a leading independent directional drilling contractor and
provider of drilling motors for the U.S. Gulf of Mexico region. See
"Management--Employment Agreements" and "Certain Transactions and
Relationships."
On May 5, 1995, the Company acquired the stock (the "Sharewell Acquisition")
of Sharewell, Inc. ("Sharewell") for a purchase price consisting of $1.0
million cash, amortizing notes aggregating $2.8 million in principal amount
and having final maturities in 2000 (the "Sharewell Promissory Notes"), and
warrants for the purchase of 180,981 shares of Common Stock at an exercise
price of $5.53 per share, subject to certain antidilution adjustments. In
addition, at closing the Company caused Sharewell to (i) repay certain bank
debt in the approximate amount of $1.2 million and (ii) pay $2.0 million in
cash to a Sharewell stockholder in full satisfaction of an obligation under a
non-compete agreement and in partial repayment of a promissory note issued by
Sharewell to that stockholder. The balance of such promissory note was
replaced, after reflecting certain adjustments, with a $1.9 million amortizing
promissory note from the Company maturing April 2000 (the "Sharewell
Replacement Note"). Sharewell was founded in 1984 initially to provide
steering services to pipeline construction contractors that were beginning to
use slant rigs to directionally drill underground river crossings for the
installation of pipelines. Sharewell has grown to become a leading provider of
guidance services and equipment to the trenchless drilling market worldwide
and a significant supplier of guidance and survey instruments to the oilfield
precision drilling industry. Sharewell currently offers steering tools and
survey instrumentation for sale or rental, as well as complete trenchless
drilling services. Additionally, Sharewell offers a proprietary guidance
system for use in areas affected by magnetic interference, where the use of
conventional guidance systems may be precluded.
On September 30, 1995, the Company acquired substantially all of the net
assets of ENSCO Technology Company ("ENSCO Technology"), a wholly owned
subsidiary of ENSCO International Incorporated ("ENSCO"), in an asset purchase
transaction (the "ENSCO Technology Acquisition") with a purchase price of
approximately $17.9 million, consisting of approximately $11.8 million in
cash, a $3.6 million amortizing promissory note payable to ENSCO Technology
and having a final maturity in 2000 (the "ENSCO Promissory Note") and a $2.5
million convertible amortizing note payable to ENSCO Technology and having a
final maturity in 2000 (the "ENSCO Convertible Note"). The ENSCO Convertible
Note is convertible into 361,962 shares of Common Stock at a conversion price
of $6.91 per share, subject to certain antidilution adjustments. The ENSCO
Promissory Note will be repaid with part of the net proceeds from the
Offering. See "Use of Proceeds" and "Certain Transactions and Relationships."
ENSCO Technology was a leading provider of precision drilling services, with
special emphasis on horizontal drilling. It was among the largest precision
drilling service companies in the Austin Chalk formation.
Unless the context otherwise requires, references in this Prospectus to the
"Company" or "Drilex" refer to Drilex Corporation and its consolidated
subsidiaries viewed as a single entity and include its predecessors.
The Company's principal executive offices are located at 15151 Sommermeyer,
Houston, Texas 77041, and its telephone number at such address is (713) 937-
8888.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common Stock
offered hereby are estimated to be approximately $33.0 million, assuming a
public offering price of $18.00 per share (the midpoint of the estimated
initial public offering price range). Of such net proceeds, (i) $3.6 million
will be used to repay the entire principal amount outstanding on the ENSCO
Promissory Note, (ii) $27.3 million will be used to repay all borrowings
outstanding under a term note and bank credit agreement with Texas Commerce
Bank National Association ("TCB"), as lender (collectively, with their related
interest rate agreements, the "Credit Facility"), and (iii) the remaining
approximately $2.1 million will be used for general corporate purposes. A
substantial portion of the indebtedness outstanding under the Credit Facility
was originally incurred in connection with the DSI Acquisition, the Cobb
Acquisition, the Sharewell Acquisition and the ENSCO Technology Acquisition.
The ENSCO Promissory Note bears interest at a floating rate equal to the
interest rate established from time to time by Chemical Bank as its "base
rate," and is payable in annual installments of approximately $0.7 million
commencing September 30, 1996, with final maturity on September 30, 2000. The
ENSCO Promissory Note is subject to mandatory prepayment upon completion of
the Offering.
As of May 1, 1996, the outstanding indebtedness under the Credit Facility
was $27.3 million, consisting of $11.6 million under a $13.0 million revolving
credit and letter of credit facility (the "Revolving Credit Facility") and a
$15.7 million term loan (the "Term Loan"). Borrowings under the Term Loan and
Revolving Credit Facility generally bear interest at a Eurodollar or
Eurosterling interbank offered rate plus a margin (currently 2.0% for both
facilities) or TCB's prime rate plus a margin (currently 0.5%). The margins
vary based on the Company's ratio of total debt to net worth plus total debt.
At May 1, 1996, the effective interest rates applicable to borrowings under
the Revolving Credit Facility and the Term Loan (giving effect to an interest
rate swap agreement applicable to the Term Loan, see Note 6 to the
Consolidated Financial Statements of the Company) were 7.79% and 8.22%,
respectively. The Term Loan requires quarterly principal payments of
approximately $0.9 million, with final maturity on September 30, 2000. Certain
prepayments of the Term Loan from excess cash flow are also required if the
Company does not meet a financial test. The Revolving Credit Facility has a
term that expires on September 30, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
16
<PAGE>
DIVIDEND POLICY
Drilex Corporation has not paid dividends on its Common Stock since its
inception and does not anticipate paying dividends on the Common Stock in the
foreseeable future. The Company expects that it will retain funds generated by
the Company's operations for the development and growth of its business. The
Company's future dividend policy will be determined by its Board of Directors
on the basis of various factors, including, among other things, the Company's
financial condition, cash flows from operations, the level of its capital
expenditures, its future business prospects, the requirements of Delaware law,
and any restrictions imposed by the Company's current or future credit
facilities. Provisions contained in the Credit Facility currently prohibit the
payment of dividends on the Common Stock. In addition, the ENSCO Convertible
Note contains a covenant that requires the maintenance of a minimum of $4.0
million of consolidated tangible net worth, and the Sharewell Replacement Note
contains a covenant that requires the maintenance of $9.5 million of
consolidated net worth. These covenants could, under certain circumstances,
limit the Company's ability to pay dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DILUTION
The net tangible book value (total assets less goodwill and other
intangibles less liabilities) of the Company at December 31, 1995 was $1.25
per share of Common Stock. After giving effect to the receipt of an assumed
$33.0 million of net proceeds to the Company from the Offering (based on the
sale of Common Stock pursuant to the Offering at an assumed initial public
offering price of $18.00 per share (the midpoint of the estimated initial
public offering price range) and net of estimated underwriting discounts and
commissions and offering expenses), pro forma net tangible book value per
share would have been $6.03 per share of Common Stock outstanding after the
Offering, representing an immediate increase in net tangible book value of
$4.78 per share of Common Stock to the existing stockholders and an immediate
dilution of $11.97 per share to the new investors purchasing Common Stock in
the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $18.00
Net tangible book value per share before the Offering........ $1.25
Increase in net tangible book value per share attributable to
sale of Common Stock by the Company in the Offering......... 4.78
Pro forma net tangible book value per share after the Offering....... 6.03
------
Dilution in net tangible book value per share to new investors
purchasing Common Stock offered hereby.............................. $11.97
======
</TABLE>
The following table sets forth, as of December 31, 1995, the number of
shares of Common Stock purchased or to be purchased from the Company, the
total consideration paid or to be paid and the average price per share paid or
to be paid by existing stockholders and by new investors, based on the assumed
initial public offering price:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 4,381,205 68.7% $19,839,805 35.5% $4.53
New investors..................... 2,000,000 31.3 36,000,000 64.5 18.00
--------- ----- ----------- ----- -----
Total........................... 6,381,205 100.0% $55,839,805 100.0% $8.75
========= ===== =========== ===== =====
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company at December 31, 1995 and as adjusted to give
effect to the Offering and the application of the net proceeds to the Company
therefrom (assumed to be $33.0 million) as described under "Use of Proceeds."
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Unaudited
Pro Forma Condensed Consolidated Statement of Income and the Consolidated
Financial Statements of the Company, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
ACTUAL AS ADJUSTED
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt............... $ 5,886 $ 1,684
============ ============
Long-term debt (less current maturities):
Credit Facility.................................... $ 22,288 $ --
ENSCO Promissory Note.............................. 2,849 --
ENSCO Convertible Note............................. 2,000 2,000
Cobb Promissory Notes.............................. 1,749 1,749
Sharewell Promissory Notes......................... 1,918 1,918
Sharewell Replacement Note......................... 1,663 1,663
------------ ------------
Total long-term debt............................. 32,467 7,330
------------ ------------
Minority interests................................... 805 805
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, none issued........................... -- --
Common Stock, $.01 par value, 25,000,000 shares
authorized, 4,381,205 shares outstanding
(historical), 6,381,205 shares outstanding (as
adjusted)......................................... 44 64
Additional paid-in capital......................... 19,845 52,825
Retained earnings.................................. 3,793 3,793
------------ ------------
Total stockholders' equity....................... 23,682 56,682
------------ ------------
Total capitalization........................... $ 62,840 $ 66,501
============ ============
</TABLE>
18
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth selected historical financial and other data
for the Company. The information presented as of and for the periods ended
December 31, 1995 and 1994, March 30, 1994 and December 31, 1993 is derived
from the audited consolidated financial statements of the Company and its
predecessor company, DSI. The information presented as of and for the years
ended December 31, 1992 and 1991 is derived from the unaudited consolidated
financial statements of DSI. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company, including the Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY(C)
---------------------------- ---------------------------------------
MARCH 30, 1994 JANUARY 1,
YEAR ENDED (INCEPTION) TO 1994 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, MARCH 30, ----------------------------
1995(A) 1994(B) 1994 1993 1992 1991
------------ -------------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues............ $57,526 $25,209 $6,357 $25,871 $24,349 $28,302
Costs of sales and
operations............. 34,606 12,924 3,364 14,093 14,326 14,625
Selling, general and
administrative
expenses............... 13,448 6,711 2,029 8,286 10,573 9,226
Depreciation and
amortization........... 4,492(d) 1,855 775 3,107 2,942 3,489
------- ------- ------- -------- -------- --------
Operating income (loss). 4,980 3,719 189 385 (3,492) 962
Interest expense........ (1,935) (478) (481) (1,893) (1,667) (1,686)
------- ------- ------- -------- -------- --------
Income (loss) before
income taxes and
minority interests..... 3,045 3,241 (292) (1,508) (5,159) (724)
Provision for income
taxes.................. (1,097) (1,166) (3) (152) (84) (71)
Minority interests...... (164) (66) -- -- -- --
------- ------- ------- -------- -------- --------
Net income (loss)....... $ 1,784 $ 2,009 $ (295) $ (1,660) $ (5,243) $ (795)
======= ======= ======= ======== ======== ========
Net income per common
and common equivalent
share.................. $ .40 $ .57
======= =======
Weighted average common
and common equivalent
shares outstanding..... 4,411 3,507
OTHER DATA:
Capital expenditures.... $ 5,408 $ 707 $ 195 $ 252 $ 1,364 $ 3,196
EBITDA(e)............... 9,472 5,574 964 3,492 (550) 4,451
BALANCE SHEET DATA:
Working capital......... $13,365 $ 9,511 $10,533 $ 10,717 $ 10,581 $ 11,839
Total assets............ 77,754 36,292 24,965 26,196 26,793 28,033
Long-term debt, less
current maturities..... 32,467 7,633 -- -- -- --
Total stockholders'
equity(c)(f)........... 23,682 19,557 22,794 22,990 24,459 26,177
</TABLE>
- --------
(a) Results for the year are not comparable to prior periods due to the ENSCO
Technology and Sharewell Acquisitions.
(b) Results for the period are not comparable to prior years due to the Cobb
Acquisition.
(c) The predecessor company, DSI, was a wholly owned subsidiary of MascoTech
prior to its acquisition by the Company on March 30, 1994. As a wholly
owned subsidiary of MascoTech, DSI was allocated interest and other
expenses by its parent, and had no long-term indebtedness since its
financing requirements were met through advances from MascoTech. For
purposes of this presentation, such advances from MascoTech are reflected
in stockholders' equity. Earnings per share are not presented for periods
during which DSI was wholly owned by MascoTech.
(d) Effective April 1, 1995, the Company changed its estimated useful life for
certain drilling motor components from five to seven years. This change was
made to better reflect the estimated period during which these assets will
remain in service. The effect of this change was an increase in net income
of $248,000, or $.06 per share, for the year ended December 31, 1995.
(e) EBITDA means operating income (loss) plus depreciation and amortization.
EBITDA is not intended to represent cash flow, an alternative to net income
or any other measure of performance in accordance with generally accepted
accounting principles. Reference is made to the Consolidated Statement of
Cash Flows contained in the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus for a complete presentation
of cash flows from operating, investing and financing activities prepared
in accordance with generally accepted accounting principles.
(f) No cash dividends were declared or paid on Common Stock during any of the
periods presented.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma condensed consolidated statement of income
for the year ended December 31, 1995 has been prepared to reflect adjustments
to the Company's historical results of operations as if (i) the Sharewell and
ENSCO Technology Acquisitions had occurred on January 1, 1995 and (ii) the
Offering had occurred on January 1, 1995 and the net proceeds from the Offering
had been used for the repayment of indebtedness as described under "Use of
Proceeds." The pro forma financial information should be read in conjunction
with "Selected Historical Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere
herein. The pro forma information does not necessarily reflect the actual
results that would have been achieved, nor is it necessarily indicative of
future consolidated results for the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------------------------
ENSCO PRO FORMA
SHAREWELL TECHNOLOGY PRO FORMA ADJUSTMENTS
PRO FORMA ENSCO PRO FORMA FOR FOR PRO
HISTORICAL SHAREWELL(A) ADJUSTMENTS TECHNOLOGY(B) ADJUSTMENTS ACQUISITIONS OFFERING FORMA
---------- ------------ ----------- ------------- ----------- ------------ ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $57,526 $2,664 $ -- $13,367 $ -- $73,557 $ -- $73,557
Operating expenses:
Costs of sales and
operations............ 34,606 1,790 -- 8,469(f) -- 44,865 -- 44,865
Selling, general and
administrative
expenses.............. 13,448 815 -- 1,887 -- 16,150 -- 16,150
Depreciation and
amortization.......... 4,492 179 143(c) 1,797 (257)(c) 6,354 -- 6,354
------- ------ ----- ------- ----- ------- ------ -------
52,546 2,784 143 12,153 (257) 67,369 -- 67,369
------- ------ ----- ------- ----- ------- ------ -------
Operating income (loss). 4,980 (120) (143) 1,214 257 6,188 -- 6,188
Interest expense........ (1,935) (30) (198)(d) -- (854)(d) (3,017) 2,084(g) (933)
------- ------ ----- ------- ----- ------- ------ -------
Income (loss) before
income taxes and
minority interests..... 3,045 (150) (341) 1,214 (597) 3,171 2,084 5,255
Credit (provision) for
income taxes........... (1,097) 44 133(e) (52) (170)(e) (1,142) (750)(e) (1,892)
Minority interests...... (164) 2 -- 62 -- (100) -- (100)
------- ------ ----- ------- ----- ------- ------ -------
Net income (loss)....... $ 1,784 $ (104) $(208) $ 1,224 $(767) $ 1,929 $1,334 $ 3,263
======= ====== ===== ======= ===== ======= ====== =======
Net income per common
and common equivalent
share.................. $ .40 $ .50
======= =======
Weighted average common
and common equivalent
shares outstanding..... 4,411 6,576(h)
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statement
of income.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(a) Represents Sharewell's results of operations for the period from
January 1, 1995 to May 5, 1995 (the date of acquisition).
(b) Represents ENSCO Technology's results of operations for the period from
January 1, 1995 to September 30, 1995 (the date of acquisition).
(c) Adjusts depreciation expense (for property and equipment) and
amortization expense (for goodwill and other intangible assets) as a
result of purchase price accounting adjustments for the related assets.
(d) Adjusts interest expense as if the indebtedness related to the
acquisitions had been outstanding for the period from January 1, 1995
to the date of acquisition.
(e) Adjusts the provision for income taxes based on the Company's statutory
income tax rate of 36%.
(f) Includes a net gain of approximately $0.6 million resulting primarily
from reimbursements from customers for MWD equipment that was lost in
hole.
(g) Represents interest expense related to indebtedness which is assumed to
be retired with proceeds to the Company from the Offering. See "Use of
Proceeds."
(h) Includes the weighted average number of common and common equivalent
shares outstanding during the year, as adjusted to reflect the
Sharewell and ENSCO Technology Acquisitions and the Offering as of
January 1, 1995.
- --------
Note: The Company expects to realize future cost savings through reduced
rentals of drilling motors from third parties and increased utilization
of MWD equipment. While there are various uncertainties involved in
projecting future results, the amount of these cost savings is expected
to be approximately $3.0 million per year. The pro forma results of
operations do not reflect these expected cost savings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
21
<PAGE>
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 and results of operations as of and for each
year in the three-year period ended December 31, 1995. The statements in this
discussion regarding the industry outlook, the Company's expectations
regarding growth in the precision drilling segment, the Company's expectations
regarding the future performance of its businesses, and the other non-
historical statements 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 and the risks and uncertainties described in "Risk
Factors," particularly those under the captions "Reliance on the Oil and Gas
Industry," "Reliance on New Product Development and Possible Technological
Obsolescence," "Risks of International Operations" and "Governmental
Regulation and Environmental Matters." This discussion should be read in
conjunction with the Unaudited Pro Forma Condensed Consolidated Statement of
Income and the Consolidated Financial Statements of the Company and of DSI,
including the Notes thereto, included elsewhere in this Prospectus.
OVERVIEW
The Company's business is substantially dependent upon the condition of the
oil and gas industry and the willingness of oil and gas companies to spend
capital on drilling and workover operations, which is generally dependent on
the prevailing view of future hydrocarbon product prices. This is particularly
the case in the United States, where the Company generates approximately 74%
of its revenues. Expectations relative to such future prices are affected by
numerous factors affecting the supply and demand for oil and natural gas,
including worldwide economic activity, interest rates and the cost of capital,
environmental regulation, tax policies, political requirements of national
governments, coordination by OPEC, the cost of producing oil and gas, and
technological advances. Oil and gas prices and exploration and development
activity have been characterized by significant volatility in recent years.
Although overall oil and gas drilling activity as measured by the rotary rig
count has declined significantly over the past 15 years, rapid increases in
precision drilling technology, enhanced geological prospecting technologies
(such as 3-D seismic technologies and CAEX techniques), and the demands of
exploration and development companies for more precise and less costly
drilling systems have driven growth in the precision drilling segment of the
oilfield drilling market. Based on industry sources, the Company estimates
that the number of oil and gas wells drilled in the United States using
precision drilling technology increased 56% from 2,110 in 1990 to 3,288 in
1995. As a result of an overall decrease in oil and gas drilling activity,
this growth has resulted in the proportion of oil and gas wells drilled in the
United States employing precision drilling technology increasing from 7% in
1990 to 17% in 1995.
Drilex anticipates continued growth in the market for precision drilling
services and expects the number of oilfield jobs employing precision drilling
techniques to grow at a higher rate than the number of jobs in the overall
drilling market. Moreover, with respect to jobs employing precision drilling
techniques, the Company expects continued increases in the average number of
feet per well drilled using a downhole drilling motor, particularly in slim-
hole applications. The Company believes the growth in the number of precision
drilling jobs and the increase in the utilization of precision drilling
technology per job will be driven by the requirements of exploration and
production companies for more precision and cost efficiency in their drilling
operations, as well as the greater acceptance of precision drilling technology
in the drilling industry, which has resulted from technological advancements,
product improvements (which have extended equipment lives and increased
penetration rates), and the expansion of downhole drilling motor technology to
a wide variety of slim-hole applications. The Company also believes that, over
time, the demand for hydrocarbon products will grow and that exploration and
development activity will increase. The Company expects this increase in
activity to be primarily driven by lower oil and gas company cost structures,
technological advances and the interest of foreign countries in maintaining or
expanding their production.
22
<PAGE>
Drilex Corporation was organized by DRLX Partners L.P. and John Forrest (a
founder of DSI and the current President and Chief Executive Officer of the
Company) to acquire DSI (also referred to herein as the "Predecessor") from
MascoTech on March 31, 1994. The Company's predecessor was originally formed
in 1981.
Since the DSI Acquisition, the Company has grown substantially through the
expansion of its product and service offerings and acquisitions of
complementary businesses. The recent Cobb and ENSCO Technology Acquisitions
(completed on September 30, 1994 and 1995, respectively) expanded the
Company's presence in certain of its key geographic markets for oilfield
precision drilling services and provided the Company with significant
opportunities to expand its distribution of Drilex-manufactured motors by
employing them in the newly acquired operations. In addition, the ENSCO
Technology Acquisition significantly expanded the Company's MWD capabilities,
providing the Company additional opportunities to deploy its products and
services. The Sharewell Acquisition (completed on May 5, 1995) also provided
the opportunity to expand the Company's product distribution and significantly
increased the Company's service capabilities in the emerging environmental
remediation and trenchless services markets.
The Company's recent acquisitions have also created opportunities for
reduced costs and improved efficiencies. While the Company has taken a number
of actions to consolidate the operations of the acquired entities, the Company
is still in the process of implementing its consolidation plan, which includes
several actions that are expected to result in margin improvements. In
particular, the Company expects to realize significant cost savings by
employing Drilex motors in the operations acquired in the ENSCO Technology and
Sharewell Acquisitions in place of leased drilling motors that have been
provided by third parties. The Company expects to substantially complete this
motor replacement program in the second half of 1996 and, as a result, expects
to generate annualized net cost savings of approximately $2.1 million by
eliminating the associated rental expense. The Company also expects to realize
additional margin improvement of approximately $0.9 million as a result of the
increased utilization of the MWD systems acquired in the ENSCO Technology
Acquisition, resulting from the employment of this equipment in the Company's
other oilfield precision drilling services operations. Aside from the
improvements expected to result from its acquisitions, the Company also
expects to realize cost improvements and/or growth as a result of several
other initiatives, including the introduction of a new concept power section
for its primary line of downhole drilling motors (see "Business--Engineering
and Manufacturing"), the completion of the startup of the Company's Western
Venezuela operations, a reorganization of the Company's Louisiana Gulf Coast
operations and anticipated increases in sales of new hole openers and a new
line of low cost motors for trenchless services applications.
As an important part of its business strategy, the Company will continue to
seek acquisitions of other businesses to expand distribution of the Company's
products and services, to add key technologies, to gain access to industry
niches, and to otherwise enhance its market presence. Upon completion of the
Offering, the Company should have available to it (i) internally generated
cash in excess of working capital, capital expenditure and debt service
requirements, (ii) borrowing capacity under the Credit Facility, and (iii) the
ability to issue additional publicly traded Common Stock, which may be used to
acquire other businesses. See "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Drilex Corporation began operations on March 30, 1994, the effective date of
the DSI Acquisition. As a result, for purposes of the following discussion,
the amounts from the consolidated statement of income of Drilex Corporation
from March 30, 1994 through December 31, 1994 have been combined with the
statement of income for the Predecessor for the three months ended March 31,
1994 (adjusted to a pro forma basis as if the DSI Acquisition had occurred as
of January 1, 1994). The following discussion presents an analysis of such
combined results for 1994 compared to the results of operations of Drilex
Corporation for 1995 and the results of operations of the Predecessor for
1993.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
----------------- ----------------- -----------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............. $57,526 100.0% $31,566 100.0% $25,871 100.0%
Operating expenses:
Costs of sales and
operations............ 34,606 60.1 16,288 51.6 14,093 54.5
Selling, general and
administrative
expenses.............. 13,448 23.4 8,605 27.2 8,286 32.0
Depreciation and
amortization.......... 4,492 7.8 2,324 7.4 3,107 12.0
------- ----- ------- ----- ------- -----
Operating income......... 4,980 8.7 4,349 13.8 385 1.5
Interest expense......... (1,935) (3.4) (567) (1.8) (1,893) (7.3)
------- ----- ------- ----- ------- -----
Income (loss) before
income taxes and
minority interests...... 3,045 5.3 3,782 12.0 (1,508) (5.8)
Provision for income
taxes................... (1,097) (1.9) (1,362) (4.3) (152) (0.6)
Minority interests....... (164) (0.3) (66) (0.2) -- --
------- ----- ------- ----- ------- -----
Net income (loss)........ $ 1,784 3.1% $ 2,354 7.5% $(1,660) (6.4)%
======= ===== ======= ===== ======= =====
</TABLE>
Comparison of Years Ended December 31, 1995 and 1994
Consolidated revenues for 1995 were $57.5 million, an increase of 82% from
revenues of $31.6 million for the prior year. Of the $25.9 million increase,
$7.9 million was attributable to the Sharewell Acquisition (which was
effective as of May 5, 1995), $5.3 million was attributable to the ENSCO
Technology Acquisition (which was effective as of September 30, 1995), and
$5.2 million resulted from the effect of a full year's activity for the
operations acquired in the Cobb Acquisition, as compared to the inclusion of
only three months of such operations in 1994 (following the September 30, 1994
effective date of the Cobb Acquisition). The remaining increase in revenues
resulted from an increase in the Company's drilling services revenues, due
primarily to increased operations in Texas, Europe (including the North Sea)
and Eastern Venezuela. The increase in activity in Texas was a result of
increased drilling activity by several major customers. Increased revenues
attributable to the European markets were due to greater small motor activity,
including motor sales to the Commonwealth of Independent States, and expanded
market penetration. Revenues in Eastern Venezuela more than doubled to $6.2
million from 1994 levels, as drilling activity significantly expanded in this
area.
Costs of sales and operations increased from $16.3 million in 1994 to $34.6
million in 1995. As a percent of revenues, costs of sales and operations
increased from 51.6% in 1994 to 60.1% in 1995. Of the $18.3 million increase,
$12.0 million was due to the ENSCO Technology and Sharewell Acquisitions and
the effect of a full year's activity for the operations acquired in the Cobb
Acquisition. Margins for the operations acquired in the Cobb Acquisition
decreased in 1995 due to increased field expenses, a greater proportion of
lower-margin onshore activity than higher-margin offshore activity compared to
the prior year, and increased costs associated with third party motor rentals.
Sharewell's margins were adversely affected in 1995 due to a greater
proportion of lower-margin sales of third-party equipment compared to higher-
margin service billings, as compared to the prior year. The margins for the
operations acquired in the ENSCO Technology Acquisition were lower than the
Company's other drilling operations due to low utilization of measurement-
while-drilling (or MWD) equipment and the expenses associated with rentals of
third-party motors. An increase in MWD utilization and the replacement of
third-party motors with Drilex motors are expected to improve operating income
margins in 1996. See "--Overview."
Costs of sales and operations related to the Company's pre-existing oilfield
drilling services (excluding the recent acquisitions) were adversely impacted
in 1995 by increased engineering and manufacturing costs of approximately $0.6
million. These increases resulted from costs incurred in 1995 for development
of newly designed small-diameter motors, a new concept power section for the
Company's primary line of drilling motors,
24
<PAGE>
and equipment for slim-hole reentry drilling and workover applications. The
Company began operations in Western Venezuela in 1995 and incurred $0.3
million in startup expenses for staffing personnel, freight and duties on
imported equipment and facilities. Operations in this location generated only
minimal revenues in 1995, but are expected to generate increased revenues in
1996. In 1995, the Company's trenchless business unit absorbed a $0.6 million
charge related to an operational dispute, which was settled in full during May
1996. Such settlement did not result in any further income statement impact
after December 31, 1995.
Selling, general and administrative expenses increased from $8.6 million in
1994 to $13.4 million in 1995. As a percentage of revenues, selling, general
and administrative expenses decreased from 27.2% in 1994 to 23.4% in 1995. Of
the $4.8 million increase, $3.1 million was due to the ENSCO Technology,
Sharewell and Cobb Acquisitions. Corporate overhead increased $0.8 million due
to additional advertising, marketing and personnel costs associated with the
support of these three acquisitions, in particular the ENSCO Technology
Acquisition because of its size and complexity.
Depreciation and amortization increased from $2.3 million in 1994 to $4.5
million in 1995. This increase was primarily due to the ENSCO Technology,
Sharewell and Cobb Acquisitions, partially offset by a $0.4 million decrease
resulting from an increase in the estimated useful lives for certain drilling
equipment effective April 1, 1995.
Interest expense increased from $0.6 million in 1994 to $1.9 million in 1995
due to an increase in debt to $38.4 million at December 31, 1995.
Substantially all of this increase in debt was due to the ENSCO Technology,
Sharewell and Cobb Acquisitions.
Comparison of Years Ended December 31, 1994 and 1993
Consolidated revenues increased from $25.9 million in 1993 to $31.6 million
in 1994, an increase of 22%. Of the $5.7 million increase, $1.7 million was
due to the Cobb Acquisition, which occurred in September 1994. The remaining
increase was primarily attributable to increased oilfield drilling revenues
attributable to markets in Texas and in Eastern Venezuela, which was a startup
operation in 1993, and increased sales coverage. These increases were
partially offset by a $0.4 million decrease in trenchless revenues compared to
1993, reflecting the completion of a large fiber optic cable installation job
in 1993.
Costs of sales and operations increased from $14.1 million in 1993 to $16.3
million in 1994, or 16%. As a percentage of revenues, these costs decreased
from 54.5% in 1993 to 51.6% in 1994. Approximately $0.8 million of the
increase was attributable to the Cobb Acquisition. The 1993 results included
approximately $1.1 million in domestic and international restructuring charges
incurred in connection with the downsizing in the market that began in 1992.
The 1993 margins were positively affected by the above-referenced fiber optic
installation job in the Company's trenchless operations.
Selling, general and administrative expenses increased slightly from $8.3
million in 1993 to $8.6 million in 1994. Approximately $0.4 million was
attributable to the Cobb Acquisition. These expenses decreased as a percentage
of revenues from 32.0% in 1993 to 27.3% in 1994, primarily due to certain
restructuring charges having been incurred in 1993.
Depreciation and amortization decreased from $3.1 million in 1993 to $2.3
million in 1994. The decrease was primarily due to an approximately $1.0
million reduction resulting from a lower depreciable basis in 1994 as a result
of the purchase price allocation associated with the DSI Acquisition.
Interest expense for 1994 of $0.6 million is principally due to the DSI and
Cobb Acquisitions. Interest expense in 1993 of $1.9 million for the
Predecessor consisted entirely of intercompany interest allocated from its
parent entity.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since the DSI Acquisition, the Company has generally funded its activities
(other than its acquisitions) through cash generated from operations and
short-term borrowings. The cash portion of the purchase price for each of the
Cobb, Sharewell and ENSCO Technology Acquisitions was funded through
borrowings under the Credit Agreement and, in the case of the Cobb and ENSCO
Technology Acquisitions, from the issuance of capital stock. For a description
of the other financing arrangements for these acquisitions, see "The Company."
At December 31, 1995, the Company had working capital of $13.4 million,
compared to working capital of $9.5 million at December 31, 1994. This
increase primarily reflects increases in accounts receivable and inventory,
partially offset by increases in accounts payable and current maturities of
long-term debt. Each of these increases was primarily due to the effects of
the ENSCO Technology and Sharewell Acquisitions.
Capital expenditures (excluding acquisitions) for 1995 were $5.4 million, as
compared to $0.9 million for the prior year. The 1995 expenditures included
$3.0 million for acquisitions of new MWD systems and $0.7 million for a new
slant drilling rig for the Company's trenchless services operations. The
Company has budgeted approximately $7.3 million for capital expenditures
(excluding acquisitions) in 1996. Such expenditures are expected to relate
primarily to acquisitions of new MWD systems. The Company believes that it
will be able to increase its current production to support higher revenues
without material additional capital investment.
During 1996, the Company expects to fund its working capital, anticipated
capital expenditures and debt maturity requirements (excluding debt to be
repaid with proceeds from the Offering) primarily through cash provided by
operating activities. The Company carries substantial inventory and accounts
receivable, and will require increased working capital as its revenues grow.
Borrowings outstanding under the Revolving Credit Facility may not exceed
$13.0 million at any time, of which up to $3.0 million may be used for letters
of credit. The Revolving Credit Facility has a term that expires on September
30, 1998. The Revolving Credit Facility 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. For additional description of the Credit Facility's terms, see
Note 6 to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
As of May 1, 1996, the Company had available revolving credit borrowing
capacity of $1.4 million under the Credit Facility. The Company intends to use
a portion of the net proceeds to be received by it from the Offering to repay
all borrowings under the Term Loan and Revolving Credit Facility, amounting to
$15.7 million and $11.6 million, respectively, at May 1, 1996. The Company
will be able to reborrow amounts paid under the Revolving Credit Facility,
while the Term Loan commitment will terminate upon prepayment. In connection
with the termination of the Term Loan, the Company intends to terminate a
related interest rate swap agreement (described in Note 6 to the Consolidated
Financial Statements of the Company). The Company anticipates that the
termination of such swap agreement will not involve any material expense to
the Company.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company
expects to fund future acquisitions primarily through a combination of working
capital, cash flow from operations and bank borrowings, including the
unborrowed portion of the Revolving Credit Facility, as well as issuances of
additional equity.
Due to the relatively low levels of inflation experienced in 1993, 1994 and
1995, inflation did not have a significant effect on the Company's results in
such years.
26
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") 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 Company believes that the adoption of SFAS 121 will not have a
material impact on its consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. The Company has elected to continue the
use of the "intrinsic value based method" of accounting for its employee stock
option plan. This method does not result in the recognition of compensation
expense when employee stock options are granted if the exercise price of the
options equals or exceeds the fair market value of the stock at the date of
grant. The Company will adopt the disclosure requirements of SFAS 123 when it
becomes effective in 1996.
27
<PAGE>
BUSINESS
GENERAL
Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield
workover operations, environmental remediation applications, and trenchless
pipeline and cable laying applications. Precision drilling involves the
combined use of a steerable downhole positive displacement drilling motor and
a guidance system to enable the controlled placement of a borehole through
predetermined locations. Drilex employs this technology to drill to depths
ranging from near surface to more than four miles. The Company's products and
services include comprehensive computerized well planning and engineering
services, supervision of drilling operations and project management, a full
range of high performance downhole positive displacement motor systems,
guidance systems (such as MWD instrument systems and steering tools), and
other related downhole tools. Oilfield applications accounted for
approximately 86% of the Company's revenues (on a pro forma basis) in 1995.
The Company currently operates from 23 locations around the world and has
approximately 390 employees.
Drilex was one of the pioneers in the development of downhole drilling
motors in the early 1980s and is now a worldwide leader in the design and
manufacture of high-performance, multi-lobed positive displacement drilling
motors. A positive displacement drilling motor, one of the key components in a
precision drilling project, is hydraulically powered by the drilling fluids
pumped into the wellbore during normal drilling operations. In addition to
providing directional control, a downhole drilling motor provides the primary
rotational power to the drill bit, in contrast to conventional vertical
drilling, in which spinning the drillstring at the surface is the primary
method for rotating the drill bit. The Company employs its drilling motors in
its own service operations and also provides motors for sale or rent under the
internationally recognized "Drilex" brand name to oil and gas exploration and
development companies and oilfield service contractors. Drilex has designed
its drilling motors to optimize flexibility, power and reliability, resulting
in some of the highest power and quality ratings in the industry. Drilex
believes it is the only independent company focused on providing precision
drilling services that designs and manufactures the primary components of its
own drilling motors. The Company believes that its ability to design and
manufacture its own drilling motors provides it with distinct competitive
advantages, both in terms of the performance characteristics of its motors and
the quality of service that Drilex is able to provide to its customers.
INDUSTRY OVERVIEW
Oilfield applications currently comprise the largest part of the precision
drilling market, which is a relatively new segment of the overall drilling
industry. Based on industry sources, the Company estimates that the number of
oil and gas wells drilled in the United States using precision drilling
technology increased 56% from 2,110 in 1990 to 3,288 in 1995. As a result of
an overall decrease in oil and gas drilling activity, this growth has resulted
in the proportion of oil and gas wells drilled in the United States employing
precision drilling technology increasing from 7% in 1990 to 17% in 1995.
Because of the complexity involved in precision drilling, oil and gas
operators typically rely on specialized precision drilling service contractors
to manage the entire process of drilling the horizontal or directional portion
of a well.
To a large extent, the development of precision drilling is attributable to
exploration and development activities in offshore areas as well as the Austin
Chalk formation. In regard to offshore areas, precision drilling provides the
ability to drill numerous offshore wells from a single fixed platform and the
ability to control the placement of a large number of wellpaths in a
relatively small area while avoiding the operational problems that would
result if the wellpaths intersected. In addition, new "extended-reach"
precision drilling technology allows many smaller offshore reservoirs, which
may not be economic to develop on a stand-alone basis, to now be developed
from existing offshore platforms.
The Austin Chalk formation, a large formation extending from South Texas to
parts of Louisiana, is characterized by vertical fractures containing
recoverable quantities of oil and gas in closely grouped pay zones.
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This formation has served as an excellent "proving ground" for new precision
drilling technologies, which have significantly improved the ability of the
directional drilling contractor to control the location and direction of the
drill bit reaching over 6,000 feet horizontally from the vertical section of
the well. Horizontal drilling is valuable and prevalent in this area because
it allows the operator to intersect multiple vertical fractures with a single
horizontal wellbore, thereby increasing well productivity and the total amount
of reserves that can be economically recovered (particularly in the early life
of the well), while reducing overall drilling costs (because fewer wells are
required compared to a vertical development program).
Building upon its success in offshore areas and the Austin Chalk formation,
precision drilling has gained increased acceptance throughout the oil and gas
industry and has spread rapidly to other producing areas. This growth has been
driven primarily by the substantial cost savings, improvements to drilling
efficiency and enhancement to reservoir production that precision drilling can
provide to operators. Precision drilling can be used to develop a field with
multiple wells drilled from the same offshore platform or, in environmentally
sensitive areas (such as the Alaskan North Slope), from fewer surface
facilities than conventional drilling would require. In addition, horizontal
drilling is also important to development of hydrocarbon deposits in sandstone
formations (prevalent in such areas as the Gulf of Mexico, South America,
Alaska and the Far East), because it allows the placement of the wellbore in
the reservoir over an extended length, thus exposing a greater area of the
productive formation and thereby increasing well productivity while reducing
overall drilling costs.
The technological and operational advantages of precision drilling combined
with advances in the identification and location of hydrocarbons have made
many marginal or otherwise uneconomical or depleted reservoirs economically
feasible to produce. A good example of this transformation is the Austin Chalk
formation, which the Company believes accounts for approximately one-third of
the U.S. market for oilfield precision drilling services. The Austin Chalk
formation is an extremely challenging and difficult environment in which to
operate. It requires durable equipment and accurate drilling capabilities.
Recent developments in multilateral technology, which allows two or more
horizontal wells to be drilled from the same vertical wellbore, have further
enhanced well productivity and development efficiency in this area. As one of
the leading precision drilling contractors in the Austin Chalk formation, the
Company has completed numerous multilateral drilling projects in this
formation, including several wells involving vertical depths greater than
14,000 feet and bottom-hole temperatures in excess of 300(degrees) F. Recent
advances in subsurface geological analysis, such as 3-D seismic technologies
and CAEX techniques, which have enhanced the identification and location of
hydrocarbon deposits, combined with recent improvements in precision drilling
technologies, are creating new opportunities for precision drilling services.
Small deposits, which would not be economical to develop on a stand-alone
basis, can be successfully developed utilizing precision drilling techniques
and, in the case of offshore deposits, utilizing existing offshore platforms.
In addition, new "slim-hole" (drilling tool sizes 3-1/2 inches or less in
outside diameter) precision drilling technology used in conjunction with
small-diameter drill pipe or coiled tubing (a substitute for drill pipe) is
permitting operators to re-enter old wells and drill from the existing
wellbore to develop previously untapped deposits.
BUSINESS STRATEGY
The Company's business strategy is built upon Drilex's premier line of
downhole positive displacement drilling motors and emphasizes (i) providing
the highest quality oilfield precision drilling and related customer support
services in key geographic markets where demand for precision drilling
services is concentrated, (ii) maximizing delivery of its core products,
either through sales, rentals or alliance arrangements, into other geographic
markets where the Company does not focus its service efforts, and (iii)
capitalizing on its technical strengths by developing opportunities to deliver
its core products and services into emerging oilfield and non-oilfield markets
where the Company's technical expertise can provide significant advantages.
The Company also intends to explore additional opportunities for external
growth through acquisitions of businesses to complement the Company's existing
operations.
Drilex intends to maintain its position as the leading independent provider
of oilfield precision drilling services by continuing its emphasis on
delivering responsive, reliable and high quality services in key geographic
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markets. The Company currently concentrates its activities in the Austin Chalk
formation (a large formation extending from South Texas to parts of
Louisiana), the Gulf of Mexico, Venezuela, the North Sea, Argentina and
Canada. Each of these markets is characterized by substantial field
development activity (as opposed to new exploration activity) and a relatively
high number of technically challenging situations that require high quality
precision drilling operations. A recent independent market study conducted for
the Company confirmed the Company's belief that service quality, reliability
of equipment, localized knowledge of drilling conditions and experience and
expertise of field personnel are the most important factors in competing for
business in these markets. The Company believes that maintaining control over
the entire design, engineering and manufacturing processes for its drilling
motors provides the Company with distinct advantages in providing high quality
service. The Company designs and builds its motors to optimize precision,
power and reliability. Drilex also maintains a flexible manufacturing process
that includes a continuous improvement program, which produces quality and
performance improvements that enable Drilex to meet the leading-edge needs of
its customers. In addition, the Company concentrates its service activities in
its key geographic markets in order to develop and capitalize on the Company's
local knowledge and to take advantage of the regional experience and expertise
of its drilling supervisors and other technical field personnel, as well as to
achieve scale operating efficiencies. Furthermore, the high level of activity
conducted by the Company in concentrated geographic areas permits a focused
application engineering effort, which allows the Company to refine its
products and services to meet the needs of its customers on a more effective
basis.
The Company also utilizes other distribution channels to maximize delivery
of its products to areas outside of its key geographic markets. Since its
inception, the Company has successfully marketed its drilling motors on a sale
and rental basis to oil and gas exploration and development companies and
other oilfield service contractors under the internationally recognized
"Drilex" brand name. These efforts have been particularly successful in the
North Sea market, where the Company has become an established provider of
drilling motors to operators and other service companies for various
directional drilling and coiled tubing applications. The Company intends to
strengthen its existing distribution channels and expand its product
distribution in those markets where the Company is not a significant service
competitor. In particular, the Company is in the process of establishing
alliance arrangements with several large oilfield service companies, which
would permit these companies to include Drilex motors in their comprehensive
offerings of oilfield products and services in certain markets where the
Company does not focus its service efforts.
The Company plans to continue to build upon its technical drilling
capabilities by further developing opportunities in emerging markets where the
Company's expertise can provide competitive advantages. In particular, the
Company believes that the development and rapid growth in the use of coiled
tubing for oilfield workover, redrilling and recompletion operations has
provided a significant opportunity for growth in the use of precision drilling
technology for slim-hole applications. The Company has become the leading
supplier of smaller diameter drilling motors and related equipment for coiled
tubing operations and intends to maintain this leadership position as coiled
tubing operations increasingly become a substitute for conventional drilling
operations. Drilex has also been successful in developing opportunities for
precision drilling in the environmental remediation and trenchless services
markets, which the Company believes offer significant opportunities for
growth. The Company is focusing its efforts on the high-end segments of these
markets and is pursuing long-term relationships with large customers that
generate substantial demand for services that can be provided by Drilex.
The Company continually reviews opportunities for growth through the
acquisition of other businesses to complement its existing operations. The
recent Cobb and ENSCO Technology Acquisitions expanded the Company's presence
in certain of its key geographic markets for oilfield precision drilling
services and provided the Company with significant opportunities to expand its
distribution of Drilex-manufactured motors by employing them in the newly
acquired operations. In addition, the ENSCO Technology Acquisition
significantly expanded the Company's MWD capabilities, providing the Company
additional opportunities to deploy its products and services. The Sharewell
Acquisition also provided the opportunity to expand the Company's product
distribution and significantly increased the Company's service capabilities in
the emerging environmental remediation and trenchless services markets. The
Company will continue to explore opportunities
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involving acquisitions of other businesses to expand distribution of the
Company's products and services, to add key technologies, to gain access to
attractive industry niches, and to otherwise enhance its market presence.
PRODUCTS AND SERVICES
OILFIELD PRECISION DRILLING APPLICATIONS
Precision Drilling Services. The Company provides comprehensive precision
drilling services for oil and gas drilling and workover applications,
including computerized well planning, on-site drilling supervision,
maintenance and support, and post-well analysis. In many oilfield
applications, precision drilling techniques offer significant economic
advantages over conventional vertical drilling techniques, such as reduced
drilling time and expense, increased well production and enhanced reservoir
recovery. The high torque, speed and performance offered by current-generation
downhole drilling motors permit the use of precision drilling techniques as a
practical alternative to conventional drilling even for vertically drilled
wells. Customers for oilfield precision drilling services are concentrated
primarily among major and large independent oil and gas companies. Because of
the complexity involved in precision drilling, these customers typically rely
on specialized precision drilling service contractors to manage the entire
process of drilling the horizontal or directional portion of a well. Precision
drilling services require high performance drilling motors, sophisticated
guidance systems and analytical tools, and an experienced staff of wellsite
and technical support personnel. The Company's drilling motors operate in
conjunction with various guidance systems (including MWD instrument systems
and steering tools) provided by the Company or other oilfield service
companies. While the Company has its own line of steering instruments, which
it assembles from sub-assemblies obtained from various third parties, Drilex
currently obtains its MWD instrument systems from third-party manufacturers.
In addition, certain vertical drilling operations employ precision drilling
services, particularly in situations where tight vertical tolerances and
sloping formations dictate a need for downhole directional control to keep the
wellpath proceeding vertically.
The Company's precision drilling services emphasize pre-job planning as well
as on-site performance. Utilizing a specialized software system and drawing
upon the Company's expertise in motor technology, guidance systems and field
experience, the Company's well planning services involve precisely plotting a
wellpath and developing a comprehensive technical proposal that specifies the
particular motor technology, guidance systems and other equipment
configurations to be employed to achieve the drilling objective most
efficiently. The technical proposal is typically based on the most detailed
data available, including drilling records from the area, bit records from
offset wells, data provided by the customer, correlation logs and the
Company's own database. A typical technical proposal will specify various
items, including optimal wellpath, motor system configuration and drillstring
component recommendations, operating procedures and drilling parameters
(including trouble-shooting methods), hydraulic calculations (including data
on pressure loss, annular velocities and bit performance), bottomhole assembly
graphical representations with component dimensions, motor system
configuration analyses, and complete technical specifications for each
recommended motor system to ensure compatibility with other equipment and job
objectives.
The Company's on-site operations are conducted by the Company's precision
drilling specialists and drilling supervisors, who are based out of the
Company's regional offices. The local knowledge and regional experience
provided by the Company's drilling supervisors at the well site is key to
successful field operations. The Company's drilling supervisors are backed by
on-site computing and the Company's engineering and support services team.
During drilling operations, a continuous stream of data is transmitted from
the bottom of the wellbore to the drilling team for evaluation of the well's
progress. The supervisor on site, with the assistance of engineers at the
Company's regional offices, works to interpret this information to make
critical decisions that may involve altering the wellpath or reconfiguring the
bottomhole assembly to enhance performance. Additional technical support is
available from the Company's headquarters engineering staff.
Through its network of sales and service locations, the Company provides
maintenance and support services for precision drilling operations. The
Company's maintenance and service personnel inspect, test and (if necessary)
repair the Company's drilling motors and guidance systems prior to dispatch to
the drilling sites to
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ensure normal operations and to prolong the life of the Company's equipment.
The Company maintains extensive records on all maintenance and service
support. These records allow the Company to make comparative assessments of
performance and repair costs and are used to provide direct input for
fundamental design changes.
After the Company completes a precision drilling job, it typically prepares
a post-well analysis that is used by the customer to, among other things,
evaluate drilling motor and bit performance and provide insight into its
ongoing drilling operations. The Company utilizes these analyses to evaluate
possible improvements in efficiency and performance in future drilling
projects in the same geographic area or in formations with similar geological
and geophysical characteristics. The Company maintains a substantial database
of these performance records relating to its operations worldwide.
Drilex has applied its technical drilling expertise to the development of
services for slim-hole production service and workover applications.
Production services typically involve running small-diameter (3-1/2 inches or
less) drilling motors on either coiled tubing or workover strings to clean out
a contaminated wellbore, deepen a well or drill a sidetrack well. Workover
applications involving the Company's services frequently entail re-entering a
well and replacing its existing completion with horizontal drain holes to
increase the well's production performance and extend the life of the well.
Other workover services provided by the Company include drilling out cement
and removing fill, scale or heavy wax; cleaning production tubing and casing;
milling casings, packers, junk and plugs; fishing; and well deepening.
The Company believes that recent developments in advanced drilling
technology, such as coiled tubing systems and "extended-reach" drilling,
provide significant opportunities for growth in the precision drilling market.
The development of large diameter coiled tubing for downhole use has generated
significant opportunities for oil and gas companies to reduce costs in deep
exploration, enhanced recovery and recompletion/workover projects. Coiled
tubing systems require specialized services, which utilize small diameter
drilling motors to develop mechanical power downhole. With the power generated
by the downhole drilling motor, coiled tubing systems can be used for a
variety of drilling operations, including conventional open-hole drilling,
coring, under-reaming, well deepening, medium-radius drilling, horizontal
drilling, setting whipstocks and milling. Extended-reach development projects
typically involve the drilling of numerous wells from a single, stationary
drilling location. Current extended-reach drilling technology provides the
capability of drilling to a wellbore target that has a horizontal displacement
extending for over 10,000 feet. This technology can provide substantial
reductions in capital requirements for development drilling, particularly in
offshore locations. The Company provides a full range of precision drilling
services for coiled tubing operations and extended-reach drilling utilizing
the Company's drilling motors and guidance systems.
Precision Drilling Products. Drilex was one of the early pioneers in the
development of downhole drilling motors in the early 1980s and is now a
worldwide leader in the design and manufacture of high-performance, multi-
lobed positive displacement drilling motors. Drilex was the first manufacturer
to produce a high-torque downhole motor designed to drive a rock bit at its
optimal (relatively low) speed, thereby increasing the life of the bit and
reducing the risk of the bit breaking apart in the wellbore. Through its
manufacturing operations, Drilex is able to maintain close control over the
performance and quality characteristics and pricing of the drilling motors
used in its service operations. The Company's drilling motors have the ability
to generate power from a wide range of drilling fluids (both oil-based and
water-based fluids and compressed air) and to operate at both high and low
speeds.
Downhole positive displacement drilling motors consist of four basic
elements: the power section, the transmission section, the output shaft
assembly and the motor casing. Each of the components of the drilling motor
must be engineered and precision manufactured so as to be compatible with the
motor's other components, in order to achieve optimal performance with
predictable wear patterns.
The Company's positive displacement motors utilize a multi-lobed power
section consisting of a rotor/stator combination that is attached directly to
the drillstring and is driven by drilling fluid pumped down the drillstring to
turn the drill bit. The power section operates without lubrication (other than
from the drilling fluid itself) and
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is designed to withstand the highly abrasive drilling fluids being passed
through it. The stator and rotor comprising the power section act together as
a system of gears--one inside the other. The outer gear (the stator) consists
of a molded elastomer with at least three gears (or lobes), and is enclosed on
the outside by a metal tube. Positioned inside the stator is an internal gear
called the rotor, which is made of steel and has one fewer lobe than the
stator. The difference between the rotor/stator lobe configuration creates a
spiral series of gaps, which, during drilling operations, are filled with
drilling fluid. Under pressure, the fluid within this spiral acts as a wedge.
Hydraulic force applied to the top of the wedge applies a force on the rotor.
Due to the helical shape of the rotor, this application of fluid force onto
the rotor causes rotation.
The rotation from the power section is applied to the transmission section,
which is a drive shaft that converts the rotary motion from inside the power
section to transmit high downward thrusts and torque to the output shaft
assembly at varying rotational speeds. The transmission section can be
configured in a variety of forms to meet differing drilling objectives. The
output shaft assembly provides the drive to the drill bit. The complex, multi-
stack ball track bearing design mounted on this element must be able to
tolerate the maximum bit thrust as well as high levels of vibration and the
reactive force of the weight on the bit, which operates in an upward
direction. The motor casing is a precision-manufactured shell that encases the
other elements of the motor. While the motor casings are thin-walled, they are
designed to maximize the structural integrity of the motor.
Drilex has designed its drilling motors to optimize flexibility, power and
reliability. The Company's drilling motors have achieved some of the highest
power and quality ratings in the industry. Drilex motors have demonstrated
high performance capabilities and reliability even in arctic locations and in
severe downhole environments, both onshore and offshore, where the motors
encounter extremely high temperatures, hard rock, sour gas, high sand content
formations, highly abrasive muds and environmentally sensitive fluids. The
Company's motors are used for a wide variety of wellbore drilling
applications, including initial spudding of wells, vertical drilling,
directional drilling, horizontal drilling, tangent drilling, under-reaming,
casing cutting, coring, conductor drill down, and fishing.
In addition, the Company's motors are used in a variety of production
services and workover applications. The Company has recently developed an
extensive line of powerful, long-endurance, small-diameter (1-11/16 to 3-1/2
inches in outside diameter) motors for use in conjunction with coiled tubing
operations, a rapidly growing segment of the oilfield services market. Before
the introduction of small-diameter motors, coiled tubing operations were
limited to certain pumping services and fishing applications. The downhole
mechanical power generated by the small-diameter motors has permitted a
significantly greater variety of operations utilizing coiled tubing. As coiled
tubing operations continue to become more widespread, the Company expects to
further expand its line of small-diameter motors to meet the demand for more
specialized applications.
Drilex maintains a large inventory of drilling motors in sizes ranging from
1-11/16 to 9-1/2 inches in outside diameter, which are capable of drilling
holes in sizes ranging from six inches to 36 inches in diameter, depending on
the application. Approximately 30.3% of the Company's drilling motor inventory
is designed for slim-hole applications, such as workover, redrilling and
recompletion tasks. The Company's slim-hole product line has increased
substantially over the past three years, primarily reflecting the Company's
product development efforts to meet the substantial growth in coiled tubing
operations since 1993. The Company's wide range of drilling motors permits the
selection of the precise combination of size, torque, speed and bearing
configuration to meet the anticipated drilling conditions for a specified
project.
Drilex uses its motors as a service tool, a rental tool and a direct sale
product, although rentals and sales have become a less significant part of the
Company's business in recent years. Motor rental involves renting the
equipment directly to oil and gas companies or oilfield service contractors
for use in the drilling of vertical, horizontal and directional wells. Drilex
delivers the motors and spares to the customer's location and is generally
paid a standby rate when the equipment is idle but at the rig site, and a
circulating rate when the drilling motor is downhole. Drilex's wide range of
motor types and reputation for high reliability makes the Company a market
leader in drilling motor rental.
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The Company's drilling motors operate in conjunction with various guidance
systems (including MWD instrument systems and steering tool systems) provided
by the Company or other oilfield service companies. The Company's drilling
motors are also sometimes operated together with logging-while-drilling
equipment, which the Company does not provide. While the Company has its own
line of steering instruments, which it assembles from sub-assemblies obtained
from various third parties, it obtains its MWD instrument systems from third-
party manufacturers. The Company's MWD instrument systems and steering tools
are modular and readily transportable.
The MWD systems provided by the Company employ state-of-the-art technology
to provide positional and some geological information, downhole temperature
readings, magnetic or gravity toolface readings, and three-dimensional
directional measurement information from the bottom of the wellbore to the
precision drilling team, thereby facilitating guidance of the trajectory of
the drill bit from the surface and enabling continuous drilling operations
over long intervals. The information is transmitted from a downhole probe to a
surface computer (which provides a display of data on a driller's console
located on the deck of the drilling rig) through the use of mud-pulse
telemetry, which involves the transmission of pressure-pulse signals from the
downhole MWD unit up through the column of drilling mud in the drillstring.
MWD systems are sometimes configured with gamma ray sensors to recognize
changes in subsurface lithology, thereby enhancing the ability to steer the
drill bit through various types of formations. The Company obtains
substantially all of its MWD systems from two different manufacturers.
The Company's steering tool systems consist of various components designed
to provide a continuous, real-time display of measurement-while-drilling data
through the use of downhole probes, which contain orientation modules for
gravity and magnetic survey measurements, temperature sensors and signal
digitizing circuitry. Steering tool systems are functionally similar to MWD
systems, but differ in that, instead of using mud-pulse telemetry to
communicate with the surface, they use wireline cables that run from the
downhole probe to the surface. The downhole probe conveys the bottomhole data
via the wireline to a surface computer that provides a continuous display (on
a driller's console located on the deck of the drilling rig) of data regarding
the toolface's inclination, orientation and direction relative to magnetic
north, as well as information regarding magnetic field strength and dip angle,
temperature and wireline voltage. While steering tools are generally less
costly to operate than MWD systems and are not subject to the signal
attenuation that may affect MWD systems (generally related to the depth of the
well and the physical characteristics of the drilling mud being used),
steering tools sometimes involve more operational difficulty than MWD systems,
generally related to the need to run a wireline from the surface through the
drillstring to connect with the downhole probe. In certain applications where
more frequent transmission of data is important (such as slim-hole workover
and reentry applications), a steering tool is more effective than an MWD
system.
ENVIRONMENTAL REMEDIATION APPLICATIONS
The Company has applied its technical drilling capabilities to pioneer the
use of shallow well horizontal drilling for environmental remediation
applications and trenchless pipe, line and cable installations.
In its environmental remediation operations, Drilex focuses on groundwater
remediation activities, the largest of the high-end segments of the
environmental remediation market. The Company uses its well-proven drilling
systems to drill horizontal wellbores beneath contaminated sites, so that
extraction and remediation of the contamination can take place at a much
improved rate.
Horizontal drilling provides numerous advantages for environmental
remediation compared to conventional vertical drilling. A single horizontal
well can perform most aspects of remediation more efficiently and economically
than the multiple wells required in a vertical drilling system. Horizontal
drilling can accurately access contaminants that are unreachable with vertical
wellbores, such as contaminants beneath immovable structures. In addition,
horizontal wells can traverse the entire length of the contaminant plume,
maximizing wellbore exposure and contaminant recovery for remediation
applications. Moreover, the risk of cross
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contamination due to hydraulic channeling is reduced by fewer wellbores
penetrating impermeable layers between aquifers. The need for fewer wells and
fewer wellheads in a horizontal system generally reduces total drilling time
and drilling cost per foot of exposed plume and reduces surface system
installation costs. In addition, higher yields due to increased hydraulic
characteristics can significantly reduce the time required for remediation,
reducing operating and maintenance costs over the life of the project.
Each remediation project undertaken by the Company is analyzed based on such
customer-supplied details as the purpose of the well, the type of
contaminants, the formation characteristics, the target depth, the groundwater
flows, the surface obstacles and well placement. Based upon this analysis,
Drilex prepares a technical proposal. Drilex personnel provide all services
from well planning through well completion. Typical projects include:
. Sampling conduits for soil gas monitoring and leachate sampling.
. In-situ remediation of contaminated soil or groundwater by soil vapor
extraction and bio-remediation.
. Installation of transport/pressure barriers to prevent contaminant
migration using slurry walls and pressure curtains.
. Pump and treat systems for contaminated groundwater recovery, free
product recovery and vapor recovery.
The Company attempts to provide its environmental remediation services in a
manner so as to minimize its handling of materials that may be classified as
hazardous substances or wastes. In addition, the Company generally obtains
indemnity agreements from its environmental remediation services customers
requiring such customers to indemnify the Company against any liability that
may arise from the Company's handling of such materials in the course of
performing a contract for these services. There is no assurance, however, that
such contractual indemnity will, in all instances, be effective or sufficient
to protect the Company from liability for claims arising from its handling of
hazardous materials in connection with its environmental services operations.
TRENCHLESS APPLICATIONS
Through its Sharewell subsidiary, the Company also provides precision
drilling services and equipment for trenchless pipe, line and cable laying
applications, which primarily involve horizontal boring underneath city
streets and structures to enable the "trenchless" delivery of conduits in
densely built areas, as well as subsurface crossings of rivers, streams and
other bodies of water. Applications for trenchless services include subsurface
installations of fiber optics lines, cable systems and utility pipelines and
wiring. Sharewell focuses its trenchless services operations on the high-end
segment of the market, which typically involves applications that require a
high level of directional precision and/or boring through hard rock.
Sharewell is the largest supplier of guidance systems to the trenchless
drilling industry worldwide. Founded in 1984, Sharewell initially offered
steering tools and electronic multi-shot survey tools for sale or lease to
oilfield customers. These tools are now widely supplied to companies that
install pipelines by trenchless methods. Sharewell's complete service offering
includes a surveyor (the equivalent of an oilfield directional driller) on
location to guide the drilling of the bore. In addition, Sharewell provides a
unique guidance system, which is used in areas of high magnetic interference
where the use of conventional guidance tools is normally precluded. The
Company also sells a number of specialist drilling tools to the trenchless
services industry, including hole openers, reamers, non-magnetic collars and
bits.
The Company provides complete horizontal drilling services for environmental
remediation and trenchless services using two highly specialized mobile slant
drilling rigs that it designed and built in 1992 and 1995. The rigs utilize a
closed-loop circulation system that captures, cleans and recirculates the
drilling fluid, eliminating the need for earthen mud pits at the well site.
The rigs are compact, requiring an area as small as 50 feet x 100 feet for
four trailer-mounted rig components. Surface rotary power and downhole motors
may be used to advance
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the drillstring. This equipment provides the Company with the capability to
drill a six-inch diameter hole approximately 30 feet below surface and hit a
two-feet in diameter target point 1,500 feet away. During 1995, Drilex
completed two significant environmental remediation projects, which involved
drilling 20 wells having total footage of more than 15,000 feet.
CUSTOMERS
The Company's customers for oilfield precision drilling services and
products are concentrated primarily among major and large independent oil and
gas companies, conventional drilling contractors and certain other oilfield
service contractors. Customers for the Company's environmental remediation
services include environmental service contractors, engineering consulting
firms, petrochemical companies, hydrocarbon transportation companies and
military and other governmental organizations. Customers for trenchless
services include telephone and other utilities, as well as general
contractors. The following is a list (in alphabetical order) of the Company's
20 largest customers during 1995:
Amerada Hess Corporation Horizontal Drilling International, Inc.
Amoco Corporation Pennzoil Company
Atlantic Richfield Company Perez Companc SA
Bexco Operating Inc. Radian International L.L.C.
BP Exploration Company Limited Rowan Companies, Inc.
Chesapeake Energy Corporation Seneca Resources Corporation
Chevron Corporation Sonat Exploration Company
Corpoven Anaco, S.A. Texaco Inc.
Exxon Corporation Torch Operating Company
Halliburton Company Union Pacific Resources Company
For the year ended December 31, 1995, one of the Company's customers
accounted for approximately 10% of the Company's revenues. While the Company
is not dependent on any one customer, the loss of one of its significant
customers could, at least on a short-term basis, have a material adverse
effect on the Company's results of operations.
MARKETING AND SALES
The Company markets and sells its services and products directly through its
sales force and operating managers, utilizing the Company's 14 domestic and 9
international locations. In addition, in certain foreign markets where the
Company does not maintain offices, the Company utilizes sales representatives
and local agents to enhance its marketing and sales efforts. The Company also
places print advertising from time to time in trade and technical publications
targeted to the Company's customer base and publishes technical papers, which
it presents at technical conferences and seminars.
The Company's marketing and sales resources are generally focused in the
United States, Canada, Venezuela, the North Sea, Argentina and Canada, which
comprise the largest segments of the worldwide market for precision drilling
services.
A significant element of the Company's sales effort involves the preparation
of a comprehensive technical proposal in the well planning stage of
prospective projects. The technical proposal is typically provided to the
customer before the customer makes its decision regarding the selection of a
precision drilling contractor. The Company utilizes the regional knowledge and
expertise of its drilling and engineering staffs in the preparation of the
technical proposal. See "--Products and Services--Oilfield Precision Drilling
Services."
Significant factors considered by customers in selecting from among
qualified contractors are service quality, reliability of equipment, local
knowledge of drilling conditions and the regional experience and expertise of
the drilling team proposed to be utilized for the particular drilling
operations out for bid. See
36
<PAGE>
"--Competition." Drilex regards its staff of highly qualified, experienced
technical personnel as one of its greatest strengths, and draws upon the
experience of these employees and their existing relationships with customers
as an important part of the Company's sales effort.
ENGINEERING AND MANUFACTURING
The Company's drilling motors are designed and manufactured to satisfy the
highest standards of performance and reliability. Producing a reliable
downhole drilling motor requires sophisticated geometric power section
designs, precision machining of the rotor, and forming of a matching stator.
Drilex has designed its own motors since the Company's founding and holds a
number of patents on various aspects of their design and manufacture. At the
current time, Drilex can perform all manufacturing functions with the
exception of stator molding and thrust bearing manufacturing, each of which is
done under close relationship with a long-time supplier. The Company's
manufacturing operations are conducted at its principal Houston facility.
The Company uses special machinery required for the precision machining of
the various special components of its motors. The Company tracks the progress
of each manufactured component from original material through the entire
machining and assembly process. By maintaining in-house control of the
manufacturing process and through continued design improvements from the
Company's 23-member engineering staff, Drilex is able to maintain the highest
levels of product quality and reliability.
Drilex maintains its leadership role in motor product development by
employing a continuous improvement process involving the close integration of
design, manufacturing and field operations. Based on continuous feedback from
the field, the Company focuses on developments expected to yield both cost
improvements and product enhancements. The Company's integrated approach has
led to many design innovations that have improved the structural integrity,
performance and lives of the Company's drilling motors and reduced through-
life costs (the total of the manufacturing costs and repair and maintenance
expenses for a motor throughout its entire useful life). To date, the
Company's product development efforts have been primarily related to the
mechanics of its downhole drilling motors, although the Company has also
developed improvements to downhole orienting devices and other guidance system
components.
Among the Company's most recent product innovations is the development of a
new concept power section for positive displacement drilling motors.
Manufacturing development of the new power section was taken to a prototype
stage in 1995 for a cold forming process that manufactures rotor and stator
components. The new-design rotors are now in an advanced stage of field
testing. The new power section will be introduced in phases: initially an
alternative rotor, followed by a new form of composite stator. The
manufacturing process for the new power section is expected to generate
significant cost savings and reduce manufacturing lead times. The new rotor
components should reduce vibration during operations, resulting in extended
lives of both rotors and stators. The reduced vibration is also expected to
contribute significantly to the operating environment for downhole
instrumentation used in the drillstring, resulting in increased life, reduced
costs and higher mean times between failures. The Company has obtained a
patent covering the design of this new power section.
Various aspects of the Company's operations have been awarded ISO 9001
certification, and the Company expects to complete the ISO 9001 certification
process for all of its operations by late 1997. ISO 9001 is an internationally
recognized verification system for quality management that has been
established by the International Standards Organization. The Company believes
that ISO 9001 certification is becoming increasingly important to maintaining
and expanding its participation in a number of markets, particularly
international markets.
The raw materials used by the Company in its operations, such as carbon and
alloy steel in various forms, lubricants, fuels and welding gases, are
available from many sources and the Company is not dependent upon any single
supplier or source for those materials. The Company does, however, rely on
single suppliers for the stator molding and the thrust bearings for its
drilling motors. Both of these suppliers developed the technology for the
manufactured product with the Company and provide the product to the Company
on an exclusive basis.
37
<PAGE>
While the Company does not have any long-term supply contracts, the Company's
arrangements with these single suppliers have been in place for over 12 years,
and have been very effective in terms of reliability and cost and in terms of
providing the Company with substantial control over the product design and
improvement and quality control functions relative to these components. While
the Company does not anticipate any difficulties in continuing to obtain
product from these single suppliers, the Company believes that adequate
alternative sources are available should the need arise. Such alternative
sources may, however, involve increased costs to the Company and shipment
delays.
Due to the relatively short manufacturing lead time for the Company's
drilling motors, backlog is not generally significant to the Company.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company currently holds 16 U.S. patents and has two U.S. patent
applications pending (and 31 foreign patents covering many of the same
inventions), most of which relate to the Company's positive displacement
drilling motors. Although in the aggregate these patents are important to the
Company, the Company generally depends on technological capabilities,
manufacturing quality control and the application of know-how rather than
patents in the conduct of its business. The Company does benefit from service
and product name brand recognition, principally through its Drilex trademark,
and considers such trademark to be important. In general, the Company will
seek to protect its intellectual property rights in all jurisdictions where
the Company believes the cost of such protection is warranted.
COMPETITION
The industry in which the Company operates is highly competitive. The
Company's ability to compete successfully depends on elements both within and
outside of its control, including successful and timely development of new
products and services, performance and quality, customer service, pricing,
industry trends, and general economic trends. Several of the Company's
competitors are divisions or subsidiaries of companies that are substantially
larger and have greater financial and other resources than the Company,
including Baker Hughes Incorporated, Dresser Industries, Inc., Halliburton
Company and Schlumberger Limited.
Competition in the oilfield services market is primarily on the basis of
service quality, experience of personnel and equipment reliability, although
price competition is also a significant factor. The Company believes that, in
selecting from among qualified contractors for a particular precision drilling
service contract, customers also consider, among other things, bidding
responsiveness, the availability and technical capabilities of equipment and
personnel, and the flexibility of equipment to work within the technical
constraints imposed by other aspects of the drilling project (such as drill
bit sizes and types, hydraulics limitations, and differing drilling fluids and
borehole sizes). Based on a recent independent survey conducted on behalf of
the Company, the Company believes that the range of services provided by an
oilfield service contractor is generally not as important an element in the
selection process as the foregoing factors (although the ability to offer
comprehensive oilfield services is important to some customers, particularly
in certain foreign regions).
EMPLOYEES
As of May 1, 1996, the Company had approximately 390 employees. The
Company's future success will depend, in part, on its ability to continue to
attract, retain and motivate highly qualified technical, marketing,
engineering and management personnel.
The precision drilling business is characterized by, among other things,
high turnover rates among field employees engaged in drilling operations.
Although Drilex believes that its turnover rate for field drilling employees
is below the industry average, the Company's turnover rate for these employees
is high relative to the Company's other employees. The Company seeks to
attract and retain qualified drilling supervisors and other technical field
personnel by paying competitive salaries and dayrates, and by maximizing the
opportunities for
38
<PAGE>
these employees to earn their dayrates. Although the Company has never
experienced a prolonged shortage of qualified personnel in any of its
operations (and does not currently anticipate any such shortage), if demand
for precision drilling services were to increase rapidly, retention of
qualified field personnel might become more difficult without significant
increases in compensation.
The Company is not a party to any collective bargaining agreements and has
not experienced any strikes or work stoppages, and management believes that
the Company's employee relations are good.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulations, including those relating to oilfield operations, worker safety
and the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas
for economic or other policy reasons could adversely affect the Company's
operations by limiting demand for precision drilling services. The Company
cannot determine to what extent its future operations and earnings may be
affected by new legislation, new regulations or changes in existing
regulations.
The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for the environmental damage without regard to negligence or fault on
the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties, and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. Compliance with
environmental laws and regulations may require the Company to obtain permits
or other authorizations for certain activities and to comply with various
standards or procedural requirements. The Company believes that its facilities
are in substantial compliance with current regulatory standards.
The Company has completed a Phase I Site Assessment for each of its
principal operating facilities within the past two years. The results of these
assessments have been used to improve operations and ensure compliance with
environmental laws. In addition, in connection with each of its significant
property acquisitions, the Company has obtained indemnification from the
sellers with respect to environmental liabilities. The Company has never been
named as a "potentially responsible party" in any environmental proceeding
under the federal "Superfund" law or any similar state laws. The Company has
an ongoing pollution prevention program designed to ensure compliance with
environmental regulations and to institute policies to address waste disposal
and minimization and pollution prevention. The Company has also implemented
various programs to ensure compliance with applicable health and worker safety
regulations and to increase employee safety awareness.
Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal year 1995 were not material. Based on the
Company's experience to date, the Company does not currently anticipate any
material adverse effect on its business or consolidated financial position as
a result of future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. However, future
events, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies, or
stricter or different interpretations of existing laws and regulations, may
require additional expenditures by the Company, which may be material.
39
<PAGE>
LEGAL PROCEEDINGS
The Company is involved from time to time in routine litigation incidental
to its business. Drilex is not currently involved in any legal proceedings
that the Company believes will have a material adverse effect on its financial
condition or results of operations.
PROPERTIES
The Company's manufacturing and principal sales and service operations are
conducted using the following facilities:
<TABLE>
<CAPTION>
FLOOR SPACE
(SQUARE
LOCATION OWNED/LEASED FEET) DESCRIPTION
- -------- ------------ ----------- -----------
<S> <C> <C> <C>
UNITED STATES:
Anchorage, Alaska Leased 685 Sales and Service
Bakersfield, California Leased 7,500 Sales and Service
Casper, Wyoming Leased 9,500 Sales and Service
Denver, Colorado Leased 200 Sales
Fort Worth, Texas Leased 200 Sales
Houston, Texas Leased 53,750 Executive Offices, Manufacturing,
Engineering, Sales and Service
Houston, Texas Leased 23,000 Sales and Office
Houston, Texas Leased 6,045 Sales and Service
Lafayette, Louisiana Owned 20,000 Sales and Service
New Orleans, Louisiana Leased 500 Sales
Oklahoma City, Oklahoma Leased 10,500 Sales and Service
Prudhoe Bay, Alaska Leased 500 Repair and Maintenance
Stafford, Texas Leased 15,000 Sales and Service
Youngsville, Louisiana Owned 10,516 Sales and Service
INTERNATIONAL:
Aberdeen, Scotland Leased 17,523 Sales and Service
Anaco, Venezuela Leased 10,500 Sales and Service
Calgary, Alberta Leased 100 Sales
Crawley, England Leased 2,500 Sales and Service
Ciudad Ojeda, Venezuela Leased 16,666 Sales and Service
Edmonton, Alberta Leased 6,896 Sales and Service
Maturin, Venezuela Leased 2,000 Sales and Service
North Freemantle, West
Australia Leased 500 Sales and Service
Singapore Leased 4,700 Sales and Service
</TABLE>
40
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to directors
and executive officers of the Company, together with their ages (as of May 1,
1996) and positions:
<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE POSITION ENDING
---- --- -------- ----------
<C> <C> <S> <C>
L.E. Simmons..................... 49 Chairman of the Board and 1999
Director
John Forrest..................... 57 President, Chief Executive 1998
Officer and Director
G. Bruce Broussard............... 52 Vice President--Finance --
and Administration and
Secretary
Samuel R. Anderson............... 48 President--Sharewell, Inc. --
Archie A. Cobb, III.............. 53 President--Cobb --
Directional Drilling
Company, L.L.C.
Charles Denton Kerr II........... 40 President--Drilex Energy --
Services Division
Lee F. Hardin.................... 48 Vice President-- --
Engineering and
Manufacturing
Harry O. Nicodemus IV............ 48 Controller --
David C. Baldwin................. 33 Director 1997
Robert P. Peebler................ 48 Director 1999
Sam S. Sorrell................... 67 Director 1997
Andrew L. Waite.................. 35 Director 1998
</TABLE>
The Company's Board of Directors is divided into three classes with
staggered terms of office, initially ending as set forth above. Thereafter,
the term for each class will expire on the date of the third annual
stockholders' meeting for the election of directors following the most recent
election of directors for such class. Each director holds the office until the
next annual meeting of stockholders for the election of directors of his class
and until his successor has been duly elected and qualified. Officers serve at
the discretion of the Board of Directors.
L.E. Simmons has served as Chairman of the Board and a director of the
Company since March 1994. Mr. Simmons has, for more than five years, served as
President of L.E. Simmons & Associates, Incorporated ("SCF G.P."), which,
through its affiliate, SCF Partners, L.P., manages private institutional
partnerships that generally invest in the oilfield service and equipment
industry. Mr. Simmons was a co-founder of Simmons & Company International, an
investment banking firm, and served as an officer and director of such firm
from 1974 through September 1993. Mr. Simmons is Chairman of the Board of
Tuboscope Vetco International Corporation. He is also a director of Zions
Bancorporation and CE Franklin, Ltd.
John Forrest has served as President, Chief Executive Officer and a director
of Drilex Corporation since its acquisition of DSI in March 1994. Mr. Forrest
founded the Company in 1981 and served as its chief executive officer from
1981 to March 1994.
G. Bruce Broussard was appointed to his current position in July 1994. Prior
thereto, Mr. Broussard served as Controller of DSI for more than the past five
years.
Samuel R. Anderson joined the Company and was appointed to his current
position at the time of the Sharewell Acquisition in May 1995. Prior thereto,
he served as President of Sharewell, Inc. since July 1991. From 1988 to July
1991, Mr. Anderson served as Senior Vice President of Noble Drilling
Corporation, an oil and gas drilling contractor.
Archie A. Cobb, III joined the Company and was appointed to his current
position in connection with the Cobb Acquisition in September 1994. Mr. Cobb
was the founder of Cobb Directional Drilling, Inc., and served as its
President from its inception in 1979 until the Cobb Acquisition.
41
<PAGE>
Charles Denton Kerr II was appointed to his current position in December
1995. Prior thereto, he served as Vice President--Sales and Operations of DSI
from July 1994 to December 1995, as Manager, Worldwide Sales and Operations
from August 1991 to July 1994, and as Western Hemisphere Manager from August
1989 to August 1991.
Lee F. Hardin was appointed to his current position in October 1995, after
serving as the Company's Director of Engineering and Manufacturing since he
joined the Company in August 1995. Mr. Hardin was a focus factory manager for
the Drilling Systems Business Unit of Halliburton Company from April 1993 to
August 1995. Prior thereto, he served as a manufacturing manager for the
Directional Drilling Business Unit of Smith International, Inc. where he
oversaw the production of MWD equipment and positive displacement motors.
Harry O. Nicodemus IV was appointed to his current position in December
1995. Prior thereto, he served as Vice President and Controller of American
Ecology Corporation since March 1993. From January 1991 to February 1993, he
served as Divisional Vice President and Assistant Controller for Browning-
Ferris Industries, Inc.
David C. Baldwin has served as a director of the Company since March 1994.
Mr. Baldwin has been Vice President of SCF G.P. since March 1993. From August
1991 to March 1993, he was an Associate with SCF G.P. Prior to attending
graduate school from 1989 to 1991, Mr. Baldwin was employed by Union Pacific
Resources Company in a variety of drilling and operations management
positions. He also serves as a director of C.E. Franklin, Ltd.
Robert P. Peebler has served as a director of the Company since March 1994.
Mr. Peebler has served as Chief Executive Officer since December 1992 and
President and Chief Operating Officer since July 1992 of Landmark Graphics
Corporation, a company engaged in geoscience services and the development of
related computer software. From 1989 to July 1992, he served as a Vice
President of Landmark Graphics Corporation.
Sam S. Sorrell has served as a director of the Company since February 1995.
Mr. Sorrell is currently a consultant to SCF Partners, L.P., and has served in
such capacity since February 1994. From January 1991 to January 1994, Mr.
Sorrell held the position of Executive Vice President of Gulf Publishing Co.,
a company that publishes various types of media for the oil and gas industry.
He is currently a director of Gulf Publishing Co.
Andrew L. Waite was elected as a director of the Company in May 1996. Mr.
Waite has served as a Vice President of SCF G.P. since October 1995. Prior
thereto, Mr. Waite was employed by Simmons & Company International as an
Associate from August 1993 to August 1995 and as a Vice President in September
1995. Prior to attending graduate school from September 1991 to June 1993, Mr.
Waite was employed by the Royal Dutch/Shell Group in a number of project and
operating management roles, both in the U.S. and several international
locations.
DIRECTOR COMPENSATION
Each director who is not also an officer of the Company or an employee of
SCF Partners, L.P. (a "Nonemployee Director") receives a quarterly retainer of
$2,500 and also receives (i) $500 per meeting of the Board of Directors at
which such director participated, (ii) $500 per meeting of any committee of
the Board of Directors at which such director participated, if not in
connection with a Board meeting, and (iii) reimbursement for all reasonable
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or committees thereof. In May 1996, each Nonemployee
Director received a one-time grant of a stock option covering 1,200 shares of
Common Stock, with a term of ten years and an exercise price equal to the
initial public offering price per share.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation provided by the Company to its Chief Executive Officer and each
of the other executive officers of the Company who earned $100,000 or more in
combined salary and bonus from the Company during the year ended December 31,
1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
ANNUAL UNDERLYING
COMPENSATION(1) OPTIONS
----------------- (NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) SHARES) COMPENSATION(3)
- --------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
John Forrest.................... $190,117 $64,500 22,623 $1,232
President and Chief
Executive Officer
G. Bruce Broussard.............. 98,055 26,600 -- 1,961
Vice President--Finance and
Administration and Secretary
Archie A. Cobb, III............. 151,375 -- -- --
President--Cobb Directional
Drilling Company, L.L.C.
Charles Denton Kerr II.......... 111,671 28,800 -- 1,562
President--Energy Services
Division
</TABLE>
- --------
(1) Other annual compensation for the named individuals during 1995 did not
exceed the lesser of $50,000 or 10% of the annual compensation earned by
such individual.
(2) The bonus amounts shown were paid in 1996 for the twelve-month period
ended March 31, 1996.
(3) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan for each of the Named Executive Officers.
43
<PAGE>
The following table contains certain information concerning options granted
to the Named Executive Officers in 1995.
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
---------------------------------------- ---------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS EXERCISE
SECURITIES GRANTED OR BASE
UNDERLYING TO PRICE
OPTIONS EMPLOYEES PER EXPIRATION
NAME GRANTED IN 1995 SHARE(1) DATE 5% 10%
---- ---------- --------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
John Forrest............ 22,623 100% $11.05 4/15/2002 -- $54,649
G. Bruce Broussard...... --
Archie A. Cobb, III..... --
Charles Denton Kerr II.. --
</TABLE>
- --------
(1) Prior to the Offering, there was no public market for the Common Stock
and, therefore, the exercise price of the options was based upon the
estimated fair market value of the Company as of the date of grant, as
determined by the Company's Board of Directors.
(2) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be achieved. The calculation does not take into account the
effects, if any, of provisions of the option plan governing termination of
options upon employment termination, transferability or vesting.
The following table summarizes the value of the outstanding options with
respect to the Named Executive Officers. None of the Named Executive Officers
exercised any stock options during 1995. There are no outstanding stock
appreciation rights, shares of restricted stock or long-term incentive plans
with respect to the Company.
1995 YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1995 AT INITIAL
DECEMBER 31, 1995 DECEMBER 31, 1995 PUBLIC OFFERING PRICE
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---- ------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
John Forrest............ 6,049 / 40,769 $8,348 / $25,041 $75,431 / $383,636
G. Bruce Broussard...... 3,025 / 9,074 $4,175 / $12,522 $37,722 / $113,153
Archie A. Cobb, III..... --
Charles Denton Kerr II.. 3,025 / 9,074 $4,175 / $12,522 $37,722 / $113,153
</TABLE>
- --------
(1) Based on the last price at which shares of Common Stock were sold by the
Company of $6.91 per share.
(2) Based on an assumed initial public offering price of $18.00 per share.
44
<PAGE>
EMPLOYMENT AGREEMENTS
In connection with the Cobb Acquisition, Mr. Cobb and Cobb Directional
Drilling Company, L.L.C. ("Cobb LLC") entered into an employment agreement on
September 30, 1994. The agreement provides that Mr. Cobb will be employed by
Cobb LLC as its chairman and/or president until September 30, 1999 at an
annual salary of $150,000, subject to increase as determined appropriate by
Cobb LLC, as well as the right to participate in executive compensation
programs. If Cobb LLC terminates Mr. Cobb's employment without cause, it is
required to pay him such salary for the remainder of the term of the
agreement. The employment agreement provides that all inventions, discoveries
and similar intellectual property created or conceived by Mr. Cobb in
connection with his work for Cobb LLC are the sole and exclusive property of
the Company. The agreement also requires Mr. Cobb to abide by certain
confidentiality provisions with respect to such intellectual property and
other confidential information obtained through his position. The employment
agreement provides that Mr. Cobb will not compete with Cobb LLC for a period
of five years after the termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists of
David C. Baldwin, Robert P. Peebler and Andrew L. Waite.
Messrs. Baldwin and Waite are executive officers of SCF G.P., the general
partner of SCF Partners, L.P., which is the general partner of DRLX Partners,
L.P., a holder of more than 5% of the Common Stock outstanding. L.E. Simmons
is the President and sole stockholder of SCF G.P. In connection with the
Company's formation in March 1994, the Company issued to DRLX Partners, L.P.,
1,990,790 shares of Common Stock for cash consideration equal to $5.53 per
share. In connection with such formation, DRLX Partners, L.P. became one of
the parties to a registration rights agreement with the Company, which is
being amended and restated in connection with the Offering. See "Certain
Transactions and Relationships--Registration Rights Agreements." Thereafter,
in two transactions effective on June 30, 1994 and September 30, 1994, the
Company issued to DRLX Partners, L.P. an aggregate of 882,282 shares of Common
Stock for cash consideration equal to $5.53 per share, and on September 29,
1995 the Company issued an additional 361,962 shares of Common Stock for cash
consideration of $6.91 per share. In addition, in a July 1994 exchange
effecting the redemption of all of the then-outstanding preferred stock of
DSI, the Company issued to DRLX Partners, L.P. 884,173 shares of Common Stock
in exchange for 488.5 shares of preferred stock of DSI. As a result of these
transactions and his relationship to DRLX Partners, L.P., Mr. Simmons may be
deemed to have an indirect personal pecuniary interest in 4,119,207 shares of
Common Stock.
In connection with the ENSCO Technology Acquisition, the Company paid a
$150,000 fee to SCF Partners, L.P. for financial advisory and other
consultation services. Such fee was paid in the first quarter of 1996. The
Company believes that such fee was comparable to fees that would have been
paid to unaffiliated third parties for similar services.
SCF Partners, L.P. is the general partner of institutional investor
partnerships that invest in the oilfield service and equipment industry. As a
result, it is possible that such institutional investor partnerships may
compete with the Company for acquisition candidates, or may invest in
businesses that compete with the Company.
45
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
CERTAIN TRANSACTIONS
In connection with the Company's formation in March 1994, the Company issued
36,196 shares of Common Stock to John Forrest for cash consideration equal to
$5.53 per share. Thereafter, on June 30, 1994, the Company issued shares of
Common Stock to certain of its executive officers for cash consideration of
$5.53 per share in the following amounts: 9,049 shares to John Forrest; 3,620
shares to G. Bruce Broussard; 8,144 shares to Charles Denton Kerr II; and
4,525 shares to Robert Stayton. In addition, on September 29, 1995, the
Company issued shares of Common Stock to certain of its executive officers for
cash consideration of $6.91 per share in the following amounts: 5,828 shares
to Mr. Forrest; 467 shares to Mr. Broussard; 1,050 shares to Mr. Kerr; and
4,760 to Samuel R. Anderson.
In June 1994, the stockholders of the Company acquired on a pro rata basis
all of the outstanding shares of preferred stock that had been issued by DSI
to MascoTech in connection with the DSI Acquisition. Subsequently, in July
1994, the Company issued 904,905 shares of Common Stock in the aggregate to
its stockholders in exchange for all the outstanding preferred stock of DSI.
On June 1, 1995, the Company repurchased 6,048 shares of Common Stock from
Robert Stayton for cash consideration of $4.26 per share, in connection with
Mr. Stayton's resignation from his position as a Vice President of the
Company.
On March 23, 1995, the Company repurchased 144,785 shares of Common Stock
and a one-third equity interest in a subsidiary of the Company, Cobb LLC, from
affiliates of Archie A. Cobb, III, the current President of such subsidiary,
for a combined purchase price consisting of approximately $1.0 million in
cash, a $1.0 million amortizing note with a final maturity in 1998, and a $1.1
million short-term note due July 1995 (which was paid at maturity). See "The
Company."
Since the completion of the Cobb Acquisition, the Company has made payments
to Non Magnetic Rental Tools, Inc. ("NMRT"), a company owned by two brothers
of Mr. Cobb, for rental of certain tools used in the business of Cobb
Directional Drilling Company, L.L.C. Such payments totaled approximately
$161,000 and $550,000 in 1994 and 1995, respectively. The Company expects to
make rental payments to NMRT during 1996 in amounts aggregating approximately
$655,000. All of such transactions were entered into in the ordinary course of
business, and the Company believes that the charges incurred in connection
with such transactions were comparable to the charges that would have been
incurred in similar transactions with parties not affiliated with Mr. Cobb.
During 1996, the Company expects to make aggregate payments of approximately
$375,000 to Landmark Graphics Corporation in connection with anticipated
purchases of computer software. Robert P. Peebler, a director of the Company,
is the President and Chief Executive Officer of Landmark Graphics Corporation.
Such charges will be incurred in the ordinary course of business, and the
Company believes that the prices to be paid in connection with such purchases
will be comparable to the prices that would be paid in similar transactions
with parties not affiliated with Mr. Peebler.
During 1995, the Company lent $250,000 to John Forrest to facilitate certain
tax payments made by Mr. Forrest. The entire principal amount of such loan
remains outstanding as of the date of this Prospectus. The loan bears interest
at a rate equal to the interest rate incurred by the Company on its borrowings
and is secured by 45,245 shares of Common Stock owned by Mr. Forrest. The loan
is payable upon the earlier of (i) sale of shares of Common Stock owned by Mr.
Forrest and (ii) the termination of Mr. Forrest's employment with the Company.
46
<PAGE>
For certain other transactions between the Company and its executive
officers, directors or beneficial owners of in excess of 5% of the Company's
outstanding Common Stock, see "Management--Compensation Committee Interlocks
and Insider Participation."
REGISTRATION RIGHTS AGREEMENTS
In connection with the Offering, the Company will enter into an amendment
and restatement of an existing registration rights agreement among the
Company, DRLX Partners, L.P., and Messrs. Forrest, Broussard and Kerr (the
"Amended and Restated Registration Rights Agreement"). The Amended and
Restated Registration Rights Agreement will provide for registration rights
pursuant to which, upon the request of holders (the "Requesting Holders") of
at least 51% of the shares of Common Stock (or other securities of the
Company) subject to such agreement (the "Registrable Securities"), the Company
will file a registration statement under the Securities Act to register
Registrable Securities held by the Requesting Holders and any other
stockholders who are parties to the Amended and Restated Registration Rights
Agreement and who desire to sell Registrable Securities pursuant to such
registration statement, subject to a maximum of three requests in total. The
first such request may not be made until the expiration of 120 days after the
date of this Prospectus. In addition, subject to certain conditions and
limitations, the Amended and Restated Registration Rights Agreement will
provide that holders of Registrable Securities may participate in any
registration by the Company of any of its equity securities in an underwritten
offering other than the offering made by this Prospectus. The registration
rights conferred by the Amended and Restated Registration Rights Agreement
will generally be transferable to transferees of the Registrable Securities
covered thereby. The Amended and Restated Registration Rights Agreement will
terminate on December 31, 2001, or earlier if the securities subject to the
Amended and Restated Registration Rights Agreement have been (i) distributed
to the public pursuant to a registration statement covering such securities
that has been declared effective under the Securities Act, (ii) distributed to
the public in accordance with the provisions of Rule 144 (or any similar
provision then in force) under the Securities Act or (iii) repurchased by the
Company. An aggregate of 4,213,342 outstanding shares of Common Stock and
60,443 shares of Common Stock issuable upon exercise of options will be
subject to the Amended and Restated Registration Rights Agreement.
In September 1995, in connection with the ENSCO Technology Acquisition, the
Company entered into a registration rights agreement (the "ENSCO Registration
Rights Agreement") pursuant to which ENSCO Technology Company was granted
"piggyback" registration rights to include shares of the Company's Common
Stock issuable upon the conversion of the ENSCO Convertible Note, as part of
certain registration statements filed by the Company under certain
circumstances and subject to certain restrictions. Subject to certain
restrictions, the registration rights conferred by the ENSCO Registration
Rights Agreement are transferable to transferees of the shares of Common Stock
covered thereby. The ENSCO Registration Rights Agreement terminates when (i) a
registration statement covering the securities subject to the ENSCO
Registration Rights Agreement has been declared effective by the SEC and such
securities have been disposed of pursuant to such effective registration
statement, (ii) such securities are distributed to the public pursuant to Rule
144 (or any similar provision then in force) under the Securities Act or (iii)
the Company has delivered a new certificate or other evidence of ownership for
such securities not bearing the legend required pursuant to the ENSCO
Stockholders' Agreement and such securities may be resold without restriction
under the Securities Act. As of May 1, 1996, the ENSCO Convertible Note had an
outstanding principal balance of $2.5 million, and was convertible into
361,962 shares of Common Stock.
In the case of both registration rights agreements described above, the
Company is required to pay all the costs associated with such an offering
other than underwriting commissions and transfer taxes attributable to the
shares sold on behalf of the selling stockholders. In addition, in the case of
the Acquisition Registration Rights Agreement, the Company is obligated to pay
the fees and expenses of one firm of legal counsel retained by the holders of
a majority of the shares registered thereunder. Both registration rights
agreements provide that the number of shares of Common Stock that must be
registered on behalf of the selling stockholders is subject to limitation if
the managing underwriter determines that market conditions require such a
limitation. Under both such agreements, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or
offering covered by the registration rights agreements.
47
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth certain information as of May 1, 1996, except
as otherwise noted, concerning the persons known by the Company to be
beneficial owners of more than five percent of the Company's outstanding
Common Stock, the members of the Board of Directors of the Company, the Named
Executive Officers listed in the Summary Compensation Table above and all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED PERCENT
--------------------------- ------------ -------
<S> <C> <C>
DRLX Partners, L.P.(2).................................... 4,119,207 93.8%
c/o SCF Partners, L.P.
6600 Travis
Suite 6600
Houston, Texas 77002
L.E. Simmons(2)........................................... 4,119,207 93.8
c/o SCF Partners, L.P.
6600 Travis
Suite 6600
Houston, Texas 77002
ENSCO Technology Company(3)............................... 361,962 7.6
1445 Ross Avenue
Suite 2700
Dallas, Texas 75202
John Forrest(4)........................................... 82,547 1.9
G. Bruce Broussard(5)..................................... 10,595 *
Archie A. Cobb, III(6).................................... 96,523 2.2
Charles Denton Kerr II(5)................................. 17,226 *
David C. Baldwin.......................................... -- --
Robert P. Peebler(5)...................................... 807 *
Sam S. Sorrell(5)......................................... 807 *
Andrew L. Waite........................................... -- --
All directors and executive officers as a group (12
persons)(1)(7)............................................ 4,381,877 98.3
</TABLE>
- --------
*Less than one percent
(1) Except as otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.
(2) The general partner of DRLX Partners, L.P. is SCF Partners, L.P. The
general partner of SCF Partners, L.P. is SCF G.P., of which L.E. Simmons
is the President and a director and sole stockholder. Each of SCF
Partners, L.P., SCF G.P. and L.E. Simmons may be deemed the beneficial
owner, within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended, of the shares of Common Stock held by DRLX Partners,
L.P.
(3) Shares shown are issuable upon conversion of the ENSCO Convertible Note.
(4) Shares shown include 5,657 shares that could be acquired within 60 days
after May 1, 1996 upon exercise of stock options and 10,573 shares of
Common Stock acquired as of March 31, 1996 through the exercise of stock
options.
(5) Shares shown include shares that could be acquired within 60 days after
May 1, 1996 upon exercise of stock options, as follows: 5,287 for Mr.
Broussard, 5,287 for Mr. Kerr, 807 for Mr. Peebler and 807 for Mr.
Sorrell.
(6) Shares shown are owned by Posi-Trak Mud Motors, Inc., a company owned by
Mr. Cobb.
(7) Shares shown include 67,255 shares that could be acquired within 60 days
after May 1, 1996 upon exercise of warrants and stock options.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 6,391,778 shares of Common Stock will be
outstanding. The shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by an "affiliate" of the Company (as that
term is defined under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. Substantially all of the
remaining 4,391,778 shares of Common Stock, which are held by the Company's
current stockholders, will be "restricted securities" (within the meaning of
Rule 144) and, therefore, will not be eligible for sale to the public unless
they are sold in transactions registered under the Securities Act or pursuant
to an exemption from registration, including pursuant to Rule 144 or an
offshore transaction pursuant to Regulation S under the Securities Act. The
Company has entered into Registration Rights Agreements with certain of its
existing stockholders, which provide such stockholders with certain rights to
have their shares of Common Stock registered under the Securities Act, in
order to permit the public sale of such shares. See "Certain Transactions and
Relationships--Registration Rights Agreements."
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Option Plan. Shares of Common
Stock issued pursuant to such plan generally will be available for sale in the
open market by holders who are not affiliates of the Company and, subject to
the volume and other limitations of Rule 144, by holders who are affiliates of
the Company.
In general, under Rule 144 as currently in effect, if a minimum of two years
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who
may be deemed "affiliates" of the Company, would be entitled to sell within
any three-month period a number of shares of Common Stock that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock (i.e.,
63,918 shares immediately after consummation of the Offering) and (ii) the
average weekly trading volume during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are also subject to
certain provisions as to the manner of sale, notice requirements, and the
availability of current public information about the Company. In addition,
under Rule 144(k), if a period of at least three years has elapsed since the
later of the date restricted securities were acquired from the Company or the
date they were acquired from an affiliate of the Company, a stockholder who is
not an affiliate of the Company at the time of sale and has not been an
affiliate for at least three months prior to the sale would be entitled to
sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description thereof. The Commission has proposed an amendment to Rule 144 that
would shorten the three- and two-year holding periods described above to two
years and one year, respectively.
The Company, DRLX Partners, L.P. and each of the Company's directors and
executive officers have agreed with the Underwriters that they will not offer
for sale or otherwise voluntarily dispose of any shares of Common Stock or any
securities convertible into or exercisable for shares of Common Stock for a
period of 120 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, as representative of the Underwriters, with certain
exceptions. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made of the effect, if any, that sales of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Following the Offering, sales of substantial
amounts of Common Stock in the public market or otherwise, or the perception
that such sales could occur, could adversely affect the prevailing market
price for the Common Stock.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. As of May 1, 1996,
there were 4,391,778 shares of Common Stock outstanding and held of record by
eight stockholders, and no shares of Preferred Stock were outstanding. The
following summary is qualified in its entirety by reference to the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation"),
which is filed as an exhibit to the registration statement of which this
Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders
of a majority of the shares voting for the election of directors can elect all
the directors if they choose to do so. The Common Stock carries no preemptive
rights and is not convertible, redeemable or assessable, or entitled to the
benefits of any sinking fund. The holders of Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy" for
information regarding dividend policy.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine variations in the
designations, preferences, and relative, participating, optional or other
special rights (including, without limitation, special voting rights,
preferential rights to receive dividends or assets upon liquidation, rights of
conversion into Common Stock or other securities, redemption provisions and
sinking fund provisions) between series and between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions of such rights.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or
the rules of any market on which the Company's securities are traded.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the
50
<PAGE>
liability of directors of the Company to the Company or its stockholders to
the fullest extent permitted by Delaware law. Specifically, directors of the
Company will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited the
Company and its stockholders. The Company's Bylaws provide indemnification to
the Company's officers and directors and certain other persons with respect to
certain matters, and the Company has entered into agreements with each of its
directors providing for indemnification with respect to certain matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written
consent. The Bylaws provide that special meetings of the stockholders can be
called only by the Chairman of the Board, the President or the Board of
Directors of the Company.
Pursuant to the Certificate of Incorporation, certain transactions
involving, among other persons, any person who is a beneficial owner of 10% or
more of the aggregate voting power of all outstanding stock of the Company (a
"related person") require the affirmative vote of the holders of both (i) at
least 80% of the outstanding voting stock and (ii) at least 66% of the
outstanding voting stock not beneficially owned by the related person.
Transactions subject to such approval include certain mergers or
consolidations of the Company or sales or transfers of assets and properties
having an aggregate fair market value of $10 million or more. Notwithstanding
the foregoing, the Certificate of Incorporation provides that no person who is
the beneficial owner of 10% or more of the aggregate voting power of all
outstanding stock of the Company on May 1, 1996 shall be a related person.
Consequently, DRLX Partners, L.P. is not a related person for these purposes.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered three-year terms.
As a result, approximately one-third of the Company's Board of Directors will
be elected each year. The classified board provision could prevent a party who
acquires control of a majority of the outstanding voting stock of the Company
from obtaining control of the Board of Directors until the second annual
stockholders meeting following the date the acquirer obtains the controlling
interest. See "Management."
The Certificate of Incorporation provides that the number of directors will
be no greater than 12 and no less than three. The Certificate of Incorporation
further provides that directors may be removed only for cause (as defined in
the Certificate of Incorporation), and then only by the affirmative vote of
the holders of at least a majority of all outstanding voting stock entitled to
vote. This provision, in conjunction with the provisions of the Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii)
upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of
51
<PAGE>
the corporation and by employee stock plans that do not provide employees with
the rights to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the
business combination was approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors. DRLX Partners, L.P. is not subject to the restrictions of
Section 203 with respect to the Common Stock.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders, and providing for certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors of the Company. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder (i) in the event of business to be brought by a stockholder before
an annual meeting, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (ii) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, (a) with respect to an election to be held at the annual meeting
of stockholders, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholder of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (b) with respect to an
election be held at a special meeting of stockholders for the election of
directors, not later than the close of business on the tenth day following the
day on which notice of the date of the special meeting was mailed to
stockholders or public disclosure of the date of the special meeting was made,
whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are filed as an exhibit to the
registration statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a Purchase Agreement (the
"Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, CS First Boston Corporation and Simmons & Company
International are acting as the representatives (the "Representatives"), has
severally agreed to purchase from the Company the number of shares of Common
Stock set forth below opposite their respective names. The Underwriters are
committed to purchase all of such shares if any are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased
as set forth in the Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
CS First Boston Corporation.......................................
Simmons & Company International...................................
---------
Total........................................................ 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price as set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a discount
not in excess of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed.
The Company has granted the Underwriters an option to purchase up to 300,000
additional shares of Common Stock at the public offering price set forth on
the cover page of this Prospectus, less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase approximately the same percentage of the
option shares that the number of shares to be purchased initially by that
Underwriter bears to the total number of shares to be purchased initially by
the Underwriters.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock offered hereby will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in such negotiations are the history and the
prospects for the industry in which the Company competes, an assessment of the
Company's management, the past and present operations of the Company, the
historical results of operations of the Company and the trend of its revenues
and earnings, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offering and the price-
earnings ratios and market prices of publicly traded securities of companies
that the Company and the Representatives believe to be comparable to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
53
<PAGE>
At the request of the Company, the Underwriters have reserved up to 100,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and certain other persons
designated by the Company who have expressed an interest in purchasing Common
Stock. The number of shares of Common Stock available to the general public
will be reduced to the extent these persons purchase the reserved shares.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company, DRLX Partners, L.P. and each of the Company's directors and
executive officers have agreed that, for a period of 120 days after the date
of this Prospectus, they will not, without the prior written consent of
Merrill Lynch, offer, sell or otherwise voluntarily dispose of any shares of
Common Stock or securities convertible into or exercisable for Common Stock,
except for (i) sales of the shares of Common Stock offered hereby, (ii)
issuances pursuant to the exercise of outstanding warrants, stock options and
convertible securities, (iii) grants of options pursuant to the Stock Option
Plan, (iv) private placements of Common Stock by the Company to purchasers who
agree to be bound by a similar agreement, and (v) bona fide gifts by
stockholders to donees who agree to be bound by a similar agreement.
The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of shares of Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
Houston, Texas, and for the Underwriters by Liddell, Sapp, Zivley, Hill &
LaBoon, L.L.P., Houston, Texas.
EXPERTS
The (i) consolidated financial statements of the Company as of December 31,
1995 and 1994 and for the year ended December 31, 1995 and the period from
March 30, 1994 (inception) to December 31, 1994, (ii) consolidated statements
of operations and cash flows of DSI for the three-month period ended March 30,
1994 and the year ended December 31, 1993, (iii) consolidated statements of
income and cash flows of Ensco Technology for the nine-month period ended
September 30, 1995 and the year ended December 31, 1994, and (iv) consolidated
statements of operations and cash flows of Sharewell for each of the two years
in the period ended March 31, 1995, included in this Prospectus, and the
financial statement schedule related to the financial statements referred to
in (i) above, included elsewhere in the registration statement of which this
Prospectus forms a part, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the Commission with respect to the Offering. This
Prospectus, filed as a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement, or the
exhibits and schedules thereto, in accordance with the rules and regulations
of the Commission, and reference is hereby made to such omitted information.
Each statement made in this Prospectus concerning a document filed as an
exhibit to the Registration Statement is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions. The
Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and its regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
portion of the Registration Statement can be obtained at prescribed rates from
the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
54
<PAGE>
DRILEX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DRILEX CORPORATION AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheet as of December 31, 1995 and 1994............. F-3
Consolidated Statement of Income for the Year Ended December 31, 1995
and the Period from March 30, 1994 (inception) to December 31, 1994.... F-4
Consolidated Statement of Cash Flows for the Year Ended December 31,
1995 and the Period from March 30, 1994 (inception) to December 31,
1994................................................................... F-5
Consolidated Statement of Stockholders' Equity for the Year Ended
December 31, 1995 and the Period from March 30, 1994 (inception) to
December 31, 1994...................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-18
Consolidated Statement of Operations for the Period from January 1, 1994
to March 30, 1994 and the Year Ended December 31, 1993................. F-19
Consolidated Statement of Cash Flows for the Period from January 1, 1994
to March 30, 1994 and the Year Ended December 31, 1993................. F-20
Notes to Consolidated Financial Statements.............................. F-21
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
Independent Auditors' Report............................................ F-25
Consolidated Statement of Income for the Nine Months Ended September 30,
1995 and the Year Ended December 31, 1994.............................. F-26
Consolidated Statement of Cash Flows for the Nine Months Ended September
30, 1995 and the Year Ended December 31, 1994.......................... F-27
Notes to Consolidated Financial Statements.............................. F-28
SHAREWELL, INC. (FORMERLY SHARECO, INC.) AND SUBSIDIARIES
Independent Auditors' Report............................................ F-32
Consolidated Statement of Operations for the Years Ended March 31, 1995
and 1994............................................................... F-33
Consolidated Statement of Cash Flows for the Years Ended March 31, 1995
and 1994............................................................... F-34
Notes to Consolidated Financial Statements.............................. F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Drilex Corporation:
We have audited the accompanying consolidated balance sheets of Drilex
Corporation and subsidiaries (the "Company") as of December 31, 1995 and 1994,
and the related consolidated statements of income, cash flows, and
stockholders' equity for the year ended December 31, 1995 and the period from
March 30, 1994 (inception) to December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Drilex Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the year ended December 31, 1995 and the
period from March 30, 1994 (inception) to December 31, 1994 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996 (May 7, 1996 as to Note 15)
F-2
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 819 $ 949
Receivables:
Trade, net of allowance for doubtful accounts of $933 and
$308 at December 31, 1995 and 1994, respectively. ........ 20,994 8,946
Other...................................................... 694 101
Inventories.................................................. 8,259 4,303
Prepaid expenses and other current assets.................... 1,217 467
------- -------
Total current assets..................................... 31,983 14,766
Property and equipment, net.................................... 27,557 17,545
Goodwill, net of accumulated amortization of $170 and $9 at
December 31, 1995 and 1994, respectively...................... 14,151 1,394
Other assets, net.............................................. 4,063 2,587
------- -------
$77,754 $36,292
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 8,706 $ 2,699
Accrued compensation and related benefits.................... 1,550 800
Accrued taxes, other than on income.......................... 1,064 741
Accrued income taxes......................................... 476 185
Other accrued liabilities.................................... 936 380
Long-term debt, current maturities........................... 5,886 450
------- -------
Total current liabilities................................ 18,618 5,255
Long-term debt, less current maturities........................ 32,467 7,633
Other noncurrent liabilities................................... 2,182 1,781
------- -------
Total liabilities........................................ 53,267 14,669
------- -------
Commitments and contingencies
Minority interests............................................. 805 2,066
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:
1995--4,381,205 and 1994--4,080,818......................... 44 41
Additional paid-in capital................................... 19,845 17,507
Retained earnings............................................ 3,793 2,009
------- -------
Total stockholders' equity............................... 23,682 19,557
------- -------
$77,754 $36,292
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
Net revenues:
Rental and service............................... $43,766 $21,850
Equipment sales.................................. 13,760 3,359
------- -------
57,526 25,209
------- -------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service............................. 27,956 11,714
Equipment sales................................ 6,650 1,210
Selling, general and administrative expenses..... 13,448 6,711
Depreciation and amortization.................... 4,492 1,855
------- -------
52,546 21,490
------- -------
Operating income................................... 4,980 3,719
Interest expense................................... (1,935) (478)
------- -------
Income before income taxes and minority interests.. 3,045 3,241
Provision for income taxes......................... (1,097) (1,166)
Minority interests................................. (164) (66)
------- -------
Net income......................................... $ 1,784 $ 2,009
======= =======
Net income per common and common equivalent share.. $ .40 $ .57
======= =======
Weighted average common and common equivalent
shares outstanding................................ 4,411 3,507
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 1,784 $ 2,009
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization.................... 4,492 1,855
Net losses on disposition of property and
equipment....................................... 1,033 883
Minority interests............................... 164 66
Changes in assets and liabilities, excluding the
effects of acquisitions:
Increase in accounts payable.................... 4,568 1,628
Increase in inventories......................... (5,918) (2,393)
Increase in receivables......................... (5,209) (3,667)
Increase in prepaid expenses and other assets... (560) (576)
Increase (decrease) in accrued and other
liabilities.................................... (539) 1,072
-------- --------
Net cash provided by (used for) operating ac-
tivities.................................... (185) 877
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property and
equipment........................................ 1,263 29
Capital expenditures.............................. (5,408) (707)
Acquisition of ENSCO Technology Company net
assets, net of cash acquired..................... (11,488) --
Acquisition of Sharewell, Inc., net of cash
acquired......................................... (3,727) --
Acquisition of Drilex Systems, Inc., net of cash
acquired......................................... -- (18,625)
Acquisition of Cobb net assets.................... -- (3,590)
-------- --------
Net cash used for investing activities....... (19,360) (22,893)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 17,450 2,250
Net borrowings under revolving credit agreements.. 4,700 4,500
Proceeds from issuance of common stock............ 3,117 16,215
Principal payments on long-term debt.............. (4,826) --
Purchases of common stock......................... (1,026) --
-------- --------
Net cash provided by financing activities.... 19,415 22,965
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (130) 949
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 949 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 819 $ 949
======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers of drilling equipment parts from
inventories to property and equipment............ $ 2,926 $ 1,965
Amounts recorded in connection with acquisitions
(see Note 2):
Fair value of net assets acquired, including
goodwill........................................ 26,257 26,881
Issuances of long-term debt...................... 10,792 1,333
Issuance of long-term debt to reacquire equity
interest in subsidiary.......................... 2,154 --
Issuances of common stock and warrants........... 250 1,333
Issuance of equity interest in subsidiary........ -- 2,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 1,689 $ 274
Income taxes paid................................. 842 613
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES ($.01 PAR) CAPITAL EARNINGS TOTAL
--------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, March 30, 1994
(inception)................ -- $ -- $ -- $ -- $ --
Issuances of common stock. 4,080,818 41 17,507 -- 17,548
Net income................ -- -- -- 2,009 2,009
--------- ---- ------- ------ -------
Balance, December 31, 1994.. 4,080,818 41 17,507 2,009 19,557
Issuances of common stock
and warrants............. 451,220 5 3,362 -- 3,367
Purchases of common stock. (150,833) (2) (1,024) -- (1,026)
Net income................ -- -- -- 1,784 1,784
--------- ---- ------- ------ -------
Balance, December 31, 1995.. 4,381,205 $ 44 $19,845 $3,793 $23,682
========= ==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Drilex Corporation (formerly Drilex Holdings Corp.) was organized on March
10, 1994 by DRLX Partners, L.P. ("DRLX Partners") and Mr. John Forrest to
acquire the common stock of Drilex Systems, Inc. ("DSI") from MascoTech, Inc.
See Note 2. Mr. Forrest is a founder of DSI and the President and Chief
Executive Officer of Drilex Corporation. The initial capital contributions of
$11,200,000 were made on March 30, 1994.
The consolidated financial statements include the accounts of Drilex
Corporation and its majority and wholly owned subsidiaries, collectively
referred to herein as the "Company." All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company provides directional, horizontal and other precision drilling
services and products. Such services and products are used primarily for oil
and gas drilling, environmental remediation and trenchless service
applications.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents--Cash equivalents consist of highly liquid investments with
original maturities of three months or less.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventory costs
represent invoice or production cost. Production costs include materials,
labor and manufacturing overhead.
Property and Equipment--Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes
of assets. Additions, renewals and improvements are capitalized, while
maintenance and repairs are expensed. Upon the sale or retirement of an asset,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is recognized.
Goodwill and Other Intangible Assets--Goodwill represents the excess of the
purchase price for acquired businesses over the allocated value of the related
net assets (see Note 2). Goodwill is amortized on a straight-line basis over a
forty year life. The carrying value of goodwill will be reviewed and adjusted
whenever events or changes in circumstances indicate that the value of the
acquired assets has been impaired.
Included in other assets are noncompete agreements, a technology licensing
agreement, organization costs and patents. These intangible assets are
amortized on a straight-line basis over their estimated useful lives.
Income Taxes--The Company accounts for income taxes using an asset and
liability approach, which requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates.
Foreign Currency Translation--The Company uses the United States dollar as
the functional currency for its foreign operations. Foreign currency
translation and transaction gains and losses are recognized in consolidated
income as incurred.
F-7
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Financial Instruments--The carrying amount of cash and cash equivalents
approximates fair value for these instruments. The estimated fair value of
long-term debt is determined based on the current rates offered for similar
borrowings. The estimated fair value of the interest rate swap agreement is
based on the amount that the Company would receive or pay to terminate the
agreement at the balance sheet date. The estimated fair values of the
Company's financial instruments, along with the carrying amounts of the
related assets (liabilities), are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1995 1994
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 819 $ 819 $ 949 $ 949
Long-term debt........................ (38,353) (38,594) (8,083) (8,104)
Interest rate swap agreement.......... -- (332) -- --
</TABLE>
The Company's interest rate swap agreement is used to manage interest rate
risk. The net settlement amount resulting from this agreement is recognized as
an adjustment to interest expense. The Company does not hold or issue
derivative financial instruments for trading purposes.
Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (the "FASB") 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 Company believes that the adoption of
SFAS 121 will not have a material impact on its consolidated financial
statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. The Company has elected to continue the
use of the "intrinsic value based method" of accounting for its employee stock
option plan (see Notes 9 and 15). This method does not result in the
recognition of compensation expense when employee stock options are granted if
the exercise price of the options equals or exceeds the fair market value of
the stock at the date of grant. The Company will adopt the disclosure
requirements of SFAS 123 when it becomes effective in 1996.
2. ACQUISITIONS
On March 31, 1994, the Company acquired all of the common stock of DSI for
cash of $20,000,000 in a transaction accounted for as a purchase. During the
remainder of 1994 and during 1995, the Company consummated three additional
business acquisitions which were also accounted for using the purchase method.
Results of operations and cash flows of the acquired businesses are included
in the consolidated financial statements for the periods subsequent to the
respective dates of acquisition.
ENSCO Technology Company and subsidiaries ("ENSCO Technology")--On September
30, 1995, the Company acquired substantially all of the assets, net of
outstanding liabilities and minority interests, of ENSCO Technology. ENSCO
Technology provides precision drilling and measurement-while-drilling services
to
F-8
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
customers primarily in Texas and Canada. The total purchase price of
$17,851,000 consisted of $11,790,000 in cash and notes payable to ENSCO
Technology totaling $6,061,000. The Company recognized goodwill of $8,586,000
in connection with this acquisition.
Sharewell, Inc. and subsidiaries ("Sharewell")--On May 5, 1995, the Company
acquired all of the common stock of Sharewell (formerly Shareco, Inc.), which
provides directional drilling guidance systems and services in both domestic
and international locations. The total purchase price of $9,167,000 consisted
of $4,186,000 in cash, notes payable to Sharewell's former stockholders
totaling $4,731,000 and warrants to purchase 180,981 shares of the Company's
common stock valued at $250,000. The Company recognized goodwill of $4,332,000
in connection with this acquisition.
Cobb Directional Drilling Company, Inc. and Posi-Trak Mud Motors, Inc.
(collectively, "Cobb")--On September 30, 1994, the Company acquired
substantially all of the fixed assets of Cobb (the "Cobb acquisition"), which
provides precision drilling services to customers primarily in Louisiana and
the Gulf of Mexico. The Company used a newly-formed subsidiary, Cobb
Directional Drilling Company LLC ("Cobb LLC"), to acquire the Cobb assets. The
total purchase price of $8,256,000 consisted of $3,590,000 in cash, a note
payable to Posi-Trak Mud Motors, Inc. for $1,333,000, a one-third equity
interest in Cobb LLC valued at $2,000,000 and 241,307 shares of the Company's
common stock valued at $1,333,000. The Company recognized goodwill of
$1,403,000 in connection with this acquisition.
On March 23, 1995, the Company repurchased 144,784 of the shares of its
common stock for $1,000,000 in cash. On the same date, the Company reacquired
the one-third equity interest in Cobb LLC in exchange for two notes payable to
Cobb Directional Drilling Company, Inc. totaling $2,154,000. The minority
stockholder's share of Cobb LLC's earnings for the period from October 1, 1994
through March 23, 1995 is presented as minority interests in the Company's
consolidated income statement.
Pro forma results of operations (unaudited)--The following unaudited pro
forma summary presents consolidated results of operations for the Company as
if (a) the Cobb acquisition had been consummated on March 30, 1994 and (b) the
Sharewell and ENSCO Technology acquisitions had been consummated as of the
beginning of the respective periods. Appropriate adjustments have been
reflected for depreciation and amortization, interest expense, income taxes
and minority interests. Net income for the period ended December 31, 1994
includes an after-tax gain of $429,000, or $.10 per share, resulting from
ENSCO Technology's sale of stock of a foreign subsidiary. The pro forma
information does not necessarily reflect the actual results that would have
been achieved, nor is it necessarily indicative of future consolidated results
for the Company.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues..................................... $73,557 $48,719
Net income....................................... 1,929 2,905
Net income per common and common equivalent
share........................................... .42 .67
</TABLE>
F-9
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1994
------ ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Drilling equipment parts...................................... $7,573 $4,187
Work in process............................................... 686 116
------ ------
$8,259 $4,303
====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL ----------------
LIVES 1995 1994
---------- ------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
Land............................................. $ 52 $ 52
Buildings and improvements....................... 5-40 years 985 867
Machinery and equipment.......................... 3-15 years 7,122 4,327
Rental tools..................................... 3-7 years 19,901 12,286
Furniture and fixtures........................... 3-10 years 2,385 1,407
Construction in progress......................... 1,844 175
------- -------
32,289 19,114
Less: accumulated depreciation................... (4,732) (1,569)
------- -------
$27,557 $17,545
======= =======
</TABLE>
Depreciation expense for the year ended December 31, 1995 and the period
ended December 31, 1994 was $3,668,000 and $1,703,000, respectively. Effective
April 1, 1995, the Company changed its estimated useful life for certain
drilling motor components from five to seven years. This change was made to
better reflect the estimated period during which these assets will remain in
service. The effect of this change was an increase in net income of $248,000,
or $.06 per share, for the year ended December 31, 1995.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------
USEFUL LIVES 1995 1994
------------ ------- ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
Noncompete agreements........................... 5-10 years $ 2,100 $ 500
Technology licensing agreement.................. 13 1/3 years 1,465 1,465
Organization costs.............................. 5 years 1,052 633
Patents......................................... 17 years 122 122
Other........................................... 10 10
------- ------
4,749 2,730
Less: accumulated amortization.................. (686) (143)
------- ------
$ 4,063 $2,587
======= ======
</TABLE>
F-10
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the acquisition of DSI, the Company obtained a licensing
agreement that provides it with a non-exclusive right to use a patented
technology for the remaining life of the patent. As consideration for the
license, the Company is obligated to sell or lease certain drilling systems
equipment to the licensor at a discount. The period of this obligation extends
through December 31, 1997. A liability for this obligation is included on the
Company's consolidated balance sheet in the amount of $1,238,000 and
$1,433,000 at December 31, 1995 and 1994, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility................................. $ 9,200 $ --
Term Note................................................. 16,578 --
Previous bank credit agreements:
Revolving credit facilities............................... -- 4,500
Cobb term note............................................ -- 2,250
Promissory Note payable to Posi-Trak Mud Motors, Inc........ 1,333 1,333
Promissory Note payable to Cobb Directional Drilling
Company, Inc............................................... 750 --
Promissory Notes payable to former stockholders of
Sharewell.................................................. 4,431 --
Promissory Note payable to ENSCO Technology................. 3,561 --
Convertible Promissory Note payable to ENSCO Technology..... 2,500 --
------- ------
38,353 8,083
Less: current maturities.................................... (5,886) (450)
------- ------
$32,467 $7,633
======= ======
</TABLE>
Bank Credit Agreement--On September 29, 1995, the Company entered into a
credit agreement with a bank (as amended, the "Bank Credit Agreement") which
replaced previous credit agreements entered into by the Company and its
subsidiaries. The Bank Credit Agreement consists of a secured revolving line
of credit (the "Revolving Credit Facility") which matures on September 30,
1998 and a $17,450,000 term note (the "Term Note") which matures on September
30, 2000. The Revolving Credit Facility provides for borrowings of up to
$13,000,000, of which up to $3,000,000 may be used for letters of credit. As
of December 31, 1995, $3,455,000 of borrowings was available under the
Revolving Credit Facility, of which $2,655,000 was available for letters of
credit. Letters of credit outstanding amounted to $345,000 at December 31,
1995.
The Term Note calls for quarterly principal payments of $872,000. Under
certain circumstances, the Company may be required to make annual principal
prepayments on the Term Note in an amount equal to 50% of excess cash flow (as
defined).
The Bank Credit Agreement is secured by eligible receivables, inventories
and property and equipment, as well as the Company's pledge of the stock of
certain subsidiaries. Borrowings under the Bank Credit Agreement bear interest
at a rate per annum, at the Company's election, equal to the bank's prime rate
plus 1/2% or a Eurodollar or Eurosterling interbank offered rate plus 2% (9%
and 7.8%, respectively, at December 31, 1995). The interest rate margins may
be reduced by up to 1/2% (non-cumulatively) based on a financial test,
determined quarterly. As of December 31, 1995, the financial test did not
permit a reduction in the interest rate margins. The
F-11
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Promissory Note payable to Posi-Trak Mud Motors, Inc.--This note matures on
September 30, 1997, bears interest at a rate of 7% per annum and is secured by
a pledge of the Company's equity interest in Cobb LLC.
Promissory Note payable to Cobb Directional Drilling Company, Inc.--This
note matures on March 23, 1998, bears interest at a rate of 7-1/2% per annum,
calls for quarterly principal payments of $83,000 and is secured by a pledge
of a one-third equity interest in Cobb LLC. A related promissory note for
$1,154,000 was repaid on July 1, 1995.
Promissory Notes payable to former stockholders of Sharewell--These
unsecured notes mature on April 30, 2000 and bear interest at a rate of 8% per
annum. Six of the notes call for quarterly principal payments aggregating
$150,000. The remaining note calls for annual principal payments of $250,000
and a final payment of $913,000 at maturity, and requires that the Company
maintain a minimum consolidated net worth.
Promissory Note and Convertible Promissory Note payable to ENSCO
Technology--These unsecured notes mature on September 30, 2000 and bear
interest at the prime rate (8.5% at December 31, 1995). The Promissory Note
calls for annual principal payments of $712,000, and the Convertible
Promissory Note calls for annual principal payments of $500,000. The terms of
the notes require the Company to maintain a minimum consolidated tangible net
worth and place restrictions on the Company's ability to pay dividends. The
notes also provide that the outstanding principal balances may be called for
prepayment, at ENSCO Technology's option, in the event of a public offering of
the Company's stock or a change in control of the Company (as defined).
The Convertible Promissory Note provides that ENSCO Technology has the
option, at any time, to convert such note, in whole or in part, into shares of
the Company's common stock at a conversion price of $6.91 per share. The
conversion price is subject to adjustment in the event of certain transactions
involving the Company's common stock.
Maturities--Scheduled maturities of long-term debt outstanding at December
31, 1995 are as follows: years ending December 31, 1996--$5,886,000; 1997--
$7,167,000; 1998--$14,784,000; 1999--$5,500,000; 2000--$5,016,000.
Restricted Net Assets of Subsidiaries--Certain debt instruments restrict the
ability of the Company's subsidiaries to transfer assets, make loans and
advances and pay dividends to the Company. The restricted net assets of the
Company's subsidiaries totaled approximately $40,000,000 at December 31, 1995.
Interest Rate Swap Agreement--The interest rate swap agreement has an
outstanding notional amount of $16,578,000 at December 31, 1995 and terminates
on September 29, 2000. The Company pays a fixed rate of 6.22% on the notional
amount and receives a floating rate based on LIBOR. This agreement effectively
changes the interest rate on the Term Note from a floating rate to a fixed
rate of 6.22% plus the applicable margin. The Company does not believe there
is any significant exposure to credit risk due to the creditworthiness of the
counterparty. In the event of nonperformance by the counterparty, the
Company's loss would be limited to any unfavorable interest rate differential.
F-12
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The domestic and foreign components of income before income taxes and
minority interests are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Domestic.......................................... $ 951 $2,217
Foreign........................................... 2,094 1,024
------ ------
$3,045 $3,241
====== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current:
Federal......................................... $ 301 $ 682
State........................................... 41 23
Foreign......................................... 670 170
------ ------
1,012 875
------ ------
Deferred:
Federal......................................... 85 291
------ ------
$1,097 $1,166
====== ======
</TABLE>
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
income taxes and minority interests is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Provision for income taxes at statutory rate..... $1,035 $1,102
Nondeductible goodwill amortization.............. 24 --
Expenses for which no federal tax benefit was
recognized...................................... 29 22
Other............................................ 9 42
------ ------
$1,097 $1,166
====== ======
</TABLE>
F-13
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1995 1994
---- ----
(IN
THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment........................................... $626 $194
Basis difference in foreign subsidiaries, net of foreign tax
credits......................................................... 72 151
Other............................................................ 236 3
---- ----
Total deferred income tax liabilities.......................... 934 348
---- ----
Deferred income tax assets:
Receivables allowance............................................ 65 52
Other............................................................ 52 5
---- ----
Total deferred income tax assets............................... 117 57
---- ----
Net deferred income tax liabilities................................ $817 $291
==== ====
</TABLE>
No valuation allowances are required for the deferred income tax assets. The
deferred income tax assets are included in prepaid expenses and other current
assets, and the deferred income tax liabilities are included in other
noncurrent liabilities, on the consolidated balance sheet.
8. MINORITY INTERESTS
Minority interests at December 31, 1995 represent minority stockholders'
interests in certain foreign subsidiaries of acquired companies. Minority
interests at December 31, 1994 represent the interest in Cobb LLC held by
Cobb's former stockholder.
9. STOCKHOLDERS' EQUITY
Stock options--In 1994, the Company adopted the Drilex Holdings Corp. 1994
Stock Option Plan (the "1994 Stock Option Plan"). Up to 226,226 shares of the
Company's common stock are reserved for awards or for payment of rights
granted to certain employees and to non-employee directors of the Company and
its subsidiaries. These options are exercisable ratably over periods of three
to four years beginning one year from the date of grant. During 1994, options
to purchase 62,911 shares of common stock were granted at an exercise price of
$5.53 per share (the estimated fair value at the date of grant). None of these
options were exercisable at December 31, 1994. During 1995, 2,420 options and
22,624 options were granted at exercise prices of $5.53 and $11.05 per share,
respectively (which were equal to or in excess of the estimated fair value at
the date of grant), no options were exercised, and options to purchase 12,099
shares were canceled. At December 31, 1995, options to purchase 75,856 shares
of the Company's common stock were outstanding at exercise prices of $5.53 to
$11.05 per share, and 12,905 of such options were exercisable.
Warrants--On May 5, 1995, in connection with the Sharewell acquisition (see
Note 2), the Company issued warrants to purchase an aggregate 180,981 shares
of its common stock at an exercise price of $5.53 per share. The warrants are
exercisable, in whole or in part, at any time until May 5, 2000. None of the
warrants were exercised during 1995.
F-14
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Shares reserved for issuance--At December 31, 1995, the Company had the
following shares of common stock reserved for future issuance:
<TABLE>
<S> <C>
Convertible Promissory Note payable to ENSCO Technology............... 361,962
1994 Stock Option Plan................................................ 226,226
Warrants.............................................................. 180,981
-------
769,169
=======
</TABLE>
Restrictions on payment of dividends--As of December 31, 1995, the Company
is precluded from paying dividends on its common stock by the provisions of
various debt agreements (see Note 6).
10. RELATED PARTY TRANSACTIONS
The Company purchases equipment and services from parties related to Cobb's
former stockholder. Charges for such purchases amounted to $629,000 and
$178,000 for the periods ended December 31, 1995 and 1994, respectively.
In connection with the ENSCO Technology acquisition (see Note 2), the
Company was charged a $150,000 fee for investment banking and consulting
services by an affiliate of DRLX Partners. This fee is included in other
accrued liabilities on the Company's consolidated balance sheet as of December
31, 1995.
Included in other receivables at December 31, 1995 are advances to employees
of the Company amounting to $334,000.
11. EMPLOYEE BENEFIT PLAN
On April 1, 1994, the Company adopted a defined contribution savings plan
covering substantially all of its employees. Employees may elect to contribute
up to 15% of their eligible compensation to the plan. For those participants
who have elected to make voluntary contributions to the plan, the Company's
contributions consist of a matching amount of up to 2% of the eligible
compensation of participants. The cost to the Company of this plan amounted to
$207,000 and $87,000 for the periods ended December 31, 1995 and 1994,
respectively.
12. COMMITMENTS AND CONTINGENCIES
Commitments--Minimum rental commitments under operating leases at December
31, 1995 are as follows: years ending December 31, 1996--$1,123,000; 1997--
$776,000; 1998--$559,000; 1999--$504,000; 2000--$326,000; thereafter--
$1,311,000. Rental expense for operating leases was $993,000 and $565,000 for
the periods ended December 31, 1995 and 1994, respectively.
The Company has a licensing agreement that provides it with a non-exclusive
right to purchase and use certain measurement-while-drilling systems
equipment. Most of this equipment was obtained in connection with the ENSCO
Technology acquisition (see Note 2). As consideration for this license, the
Company is obligated to make annual royalty payments of $360,000 to the
supplier of the equipment. The Company is entitled to receive discounts on the
royalty payments for the ENSCO Technology equipment amounting to $46,000 per
year for the first three years of the agreement and $260,000 per year for the
fourth and fifth years of the agreement. The terms of this licensing agreement
are to be reviewed and renegotiated in September 2000.
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.
F-15
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily cash and cash equivalents and trade receivables.
The Company mitigates its risk with respect to cash and cash equivalents by
maintaining such deposits at high credit quality financial institutions and
monitoring the credit ratings of those institutions.
The Company derives a significant portion of its revenues from sales and
services to customers in the energy industry. In addition, the Company has
concentrations of operations in certain geographic areas (primarily Texas, the
Louisiana Gulf Coast, Venezuela and the United Kingdom). At December 31, 1995,
outstanding receivables from two significant customers accounted for
approximately 13% and 11% of total trade receivables, respectively. The
Company mitigates its concentrations of credit risk with respect to trade
receivables by actively monitoring the creditworthiness of its customers.
Historically, the Company has not incurred any significant credit related
losses.
14. GEOGRAPHIC INFORMATION
Summarized information by geographic area is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Net revenues from unaffiliated customers:
Domestic........................................ $42,557 $18,460
Latin America................................... 6,635 2,544
Europe.......................................... 5,378 2,023
Other foreign................................... 2,956 2,182
------- -------
Total......................................... $57,526 $25,209
======= =======
Operating income (loss):
Domestic........................................ $ 3,180 $ 3,287
Latin America................................... 355 522
Europe.......................................... 1,292 42
Other foreign................................... 153 (132)
------- -------
Total......................................... $ 4,980 $ 3,719
======= =======
Identifiable assets:
Domestic........................................ $59,492 $28,836
Latin America................................... 7,170 2,560
Europe.......................................... 4,633 2,518
Other foreign................................... 6,459 2,378
------- -------
Total......................................... $77,754 $36,292
======= =======
</TABLE>
Sales and transfers among geographic areas are not significant. Included in
results of operations are aggregate foreign currency translation and
transaction gains (losses) of $(43,000) and $30,000 for the periods ended
December 31, 1995 and 1994, respectively. Export sales were less than 10% of
total net sales for the periods ended December 31, 1995 and 1994.
F-16
<PAGE>
DRILEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the periods ended December 31, 1995 and 1994, the Company had revenues
from one customer of $5,844,000 and $2,604,000, respectively.
15. SUBSEQUENT EVENTS
On May 7, 1996, in anticipation of a proposed initial public offering of the
Company's common stock (the "Proposed Offering"), the Company's Board of
Directors approved resolutions to authorize the filing of a Registration
Statement on Form S-1 with the United States Securities and Exchange
Commission. In connection with the Proposed Offering, the Board also approved
the following resolutions: (i) an increase in the number of authorized common
shares to 25,000,000 and a stock split to effect the issuance of approximately
1.81 shares of common stock in exchange for each share of common stock then
outstanding; (ii) the retirement of all treasury shares of common stock
purchased since the Company's inception; (iii) the authorization of 10,000,000
shares of $.01 par value preferred stock; and (iv) the amendment and
restatement of the 1994 Stock Option Plan to, among other things, authorize
the issuance of up to 420,000 shares of common stock pursuant to awards made
thereunder. The effect of the stock split and the retirement of treasury
shares has been presented retroactively to the date of inception in the
Company's consolidated financial statements.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary quarterly financial information for the year ended December 31, 1995
and the period from March 30, 1994 (inception) to December 31, 1994 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Net revenues..................... $10,527 $12,343 $14,493 $20,163
Operating income................. 660 1,023 1,411 1,886
Net income....................... 205 361 574 644
Net income per common and common
equivalent share................ .05 .08 .13 .14
1994:
Net revenues..................... $ 6,689 $ 7,770 $10,750
Operating income................. 846 1,101 1,772
Net income....................... 426 631 952
Net income per common and common
equivalent share................ .18 .17 .22
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Drilex Corporation:
We have audited the accompanying consolidated statements of operations and
cash flows of Drilex Systems, Inc. and subsidiaries (the "Company") for the
period from January 1, 1994 to March 30, 1994 and the year ended December 31,
1993. These statements of operations and cash flows are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
cash flows are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statements of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations
and cash flows. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated statements of operations and cash flows of
the Company and its subsidiaries present fairly, in all material respects, the
results of their operations and their cash flows for the period from January
1, 1994 to March 30, 1994 and the year ended December 31, 1993 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996
F-18
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994 YEAR ENDED
TO MARCH 30, DECEMBER 31,
1994 1993
--------------- ------------
<S> <C> <C>
Net revenues:
Rental and service.............................. $5,479 $23,371
Equipment sales................................. 878 2,500
------ -------
6,357 25,871
------ -------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service............................ 3,042 13,094
Equipment sales............................... 322 999
Selling, general and administrative expenses.... 2,029 8,286
Depreciation and amortization................... 775 3,107
------ -------
6,168 25,486
------ -------
Operating income.................................. 189 385
Interest and other expense, net................... (481) (1,893)
------ -------
Loss before income taxes.......................... (292) (1,508)
Income tax provision.............................. (3) (152)
------ -------
Net loss.......................................... $ (295) $(1,660)
====== =======
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994 YEAR ENDED
TO MARCH 30, DECEMBER 31,
1994 1993
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (295) $(1,660)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 775 3,107
Deferred income tax provision (benefit)....... 131 (252)
(Increase) decrease in:
Accounts receivable......................... 1,386 (2,180)
Inventory................................... (249) 328
Prepaids and other assets................... (50) 62
Increase (decrease) in:
Accounts payable............................ (490) 344
Accrued liabilities......................... (545) 528
------ -------
Net cash provided by operating activities. 663 277
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (195) (252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from parent...................... 28 503
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 496 528
------ -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 879 351
------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $1,375 $ 879
====== =======
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of drilling equipment inventory to
property and equipment......................... $ 804 $ 2,119
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Drilex Systems, Inc. (the "Company") was a wholly owned subsidiary of
MascoTech, Inc. ("MascoTech") during the period from January 1, 1994 to March
30, 1994 and the year ended December 31, 1993. Effective March 30, 1994,
Drilex Corporation ("Drilex," formerly Drilex Holdings Corp.), an unrelated
third party, entered into an Asset Purchase Agreement with MascoTech, under
which Drilex purchased all of the Company's common stock and assets and
assumed all of the Company's liabilities. The Company manufactures, sells,
leases, and services directional drilling equipment, primarily for the oil
field services industry. As used herein, the term "Company" refers to Drilex
Systems, Inc. and its subsidiary companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The accompanying consolidated statements of
operations and cash flows include the accounts of the Company and its
subsidiaries for the period from January 1, 1994 to March 30, 1994 ("three-
month period") and for the year ended December 31, 1993. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments with original maturities at purchase of
three months or less.
Inventories--Inventories consist of parts to support directional drilling
equipment and work-in-process which are stated at the lower of cost, based on
a first-in first-out ("FIFO") basis, or market. Inventory costs represent
invoice or production cost. Production costs include materials, labor and
manufacturing overhead.
Revenue Recognition--The Company generally recognizes revenue when services
are rendered or products are shipped.
Property and Equipment--Property and equipment is stated at cost, net of
accumulated depreciation. Additions, renewals and improvements are
capitalized, while maintenance and repairs are expensed. Upon the sale or
retirement of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is recognized.
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of assets as follows:
<TABLE>
<CAPTION>
ASSET YEARS
----- -----
<S> <C>
Buildings........................................................... 40
Rental tools........................................................ 5-7
Machinery and equipment............................................. 3-10
Furniture and fixtures.............................................. 5-7
</TABLE>
The Company recorded depreciation expense of approximately $624,000 and
$2,511,000 for the three-month period ended March 30, 1994 and the year ended
December 31, 1993, respectively.
Intangible Assets--The Company has certain intangible assets, including
patents and goodwill. Amortization of these assets is provided on a straight-
line basis over their estimated useful lives, which range from five to fifteen
years.
Income Taxes--The Company was included in the consolidated U.S. federal
income tax returns of MascoTech for the periods presented in these financial
statements. Through March 30, 1994, current federal income taxes (benefits)
were recognized based on the income or losses utilized in MascoTech's
consolidated
F-21
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
income tax return. The Company's federal, state, and foreign taxes are
presented on a stand-alone basis in the consolidated financial statements in
conformity with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
for recording deferred taxes. The asset and liability approach accounts for
deferred income taxes by applying statutory rates in effect at the balance
sheet date to the temporary differences between the financial statement basis
and tax basis of such assets and liabilities. The resulting deferred tax
assets and liabilities are adjusted to reflect changes in tax laws or rates.
Foreign Currency Translation--The Company uses the United States dollar as
the functional currency for its foreign operations. Foreign currency
translation and transaction gains and losses are recognized in consolidated
income as incurred.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INCOME TAXES
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Current:
U.S. Federal.................................. $(137) $379
Foreign....................................... 9 25
Deferred--U.S. Federal.......................... 131 (252)
----- ----
Total provision for income taxes............ $ 3 $152
===== ====
</TABLE>
Temporary differences giving rise to the deferred tax provision related
primarily to property and equipment.
The differences between the income tax expense (benefit) recorded for the
three-month period ended March 30, 1994 and the year ended December 31, 1993,
and the income tax computed using the U.S. federal statutory rate of 34% were
as follows (in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
At statutory income tax rate................... $(99) $(513)
Foreign losses for which no benefit was
recognized.................................... 92 634
Meals and entertaiment......................... 1 6
Foreign taxes.................................. 9 25
---- -----
Total...................................... $ 3 $ 152
==== =====
</TABLE>
As discussed in Note 2, the Company was included in the consolidated U.S.
federal tax returns of MascoTech for the periods presented in these financial
statements. Accordingly, payments or benefits related to
F-22
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the U.S. federal current tax provision (benefit) were recorded as an
increase/decrease to the payable to MascoTech. Foreign income tax payments of
$9,000 and $18,000 were made during the three-month period ended March 30,
1994 and year ended December 31, 1993, respectively.
4. RELATED PARTY
The Company conducted numerous transactions with MascoTech, the net effect
of which resulted in either increases or decreases in its noncurrent payable
to MascoTech which was subject to interest charges at a rate determined by
MascoTech. In addition, MascoTech provided the Company with certain general
and administrative services which were allocated by MascoTech based on a
predetermined formula. The Company recorded interest expense and general and
administrative expenses allocated from MascoTech as follows (in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Interest........................................ $482 $1,892
General and administrative...................... 135 492
</TABLE>
5. EMPLOYEE BENEFITS
During the periods presented, certain of the Company's employees were
eligible to participate in a profit sharing plan sponsored by MascoTech (the
Masco Industries, Inc. Master Defined Contribution Plan). Profit sharing
contributions required approval by MascoTech's Board of Directors and could
range from 0% to 15% of all eligible employees' compensation for the plan
year. The Company recorded profit sharing contribution expense for the three-
month period ended March 30, 1994 of approximately $32,000. No contributions
were recorded for the year ended December 31, 1993.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily cash and cash equivalents and trade receivables.
The Company mitigates its risk with respect to cash and cash equivalents by
maintaining such deposits at high credit quality financial institutions and
monitoring the credit ratings of those institutions.
The Company derives a significant portion of its revenues from sales and
services to customers in the energy industry. In addition, the Company has
concentrations of operations in certain geographic areas (primarily Texas, the
Louisiana Gulf Coast, Venezuela and the United Kingdom). During the three-
month period ended March 30, 1994 and the year ended December 31, 1993, the
Company derived approximately 16% and 17% of its revenues, respectively, from
a single customer. The Company mitigates its concentrations of credit risk
with respect to trade receivables by actively monitoring the creditworthiness
of its customers.
F-23
<PAGE>
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments--The Company leases office and warehouse space under
noncancellable operating leases. The annual future minimum lease payments
under these leases are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $ 702
1996............................................................. 677
1997............................................................. 643
1998............................................................. 549
1999............................................................. 504
Thereafter........................................................ 2,375
------
Total......................................................... $5,450
======
</TABLE>
Rental expense incurred for all operating leases during the three-month
period ended March 30, 1994 and the year ended December 31, 1993 totaled
$167,000 and $679,000, respectively.
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.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Drilex Corporation:
We have audited the accompanying consolidated statements of income and cash
flows of ENSCO Technology Company and subsidiary (the "Company") for the nine-
month period ended September 30, 1995 and the year ended December 31, 1994.
These statements of income and cash flows are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of income and cash
flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements
of income and cash flows. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of income and cash
flows. We believe that our audits of the statements of income and cash flows
provide a reasonable basis for our opinion.
In our opinion, such consolidated statements of income and cash flows of the
Company and its subsidiary present fairly, in all material respects, the
results of their operations and their cash flows for the nine-month period
ended September 30, 1995 and the year ended December 31, 1994 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996
F-25
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Revenue.............................................. $13,367 $16,522
Costs and expenses:
Operating expenses................................. 11,012 13,060
Depreciation and amortization...................... 1,797 2,403
------- -------
12,809 15,463
------- -------
Income from operations............................... 558 1,059
Other income (expenses):
Gain on disposal of assets......................... 608 474
Gain on sale of stock of subsidiary................ -- 670
Currency transaction losses........................ (2) (237)
Minority interest in loss of subsidiary............ 62 22
Other income....................................... 50 30
------- -------
718 959
------- -------
Income before income taxes........................... 1,276 2,018
Provision for income taxes........................... (52) (105)
------- -------
Net income........................................... $ 1,224 $ 1,913
======= =======
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $1,224 $1,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,797 2,403
Minority interest in loss of subsidiary......... (62) (22)
Other........................................... -- 150
Gain on disposal of assets...................... (608) (474)
Gain on sale of stock of subsidiary............. -- (670)
(Increase) decrease in:
Accounts receivable--trade.................... (1,453) 1,176
Inventory..................................... (3) (112)
Prepaid and other current assets.............. 92 (105)
Increase (decrease) in:
Accounts payable.............................. 449 138
Accrued expenses.............................. (195) (196)
Income tax payable............................ (53) 105
------ ------
Net cash provided by operating activities... 1,188 4,306
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (3,943) (2,788)
Proceeds from the sale of assets.................. 1,254 1,068
------ ------
Net cash used in investing activities....... (2,689) (1,720)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock by a subsidiary....... -- 1,200
Net borrowings from (repayments to) related party. 1,522 (3,574)
------ ------
Net cash provided by (used in) financing
activities................................. 1,522 (2,374)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS........... 21 212
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.... 358 146
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......... $ 379 $ 358
====== ======
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES--Reduction of payable to
related party due to capital contribution from
related party..................................... $9,095 $ --
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
ENSCO Technology Company (the "Company") was a subsidiary of ENSCO
International Incorporated ("ENSCO") during the nine months ended September
30, 1995 and the year ended December 31, 1994. Effective September 30, 1995,
ENSCO entered into an Asset Purchase Agreement with Drilex Corporation
("Drilex") under which substantially all of the assets of the Company were
sold to Drilex. The Company provides horizontal drilling and measurement while
drilling ("MWD") services to the petroleum industry. MWD tools provide
directional and locational readings to drillers. The Company's operations are
presently conducted in the United States, Canada, and the United Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments which have an original maturity at
purchase of three months or less.
Revenue Recognition--The Company generally recognizes revenue when services
are rendered.
Inventory--Inventory consists primarily of replacement parts and supplies
held for use in the operations of the Company. Inventory is stated at the
lower of cost or estimated market value.
Property and Equipment--Property and equipment are recorded at cost.
Additions, improvements, and renewals that significantly add to production
capacity or extend the life of an asset are capitalized. Maintenance, repairs,
and minor renewals are charged to expense as incurred.
The cost of property sold or retired is credited to the asset account, and
the related depreciation is charged to the accumulated depreciation account.
Gain or loss resulting from the sale or retirement is included in income. For
the nine months ended September 30, 1995 and the year ended December 31, 1994,
the Company recorded gains of $608,000 and $474,000, respectively, on asset
retirements. These gains relate primarily to "lost-in-hole" equipment
reimbursements whereby a customer reimburses the Company for the replacement
cost of MWD tools that become irretrievable during the drilling operations.
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of the various classes of assets as follows:
<TABLE>
<CAPTION>
ASSETS YEARS
------ -----
<S> <C>
Technology equipment................................................ 3-5
Furniture and fixtures and other equipment.......................... 5-7
</TABLE>
Income Taxes--The Company was included in the consolidated U.S. federal
income tax return of ENSCO for the periods presented in these financial
statements. The Company received no benefit for losses incurred. The Company's
federal, state, and foreign taxes are presented on a stand-alone basis in the
consolidated financial statements in conformity with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires an
asset and liability approach for recording deferred taxes. The asset and
liability approach accounts for deferred income taxes by applying statutory
rates in effect at the balance sheet date to the differences between the
financial statement basis and tax basis of such assets and liabilities. The
resulting deferred tax assets and liabilities are adjusted to reflect changes
in tax laws or rates.
F-28
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minority Interest--The Company's consolidated financial statements include
ENSCO Technology Canada, Inc. ("ETC") for all periods presented. In October
1994, the Company sold a 30% interest in ETC to an unrelated third party. (See
Note 5.)
Currency Translation--The Company's primary functional currency is the U.S.
dollar. ETC uses the Canadian dollar as its functional currency. ETC
translates its assets and liabilities at year end exchange rates while income
and expense accounts are translated at average exchange rates. Translation
adjustments are reflected in the Company's stockholders' equity section as
"cumulative translation adjustment." Currency transaction gains and losses are
included in current operating results.
Sale of Subsidiary Stock--The Company has adopted the income statement
recognition method as its accounting policy with respect to gains and losses
associated with the sale of subsidiary stock. A gain of $670,000 is included
in the Company's consolidated statement of operations for the year ended
December 31, 1994 related to the sale of stock of ETC. (See Note 5.)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INCOME TAXES
There was no provision for U.S. federal income taxes for the nine-month
period ended September 30, 1995 and the year ending December 31, 1994 due to
the utilization of net operating loss carryforwards that had previously been
fully reserved for through a valuation allowance. The Company had established
a 100% valuation allowance against net operating loss carryforwards available
at December 31, 1993, as there was not sufficient evidence to support future
utilization of such deferred tax assets at that time. Since the September 30,
1995 sale of the Company's assets (see Note 1) was not a stock sale, the
Company's unutilized net operating loss carryforwards of $700,000 at September
30, 1995 will have no future benefit to Drilex, the Company's new owner.
Foreign tax expense of $52,000 and $105,000 was recognized for income earned
on jobs performed in the United Kingdom during the nine-month period ending
September 30, 1995 and the year ended December 31, 1994, respectively.
The differences between the income tax expense recorded for the periods
ended September 30, 1995 and December 31, 1994, and the income tax computed
using the U.S. federal statutory rate of 34% were as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
At statutory income tax rate.................. $434 $ 686
Foreign losses for which no benefit was
recognized................................... 53 345
Change in valuation allowance................. (487) (1,031)
Foreign taxes................................. 52 105
---- ------
Total..................................... $ 52 $ 105
==== ======
</TABLE>
Deferred income taxes reflected the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences
resulted primarily from the use of accelerated depreciation methods for
federal income tax purposes, which gave rise to a book basis in fixed assets
greater than the tax basis.
F-29
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the nine-month period ending September 30, 1995 and the year ending
December 31, 1994, the Company made no income tax payments to the U.S.
government and payments of $105,000 and $0, respectively, to foreign
governments.
4. RELATED PARTIES
During the nine-month period ending September 30, 1995 and the year ending
December 31, 1994, substantially all of the Company's payables were paid by
ENSCO and substantially all of the Company's cash receipts were received into
ENSCO's corporate bank account. Such amounts were recorded as increases and
decreases, respectively, in the Company's payable to ENSCO. As of September
30, 1995 and December 31, 1994, the Company had payables to ENSCO of
$5,422,000 and $12,995,000, respectively. During the nine-month period ending
September 30, 1995, ENSCO made a capital contribution to the Company of
$9,095,000 by reducing the Company's payable to ENSCO.
ENSCO also provided certain general and administrative services for the
Company including accounting, data processing, legal, and other administrative
and managerial functions. The accompanying consolidated statements of income
do not include any allocations from ENSCO for such services or for the cost of
capital related to the Company's payable to ENSCO.
5. GAIN ON SALE OF SUBSIDIARY STOCK
In October 1994, the Company sold 30% of the common stock of ETC to Lateral
Vector Resources, Inc. ("LVR"), a Canadian company, for $1.2 million in cash.
A gain of $670,000 was recognized on the sale. The purpose of the sale was to
combine forces with LVR to conduct horizontal/directional drilling services in
Canada and certain areas of the United States.
6. BENEFIT PLANS
During the periods presented, certain of the Company's employees were
eligible to participate in a profit sharing plan sponsored by ENSCO (the
"ENSCO Savings Plan"). Profit sharing contributions require approval by
ENSCO's Board of Directors and may be in cash or grants of ENSCO's common
stock. The Company recorded profit sharing contribution provisions for the
nine-month period ended September 30, 1995 and the year ended December 31,
1994 of $81,000 and $75,000, respectively.
The ENSCO Savings Plan included a 401(k) savings plan feature, which allowed
eligible employees with more than three months of service to make tax deferred
contributions to the plan. ENSCO made matching contributions equivalent to 25%
of all employee contributions, subject to a maximum employee contribution of
6% of their compensation, which amounted to $57,000 and $32,000 for the nine-
month period ended September 30, 1995 and the year ended December 31, 1994,
respectively.
7. COMMITMENTS AND CONTINGENCIES
License and Lease Commitments--The Company was a party to license agreements
with certain entities from which the Company purchased its MWD equipment.
These license agreements gave the Company a non-exclusive right to use the MWD
systems. Under these agreements, the Company was required to make 20 quarterly
license fee payments on each of its 17 MWD systems, for a total payment of
$76,500 per system. Total license fee commitments remaining under these
arrangements prior to the sale of the Company's assets (see Note
F-30
<PAGE>
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) were $1,071,000. The license agreements were changed after the asset sale
to reflect an annual fee of $18,000 per MWD system (or $306,000 annually for
the MWD systems covered by the agreements). Expense amounts recorded related
to the license fees totaled $92,000 and $197,000 for the nine-month period
ended September 30, 1995 and the year ended December 31, 1994, respectively.
The Company has a drilling motor rental and license agreement with the
Company's supplier of drilling motors. The agreement, which expires December
31, 1996, grants to the Company the right and license to use and rent to
customers certain drilling motors manufactured by this supplier. The Company
is required to pay for each calendar quarter, as a minimum, a motor rental and
license fee that considers the number of motors available, a defined revenue
rate per hour and defined utilization percentage of motors available and
number of hours of use per motor. During the nine-month period ended September
30, 1995 and the year ended December 31, 1994, the Company recorded motor
rental expense of $3,007,000 and $3,764,910, respectively, and exceeded the
minimum utilization rate in each quarter.
The Company leases a facility under an operating lease agreement expiring
September 30, 1998, which requires annual rent of $60,000.
Contingencies--The Company is involved in various lawsuits and subject to
various claims and proceedings encountered in the normal conduct of business.
In the opinion of management, any uninsured losses that might arise from those
lawsuits and proceedings would not have a material adverse effect on the
business or consolidated financial position of the Company.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Drilex Corporation:
We have audited the accompanying consolidated statements of operations and
cash flows of Sharewell, Inc. and subsidiaries (the "Company") for the years
ended March 31, 1995 and 1994. These statements of operations and cash flows
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these statements of operations and cash flows based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of operations and
cash flows. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the statements of operations and cash flows. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations and cash flows
present fairly, in all material respects, the results of the Company's
operations and its cash flows for the years ended March 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated statements of operations and cash
flows, the Company changed its method of accounting for income taxes,
effective April 1, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
DELOITTE & TOUCHE LLP
Houston, Texas
June 23, 1995
F-32
<PAGE>
SHAREWELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
--------------
1995 1994
------ ------
<S> <C> <C>
Revenue:
Sales and service............................................ $7,021 $6,137
Rental....................................................... 2,729 3,210
------ ------
9,750 9,347
Cost of revenue................................................ 5,951 5,491
------ ------
Gross profit................................................... 3,799 3,856
Depreciation and amortization.................................. 985 831
Selling, general and administrative expenses................... 2,063 2,594
------ ------
Income from operations......................................... 751 431
Interest and other expense, net................................ (431) (338)
Minority interest.............................................. (66) (64)
------ ------
Income before income taxes and cumulative effect of a change in
accounting principle.......................................... 254 29
Income tax provision........................................... (129) (49)
------ ------
Income (loss) before cumulative effect of a change in
accounting principle.......................................... 125 (20)
Cumulative effect of a change in accounting principle.......... -- (43)
------ ------
Net income (loss).............................................. $ 125 $ (63)
====== ======
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
SHAREWELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
----------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 125 $ (63)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 985 831
Deferred income tax provision (benefit).................. 57 (94)
Minority interest........................................ 66 64
Loss on sale of assets................................... 61 --
Cumulative effect of a change in accounting principles... -- 43
Other.................................................... -- (1)
Changes in the following operating assets and
liabilities:
Decrease (increase) in:
Accounts and notes receivable--trade................. (251) 264
Inventory............................................ (277) (47)
Other current assets................................. 291 --
Income taxes receivable.............................. (128) (74)
Increase (decrease) in:
Accounts payable--trade and accrued expenses......... (432) (3)
Other long-term liabilities.......................... 127 341
------- -------
Net cash provided by operating activities........... 624 1,261
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (664) (1,039)
Proceeds from sale of assets............................... 385 --
------- -------
Net cash used in investing activities............... (279) (1,039)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable and long-term debt................ (1,170) (1,563)
Proceeds from long-term debt............................... 849 1,170
------- -------
Net cash used in financing activities............... (321) (393)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 24 (171)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 506 677
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 530 $ 506
======= =======
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
SHAREWELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sharewell, Inc. (the "Company," formerly Shareco, Inc.) was a holding
company formed on January 19, 1993 by the management of Sharewell Horizontal
Systems Limited ("SHSL") and Sharewell, Inc. (collectively, the
"Subsidiaries") to facilitate the buyout (the "Buyout") of the former
stockholders of the Subsidiaries. During May 1995, Drilex Corporation
(formerly Drilex Holdings Corp.), an unrelated third party, purchased all the
Company's outstanding common stock.
The Company engages in domestic and international sales, rental, and
operation of directional drilling guidance tools. The tools are used primarily
in oil and gas exploration and pipeline river crossings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The accompanying consolidated statements of
operations and cash flows include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments that have a maturity at purchase of
three months or less.
Inventory--Inventory consists of directional drilling guidance tools stated
at the lower of cost, based on the specific identification method, or market.
Market is defined as the current replacement cost, except that market does not
exceed the net realizable value and is not less than the net realizable value
reduced by an allowance for an approximate normal profit margin.
Property and Equipment--Property and equipment are stated at cost.
Additions, improvements and major renewals are capitalized. Maintenance,
repairs and minor renewals are expensed as incurred. The cost of property sold
or retired is credited to the asset account, and the related depreciation is
charged to the accumulated depreciation account. Gain or loss resulting from
either the sale or retirement is included in earnings.
Depreciation of property and equipment is provided on a straight-line basis
over their estimated useful lives that range from 3 to 10 years. Depreciation
expense for the years ended March 31, 1995 and 1994 were approximately
$475,000 and $398,000, respectively.
Income Taxes--The deferred U.S. federal income taxes are calculated based on
the differences between the financial statements basis and the tax basis of
the Company's assets and liabilities. The Company is also taxed by the U.K. on
its income from sources in the U.K.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109--Accounting for Income Taxes ("SFAS
No. 109"). SFAS No. 109 requires a balance sheet approach (the "asset and
liability approach") for recording deferred taxes instead of the income
statement approach previously required by Accounting Principles Board Opinion
No. 11. The asset and liability approach accounts for deferred income taxes by
applying statutory tax rates in effect at the balance sheet date to the
difference between the financial statement basis and the tax basis of assets
and liabilities. The resulting deferred tax assets and liabilities are
adjusted to reflect changes in tax laws or rates. The Company adopted SFAS No.
109 effective April 1, 1993, the cumulative effect of which was charged
against income during the year ended March 31, 1994.
F-35
<PAGE>
SHAREWELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency Translation--The Company translates assets and liabilities
of SHSL, whose local currency is considered the functional currency, into U.S.
dollars at exchange rates in effect at the balance sheet date; revenues and
expenses are translated at the average exchange rate for the year. Gains and
losses resulting from the foreign currency translation are included as an
adjustment to stockholders' equity.
Research and Development Costs--Research and development costs were expensed
as incurred. The total research and development costs incurred by the Company
during 1994 totaled approximately $181,000. There were no research and
development costs incurred during 1995.
Statement of Cash Flows--The consolidated statements of cash flows are
prepared using the indirect method. Interest payments of approximately
$380,000 and $373,000 were made during the years ended March 31, 1995 and
1994, respectively.
3. INCOME TAXES
The provision (benefit) for income taxes consisted of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
YEARS
ENDED
MARCH 31,
----------
1995 1994
---- ----
<S> <C> <C>
Current:
U.S. federal................................................ $(56) $ 80
Foreign..................................................... 128 63
Deferred:
U.S. federal................................................ 57 (89)
Foreign..................................................... -- (5)
---- ----
$129 $ 49
==== ====
</TABLE>
The difference between the income tax expense recorded for 1995 and 1994 and
the income tax computed using the U.S. federal statutory rate of 34% resulted
from permanent differences in deductibility of meals and entertainment
expenses, the amortization of goodwill for financial and tax reporting
purposes and the difference between U.S. federal and foreign statutory tax
rates.
The Company made income tax payments of approximately $108,000 and $143,000
during the years ended March 31, 1995 and 1994, respectively.
4. MAJOR SUPPLIER
During the periods presented, the Company purchased a substantial amount of
the equipment used in its rental business, as well as equipment held for
resale from one supplier under an exclusive marketing agreement for certain
tools. During the years ended March 31, 1995 and 1994, purchases from this
supplier totaled approximately $891,000 and $921,000, respectively. In
addition, during such periods the Company paid a royalty based on revenue
generated from the use of a product licensed from this supplier. Royalty
expense, included in cost of revenue, was approximately $184,000 and $83,000
during the years ended March 31, 1995 and 1994, respectively.
F-36
<PAGE>
SHAREWELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS
The Company leases office space under a noncancellable long-term operating
lease which expires June 30, 1996. The Company incurred rent expense of
approximately $39,000 and $54,000 during the years ended March 31, 1995 and
1994, respectively.
Future minimum rental payments are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
----------------------
<S> <C>
1996................................................................ $41
1997................................................................ 10
---
$51
===
</TABLE>
At March 31, 1995, the Company had a compensation commitment of
approximately $88,000 to one employee to be paid in quarterly installments of
approximately $13,000 through March 31, 1997.
6. RELATED PARTIES
The Company conducted transactions with the former stockholder of the
Subsidiaries (the "Former Stockholders"). The following table reflected the
approximate amounts of such transactions as of and for the years ended March
31, 1995 and 1994, respectively (in thousands of dollars):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Notes payable to Former Stockholder............................ $3,902 $4,417
Accounts receivable from Former Stockholder.................... 177 354
Compensation expense paid to Former Stockholder................ 237 237
Interest expense paid to Former Stockholder.................... 255 286
Compensation expense paid to Former Stockholder................ 238 69
</TABLE>
7. STOCK OPTION AGREEMENTS
During February 1993, the Company entered into stock option agreements with
two employees of Sharewell, which granted the employees options to purchase
5,000 shares of the Company's common stock at an option price of $.01 per
share, which was the estimated fair market value at the date of grant. Such
options were exercised concurrently with the May 1995 acquisition by Drilex
Corporation (see Note 1).
F-37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
The Company............................................................... 14
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Historical Financial and Other Data.............................. 19
Unaudited Pro Forma Condensed Consolidated Statement of Income............ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 28
Management................................................................ 41
Certain Transactions and Relationships.................................... 46
Security Ownership of Certain Beneficial Owners and Management............ 48
Shares Eligible for Future Sale........................................... 49
Description of Capital Stock.............................................. 50
Underwriting.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 54
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
[DRILEX CORPORATION LOGO APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than underwriting discounts
and commissions) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................. $15,069
NASD Filing Fee..................................................... 4,870
NASDAQ National Market Fees......................................... *
Printing Expenses................................................... *
Legal Fees and Expenses............................................. *
Accountants' Fees and Expenses...................................... *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent and Registrar Fees................................... *
Miscellaneous Expenses.............................................. *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
II-1
<PAGE>
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL is amended to
authorize the further elimination or limitation of the liability of
II-2
<PAGE>
directors, then the liability of a director of the Company, in addition to the
limitation on personal liability described above, shall be limited to the
fullest extent permitted by the amended DGCL. Further, any repeal or
modification of such provision of the Restated Certificate of Incorporation by
the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
Bylaws
The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she or a person of whom he or she is the
legal representative, is or was or has agreed to become a director or officer
of the Company or is or was serving or has agreed to serve at the request of
the Company as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving or having agreed to serve as a director
or officer, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the DGCL, as the same exists or may thereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment) against all
expense, liability and loss (including without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to serve in the capacity which initially entitled such person
to indemnity thereunder and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Company. The
Bylaws further provide that the right to indemnification conferred thereby
shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a current, former or proposed director or
officer in his or her capacity as a director or officer or proposed director
or officer (and not in any other capacity in which service was or is or has
been agreed to be rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such indemnified person, to
repay all amounts so advanced if it shall ultimately determine that such
indemnified person is not entitled to be indemnified under the Bylaws or
otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in the Bylaws.
Indemnification Agreements
The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements provide that the Company shall
indemnify the director and hold him harmless from any losses and expenses
which, in type or amount, are not insured under the directors and officers'
liability insurance maintained by the Company, and generally indemnifies the
director against losses and expenses as a result of a claim or claims made
against him for any breach of duty, neglect, error, misstatement, misleading
statement, omission or other act done or wrongfully attempted by the director
or any of the foregoing alleged by any claimant or any claim against the
director solely by reason of him being a director or officer of the Company,
subject to certain exclusions. The Indemnification Agreements also provide
certain procedures regarding the right to indemnification and for the
advancement of expenses.
II-3
<PAGE>
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company has obtained a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities of the Company that were sold by the Company within the past
three years and not registered with the Commission are described below.
On March 31, 1994, Drilex Systems, Inc., a subsidiary of the Company, issued
to MascoTech, Inc. 500 shares of preferred stock of Drilex Systems, Inc. and
the Company issued a Promissory Note in the principal amount of $6.5 million,
in connection with the Company's purchase of all of the issued and outstanding
common stock of Drilex Systems, Inc. Such 500 shares of preferred stock were
subsequently transferred from MascoTech, Inc. to the stockholders of the
Company. On June 30, 1994, the Company repaid the aggregate principal amount
of and accrued interest on such Promissory Note. On July 11, 1994, the Company
issued 904,905 shares of Common Stock, in the aggregate, to Drilex Partners,
L.P., John Forrest, Charles Denton Kerr II, Robert Stayton and G. Bruce
Broussard, in exchange for the 500 shares of preferred stock of Drilex
Systems, Inc. Such transactions were exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof as transactions not
involving any public offering.
The following table sets forth certain information with respect to certain
unregistered sales of the Company's securities for consideration consisting of
cash and short-term promissory notes (all of which have since been repaid):
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
DATE SHARES CONSIDERATION PURCHASER(S)
---- --------- ------------- ------------
<S> <C> <C> <C>
March 30, 1994 2,026,986 $11,200,000 DRLX Partners, L.P.
John Forrest
June 30, 1994 658,770 3,640,000 DRLX Partners, L.P.
John Forrest
Charles Denton Kerr II
Robert Stayton
G. Bruce Broussard
September 30, 1994 248,849 1,375,000 DRLX Partners, L.P.
September 29, 1995 451,218 3,116,475 Chemical Ventures
DRLX Partners, L.P.
John Forrest
Charles Denton Kerr II
G. Bruce Broussard
Sam Anderson
Todd Caspary
</TABLE>
Such transactions were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.
In connection with Mr. Stayton's resignation, the Company purchased, on June
1, 1995, the shares of Common Stock held by Mr. Stayton. As required by the
stockholders' agreement such shares were subject to, the Company paid $25,740
for such stock.
II-4
<PAGE>
On September 30, 1994, the Company issued to Posi-Trak Mud Motors, Inc. a
promissory note in the principal amount of $1,330,340 million and 241,307
shares of the Company's Common Stock as partial consideration for the purchase
of substantially all of the assets of Posi-Trak Mud Motors, Inc. On March 23,
1995, the Company purchased 144,785 of such 241,307 shares of Common Stock,
for an aggregate purchase price of $1.0 million cash. Such issuances were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as transactions not involving any public offering.
On September 30, 1994, Cobb Directional Drilling Company, L.L.C., a
subsidiary of the Company, issued to Cobb Directional Drilling Company, Inc.
200,000 shares of interest in Cobb Directional Drilling Company, L.L.C. as
partial consideration for the purchase of substantially all of the assets of
Cobb Directional Drilling Company, Inc. On March 23, 1995, the Company issued
to Cobb Directional Drilling Company, Inc. a promissory note in the principal
amount of $1.0 million as partial consideration for the purchase of such
200,000 shares of interests in Cobb Directional Drilling Company, L.L.C. Such
issuances were exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof as transactions not involving any public
offering.
On May 5, 1995, as partial consideration for the purchase of all of the
issued and outstanding capital stock of Sharewell, Inc., the Company issued
promissory notes in the aggregate principal amount of $3,000,000 and warrants
for the purchase, in the aggregate, of 180,981 shares of Common Stock at an
exercise price of $5.53 per share to Sam Anderson, John Teer, Todd Caspary,
Frank Forest, George Kowalczuk and Andy F. Brown. In connection with the
Sharewell Acquisition, the Company also issued a $1.7 million amortizing
promissory note to Frank Forest that replaced, in part, a note originally
issued by Sharewell, Inc. to Mr. Forest. With the exception of the issuances
to Messrs. Kowalczuk and Brown, such issuances were exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as transactions not involving any public offering. The issuances to
Messrs. Kowalczuk and Brown were exempt from the registration requirements of
the Securities Act by virtue of Rule 701 thereunder as issuances of stock
pursuant to contracts relating to compensation.
On September 29, 1995, the Company issued to ENSCO Technology Company a
promissory note in the principal amount of approximately $3.6 million (as
subsequently adjusted to reflect a purchase price adjustment) and a
convertible note in the principal amount of $2.5 million as partial
consideration for the purchase of substantially all of the assets of ENSCO
Technology Company. Such convertible note is convertible into Common Stock at
a conversion price of $6.91 per share. Such issuances were exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as transactions not involving any public offering.
In connection with the exercise of stock options held by John Forrest
effective as of March 31, 1996, the Company issued 10,573 shares of Common
Stock to Mr. Forrest. Such issuance was exempt from the registration
requirements of the Securities Act by virtue of Rule 701 thereunder.
On May , 1996, each outstanding share of Common Stock was reclassified
into 1.809809 shares of Common Stock (the "Stock Split"). All share amounts
reflected in the preceding paragraphs of this Item 15 have been adjusted to
reflect the Stock Split. The Stock Split was exempt from the registration
requirements of the Securities Act as it did not involve a "sale" as defined
in Section 2(3) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Purchase Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company, as amended.
*4.1 Form of certificate representing Common Stock.
*4.2 Amended and Restated Registration Rights Agreement dated as of May 15,
1996, among the Company and the stockholders listed on the signature
pages thereto.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.3 Registration Rights Agreement dated as of October 4, 1995 between the
Company and ENSCO Technology Company.
4.4 Form of Employee Stockholders Agreement among the Company and certain
stockholders of the Company.
4.5 Stockholders' Agreement dated as of September 30, 1994 among the
Company and Posi-Trak Mud Motors, Inc.
4.6 Stockholders' Agreement dated as of May 5, 1995 among the Company and
the stockholders and holders of warrants to purchase Common Stock
listed on the signature pages thereto.
4.7 Stockholders Agreement dated as of October 4, 1995 among the Company,
ENSCO Technology Company and certain permitted assigns.
4.8 Convertible Promissory Note of the Company dated September 30, 1995 in
the original principal amount of $2,500,000 payable to ENSCO
Technology Company.
4.9 Amended and Restated Credit Agreement dated as of September 29, 1995,
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, as amended.
4.10 Dollar Note dated September 29, 1995 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.
4.11 Term Note dated September 29, 1995 of the Company, Sharewell, Inc.,
Cobb Directional Drilling Company, L.L.C. and Drilex Systems, Inc.
payable to the order of Texas Commerce Bank National Association.
4.12 Interest Rate Agreement (Revolver) dated as of September 29, 1995
among Texas Commerce Bank National Association, the Company, Drilex
Systems, Inc., Cobb Directional Drilling Company, L.L.C., Sharewell,
Inc. and Drilex Systems Limited
4.13 Interest Rate Agreement (Term Loan) dated as of September 29, 1995
between Texas Commerce Bank National Association, the Company,
Sharewell, Inc., Cobb Directional Drilling Company, L.L.C. and Drilex
Systems, Inc.
4.14 Security Agreements dated as of September 29, 1995 of each of the
Company, Drilex Systems, Inc., Sharewell, Inc. and Cobb Directional
Drilling Company, L.L.C. in favor of Texas Commerce Bank National
Association.
The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the
Commission upon request.
*5.1 Opinion of Baker & Botts, L.L.P.
10.1 Stock Purchase Agreement dated March 31, 1994 between the Company and
MascoTech, Inc.
10.2 Repurchase Agreement dated June 30, 1994 between Drilex Systems, Inc.
and MascoTech, Inc.
10.3 Asset Purchase Agreement dated September 30, 1994 among the Company,
Cobb Directional Drilling Company, L.L.C., Cobb Directional Drilling
Company, Inc., Posi-Trak Mud Motors, Inc. and Archie A. Cobb, III.
10.4 Stock Purchase Agreement dated as of March 23, 1995 among the Company,
Drilex Systems, Inc., Cobb Directional Drilling, Inc. and Archie A.
Cobb, III.
10.5 Stock Repurchase Agreement dated as of March 23, 1995 among the
Company, Posi-Trak Mud Motors, Inc. and Archie A. Cobb, III.
10.6 Stock Purchase Agreement dated as of May 5, 1995 between the Company
and the Sellers listed on the signature pages thereto.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 Asset Purchase Agreement dated September 29, 1995 among the Company,
Drilex Systems, Inc., ENSCO Technology Company and ENSCO
International Incorporated.
*10.8 Form of Indemnification Agreement between the Company and each of its
directors.
*10.9 1994 Stock Option Plan of the Company.
10.10 Employment Agreement dated September 30, 1994 between Cobb Directional
Drilling Company, L.L.C. and Archie A. Cobb, III.
11.1 Computation of Net Income Per Common and Common Equivalent Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule I--Condensed Financial Information of Registrant
All other schedules are omitted because they are not applicable or because
the required information is contained in the financial statements or notes
thereto included in this registration statement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Purchase Agreement, certificates representing
the shares of Common Stock offered hereby in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF
TEXAS, ON THE 9TH DAY OF MAY, 1996.
DRILEX CORPORATION
By: /s/ John Forrest
-----------------------------------
John Forrest
President and Chief Executive
Officer
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS JOHN FORREST AND
G. BRUCE BROUSSARD, AND BOTH OF THEM, EITHER OF WHOM MAY ACT WITHOUT THE
JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS,
WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER
THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO
AND ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS
FULLY AND FOR ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON,
HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR
THEIR SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John Forrest
- -------------------------------------------
John Forrest President, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ G. Bruce Broussard
- -------------------------------------------
G. Bruce Broussard Vice President--Finance and Administration
and Secretary (Principal Financial Officer
and Principal Accounting Officer)
/s/ L.E. Simmons
- -------------------------------------------
L.E. Simmons Chairman of the Board and Director
/s/ David C. Baldwin
- -------------------------------------------
David C. Baldwin Director
/s/ Robert P. Peebler
- -------------------------------------------
Robert P. Peebler Director
/s/ Sam S. Sorrell
- -------------------------------------------
Sam S. Sorrell Director
/s/ Andrew L. Waite
- -------------------------------------------
Andrew L. Waite Director
</TABLE>
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Drilex Corporation:
We have audited the consolidated financial statements of Drilex Corporation
as of December 31, 1995 and 1994, and for the year ended December 31, 1995 and
the period from March 30, 1994 (inception) to December 31, 1994, and have
issued our report thereon dated April 26, 1996 (May 7, 1996 as to Note 15).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996
S-1
<PAGE>
DRILEX CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ -- $ 40
Advances to subsidiaries, net................................ 2,177 --
Other current assets......................................... 59 18
------- -------
Total current assets....................................... 2,236 58
Investment in subsidiaries..................................... 46,850 27,420
Organization costs, net of accumulated amortization of $203 and
$41 at December 31, 1995 and 1994, respectively............... 849 592
------- -------
$49,935 $28,070
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................... $ 475 $ 83
Advances from subsidiaries, net.............................. -- 1,680
Long-term debt, current maturities........................... 3,490 450
------- -------
Total current liabilities.................................. 3,965 2,213
Long-term debt, less current maturities........................ 22,288 6,300
------- -------
Total liabilities.......................................... 26,253 8,513
------- -------
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:
1995--4,381,205 and 1994--4,080,818......................... 44 41
Additional paid-in capital................................... 19,845 17,507
Retained earnings............................................ 3,793 2,009
------- -------
Total stockholders' equity................................. 23,682 19,557
------- -------
$49,935 $28,070
======= =======
</TABLE>
See notes to consolidated financial statements and accompanying notes.
S-2
<PAGE>
DRILEX CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF INCOME (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
Interest charged to subsidiaries................... $ 669 $ 206
General and administrative expenses................ (1,598) (739)
Interest expense................................... (1,222) (206)
------- ------
Loss before income taxes and equity in earnings of
subsidiaries...................................... (2,151) (739)
Credit for income taxes............................ 731 251
Equity in earnings of subsidiaries................. 3,204 2,497
------- ------
Net income......................................... $ 1,784 $2,009
======= ======
</TABLE>
See notes to consolidated financial statements and accompanying notes.
S-3
<PAGE>
DRILEX CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 1,784 $ 2,009
Adjustments to reconcile net income to net cash
used for operating activities:
Amortization of organization costs............... 162 41
Equity in earnings of subsidiaries............... (3,204) (2,497)
Interest charged to subsidiaries................. (669) (206)
Incurrence of organization costs................. (419) (633)
Increase in accounts payable and accrued
liabilities..................................... 392 83
Increase in other current assets................. (41) (18)
-------- --------
Net cash used for operating activities......... (1,995) (1,221)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries....................... (15,976) (23,590)
Net advances from (to) subsidiaries............... (3,188) 1,886
-------- --------
Net cash used for investing activities......... (19,164) (21,704)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 17,450 2,250
Net borrowings under revolving credit agreements.. 4,700 4,500
Proceeds from issuance of common stock............ 3,117 16,215
Principal payments on long-term debt.............. (3,122) --
Purchases of common stock......................... (1,026) --
-------- --------
Net cash provided by financing activities...... 21,119 22,965
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (40) 40
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 40 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ -- $ 40
======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuances of common stock and warrants in
connection with acquisitions of subsidiaries..... $ 250 $ 1,333
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 1,130 $ 152
Income taxes paid................................. -- --
</TABLE>
See notes to consolidated financial statements and accompanying notes.
S-4
<PAGE>
DRILEX CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (UNCONSOLIDATED)
1. ADVANCES TO SUBSIDIARIES
The Company records interest on net advances to or from subsidiaries at a
rate of 8% per annum.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility.................................. $ 9,200 $ --
Term Note.................................................. 16,578 --
Previous bank credit agreements:
Revolving credit facilities................................ -- 4,500
Cobb term note............................................. -- 2,250
------- ------
25,778 6,750
Less: current maturities..................................... (3,490) (450)
------- ------
$22,288 $6,300
======= ======
</TABLE>
Scheduled maturities of long-term debt outstanding at December 31, 1995 are
as follows: years ending December 31, 1996--$3,490,000; 1997--$3,490,000;
1998--$12,690,000; 1999--$3,490,000; 2000--$2,618,000.
Certain debt instruments restrict the ability of the Company's subsidiaries
to transfer assets, make loans and advances and pay dividends to the Company.
The restricted net assets of the Company's subsidiaries totaled approximately
$40,000,000 at December 31, 1995.
3. INCOME TAXES
Income taxes reported in the accompanying unconsolidated financial
statements are determined by computing income tax assets and liabilities on a
consolidated basis, for the Company and members of its consolidated federal
income tax return group, and then reducing such consolidated amounts for the
amounts recorded by the Company's subsidiaries on a separate tax return basis.
S-5
<PAGE>
Exhibit 4.3
-----------
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
October _____, 1995, by and between Drilex Holdings Corp., a Delaware
corporation (the "Company"), and ENSCO Technology Company, a Delaware
corporation (the "Stockholder");
W I T N E S S E T H:
WHEREAS, the Company, Drilex Systems, Inc., a Texas corporation
("Drilex"), ENSCO International Incorporated, a Delaware corporation, and the
Stockholder are entering into an asset purchase agreement of even date herewith
(the "Purchase Agreement") relating to the purchase by the Company and Drilex of
substantially all of the assets of the Stockholder; and
WHEREAS, the Purchase Agreement contemplates that a portion of the
purchase consideration will be paid in the form of a promissory note convertible
into common stock, par value $.01 per share (the "Common Stock") of the Company
(the "Convertible Note") and that, in connection therewith, the Company and the
Stockholder will execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Convertible Note or the Purchase Agreement. As used
herein, the following terms have the indicated meanings, unless the context
otherwise requires:
"Act" means the Securities Act of 1933, as amended.
"best efforts" means a party's efforts in accordance with reasonable
commercial practice and without incurrence of unreasonable expense.
"Commission" means the Securities and Exchange Commission.
"Holder" means the Stockholder or its Permitted Assigns (as defined
below).
"Permitted Assigns" means ENSCO International Incorporated or its
subsidiaries or any transferee of such persons pursuant to the terms of, and
that becomes a party to, the Stockholders' Agreement between the Company and the
Stockholder of even date herewith (the "Stockholders' Agreement").
"Registrable Securities" means the shares of Common Stock or other
securities issued by the Company to the Stockholder pursuant to the Convertible
Note, any other securities issued
<PAGE>
pursuant to the exercise of preemptive rights under the Stockholders' Agreement
and any other securities issued or issuable by the Company with respect to such
securities by way of a stock dividend or other distribution or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or reorganization. Any Registrable Securities will cease to be such when (i) a
registration statement covering such Registrable Securities has been declared
effective by the Commission and such Registrable Securities have been disposed
of pursuant to such effective registration statement, (ii) such Registrable
Securities are distributed to the public pursuant to Rule 144 (or any similar
provision then in force) under the Act or (iii) the Company has delivered a new
certificate or other evidence of ownership for such Registrable Securities not
bearing the legend required pursuant to the Stockholders' Agreement and such
Registrable Securities may be resold without restriction under the Act.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
2. Piggy-Back Registration.
(a) If the Company proposes to file a registration statement under the
Act with respect to an offering of Common Stock by the Company for its own
account or for the account of any other person or entity of any class of equity
security, including any security convertible into or exchangeable for any equity
securities (other than a registration statement on Form S-4 or S-8 (or any
substitute form for comparable purposes that may be adopted by the Commission)
or a registration statement filed in connection with an exchange offer or an
offering of securities solely to the Company's existing security holders), then
the Company shall in each such case give written notice of such proposed filing
to the Holders at least 20 days before the anticipated filing date, and such
notice shall offer the Holders the opportunity to register such number of shares
of Registrable Securities as the Holders may request. The Holders will make any
request to register Registrable Securities within ten days after the Company's
notice of the proposed filing.
(b) The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Registrable Securities requested by the Holders to be included in the
registration statement for such offering to be included on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering shall advise the Company that because of the size of the offering
intended to be made or the inclusion of securities of selling security holders,
the success of the offering would be materially and adversely affected by
inclusion of the Registrable Securities requested to be included, then the
amount of securities to be offered for the account of the Holder shall be
reduced to the extent necessary to reduce the total amount of securities to be
included in such offering to the amount recommended by such managing underwriter
or underwriters; provided, however, that the proportion by which the amount of
Registrable Securities intended to be offered by the Holder is reduced shall not
exceed the proportion by which the amount of securities intended to be offered
by DRLX Partners, L.P., a Delaware limited partnership, or any other person or
entity other than the Company is reduced. The Company will bear all
Registration Expenses (as defined below) in connection with a piggy-back
registration.
2
<PAGE>
3. Restrictions on Public Sale by Holder of Registrable Securities.
To the extent not inconsistent with applicable law, the Holder agrees
not to effect any public sale or distribution of the security being registered
or a similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the Act, beginning on the effective date of the registration
statement (except, in each case, as part of such registration) and continuing
during such period (which shall not exceed the least period required with
respect to any other securityholder of the Company participating in the
offering) as may be required by the managing underwriter or underwriters in the
case of an underwritten public offering, but in no event more than 180 days.
4. Registration Procedures.
Whenever the Holder has requested that any Registrable Securities be
included in a registration pursuant to Section 2 hereof, the Company shall
(unless such registration statement is not filed or is withdrawn) use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof as soon as
reasonably practicable, and in connection with any such request, the Company
shall (unless such registration statement is not filed or is withdrawn):
(a) (i) prior to filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to the Selling Holder and one counsel
selected by the Holder of a majority of the number of shares of the Registrable
Securities covered by such registration statement copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel, (ii) furnish to the Selling Holder, prior to filing a registration
statement, copies of such registration statement as proposed to be filed, and
thereafter furnish to the Selling Holder such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
the Selling Holder may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by the Selling Holder, and (iii) after the
filing of the registration statement, promptly notify the Selling Holder of
Registrable Securities covered by such registration statement of any stop order
issued or threatened by the Commission and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered;
(b) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
the Selling Holder reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by the Selling Holder; provided, however, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (b), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
3
<PAGE>
(c) use its best efforts to cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the Selling Holder thereof to consummate the disposition of such
Registrable Securities;
(d) notify the Selling Holder, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to the Selling
Holder any such supplement or amendment;
(e) enter into or arrange for the furnishing of customary agreements
and documents (including an underwriting agreement in customary form) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities;
(f) make available for inspection by the Selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other professional retained by the
Selling Holder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause the Company's and its subsidiaries' officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement. The Selling Holder agrees that information
obtained by it as a result of such inspections which is material and deemed
confidential shall not be used by it as the basis for any market transactions in
securities of the Company unless and until such is made generally available to
the public. The Selling Holder further agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
(g) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of 12 months, beginning
within three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Act; and
(h) use its best efforts to cause all such Registrable Securities to
be listed on each securities exchange on which the Common Stock is then listed.
The Company may require the Selling Holder as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable
4
<PAGE>
Securities as the Company may from time to time reasonably request in writing
and such other information as may be legally required in connection with such
registration.
The Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4(d)
hereof, the Selling Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Selling Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 4(d) hereof, and, if so directed
by the Company, the Selling Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Selling
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. The Selling Holder also agrees
to notify the Company of any event relating to the Selling Holder that occurs
that would require the preparation of a supplement or amendment to the
prospectus so that such prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
5. Registration Expenses.
All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and expenses incurred in connection with
the listing of the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed, and fees and
disbursements of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or comfort letters
required by or incident to such performance), securities acts liability
insurance (if the Company elects to obtain such insurance), the reasonable fees
and expenses of any special experts retained by the Company in connection with
such registration, and fees and expenses of other persons retained by the
Company, in connection with each registration hereunder (but not including any
underwriting discounts or commissions attributable to the sale of Registrable
Securities or the fees and expenses of counsel for the Selling Holder)
(collectively, "Registration Expenses") will be borne by the Company.
6. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless the Selling Holder, its officers, directors, partners and
agents and each person, if any, who controls the Selling Holder within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended, from and against any and all losses, claims, damages (whether
in contract, tort or otherwise), liabilities and expenses (including reasonable
costs of investigation) whatsoever (as incurred or suffered) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus
5
<PAGE>
relating to the Registrable Securities or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of,
or are based upon, any such untrue statement or omission or allegation thereof
based upon information furnished in writing to the Company by the Selling Holder
or on the Selling Holder's behalf expressly for use therein and provided, that
with respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the person asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the sale
of the Registrable Securities concerned to such person if it is determined that
the Company had previously provided the Selling Holder with such current copy of
the prospectus it was the responsibility of the Selling Holder to provide such
person with a current copy of the prospectus and such current copy of the
prospectus would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The Company also agrees to indemnify any underwriters of
the Registrable Securities, their officers, partners and directors and each
person who controls such underwriters on substantially the same basis as that of
the indemnification of the Selling Holder provided in this Section 6 or such
other indemnification customarily obtained by underwriters at the time of
offering.
(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against the Selling Holder (or its officers, directors, partners or
agents) or any person controlling the Selling Holder in respect of which
indemnity may be sought from the Company, the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Selling Holder, and shall assume the payment of all expenses. The Selling
Holder or any controlling person of the Selling Holder shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Selling Holder or such controlling person unless (i) the Company has agreed
to pay such fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both the Selling Holder or
such controlling person and the Company, and the Selling Holder or such
controlling person shall have been advised by counsel that there may be one or
more legal defenses available to such Selling Holder or such controlling person
which are different from or additional to those available to the Company (in
which case, if the Selling Holder or such controlling person notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of the Selling Holder or such controlling person;
it being understood, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for the Selling Holder, which firm shall be designated in writing by the
Selling Holder). The Company shall not be liable for any settlement of any such
action or proceeding effected without the Company's written consent, but if
6
<PAGE>
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless the Selling Holder and such controlling person from and against
any loss or liability (to the extent stated above) by reason of such settlement
or judgment.
(c) Indemnification by Holder of Registrable Securities. The Selling
Holder agrees to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls the Company within the meaning of
either Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended, to the same extent as the foregoing indemnity from the Company
to the Selling Holder, but only with respect to information furnished in writing
by the Selling Holder or on the Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers, or any such controlling person, in respect of which indemnity may be
sought against the Selling Holder, the Selling Holder shall have the rights and
duties given to the Company, and the Company or its directors or officers or
such controlling person shall have the rights and duties given to the Selling
Holder, by the preceding paragraph. The Selling Holder also agrees to indemnify
and hold harmless underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 6(c). Notwithstanding the foregoing, the liability of the Selling
Holder pursuant to this Section 6(c) shall not exceed the amount by which the
total price at which the Registrable Securities of the Selling Holder were
offered to the public exceeds the amount the Selling Holder has otherwise been
required to pay by reason of this Section 6.
(d) Contribution. If the indemnification provided for in this Section
6 is unavailable to the Company, the Selling Holder or the underwriters in
respect of any losses, claims, damages, liabilities or judgments referred to
herein, then each such indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) as between the Company and the Selling Holder on the one hand and
the underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Holder on the one
hand and the underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Holder on the one hand and of
the underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations and (ii) as between the
Company, on the one hand, and the Selling Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Selling Holder in connection with such statements or omissions, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Holder on the one hand and the underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Holder bear
7
<PAGE>
to the total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Company and the Selling Holder on the one
hand and of the underwriters on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Holder or by the
underwriters. The relative fault of the Company on the one hand and of the
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and the Selling Holder
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Registrable Securities of the Selling Holder were
offered to the public exceeds the amount of any damages which the Selling Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Indemnification Payments. The indemnification and contribution
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability are incurred.
7. Participation in Underwritten Registrations.
No person may participate in any underwritten registration hereunder
unless such person (a) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement.
8
<PAGE>
8. Rule 144 and Reports.
The Company covenants that, upon any registration statement covering
securities of the Company becoming effective, it will file the reports required
to be filed by it under the Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations adopted by the Commission thereunder,
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
9. Miscellaneous.
(a) Binding Effect. Unless otherwise provided herein, the provisions
of this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, legal representatives, transferees,
successors and permitted assigns.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by the Company and the Holder.
(c) Applicable Law. The internal laws of the State of Texas (without
regard to choice of law provisions thereof) shall govern the interpretation,
validity and performance of the terms of this Agreement.
(d) Notices. All notices provided for herein shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
registered or certified mail, postage prepaid:
(i) if to the Company, to:
Drilex Holdings Corp.
c/o SCF Partners, L.P.
6600 Texas Commerce Tower
Houston, Texas 77002
Attention: John Forrest
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002-4995
Attention: J. David Kirkland, Jr.
9
<PAGE>
(ii) if to Stockholder, to:
ENSCO International Incorporated
1445 Ross Avenue, Suite 2700
Dallas, Texas 75202-2792
Attention: C. Christopher Gaut
with a copy to:
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one instrument.
(f) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
DRILEX HOLDINGS CORP.
By: ___________________________
John Forrest
President
ENSCO TECHNOLOGY COMPANY
By: ___________________________
Name:
Title:
11
<PAGE>
Exhibit 4.4
EMPLOYEE STOCKHOLDERS AGREEMENT
-------------------------------
This Employee Stockholders Agreement ("Agreement"), dated as of March 31,
1994, is among Drilex Holdings Corp., a Delaware corporation ("Corporation"),
the stockholders of the Corporation whose signatures appear on the signature
pages of this Agreement under the caption "Stockholders" (referred to herein
individually as a "Stockholder" and collectively as the "Stockholders") and,
where applicable, the respective spouses of the Stockholders.
1. Introduction. The Corporation is incorporated under the laws of the
------------
State of Delaware. The Corporation and the Stockholders believe that it is in
the best interests of each, respectively, to restrict transfers of the Common
Stock of the Corporation with a view to, among other things, (i) minimizing the
likelihood of discord and deadlocks; (ii) maximizing the likelihood that the
ownership of Common Stock will remain with those who are active in corporation
affairs, thus enhancing motivation and incentive of such owners; (iii) avoiding
defaults in or accelerations of payment obligations under material agreements to
which the Corporation is or may be a party; and (iv) otherwise assuring the
orderly continuity of management, the non-attainment of any of which would
result in adverse consequences to the Corporation. Accordingly, in consideration
of the mutual promises contained herein, and subject to the terms and conditions
herein set forth, the parties have entered into this Agreement.
2. Certain Definitions. As used in this Agreement:
-------------------
(i) The term "Acquisition Proposal" means a bona fide written proposal
to a Stockholder for the acquisition of Common Stock by the person or
entity making such proposal.
(ii) The term "Affiliate" of the Corporation as used in Paragraph 6
hereof shall mean an entity that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the Corporation. As used in this definition, the term
"control", including the correlative terms "controlling", "controlled by"
and "under, controlled with" shall mean possession, directly or indirectly,
of the power to direct or cause the direction of management or policies
(whether through ownership of securities or any partnership or other
ownership interest, by contract or otherwise) of a person, corporation or
other entity.
(iii) The term "Affiliate" of a Stockholder shall mean (a) any member
of the immediate family of an individual Stockholder, including parents,
siblings, spouse and children (including those by adoption); the parents,
siblings, spouse or children (including those by adoption) of such
immediate family member; and in any such
<PAGE>
case any trust whose primary beneficiary is such individual Stockholder or
one or more members of such immediate family and/or such Stockholder's
lineal descendants, and (b) the legal representative or guardian of such
individual Stockholder or of any such immediate family member in the event
such individual Stockholder or any such immediate family member becomes
mentally incompetent.
(iv) The term "Board" means the Board of Directors of the Corporation
and any duly authorized committee thereof. All determinations by the Board
required pursuant to the terms of this Agreement to be made by the Board
shall be binding and conclusive.
(v) The term "Common Stock" means (a) all shares of common stock of
the Corporation owned by each of the Stockholders on the date hereof, (b)
all shares of common stock hereafter issued by the Corporation to or
acquired by any Stockholder (subject to Paragraph 8.2), whether in
connection with a purchase, issuance, grant, stock split, stock dividend,
reorganization, warrant, option, convertible security, right to acquire or
otherwise, and (c) all securities of the Corporation or any other
corporation or entity which any Stockholder acquires in respect of his or
her shares of Common Stock in connection with any exchange, merger,
recapitalization, consolidation, reorganization or other transaction to
which the Corporation is a party. All references herein to Common Stock
owned by a Stockholder include the community interest or similar marital
property interest, if any of the spouse of such Stockholder in such Common
Stock. The term "common stock" shall mean any stock of any class of the
Corporation which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which is not subject to
redemption by the Corporation (whether or not shares of such class have
voting rights).
(vi) The term "Disposition" shall mean any direct or indirect
transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance, or any other disposition, of Common Stock (or any interest
therein or right thereto) or of all or part of the voting power (other
than the granting of a revocable proxy) associated with the Common Stock
(or any interest therein) whatsoever, or any other transfer of beneficial
ownership of Common Stock whether voluntary or involuntary, including,
without limitation (a) as a part of any liquidation of the Stockholder's
assets or (b) as a part of any reorganization of a Stockholder pursuant to
the United States or other bankruptcy law or other similar debtor relief
laws; provided, that the participation by Stockholders in a proposed
--------
underwritten public offering of common stock of the Corporation (including
the entry into an underwriting agreement, a custody agreement and other
agreements ordinarily executed by selling stockholders in connection
therewith), which public offering, if consummated, would constitute an
Initial Public Offering, and the consummation thereof, shall not
constitute a Disposition, it being understood that, if such proposed
underwritten public offering
-2-
<PAGE>
is terminated or abandoned prior to consummation or is not consummated in
a manner which constitutes an Initial Public Offering, the Common Stock of
such participating Stockholders shall remain subject to this Agreement and
no Disposition thereof (whether pursuant to agreements entered into in
connection with such proposed underwritten public offering or otherwise)
shall be permitted hereunder without compliance with the terms of this
Agreement.
(vii) The term "Eligible Offerees" shall mean the Corporation and/or
a purchaser or purchasers designated by the Corporation.
(viii) The term "Initial Public Offering" shall mean the consummation
of an underwritten public offering of common stock of the Corporation
pursuant to a registration statement filed under the Securities Act after
the date hereof (other than any registration statement relating to
warrants, options or shares of capital stock granted or to be granted or
sold primarily to employees, directors, or officers of the Corporation, a
registration statement filed pursuant to Rule 145 under the Securities Act
or any successor rule, a registration statement relating to employee
benefit plans or interests therein and any registration statement covering
preferred stock or securities issued in connection with any debt or
preferred stock financing of the Corporation) wherein the aggregate net
proceeds (after deducting all costs, discounts, commissions and other
expenses of the offering) to the Corporation, the selling stockholders or
the Corporation and the selling stockholders are at least $10,000,000.
(ix) The term "Purchase Price" shall mean, subject to adjustment
pursuant to Paragraph 5.4 and the provisions of this Paragraph 2(ix), (a)
for purposes of the purchase of Shares Subject to the Offer under Paragraph
3.1, the price per share set forth in the Acquisition Proposal, (b) for
purposes of the purchase of Shares Subject to the Offer under Paragraphs
3.2 through 3.4, and shares of Common Stock purchased by a Divorced
Stockholder or a Surviving Stockholder under Paragraphs 3.2 and 3.3, the
per share fair market value of the outstanding common stock of the
Corporation as last determined in good faith by the Board prior to (as
applicable) the Offer (as defined in Paragraphs 3.2, 3.3 and 3.4, as
applicable) or the first date on which the options referred to in
Paragraphs 3.2 and 3.3 are exercisable, or, if the Board determines in good
faith that the per share fair market value of the outstanding common stock
of the Corporation has materially changed from the amount as last
determined prior to (as applicable) the Offer or the first date on which
the options referred to in Paragraphs 3.2 and 3.3 are exercisable, the per
share fair market value of the outstanding common stock of the Corporation
as determined in good faith by the Board as of the most recent practicable
date prior to (as applicable) the Offer or the first date on which the
options referred to in Paragraphs 3.2 and 3.3 are exercisable or, if the
Corporation has consummated an Initial Public Offering within the three
month period immediately preceding the first date on which the options
referred to in Paragraphs 3.2 and 3.3 are exercisable or within the
-3-
<PAGE>
three month period immediately preceding any Offer as defined in Paragraph
3.4, the per share fair market value of the Corporation as determined in
good faith by the Board as of the most recent practicable date (but in no
event shall such date predate the consummation of such Initial Public
Offering) prior to (as applicable) the Offer as defined in Paragraph 3.4
or the first date the options under Paragraph 3.2 or 3.3 are exercisable,
and (c) for purposes of the purchase of Shares Subject to the Offer under
Paragraph 4, the price per share at which the Stockholder purchased such
Shares (determined on a share by share basis) from the Corporation plus
simple interest on such amount calculated at a rate of 6% per annum and
for the period beginning on and including the date the Stockholder
acquired such Share from the Corporation and ending on and excluding the
date the Election Notice (as defined in Paragraph 4) is delivered. The
Board shall have no obligation to determine the value of the common stock
of the Corporation more or less often than once each year. If the
transferor of the Common Stock shall disagree with the Purchase Price as
so determined by the Board pursuant to clause (b) of the first sentence of
this Paragraph 2(ix), such transferor may give written notice of such
disagreement to the Corporation and the Corporation shall promptly cause
an independent third party appraiser (who shall be satisfactory to the
Corporation and such transferor) to determine the per share value of the
outstanding common stock as of the most recent practicable date prior to
(as applicable) the Offer, the first date on which the options referred to
in Paragraphs 3.2 and 3.3 are exercisable, and the determination by such
appraiser shall be deemed the Purchase Price for such transaction and
shall be final and binding on the Corporation and such transferor. Such
written notice of disagreement shall contain the agreement by such
transferor to pay one-half of the fees and expenses of such appraiser in
connection with such appraisal. Neither the Corporation nor any officer,
director, employee or agent thereof shall have any liability with respect
to valuation of shares of Common Stock bought or sold at the Purchase
Price, as determined pursuant to this Paragraph 2(ix), even though the
Purchase Price as so determined may be more or less than actual fair
market value, and shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any person as to
matters which the Corporation or such director, officer, employee or agent
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf
of the Corporation. As used in this Paragraph (ix) the term "per share
fair market value" shall mean (I) the value of the common equity of the
Corporation, taken as a whole, based on the Corporation continuing as a
going concern divided by (II) the number of shares of common equity of the
Corporation outstanding on (as applicable) the date of the Offer as
defined in Paragraph 3.4 or the date the options under Paragraphs 3.2 and
3.3 are first exercisable. The per share fair market value shall not be
discounted for minority shareholder interests or for reasons of
illiquidity.
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<PAGE>
(x) The term "Related Dispositions" shall mean a series of
Dispositions to one person or group of persons (as "group" is defined for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act")
and as so defined, "Group") (a) within any 180 day period or (b) pursuant
to a common agreement or plan of disposition among the persons making
such Dispositions, whether written or oral.
(xi) The term "Required Voting Percentage" shall mean a majority of
the shares of Common Stock outstanding owned by the Stockholders as of
the date the vote is taken.
(xii) The term "Retirement" means the termination of employment with
the Corporation or any of its subsidiaries by an employee in accordance
with the Company's normal retirement policy.
(xiii) The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations thereunder.
(xiv) The term "Shares Subject to the Offer" shall mean (a) with
respect to an Offer required under Paragraph 3.1 as a result of an
Acquisition Proposal, all shares of Common Stock subject to such
Acquisition Proposal, and no others, (b) with respect to an Offer required
under Paragraph 3.2, all shares of Common Stock transferred to or retained
by or vested in the Divorced Spouse (as defined therein) and not elected
to be purchased by the Divorced Stockholder (as defined therein) within
the time limits specified therein, and no others, (c) with respect to an
Offer required under Paragraph 3.3, all shares of Common Stock vesting in
or transferable to any heir or legatee of the deceased spouse other than
the Surviving Stockholder (as defined therein) and not elected to be
purchased by the Surviving Stockholder within the time limits specified
therein, and no others and (d) all shares of Common Stock owned by a
Stockholder required to make an Offer under Paragraph 3.4.
3. General Rule. No Stockholder shall make any Disposition, directly or
------------
indirectly, through an Affiliate or otherwise (regardless of the manner in
which such Stockholder initially acquired Common Stock), without compliance
with the provisions of this Agreement.
3.1. Acquisition Proposal. In the event any Stockholder desires, and is
--------------------
permitted under Paragraphs 6 and 9, to make a Disposition involving the sale
of any Common Stock (except for Dispositions as provided in Paragraphs 3.2
through 3.4 or Paragraph 4 or pursuant to the applicable provisions of
Paragraph 7), such Disposition may only be made after the second anniversary of
the date hereof and then only if an Acquisition Proposal is received by the
Stockholder with respect thereto, and then only in compliance with this
Agreement. Upon receipt of an Acquisition Proposal which Stockholder is
permitted
-5-
<PAGE>
hereunder to accept and desires to accept, the Stockholder desiring to accept
the Acquisition Proposal ("Offeror") shall offer (the "Offer"), by written
notice to the Corporation, to sell the Shares Subject to the Offer to the
Eligible Offerees pursuant to the terms of this Agreement. Offers under this
Paragraph 31 shall (i) be irrevocable for so long as the Eligible Offerees have
the right to purchase any Shares Subject to the Offer, (ii) be sent by the
Offeror to the Corporation, (iii) state the consideration for and the
number of Shares Subject to the Offer, and (iv) contain a description of and a
copy of the Acquisition Proposal. In addition, the Offeror shall provide to the
Corporation all other information with respect to the Acquisition Proposal and
the proposed transferee reasonably requested by the Corporation in order to
enable it to evaluate the Acquisition Proposal and verify the bona fide nature
thereof. The date of such Offer shall be deemed to be the date such written
notice satisfying the provisions of this Paragraph 3.1 is delivered to the
Corporation.
3.2. Divorce of Stockholder. If the marital relationship of a Stockholder
----------------------
is terminated by divorce, and pursuant to such divorce or any property
settlement in connection with such divorce, Common Stock (or any interest
therein) previously registered in the name of such Stockholder ("Divorced
Stockholder") is transferred to, or a community property interest or similar
marital property interest is retained by or vested in, the spouse of the
Divorced Stockholder ("Divorced Spouse"), the Divorced Stockholder shall
promptly notify the Corporation of such event. The Divorced Stockholder shall
have the option to purchase all of the Divorced Stockholder's Common Stock (and
all interests therein) which has been transferred to or which is retained by or
vested in the Divorced Spouse by virtue of the divorce decree, property
settlement, or by operation of the community property or similar marital
property laws for the Purchase Price, and the Divorced Spouse shall be obligated
to sell such Common Stock (and all interests therein) to the Divorced
Stockholder for the Purchase Price. Such option must be exercised, and the
purchase consummated, within thirty (30) days after the Common Stock is
transferred to or allowed to be retained by or vested in the Divorced Spouse.
The option shall be exercised by the giving of written notice of exercise to the
Divorced Spouse. The Divorced Stockholder shall within five days after the
expiration of such 30 day period, deliver written notice to the Corporation as
to whether the Divorced Stockholder has purchased all of the Common Stock (and
all interests therein) so transferred to or otherwise vested in or retained by
the Divorced Spouse. In the event such written notice states that the Divorced
Stockholder has not purchased all such Common Stock (and all interests
therein), or no such notice is delivered to the Corporation within the time
required, the Divorced Spouse shall be deemed to have made an irrevocable offer
(the "Offer") of all such Common Stock (and all interests therein) to the
Eligible Offerees as of (i) the date of receipt of such notice by the
Corporation if delivered within the time required, or (ii) if such notice is not
delivered within the time required, the date of the receipt by the Corporation
of evidence satisfactory to it that all such Common Stock (and all interests
therein) was not purchased by the Divorced Stockholder within such 30 day
period. All such Common Stock (and all interests therein) shall be deemed to be
Shares Subject to the Offer pursuant to this Paragraph 3.2.
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<PAGE>
3.3. Death of Spouse. If the spouse of a Stockholder dies, and all or any
---------------
portion of the Common Stock registered in the name of such Stockholder
("Surviving Stockholder") vests in or is transferable to any heir or legatee
other than the Surviving Stockholder, the Surviving Stockholder shall promptly
notify the Corporation of such event. The Surviving Stockholder shall have the
option to purchase all of the Common Stock vesting in or transferable to such
heir or legatee for the Purchase Price, and the estate of the deceased spouse
shall be obligated to sell such Common Stock to the Surviving Stockholder for
the Purchase Price. Such option must be exercised by the Surviving Stockholder,
and the purchase consummated, within thirty (30) days after the last to occur
of (i) the entry of an order of a probate or similar court (having jurisdiction
over the estate of the deceased spouse) (a) admitting to probate the will of
the deceased spouse, or (b) determining the heirs of the deceased spouse if the
deceased spouse is determined to have died intestate, or (ii) the appointment
of the executor, administrator or legal representative of the estate of the
deceased spouse. The option shall be exercised by the giving of written notice
of exercise to the executor, administrator or legal representative of the
deceased spouse's estate. The Surviving Stockholder shall, within five days
after the expiration of such 30 day period, deliver written notice to the
Corporation as to whether the Surviving Stockholder has purchased all of the
Common Stock vesting in or transferable to any such heir or legatee. In the
event such written notice states that the Surviving Stockholder has not
purchased all such Common Stock, or no such notice is delivered to the
corporation within the time required, all such heirs and legatees shall be
deemed to have made an irrevocable offer (the "Offer") of such Common Stock to
the Eligible Offerees as of (A) the date of the receipt of such notice by the
Corporation, if delivered within the time required, or (B) if such notice is
not given within the time required, the date of the receipt by the Corporation
of evidence satisfactory to it that all such Common Stock was not purchased by
the Surviving Stockholder within such 30 day period. All such Common Stock
shall be deemed Shares Subject to the Offer pursuant to this Paragraph 3.3.
3.4. Bankruptcy. If any of the following occur:
----------
(i) any Stockholder shall (a) voluntarily be adjudicated a bankrupt
or insolvent, (b) consent to or not contest the appointment of a receiver
or trustee for himself, herself or itself or for all or any part of his,
her or its property, (c) file a petition seeking relief under the
bankruptcy, rearrangement, reorganization or other debtor relief laws of
the United States or any state or any other competent jurisdiction, (d)
make a general assignment for the benefit of his, her or its creditors, or
(e) become insolvent, or
(ii) if a petition is filed against a Stockholder seeking relief
under the bankruptcy, rearrangement, reorganization or other debtor relief
laws of the United States or any state or other competent jurisdiction, or
a court of competent jurisdiction enters an order, judgment or decree
appointing a receiver or trustee for a Stockholder, or for any part of
his, her or its property, and such petition, order,
-7-
<PAGE>
judgment or decree shall not be and remain discharged or stayed within a
period of 60 days after its entry, any such event shall be deemed an
irrevocable "Offer", and such Stockholder shall promptly notify the
Corporation of such event and the date of such Offer shall be the date
such Stockholder so notifies the Corporation (or, if no such notice is
delivered to the Corporation by the Stockholder, the Offer will be deemed
to be made on the date of the Corporation's receipt of evidence,
satisfactory to it, of any of the foregoing events). All Common Stock
registered in the name of such Stockholder shall be Shares Subject to the
Offer pursuant to this Paragraph 3.4.
4. Termination of Employment. If at any time prior to the second
-------------------------
anniversary of the date hereof a Stockholder's employment with the Corporation
or any of its subsidiaries ceases for any reason, with or without cause, other
than death, permanent and total disability or Retirement, such Stockholder
shall be required to sell to the Eligible Offerees, within 30 days from the
receipt of written notice from the Corporation ("Election Notice") all Common
Stock owned by such Stockholder for the Purchase Price. The determination of
whether to send an Election Notice shall be at the option of the Corporation
acting in its sole discretion, and the Corporation shall have no obligation to
send any Election Notice. Such purchase and sale shall be consummated at a
closing at the time designated in the Election Notice and at the Corporation's
principal office (unless otherwise agreed) within 30 days from the delivery of
the Election Notice. At such closing, the Purchase Price (in the form of a
cashier's check) shall be delivered to such Stockholder and such Stockholder
shall deliver to the Eligible Offeree(s) purchasing such shares the
certificates representing all Common Stock registered in the name of such
Stockholder duly endorsed for transfer or accompanied by duly executed stock
powers, and evidence of good title to such shares and the absence of liens,
encumbrances and adverse claims with respect thereto and such other matters as
are necessary for the proper transfer of such shares to the acquiring Eligible
Offerees on the books of the Corporation. Until an Election Notice is delivered
to such Stockholder and such closing occurs, such Stockholder and all such
Stockholder's Common Stock shall remain subject to this Agreement. Termination
of employment with the Corporation or any of its subsidiaries for any reason,
with or without cause, shall not cause such Stockholder or such Stockholder's
Common Stock to cease to be subject to this Agreement.
5. Procedures: Price.
-----------------
5.1. Eligible Offerees. The Eligible Offerees shall have the right, for 30
-----------------
days following the date of an Offer pursuant to Paragraphs 3.1 through 3.4, to
accept the Offer for all of the Shares Subject to the Offer. If the Corporation
shall not have sufficient surplus to permit it lawfully to purchase Shares
Subject to the Offer which the Corporation has accepted in whole or in part,
the Stockholders shall promptly upon the request of the Corporation, take such
action to vote their respective shares to reduce the stated capital of the
Corporation or to authorize such other steps as may be appropriate or necessary
in
-8-
<PAGE>
order to enable the Corporation, if possible, lawfully to purchase such Shares
Subject to the Offer.
5.2. Certain Effects of Offers. If the Eligible Offerees do not accept an
-------------------------
Offer for all of the Shares Subject to the Offer, and such Offer has been made
under Paragraph 3.1, the Offeror desiring to make the Disposition pursuant to
Paragraph 3.1 shall be permitted, subject to compliance with Paragraphs 6 and
9, at any time or times within, but not after, thirty (30) days after the
expiration of all rights to accept such Offer, to make a Disposition of all
(but not less than all) of the Shares Subject to the Offer; provided, however,
-------- -------
that no such Disposition shall be made at a lower price or on more favorable
terms or to any person other than specified in the Acquisition Proposal.
Subject to the provisions of Paragraph 8.2, all Common Stock transferred in
accordance with the terms of this Agreement to any third party or to any
Eligible Offeree (other than the Corporation), and all Shares Subject to the
Offer pursuant to Paragraph 3.1 and remaining unsold after such 30 day period,
and all Shares Subject to the Offer under Paragraphs 3.2 through 3.4 (unless
acquired by the Corporation) and all Common Stock purchased by Eligible
Offerees pursuant to Paragraph 4 (unless acquired by the Corporation), shall
remain subject to the terms of this Agreement, it being understood that, if no
Election Notice is given pursuant to Paragraph 4, the Stockholder and all his
shares of Common Stock shall nonetheless remain subject to this Agreement.
5.3. Acceptance: Closing. Eligible Offerees who accept an Offer as to all
-------------------
or any portion of the Shares Subject to the Offer shall evidence their
acceptance by delivering, within 30 days after the date of the Offer, to the
Offeror or other transferor a written notice of intent to purchase such Shares
Subject to the Offer ("Acceptance Notice"). The closing of the acquisitions of
Shares Subject to the Offer by Eligible Offerees shall be consummated within
thirty (30) days following the delivery of the Acceptance Notice. In the case
of all acquisitions of Shares Subject to the Offer by Eligible Offerees, such
acquisitions shall be consummated at a closing held at the principal offices of
the Corporation (unless otherwise mutually agreed), at which time the Purchase
Price (if cash, in the form of a cashier's check) shall be delivered to the
transferor of the Common Stock or the transferor's representative, and the
transferor or the transferor's representative shall deliver to the Eligible
Offeree(s) purchasing such shares certificates representing all of the Shares
Subject to the Offer, duly endorsed for transfer or accompanied by duly
executed stock powers, and evidence of good title to the Shares Subject to the
Offer and the absence of liens, encumbrances and adverse claims with respect
thereto and such other matters as are necessary for the proper transfer of the
Shares Subject to the Offer to the acquiring Eligible Offeree(s) on the books
of the Corporation.
5.4. Form of Payment. The Purchase Price of any Shares Subject to the
---------------
Offer purchased by Eligible Offerees pursuant to an Offer made under Paragraph
3.1 shall be on such terms as contemplated by the Acquisition Proposal;
provided, however, that if (i) the party which has made the Acquisition
-------- -------
Proposal has proposed to acquire Shares Subject to
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<PAGE>
the Offer not wholly in cash and (ii) any Eligible Offeree desires to consummate
the acquisition(s) of Shares Subject to the Offer (pursuant to the terms hereof)
wholly in cash then, upon request by such Eligible Offeree, the Board shall
determine the per share cash value of the Acquisition Proposal, and such amount
shall be the cash price per share to be paid to the Offeror by any Eligible
Offeree who desires to purchase the Shares Subject to the Offer for cash. The
Purchase Price of all Shares Subject to the Offer pursuant to an offer made
under Paragraphs 3.2 through 3.4 or Common Stock purchasable pursuant to
Paragraph 4 shall be paid in cash.
6. Loan and other Agreements. Notwithstanding anything herein to the
-------------------------
contrary, no Stockholder shall make any Disposition (including but not limited
to a Disposition pursuant to Paragraphs 3 or 7 hereof but not including a
Disposition to Eligible Offerees pursuant to Paragraph 4, hereof which, in the
Corporation's reasonable judgment (as evidenced by a resolution of the Board),
would cause a breach or default or acceleration of payments under any loan
agreement, note, indenture or other agreement or instrument to which the
Corporation and/or any of its Affiliates is a party and under which the
indebtedness or liability of the Corporation and/or any of its Affiliates
exceeds one million dollars ($1,000,000.00) ("Material Agreement"). Therefore,
each Stockholder desiring or required to make a Disposition (other than pursuant
to Paragraph 4) shall, prior to attempting to effect any such Disposition, (i)
give written notice to the Corporation describing the proposed Disposition and
the proposed transferee in sufficient detail, setting forth the number of shares
of Common Stock as to which such Stockholder desires to make a Disposition, and
(ii) provide such other information concerning the Disposition as the
Corporation reasonably requests. If, in the Corporation's reasonable judgment,
the proposed Disposition would cause a breach or default or acceleration of
payments under any Material Agreement, then such Disposition may not be made,
and any attempted Disposition shall be null and void. If the Corporation
approves such Disposition and any shares of Common Stock with respect to which
approval has been given are not actually transferred within 30 days from the
date of such approval, then all of the provisions of this Agreement shall apply
to any subsequent transaction affecting such Common Stock or any interest
therein. Additionally, all shares of Common Stock transferred (whether to a
third party or any Eligible Offeree other than the Corporation) pursuant to the
terms hereof shall remain subject to this Agreement.
7. Permitted Dispositions. The following Dispositions shall be permitted
----------------------
without compliance with the provisions of Paragraphs 3 and 5 (but the other
provisions of this Agreement, including Paragraphs 6 and 9, shall apply to each
of the following Dispositions);
(i) by any Stockholder to an Eligible Offeree or any person in a
Disposition to which the Corporation consents, it being understood that
the Corporation has no obligation to consent to any such Disposition;
-10-
<PAGE>
(ii) after the second anniversary of the date hereof by such
Stockholder to any Affiliate of such Stockholder, or from an Affiliate of
any Stockholder to such Stockholder;
(iii) upon the death of any Stockholder, to the estate, heirs,
beneficiaries or legatees of such Stockholder;
(iv) by any Stockholder to a bank or other financial institution for
purposes of securing a loan to such Stockholder to purchase Common Stock
and the transfer of title to any such bank or financial institution
required in connection therewith; provided, that such bank or financial
--------
institution shall have first delivered to the Corporation its written
agreement, in form and substance satisfactory to the Corporation, that upon
any foreclosure or any transaction in lieu of foreclosure with respect to
such Common Stock such bank or financial institution shall assume and be
bound by all the terms of this Agreement;
(v) after the second anniversary of the date hereof, to an entity
organized under Section 501(c)(3) of the Internal Revenue Code of 1986 or
any successor statute (the "Code");
(vi) after the second anniversary of the date hereof, between the
Stockholders;
(vii) after the second anniversary of the date hereof, by any
Stockholder during his lifetime to (a) a guardian of the estate of such
Stockholder, (b) an inter-vivos trust for the benefit of such Stockholder
or whose primary beneficiary is one or more of such Stockholder's lineal
descendants (including lineal descendants by adoption), (c) the spouse of
such Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption); and
(viii) after the second anniversary of the date hereof, to a
Stockholder by (a) a guardian of the estate of such Stockholder, (b) an
inter-vivos trust for the benefit of such Stockholder or whose primary
beneficiary is one or more of such Stockholder's lineal descendants
(including lineal descendants by adoption), (c) the spouse of such
Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption);
provided, however, that as a condition to any such permitted transfer any person
- -------- -------
(including such person's spouse, if any) or entity (other than the Corporation)
so acquiring such Common Stock shall be required, except as provided in
Paragraph 8.2, to subject the Common Stock acquired by such person or entity to
the provisions of this Agreement, and thereafter any such person or entity shall
be deemed a "Stockholder" for the purposes of this Agreement.
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<PAGE>
8. Conditions; Additional Parties.
------------------------------
8.1. Conditions To Permitted Transfers. As a condition to the Corporation's
---------------------------------
obligation to effect a transfer permitted hereunder, any transferee of Common
Stock (except as specifically provided in Paragraph 8.2) shall be required to
become a party to this Agreement, and shall have all the rights and obligations
of a Stockholder hereunder, by executing an Adoption Agreement in the form of
Exhibit "A" attached hereto or in such other form that is satisfactory to the
Corporation.
8.2. Additional Parties. Any person who acquires common stock of the
------------------
Corporation in connection with his employment by the Corporation or any of its
subsidiaries and is approved by the Corporation, and any other person or entity
which acquires any shares of common stock of the Corporation subsequent to the
execution of this Agreement, if required under the terms hereof, or if approved
by the Corporation, shall become a party to this Agreement, with all the rights
and obligations of a Stockholder hereunder, upon executing (together with such
person's spouse, if applicable) an Adoption Agreement in the form of Exhibit "A"
attached hereto or in such other form that is satisfactory to the Corporation.
9. Standstill Agreement; Securities Matters.
----------------------------------------
9.1. Standstill Agreement. At any time that the Corporation is engaged in
--------------------
an underwritten public offering of its securities, each Stockholder agrees that
he will make no Disposition of Common Stock on any securities exchange or in the
over-the-counter or any other public trading market for whatever period of time
the Corporation (upon the recommendation of its underwriters) requests by
written notice to each Stockholder; provided, however, (i) that such request
-------- -------
shall not be for a period extending longer than 180 days following the later of
(a) the effectiveness of the registration statement to which the public offering
relates or (b) the date of the underwriting agreement. If a public offering
giving rise to the obligations set forth under this Paragraph 9 will terminate
this Agreement pursuant to the provisions of Paragraph 12(v), then the
obligations in this Paragraph 9 shall survive the termination of this Agreement
for 180 days after the Initial Public Offering, after which time the obligations
in this Paragraph 9 shall terminate.
9.2. Securities Laws. No Stockholder shall make any Disposition of Common
---------------
Stock at any time if such action would constitute a violation of any federal or
state securities or blue sky laws or a breach of the conditions to any exemption
from registration of the Common Stock under any such laws or a breach of any
undertaking or agreement of a Stockholder entered into pursuant to such laws or
in connection with obtaining an exemption thereunder, and the Corporation shall
not transfer upon its books any shares of Common Stock unless prior thereto the
Corporation shall have received an opinion of counsel in form and substance
satisfactory to the Corporation that such transaction is in compliance with this
Paragraph 9.2. Each Stockholder agrees that any certificates
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<PAGE>
representing shares of Common Stock shall bear appropriate legends restricting
the sale or other transfer of such Common Stock in accordance with applicable
federal or state securities or blue sky laws and in accordance with the
provisions of this Agreement. This Paragraph 9.2 shall survive termination of
this Agreement for the maximum period permitted by applicable law.
10. Endorsement of Stock Certificates. All certificates of Common Stock of
---------------------------------
the Corporation now owned or that may hereafter be acquired by the Stockholders
or any transferee (which transferee is subject to the terms of this Agreement)
shall be endorsed on the reverse side thereof substantially as follows:
BY THE TERMS OF AN EMPLOYEE STOCKHOLDERS AGREEMENT, CERTAIN RESTRICTIONS
HAVE BEEN PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The foregoing legend shall be in addition to any and all other legends required
by applicable law or contract to be placed on certificates representing Common
Stock including those referred to in Paragraph 9.
11. Notices. In the event a notice or other document is required to be
-------
sent hereunder to the Corporation or to any Stockholder or the spouse or legal
representative of a Stockholder, such notice or other document, if sent by mail
shall be sent by registered mail return receipt requested (and by air mail in
the event the addressee is not in the continental United States), to the party
entitled to receive such notice or other document at (i) Drilex Holdings Corp.,
6600 Texas Commerce Tower, Houston, Texas 77002, Attention President, in the
case of the Corporation, (ii) at the addresses shown on the stock transfer
records of the Corporation in the case of the Stockholders, their spouses and
their respective legal representatives, or (iii) at such other address as any
such party shall request as to such party in a written notice sent to the
Corporation. Any such notice shall be effective and deemed received three (3)
days after proper deposit in the mails, but actual notice shall be effective
however and whenever received. The Corporation or any Stockholder or spouse or
their respective legal representatives may effect a change of address for
purposes of this Agreement by giving notice of such change to the Corporation,
and the Corporation shall upon the request of any party hereto, notify such
party of such change in the manner provided herein. Until such notice of change
of address is properly given, the addresses set forth herein shall be effective
for all purposes.
12. Miscellaneous Provisions.
------------------------
(i) This Agreement shall be subject to and governed by the laws of
the State of Delaware.
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<PAGE>
(ii) Whenever the context requires, the gender of all words used
herein shall include the masculine, feminine and neuter, and the number of
all words shall include the singular and plural.
(iii) This Agreement shall be binding upon the Corporation, the
Stockholders, any spouses of the Stockholders, and their respective heirs,
executors, administrators and permitted successors and assigns.
(iv) This Agreement may be amended or waived from time to time by an
instrument in writing signed by the Corporation and the holders of at least
the Required Voting Percentage at the time of such amendment, and such
instrument shall be designated on its face as an "Amendment" to this
Agreement; provided, however, that any amendment which has the effect of
-------- -------
making the restrictions on disposition of Common Stock materially more
onerous shall require the vote of all Stockholders affected by such
amendment; and provided, further, that this Agreement may be amended by the
-------- -------
Corporation without the consent of any Stockholder to cure any ambiguity or
to cure, correct or supplement any defective provisions contained herein,
or to make any other provision with respect to matters or questions
hereunder as the Corporation may deem necessary or advisable; provided that
--------
such action shall not affect adversely the interests of any Stockholder.
(v) This Agreement shall terminate after ten days prior written notice
by the Corporation to all parties hereto (which notice may be conditional
upon the occurrence or nonoccurrence of specified events), and shall
terminate automatically upon (a) the dissolution of the Corporation, or (b)
the later of (A) two years after the date hereof or (B) the completion of
the Initial Public Offering, provided, however, that Paragraph 9 of this
-------- -------
Agreement shall survive any such termination to the extent and for the
periods set forth in such Paragraphs.
(vi) Any Stockholder who disposes of all such Stockholder's Common
Stock in conformity with the terms hereof shall cease to be a party to this
Agreement and shall have no further rights hereunder.
(vii) The spouses of the individual Stockholders are fully aware of,
understand and fully consent and agree to the provisions of this Agreement
and its binding effect upon any community property interests or similar
marital property interests in the Common Stock they may now or hereafter
own, and agree that the termination of their marital relationship with any
Stockholder for any reason shall not have the effect of removing any Common
Stock of the Corporation otherwise subject to this Agreement from the
coverage hereof and that their awareness, understanding, consent and
agreement are evidenced by their signing this Agreement. Furthermore, each
individual Stockholder agrees to cause his or her spouse (and any
subsequent spouse) to execute and deliver, upon the request of the
Corporation, a counterpart
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<PAGE>
of this Agreement, or an Adoption Agreement in the form attached hereto as
Exhibit "A" or in a form satisfactory to the Corporation.
(viii) Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect; provided that the Corporation may
--------
determine to treat any attempted Disposition in breach of this Agreement as
an Offer pursuant to Paragraph 4; and if so the date of the Offer shall be
deemed to be the date the Corporation, after receipt of evidence
satisfactory to it that such Disposition or attempted Disposition has
occurred, gives written notice of such Disposition or attempted Disposition
to the Eligible Offerees. Additionally, Paragraph 6 shall apply to such
attempted Disposition. In connection with any attempted Disposition in
breach of this Agreement, the Corporation may hold and refuse to transfer
any Common Stock or any certificate therefor tendered to it for transfer,
in addition to and without prejudice to any and all other rights or
remedies which may be available to it or the Stockholders. Each party
hereto acknowledges that a remedy at law for any breach or attempted breach
hereof will be inadequate, agrees that each other party hereto shall be
entitled to specific performance and injunctive and other equitable relief
in case of any such breach or attempted breach and further agrees to waive
any requirement for the obtaining of any such injunctive or other equitable
relief.
(ix) Each Stockholder and his or her spouse, if any, hereby appoint
the Corporation as their agent and attorney to make the Offers required and
take all actions necessary under Paragraphs 3.2 through 3.4 and 12(viii) on
their behalf and to execute any required Adoption Agreement on their
behalf, and expressly bind themselves to such Offers and to the
Corporation's execution of any such Adoption Agreement without further
action on their part, and such powers of attorney granted herein are deemed
to be coupled with an interest in the Common Stock and shall survive the
death, disability, bankruptcy or dissolution of such Stockholder or his or
her spouse, if any.
(x) If any portion of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, such declaration
shall not affect the validity of the remaining provisions.
(xi) This Agreement sets forth the entire agreement of the parties
hereto as to the subject matter hereof and supersedes all previous
agreements among all or some of the parties hereto, whether written, oral
or otherwise. This Agreement may be executed in multiple counterparts, any
one of which may contain the signature of more than one party, but all of
which counterparts together shall constitute one and the same instrument.
-15-
<PAGE>
(xii) No person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
(xiii) Each Stockholder, if an employee of the Corporation or any of
its subsidiaries, acknowledges and agrees that neither the acquisition of
Common Stock by such Stockholder nor the execution of this Agreement by
the Corporation or such Stockholder creates any obligation whatsoever by
the Corporation or any of its subsidiaries to continue such Stockholder's
employment or otherwise affects the Corporation's right, which the
Stockholder hereby acknowledges, to terminate such Stockholder's
employment at will, with or without cause in the sole discretion of the
Corporation or any of its subsidiaries which is an employer of such
Stockholder.
(xiv) If any Common Stock is pledged to a bank or other financial
institution as permitted by Paragraph 7(iv) and such shares are to be sold
to Eligible Offeree(s), the Stockholders and their spouses, if the
transferor of such shares, hereby authorize any such bank or financial
institution to deliver certificates representing such shares to the
Corporation against receipt of the Purchase Price therefor, and authorize
the Eligible Offeree(s) to make payment of the Purchase Price to such bank
or financial institution for application to any indebtedness secured by
any such shares, and such bank or financial institution is hereby
authorized to apply such Purchase Price so received to any such
indebtedness.
(xv) If, and as often as, there are any changes in the Common Stock
or the common stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be
made in the provisions hereof, as may be required, so that the rights,
privileges, duties and obligations hereunder shall continue with respect
to the Common Stock or common stock as so changed.
13. Rights and Obligations to Participate in Stock Sales.
----------------------------------------------------
13.1 In the event (a) DRLX Partners, L.P.("DRLX") receives a bona
fide written proposal (a "DRLX Acquisition Proposal") for the purchase of all
of the shares of Common Stock of the Corporation (other than pursuant to an
Initial Public Offering) and (b) the Stockholders have not elected, pursuant to
Section 13.2 to participate in such transaction to the maximum extent provided
in such Section, DRLX shall promptly notify the Corporation of such fact (which
notice shall include a copy of such DRLX Acquisition Proposal) and the
Corporation shall send a copy of such notice (which notice shall include a copy
of such DRLX Acquisition Proposal) to all of the Stockholders. If such DRLX
Acquisition Proposal is acceptable to DRLX then DRLX shall have the right and
option, exercisable by notifying the Corporation within 5 Business Days of its
receipt of the DRLX Acquisition Proposal (and the Corporation, in turn, shall
promptly notify each of the other Stockholders of its receipt of such notice),
to require each Stockholder to sell, and upon
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<PAGE>
DRLX's exercise of such option, each Stockholder shall be obligated to sell, to
the purchaser pursuant to the terms of the DRLX Acquisition Proposal, all of
such Stockholder's shares of Common Stock.
13.2 If DRLX receives a DRLX Acquisition Proposal for the purchase of
any of its shares of Common Stock (other than pursuant to an Initial Public
Offering or a sale to an Affiliate thereof), and desires to accept such DRLX
Acquisition Proposal (such desire to be evidenced in writing to the Board
together with a copy of such DRLX Acquisition Proposal), the Corporation shall
notify the Stockholders of such DRLX Acquisition Proposal (the "DRLX
Acquisition Proposal Notice") and furnish a copy of the DRLX Acquisition
Proposal thereto, and thereafter each of the Stockholders shall have the right
and option to elect, by giving written notice to the Corporation within 5
Business Days following receipt of the DRLX Acquisition Proposal Notice (and
the Corporation shall promptly notify the other Stockholders of each
Stockholder's election pursuant to this Paragraph 13.2) to sell, pursuant to
the terms of the DRLX Acquisition Proposal, a portion of such Stockholder's
shares of Common Stock equal to (or, at each such Stockholder's election, less
than) the fraction (not to exceed 1) obtained by dividing the total number of
outstanding shares of Common Stock to be sold pursuant to the DRLX Acquisition
Proposal by the total number of shares of Common Stock held by DRLX and all
Stockholders electing to sell pursuant to the DRLX Acquisition Proposal.
This Agreement is executed by the Corporation and by each Stockholder and
spouse of a Stockholder to be effective as of the date first above written.
CORPORATION:
DRILEX HOLDINGS CORP.
By: /s/ L.E. Simmons
-------------------------
Name: L.E. Simmons
------------------------
Title: President
------------------------
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<PAGE>
STOCKHOLDERS AND SPOUSES
------------------------
SHARES OWNED AT
STOCKHOLDERS TIME OF EXECUTION
----------------- -----------------
/s/ John Forrest 20,000
----------------- ----
(Stockholder)
--------------------- ----
(Stockholder's Spouse)
--------------------- ----
(Stockholder)
--------------------- ----
(Stockholder's Spouse)
--------------------- ----
(Stockholder)
--------------------- ----
(Stockholder's Spouse)
--------------------- ----
(Stockholder)
--------------------- ----
(Stockholder's Spouse)
SPECIAL JOINDER BY DRLX PARTNERS, L.P.
--------------------------------------
DRLX Partners, L.P. hereby joins in this Agreement for the sole purpose of
evidencing its agreement to be bound by the provisions set forth in Paragraph
13. The parties acknowledge and agree that DRLX Partners, L.P. is not a
"Stockholder" for purposes of this Agreement.
DRLX PARTNERS, L.P.
By SCF Partners, L.P. its GP
By SCF Investment Partners, Inc., its GP
By: /s/ L.E. Simmons
------------------------
Its President
By:_____________________
Name:___________________
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<PAGE>
STOCKHOLDERS AND SPOUSES
------------------------
SHARES OWNED AT
STOCKHOLDERS TIME OF EXECUTION
------------ -----------------
---------------------- ----
(Stockholder)
---------------------- ----
(Stockholder's Spouse)
---------------------- ----
(Stockholder)
---------------------- ----
(Stockholder's Spouse)
---------------------- ----
(Stockholder)
---------------------- ----
(Stockholder's Spouse)
---------------------- ----
(Stockholder)
---------------------- ----
(Stockholder's Spouse)
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<PAGE>
EXHIBIT "A"
ADOPTION AGREEMENT (form)
This Adoption Agreement ("Adoption") is executed pursuant to the terms of
the Employee Stockholders Agreement dated as of 3/31, 1994, a copy of which is
attached hereto and is incorporated herein by reference (the "Employee
Stockholders Agreement"), by the transferee ("Transferee") executing this
Adoption. By the execution of this Adoption, the Transferee agrees as follows:
1. Acknowledgement. Transferee acknowledges that Transferee is acquiring
---------------
certain shares of the common stock of Drilex Holdings Corp., a Delaware
corporation (the "Corporation"), subject to the terms and conditions of the
Employee Stockholders Agreement. Capitalized terms used herein without
definition are defined in the Employee Stockholders Agreement and are used
herein with the same meanings set forth therein.
2. Agreement. Transferee (i) agrees that shares of the common stock of the
---------
Corporation, acquired by Transferee, and certain other shares of common stock
and other securities that may be acquired by the Transferee in the future, shall
be bound by and subject to the terms of the Employee Stockholders Agreement
pursuant to the terms thereof, and (ii) hereby adopts the Employee Stockholders
Agreement with the same force and effect as if he were originally a party
thereto.
3. Notice. Any notice required as permitted by the Employee Stockholders
------
Agreement shall be given to Transferee at the address listed beside Transferee's
signature below.
4. Joinder. The spouse of the undersigned Transferee, if applicable,
-------
executes this Adoption to acknowledge its fairness and that it is in such
spouse's best interests and to bind such spouse's community interest, if any, in
the shares of common stock and other securities referred to above and in the
Employee Stockholders Agreement to the terms of the Employee Stockholders
Agreement.
EXECUTED AND DATED this the 31 day of March, 1994.
TRANSFEREE:
By:________________________
Address:___________________
___________________________
SPOUSE:
By:________________________
A-1
<PAGE>
Agreed to on behalf of the Corporation and all Stockholders and their
respective spouses pursuant to Paragraph 12(ix) of the Employee Stockholders
Agreement.
DRILEX HOLDINGS CORP.
(For itself and as Attorney-in-Fact
for the Stockholders and their respective spouses)
By:
--------------------------------
President
A-2
<PAGE>
Exhibit 4.5
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement"), dated as of September 30, 1994,
is among Drilex Holdings Corp., a Delaware corporation ("Corporation"), the
stockholder or stockholders of the Corporation whose signatures appear on the
signature pages of this Agreement under the caption "Stockholders" (referred to
herein individually as a "Stockholder" and collectively as the "Stockholders")
and, where applicable, the respective spouses of the Stockholders.
1. Introduction. The Corporation is incorporated under the laws of the
State of Delaware. The Corporation and the Stockholders believe that it is in
the best interests of each, respectively, to restrict transfers of the Common
Stock of the Corporation with a view to, among other things, (i) minimizing the
likelihood of discord and deadlocks; (ii) maximizing the likelihood that the
ownership of Common Stock will remain with those who are active in corporation
affairs, thus enhancing motivation and incentive of such owners; (iii) avoiding
defaults in or accelerations of payment obligations under material agreements to
which the Corporation is or may be a party; and (iv) otherwise assuring the
orderly continuity of management, the non-attainment of any of which would
result in adverse consequences to the Corporation. Accordingly, in
consideration of the mutual promises contained herein, and subject to the terms
and conditions herein set forth, the parties have entered into this Agreement.
2. Certain Definitions. As used in this Agreement:
(i) The term "Acquisition Proposal" means a bona fide written proposal
to a Stockholder for the acquisition of Common Stock by the person or
entity making such proposal.
(ii) The term "Affiliate" of any person shall mean an entity or other
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
person. As used in this definition, the term "control", including the
correlative terms "controlling", "controlled by" and "under common control
with" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of management or policies (whether through ownership
of securities or any partnership or other ownership interest, by contract
or otherwise) of a person, corporation or other entity.
(iii) The term "Board" means the Board of Directors of the
Corporation and any duly authorized committee thereof. All determinations
by the Board required pursuant to the terms of this Agreement to be made by
the Board shall be binding and conclusive.
-1-
<PAGE>
(iv) The term "Common Stock" means (a) all shares of common stock of
the Corporation owned by each of the Stockholders on the date hereof, (b)
all shares of common stock hereafter issued by the Corporation to or
acquired by any Stockholder (whether or not from the Corporation), whether
in connection with a purchase, issuance, grant, stock split, stock
dividend, reorganization, warrant, option, convertible security, right to
acquire or otherwise, and (c) all securities of the Corporation or any
other corporation or entity which any Stockholder acquires in respect of
his or her shares of Common Stock in connection with any exchange, merger,
recapitalization, consolidation, reorganization or other transaction to
which the Corporation is a party. All references herein to Common Stock
owned by a Stockholder include the community interest or similar marital
property interest, if any of the spouse of such Stockholder in such Common
Stock. The term "common stock" shall mean any stock of any class of the
Corporation which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which is not subject to
redemption by the Corporation (whether or not shares of such class have
voting rights).
(v) The term "Disposition" shall mean any direct or indirect transfer,
assignment, sale, gift, pledge, hypothecation or other encumbrance, or any
other disposition, of Common Stock (or any interest therein or right
thereto) or of all or part of the voting power (other than the granting of
a revocable proxy) associated with the Common Stock (or any interest
therein) whatsoever, or any other transfer of beneficial ownership of
Common Stock whether voluntary or involuntary, including, without
limitation (a) as a part of any liquidation of the Stockholder's assets or
(b) as a part of any reorganization of a Stockholder pursuant to the United
States or other bankruptcy law or other similar debtor relief laws;
provided, that the participation by Stockholders in a proposed underwritten
public offering of common stock of the Corporation (including the entry
into an underwriting agreement, a custody agreement and other agreements
ordinarily executed by selling stockholders in connection therewith), which
public offering, if consummated, would constitute an Initial Public
Offering, and the consummation thereof, shall not constitute a Disposition,
it being understood that, if such proposed underwritten public offering is
terminated or abandoned prior to consummation or is not consummated in a
manner which constitutes an Initial Public Offering, the Common Stock of
such participating Stockholders shall remain subject to this Agreement and
no Disposition thereof (whether pursuant to agreements entered into in
connection with such proposed underwritten public offering or otherwise)
shall be permitted hereunder without compliance with the terms of this
Agreement. For a Stockholder that is not an individual, "Disposition"
shall specifically include any direct or indirect, voluntary or involuntary
transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance or any other disposition of any equity interest in such
Stockholder.
(vi) The term "Eligible Offerees" shall mean the Corporation and/or a
purchaser or purchasers designated by the Corporation.
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(vii) The term "Family Member" of an individual Stockholder shall
mean (a) any member of the immediate family of such individual Stockholder,
including parents, siblings, spouse and children (including those by
adoption); the parents, siblings, spouse or children (including those by
adoption) of such immediate family member; and in any such case any trust
whose primary beneficiary is such individual Stockholder or one or more
members of such immediate family and/or such Stockholder's lineal
descendants, and (b) the legal representative or guardian of such
individual Stockholder or of any such immediate family member in the event
such individual Stockholder or any such immediate family member becomes
mentally incompetent.
(viii) The term "Initial Public Offering" shall mean the consummation
of an underwritten public offering of common stock of the Corporation
pursuant to a registration statement filed under the Securities Act after
the date hereof (other than any registration statement relating to
warrants, options or shares of capital stock granted or to be granted or
sold primarily to employees, directors, or officers of the Corporation, a
registration statement filed pursuant to Rule 145 under the Securities Act
or any successor rule, a registration statement relating to employee
benefit plans or interests therein and any registration statement covering
preferred stock or securities issued in connection with any debt or
preferred stock financing of the Corporation) wherein the aggregate net
proceeds (after deducting all costs, discounts, commissions and other
expenses of the offering) to the Corporation, the selling stockholders or
the Corporation and the selling stockholders are at least $10,000,000.
(ix) The term "Purchase Price" shall mean, subject to adjustment
pursuant to Paragraph 5.4 and the provisions of this Paragraph 2(ix), (a)
for purposes of the purchase of Shares Subject to the Offer under Paragraph
3.1, the price per share set forth in the Acquisition Proposal and (b) for
purposes of the purchase of Shares Subject to the Offer under Paragraphs
3.2 through 3.4, and shares of Common Stock purchased by a Divorced
Stockholder or a Surviving Stockholder under Paragraphs 3.2 and 3.3, the
per share fair market value of the outstanding common stock of the
Corporation as last determined in good faith by the Board prior to the
Pricing Date, or if the Board determines in good faith that the per share
fair market value of the outstanding common stock of the Corporation has
materially changed from the amount as last determined prior to the Pricing
Date, the per share fair market value of the outstanding common stock of
the Corporation as determined in good faith by the Board as of the most
recent practicable date prior to the Pricing Date, or, if the Corporation
has consummated an Initial Public Offering within the three month period
immediately preceding the Pricing Date, the per share fair market value of
the Corporation as determined in good faith by the Board as of the most
recent practicable date (but in no event shall such date predate the
consummation of such Initial Public Offering) prior to the Pricing Date.
For purposes hereof, the "Pricing Date" is (as applicable) the date of the
Offer (as defined in paragraphs 3.2, 3.3 and 3.4, as applicable) or the
first date on which the options referred to in paragraphs 3.2 and 3.3 are
exercisable. The Board shall have no obligation to determine the value of
the common stock of the Corporation more or less often than once each year.
If the transferor of the Common Stock shall disagree with the Purchase
Price as so
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determined by the Board pursuant to clause (b) of the first sentence of
this Paragraph 2(ix), such transferor may give written notice of such
disagreement to the Corporation and the Corporation shall promptly cause an
independent third party appraiser (who shall be satisfactory to the
Corporation and such transferor) to determine the per share value of the
outstanding common stock as of the most recent practicable date prior to
the Pricing Date, and the determination by such appraiser shall be deemed
the Purchase Price for such transaction and shall be final and binding on
the Corporation and such transferor. Such written notice of disagreement
shall contain the agreement by such transferor to pay one-half of the fees
and expenses of such appraiser in connection with such appraisal. Neither
the Corporation nor any officer, director, employee or agent thereof shall
have any liability with respect to valuation of shares of Common Stock
bought or sold at the Purchase Price, as determined pursuant to this
Paragraph 2(ix), even though the Purchase Price as so determined may be
more or less than actual fair market value, and shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation
by any person as to matters which the Corporation or such director,
officer, employee or agent reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. As used in this
Paragraph (ix) the term "per share fair market value" shall mean (I) the
value of the common equity of the Corporation, taken as a whole, based on
the Corporation continuing as a going concern divided by (II) the number of
shares of common equity of the Corporation outstanding. The per share fair
market value shall not be discounted for minority shareholder interests or
for reasons of illiquidity.
(x) The term "Related Dispositions" shall mean a series of
Dispositions to one person or group of persons (as "group" is defined for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act") and
as so defined, "Group") (a) within any 180-day period or (b) pursuant to a
common agreement or plan of disposition among the persons making such
Dispositions, whether written or oral.
(xi) The term "Required Voting Percentage" shall mean a majority of
the shares of Common Stock outstanding owned by the Stockholders as of the
date the vote is taken.
(xii) The term "Retirement" means the termination of employment with
the Corporation or any of its subsidiaries by an employee in accordance
with the Company's normal retirement policy.
(xiii) The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations thereunder.
(xiv) The term "Shares Subject to the Offer" shall mean (a) with
respect to an Offer required under Paragraph 3.1 as a result of an
Acquisition Proposal, all shares of Common Stock subject to such
Acquisition Proposal, and no others,
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(b) with respect to an Offer required under Paragraph 3.2, all shares of
Common Stock transferred to or retained by or vested in the Divorced Spouse
(as defined therein) and not elected to be purchased by the Divorced
Stockholder (as defined therein) within the time limits specified therein,
and no others, (c) with respect to an Offer required under Paragraph 3.3,
all shares of Common Stock vesting in or transferable to any heir or
legatee of the deceased spouse other than the Surviving Stockholder (as
defined therein) and not elected to be purchased by the Surviving
Stockholder within the time limits specified therein, and no others and (d)
all shares of Common Stock owned by a Stockholder required to make an Offer
under Paragraph 3.4.
3. General Rule. No Stockholder shall make or permit any Disposition,
directly or indirectly, through an Affiliate or Family Member or otherwise
(regardless of the manner in which such Stockholder initially acquired Common
Stock), without compliance with the provisions of this Agreement.
3.1 Acquisition Proposal. In the event any Stockholder desires, and is
permitted under Paragraphs 6 and 9, to make a Disposition involving the sale of
any Common Stock (except for Dispositions as provided in Paragraphs 3.2 through
3.4 or pursuant to the applicable provisions of Paragraph 7), such Disposition
may only be made after the fifth anniversary of the date hereof and then only if
an Acquisition Proposal is received by the Stockholder with respect thereto, and
then only in compliance with this Agreement. Upon receipt of an Acquisition
Proposal which Stockholder is permitted hereunder to accept and desires to
accept, the Stockholder desiring to accept the Acquisition Proposal ("Offeror")
shall offer (the "Offer"), by written notice to the Corporation, to sell the
Shares Subject to the Offer to the Eligible Offerees pursuant to the terms of
this Agreement. Offers under this Paragraph 3.1 shall (i) be irrevocable for so
long as the Eligible Offerees have the right to purchase any Shares Subject to
the Offer, (ii) be sent by the Offeror to the Corporation, (iii) state the
consideration for and the number of Shares Subject to the Offer, and (iv)
contain a description of and a copy of the Acquisition Proposal. In addition,
the Offeror shall provide to the Corporation all other information with respect
to the Acquisition Proposal and the proposed transferee reasonably requested by
the Corporation in order to enable it to evaluate the Acquisition Proposal and
verify the bona fide nature thereof. The date of such Offer shall be deemed to
be the date such written notice satisfying the provisions of this Paragraph 3.1
is delivered to the Corporation.
3.2 Divorce of Stockholder. If the marital relationship of a Stockholder
is terminated by divorce, and pursuant to such divorce or any property
settlement in connection with such divorce, Common Stock (or any interest
therein) previously registered in the name of such Stockholder ("Divorced
Stockholder") is transferred to, or a community property interest or similar
marital property interest is retained by or vested in, the spouse of the
Divorced Stockholder ("Divorced Spouse"), the Divorced Stockholder shall
promptly notify the Corporation of such event. The Divorced Stockholder shall
have the option to purchase all of the Divorced Stockholder's Common Stock (and
all interests therein) which has been transferred to or which is retained by or
vested in the Divorced Spouse by virtue of the divorce decree, property
settlement, or by operation of the community property or similar marital
property laws for the Purchase Price, and the Divorced Spouse shall be
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obligated to sell such Common Stock (and all interests therein) to the Divorced
Stockholder for the Purchase Price. Such option must be exercised, and the
purchase consummated, within 30 days after the Common Stock is transferred to or
allowed to be retained by or vested in the Divorced Spouse. The option shall be
exercised by the giving of written notice of exercise to the Divorced Spouse.
The Divorced Stockholder shall, within five days after the expiration of such
30-day period, deliver written notice to the Corporation as to whether the
Divorced Stockholder has purchased all of the Common Stock (and all interests
therein) so transferred to or otherwise vested in or retained by the Divorced
Spouse. In the event such written notice states that the Divorced Stockholder
has not purchased all such Common Stock (and all interests therein), or no such
notice is delivered to the Corporation within the time required, the Divorced
Spouse shall be deemed to have made an irrevocable offer (the "Offer") of all
such Common Stock (and all interests therein) to the Eligible Offerees as of (i)
the date of receipt of such notice by the Corporation if delivered within the
time required, or (ii) if such notice is not delivered within the time required,
the date of the receipt by the Corporation of evidence satisfactory to it that
all such Common Stock (and all interests therein) was not purchased by the
Divorced Stockholder within such 30-day period. All such Common Stock (and all
interests therein) shall be deemed to be Shares Subject to the Offer pursuant to
this Paragraph 3.2.
3.3 Death of Spouse. If the spouse of a Stockholder dies, and all or any
portion of the Common Stock registered in the name of such Stockholder
("Surviving Stockholder") vests in or is transferable to any heir or legatee
other than the Surviving Stockholder, the Surviving Stockholder shall promptly
notify the Corporation of such event. The Surviving Stockholder shall have the
option to purchase all of the Common Stock vesting in or transferable to such
heir or legatee for the Purchase Price, and the estate of the deceased spouse
shall be obligated to sell such Common Stock to the Surviving Stockholder for
the Purchase Price. Such option must be exercised by the Surviving Stockholder,
and the purchase consummated, within 60 days after the last to occur of (i) the
entry of an order of a probate or similar court (having jurisdiction over the
estate of the deceased spouse) (a) admitting to probate the will of the deceased
spouse, or (b) determining the heirs of the deceased spouse if the deceased
spouse is determined to have died intestate, or (ii) the appointment of the
executor, administrator or legal representative of the estate of the deceased
spouse. The option shall be exercised by the giving of written notice of
exercise to the executor, administrator or legal representative of the deceased
spouse's estate. The Surviving Stockholder shall, within five days after the
expiration of such 60-day period, deliver written notice to the Corporation as
to whether the Surviving Stockholder has purchased all of the Common Stock
vesting in or transferable to any such heir or legatee. In the event such
written notice states that the Surviving Stockholder has not purchased all such
Common Stock, or no such notice is delivered to the corporation within the time
required, all such heirs and legatees shall be deemed to have made an
irrevocable offer (the "Offer") of such Common Stock to the Eligible Offerees as
of (A) the date of the receipt of such notice by the Corporation, if delivered
within the time required, or (B) if such notice is not given within the time
required, the date of the receipt by the Corporation of evidence satisfactory to
it that all such Common Stock was not purchased by the Surviving Stockholder
within such 60-day period. All such Common Stock shall be deemed Shares Subject
to the Offer pursuant to this Paragraph 3.3.
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3.4 Bankruptcy; Transfer of Interest in Stockholder. If any of the
following occur:
(i) any Stockholder shall (a) voluntarily be adjudicated a bankrupt or
insolvent, (b) consent to or not contest the appointment of a receiver or
trustee for himself, herself or itself or for all or any part of his, her
or its property, (c) file a petition seeking relief under the bankruptcy,
rearrangement, reorganization or other debtor relief laws of the United
States or any state or any other competent jurisdiction, (d) make a general
assignment for the benefit of his, her or its creditors, or (e) become
insolvent,
(ii) if a petition is filed against a Stockholder seeking relief under
the bankruptcy, rearrangement, reorganization or other debtor relief laws
of the United States or any state or other competent jurisdiction, or a
court of competent jurisdiction enters an order, judgment or decree
appointing a receiver or trustee for a Stockholder, or for any part of his,
her or its property, and such petition, order, judgment or decree shall not
be and remain discharged or stayed within a period of 60 days after its
entry, or
(iii) if a Disposition described in the last sentence of Paragraph
2(v) shall occur with respect to a Stockholder that is not an individual,
any such event shall be deemed an irrevocable "Offer", and such Stockholder
shall promptly notify the Corporation of such event and the date of such Offer
shall be the date such Stockholder so notifies the Corporation (or, if no such
notice is delivered to the Corporation by the Stockholder, the Offer will be
deemed to be made on the date of the Corporation's receipt of evidence,
satisfactory to it, of any of the foregoing events). All Common Stock
registered in the name of such Stockholder shall be Shares Subject to the Offer
pursuant to this Paragraph 3.4.
4. [Intentionally omitted]
5. Procedures; Price.
5.1 Eligible Offerees. The Eligible Offerees (in the aggregate) shall
have the right, for 30 days following the date of an Offer pursuant to
Paragraphs 3.1 through 3.4, to accept the Offer for all (but not less than all)
of the Shares Subject to the Offer. If the Corporation shall not have
sufficient surplus to permit it lawfully to purchase Shares Subject to the Offer
which the Corporation has accepted in whole or in part, the Stockholders shall
promptly upon the request of the Corporation, take such action to vote their
respective shares to reduce the stated capital of the Corporation or to
authorize such other steps as may be appropriate or necessary in order to enable
the Corporation, if possible, lawfully to purchase such Shares Subject to the
Offer.
5.2 Certain Effects of Offers. If the Eligible Offerees do not accept an
Offer for all of the Shares Subject to the Offer, and such Offer has been made
under Paragraph 3.1, the Offeror desiring to make the Disposition pursuant to
Paragraph 3.1 shall be permitted, subject to compliance with Paragraphs 6 and 9,
at any time or times within, but not after,
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30 days after the expiration of all rights to accept such Offer, to make a
Disposition of all (but not less than all) of the Shares Subject to the Offer;
provided, however, that no such Disposition shall be made at a lower price or on
more favorable terms or to any person other than specified in the Acquisition
Proposal. All Common Stock transferred in accordance with the terms of this
Agreement to any third party or to any Eligible Offeree (other than the
Corporation), and all Shares Subject to the Offer pursuant to Paragraph 3.1 and
remaining unsold after such 30-day period, and all Shares Subject to the Offer
under Paragraphs 3.2 through 3.4 (unless acquired by the Corporation), shall
remain subject to the terms of this Agreement.
5.3 Acceptance; Closing. Eligible Offerees who accept an Offer as to all
or any portion of the Shares Subject to the Offer shall evidence their
acceptance by delivering, within 30 days after the date of the Offer, to the
Offeror or other transferor a written notice of intent to purchase such Shares
Subject to the Offer ("Acceptance Notice"). The closing of the acquisitions of
Shares Subject to the Offer by Eligible Offerees shall be consummated within 30
days following the delivery of the Acceptance Notice. In the case of all
acquisitions of Shares Subject to the Offer by Eligible Offerees, such
acquisitions shall be consummated at a closing held at the principal offices of
the Corporation (unless otherwise mutually agreed), at which time the Purchase
Price (if cash, in the form of a cashier's check) shall be delivered to the
transferor of the Common Stock or the transferor's representative, and the
transferor or the transferor's representative shall deliver to the Eligible
Offeree(s) purchasing such shares certificates representing all of the Shares
Subject to the Offer, duly endorsed for transfer or accompanied by duly executed
stock powers, and such evidence of good title to the Shares Subject to the Offer
and the absence of liens, encumbrances and adverse claims with respect thereto
as the Corporation reasonably requests and such other matters as are necessary
for the proper transfer of the Shares Subject to the Offer to the acquiring
Eligible Offeree(s) on the books of the Corporation.
5.4 Form of Payment. The Purchase Price of any Shares Subject to the
Offer purchased by Eligible Offerees pursuant to an Offer made under Paragraph
3.1 shall be on such terms as contemplated by the Acquisition Proposal;
provided, however, that if (i) the party which has made the Acquisition Proposal
has proposed to acquire Shares Subject to the Offer not wholly in cash and (ii)
any Eligible Offeree desires to consummate the acquisition(s) of Shares Subject
to the Offer (pursuant to the terms hereof) wholly in cash, then, upon request
by such Eligible Offeree, the Board shall determine the per share cash value of
the Acquisition Proposal, and such amount shall be the cash price per share to
be paid to the Offeror by any Eligible Offeree who desires to purchase the
Shares Subject to the Offer for cash. If the transferor of the Common Stock
shall disagree with the per share cash value as so determined by the Board, such
transferor may give written notice of such disagreement to the Corporation and
the Corporation shall promptly cause an independent third party appraiser (who
shall be satisfactory to the Corporation and such transferor) to determine such
per share cash value, and the determination by such appraiser shall be the cash
price per share for such transaction and shall be final and binding on the
Corporation, such Eligible Offeree and such transferor. Such written notice of
disagreement shall contain the agreement by such transferor to pay one-half of
the fees and expenses of such appraiser in connection with such appraisal. The
Purchase Price of all Shares Subject to the Offer pursuant to an offer made
under Paragraphs 3.2 through 3.4 shall be paid in cash.
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6. Loan and Other Agreements. Notwithstanding anything herein to the
contrary, no Stockholder shall make any Disposition (including but not limited
to a Disposition pursuant to Paragraph 3 or 7 hereof) which, in the
Corporation's reasonable judgment (as evidenced by a resolution of the Board),
would cause a breach or default or acceleration of payments under any loan
agreement, note, indenture or other agreement or instrument to which the
Corporation and/or any of its Affiliates is a party and under which the
indebtedness or liability of the Corporation and/or any of its Affiliates
exceeds $1 million ("Material Agreement"). Such a determination by the
Corporation will have no effect if such Stockholder delivers to the Corporation
an opinion of counsel addressed to the Corporation and reasonably satisfactory
to the Corporation to the effect that no such breach, default or acceleration
will be caused. Therefore, each Stockholder desiring or required to make a
Disposition shall, prior to attempting to effect any such Disposition, (i) give
written notice to the Corporation describing the proposed Disposition and the
proposed transferee in sufficient detail, setting forth the number of shares of
Common Stock as to which such Stockholder desires to make a Disposition, and
(ii) provide such other information concerning the Disposition as the
Corporation reasonably requests. If the proposed Disposition would cause
(determined as set forth above) a breach or default or acceleration of payments
under any Material Agreement, then such Disposition may not be made, and any
attempted Disposition shall be null and void. If such Disposition is permitted
by this Section 6 and any shares of Common Stock with respect to which approval
has been given are not actually transferred within 30 days from the date of such
approval, then all of the provisions of this Agreement shall apply to any
subsequent transaction affecting such Common Stock or any interest therein.
Additionally, all shares of Common Stock transferred (whether to a third party
or any Eligible Offeree other than the Corporation) pursuant to the terms hereof
shall remain subject to this Agreement.
7. Permitted Dispositions. The following Dispositions shall be permitted
without compliance with the provisions of Paragraphs 3 and 5 (but the other
provisions of this Agreement, including Paragraphs 6 and 9, shall apply to each
of the following Dispositions):
(i) by any Stockholder to an Eligible Offeree or any person in a
Disposition to which the Corporation consents, it being understood that the
Corporation has no obligation to consent to any such Disposition;
(ii) after the second anniversary of the date hereof by such
Stockholder to any Family Member of such Stockholder, or from a Family
Member of any Stockholder to such Stockholder;
(iii) upon the death of any Stockholder, to the estate, heirs,
beneficiaries or legatees of such Stockholder;
(iv) by any Stockholder to a bank or other financial institution for
purposes of securing a loan to such Stockholder; provided, that such bank
or financial institution shall have first delivered to the Corporation its
written agreement, in form and substance satisfactory to the Corporation,
that upon any foreclosure or any transaction in lieu of foreclosure with
respect to such Common Stock such bank or financial institution shall
assume and be bound by all the terms of this Agreement;
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(v) after the second anniversary of the date hereof, to an entity
organized under Section 501(c)(3) of the Internal Revenue Code of 1986 or
any successor statute (the "Code");
(vi) after the second anniversary of the date hereof, by any
Stockholder during his lifetime to (a) a guardian of the estate of such
Stockholder, (b) an inter-vivos trust for the benefit of such Stockholder
or whose primary beneficiary is one or more of such Stockholder's lineal
descendants (including lineal descendants by adoption), (c) the spouse of
such Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption);
(vii) after the second anniversary of the date hereof, to a
Stockholder by (a) a guardian of the estate of such Stockholder, (b) an
inter-vivos trust for the benefit of such Stockholder or whose primary
beneficiary is one or more of such Stockholder's lineal descendants
(including lineal descendants by adoption), (c) the spouse of such
Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption); and
(viii) by Posi-Trak Mud Motors, Inc. to Archie A. Cobb, III;
provided, however, that as a condition to any such permitted transfer any person
(including such person's spouse, if any) or entity (other than the Corporation)
so acquiring such Common Stock shall be required to subject the Common Stock
acquired by such person or entity to the provisions of this Agreement, and
thereafter any such person or entity shall be deemed a "Stockholder" for the
purposes of this Agreement.
8. Conditions To Permitted Transfers. As a condition to the
Corporation's obligation to effect a transfer permitted hereunder, any
transferee of Common Stock shall be required to become a party to this
Agreement, and shall have all the rights and obligations of a Stockholder
hereunder, by executing an Adoption Agreement in the form of Exhibit "A"
attached hereto or in such other form that is satisfactory to the Corporation.
9. Standstill Agreement; Securities Matters.
9.1 Standstill Agreement. At any time that the Corporation is engaged in
an underwritten public offering of its securities, each Stockholder agrees that
he will make no Disposition of Common Stock on any securities exchange or in the
over-the-counter or any other public trading market for whatever period of time
the Corporation (upon the recommendation of its underwriters) requests by
written notice to each Stockholder; provided, however, (i) that such request
shall not be for a period extending longer than 180 days following the later of
(a) the effectiveness of the registration statement to which the public offering
relates or (b) the date of the underwriting agreement. If a public offering
giving rise to the obligations set forth under this Paragraph 9 will terminate
this Agreement pursuant to the provisions of Paragraph 12(v), then the
obligations in this Paragraph 9 shall survive the termination of this Agreement
for 180 days after the Initial Public Offering, after which time the obligations
in this Paragraph 9 shall terminate.
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9.2. Securities Laws. No Stockholder shall make any Disposition of Common
Stock at any time if such action would constitute a violation of any federal or
state securities or blue sky laws or a breach of the conditions to any exemption
from registration of the Common Stock under any such laws or a breach of any
undertaking or agreement of a Stockholder entered into pursuant to such laws or
in connection with obtaining an exemption thereunder, and the Corporation shall
not transfer upon its books any shares of Common Stock unless prior thereto the
Corporation shall have received an opinion of counsel in form and substance
satisfactory to the Corporation that such transaction is in compliance with this
Paragraph 9.2. Each Stockholder agrees that any certificates representing
shares of Common Stock shall bear appropriate legends restricting the sale or
other transfer of such Common Stock in accordance with applicable federal or
state securities or blue sky laws and in accordance with the provisions of this
Agreement. This Paragraph 9.2 shall survive termination of this Agreement for
the maximum period permitted by applicable law.
10. Endorsement of Stock Certificates. All certificates of Common Stock
of the Corporation now owned or that may hereafter be acquired by the
Stockholders or any transferee (which transferee is subject to the terms of this
Agreement) shall be endorsed on the reverse side thereof substantially as
follows:
BY THE TERMS OF A STOCKHOLDERS' AGREEMENT, CERTAIN RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The foregoing legend shall be in addition to any and all other legends required
by applicable law or contract to be placed on certificates representing Common
Stock, including those referred to in Paragraph 9.
11. Notices. In the event a notice or other document is required to be
sent hereunder to the Corporation or to any Stockholder or the spouse or legal
representative of a Stockholder, such notice or other document, if sent by mail,
shall be sent by registered mail, return receipt requested, to the party
entitled to receive such notice or other document at (i) Drilex Holdings Corp.,
6600 Texas Commerce Tower, Houston, Texas 77002, Attention President, in the
case of the Corporation, (ii) at the addresses shown on the stock transfer
records of the Corporation in the case of the Stockholders, their spouses and
their respective legal representatives, or (iii) at such other address as any
such party shall request as to such party in a written notice sent to the
Corporation. Any such notice shall be effective and deemed received three days
after proper deposit in the mails, but actual notice shall be effective however
and whenever received. The Corporation or any Stockholder or spouse or their
respective legal representatives may effect a change of address for purposes of
this Agreement by giving notice of such change to the Corporation, and the
Corporation shall, upon the request of any party hereto, notify such party of
such change in the manner provided herein. Until such notice of change of
address is properly given, the addresses set forth herein shall be effective for
all purposes.
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12. Miscellaneous Provisions.
(i) This Agreement shall be subject to and governed by the laws of the
State of Delaware.
(ii) Whenever the context requires, the gender of all words used
herein shall include the masculine, feminine and neuter, and the number of
all words shall include the singular and plural.
(iii) This Agreement shall be binding upon the Corporation, the
Stockholders, any spouses of the Stockholders, and their respective heirs,
executors, administrators and permitted successors and assigns.
(iv) This Agreement may be amended or waived from time to time by an
instrument in writing signed by the Corporation and the holders of at least
the Required Voting Percentage at the time of such amendment, and such
instrument shall be designated on its face as an "Amendment" to this
Agreement.
(v) This Agreement shall terminate after ten days prior written notice
by the Corporation to all parties hereto (which notice may be conditional
upon the occurrence or nonoccurrence of specified events), and shall
terminate automatically upon (a) the dissolution of the Corporation, or (b)
the later of (A) five years after the date hereof or (B) the completion of
the Initial Public Offering, provided, however, that Paragraph 9 of this
Agreement shall survive any such termination to the extent and for the
periods set forth in such Paragraphs.
(vi) Any Stockholder who disposes of all such Stockholder's Common
Stock in conformity with the terms hereof shall cease to be a party to this
Agreement and shall have no further rights or obligations hereunder.
(vii) The spouses of the individual Stockholders are fully aware of,
understand and fully consent and agree to the provisions of this Agreement
and its binding effect upon any community property interests or similar
marital property interests in the Common Stock they may now or hereafter
own, and agree that the termination of their marital relationship with any
Stockholder for any reason shall not have the effect of removing any Common
Stock of the Corporation otherwise subject to this Agreement from the
coverage hereof and that their awareness, understanding, consent and
agreement are evidenced by their signing this Agreement. Furthermore, each
individual Stockholder agrees to cause his or her spouse (and any
subsequent spouse) to execute and deliver, upon the request of the
Corporation, a counterpart of this Agreement, or an Adoption Agreement in
the form attached hereto as Exhibit "A", or in a form satisfactory to the
Corporation.
(viii) Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect; provided that the Corporation may
determine to treat any attempted Disposition in breach of this Agreement as
an Offer pursuant to Paragraph 3.4; and if so the date of the Offer shall
be deemed to be the date the
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Corporation, after receipt of evidence satisfactory to it that such
Disposition or attempted Disposition has occurred, gives written notice of
such Disposition or attempted Disposition to the Eligible Offerees, and the
Corporation shall have a period of 180 days after receipt of actual
knowledge of the Disposition and all relevant facts to give such notice.
In connection with any attempted Disposition in breach of this Agreement,
the Corporation may hold and refuse to transfer any Common Stock or any
certificate therefor tendered to it for transfer, in addition to and
without prejudice to any and all other rights or remedies which may be
available to it or the Stockholders. Each party hereto acknowledges that a
remedy at law for any breach or attempted breach hereof will be inadequate,
agrees that each other party hereto shall be entitled to specific
performance and injunctive and other equitable relief in case of any such
breach or attempted breach and further agrees to waive any requirement for
the obtaining of any such injunctive or other equitable relief.
(ix) Each Stockholder and his or her spouse, if any, hereby appoint
the Corporation as their agent and attorney to make the Offers required and
take all actions necessary under Paragraphs 3.2 through 3.4 and 12(viii) on
their behalf and to execute any required Adoption Agreement on their
behalf, and expressly bind themselves to such Offers and to the
Corporation's execution of any such Adoption Agreement without further
action on their part, and such powers of attorney granted herein are deemed
to be coupled with an interest in the Common Stock and shall survive the
death, disability, bankruptcy or dissolution of such Stockholder or his or
her spouse, if any.
(x) If any portion of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, such declaration
shall not affect the validity of the remaining provisions.
(xi) This Agreement sets forth the entire agreement of the parties
hereto as to the subject matter hereof and supersedes all previous
agreements among all or some of the parties hereto, whether written, oral
or otherwise. This Agreement may be executed in multiple counterparts, any
one of which may contain the signature of more than one party, but all of
which counterparts together shall constitute one and the same instrument.
(xii) No person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
(xiii) Each Stockholder, if an employee of the Corporation or any of
its subsidiaries, acknowledges and agrees that neither the acquisition of
Common Stock by such Stockholder nor the execution of this Agreement by the
Corporation or such Stockholder creates any obligation whatsoever by the
Corporation or any of its subsidiaries to continue such Stockholder's
employment or otherwise affects the Corporation's right, which the
Stockholder hereby acknowledges, to terminate such Stockholder's employment
at will, with or without cause in the sole discretion of the Corporation or
any of its subsidiaries which is an employer of such Stockholder.
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(xiv) If any Common Stock is pledged to a bank or other financial
institution as permitted by Paragraph 7(iv) and such shares are to be sold
to Eligible Offeree(s), the Stockholders and their spouses, if the
transferor of such shares, hereby authorize any such bank or financial
institution to deliver certificates representing such shares to the
Corporation against receipt of the Purchase Price therefor, and authorize
the Eligible Offeree(s) to make payment of the Purchase Price to such bank
or financial institution for application to any indebtedness secured by any
such shares, and such bank or financial institution is hereby authorized to
apply such Purchase Price so received to any such indebtedness.
(xv) If, and as often as, there are any changes in the Common Stock or
the common stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be
made in the provisions hereof, as may be required, so that the rights,
privileges, duties and obligations hereunder shall continue with respect to
the Common Stock or common stock as so changed.
13. Rights and Obligations to Participate in Stock Sales.
13.1 In the event (a) DRLX Partners, L.P. ("DRLX") receives a bona fide
written proposal (a "DRLX Acquisition Proposal") for the purchase of all of the
shares of Common Stock of the Corporation (other than pursuant to an Initial
Public Offering) and (b) the Stockholders have not elected pursuant to Section
13.2 to participate in such transaction to the maximum extent provided in such
Section, DRLX shall promptly notify the Corporation of such fact (which notice
shall include a copy of such DRLX Acquisition Proposal) and the Corporation
shall send a copy of such notice (which notice shall include a copy of such DRLX
Acquisition Proposal) to all of the Stockholders. If such DRLX Acquisition
Proposal is acceptable to DRLX, then DRLX shall have the right and option,
exercisable by notifying the Corporation within 20 Business Days of its receipt
of the DRLX Acquisition Proposal (and the Corporation, in turn, shall promptly
notify each of the other Stockholders of its receipt of such notice), to require
each Stockholder to sell, and upon DRLX's exercise of such option, each
Stockholder shall be obligated to sell, to the purchaser pursuant to the terms
of the DRLX Acquisition Proposal, all of such Stockholder's shares of Common
Stock. In order for the provisions of this Section 13.1 to apply, a DRLX
Acquisition Proposal must (1) be from a third party that is not an Affiliate of
DRLX and (2) provide the same price per share and the same form of consideration
(or the same right of election of consideration) to all Stockholders and to
DRLX.
13.2 If DRLX receives a DRLX Acquisition Proposal for the purchase of any
of its shares of Common Stock (other than pursuant to an Initial Public Offering
or a sale to an Affiliate thereof), and desires to accept such DRLX Acquisition
Proposal (such desire to be evidenced in writing to the Board together with a
copy of such DRLX Acquisition Proposal), the Corporation shall notify the
Stockholders of such DRLX Acquisition Proposal (the "DRLX Acquisition Proposal
Notice") and furnish a copy of the DRLX Acquisition Proposal thereto, and
thereafter each of the Stockholders shall have the right and option to elect, by
giving written notice to the Corporation within 5 Business Days following
receipt of the DRLX Acquisition Proposal Notice (and the Corporation shall
promptly notify the
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other Stockholders of each Stockholder's election pursuant to this Paragraph
13.2) to sell, pursuant to the terms of the DRLX Acquisition Proposal, a portion
of such Stockholder's shares of Common Stock equal to (or, at each such
Stockholder's election, less than) the fraction (not to exceed 1) obtained by
dividing the total number of outstanding shares of Common Stock to be sold
pursuant to the DRLX Acquisition Proposal by the total number of shares of
Common Stock held by DRLX, by all Stockholders electing to sell pursuant to the
DRLX Acquisition Proposal and by any other stockholders of the Corporation
having rights similar to the rights in this Section 13.2 or otherwise having the
right to participate in such transaction.
This Agreement is executed by the Corporation and by each Stockholder and
spouse of a Stockholder to be effective as of the date first above written.
CORPORATION:
DRILEX HOLDINGS CORP.
By: /s/ David C. Baldwin
-------------------------------------
Name: David C. Baldwin
-----------------------------------
Title: Vice President
----------------------------------
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<PAGE>
STOCKHOLDERS
SHARES OWNED AT
STOCKHOLDERS TIME OF EXECUTION
POSI-TRAK MUD MOTORS, INC.
By: /s/ Archie Cobb, III 133,333
-------------------------------
(Stockholder)
SPECIAL JOINDER BY DRLX PARTNERS, L.P.
DRLX Partners, L.P. hereby joins in this Agreement for the sole purpose of
evidencing its agreement to be bound by the provisions set forth in Paragraph
13. The parties acknowledge and agree that DRLX Partners, L.P. is not a
"Stockholder" for purposes of this Agreement.
DRLX Partners, L.P.
By: SCF Partners, L.P.
By: SCF Investment Partners, Inc.,
Its General Partner
By: /s/ L. E. Simmons
----------------------------
L. E. Simmons
President
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<PAGE>
Exhibit 4.6
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement"), dated as of May 5, 1995, is
among Drilex Holdings Corp., a Delaware corporation ("Corporation"), the
stockholder or stockholders (or holder or holders of Warrants to purchase stock)
of the Corporation whose signatures appear on the signature pages of this
Agreement under the caption "Stockholders" (referred to herein individually as a
"Stockholder" and collectively as the "Stockholders") and, where applicable, the
respective spouses of the Stockholders.
1. Introduction. The Corporation is incorporated under the laws of the
State of Delaware. The Corporation and the Stockholders believe that it is in
the best interests of each, respectively, to restrict transfers of the Common
Stock of the Corporation with a view to, among other things, (i) minimizing the
likelihood of discord and deadlocks; (ii) maximizing the likelihood that the
ownership of Common Stock will remain with those who are active in corporation
affairs, thus enhancing motivation and incentive of such owners; (iii) avoiding
defaults in or accelerations of payment obligations under material agreements to
which the Corporation is or may be a party; and (iv) otherwise assuring the
orderly continuity of management, the non-attainment of any of which would
result in adverse consequences to the Corporation. Accordingly, in
consideration of the mutual promises contained herein, and subject to the terms
and conditions herein set forth, the parties have entered into this Agreement.
2. Certain Definitions. As used in this Agreement:
(i) The term "Acquisition Proposal" means a bona fide written proposal to a
Stockholder for the acquisition of Common Stock by the person or entity making
such proposal.
(ii) The term "Affiliate" of any person shall mean an entity or other
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person. As
used in this definition, the term "control", including the correlative terms
"controlling", "controlled by" and "under common control with" shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
any partnership or other ownership interest, by contract or otherwise) of a
person, corporation or other entity.
(iii) The term "Board" means the Board of Directors of the Corporation and
any duly authorized committee thereof. All determinations by the Board required
pursuant to the terms of this Agreement to be made by the Board shall be binding
and conclusive.
(iv) The term "Common Stock" means (a) all shares of common stock of the
Corporation owned by each of the Stockholders on the date hereof, (b) all shares
of common stock hereafter issued by the Corporation to or acquired by any
Stockholder
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(whether or not from the Corporation), whether in connection with a purchase,
issuance, grant, stock split, stock dividend, reorganization, warrant, option,
convertible security, right to acquire or otherwise, and specifically including
shares issuable upon exercise of the Warrants and (c) all securities of the
Corporation or any other corporation or entity which any Stockholder acquires in
respect of his or her shares of Common Stock in connection with any exchange,
merger, recapitalization, consolidation, reorganization or other transaction to
which the Corporation is a party. All references herein to Common Stock owned by
a Stockholder include the community interest or similar marital property
interest, if any, of the spouse of such Stockholder in such Common Stock. The
term "common stock" shall mean any stock of any class of the Corporation which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and which is not subject to redemption by the Corporation (whether
or not shares of such class have voting rights).
(v) The term "Disposition" shall mean any direct or indirect transfer,
assignment, sale, gift, pledge, hypothecation or other encumbrance, or any other
disposition, of Common Stock (or any interest therein or right thereto) or of
all or part of the voting power (other than the granting of a revocable proxy)
associated with the Common Stock (or any interest therein) whatsoever, or any
other transfer of beneficial ownership of Common Stock whether voluntary or
involuntary, including, without limitation (a) as a part of any liquidation of
the Stockholder's assets or (b) as a part of any reorganization of a Stockholder
pursuant to the United States or other bankruptcy law or other similar debtor
relief laws; provided, that the participation by Stockholders in a proposed
underwritten public offering of common stock of the Corporation (including the
entry into an underwriting agreement, a custody agreement and other agreements
ordinarily executed by selling stockholders in connection therewith), which
public offering, if consummated, would constitute an Initial Public Offering,
and the consummation thereof, shall not constitute a Disposition, it being
understood that, if such proposed underwritten public offering is terminated or
abandoned prior to consummation or is not consummated in a manner which
constitutes an Initial Public Offering, the Common Stock of such participating
Stockholders shall remain subject to this Agreement and no Disposition thereof
(whether pursuant to agreements entered into in connection with such proposed
underwritten public offering or otherwise) shall be permitted hereunder without
compliance with the terms of this Agreement. For a Stockholder that is not an
individual, "Disposition" shall specifically include any direct or indirect,
voluntary or involuntary transfer, assignment, sale, gift, pledge, hypothecation
or other encumbrance or any other disposition of any equity interest in such
Stockholder.
(vi) The term "Eligible Offerees" shall mean the Corporation and/or a
purchaser or purchasers designated by the Corporation.
(vii) The term "Family Member" of an individual Stockholder shall mean (a)
any member of the immediate family of such individual Stockholder, including
parents, siblings,spouse and children (including those by adoption); the
parents, siblings, spouse or children (including those by adoption) of such
immediate family member; and in any such case any trust whose primary
beneficiary is such individual Stockholder or one or
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<PAGE>
more members of such immediate family and/or such Stockholder's lineal
descendants, and (b) the legal representative or guardian of such individual
Stockholder or of any such immediate family member in the event such individual
Stockholder or any such immediate family member becomes mentally incompetent.
(viii) The term "Initial Public Offering" shall mean the consummation of
an underwritten public offering of common stock of the Corporation pursuant to a
registration statement filed under the Securities Act after the date hereof
(other than any registration statement relating to warrants, options or shares
of capital stock granted or to be granted or sold primarily to employees,
directors, or officers of the Corporation, a registration statement filed
pursuant to Rule 145 under the Securities Act or any successor rule, a
registration statement relating to employee benefit plans or interests therein
and any registration statement covering preferred stock or securities issued in
connection with any debt or preferred stock financing of the Corporation)
wherein the aggregate net proceeds (after deducting all costs, discounts,
commissions and other expenses of the offering) to the Corporation, the selling
stockholders or the Corporation and the selling stockholders are at least
$10,000,000.
(ix) The term "Purchase Price" shall mean, subject to adjustment pursuant
to Paragraph 5.4 and the provisions of this Paragraph 2(ix), (a) for purposes of
the purchase of Shares Subject to the Offer under Paragraph 3.1, the price per
share set forth in the Acquisition Proposal and (b) for purposes of the purchase
of Shares Subject to the Offer under Paragraphs 3.2 through 3.4 or under
Paragraph 4, and shares of Common Stock purchased by a Divorced Stockholder or a
Surviving Stockholder under Paragraphs 3.2 and 3.3, the then-current market
price per share of Common Stock of the Corporation as of the Pricing Date. For
purposes hereof, the "Pricing Date" is (as applicable) the date of the Offer (as
defined in Paragraphs 3.2, 3.3, 3.4 and 4, as applicable) or the first date on
which the options referred to in Paragraphs 3.2 and 3.3 are exercisable. The
current market price per share as of a date shall mean (I) if the Common Stock
is registered under Section 12 of the Exchange Act (as defined below) and is
publicly traded, the average of the daily closing prices (as defined below) of
the Common Stock for the 10 consecutive trading days (as defined below)
immediately preceding such date or (II) otherwise, the EBITDA Multiple Value (as
defined below). The closing price for each day shall be the last reported sales
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on a
national securities exchange, the last sales price regular way for the Common
Stock as published by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or if such last sale price is not so published by
NASDAQ or if no such sale takes place on such day, the mean between the closing
bid and asked prices for the Common Stock as published by NASDAQ. A trading day
shall mean a day on which the securities exchange specified for purposes of this
Paragraph 2(ix) shall be open for business or, if the shares of Common Stock
shall not be listed on such exchange for such period, a day with respect to
which quotations of the character referred to in the preceding sentence shall be
reported. The EBITDA Multiple Value as of any date shall be determined as
follows: (1) the enterprise value of the Corporation shall be deemed to be six
times
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Corporation's earnings before interest, taxes, depreciation and amortization
("EBITDA") (all as determined in accordance with generally accepted accounting
principles) for the twelve months ending as of the date of the Corporation's
most recently issued quarterly or annual financial statements; (2) the common
equity value of the Corporation shall be such enterprise value reduced by (x)
the Corporation's net debt (the excess, if any, of debt or liabilities for
borrowed money over cash and cash equivalents) and (y) the amount of any
preferred stock, both of the Corporation and its subsidiaries consolidated as of
the end of such twelve-month period; and (3) the per share EBITDA Multiple Value
shall be such common equity value divided by the number of shares of common
equity (or equivalents) of the Corporation outstanding.
(x) The term "Related Dispositions" shall mean a series of Dispositions to
one person or group of persons (as "group" is defined for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act") and as so defined, "Group") (a)
within any 180-day period or (b) pursuant to a common agreement or plan of
disposition among the persons making such Dispositions, whether written or oral.
(xi) The term "Required Voting Percentage" shall mean a majority of the
shares of Common Stock outstanding owned by the Stockholders or issuable upon
exercise of Warrants owned by the Stockholders as of the date the vote is taken.
(xii) The term "Retirement" means the termination of employment with the
Corporation or any of its subsidiaries by an employee in accordance with the
Company's normal retirement policy.
(xiii) The term "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(xiv) The term "Shares Subject to the Offer" shall mean (a) with respect
to an Offer required under Paragraph 3.1 as a result of an Acquisition Proposal,
all shares of Common Stock subject to such Acquisition Proposal, and no others,
(b) with respect to an Offer required under Paragraph 3.2, all shares of Common
Stock transferred to or retained by or vested in the Divorced Spouse (as defined
therein) and not elected to be purchased by the Divorced Stockholder (as defined
therein) within the time limits specified therein, and no others, (c) with
respect to an Offer required under Paragraph 3.3, all shares of Common Stock
vesting in or transferable to any heir or legatee of the deceased spouse other
than the Surviving Stockholder (as defined therein) and not elected to be
purchased by the Surviving Stockholder within the time limits specified therein,
and no others and (d) all shares of Common Stock owned by a Stockholder required
to make an Offer under Paragraph 3.4.
(xv) The term "Warrants" shall mean the Warrants to purchase Common Stock
issued pursuant to the Warrant Agreement dated the date hereof between the
Corporation and the Stockholders.
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3. General Rule. No Stockholder shall make or permit any Disposition,
directly or indirectly, through an Affiliate or Family Member or otherwise
(regardless of the manner in which such Stockholder initially acquired Common
Stock), without compliance with the provisions of this Agreement.
3.1 Acquisition Proposal. In the event any Stockholder desires, and is
permitted under Paragraphs 6 and 9, to make a Disposition involving the sale of
any Common Stock (except for Dispositions as provided in Paragraphs 3.2 through
3.4 or Paragraph 4 or pursuant to the applicable provisions of Paragraph 7),
such Disposition may only be made after the second anniversary of the date
hereof and then only if an Acquisition Proposal is received by the Stockholder
with respect thereto, and then only in compliance with this Agreement. Upon
receipt of an Acquisition Proposal which Stockholder is permitted hereunder to
accept and desires to accept, the Stockholder desiring to accept the Acquisition
Proposal ("Offeror") shall offer (the "Offer"), by written notice to the
Corporation, to sell the Shares Subject to the Offer to the Eligible Offerees
pursuant to the terms of this Agreement. Offers under this Paragraph 3.1 shall
(i) be irrevocable for so long as the Eligible Offerees have the right to
purchase any Shares Subject to the Offer, (ii) be sent by the Offeror to the
Corporation, (iii) state the consideration for and the number of Shares Subject
to the Offer, and (iv) contain a description of and a copy of the Acquisition
Proposal. In addition, the Offeror shall provide to the Corporation all other
information with respect to the Acquisition Proposal and the proposed transferee
reasonably requested by the Corporation in order to enable it to evaluate the
Acquisition Proposal and verify the bona fide nature thereof. The date of such
Offer shall be deemed to be the date such written notice satisfying the
provisions of this Paragraph 3.1 is delivered to the Corporation.
3.2 Divorce of Stockholder. If the marital relationship of a Stockholder
is terminated by divorce, and pursuant to such divorce or any property
settlement in connection with such divorce, Common Stock (or any interest
therein) previously registered in the name of such Stockholder ("Divorced
Stockholder") is transferred to, or a community property interest or similar
marital property interest is retained by or vested in, the spouse of the
Divorced Stockholder ("Divorced Spouse"), the Divorced Stockholder and the
Divorced Spouse shall each promptly notify the Corporation of such event. The
Divorced Stockholder shall have the option to purchase all of the Divorced
Stockholder's Common Stock (and all interests therein) which has been
transferred to or which is retained by or vested in the Divorced Spouse by
virtue of the divorce decree, property settlement, or by operation of the
community property or similar marital property laws for the Purchase Price, and
the Divorced Spouse shall be obligated to sell such Common Stock (and all
interests therein) to the Divorced Stockholder for the Purchase Price. Such
option must be exercised, and the purchase consummated, within 30 days after the
Common Stock is transferred to or allowed to be retained by or vested in the
Divorced Spouse. The option shall be exercised by the giving of written notice
of exercise to the Divorced Spouse. The Divorced Stockholder shall, within five
days after the expiration of such 30-day period, deliver written notice to the
Corporation as to whether the Divorced Stockholder has purchased all of the
Common Stock (and all interests therein) so transferred to or otherwise vested
in or retained by the Divorced Spouse. In the event such written notice states
that the Divorced Stockholder has not purchased all such Common Stock (and all
interests therein), or no such notice is delivered to the Corporation within the
time required, the Divorced Spouse shall be deemed to have made an irrevocable
offer (the "Offer") of all such Common Stock (and all interests therein) to the
Eligible Offerees as of (i) the date of receipt of such notice by the
Corporation if delivered within
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the time required, or (ii) if such notice is not delivered within the time
required, the date of the receipt by the Corporation of evidence satisfactory to
it that all such Common Stock (and all interests therein) was not purchased by
the Divorced Stockholder within such 30-day period. All such Common Stock (and
all interests therein) shall be deemed to be Shares Subject to the Offer
pursuant to this Paragraph 3.2.
3.3 Death of Spouse. If the spouse of a Stockholder dies, and all or any
portion of the Common Stock registered in the name of such Stockholder
("Surviving Stockholder") vests in or is transferable to any heir or legatee
other than the Surviving Stockholder, the Surviving Stockholder shall promptly
notify the Corporation of such event. The Surviving Stockholder shall have the
option to purchase all of the Common Stock vesting in or transferable to such
heir or legatee for the Purchase Price, and the estate of the deceased spouse
shall be obligated to sell such Common Stock to the Surviving Stockholder for
the Purchase Price. Such option must be exercised by the Surviving Stockholder,
and the purchase consummated, within 60 days after the last to occur of (i) the
entry of an order of a probate or similar court (having jurisdiction over the
estate of the deceased spouse) (a) admitting to probate the will of the deceased
spouse, or (b) determining the heirs of the deceased spouse if the deceased
spouse is determined to have died intestate, or (ii) the appointment of the
executor, administrator or legal representative of the estate of the deceased
spouse. The option shall be exercised by the giving of written notice of
exercise to the executor, administrator or legal representative of the deceased
spouse's estate. The Surviving Stockholder shall, within five days after the
expiration of such 60-day period, deliver written notice to the Corporation as
to whether the Surviving Stockholder has purchased all of the Common Stock
vesting in or transferable to any such heir or legatee. In the event such
written notice states that the Surviving Stockholder has not purchased all such
Common Stock, or no such notice is delivered to the corporation within the time
required, all such heirs and legatees shall be deemed to have made an
irrevocable offer (the "Offer") of such Common Stock to the Eligible Offerees as
of (A) the date of the receipt of such notice by the Corporation, if delivered
within the time required, or (B) if such notice is not given within the time
required, the date of the receipt by the Corporation of evidence satisfactory to
it that all such Common Stock was not purchased by the Surviving Stockholder
within such 60-day period. All such Common Stock shall be deemed Shares Subject
to the Offer pursuant to this Paragraph 3.3.
3.4 Bankruptcy; Transfer of Interest in Stockholder. If any of the
following occur:
(i) any Stockholder shall (a) voluntarily be adjudicated a bankrupt or
insolvent, (b) consent to or not contest the appointment of a receiver or
trustee for himself, herself or itself or for all or any part of his, her or its
property, (c) file a petition seeking relief under the bankruptcy,
rearrangement, reorganization or other debtor relief laws of the United States
or any state or any other competent jurisdiction, (d) make a general assignment
for the benefit of his, her or its creditors, or (e) become insolvent,
(ii) if a petition is filed against a Stockholder seeking relief under the
bankruptcy, rearrangement, reorganization or other debtor relief laws of the
United States or any state or other competent jurisdiction, or a court of
competent jurisdiction enters an order, judgment or decree appointing a receiver
or trustee for a Stockholder, or for any part of his, her or its property, and
such petition, order, judgment or decree shall not be and remain discharged or
stayed within a period of 60 days after its entry, or
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(iii) if a Disposition described in the last sentence of Paragraph 2(v)
shall occur with respect to a Stockholder that is not an individual,
any such event shall be deemed an irrevocable "Offer", and such Stockholder
shall promptly notify the Corporation of such event and the date of such Offer
shall be the date such Stockholder so notifies the Corporation (or, if no such
notice is delivered to the Corporation by the Stockholder, the Offer will be
deemed to be made on the date of the Corporation's receipt of evidence,
satisfactory to it, of any of the foregoing events). All Common Stock
registered in the name of such Stockholder shall be Shares Subject to the Offer
pursuant to this Paragraph 3.4.
4. Termination of Employment. If at any time the employment of a
Stockholder (or any original Stockholder that was a predecessor in interest of
such Stockholder) with the Corporation or any of its subsidiaries ceases for any
reason, with or without cause, other than death, permanent and total disability
or retirement, such Stockholder shall be required to sell to the Eligible
Offerees and shall be deemed to have made an Offer to sell, within 30 days from
the receipt of written notice from the Corporation ("Election Notice"), all
Common Stock owned by such Stockholder for the Purchase Price. The
determination of whether to send an Election Notice shall be at the option of
the Corporation acting in its sole discretion, and the Corporation shall have no
obligation to send any Election Notice. Such purchase and sale shall be
consummated at a closing at the time designated in the Election Notice and at
the Corporation's principal office (unless otherwise agreed) within 30 days from
the delivery of the Election Notice. At such closing, the Purchase Price (in the
form of a cashier's check) shall be delivered to such Stockholder and such
Stockholder shall deliver to the Eligible Offeree(s) purchasing such shares the
certificates representing all Common Stock registered in the name of such
Stockholder duly endorsed for transfer or accompanied by duly executed stock
powers, and evidence of good title to such shares and the absence of liens,
encumbrances and adverse claims with respect thereto and such other matters as
are necessary for the proper transfer of such shares to the acquiring Eligible
Offerees on the books of the Corporation. Until an Election Notice is delivered
to such Stockholder and such closing occurs, such Stockholder and all such
Stockholder's Common Stock shall remain subject to this Agreement. Termination
of employment with the Corporation or any of its subsidiaries for any reason,
with or without cause, shall not cause any Stockholder or any Stockholder's
Common Stock to cease to be subject to this Agreement.
5. Procedures; Price.
5.1 Eligible Offerees. The Eligible Offerees (in the aggregate) shall
have the right, for 30 days following the date of an Offer pursuant to
Paragraphs 3.1 through 3.4, to accept the Offer for all (but not less than all)
of the Shares Subject to the Offer. If the Corporation shall not have
sufficient surplus to permit it lawfully to purchase Shares Subject to the Offer
which the Corporation has accepted in whole or in part, the Stockholders shall
promptly upon the request of the Corporation, take such action to vote their
respective shares to reduce the stated capital of the Corporation or to
authorize such other steps as may be appropriate or necessary in order to enable
the Corporation, if possible, lawfully to purchase such Shares Subject to the
Offer.
5.2 Certain Effects of Offers. If the Eligible Offerees do not accept an
Offer for all of the Shares Subject to the Offer, and such Offer has been made
under Paragraph 3.1, the
7
<PAGE>
Offeror desiring to make the Disposition pursuant to Paragraph 3.1 shall be
permitted, subject to compliance with Paragraphs 6 and 9, at any time or times
within, but not after, 60 days after the expiration of all rights to accept such
Offer, to make a Disposition of all (but not less than all) of the Shares
Subject to the Offer; provided, however, that no such Disposition shall be made
at a lower price or on more favorable terms or to any person other than
specified in the Acquisition Proposal. All Common Stock transferred in
accordance with the terms of this Agreement to any third party or to any
Eligible Offeree (other than the Corporation), and all Shares Subject to the
Offer pursuant to Paragraph 3.1 and remaining unsold after such 30-day period,
and all Shares Subject to the Offer under Paragraphs 3.2 through 3.4 (unless
acquired by the Corporation) and all Common Stock purchased by Eligible Offerees
pursuant to Paragraph 4 (unless acquired by the Corporation), shall remain
subject to the terms of this Agreement, it being understood that, if no Election
Notice is given pursuant to Paragraph 4, the Stockholder and all his shares of
Common Stock shall nonetheless remain subject to this Agreement.
5.3 Acceptance; Closing. Eligible Offerees who accept an Offer as to all
or any portion of the Shares Subject to the Offer shall evidence their
acceptance by delivering, within 30 days after the date of the Offer, to the
Offeror or other transferor a written notice of intent to purchase such Shares
Subject to the Offer ("Acceptance Notice"). The closing of the acquisitions of
Shares Subject to the Offer by Eligible Offerees shall be consummated within 30
days following the delivery of the Acceptance Notice. In the case of all
acquisitions of Shares Subject to the Offer by Eligible Offerees, such
acquisitions shall be consummated at a closing held at the principal offices of
the Corporation (unless otherwise mutually agreed), at which time the Purchase
Price (if cash, in the form of a cashier's check) shall be delivered to the
transferor of the Common Stock or the transferor's representative, and the
transferor or the transferor's representative shall deliver to the Eligible
Offeree(s) purchasing such shares certificates representing all of the Shares
Subject to the Offer, duly endorsed for transfer or accompanied by duly executed
stock powers, and such evidence of good title to the Shares Subject to the Offer
and the absence of liens, encumbrances and adverse claims with respect thereto
as the Corporation reasonably requests and such other matters as are necessary
for the proper transfer of the Shares Subject to the Offer to the acquiring
Eligible Offeree(s) on the books of the Corporation.
5.4 Form of Payment. The Purchase Price of any Shares Subject to the
Offer purchased by Eligible Offerees pursuant to an Offer made under Paragraph
3.1 shall be on such terms as contemplated by the Acquisition Proposal;
provided, however, that if (i) the party which has made the Acquisition Proposal
has proposed to acquire Shares Subject to the Offer not wholly in cash and (ii)
any Eligible Offeree desires to consummate the acquisition(s) of Shares Subject
to the Offer (pursuant to the terms hereof) wholly in cash, then, upon request
by such Eligible Offeree, the Board shall determine the per share cash value of
the Acquisition Proposal, and such amount shall be the cash price per share to
be paid to the Offeror by any Eligible Offeree who desires to purchase the
Shares Subject to the Offer for cash. If the transferor of the Common Stock
shall disagree with the per share cash value as so determined by the Board, such
transferor may give written notice of such disagreement to the Corporation and
the Corporation shall promptly cause an independent third party appraiser (who
shall be satisfactory to the Corporation and such transferor) to determine such
per share cash value, and the determination by such appraiser shall be the cash
price per share for such transaction and shall be final and binding on the
Corporation, such Eligible Offeree and such transferor. Such written notice of
disagreement shall contain the agreement by such transferor to pay one-half of
the fees and expenses of such
8
<PAGE>
appraiser in connection with such appraisal. The Purchase Price of all Shares
Subject to the Offer pursuant to an offer made under Paragraphs 3.2 through 3.4
shall be paid in cash.
6. Loan and Other Agreements. Notwithstanding anything herein to the
contrary, no Stockholder shall make any Disposition (including but not limited
to a Disposition pursuant to Paragraph 3 or 7 hereof but not including a
Disposition to Eligible Offerees pursuant to Paragraph 4 hereof) which, in the
Corporation's reasonable judgment (as evidenced by a resolution of the Board),
would cause a breach or default or acceleration of payments under any loan
agreement, note, indenture or other agreement or instrument to which the
Corporation and/or any of its Affiliates is a party and under which the
indebtedness or liability of the Corporation and/or any of its Affiliates
exceeds $1 million ("Material Agreement"). Such a determination by the
Corporation will have no effect if such Stockholder delivers to the Corporation
an opinion of counsel addressed to the Corporation and reasonably satisfactory
to the Corporation to the effect that no such breach, default or acceleration
will be caused. Therefore, each Stockholder desiring or required to make a
Disposition (other than pursuant to Paragraph 4) shall, prior to attempting to
effect any such Disposition, (i) give written notice to the Corporation
describing the proposed Disposition and the proposed transferee in sufficient
detail, setting forth the number of shares of Common Stock as to which such
Stockholder desires to make a Disposition, and (ii) provide such other
information concerning the Disposition as the Corporation reasonably requests.
The Corporation shall promptly inform the Stockholder whether the proposed
Disposition is prohibited under this Section 6. If the proposed Disposition
would cause (determined as set forth above) a breach or default or acceleration
of payments under any Material Agreement, then such Disposition may not be made,
and any attempted Disposition shall be null and void. If such Disposition is
permitted by this Section 6 and any shares of Common Stock with respect to which
approval has been given are not actually transferred within 60 days from the
date of such approval, then all of the provisions of this Agreement shall apply
to any subsequent transaction affecting such Common Stock or any interest
therein. Additionally, all shares of Common Stock transferred (whether to a
third party or any Eligible Offeree other than the Corporation) pursuant to the
terms hereof shall remain subject to this Agreement.
7. Permitted Dispositions. The following Dispositions shall be permitted
without compliance with the provisions of Paragraphs 3 and 5 (but the other
provisions of this Agreement, including Paragraphs 6 and 9, shall apply to each
of the following Dispositions):
(i) by any Stockholder to an Eligible Offeree or any person in a
Disposition to which the Corporation consents, it being understood that the
Corporation has no obligation to consent to any such Disposition;
(ii) by such Stockholder to any Family Member of such Stockholder, or from
a Family Member of any Stockholder to such Stockholder;
(iii) upon the death of any Stockholder, to the estate, heirs,
beneficiaries or legatees of such Stockholder;
(iv) by any Stockholder to a bank or other financial institution for
purposes of securing a loan to such Stockholder; provided, that such bank or
financial institution shall have first delivered to the Corporation its written
agreement, in form and substance
9
<PAGE>
satisfactory to the Corporation, that upon any foreclosure or any transaction in
lieu of foreclosure with respect to such Common Stock such bank or financial
institution shall assume and be bound by all the terms of this Agreement;
(v) to an entity organized under Section 501(c)(3) of the Internal Revenue
Code of 1986 or any successor statute (the "Code");
(vi) by any Stockholder during his lifetime to (a) a guardian of the estate
of such Stockholder, (b) an inter-vivos trust for the benefit of such
Stockholder or whose primary beneficiary is one or more of such Stockholder's
lineal descendants (including lineal descendants by adoption), (c) the spouse of
such Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by adoption);
(vii) to a Stockholder by (a) a guardian of the estate of such
Stockholder, (b) an inter-vivos trust for the benefit of such Stockholder or
whose primary beneficiary is one or more of such Stockholder's lineal
descendants (including lineal descendants by adoption), (c) the spouse of such
Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by adoption); and
(viii) by any Stockholder to any of the Sellers (as defined in the Stock
Purchase Agreement of even date herewith between the Corporation and such
Sellers) that is a party hereto.
provided, however, that as a condition to any such permitted transfer any person
(including such person's spouse, if any) or entity (other than the Corporation)
so acquiring such Common Stock shall be required to subject the Common Stock
acquired by such person or entity to the provisions of this Agreement, and
thereafter any such person or entity shall be deemed a "Stockholder" for the
purposes of this Agreement.
8. Conditions To Permitted Transfers. As a condition to the Corporation's
obligation to effect a transfer permitted hereunder, any transferee of Common
Stock shall be required to become a party to this Agreement, and shall have all
the rights and obligations of a Stockholder hereunder, by executing an Adoption
Agreement in the form of Exhibit "A" attached hereto or in such other form that
is satisfactory to the Corporation.
9. Standstill Agreement; Securities Matters.
9.1 Standstill Agreement. At any time that the Corporation is engaged in
an underwritten public offering of its securities, each Stockholder agrees that
he will make no Disposition of Common Stock on any securities exchange or in the
over-the-counter or any other public trading market for whatever period of time
the Corporation (upon the recommendation of its underwriters) requests by
written notice to each Stockholder; provided, however, (i) that such request
shall not be for a period extending longer than 180 days following the later of
(a) the effectiveness of the registration statement to which the public offering
relates or (b) the date of the underwriting agreement. If a public offering
giving rise to the obligations set forth under this
10
<PAGE>
Paragraph 9 will terminate this Agreement pursuant to the provisions of
Paragraph 12(v), then the obligations in this Paragraph 9 shall survive the
termination of this Agreement for 180 days after the Initial Public Offering,
after which time the obligations in this Paragraph 9 shall terminate.
9.2. Securities Laws. No Stockholder shall make any Disposition of Common
Stock at any time if such action would constitute a violation of any federal or
state securities or blue sky laws or a breach of the conditions to any exemption
from registration of the Common Stock under any such laws or a breach of any
undertaking or agreement of a Stockholder entered into pursuant to such laws or
in connection with obtaining an exemption thereunder, and the Corporation shall
not be required to transfer upon its books any shares of Common Stock unless
prior thereto the Corporation shall have received an opinion of counsel in form
and substance satisfactory to the Corporation that such transaction is in
compliance with this Paragraph 9.2. Each Stockholder agrees that any
certificates representing shares of Common Stock shall bear appropriate legends
restricting the sale or other transfer of such Common Stock in accordance with
applicable federal or state securities or blue sky laws and in accordance with
the provisions of this Agreement. This Paragraph 9.2 shall survive termination
of this Agreement for the maximum period permitted by applicable law.
10. Endorsement of Stock Certificates. All certificates of Common Stock
of the Corporation now owned or that may hereafter be acquired by the
Stockholders or any transferee (which transferee is subject to the terms of this
Agreement) shall be endorsed on the reverse side thereof substantially as
follows:
BY THE TERMS OF A STOCKHOLDERS' AGREEMENT, CERTAIN RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The foregoing legend shall be in addition to any and all other legends required
by applicable law or contract to be placed on certificates representing Common
Stock, including those referred to in Paragraph 9.
11. Notices. In the event a notice or other document is required to be
sent hereunder to the Corporation or to any Stockholder or the spouse or legal
representative of a Stockholder, such notice or other document, if sent by mail,
shall be sent by registered mail, return receipt requested, to the party
entitled to receive such notice or other document at (i) Drilex Holdings Corp.,
6600 Texas Commerce Tower, Houston, Texas 77002, Attention President, in the
case of the Corporation, (ii) at the addresses shown on the stock transfer
records of the Corporation in the case of the Stockholders, their spouses and
their respective legal representatives, or (iii) at such other address as any
such party shall request as to such party in a written notice sent to the
Corporation. Any such notice shall be effective and deemed received three days
after proper deposit in the mails, but actual notice shall be effective however
and whenever received. The Corporation or any Stockholder or spouse or their
respective legal representatives may effect a change of address for purposes of
this Agreement by giving notice of such change to the Corporation, and the
Corporation shall, upon the request of any party hereto, notify such party
11
<PAGE>
of such change in the manner provided herein. Until such notice of change of
address is properly given, the addresses set forth herein shall be effective for
all purposes.
12. Miscellaneous Provisions.
(i) This Agreement shall be subject to and governed by the laws of the
State of Delaware.
(ii) Whenever the context requires, the gender of all words used herein
shall include the masculine, feminine and neuter, and the number of all words
shall include the singular and plural.
(iii) This Agreement shall be binding upon the Corporation, the
Stockholders, any spouses of the Stockholders, and their respective heirs,
executors, administrators and permitted successors and assigns.
(iv) This Agreement may be amended or waived from time to time by an
instrument in writing signed by the Corporation and the holders of at least the
Required Voting Percentage at the time of such amendment, and such instrument
shall be designated on its face as an "Amendment" to this Agreement.
(v) This Agreement shall terminate after ten days prior written notice by
the Corporation to all parties hereto (which notice may be conditional upon the
occurrence or nonoccurrence of specified events), and shall terminate
automatically upon (a) the dissolution of the Corporation, or (b) the later of
(A) five years after the date hereof or (B) the completion of the Initial Public
Offering, provided, however, that Paragraph 9 of this Agreement shall survive
any such termination to the extent and for the periods set forth in such
Paragraphs, and Paragraph 13 shall survive until Rule 144 under the Securities
Act becomes available with respect to the sale of the securities of Corporation
owned by the Stockholders.
(vi) Any Stockholder who disposes of all such Stockholder's Common Stock in
conformity with the terms hereof shall cease to be a party to this Agreement and
shall have no further rights or obligations hereunder.
(vii) The spouses of the individual Stockholders are fully aware of,
understand and fully consent and agree to the provisions of this Agreement and
its binding effect upon any community property interests or similar marital
property interests in the Common Stock they may now or hereafter own, and agree
that the termination of their marital relationship with any Stockholder for any
reason shall not have the effect of removing any Common Stock of the Corporation
otherwise subject to this Agreement from the coverage hereof and that their
awareness, understanding, consent and agreement are evidenced by their signing
this Agreement. Furthermore, each individual Stockholder agrees to cause his or
her spouse (and any subsequent spouse) to execute and deliver, upon the request
of the Corporation, a counterpart of this Agreement, or an Adoption Agreement in
the form attached hereto as Exhibit "A", or in a form satisfactory to the
Corporation.
12
<PAGE>
(viii) Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect; provided that the Corporation may
determine to treat any attempted Disposition in breach of this Agreement as an
Offer pursuant to Paragraph 3.4; and if so the date of the Offer shall be deemed
to be the date the Corporation, after receipt of evidence satisfactory to it
that such Disposition or attempted Disposition has occurred, gives written
notice of such Disposition or attempted Disposition to the Eligible Offerees,
and the Corporation shall have a period of 90 days after receipt of actual
knowledge of the Disposition and all relevant facts to give such notice. In
connection with any attempted Disposition in breach of this Agreement, the
Corporation may hold and refuse to transfer any Common Stock or any certificate
therefor tendered to it for transfer, in addition to and without prejudice to
any and all other rights or remedies which may be available to it or the
Stockholders. Each party hereto acknowledges that a remedy at law for any
breach or attempted breach hereof will be inadequate, agrees that each other
party hereto shall be entitled to specific performance and injunctive and other
equitable relief in case of any such breach or attempted breach and further
agrees to waive any requirement for the obtaining of any such injunctive or
other equitable relief.
(ix) Each Stockholder and his or her spouse, if any, hereby appoint the
Corporation as their agent and attorney to make the Offers required and take all
actions necessary under Paragraphs 3.2 through 3.4, 4 and 12(viii) on their
behalf and to execute any required Adoption Agreement on their behalf, and
expressly bind themselves to such Offers and to the Corporation's execution of
any such Adoption Agreement without further action on their part, and such
powers of attorney granted herein are deemed to be coupled with an interest in
the Common Stock and shall survive the death, disability, bankruptcy or
dissolution of such Stockholder or his or her spouse, if any.
(x) If any portion of this Agreement is declared by a court of competent
jurisdiction to be invalid or unenforceable, such declaration shall not affect
the validity of the remaining provisions.
(xi) This Agreement sets forth the entire agreement of the parties hereto
as to the subject matter hereof and supersedes all previous agreements among all
or some of the parties hereto, whether written, oral or otherwise. This
Agreement may be executed in multiple counterparts, any one of which may contain
the signature of more than one party, but all of which counterparts together
shall constitute one and the same instrument.
(xii) No person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
(xiii) Each Stockholder, if an employee of the Corporation or any of its
subsidiaries, acknowledges and agrees that neither the acquisition of Common
Stock by such Stockholder nor the execution of this Agreement by the Corporation
or such Stockholder creates any obligation whatsoever by the Corporation or any
of its subsidiaries to continue such Stockholder's employment or otherwise
affects the Corporation's right, which the Stockholder hereby acknowledges, to
terminate such Stockholder's employment at will, with or without cause in the
sole discretion of the Corporation or any of its subsidiaries which is an
employer of such Stockholder.
13
<PAGE>
(xiv) If any Common Stock is pledged to a bank or other financial
institution as permitted by Paragraph 7(iv) and such shares are to be sold to
Eligible Offeree(s), the Stockholders and their spouses, if the transferor of
such shares, hereby authorize any such bank or financial institution to deliver
certificates representing such shares to the Corporation against receipt of the
Purchase Price therefor, and authorize the Eligible Offeree(s) to make payment
of the Purchase Price to such bank or financial institution for application to
any indebtedness secured by any such shares, and such bank or financial
institution is hereby authorized to apply such Purchase Price so received to any
such indebtedness.
(xv) If, and as often as, there are any changes in the Common Stock or the
common stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights, privileges,
duties and obligations hereunder shall continue with respect to the Common Stock
or common stock as so changed.
13. Rights and Obligations to Participate in Stock Sales.
13.1 In the event (a) DRLX Partners, L.P. ("DRLX") receives a bona fide
written proposal (a "DRLX Acquisition Proposal") for the purchase of all of the
shares of Common Stock of the Corporation (other than pursuant to an Initial
Public Offering) and (b) the Stockholders have not elected pursuant to Section
13.2 to participate in such transaction to the maximum extent provided in such
Section, DRLX shall promptly notify the Corporation of such fact (which notice
shall include a copy of such DRLX Acquisition Proposal) and the Corporation
shall send a copy of such notice (which notice shall include a copy of such DRLX
Acquisition Proposal) to all of the Stockholders. If such DRLX Acquisition
Proposal is acceptable to DRLX, then DRLX shall have the right and option,
exercisable by notifying the Corporation within 20 business days of its receipt
of the DRLX Acquisition Proposal (and the Corporation, in turn, shall promptly
notify each of the other Stockholders of its receipt of such notice), to require
each Stockholder to sell, and upon DRLX's exercise of such option, each
Stockholder shall be obligated to sell, to the purchaser pursuant to the terms
of the DRLX Acquisition Proposal, all of such Stockholder's shares of Common
Stock. In order for the provisions of this Paragraph 13.1 to apply, a DRLX
Acquisition Proposal must (1) be from a third party that is not an Affiliate of
DRLX and (2) provide the same price per share and the same form of consideration
(or the same right of election of consideration) to all Stockholders and to
DRLX.
13.2 If DRLX receives a DRLX Acquisition Proposal for the purchase of any
of its shares of Common Stock (other than pursuant to an Initial Public Offering
or a sale to an Affiliate thereof), and desires to accept such DRLX Acquisition
Proposal (such desire to be evidenced in writing to the Board together with a
copy of such DRLX Acquisition Proposal), the Corporation or DRLX shall notify
the Stockholders of such DRLX Acquisition Proposal (the "DRLX Acquisition
Proposal Notice") and furnish a copy of the DRLX Acquisition Proposal thereto,
and thereafter each of the Stockholders shall have the right and option to
elect, by giving written notice to the Corporation within 5 business days
following receipt of the DRLX Acquisition Proposal Notice (and the Corporation
or DRLX shall promptly notify the other Stockholders of each Stockholder's
election pursuant to this Paragraph 13.2) to sell, pursuant to
14
<PAGE>
the terms of the DRLX Acquisition Proposal, a portion of such Stockholder's
shares of Common Stock equal to (or, at each such Stockholder's election, less
than) the fraction (not to exceed 1) obtained by dividing the total number of
outstanding shares of Common Stock to be sold pursuant to the DRLX Acquisition
Proposal by the total number of shares of Common Stock held by DRLX, by all
Stockholders electing to sell pursuant to the DRLX Acquisition Proposal and by
any other stockholders of the Corporation having rights similar to the rights in
this Paragraph 13.2 or otherwise having the right to participate in such
transaction.
13.3 DRLX may transfer shares of Common Stock owned by it to any of its
Affiliates if the transferee agrees to be bound by the terms of this Paragraph
13. For purposes of this Paragraph 13, a "purchase" shall include any transfer,
assignment or other disposition for value.
14. Warrants. The provisions of Paragraphs 3, 4, 5, 6 and 13.1 shall also
apply to any Disposition of any Warrants. For purposes thereof, the current
market price of a Warrant shall be equal to the current market price of a share
of Common Stock minus the Warrant Price (as defined for purposes of the
Warrants), and the per share consideration pursuant to Section 13.1 for a
Warrant shall be reduced by the Warrant Price.
This Agreement is executed by the Corporation and by each Stockholder and
spouse of a Stockholder to be effective as of the date first above written.
CORPORATION:
DRILEX HOLDINGS CORP.
By:______________________
Name:____________________
Title:___________________
15
<PAGE>
STOCKHOLDERS
------------
<TABLE>
<CAPTION>
SHARES AND WARRANTS OWNED
AT TIME OF EXECUTION
-------------------------
STOCKHOLDERS SHARES WARRANTS
- ------------------------------------- ----------- ------------
<S> <C> <C>
/s/ S.R. ANDERSON 0 27,300
- ------------------------------
(Stockholder): S. R. Anderson
/s/ KATHY L. ANDERSON
- ------------------------------
(Stockholder's Spouse):
/s/ JOHN TEER 0 27,650
- ------------------------------
(Stockholder): John Teer
/s/ PAT TEER
- ------------------------------
(Stockholder's Spouse):
/s/TODD CASPARY 0 27,300
- ------------------------------
(Stockholder): Todd Caspary
- ------------------------------
(Stockholder's Spouse):
/s/ FRANK C. FOREST 0 8,530
- ------------------------------
(Stockholder): Frank Forest
/s/ DAWN A. FOREST
- ------------------------------
(Stockholder's Spouse):
/s/ GEORGE W. KOWALCZUK 0 4,610
- ------------------------------
(Stockholder): George W. Kowalczuk
/S/ VALERIE KOWALXZUK
- ------------------------------
(Stockholder's Spouse):
- ------------------------------ 0 4,610
(Stockholder): Andy F. Brown
- ------------------------------
(Stockholder's Spouse):
</TABLE>
16
<PAGE>
STOCKHOLDERS
SHARES AND WARRANTS OWNED
AT TIME OF EXECUTION
<TABLE>
<S> <C> <C>
STOCKHOLDERS SHARES WARRANTS
0 27,300
- -----------------------------
(Stockholder): S.R. Anderson
- -----------------------------
(Stockholder's Spouse):
0 27,650
- -----------------------------
(Stockholder): John Teer
- -----------------------------
(Stockholder's Spouse):
0 27,300
- -----------------------------
(Stockholder): Todd Caspary
- -----------------------------
(Stockholder's Spouse):
0 8,530
- -----------------------------
(Stockholder): Frank Forest
- -----------------------------
(Stockholder's Spouse)
0 4,610
- -----------------------------
(Stockholder): George W. Kowalxzuk
- -----------------------------
(Stockholder's Spouse):
/s/ ANDY F. BROWN 0 4,610
- -----------------------------
(Stockholder): Andy F. Brown
- ----------------------------
(Stockholder's Spouse):
</TABLE>
17
<PAGE>
SPECIAL JOINDER BY DRLX PARTNERS, L.P.
--------------------------------------
DRLX Partners, L.P. hereby joins in this Agreement for the sole purpose of
evidencing its agreement to be bound by the provisions set forth in Paragraph
13. The parties acknowledge and agree that DRLX Partners, L.P. is not a
"Stockholder" for purposes of this Agreement.
DRLX Partners, L.P.
By: SCF Partners, L.P.
By: SCF Investment Partners, Inc.,
Its General Partner
By:/s/ L.E. SIMMONS
--------------------------
L. E. Simmons
President
18
<PAGE>
EXHIBIT "A"
ADOPTION AGREEMENT (form)
This Adoption Agreement ("Adoption") is executed pursuant to the terms of
the Stockholders' Agreement dated as of May 5, 1995, a copy of which is attached
hereto and is incorporated herein by reference (the "Stockholders' Agreement"),
by the transferee ("Transferee") executing this Adoption. By the execution of
this Adoption, the Transferee agrees as follows:
1. Acknowledgment. Transferee acknowledges that Transferee is acquiring
certain shares of the common stock of Drilex Holdings Corp., a Delaware
corporation (the "Corporation"), subject to the terms and conditions of the
Stockholders' Agreement. Capitalized terms used herein without definition are
defined in the Stockholders' Agreement and are used herein with the same
meanings set forth therein.
2. Agreement. Transferee (i) agrees that shares of the common stock of
the Corporation, acquired by Transferee, and certain other shares of common
stock and other securities that may be acquired by the Transferee in the future,
shall be bound by and subject to the terms of the Stockholders' Agreement
pursuant to the terms thereof and (ii) hereby adopts the Stockholders' Agreement
with the same force and effect as if he were originally a party thereto.
3. Notice. Any notice required as permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed beside Transferee's
signature below.
4. Joinder. The spouse of the undersigned Transferee, if applicable,
executes this Adoption to acknowledge its fairness and that it is in such
spouse's best interests and to bind such spouse's community interest, if any, in
the shares of common stock and other securities referred to above and in the
Stockholders' Agreement to the terms of the Stockholders' Agreement.
EXECUTED AND DATED this the ______ day of ______________, 199__.
TRANSFEREE:
By:_________________________________
Address:____________________________
____________________________________
SPOUSE:
By:_________________________________
A-1
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Agreed to on behalf of the Corporation and all Stockholders and their
respective spouses pursuant to Paragraph 12(ix) of the Stockholders' Agreement.
DRILEX HOLDINGS CORP.
(For itself and as Attorney-in-Fact for the
Stockholders and their respective spouses)
By:________________________________________
A-2
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Exhibit 4.7
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), dated as of October _____,
1995, among Drilex Holdings Corp., a Delaware corporation (the "Corporation"),
ENSCO Technology Company, a Delaware corporation ("ETC") and any Permitted
Assigns (as defined below) that subsequently become signatories to this
Agreement (referred to herein individually as a "Stockholder" and collectively
as the "Stockholders").
W I T N E S E T H:
WHEREAS, the Corporation, Drilex Systems, Inc., ENSCO International
Incorporated ("ENSCO") and the Stockholder have entered into an Asset Purchase
Agreement (the "Purchase Agreement") relating to the purchase by the Corporation
of substantially all of the assets of the Stockholder; and
WHEREAS, the Purchase Agreement contemplates the execution and delivery of
this Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement:
(i) The term "Acquisition Proposal" means a bona fide written proposal to a
Stockholder for the acquisition of Shares (as defined below) by the person or
entity making such proposal.
(ii) The term "Affiliate" of any person shall mean an entity or other
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person. As
used in this definition, the term "control", including the correlative terms
"controlling", "controlled by" and "under common control with" shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
any partnership or other ownership interest, by contract or otherwise) of a
person, corporation or other entity.
(iii) The term "Board" means the Board of Directors of the Corporation and
any duly authorized committee thereof. All determinations by the Board required
pursuant to the terms of this Agreement to be made by the Board shall be binding
and conclusive.
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(iv) The term "Common Stock Equivalents" means, at any time, rights,
warrants, options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, which, at such time, are
exercisable for or convertible or exchangeable into, directly or indirectly,
shares of common stock, par value $.01 per share (the "Common Stock"), of the
Corporation, such Common Stock Equivalents being measured for purposes of this
Agreement by the number of shares of Common Stock that the holder is entitled to
acquire pursuant to the terms thereof at the time in question.
(v) The term "Disposition" shall mean any direct or indirect transfer,
assignment, sale, gift, pledge, hypothecation or other encumbrance, or any other
disposition, of Shares (or any interest therein or right thereto) or of all or
part of the voting power (other than the granting of a revocable proxy)
associated with the Shares (or any interest therein) whatsoever, or any other
transfer of beneficial ownership of Shares whether voluntary or involuntary,
including, without limitation, (a) as a part of any dissolution or liquidation
of a Stockholder's or Stockholders' assets or (b) as a part of any
reorganization of a Stockholder pursuant to the United States or other
bankruptcy law or other similar debtor relief laws; provided, however, that the
participation by a Stockholder in a proposed underwritten public offering of
Common Stock (including the entry into an underwriting agreement, a custody
agreement and other agreements ordinarily executed by selling stockholders in
connection therewith), which public offering, if consummated, would constitute
an Initial Public Offering (as defined below), and the consummation thereof,
shall not constitute a Disposition, it being understood that, if such proposed
underwritten public offering is terminated or abandoned prior to consummation or
is not consummated in a manner which constitutes an Initial Public Offering, the
Shares of such participating Stockholder shall remain subject to this Agreement
and no Disposition thereof (whether pursuant to agreements entered into in
connection with such proposed underwritten public offering or otherwise) shall
be permitted hereunder without compliance with the terms of this Agreement.
"Disposition" shall specifically include any direct or indirect, voluntary or
involuntary transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance or any other disposition of any equity interest in a Stockholder.
(vi) The term "Disposition Proposal" shall mean a proposal submitted to the
Corporation by ETC and/or any Permitted Assign for the sale for cash of a
specified number of Shares described in Paragraph 2.1.
(vii) The term "Eligible Offerees" shall mean the Corporation or any
designee thereof.
(viii) The term "Initial Public Offering" shall mean the consummation of
an underwritten public offering of Common Stock pursuant to a registration
statement filed under the Securities Act after the date hereof (other than any
registration statement relating to warrants, options or shares of capital stock
granted or to be granted or sold primarily to employees, directors, or officers
of the Corporation, a registration statement filed pursuant to Rule 145 under
the Securities Act or any successor rule, a registration statement relating
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to employee benefit plans or interests therein and any registration statement
covering preferred stock or securities issued in connection with any debt or
preferred stock financing of the Corporation) wherein the aggregate net proceeds
(after deducting all costs, discounts, commissions and other expenses of the
offering) to the Corporation are at least $7,500,000.
(ix) The term "New Securities" shall mean any capital stock of the
Corporation whether now or hereafter authorized, and all rights, options or
warrants to purchase capital stock of the Corporation, and securities or
indebtedness of any type whatsoever that are, or may become, convertible into or
exchangeable for capital stock of the Corporation and any units consisting of
securities or indebtedness and capital stock of the Corporation or rights,
options or warrants therefor; provided, however, that the term "New Securities"
shall not include shares of Common Stock reserved for issuance or issued to
employees of the Corporation and its subsidiaries pursuant to the Corporation's
employee benefit plans and shares of Common Stock issued as consideration for
the acquisition of an equity interest in or assets of another person or entity.
(x) The term "Preemptive Share" shall mean, in any particular instance, the
proportion which the number of Shares owned by a Stockholder, including for this
purpose all Common Stock Equivalents owned by such Stockholder, bears to the
total number of shares of Common Stock outstanding, including for this purpose
all Common Stock Equivalents owned by any stockholder.
(xi) The term "Permitted Assign" shall mean any party to whom the Shares
may be permissibly transferred pursuant to the terms of this Agreement, other
than the Corporation or its affiliates, and that becomes a party to this
Agreement.
(xii) The term "Purchase Price" shall mean:
(a) for purposes of the purchase of Shares Subject to the Offer under
Paragraph 2.1, the price per share of Common Stock set forth in the Price Notice
(as defined below);
(b) for purposes of the purchase of Shares Subject to the Offer under
Paragraph 2.2, the per share fair market value of the outstanding Common Stock
last determined in good faith by the Board prior to the Pricing Date, or if the
Board determines in good faith that the per share fair market value of the
outstanding Common Stock has materially changed from the amount as last
determined prior to the Pricing Date, the per share fair market value of the
outstanding Common Stock of the Corporation as determined in good faith by the
Board as of the most recent practicable date prior to the Pricing Date, or, if
the Corporation has consummated an Initial Public Offering within the three-
month period immediately preceding the Pricing Date, the per share fair market
value of the Corporation as determined in good faith by the Board as of the most
recent practicable date (but in no event shall such date predate the
consummation of such Initial Public Offering) prior to the
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Pricing Date. For purposes hereof, the "Pricing Date" is (as applicable) the
date of the Offer (as defined in Paragraph 2.2). The Board shall have no
obligation to determine the value of the Common Stock more or less often than
once each year. If the transferor of the Shares shall disagree with the Purchase
Price as so determined by the Board pursuant to clause (b) of the first sentence
of this Paragraph 1(xii), such transferor may give written notice of such
disagreement to the Corporation, and the Corporation shall promptly cause an
independent third-party appraiser (who shall be satisfactory to the Corporation
and such transferor) to determine the per share value of the outstanding Common
Stock as of the most recent practicable date prior to the Pricing Date, and a
determination by such appraiser shall be deemed the Purchase Price for such
transaction and shall be final and binding on the Corporation and such
transferor. Such written notice of disagreement shall contain the agreement by
such transferor to pay one-half of the fees and expenses of such appraiser in
connection with such appraisal. Neither the Corporation nor any officer,
director, employee or agent thereof shall have any liability with respect to
valuation of shares of Common Stock bought or sold at the Purchase Price, as
determined pursuant to this Paragraph 1(xii), even though the Purchase Price as
so determined may be more or less than actual fair market value, and shall be
fully protected in relying in good faith upon the records of the Corporation and
upon such information, opinions, reports or statements presented to the
Corporation by any person as to matters which the Corporation or such director,
officer, employee or agent reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. As used in this Paragraph 1(xii), the term
"per share fair market value" shall mean (i) the value of the common equity of
the Corporation, taken as a whole, based on the Corporation continuing as a
going concern divided by (ii) the number of shares of common equity of the
Corporation outstanding.
(xiii) The term "Required Voting Percentage" shall mean a majority of the
Shares owned by the Stockholders as of the date the vote is taken.
(xiv) The term "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(xv) The term "Shares" means (a) all shares of Common Stock owned by the
initial Stockholder on the date hereof, and (b) all shares of Common Stock
hereafter issued by the Corporation to or acquired by any Stockholder (whether
or not from the Corporation), whether in connection with a purchase, issuance,
grant, stock split, stock dividend, reorganization, warrant, option, convertible
security, right to acquire, preemptive right or otherwise.
(xvi) The term "Shares Subject to the Offer" shall mean (a) with respect
to an Offer under Paragraph 2.1 as a result of a Disposition Proposal, all
Shares subject to such Disposition Proposal, and no others, and (b) with respect
to an event specified in
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Paragraph 2.2, all Shares owned by a Stockholder required to make an Offer under
Paragraph 2.2.
2. Dispositions. No Stockholder shall make or permit any Disposition,
directly or indirectly, through an Affiliate or otherwise (regardless of the
manner in which such Stockholder initially acquired any Shares), without
compliance with the provisions of this Agreement.
2.1 Disposition Proposal. Any time and from time to time, a Stockholder
may, and upon receipt of an Acquisition Proposal that it desires to accept, a
Stockholder shall, deliver to the Corporation a Disposition Proposal with
respect to all or a portion of its Shares requesting the Corporation or the
other Eligible Offerees to make an offer to purchase such Shares. The Eligible
Offerees may make an offer to purchase all (but not less than all) of the Shares
Subject to the Offer within 15 days after receipt of a Disposition Proposal by
delivering a notice setting forth an offer to purchase such Shares for cash and
the proposed Purchase Price, which offer may be subject to obtaining adequate
financing for such purchase ("Price Notice"). If the Corporation shall not have
sufficient surplus to permit it lawfully to purchase the Shares Subject to the
Offer at such Purchase Price, in whole or in part, the Stockholders shall
promptly, upon the request of the Corporation, take such action to vote their
respective shares to reduce the stated capital of the Corporation or to
authorize such other steps as may be appropriate or necessary in order to enable
the Corporation, if possible, lawfully to purchase all of the Shares Subject to
the Offer. The Stockholder making such Disposition Proposal ("Offeror") shall
have a period of 15 days from the delivery of the Price Notice to agree to sell
the Shares Subject to the Offer to the Eligible Offerees.
2.2 Bankruptcy; Transfer of Interest in Stockholder. In the case that
(i) any Stockholder shall (a) voluntarily be adjudicated a bankrupt or
insolvent, (b) consent to or not contest the appointment of a receiver or
trustee for itself or for all or any part of its property, (c) file a petition
seeking relief under the bankruptcy, rearrangement, reorganization or other
debtor relief laws of the United States or any state or any other competent
jurisdiction, (d) make a general assignment for the benefit of its creditors, or
(e) become insolvent,
(ii) if a petition is filed against a Stockholder seeking relief under the
bankruptcy, rearrangement, reorganization or other debtor relief laws of the
United States or any state or other competent jurisdiction, or a court of
competent jurisdiction enters an order, judgment or decree appointing a receiver
or trustee for such Stockholder, or for any part of such Stockholder's property,
and such petition, order, judgment or decree shall not be and remain discharged
or stayed within a period of 60 days after its entry, or
(iii) if a Disposition described in the last sentence of Paragraph 1(v)
shall occur,
such event shall be deemed an irrevocable offer (the "Offer") of such
Stockholder's Shares to the Eligible Offerees, and such Stockholder shall
promptly notify the Corporation of such event. The date of such Offer shall be
the date such Stockholder so notifies the Corporation (or, if no such
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notice is delivered to the Corporation by such Stockholder, the Offer will be
deemed to be made on the date of the Corporation's receipt of evidence,
satisfactory to it, of any of the foregoing events). All Shares registered in
the name of such Stockholder shall be Shares Subject to the Offer pursuant to
this Paragraph 2.2.
3. Procedures; Price.
3.1 Certain Effects of Offers. If the Eligible Offerees do not deliver a
Price Notice for all of the Shares Subject to the Offer made under Paragraphs
2.1, or if the Stockholder desiring to make the Disposition does not accept the
Purchase Price proposed by the Eligible Offerees, the Stockholder shall be
permitted, subject to compliance with the other provisions of this Agreement, at
any time or times within, but not after, 45 days after the expiration of the 15-
day period to respond to the Price Notice, to make a Disposition of all (but not
less than all) of the Shares Subject to the Offer; provided, however, that no
such Disposition shall be made at a lower price or on more favorable terms than
specified in the Price Notice. If the Eligible Offerees do not accept an Offer
for all of the Shares Subject to the Offer made under Paragraph 2.2 within 15
days following the date of the Offer thereunder, ownership of the Shares Subject
to the Offer will be transferred to, retained by or vested in the person or
persons described in such paragraph. All Shares Subject to the Offer
transferred in accordance with the terms of this Agreement to any third party or
to any Eligible Offeree (other than the Corporation), all Shares Subject to the
Offer pursuant to Paragraph 2.1 remaining unsold after such 45-day period, and
all Shares Subject to the Offer under Paragraph 2.2 (unless acquired by the
Corporation), shall remain subject to the terms of this Agreement.
3.2 Acceptance; Closing. The closing of any acquisition of Shares Subject
to the Offer by Eligible Offerees shall be consummated within 45 days following
the Stockholder's agreement to accept the proposed Purchase Price set forth
therein. In the case of all acquisitions of Shares Subject to the Offer by
Eligible Offerees, such acquisitions shall be consummated at a closing held at
the principal offices of the Corporation (unless otherwise mutually agreed), at
which time the Purchase Price (if cash, in the form of a cashier's check) shall
be delivered to the transferor of the Shares Subject to the Offer or the
transferor's representative, and the transferor or the transferor's
representative shall deliver to the Eligible Offeree(s) purchasing such shares
certificates representing all of the Shares Subject to the Offer, duly endorsed
for transfer or accompanied by duly executed stock powers, and such evidence of
good title to the Shares Subject to the Offer and the absence of liens,
encumbrances and adverse claims with respect thereto as the Corporation
reasonably requests and such other matters as are necessary for the proper
transfer of the Shares Subject to the Offer to the acquiring Eligible Offeree(s)
on the books of the Corporation.
3.3 Form of Payment. The Purchase Price of all Shares Subject to the
Offer pursuant to an offer made under Paragraphs 2.1 and 2.2 shall be paid in
cash.
4. Permitted Dispositions. The following Dispositions shall be permitted
without compliance with the provisions of Paragraphs 2 and 3 (but only in
compliance with the other provisions of this Agreement):
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(i) by any Stockholder to the Corporation or its Affiliates;
(ii) by ETC to ENSCO or any subsidiary thereof; and
(iii) a pledge by any Stockholder to a bank or other financial institution
for purposes of securing a loan to such Stockholder; provided, that such bank or
financial institution shall have first delivered to the Corporation its written
agreement, in form and substance satisfactory to the Corporation, that upon any
foreclosure or any transaction in lieu of foreclosure with respect to such
Common Stock such bank or financial institution shall assume and be bound by all
the terms of this Agreement;
provided, however, that as a condition to any such permitted Disposition, any
person or entity (other than the Corporation) so acquiring Shares shall be
required to subject the Shares acquired by such person or entity to the
provisions of this Agreement, and thereafter any such person or entity shall be
deemed a "Stockholder" for the purposes of this Agreement.
5. Conditions To Transfers. As a condition to the Corporation's
obligation to effect a transfer by a Stockholder (other than as a result of the
participation by the Stockholder in a public offering of Common Stock registered
under the Securities Act or in accordance with Rule 144 under the Securities
Act), any such transferee of Shares shall be required to become a party to this
Agreement, and shall have all the rights and obligations of a Stockholder
hereunder, by executing an Adoption Agreement in the form of Exhibit "A"
attached hereto or in such other form that is satisfactory to the Corporation.
6. Preemptive Rights.
6.1 Grant of Right. Upon the terms set forth herein, the Corporation
hereby grants to ETC the preemptive right to purchase up to ETC's Preemptive
Share of any New Securities which the Corporation may, from time to time,
propose to sell or issue. This right is specific to ETC only, and may not be
transferred or assigned to any other person, other than ENSCO or its
subsidiaries; any attempt to effect such a transfer or assignment shall be void
ab initio and shall not be recognized by the Corporation.
6.2 Exercise of Right. In the event the Corporation proposes to undertake
such an issuance or sale of New Securities, it will give each Stockholder
written notice of its intention, describing the type of New Securities, and the
price (or method of determination thereof) and the general terms upon which the
Corporation proposes to issue or sell the same. Each Stockholder will have 30
days from the date such notice is given to give the Corporation written notice
of such Stockholder's election to purchase all or any portion of the
Stockholder's Preemptive Share of such New Securities for the price and upon the
general terms specified in the notice; provided, however, that if the price so
specified is payable other than in cash, then Stockholders who desire to
exercise their preemptive rights shall pay cash, in lieu of such non-cash
consideration, at the fair market value of such property as determined by the
Board in good faith. Any Stockholder who does not give such notice within such
30-day period shall be deemed to have waived its preemptive rights with respect
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to such New Securities, provided that the Corporation consummates the issuance
thereof within 120 days after the expiration of such 30-day period at a price
equal to or higher than the price specified in the notice given to the
Stockholders by the Corporation under this Section 6.
7. Standstill Agreement; Securities Matters.
7.1 Standstill Agreement. At any time that the Corporation is engaged in
an underwritten public offering of its securities, each Stockholder agrees that
it will make no Disposition of Common Stock on any securities exchange or in the
over-the-counter or any other public trading market, beginning on the effective
date of the registration statement (except, in each case, as part of such
registration) and continuing during such period (which shall not exceed the
least period required with respect to any other security holder of the Company
participating in the offering) as may be required by the managing underwriter or
underwriters in the case of an underwritten public offering, but in no event
more than 180 days. If a public offering giving rise to the obligations set
forth under this Paragraph 7 will terminate this Agreement pursuant to the
provisions of Paragraph 10(v), then the obligations in this Paragraph 7 shall
survive the termination of this Agreement for 180 days after the Initial Public
Offering, after which time the obligations in this Paragraph 7 shall terminate.
7.2 Securities Laws. No Stockholder shall make any Disposition of Shares
at any time if such action would constitute a violation of any federal or state
securities or blue sky laws or a breach of the conditions to any exemption from
registration of the Shares under any such laws. The Corporation shall not be
required to transfer upon its books any shares of Common Stock unless prior
thereto the Corporation shall have received an opinion of counsel in form and
substance satisfactory to the Corporation that such transaction is in compliance
with this Paragraph 7.2; provided, however, that no such opinion shall be
required with respect to a Disposition to the Corporation or its Affiliates or
to ENSCO or its subsidiaries. Each Stockholder agrees that any certificates
representing shares of Shares shall bear appropriate legends restricting the
sale or other transfer of such Shares in accordance with applicable federal or
state securities or blue sky laws and in accordance with the provisions of this
Agreement. This Paragraph 7.2 shall survive termination of this Agreement for
the maximum period permitted by applicable law.
8. Endorsement of Stock Certificates. All certificates representing
Shares shall be endorsed on the reverse side thereof substantially as follows:
BY THE TERMS OF A STOCKHOLDERS' AGREEMENT, CERTAIN RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The foregoing legend shall be in addition to any and all other legends required
by applicable law or contract to be placed on certificates representing Shares,
including those referred to in Paragraph 7.
9. Notices. In the event a notice or other document is required to be
sent hereunder to the Corporation or to any Stockholder, such notice or other
document, if sent by mail, shall be sent
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by registered mail, return receipt requested, to the party entitled to receive
such notice or other document (i) in the case of the Corporation, to Drilex
Holdings Corp., 6600 Texas Commerce Tower, Houston, Texas 77002, Attention:
President, (ii) in the case of the initial Stockholder or a permitted transferee
thereof pursuant to Paragraph 4(ii), to ENSCO International Incorporated, 1445
Ross Avenue, Suite 2700, Dallas, Texas 75202-2792, Attention: C. Christopher
Gaut, or (iii) in the case of any other Stockholder, at the address shown on the
stock transfer records of the Corporation. Any such notice shall be effective
and deemed received three days after proper deposit in the mails, but actual
notice shall be effective however and whenever received. The Corporation or any
Stockholder may effect a change of address for purposes of this Agreement by
giving notice of such change to the Corporation, and the Corporation shall,
upon the request of any party hereto, notify such party of such change in the
manner provided herein. Until such notice of change of address is properly
given, the addresses set forth herein shall be effective for all purposes.
10. Miscellaneous Provisions.
(i) This Agreement shall be subject to and governed by the laws of the
State of Delaware.
(ii) Whenever the context requires, the gender of all words used herein
shall include the masculine, feminine and neuter, and the number of all words
shall include the singular and plural.
(iii) This Agreement shall be binding upon the Corporation, the
Stockholders, any spouses of the Stockholders, and their respective heirs,
executors, administrators and permitted successors and assigns.
(iv) This Agreement may be amended or waived from time to time by an
instrument in writing signed by the Corporation and the holders of at least the
Required Voting Percentage at the time of such amendment, and such instrument
shall be designated on its face as an "Amendment" to this Agreement.
(v) This Agreement shall terminate automatically upon (a) the dissolution
of the Corporation, or (b) the later of (A) five years after the date hereof or
(B) the completion of the Initial Public Offering; provided, however, that
Paragraph 7 of this Agreement shall survive any such termination to the extent
and for the periods set forth in such Paragraph, and Paragraph 11 shall survive
until Rule 144 under the Securities Act becomes available with respect to the
sale of the securities of Corporation owned by the Stockholders.
(vi) Any Stockholder who disposes of all such Stockholder's Common Stock in
conformity with the terms hereof shall cease to be a party to this Agreement and
shall have no further rights or obligations hereunder.
(vii) Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect. Each party hereto acknowledges that a
remedy at law for any
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breach or attempted breach hereof will be inadequate, agrees that each other
party hereto shall be entitled to specific performance and injunctive and other
equitable relief in case of any such breach or attempted breach and further
agrees to waive any requirement for the obtaining of any such injunctive or
other equitable relief.
(viii) If any portion of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, such declaration shall
not affect the validity of the remaining provisions.
(ix) This Agreement sets forth the entire agreement of the parties hereto
as to the subject matter hereof and supersedes all previous agreements among all
or some of the parties hereto, whether written, oral or otherwise. This
Agreement may be executed in multiple counterparts, any one of which may contain
the signature of more than one party, but all of which counterparts together
shall constitute one and the same instrument.
(x) No person or entity not a party to this Agreement shall have rights
under this Agreement as a third party beneficiary or otherwise.
(xi) Each Stockholder, if an employee of the Corporation or any of its
subsidiaries, acknowledges and agrees that neither the acquisition of Shares by
such Stockholder nor the execution of this Agreement by the Corporation or such
Stockholder creates any obligation whatsoever by the Corporation or any of its
subsidiaries to continue such Stockholder's employment or otherwise affects the
Corporation's right, which the Stockholder hereby acknowledges, to terminate
such Stockholder's employment at will, with or without cause in the sole
discretion of the Corporation or any of its subsidiaries which is an employer of
such Stockholder.
(xii) If, and as often as, there are any changes in the Shares by way
of stock split, stock dividend, combination or reclassification, or through
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof, as may be
required, so that the rights, privileges, duties and obligations hereunder shall
continue with respect to the Shares as so changed.
11. Rights and Obligations to Participate in Stock Sales.
11.1 In the event (a) DRLX receives a bona fide written proposal (a "DRLX
Acquisition Proposal") for the purchase of all of the shares of Common Stock of
the Corporation (other than pursuant to an Initial Public Offering) and (b) the
Stockholders have not elected pursuant to Paragraph 11.2 to participate in such
transaction to the maximum extent provided in such Section, DRLX shall promptly
notify the Corporation of such fact (which notice shall include a copy of such
DRLX Acquisition Proposal) and the Corporation shall send a copy of such notice
(which notice shall include a copy of such DRLX Acquisition Proposal) to all of
the Stockholders. If such DRLX Acquisition Proposal is acceptable to DRLX, then
DRLX shall have the right and option, exercisable by notifying the Corporation
within 20 business days of its receipt of the DRLX Acquisition
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Proposal (and the Corporation, in turn, shall promptly notify each of the other
Stockholders of its receipt of such notice), to require each Stockholder to
sell, and upon DRLX's exercise of such option, each Stockholder shall be
obligated to sell, to the purchaser pursuant to the terms of the DRLX
Acquisition Proposal, all of such Stockholder's Shares. In order for the
provisions of this Paragraph 11.1 to apply, a DRLX Acquisition Proposal must (1)
be from a third party that is not an Affiliate of DRLX and (2) provide the same
price per share and the same form of consideration (or the same right of
election of consideration) to all Stockholders and to DRLX.
11.2 If DRLX receives a DRLX Acquisition Proposal for the purchase of any
of its shares of Common Stock (other than pursuant to an Initial Public Offering
or a sale to an Affiliate thereof), and desires to accept such DRLX Acquisition
Proposal (such desire to be evidenced in writing to the Board together with a
copy of such DRLX Acquisition Proposal), the Corporation or DRLX shall notify
the Stockholders of such DRLX Acquisition Proposal (the "DRLX Acquisition
Proposal Notice") and furnish a copy of the DRLX Acquisition Proposal thereto,
and thereafter each of the Stockholders shall have the right and option to
elect, by giving written notice to the Corporation within 15 business days
following receipt of the DRLX Acquisition Proposal Notice (and the Corporation
or DRLX shall promptly notify the other Stockholders of each Stockholder's
election pursuant to this Paragraph 11.2) to sell, pursuant to the terms of the
DRLX Acquisition Proposal, a portion of such Stockholder's Shares equal to (or,
at each such Stockholder's election, less than) the fraction (not to exceed 1)
obtained by dividing the total number of outstanding shares of Common Stock to
be sold pursuant to the DRLX Acquisition Proposal by the total number of shares
of Common Stock held by DRLX, by all Stockholders electing to sell pursuant to
the DRLX Acquisition Proposal and by any other stockholders of the Corporation
having rights similar to the rights in this Paragraph 11.2 or otherwise having
the right to participate in such transaction.
11.3 DRLX may transfer shares of Common Stock owned by it to any of its
Affiliates if the transferee agrees to be bound by the terms of this Paragraph
11. For purposes of this Paragraph 11, a "purchase" shall include any transfer,
assignment or other disposition for value.
11
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This Agreement is executed by the Corporation and by each Stockholder to be
effective as of the date first above written.
CORPORATION:
DRILEX HOLDINGS CORP.
By: /s/ John Forrest
------------------------------------
John Forrest
President
STOCKHOLDER:
ENSCO TECHNOLOGY COMPANY
By: /s/ C. C. Gaut
------------------------------------
C. Christopher Gaut
Vice President
12
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SPECIAL JOINDER BY DRLX PARTNERS, L.P.
--------------------------------------
DRLX Partners, L.P. hereby joins in this Agreement for the sole
purpose of evidencing its agreement to be bound by the provisions set forth in
Paragraph 11. The parties acknowledge and agree that DRLX Partners, L.P. is not
a "Stockholder" for purposes of this Agreement.
DRLX Partners, L.P.
By: SCF Partners, L.P.
By: SCF Investment Partners, Inc.,
Its General Partner
By: /s/ L. E. Simmons
--------------------------
L. E. Simmons
President
13
<PAGE>
EXHIBIT "A"
ADOPTION AGREEMENT (form)
This Adoption Agreement ("Adoption") is executed pursuant to the terms
of the Stockholders' Agreement dated as of October _____, 1995, a copy of which
is attached hereto and is incorporated herein by reference (the "Stockholders'
Agreement"), by the transferee ("Transferee") executing this Adoption. By the
execution of this Adoption, the Transferee agrees as follows:
1. Acknowledgment. Transferee acknowledges that Transferee is
acquiring certain shares of the common stock of Drilex Holdings Corp., a
Delaware corporation (the "Corporation"), subject to the terms and conditions of
the Stockholders' Agreement. Capitalized terms used herein without definition
are defined in the Stockholders' Agreement and are used herein with the same
meanings set forth therein.
2. Agreement. Transferee (i) agrees that shares of the common stock
of the Corporation, acquired by Transferee, and certain other shares of common
stock and other securities that may be acquired by the Transferee in the future,
shall be bound by and subject to the terms of the Stockholders' Agreement
pursuant to the terms thereof and (ii) hereby adopts the Stockholders' Agreement
with the same force and effect as if he were originally a party thereto.
3. Notice. Any notice required as permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed beside Transferee's
signature below.
EXECUTED AND DATED this the ______ day of ______________, 199__.
TRANSFEREE:
By:_________________________________________
Address:____________________________________
____________________________________________
Agreed to on behalf of the Corporation and all Stockholders.
DRILEX HOLDINGS CORP.
(For itself and as Attorney-in-Fact for the
Stockholders)
By:________________________________________
<PAGE>
Exhibit 4.8
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED
OR PLEDGED (OTHER THAN TO ENSCO INTERNATIONAL INCORPORATED OR ANY OF ITS
SUBSIDIARIES) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
NOTE UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE MAKER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
$2,500,000.00 September 30, 1995
Houston, Texas
CONVERTIBLE PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation ("Maker"), for value
received, promises and agrees to pay to ENSCO Technology Company, a Delaware
corporation or its Permitted Assigns (as defined below) ("Payee"), in lawful
money of the United States of America the principal sum of TWO MILLION FIVE
HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00), in five equal consecutive
annual installments each in the amount of $500,000.00 on each anniversary of the
date of this note, commencing on the first anniversary thereof and ending on the
fifth anniversary thereof, together with interest thereon (calculated on the
basis of a 365-day year, or a 366-day year in the case of a leap year) from and
after the date hereof until maturity at a varying rate per annum (the
"Applicable Rate") which is equal to the interest rate established by Chemical
Bank from time to time as its "base rate," but in no event to exceed the maximum
rate of nonusurious interest allowed from time to time by law (the "Highest
Lawful Rate"). Adjustments in such varying rate shall be made on the same date
as any change in the base rate and adjustments due to changes in the Highest
Lawful Rate shall be made on the effective date of any change in the Highest
Lawful Rate. All past due amounts or principal or installments thereof, and to
the extent permitted by applicable law, unpaid interest on this note from time
to time outstanding, and all unpaid amounts of principal of this note during any
period in which an Event of Default (as defined below) exists or would exist but
for the giving of notice or the passage of time, shall bear interest from and
after maturity at the varying rate equal to the Applicable Rate plus 3%, but in
no event greater than the Highest Lawful Rate. All sums due under this note are
payable to Payee at such address as may be designated in writing by the holder
hereof to the Maker.
ACCRUED INTEREST is due and payable quarterly beginning on December
31, 1995 and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest is due and payable on the date of such prepayment.
If any amount owing under this note is due and payable on a day that is not a
business day, such payment shall instead be due and payable on the next
succeeding business day. Maker has the right to prepay this note in whole or in
part at any time and from time to time without premium or penalty, upon not less
than 60 days' notice to Payee; provided, however, notwithstanding the foregoing,
that until the later of (a) two years after the date hereof and (b) 90 days
after the closing of an initial public offering of any securities of Maker,
Maker shall not have the right to prepay this
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$2,500,000.00 Houston, Texas September 30, 1995
note without the prior written consent of Payee. Any principal amount so
prepaid shall be applied in inverse order of maturity to the remaining
installments of principal not then due.
IN THE EVENT of any Change of Control (as defined below) or the
consummation of any public offering of Maker's securities resulting in aggregate
net proceeds to Maker of greater than $7,500,000 , Maker shall notify Payee
within five days following the occurrence of such event and, at the written
request of the holder of this note within 15 days after Payee's receipt of such
notification, prepay the remaining principal amount of this note in its
entirety, together with accrued and unpaid interest thereon. Such prepayment
shall be made five days after Maker's receipt of such request in the case of an
initial public offering and within 30 days after Maker's receipt of such request
in the case of a Change of Control. For purposes of this note, a "Change of
Control" shall be deemed to have occurred: (a) at such time as any person,
entity or "group" (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other than DRLX
Partners, L.P. or its affiliates on the date hereof, is or becomes the
"beneficial owner"(within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of outstanding shares of stock of Maker entitling such
person, entity or group to exercise 30% or more of the total voting power of all
classes of stock of Maker entitled to vote in an election of directors, unless
the beneficial ownership of DRLX Partners, L.P. and its affiliates is greater
than the beneficial ownership of such person, entity or group, (b) if a majority
of the Board of Directors of Maker shall consist of persons other than
Continuing Directors (as defined below), (c) SCF Partners, L.P. (or a successor
to substantially all of the business thereof with substantially the same
ownership immediately after the succession) shall fail to be the sole general
partner of DRLX Partners, L.P. or (d) upon any sale, transfer or other
disposition of all or substantially all of the assets of Maker. The term
"Continuing Director" shall mean any member of the Board of Directors on the
date hereof and any other member of the Board of Directors who shall be
recommended or elected to succeed a Continuing Director by a majority of the
Continuing Directors who are then members of the Board of Directors.
SO LONG as any principal or interest remains unpaid on this note,
Maker will comply or cause compliance with each of the following covenants:
(a) Maker and its subsidiaries shall maintain a Tangible Net Worth (as
defined below) of at least $4,000,000. The term "Tangible Net Worth" shall mean
the difference of (i) Maker's Common Stockholders' Equity (as defined below) on
a consolidated basis and (ii) all of its intangibles, including (A) deferred
charges and (B) the aggregate of all amounts appearing on the assets side of
Maker's balance sheet for franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill, treasury stock,
experimental or organizational expenses and other like intangibles. The term
"Common Stockholders' Equity" shall mean stockholders equity, including (1)
common stock, (2) paid in capital in excess of par, (3) retained earnings (net
of any reserves of retained earnings) and (4) cumulative translation adjustment,
but excluding any preferred stock.
(b) Maker shall furnish Payee with one copy of any and all financial
information and financial statements furnished to the lenders under Maker's
credit facilities within five days after Maker furnishes such financial
statements and information to such lenders, and
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$2,500,000.00 Houston, Texas September 30, 1995
Maker shall within 120 days after the close of each fiscal year of Maker, within
45 days after the end of the first three quarterly periods in each fiscal year
of Maker and within 30 days after the end of each month in each fiscal year of
Maker, furnish to Payee the consolidated and consolidating financial statements
of Maker for such period to the extent not previously furnished to Payee.
(c) Maker shall (i) furnish Payee with copies of any and all certificates
and other reports regarding compliance with covenants and agreements relating to
Maker's credit facilities within five days after Maker furnishes such
certificates and reports to any of its lenders and (ii) promptly notify Payee in
writing of any Event of Default under this note.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note or in payment at its originally stated maturity of any installment of
principal under that certain promissory note in the original principal amount of
$2,220,000.00 of even date herewith executed by Maker and payable to Payee or
any other promissory note executed by Maker and payable to Payee in replacement
thereof (collectively, the "Other Notes"), (b) default is made in the payment
when due of any installment of interest on this note or the Other Notes and such
default has not been cured within five days after the date on which such payment
is due, (c) Maker or any of its subsidiaries shall fail to pay when due, or
within any applicable period of grace, any principal of or interest on any other
indebtedness of Maker or such subsidiary having a principal amount outstanding
in excess of $500,000, and such default results in the acceleration of such
indebtedness, (d) prior to its initial public offering, Maker shall pay a
dividend or make a distribution to holders of its securities generally other
than in shares of stock or other securities of Maker or rights to purchase stock
or other securities of Maker, (e) Maker fails to comply with any of its other
agreements in this note or any of the Other Notes, (f) Maker or any of its
subsidiaries shall fail to comply with any material financial covenant under any
agreement relating to indebtedness to any financial institution having a
principal amount outstanding in excess of $1,000,000, and such default results
in the acceleration of such indebtedness, (g) Maker institutes proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Act or any other applicable federal or state law, or consents
to the filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee, or other similar official of Maker, or of any substantial
part of its property, or makes an assignment for the benefit of creditors, or
takes corporate action in furtherance of any such action, or (h) within 60 days
after the commencement of an action against Maker seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such action shall not have been
resolved in favor of Maker or all orders or proceedings thereunder affecting the
operations or the business of Maker stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within 60 days after the
appointment without the consent or acquiescence of Maker of any trustee,
receiver or liquidator of Maker or all or any substantial part of the properties
of the Maker, such appointment shall not have been vacated.
UPON THE OCCURRENCE and during the continuance of any Event of Default
described in clause (a), (b), (c), (d), (e) or (f) of the foregoing sentence,
Payee may declare the entire
3
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$2,500,000.00 Houston, Texas September 30, 1995
principal amount then outstanding under this note, together with interest then
accrued thereon, to be immediately due and payable. Upon the occurrence of any
Event of Default described in clause (g) or (h) of the first sentence of this
paragraph, the entire principal amount of all indebtedness then outstanding
under this note, together with interest then accrued thereon, shall
automatically become immediately due and payable.
THIS NOTE may not be assigned, transferred, hypothecated or pledged by
Payee except to ENSCO International Incorporated or its subsidiaries, who shall
be deemed "Permitted Assigns" hereunder, and any attempt to do so is void and of
no effect.
CONVERSION PRIVILEGE. (a) Right of Conversion. This note shall be
convertible at the option of Payee, in whole or in part, at any time or from
time to time, into the number of fully paid and nonassessable shares of common
stock, par value $.01 per share ("Common Stock"), of Maker, equal to the unpaid
principal amount hereof divided by the Conversion Price (as defined below) in
effect from time to time. To the extent this note is converted in part only,
the principal amount so converted shall be deemed to be the unpaid installments
of principal in order of maturity. In no event shall the conversion of any
portion of the principal amount hereof affect Maker's obligations to pay accrued
but unpaid interest with respect to the amount so converted or any other amounts
due hereunder. In the event this note is converted in part only, upon such
conversion Maker shall execute and deliver to the holder hereof a new note in
the aggregate principal amount of the unconverted portion of this note.
(b) Conversion Procedures. If Payee desires to convert this note
into Common Stock, it shall surrender this note to Maker at its principal
executive offices, accompanied by proper instruments of transfer to Maker or in
blank, accompanied by irrevocable written notice to Maker that the Payee elects
so to convert this note and specifying the principal amount to be converted and
the name or names (with address) in which a certificate or certificates for
Common Stock are to be issued.
Maker shall, as soon as practicable after such written notice and
compliance with any other conditions herein contained, deliver at such office to
Payee certificates for the number of full shares of Common Stock or other
securities to which it shall be entitled, together with a cash adjustment of any
fraction of a share as hereinafter provided. Subject to the following
provisions of this paragraph, such conversion shall be deemed to have been made
as of the date of such surrender of this note, and the person or persons
entitled to receive the Common Stock or other securities deliverable upon
conversion shall be treated for all purposes as the record holder or holders
thereof on such date; provided, however, that Maker shall not be required to
convert this note while the stock transfer books of Maker are closed for any
purpose, but the surrender of this note for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
the reopening of such books as if the surrender had been made on the date of
such reopening, and the conversion shall be at the conversion price in effect on
such date.
(c) Conversion Price; Certain Adjustments. The conversion price for
determining the number of shares of Common Stock deliverable upon conversion
(the "Conversion Price") shall
4
<PAGE>
$2,500,000.00 Houston, Texas September 30, 1995
initially be $12.50 per share of Common Stock. The Conversion Price and the
number of securities issuable upon conversion of this Note shall be subject to
adjustment from time to time as follows:
(i) In case Maker shall (1) pay a dividend or make a distribution on its
Common Stock that is paid or made (A) in shares of stock of Maker or (B) in
rights to purchase stock or other securities (unless or until adjustment is made
under subparagraph (ii) below), (2) subdivide its outstanding shares of Common
Stock into a greater number of shares or (3) combine its outstanding shares of
Common Stock into a smaller number of shares, then in each such case the
Conversion Price in effect immediately prior thereto and the securities issuable
shall be adjusted retroactively as provided below so that Payee thereafter shall
be entitled to receive the number of shares of Common Stock of Maker and other
shares and rights to purchase stock or other securities which Payee would have
owned or have been entitled to receive after the happening of any of the events
described above had this note been converted immediately prior to the happening
of such event or any record date with respect thereto. In the event of the
redemption of any shares or rights referred to in clause (1), Payee shall have
the right to receive, in lieu of any such shares or rights, any cash, property
or securities paid in respect of such redemption; provided, however, that if the
value of such cash, property or securities is not more than $.01 per share of
Common Stock, Payee shall not be entitled to such cash, property or securities.
An adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision or combination.
(ii) In case Maker shall issue shares of its Common Stock at, or securities
convertible or exercisable for shares of Common Stock with a conversion or
exercise price equal to, a price per share less than the Conversion Price on the
date of issuance or the date fixed for the determination of stockholders
entitled to receive such securities, then, in each such case, unless there has
been and continues to be a material adverse change in Maker's business and/or
financial condition after the date hereof and the board of directors of Maker
has adopted a resolution stating there has been a material adverse change and
setting forth the basis of such material adverse change (a copy of which shall
be provided to Payee within 30 days prior to such issuance), the Conversion
Price in effect at the opening of business on the day following such date shall
be reduced by multiplying such Conversion Price by a fraction of which the
denominator shall be (A) the number of shares of Common Stock outstanding at the
close of business on such date plus (B) the number of shares of Common Stock so
issued or the maximum number of shares of Common Stock into which the securities
so issued are convertible or exercisable, and the numerator shall be (X) the
number of shares of Common Stock outstanding at the close of business on such
date plus (Y) the number of shares of Common Stock that the aggregate price of
the shares of Common Stock so issued or into which the securities so issued are
convertible or exercisable would purchase at such previously effective
Conversion Price, such reduction to become effective immediately after the
opening of business on the day following such date; provided, however, in the
event that all the shares of Common Stock into which the securities so issued
are convertible or exercisable are not delivered upon the conversion or exercise
of such
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<PAGE>
$2,500,000.00 Houston, Texas September 30, 1995
securities, upon the expiration of such rights of conversion or exercise, the
Conversion Price under this note shall be readjusted to the Conversion Price
that would have been in effect had the denominator and the numerator of the
foregoing fraction and the resulting adjustment been made based upon the number
of shares of Common Stock actually delivered upon the conversion or exercise of
such securities rather than upon the number of shares of Common Stock into which
such securities were convertible or exercisable. For the purposes of this
subparagraph (ii), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of Maker.
(iii) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that Maker may make any such adjustment at its election; and
provided, further, that any adjustments which by reason of this subparagraph (v)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this these conversion
provision shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(iv) Whenever the conversion price is adjusted as provided in any provision
of these conversion provisions, Maker shall compute the adjusted conversion
price in accordance herewith and mail to Payee a notice stating that the
conversion price has been adjusted and setting forth the adjusted conversion
price.
(v) In the event that at any time, as a result of any adjustment made
pursuant to these provisions, Payee shall become entitled to receive any shares
of Maker other than shares of Common Stock or to receive any other securities,
the number of such other shares or securities so receivable upon conversion of
this note shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained in these
provisions with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of this note.
Instead of any fractional share of Common Stock which would otherwise be
issuable upon conversion, Maker will pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the fair market
value of a share of Common Stock (determined by the Board of Directors of Maker
in good faith) at the close of business on the day of conversion.
(e) Reclassification, Consolidation, Merger or Sale of Assets. In
case of any reclassification of the Common Stock, any consolidation of Maker
with, or merger of Maker into, any other person, any merger of another person
into Maker (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
Maker), any sale or transfer of all or substantially all of the assets of Maker
or any compulsory share exchange pursuant to which share exchange the Common
Stock is converted into other securities, cash or other property, then lawful
provision shall be made as part of the terms of such transaction whereby Payee
shall have the right thereafter, during the period this note shall be
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$2,500,000.00 Houston, Texas September 30, 1995
convertible hereunder, to convert this note only into the kind and amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock of Maker into which this note might have been
converted immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange assuming such holder of Common Stock of Maker
(i) is not a person with which Maker consolidated or into which Maker merged or
which merged into Maker, to which such sale or transfer was made or a party to
such share exchange, as the case may be ("constituent person"), or an affiliate
of a constituent person and (ii) failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash and other property receivable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange (provided that if the kind or amount of securities, cash and other
property receivable upon such reclassification, consolidation, merger, sale,
transfer or share exchange is not the same for each share of Common Stock of
Maker held immediately prior to such consolidation, merger, sale or transfer by
other than a constituent person or an affiliate thereof and in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then the kind and amount of securities, cash and other property receivable upon
such reclassification, consolidation, merger, sale, transfer or share exchange
by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Maker, the
person formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires Maker's shares, as the case may be, shall
make provisions in its certificate or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments which,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The above provisions
shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
(f) Reservation of Shares; Transfer Taxes; Etc. Maker shall at all
times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of this note, such number of
shares of its Common Stock and other securities free of preemptive rights as
shall from time to time be sufficient to effect the conversion of this note.
Maker shall from time to time, in accordance with the laws of the State of
Delaware, increase the authorized number of shares of Common Stock if at any
time the number of shares of Common Stock not outstanding shall not be
sufficient to permit the conversion of this note.
If any shares of Common Stock required to be reserved for purposes of
conversion of this note require registration with or approval of any
governmental authority under any Federal or State law before such shares may be
issued upon conversion, Maker will in good faith and as expeditiously as
possible endeavor to cause such shares to be duly registered or approved, as the
case may be. If the Common Stock is listed on the New York Stock Exchange or
any other national securities exchange, Maker will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of Common Stock issuable upon conversion of this note.
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$2,500,000.00 Houston, Texas September 30, 1995
Maker shall pay any and all issue or other taxes that may be payable
in respect of any issue or delivery of shares of Common Stock or other
securities upon conversion of this note by Payee; provided, however, that Maker
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock or other securities
in a name other than that of ENSCO Technology Company, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to Maker the amount of such tax or has established, to the satisfaction of
Maker, that such tax has been paid.
(g) Other Changes in Conversion Price. Maker from time to time may
reduce the conversion price by any amount for any period of time. Maker may
also make such reductions in the conversion price, in addition to those required
or allowed by these provisions, as shall be determined by it, as evidenced by a
resolution of the Board of Directors, to be advisable in order to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
(h) Stockholders' Agreement; Registration Rights Agreement. Pursuant
to the Purchase Agreement, Maker and Payee are entering into a Stockholders'
Agreement and a Registration Rights Agreement relating to any Common Stock
hereafter acquired by Payee upon conversion of principal amounts hereunder.
(i) Prior Notice of Certain Events. In case at any time or from time
to time: (i) Maker shall declare a dividend (or any other distribution) on
Common Stock (other than a regular quarterly cash dividend), (ii) Maker shall
authorize the granting to the holders of Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or of any other
rights or warrants, (iii) there shall be any reclassification of the Common
Stock (other than a subdivision or combination of outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or any consolidation or merger to which Maker is a party and for
which approval of any shareholders of Maker is required, or the sale or other
disposition of all or substantially all of the assets of Maker, or (iv) of the
voluntary or involuntary dissolution, liquidation or winding up of Maker, then
Maker shall provide written notice to Payee, as promptly as possible but in any
event at least 10 days prior to the applicable date hereinafter specified,
stating the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record are to be entitled to
such dividend, distribution or rights or the date on which such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up is expected to become effective. Such notice also
shall specify the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for shares of stock
or other securities or property or cash deliverable upon such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
IT IS the intention of Maker and Payee to conform strictly to
applicable usuary laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that
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$2,500,000.00 Houston, Texas September 30, 1995
event, notwithstanding anything to the contrary herein or in any agreement
entered into in connection with or as security for this note, it is agreed that
the aggregate of all consideration which constitutes interest under applicable
law that is taken, reserved, contracted for, charged or received under this note
or under any of the other aforesaid agreements or otherwise in connection with
this note shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be cancelled automatically and,
if theretofore paid, shall be credited on the note by the holder hereof (or, to
the extent that this note shall have been or would thereby be paid in full,
refunded to the Maker).
IF THE holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all reasonable
costs, expenses and fees, including reasonable attorney's fees.
MAKER AND each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, and consent to all extensions without notice for any
period or periods of time and partial payments, before or after maturity, all
without prejudice to the holder.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By: /s/ JOHN FORREST
-------------------------
John Forrest
President
9
<PAGE>
Exhibit 4.9
AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
DRILEX HOLDINGS CORP.,
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 29, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions............................................. 1
1.1 Defined Terms...................................... 1
1.2 Other Terms and References......................... 14
2. The Credits............................................. 15
2.1 Dollar Loans....................................... 15
2.2 Letter of Credit................................... 15
2.3 Pound Loans........................................ 16
2.4 Mandatory Prepayments.............................. 17
2.5 Voluntary Commitment Reductions.................... 17
2.6 Commitment Fees.................................... 17
2.7 Payments........................................... 17
2.8 Capital Adequacy................................... 18
3. Guaranty................................................ 18
3.1 Guaranty of Pound Note............................. 18
3.2 Modifications, Etc................................. 19
3.3 Waivers............................................ 19
3.4 Payment Guaranty................................... 20
3.5 Waiver of Subrogation.............................. 20
4. Conditions.............................................. 20
4.1 All Extensions of Credit........................... 20
4.2 First Loan......................................... 21
5. Representations and Warranties.......................... 21
5.1. Organization...................................... 21
5.2 Financial Statements.............................. 21
5.3 Enforceable Obligations; Authorization............ 21
5.4 Other Debt........................................ 22
5.5 Litigation........................................ 22
5.6 Title............................................. 22
5.7 Taxes............................................. 22
5.8 Regulation U...................................... 22
5.9 Subsidiaries...................................... 22
5.10 Representations by Others......................... 22
5.11 No Misrepresentation or Omission.................. 22
6. Affirmative Covenants................................... 23
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
6.1 Taxes, Existence, Regulations, Property, etc....... 23
6.2 Financial Statements and Information............... 23
6.3 Financial Tests.................................... 24
6.4 Inspection......................................... 24
6.5 Further Assurances................................. 24
6.6 Books and Records.................................. 24
6.7 Insurance.......................................... 24
6.8 Notice of Certain Matters.......................... 24
6.9 Use of Proceeds.................................... 25
7. Negative Covenants....................................... 25
7.1 Debt............................................... 25
7.2 Liens.............................................. 25
7.3 Contingent Liabilities............................. 26
7.4 Mergers, Consolidations and Dispositions and
Acquisitions of Assets............................ 27
7.5 Redemption, Dividends and Distributions............ 27
7.6 Nature of Business; Management..................... 27
7.7 Transactions with Related Parties.................. 27
7.8 Loans and Investments.............................. 27
7.9 ERISA.............................................. 28
7.10 Location of Tangible Collateral.................... 28
7.11 Subsidiaries....................................... 28
8. Events of Default and Remedies........................... 29
8.1 Events of Default.................................. 29
8.2 Remedies Cumulative................................ 31
9. Miscellaneous............................................ 31
9.1 No Waiver.......................................... 31
9.2 Notices............................................ 32
9.3 Governing Law...................................... 32
9.4 Survival; Parties Bound; Term...................... 33
9.5 Counterparts....................................... 33
9.6 Captions........................................... 33
9.7 Expenses........................................... 33
9.8 Indemnification.................................... 34
9.9 Entire Agreement................................... 34
9.10 Severability....................................... 34
9.11 Disclosures........................................ 34
9.12 Obligations of Dollar Borrowers Are Joint And
Several........................................... 34
9.13 Amendment and Restatement.......................... 35
Exhibit A - Dollar Note
</TABLE>
ii
<PAGE>
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
Exhibit J - ENSCO Acquisition Notes
Appendix I - Subsidiaries
iii
<PAGE>
CREDIT AGREEMENT
----------------
This Credit Agreement (this "Agreement") dated as of September ___, 1995,
among DRILEX HOLDINGS CORP. ("DHC"), a Delaware corporation; 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 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.
<PAGE>
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; MCI Communications Corp.; Sprint Communications Company L.P.;
Southwestern Bell Corporation; Bellsouth Telecommunications, Inc., and their
respective Affiliates.
Bank Debt to Capitalization Ratio shall mean, as of any date, the ratio
(expressed as a percentage) of (a) the unpaid principal balance of the Loans as
of such date to (b) the sum of (1) Debt of DHC (on a consolidated basis) as of
such date plus (2) Equity of DHC (on a consolidated basis) as of such date.
Borrowing Base shall mean (a) the Accounts Component plus (b) the Inventory
Component; provided, however, that (i) no Property of any Subsidiary organized
outside the United States shall be included in the calculation of the Borrowing
Base unless such Subsidiary is (x) Drilex Systems, S.A. or (y) a Qualified
Foreign Subsidiary, (ii) no Property of any Subsidiary organized in the United
Kingdom shall be included in the calculation of the Borrowing Base unless such
Subsidiary shall have executed and delivered to the Lender a Floating Charge, in
Proper Form and (iii) no Property of any Subsidiary organized in the United
States shall be included in the calculation of the Borrowing Base until (i) such
Subsidiary shall have executed and delivered to the Lender a first-priority
(subject to the Permitted Liens to the extent they are expressly permitted to be
superior to Liens under the Credit Documents) security agreement covering the
Accounts and Inventory of such Subsidiary and (ii) such Subsidiary shall have
executed and delivered to the Lender any documentation required under Section
7.11 hereof.
Borrowers shall mean DHC, DSI, Cobb, Sharewell and DSL.
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
2
<PAGE>
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 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 DHC and Cobb Directional
Drilling Company, Inc., including the definitive agreement of purchase
contemplated thereby and/or (ii) the acquisition by DHC 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.
Collateral Coverage Ratio shall mean, as of any date, the ratio (expressed
as a percentage) of (a) the sum of the net book value of (i) all Collateral in
which Lender has a perfected first-priority (subject to the Permitted Liens to
the extent they are expressly permitted to be superior to Liens under the Credit
Documents) Lien as of such date securing the Obligations (other than the Pound
Note), (ii) all Inventory owned by any Qualified Foreign Subsidiary and (iii)
all Accounts of a Qualified Foreign Subsidiary which would qualify as Eligible
Accounts if such Qualified Foreign Subsidiary was a Dollar Borrower, all as
determined by the Lender in good faith to (b) the sum of the unpaid principal
balance of the Obligations as of such date plus the unpaid principal balance as
of such date under that certain promissory note dated concurrently herewith
executed by the Dollar Borrowers payable to the order of Lender in the original
principal amount of $17,450,000.
Commitment Fees shall have the meaning ascribed to it in Section 2.6.
3
<PAGE>
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, 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 DHC (on a consolidated basis) as of
such date to (b) the sum of (1) Debt of DHC (on a consolidated basis) as of such
date plus (2) Equity of DHC (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 DHC, 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.
4
<PAGE>
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, and (d) 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 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.
ENSCO Acquisition Documents shall mean the ENSCO Acquisition Note and the
other documents and instruments executed in connection with the transactions
contemplated in that certain Asset Purchase Agreement executed or to be executed
by and between DSI and ENSCO Technology Company. Each of the ENSCO Acquisition
Documents shall be in Proper Form.
ENSCO Acquisition Notes shall mean the promissory notes described on
Exhibit J hereto.
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.
5
<PAGE>
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 (month, quarter 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 DHC (on a consolidated basis) for the 12 months ending on such date
(but if such date is before October 5, 1996, then EBITDA shall be annualized
from October 4, 1995 through such date).
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 by DHC to any of its shareholders to the extent actually distributed
or paid.
Floating Charges shall mean a first priority (subject to the Permitted
Liens to the extent they are expressly permitted to be superior to Liens under
the Credit Documents) bond and floating charge executed in favor of the Lender
by DSL and by each other Subsidiary of a Dollar Borrower organized in the United
Kingdom which is not a Dollar Borrower itself (or which has not executed a
guaranty of the Obligations in accordance with the provisions of Section 7.11
hereof) to secure the Pound Note; provided, however, that Shareco (UK) shall not
be required to execute such a bond and floating charge prior to December 31,
1995.
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.
6
<PAGE>
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 and deferred credits); (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.
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.
7
<PAGE>
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 $13,000,000, 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.
Monthly Financial Statements shall mean the monthly Financial Statements of
a Person.
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.
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.
8
<PAGE>
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 (other than DHC) 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 in such
Subsidiary, but not exceeding the pro rata equivalent of dividends paid by such
Subsidiary during the applicable period pursuant to clauses (iii) and (iv) of
this definition (i.e. if dividends of $900,000 are paid by such Subsidiary
during the applicable period pursuant to clauses (iii) and (iv) of this
definition, a 10% minority shareholder shall be permitted to receive a dividend
of $100,000 [($900,000 / 90) x 10]), (iii) dividends paid by any Subsidiary of
DHC to DHC not exceeding the income tax liabilities of DHC attributable to
income of such Subsidiary and (iv) other dividends paid by any Subsidiary of DHC
to DHC so long as the amount by which
(1) the sum of all such other dividends paid by all Subsidiaries of DHC to
DHC during such fiscal year plus all Investments made by all
Subsidiaries of DHC to or in DHC during such fiscal year (on a net
basis) exceeds
(2) the sum of equity (but not debt) Investments made by DHC in the Dollar
Borrowers during such fiscal year (on a net basis) plus other
Investments by DHC to or in the Dollar Borrowers during such fiscal
year (on a net basis) to the extent DHC's rights, titles and interests
in and to such Investment are subject to a first priority Lien in
favor of Lender securing the Obligations
shall not exceed, in any fiscal year, the sum of $3,000,000 minus any dividends
paid to minority shareholders of any Subsidiary of Borrower during such fiscal
year plus scheduled principal and interest payments during such fiscal year on
the Posi-Trak Acquisition Note, the Stock Acquisition Notes, the Shareco
Acquisition Notes and the ENSCO Acquisition Notes. Permitted
9
<PAGE>
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; (b)
commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or "A-1" by
Standard and Poor's Corporation with maturities of not more than 180 days; (c)
certificates of deposit or repurchase certificates issued by financial
institutions acceptable to the Lender, all of the foregoing not having a
maturity of more than one year from the date of issuance thereof, and (d)
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.
Permitted Liens under clause (a) of Section 7.2 may be superior to the Liens
under the Credit Documents to the extent such priority is established by statute
and not by voluntary contract. Permitted Liens under clauses (d), (j) or (k) of
Section 7.2 may be superior to the Liens under the Credit Documents to the
extent Property covered by Liens having such priority are excluded from the
Borrowing Base. Permitted Liens under clause (g) of Section 7.2 may be superior
to the Liens under the Credit Documents insofar as they constitute leases
executed in the ordinary course of business by a Dollar Borrower or any of their
Subsidiaries acting as lessor or landlord and the revenues under the applicable
leases are themselves subject to the Liens created under the Credit Documents.
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 DHC
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.
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.
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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 a Subsidiary of a Dollar Borrower
organized outside the United States so long as the Lender has a perfected first-
priority (subject to the Permitted Liens to the extent they are expressly
permitted to be superior to Liens under the Credit Documents) security agreement
covering the lesser of (x) all of the issued and outstanding equity interests in
and to such Subsidiary owned by any Dollar Borrower or by any Subsidiary of any
Dollar Borrower organized in the United States or (y) at least 65% of the issued
and outstanding equity interests in and to the applicable Subsidiary (or, if the
direct parent of such Subsidiary is itself organized in the United Kingdom, in
and to the closest parent of such Subsidiary whose equity interests are owned by
a Dollar Borrower or by any Subsidiary of a Dollar Borrower organized in the
United States).
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
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.
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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 Agreements shall mean first priority (subject to the Permitted
Liens to the extent they are expressly permitted to be superior to Liens under
the Credit Documents) security agreements, in Proper Form, in favor of the
Lender in connection with the Loan, covering (i) the Accounts and Inventory of
the Dollar Borrowers and each Subsidiary of a Dollar Borrower which is organized
in the United States and (ii) the lesser of (x) all of the issued and
outstanding equity interests in and to such Subsidiary owned by any Dollar
Borrower or by any Subsidiary of any Dollar Borrower organized in the United
States or (y) at least 65% of the issued and outstanding equity interests in and
to each Subsidiary of a Dollar Borrower which is organized in the United
Kingdom, in each case securing, without limitation, the Obligations; provided,
however, that Shareco shall not be required to execute such a security agreement
covering any of the issued and outstanding equity interests in and to Shareco
(UK) prior to December 31, 1995.
Security Documents shall mean this Agreement, the Security Agreements, the
Floating Charges 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 DHC 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.
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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 $2,111,533 executed or to be executed
by DHC payable to Cobb Directional Drilling Company, Inc. executed in connection
with the acquisition by DHC and DSI of all of the interests of Cobb Directional
Drilling Company, Inc. in and to Cobb.
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) DHC'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 of DHC, either
(a) 50% of the aggregate Net Income of DHC (on a consolidated basis) for such
year, if DHC (on a consolidated basis) has an aggregate positive Net Income for
such year, or (b) in all other cases, zero.
Tangible Net Worth Requirement shall mean, as of any date, (a) $4,000,000
plus (b) the aggregate of the Tangible Net Worth Increments for all of the
fiscal years of DHC (on a consolidated basis) beginning after March 31, 1995
which have been completed by such date.
Termination Date shall mean the earlier of (a) September 30, 1998 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 Dollar Exposure.
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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.
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 issuance, extension, amendment and wire advice of
and drawing under a Letter of Credit
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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
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amount of 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 1/2% 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 by the Dollar Borrowers shall also cover all reasonable expenses
incurred by the Lender in enforcing payment of the Pound Obligations, including
this Article.
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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 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.
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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 Waiver of 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 be subrogated to any 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.
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 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.
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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) the Security Documents; (e)
legal opinions from Baker & Botts, L.L.P. and Iain Smith & Co. substantially in
the forms of Exhibits E and F, respectively; (f) a calculation of the initial
Dollar Borrowing Base and the initial Pound Borrowing Base, and (g) evidence
reasonably satisfactory to the Lender as to the priority of the Liens created by
the Security Documents, 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. 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 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
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except as expressly contemplated therein. All necessary permits, registrations
and consents for such making and performance have been obtained. Except as
otherwise expressly stated in the Security Documents, the Liens of the Security
Documents will constitute valid and perfected first and prior Liens on the
Collateral, subject only to Permitted Liens to the extent they are expressly
permitted to be superior to Liens under the Credit Documents.
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.
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
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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 business, operations, prospects or condition, financial or
otherwise, 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 DHC, together with a reconciliation of the same
to the Quarterly Financial Statements of the Dollar Borrowers 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 Dollar Borrowers; (c) as soon as available and in any event
within 30 days following the end of each calendar month, Monthly Financial
Statements of the Dollar Borrowers; (d) concurrently with the Financial
Statements provided for in Sections 6.2(b) and (c), 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); (e) concurrently with the Monthly Financial Statements, a
listing and aging of the Accounts of the Borrowers as of the end of the period
covered thereby, prepared in reasonable detail and containing such other
information as the Lender may request, and (f) such other information relating
to the financial
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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 DHC (on a consolidated basis) at least equal to the Tangible Net Worth
Requirement; (b) a Debt to Capitalization Ratio of DHC (on a consolidated basis)
of not more than (1) 67% at any time from and after the date hereof through
September 30, 1996, (2) 62% at any time from and after October 1, 1996 through
September 30, 1997, (3) 52% at any time from and after October 1, 1997 through
September 30, 1998 and (4) 40% thereafter; (c) a Bank Debt to Capitalization
Ratio of DHC (on a consolidated basis) of not more than (1) 45% at any time from
and after the date hereof through September 30, 1996 and (2) 40% thereafter; (d)
a Fixed Charge Coverage Ratio of DHC (on a consolidated basis) of at least (1)
1.00 to 1 at any time from and after the date hereof through September 30, 1996,
(2) 1.10 to 1 at any time from and after October 1, 1996 through September 30,
1998 and (3) 1.25 to 1 thereafter, and (e) a Collateral Coverage Ratio of DHC
(on a consolidated basis) of at least 100%.
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. These insurance
provisions are cumulative of the insurance provisions of the Security Documents.
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
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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.
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) upon consummation
of the transactions contemplated in the ENSCO Acquisition Documents, the ENSCO
Notes, and all renewals and extensions (but not increases) thereof; (i) other
unsecured Debt of DHC, not to exceed $2,000,000 in the aggregate at any one time
outstanding; (j) Interest Rate Risk Indebtedness, and (k) 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
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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 DHC 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 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
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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 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; Management. Change the nature of its business or
enter into any business which is substantially different from the business in
which it is presently engaged or permit any material change in its management.
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 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 (other than
DHC); (e) Investments by any Subsidiary of DHC to or in DHC so long as the
amount by which
(1) the sum of all dividends described in clause (iv) of the definition of
"Permitted Dividends" paid by all Subsidiaries of DHC to DHC during
such fiscal year plus all Investments made by all Subsidiaries of DHC
to or in DHC during such fiscal year (on a net basis) exceeds
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(2) the sum of equity (but not debt) Investments made by DHC in the Dollar
Borrowers during such fiscal year (on a net basis) plus other
Investments by DHC to or in the Dollar Borrowers during such fiscal
year (on a net basis) to the extent DHC's rights, titles and interests
in and to such Investment are subject to a first priority Lien in
favor of Lender securing the Obligations
shall not exceed, in any fiscal year, the sum of $3,000,000 minus any dividends
paid to minority shareholders of any Subsidiary of a Borrower during such fiscal
year plus scheduled principal and interest payments during such fiscal year on
the Posi-Trak Acquisition Note, the Stock Acquisition Notes, the Shareco
Acquisition Notes and the ENSCO Acquisition Notes, (f) other Investments 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 or mining business; (g) Investments acquired in settlement of claims
and disputes, and (h) 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.
7.10 Location of Tangible Collateral. Except for equipment leased to
unaffiliated third parties in the ordinary course of business and disclosed to
the Lender in writing pursuant to Section 6.2(e)(3) or otherwise, none of the
Collateral consisting of tangible property will be located in any jurisdiction
other than the States of Texas, Alaska, Oklahoma, Wyoming and Louisiana, unless
the Lender shall have received evidence reasonably satisfactory to the Lender as
to perfection of its first priority Lien on such Collateral (subject to the
Permitted Liens to the extent they are expressly permitted to be superior to
Liens under the Credit Documents). Without limiting the foregoing, with respect
to any Collateral located in the Provinces of Alberta or Saskatchewan, Canada,
no lessee under any lease covering such Collateral shall retain possession of
the applicable Collateral for more than one (1) year (and no lease covering such
Collateral shall have a term of more than one (1) year) unless the Borrowers
shall have taken measures reasonably necessary or appropriate to perfect and
protect their interest in and to the applicable Collateral. Notwithstanding
anything to the contrary contained in this Agreement, the Lender's sole remedy
for the failure of Borrowers to perform any obligation under this Section 7.10
shall be to exclude the applicable Collateral from the Borrowing Base hereunder,
at Lender's option and sole discretion.
7.11 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
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to the Lender (i) a guaranty, in Proper Form, pursuant to which such Subsidiary
guarantees payment of the Obligations and (ii) a security agreement, in Proper
Form, granting to the Lender a first priority (subject to the Permitted Liens to
the extent they are expressly permitted to be superior to Liens under the Credit
Documents) security interest in and to such Subsidiary's Accounts and Inventory.
Each Subsidiary formed or acquired after the date hereof which is organized in
the United Kingdom must be a Qualified Foreign Subsidiary and must execute and
deliver to the Lender a Floating Charge, in Proper Form. No Subsidiary of the
Borrowers which is not organized in the United States or the United Kingdom
shall be permitted to own assets with an aggregate value in excess of
$10,000,000 and all Subsidiaries of the Borrowers which are not organized in the
United States or the United Kingdom shall not be permitted to own, in the
aggregate, assets with an aggregate value in excess of $12,000,000. Only the
Borrowers' pro rata share of assets shall be included for purposes of this
Section where less than 100% of a Subsidiary is owned by Borrowers.
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
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(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 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) A Borrower shall claim, or any court shall find or rule, that the
Lender does not have a valid Lien as provided for herein on any security which
may have been provided by such Borrower; or
(i) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by the Credit Documents) of any of the Collateral; or the making of
any levy, seizure or attachment thereof or thereon; or the loss, theft,
substantial damage, or destruction of any tangible Collateral having an
aggregate value in excess of $300,000 which is not covered by insurance; or
(j) 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
(k) The occurrence of an Event of Default under any Credit Document; or
(l) 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
(m) 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
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the petition in any such proceeding, and such order shall remain in effect for
more than 30 days; or
(n) 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
(o) 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
(p) DSI shall cease to own, directly or indirectly, all the indicia of
equity rights (whether issued and outstanding capital stock or otherwise) of
DSL; DHC 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
(q) 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, (4) that certain promissory note dated concurrently herewith executed by
the Dollar Borrowers payable to the order of Lender in the original principal
amount of $17,450,000, or (5) 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
31
<PAGE>
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 Holdings Corp.
15151 Sommermeyer
Houston, Texas 77041
Attention: Vice President, Finance and Administration
Telecopy No.: (713) 849-2561
(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
32
<PAGE>
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 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
33
<PAGE>
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.
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
34
<PAGE>
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 May 5, 1995, 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.
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 HOLDINGS CORP.,
a Delaware corporation
By: /s/ John Forrest
-----------------------------
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/ John Forrest
------------------------------
John Forrest,
President
35
<PAGE>
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex Holdings Corp., 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
36
<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
- ---------------------------
Name:
----------------------
Address:
-------------------
-------------------
Occupation:
----------------
- ---------------------------
Name:
----------------------
Address:
-------------------
-------------------
Occupation:
----------------
37
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION,
a national banking association
By: /s/ Diane Duplichan
------------------------------
Name: DIANE DUPLICHAN
----------------------------
Title: 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
Exhibit J - ENSCO Acquisition Notes
Appendix I - Subsidiaries
38
<PAGE>
DOLLAR NOTE
$13,000,000 Houston, Texas September 29, 1995
FOR VALUE RECEIVED, 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 THIRTEEN
MILLION DOLLARS ($13,000,000) (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 29, 1995 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.
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
Page 1 of 4 Pages
EXHIBIT A
<PAGE>
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.
This note is given in renewal, extension and rearrangement, and not in
extinguishment, of that certain promissory note (the "Renewed Note") dated May
5, 1995, made by Drilex Systems, Inc., Drilex Holdings Corp., Shareco, Inc. and
Cobb Directional Drilling Company, L.L.C., payable to the order of Payee and in
the maximum principal amount of Nine Million Dollars ($9,000,000). All Liens
securing the Renewed Note are hereby ratified, confirmed,
Page 2 of 4 Pages
<PAGE>
renewed, extended, rearranged and brought forward as security for this note, in
addition to and cumulative of all other security.
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 HOLDINGS CORP.,
a Delaware corporation
By: __________________________
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
By: __________________________
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
By: __________________________
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 Holdings Corp.,
a Delaware corporation,
Member
By:
_____________________________________
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
By:
_____________________________________
John Forrest,
President
Page 4 of 4 Pages
<PAGE>
DSL NOTE
--------
(Pounds)2,700,000.00 Houston, Texas March 31, 1994
FOR VALUE RECEIVED, DRILEX SYSTEMS LIMITED ("Maker"), a company
incorporated in Scotland under the Companies Act, promises 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
United Kingdom, the principal sum of TWO MILLION SEVEN HUNDRED THOUSAND POUNDS
STERLING ((Pounds)2,700,000.00) (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 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.
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, Maker may at any time
pay the full amount or any part of this note without payment of any premium or
fee.
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
Maker. 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 Maker's 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
Maker's entitlement to credit for that payment as of the date received by the
holder.
INITIALLED FOR
IDENTIFICATION:_____
Page 1 of 3 Pages
EXHIBIT B
<PAGE>
Subject to the provisions of the Credit Agreement, Maker may use all or any
part of the credit provided to be evidenced by this note at any time before the
Termination Date. Maker 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 DSL Available Commitment.
This note is the DSL Note which has been issued pursuant to the terms of
that certain Credit Agreement (as amended, supplemented and restated, the
"Credit Agreement") of even date herewith among Maker; Drilex Systems, Inc.
("DSI"), 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. Payee is
entitled to the benefits of and security provided for in the Credit Agreement.
Such security includes a floating charge of even date herewith by Maker in favor
of Payee, covering all of Maker's Property described therein, and a guaranty
(contained in the Credit Agreement) from DSI to Payee.
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 Maker sues any holder in connection with
this note or any such papers and does not prevail, then Maker agrees 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. An amount equal
to ten percent (10%) of the unpaid principal and accrued interest owing on this
note when and if this note is placed in the hands of an attorney for collection
after default is stipulated to be reasonable attorneys' fees unless a holder or
any maker of this note timely pleads otherwise to a court of competent
jurisdiction.
Maker 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
INITIALLED FOR
IDENTIFICATION:_____
Page 2 of 3 Pages
EXHIBIT B
<PAGE>
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.
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.
WITNESS: DRILEX SYSTEMS LIMITED,
a company incorporated in
__________________________ Scotland under the Companies Act
Name:_____________________
Address:__________________
__________________ By:___________________________
John Forrest
Occupation:_______________ Director
__________________________
Name:_____________________
Address:__________________
__________________
Occupation:_______________
Page 3 of 3 Pages
EXHIBIT B
<PAGE>
REQUEST FOR DOLLAR LOAN
____________, 199__
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Manufacturing and Oilfield Service Division
Ladies and Gentlemen:
Drilex Holdings Corp.; Drilex Systems, Inc.; Cobb Directional Drilling
Company, L.L.C.; Sharewell, Inc.; Drilex Systems Limited, and Texas Commerce
Bank National Association (the "Lender") executed and delivered that certain
Amended and Restated Credit Agreement (as amended, supplemented and restated,
the "Credit Agreement") dated as of September 29, 1995. Any term defined in the
Credit Agreement and used in this Request for Loan shall have the meaning
ascribed to it in the Credit Agreement.
The Dollar Borrowers hereby request a Dollar Loan in the amount of
$___________. Such Dollar Loan is to be a (check one) [____] Base Rate
Borrowing [____] Eurodollar Rate Borrowing. If such Dollar Loan is to be a
Eurodollar Rate Borrowing, it is to have an Interest Period of (check one)
[____] one [____] two [____] three [____] six months. As of the date hereof:
Maximum Commitment $13,000,000
Dollar Equivalent of the principal
balance of the Pound Note (_________)
Maximum Dollar Commitment $
=========
Borrowing Base $_________
Dollar Equivalent of the Principal
balance of the Pound Note (_________)
Dollar Borrowing Base $
=========
Lesser of Maximum Dollar Commitment
and Dollar Borrowing Base $_________
Letter of Credit Exposure (_________)
Dollar Available Commitment $
=========
Principal balance of Dollar Note, after giving
effect to the requested Dollar Loan $
=========
EXHIBIT C
<PAGE>
Page 2
The proceeds of the requested Dollar Loan should be (check one) [____]
deposited in account number _______________ of ___________________ [NAME OF
APPLICABLE DOLLAR BORROWER] with the Lender [____] ___________________________.
The Dollar Borrowers represent and warrant that (a) no Default or Event of
Default has occurred and is continuing and (b) this Request for Dollar Loan and
the requested Dollar Loan satisfy in all material respects all of the relevant
criteria set forth in the Credit Documents. Thank you for your attention to
this matter.
Very truly yours,
[SIGNATURE ON BEHALF OF ALL
DOLLAR BORROWERS]
cc: Texas Commerce Bank National Association
P.O. Box 2558
Houston, Texas 77252
Attention: Manager, Loan Agreements Division
EXHIBIT C
<PAGE>
REQUEST FOR POUND LOAN
[Letterhead of Drilex Systems Limited]
____________, 199__
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Manufacturing and Oilfield Service Division
Ladies and Gentlemen:
Drilex Holdings Corp.; 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 Amended and
Restated Credit Agreement (as amended, supplemented and restated, the "Credit
Agreement") dated as of September 29, 1995. Any term defined in the Credit
Agreement and used in this Request for Loan shall have the meaning ascribed to
it in the Credit Agreement.
DSL hereby requests a Pound Loan in the amount of (Pounds)_____________.
Such Pound Loan is to have an Interest Period of (check one) [____] one [____]
two [____] three [____] six months. As of the date hereof:
Nominal Pound Commitment (Pounds) 750,000
Maximum Commitment $13,000,000
Pound Exposure (__________)
Dollar Equivalent of Possible Pound Commitment $
==========
Possible Pound Commitment (Pounds)
==========
Maximum Pound Commitment (lesser of Possible
Pound Commitment and Nominal Pound Commitment) (Pounds)________
Borrowing Base (Pounds)________
Dollar Exposure (__________)
Dollar Equivalent of Pound Borrowing Base $
==========
Pound Borrowing Base (Pounds)
==========
EXHIBIT D
<PAGE>
Page 2
Available Pound Commitment (lesser of Maximum
Pound Commitment and Pound Borrowing Base) (Pounds)
==========
Principal balance of Pound Note, after giving
effect to the requested Pound Loan (Pounds)
=========
The proceeds of the requested Pound Loan should be (check one) [____]
deposited into account number _____________ of DSL with the Lender [____]
__________________.
DSL represents and warrants that (a) no Default or Event of Default has
occurred and is continuing and (b) this Request for Pound Loan and the requested
Pound Loan satisfy, in all material respects, all of the relevant criteria set
forth in the Credit Documents. Thank you for your attention to this matter.
Very truly yours,
DRILEX SYSTEMS LIMITED
By:
--------------------------------
Name:
------------------------------
Director
cc: Texas Commerce Bank National Association
P.O. Box 2558
Houston, Texas 77252
Attention: Manager, Loan Agreements Division
EXHIBIT D
<PAGE>
September 29, 1995
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Re: Amended and Restated Credit Agreement dated as of September 29, 1995 (the
"Amended Credit Agreement"), among Drilex Holdings Corp., a Delaware
corporation ("DHC"), Drilex Systems, Inc., a Texas corporation ("DSI"),
Cobb Directional Drilling Company, L.L.C., a Delaware limited liability
company ("Cobb"), Drilex Systems Limited, a company incorporated in
Scotland under the Companies Act ("DSL"), Sharewell, Inc., a Delaware
corporation ("Sharewell" and together with DHC, DSI and Cobb, the
"Borrowers"), and Texas Commerce Bank National Association, a national
banking association (the "Lender")
Ladies and Gentlemen:
We have acted as counsel for the Borrowers in connection with the
Amended Credit Agreement and this opinion is delivered to you pursuant to
Subsection 4.2(e) thereof. Capitalized terms not otherwise defined herein have
the meanings assigned to such terms in the Amended Credit Agreement.
In connection with the opinions hereinafter expressed, we have (i)
investigated such questions of law, (ii) examined such corporate documents and
records (other than the minute books of the Borrowers) and certificates of
public officials, and (iii) received such information from officers and
representatives from the Borrowers as we have deemed necessary or appropriate
for the purposes of this opinion. We have also examined the following documents
(those identified in items (a) through (f) below being referred to herein
collectively as the "Credit Documents"):
(a) An executed copy of the Amended Credit Agreement;
(b) Two executed promissory notes dated September 29, 1995 issued by
DHC, DSI, Cobb and Sharewell in the principal amounts of $13,000,000 and
$17,450,000 payable to the order of the Lender (collectively, the "Notes");
EXHIBIT E
<PAGE>
Texas Commerce Bank 2 September 29, 1995
National Association
(c) An executed copy of two interest rate agreements dated as of
September 29, 1995, one among DHC, DSI, Cobb, Sharewell, DSL and the
Lender, and the other among DHC, DSI, Cobb, Sharewell and the Lender
(collectively, the "Interest Rate Agreements");
(d) An executed copy of the Security Agreements dated as of September
29, 1995 made by each of DHC, DSI, Cobb and Sharewell to the Lender
(collectively the "Security Agreements");
(e) An executed copy of the financing statements (i) dated as of
September 30, 1994 made by each of DHC, DSI and Cobb; and (ii) dated as of
May 5, 1995 made by Shareco; each as debtor, and the Lender, as secured
party (collectively the "Financing Statements"); and
(f) An executed copy of the Security Agreement-Pledge dated as of
September 29, 1995 delivered by DSI to the Lender.
In rendering the opinions set forth, we have assumed (i) the due
authorization, execution and delivery of the Credit Documents by all parties to
such Credit Documents other than the Borrowers and that each such Credit
Document is valid, binding and enforceable against the parties thereto other
than the Borrowers, (ii) the legal capacity of natural persons, (iii) the
genuineness of all signatures, (iv) the authenticity of all documents submitted
to us as originals, and (v) the conformity to original documents of all
documents submitted to us as copies. As to various questions of fact material
to our opinion, we have relied upon the representations made in the Credit
Documents and upon certificates of officers of the Borrowers.
Based upon the foregoing and subject to the assumptions, exceptions
and qualifications set forth herein, we are of the opinion that:
1. DHC is a corporation validly existing and in good standing under
the laws of the State of Delaware. DSI is a corporation validly existing
and in good standing under the laws of the State of Texas. Cobb is a
limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sharewell is a
corporation validly existing and in good standing under the laws of the
State of Delaware. Each of DHC, DSI and Sharewell (the "Corporate
Borrowers") has the corporate power and authority to enter into and perform
its obligations under the Credit Documents. Cobb has the limited liability
company power and authority to enter into and perform its obligations under
the Credit Documents.
<PAGE>
Texas Commerce Bank 3 September 29, 1995
National Association
2. The execution, delivery and performance of the Credit Documents to
which each Borrower is a party (a) have been duly authorized by all
requisite, in the case of the Corporate Borrowers, corporate action, and in
the case of Cobb, limited liability company action, and (b) do not
contravene the Articles of Incorporation, the Certificates of Incorporation
or Bylaws of the Corporate Borrowers, as the case may be, or Cobb's
Certificate of Formation or Limited Liability Company Agreement, in each
case as amended to the date hereof.
3. No authorization, consent, approval, license, exemption or other
action by, or registration, qualification or filing with any Governmental
Authority in the United States is required in connection with the
execution, delivery and performance of the Credit Documents by the
Borrowers.
4. Each Borrower has duly and validly executed and delivered the
Credit Documents to which it is a party.
5. Each of the Credit Documents to which a Borrower is a party
constitute the legal, valid and binding obligation of such Borrower, in
each case, enforceable in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, preference or similar laws of general application relating to
or affecting creditors' rights. The enforceability and binding nature of
such obligations are also subject to general principles of equity
(regardless of whether considered in proceedings in equity or at law),
including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, and also to the possible unavailability of
specific performance or injunctive relief. Such principles of equity are
of general application, and in applying such principles, a court, among
other things, might not allow the Lender to accelerate the loans evidenced
by the Credit Agreement and the Notes upon an event deemed immaterial or
might decline to order the Borrowers to perform covenants.
6. Each of the Security Agreements to which a Borrower is a party
creates valid security interests in favor of the Lender in all right, title
and interest of such Borrower in those items and types of Collateral (as
defined in the Security Agreements) in which a security interest may be
created under Article 9 of the Uniform Commercial Code, as enacted in the
State of Texas (the "UCC") as security for the Notes expressly described in
Section 2.1 of each such Security Agreement. The Financing Statements are
in appropriate form for filing pursuant to the UCC in the Office of the
Secretary of State of the State of Texas (the "Filing Office"). Assuming
the Financing Statements are duly filed in the Filing Office in the form
reviewed by us, such filings shall result in the perfection (within the
<PAGE>
Texas Commerce Bank 4 September 29, 1995
National Association
meaning of the UCC) of the security interest in favor of the Lender with
respect to all right, title and interest of each Borrower in and to the
Collateral that consists of "accounts", "chattel paper" or "general
intangibles" (as such terms are defined in the UCC, the "UCC Collateral")
of all Borrowers other than Cobb (the "Texas Borrowers") and "inventory" or
"equipment" (as such terms are defined in the UCC) of each Borrower located
in the State of Texas (the "Local Collateral") in which a security interest
has been created under the Security Agreements and in which a security
interest may be perfected by the filing of financing statements under the
UCC in the Filing Office.
7. Except for (a) the filing of the Financing Statements as set forth
in paragraph 6 above, and (b) any future filings or recordings described in
subparagraph (d)(ii) below, no further or subsequent filing, refiling,
recording or re-recording, registration or re-registration of the Financing
Statement or any other instrument will be necessary to perfect and continue
the security interests created by the Security Agreement in the UCC
Collateral or the Local Collateral.
8. The execution, delivery and performance of the Credit Documents by
the Borrowers do not, and will not result in the breach of, or constitute a
default under, any of the documents set forth on Schedule A hereto (the
"Material Documents").
9. It is not necessary under the Material Documents for the Borrowers
to obtain any consent from any Person in connection with the execution,
delivery and performance of the Credit Documents by the Borrowers.
The opinions set forth above are subject in all respects to the
following additional limitations, qualifications, exceptions and assumptions:
(a) For purposes of the opinions expressed in paragraph 5 above, we
have assumed that you will at all times comply strictly with the provisions
of Section 3.4 of the respective Interest Agreements, taking into account
all fees, charges or other compensation or any other amounts which under
applicable laws might constitute interest on the Obligations and that Texas
courts and federal courts applying Texas law will give effect to the
provisions of such Section of the respective Interest Agreements. Further,
we express no opinion as to whether the assumption of the Renewed Note (as
defined in the Dollar Note) by Cobb, Sharewell or DHC or the joint and
several liability of each Borrower as co-makers for loans advanced to any
other Person does not constitute usurious interest under the Texas Supreme
Court's holding in Alamo Lumber Co. v. Gold, 661 S.W.2d 926 (Tex. 1983).
<PAGE>
Texas Commerce Bank 5 September 29, 1995
National Association
(b) Our opinions in paragraphs 5 and 6 above as to the validity of the
Credit Documents and perfection of any security interest in the Collateral
are subject to the qualification that Section 552 of the Bankruptcy Reform
Act of 1978, as amended (the "Code"), may affect the validity of the lien
and security interest intended to be created by the Credit Documents with
respect to proceeds realized and property acquired after the commencement
of a case under the Code.
(c) Our opinion set forth in paragraph 6 above is subject to the
following additional limitations, exceptions, qualifications and
assumptions:
(i) We note that in the case of proceeds, continuation of
perfection of the Lender's security interest therein is limited to the
extent set forth in the UCC.
(ii) We note that a continuation statement signed by the secured
party of record, identifying the original Financing Statements by file
number and date of filing, and stating that the original Financing
Statements remain effective, must be filed with the Office of the
Secretary of State of the state of Texas within six months before
expiration of five years from the date of such filing and subsequent
such continuation statements must be filed within six months before
the end of each subsequent five-year period, and amendments or
supplements to the Financing Statements and/or additional financing
statements may be required to be filed in the event of a change in the
name, identity or corporate or organizational structure of the debtor
in the event any debtor's Financing Statement otherwise becomes
inaccurate or incomplete or if such debtor changes the jurisdiction of
its place of business (or, if it has more than one place of business,
its chief executive office) or location of the Collateral.
(iii) The opinion as to the creation and perfection of security
interests do not cover interests in real property and other property
transactions excluded from the coverage of the UCC pursuant to Section
9.102 and 9.104 thereof, instruments (as defined in the UCC), money,
deposit accounts, insurance payable by reason of loss or damages to
the Collateral, and other property subject to perfection procedures
other than the filing of a financing statement in the Filing Office
pursuant to Section 9.302 of the UCC.
<PAGE>
Texas Commerce Bank 6 September 29, 1995
National Association
(iv) With respect to the UCC Collateral, we assume, without
independent investigation, that the principal place of business, or
the chief executive office, if more than one place of business exists,
of the Texas Borrowers will remain located in the State of Texas.
Changes in the location of the chief executive office of Borrower may
result in the lapse of perfection of Lender's security interest in the
UCC Collateral unless new, appropriate financing statements are
properly filed in the appropriate place within four months after each
such change. We express no opinion as to the creation or perfection of
any security interest created under the Cobb Security Agreement in any
property other than in Cobb's right, title or interest in, if any,
Local Collateral.
(v) Our opinion with respect to the perfection of Lender's
security interest in any Local Collateral does not relate to any of
such collateral now or hereafter located in any jurisdiction other
than the State of Texas, except to the extent such Local Collateral
constitutes "mobile goods," as such term is used in Section
9.103(c)(1) of the UCC of any Texas Borrower. Additionally, our
opinion with respect to the perfection of Lender's security interest
in inventory forming part of the Collateral, but in which any Borrower
acquires rights after the date hereof, is limited to inventory (a)
which is located in the State of Texas when such Borrower acquires
rights therein, or (b) in which Lender has a purchase money security
interest which Lender and such Borrower understands, at the time such
Borrower acquires rights therein, will be kept in the State of Texas,
and which arrives in the State of Texas within thirty days after such
Borrower receives possession thereof. We express no opinion as to the
existence of any purchase money security interest in any Collateral.
(vi) We note that the security interest of the Lender can attach
only to such rights as a Borrower may have in the Collateral, and no
opinion is expressed with respect thereto.
(vii) We call your attention to, and our opinions are limited as
follows:
(A) in the case of Collateral consisting of instruments not
constituting part of chattel paper (as such terms are defined in
Chapter 9 of the UCC), the security interests of Lender therein
<PAGE>
Texas Commerce Bank 7 September 29, 1995
National Association
cannot be perfected by the filing of the Financing Statements but will
be perfected if possession thereof is obtained in accordance with the
provisions of the Security Agreements;
(B) Although the filing of a financing statement will perfect a
security interest in chattel paper and negotiable documents, the
perfected security interest is subject to the rights of subsequent
holders or purchasers (including secured parties) without actual
knowledge of the security interest;
(C) Holders of purchase money security interests may have rights
in the Local Collateral acquired in the future superior to those of
Lender if such holder follows the procedures set forth in Section
9.312 of the UCC;
(D) We express no opinion as to the perfection of the security
interest in any Collateral to the extent Lender consented to any
security interest in favor of any other party or has authorized the
disposition of any Collateral or released or subordinated Lender's
security interest therein; and
(E) Our opinions concerning the perfection and enforceability of
the security interest in the Collateral are in all cases limited to
the borrowing under the Loan Documents and such future advances as are
made thereunder in accordance with the terms of the Credit Documents;
no opinion is expressed as to the effectiveness of the Credit
Documents to grant and create a security interest with respect to any
indebtedness other than that created by borrowings under the Credit
Documents.
(viii) We have assumed, without independent investigation, that
the filing and recording of the Financing Statements will be performed
correctly by each filing and recording officer in each applicable
jurisdiction and office.
(ix) You should be aware that, pursuant to the provisions of
Section 9.307, 9.308 and 9.309 of the UCC, qualifying purchasers of
inventory, chattel paper, instruments and negotiable documents of
title take title free and clear of a security interest perfected by
filing.
<PAGE>
Texas Commerce Bank 8 September 29, 1995
National Association
(d) We have assumed that DSL is not required to qualify to do business
in Texas.
(e) In rendering the opinions set forth above, we have assumed that no
Borrower is a "subsidiary company" of a "holding company," an "affiliate"
of a "holding company," or an "affiliate" of a "subsidiary company," of a
"holding company," in each case as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended.
(f) We express no opinion as to the title to any of the property
covered in the Credit Documents or to the accuracy, completeness or
sufficiency of any description of such property or the priority of the
liens and security interests intended to be created thereby.
(g) We have not been called upon to, and accordingly do not, express
any opinion as to the various state and federal laws regulating banks or
the conduct of their business that may relate to the Credit Documents or
the transactions contemplated thereby. Without limiting the generality of
the foregoing, we express no opinion as to the effect of the law of any
jurisdiction other than the State of Texas wherein the Lender may be
located or where any enforcement of the Credit Documents may be sought that
limits the rates of interest legally chargeable or collectible.
(h) We express no opinion as to the issue of whether a Texas court or
a federal court sitting in Texas would render a judgment for a sum of money
in a currency other than Dollars, and we also express no opinion as to the
rate of exchange that would be applied to a judgment rendered for a sum of
money in a currency other than Dollars.
(i) We express no opinion with respect to the following provisions to
the extent contained in the Credit Documents: (i) provisions purporting to
affect the jurisdiction or venue of courts; (ii) provisions releasing,
exculpating or exempting a party from, or requiring the indemnification of
a party for, liability for its own action or inaction, to the extent that
the same are inconsistent with public policy; (iii) provisions that
decisions by a party are conclusive; (iv) provisions purporting to waive
rights to notice, legal defenses, or other benefits that cannot be waived
under applicable law; (v) provisions granting powers of attorney or
authority to execute documents or to act by power of attorney on behalf of
either Borrower, and (vi) provisions purporting to provide remedies
inconsistent with the Code or the UCC, to the extent that the Code or the
UCC, is applicable thereto and the parties may not, under the Code or the
UCC, agree to such remedies.
(j) The opinions expressed are as of the date hereof only, and we
assume no obligation to update or supplement such opinions to reflect any
fact or circumstance that
<PAGE>
Texas Commerce Bank 9 September 29, 1995
National Association
may hereafter come to our attention or any changes in law that may
hereafter occur or become effective.
(k) The opinions herein expressed are limited in all respects to the
laws of the State of Texas, the General Corporation Law of the State of
Delaware and the applicable federal laws of the United States.
The opinions herein have been furnished at your request and are solely
for your benefit in connection with the subject transaction and may not be
relied upon by any other person without the prior written consent of the
undersigned.
Very truly yours,
SK/JDK
<PAGE>
SCHEDULE A
MATERIAL DOCUMENTS
1. The Credit Documents
2. Posi-Trak Acquisition Note
3. Stock Acquisition Notes
4. Sharewell Acquisition Notes
5. Sharewell Acquisition Documents
<PAGE>
GH/AG [ ] March 1994
Texas Commerce Bank National Association
c/o Messrs Maclay Murray & Spens
Solicitors
3 Glenfinlas Street
EDINBURGH
EH3 6AQ
Dear Sirs
Drilex Systems Limited ("DSL")
Drilex Systems Inc. ("DSI")
Texas Commerce Bank National Association ("the Lender")
We refer to the credit agreement by and among DSI, DSL and the Lender to be
executed on [ ] 1994 ("the Credit Agreement").
Unless otherwise stated, the words and expressions defined in the Credit
Agreement shall have the same meaning in this letter as they do in the Credit
Agreement.
We are solicitors to DSL and hereby confirm to you that in our opinion under
Scots private law:
1. (a) DSL is duly organised and validly existing under the laws of Scotland;
and
(b) DSL has all corporate power and authority under its memorandum and
articles of association to conduct its business as presently conducted;
EXHIBIT F
<PAGE>
2
2. the execution and delivery and performance of the Credit Documents listed in
the Schedule annexed and signed as relative hereto by DSL;
(a) has been duly authorized by all necessary corporate action;
(b) is within the corporate power and authority of DSL; and
(c) do not and will not contravene any legal requirement as at the date
hereof under Scots private law and applicable UK company law and
applicable EC law or the memorandum and articles of association of DSL;
3. the said Credit Documents will have been validly executed by DSL under Scots
private law, if the execution and delivery of the said Credit Documents is
approved at a meeting of the Board of Directors of DSL duly convened and held
and the said Credit Documents are subscribed for and on behalf of DSL by any
two directors or by one director and the secretary or any other manner
approved by the Board of Directors on the correct pages and, in the case of
said Credit Documents requiring to be executed by DSL only, if such Credit
Documents are delivered to you and, in the case of said Credit Documents
requiring to be executed by you and other persons, if such Credit Documents
are executed by all other parties thereto; if the Floating Charge is executed
by one signatory, such execution should be witnessed by two witnesses and
otherwise be in accordance with the requirements of Scots law with regard to
the authentication of probative documents;
4. providing the Floating Charge has been executed in the manner referred to in
paragraph 3 above, the Floating Charge is the legal, valid and binding
obligation of DSL, enforceable in accordance with its terms and applicable
legislation;
5. that pursuant to Section 415 of the Companies Act 1985 ("the Act") it is the
duty of DSL to send to the Registrar of Companies for registration the
particulars of the Floating Charge and any other security or charge from time
to time granted by DSL; in terms of Section 410 of the Act, the Floating
Charge will be void as against the liquidator or administrator and any
creditor of DSL if it is not so registered within 21 days of the date of
execution of the Floating Charge; and, pursuant to Section 466 of the Act,
the Ranking Agreement requires to be registered with the Registrar of
Companies
EXHIBIT F
<PAGE>
3
as an instrument of alteration to the Floating Charge and the Floating
Charge to be granted by DSL in favour of Masco Tech Inc. within 21 days of
the last date of execution of the Ranking Agreement failing which it shall be
void as aforesaid;
6. no recording tax, registration tax, transfer tax, stamp tax or other fee, tax
or governmental charge is required to be paid in the United Kingdom in
connection with the execution and delivery or the filing of the Floating
Charge;
7. to the best of our knowledge but without any enquiry having been made by us
and except as heretofore disclosed to the Lender there is no litigation
(other than the action by DSL against Sperry Sun (UK) Limited in the
Sheriffdom of Grampian Highland and Islands at Aberdeen) or administrative
proceeding, pending or threatened against, nor any outstanding judgement,
order or decree affecting DSL before or by any governmental authority or any
arbitral body.
Yours faithfully
EXHIBIT F
<PAGE>
SCHEDULE
1. Credit Agreement among DSL, the Lender and Drilex Systems Inc. ("DSI")
2. Interest Rate Agreement among DSL, the Lender and DSI
3. Promissory Note by DSL in favour of the Lender
4. Floating Charge by DSL in favour of the Lender
5. Ranking Agreement among DSL, the Lender and MascoTech Inc.
EXHIBIT F
<PAGE>
CERTIFICATE OF NO DEFAULT
Drilex Holdings Corp.; 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 Amended and
Restated Credit Agreement (as amended, supplemented and restated, the "Credit
Agreement") dated as of September 29, 1995. Any term defined in the Credit
Agreement and used in this Certificate shall have the meaning ascribed to it in
the Credit Agreement.
The undersigned hereby certifies that:
1. I am the (check one) [____] President [____] chief financial officer of
DHC.
2. The attached Financial Statements were prepared in accordance with Good
Accounting Practice and fairly present, in all material respects, the
operations, cash flows and assets and liabilities of DHC and its Subsidiaries as
of the date thereof for the periods covered thereby.
3. For DHC and its Subsidiaries, as of the date of the attached Financial
Statements:
Actual Value Covenant Value
------------ --------------
Debt $___________
Equity $___________
Preferred stock (___________)
Common Stockholders' Equity $___________
Intangibles (___________)
Tangible Net Worth $ > $_________
=========== -
Debt $___________
Equity ____________
Capitalization $
=========== less
Debt to Capitalization Ratio ____% than ____%
or =
EXHIBIT G
<PAGE>
4. For DHC and its Subsidiaries, as of the date of the attached Financial
Statements:
Actual Value Covenant Value
------------ --------------
Tangible Net Worth $ >$_________
=========== -
Bank Debt $___________
Equity ___________
Capitalization $
===========
Bank Debt to Capitalization less
Ratio ____% than ____%
or =
5. For the 12 months ending on the date of the attached Financial
Statements and with respect to DHC and its Subsidiaries:
Actual Value Covenant Value
------------ --------------
Net Income $___________
Depreciation expense ___________
Amortization expense ___________
Tax expense ___________
Interest expense ___________
Capitalized lease expense ___________
EBITDA $___________
Cash taxes (___________)
EBITDA less cash taxes $
===========
Capital Expenditures $___________
Net proceeds from sale of
equity and Subordinated
Indebtedness (___________)
Net Capital Expenditures $___________
Scheduled principal payments $___________
Cash interest expense ___________
Cash preferred dividends ___________
Fixed Charges $
===========
Fixed Charge Coverage Ratio ____ to 1 >_____ to 1
-
6. With respect to DHC and its Subsidiaries as of the date of the attached
Financial Statements except with respect to the Dollar Equivalent of the Pound
Note, the Letter of Credit Exposure and principal balance of the Dollar Note,
which are current amounts:
Accounts Component
------------------
Accounts receivable $__________
Due more than 60 days
after date $__________
Billed more than 60 days after
EXHIBIT G
<PAGE>
sale or service rendered __________
In dispute __________
Not in ordinary course of
account debtor's business __________
Troubled account debtor __________
Retention __________
Other Exclusions __________ (__________)
Qualifying Accounts Receivable $__________
Accounts of Affiliates $__________
More than 120 days (in case of
Foreign Account Debtors)
or 90 days (in all other cases)
past invoice date __________
Current Accounts of delinquent
account debtors __________
Excess beyond 20%
concentration level __________
Progress billings $_________
Approved Progess
Billings (_________) __________
Accounts owing by USA __________ (__________)
Eligible Accounts $__________
x 80%
----------
Accounts Component $__________
Inventory Component
-------------------
Inventory $__________
x 35%
----------
Possible Inventory
Component $
==========
Inventory Component
(this will equal the lesser of
the Possible Inventory Component
or the Accounts Component) __________
Borrowing Base $__________
Dollar Equivalent of principal
balance of Pound Note (__________)
Dollar Borrowing Base $
==========
Maximum Commitment $13,000,000
Dollar Equivalent of the principal
balance of the Pound Note (__________)
Maximum Dollar Commitment $
==========
EXHIBIT G
<PAGE>
Lesser of Maximum Dollar Commitment or
Dollar Borrowing Base $__________
Letter of Credit Exposure (__________)
Dollar Available Commitment $__________
Principal balance of Dollar Note (__________)
If positive, Unused Dollar Commitment $
==========
If negative, required prepayment $
==========
Nominal Pound Commitment (Pounds)750,000
Maximum Commitment $13,000,000
Dollar Exposure (__________)
Dollar Equivalent of Possible Pound Commitment $
==========
Possible Pound Commitment (Pounds)
==========
Maximum Pound Commitment (lesser of
Possible Pound Commitment or
Nominal Pound Commitment) (Pounds)
==========
Borrowing Base $__________
Dollar Exposure (__________)
Dollar Equivalent of Pound Borrowing Base $
==========
Pound Borrowing Base (Pounds)
==========
Pound Available Commitment (lesser
of Maximum Pound Commitment and Pound
Borrowing Base) (Pounds) __________
Principal balance of Pound Note (__________)
If positive, Unused Pound Commitment (Pounds)
==========
If negative, required prepayment (Pounds)
==========
7. A review of the activities of DHC and its Subsidiaries during the
period covered by the attached Financial Statements has been made under my
supervision and with a view to determining whether during such period they have
kept, observed, performed and fulfilled, in all material respects, all of their
respective obligations under the Credit Documents.
8. All of the representations and warranties of the Borrowers contained
in the Credit Agreement are true and correct, in all material respects, on the
date hereof as if made on the date hereof except for the following matters:
[Describe or attach a schedule of all such representations and warranties and
what specifically is no longer true or correct with respect thereto].
9. (Check either (a) or (b)):
[ ] (a) DHC and its Subsidiaries have kept, observed, performed and
fulfilled, in all material respects, each and every
EXHIBIT G
<PAGE>
one of their respective obligations under the Credit Documents during the period
covered by the attached Financial Statements.
[ ] (b) DHC and its Subsidiaries have kept, observed, performed and
fulfilled, in all material respects, each and every one of their respective
obligations under the Credit Documents during the period covered by the attached
Financial Statements except for the following matters: [Describe all such
defaults, specifying the nature, duration and status thereof and what action the
Borrowers have taken or propose to take with respect thereto].
10. (Check either (a) or (b)):
[ ] (a) As of the date hereof, no Default or Event of Default has
occurred and is continuing.
[ ] (b) As of the date hereof, no Default or Event of Default has
occurred and is continuing except for the following matters: [Describe all such
defaults, specifying the nature, duration and status thereof and what action the
Borrowers have taken or propose to take with respect thereto].
Date:_____________, 199__ _______________________________
Name:__________________________
EXHIBIT G
<PAGE>
EXHIBIT H
---------
SHARECO ACQUISITION NOTES
<TABLE>
<CAPTION>
OBLIGOR PAYEE PRINCIPLE AMOUNT
- ------- ---------- ----------------
<S> <C> <C>
Drilex Holdings Corp. S. R. Anderson $ 819,000
Drilex Holdings Corp. John Teer 829,500
Drilex Holdings Corp. Todd Caspary 819,000
Drilex Holdings Corp. Frank Forest 255,900
Drilex Holdings Corp. George W. Kowalczuk 138,300
Drilex Holdings Corp. Andy F. Brown 138,300
----------
TOTAL: $3,000,000
==========
</TABLE>
<PAGE>
EXHIBIT I
CERTAIN NOTES TO BE HELD BY DOLLAR BORROWERS
None
<PAGE>
EXHIBIT J
ENSCO ACQUISITION NOTES*
OBLIGOR PAYEE PRINCIPLE AMOUNT
------- ----- ----------------
Drilex Holdings Corp. ENSCO Technology Company $2,500,000
Drilex Holdings Corp. ENSCO Technology Company 2,500,000
TOTAL: $5,000,000
==========
*One of the Notes is convertible into Common Stock of Drilex Holdings Corp.
<PAGE>
APPENDIX I
Subsidiaries and Ownership of
Common Stock
I. Direct Subsidiaries of Drilex Holdings Corp.
1. Drilex Systems, Inc. (100%)
a. Drilex Systems, S. A. (100%)
2. Cobb Directional Drilling Company, L.L.C. (99%)
3. Sharewell, Inc. (100%)
II. Direct Subsidiary of Drilex Systems, Inc.
1. Drilex U.K. Limited (100%)
2. Cobb Directional Drilling Company, L.L.C. (1%)
3. ENSCO Technology Canada, Inc. (70%)
III. Direct Subsidiary of Drilex U.K. Limited
1. Drilex Overseas Limited (100%)
2. Drilex Systems Limited (100%)
IV. Direct Subsidiary of Sharewell, Inc.
1. Sharewell (Far East), Ltd. (66%)
2. Sharewell Horizontal Systems, Ltd. (100%)
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT ("Amendment") dated as of September 29,
1995 (the "Amendment Effective Date") is made and entered into by and among
DRILEX HOLDINGS CORP., a Delaware corporation, DRILEX SYSTEMS, INC., a Delaware
corporation, DRILEX SYSTEMS LIMITED, a company incorporated in Scotland under
the Companies Act, COBB DIRECTIONAL DRILLING COMPANY, L.L.C., a Delaware limited
liability company, and SHAREWELL, INC., a Delaware corporation (collectively,
the "Borrowers") and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Lender"), a
national banking association.
RECITALS:
WHEREAS, the Borrowers and the Lender are parties to an Amended and
Restated Credit Agreement dated as of September 29, 1995 (the "Credit
Agreement"); and
WHEREAS, the Borrowers and the Lender have agreed, on the terms and
conditions herein set forth, that the Credit Agreement be amended in certain
respects;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein unless otherwise
provided herein.
Section 2. Amendments to the Credit Agreement. On and after the Amendment
Effective Date, the definition of "Fixed Charge Ratio" set forth in Section 1.1
is hereby amended to read in its entirety as follows:
Fixed Charge 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 DHC (on a consolidated basis) for the 12 months ending on such date
(but if such date is before October 5, 1996, then EBITDA of ENSCO Technology
Company and Sharewell, Inc. shall be included in the foregoing calculation of
DHC as if it had been acquired and consolidated 12 months prior to the
calculation date).
Section 3. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Credit Documents, or (b) except as
<PAGE>
expressly set forth herein, prejudice any right or rights which the Lender may
now have or may have in the future under or in connection with the Credit
Agreement, the Credit Documents or any of the other documents referred to
therein. Except as expressly modified hereby or by express written amendments
thereof, the terms and provisions of the Credit Agreement, the Notes, and any
other Credit Documents or any other documents or instruments executed in
connection with any of the foregoing are and shall remain in full force and
effect. In the event of a conflict between this Amendment and any of the
foregoing documents, the terms of this Amendment shall be controlling. The
representations and warranties made in each Credit Document are true and correct
in all material respects on and as of the Amendment Effective Date.
Section 4. Payment of Expenses. The Borrowers agree, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Credit Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Credit Agreement and the repayment
of the Loans.
Section 5. Governing Law. This Amendment and the rights and obligations
of the parties hereunder and under the Credit Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.
Section 6. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
Section 7. Entire Agreement. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.
Section 8. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.
Section 9. Amended Definitions. As used in the Credit Agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the Amendment Effective
Date the term (i) "Agreement" shall mean the Credit
2
<PAGE>
Agreement as amended by this Amendment, and (ii) references to any and all other
Credit Documents shall mean such documents as amended as contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE (S)26.02
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
DRILEX HOLDINGS CORP.,
a Delaware corporation
By: /s/ John Forrest
---------------------------------
Name: John Forrest
-------------------------------
Title: President and CEO
------------------------------
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/ John Forrest
--------------------------------
Name: John Forrest
-------------------------------
Title: CEO
------------------------------
3
<PAGE>
COBB DIRECTIONAL DRILLING
COMPANY, L.L.C., a Delaware limited liability
company
By: Drilex Holdings Corp.,
a Delaware corporation,
Member
By: /s/ John Forrest
-----------------------------------------
Name: John Forrest
---------------------------------------
Title: President and CEO
--------------------------------------
By: Drilex Systems, Inc.,
a Texas corporation,
Member
By: /s/ John Forrest
-----------------------------------------
Name: John Forrest
---------------------------------------
Title: CEO
--------------------------------------
SHAREWELL, INC.,
a Delaware corporation
By: /s/ John Forrest
----------------------------------------------
Name: John Forrest
--------------------------------------------
Title: CEO
-------------------------------------------
4
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: /s/ Mona M. Foch
----------------------------------------
Name: Mona M. Foch
--------------------------------------
Title: Vice President
-------------------------------------
5
<PAGE>
Exhibit 4.10
DOLLAR NOTE
$13,000,000 Houston, Texas September 29, 1995
FOR VALUE RECEIVED, 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 THIRTEEN
MILLION DOLLARS ($13,000,000) (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 29, 1995 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.
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
Page 1 of 4 Pages
<PAGE>
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.
This note is given in renewal, extension and rearrangement, and not in
extinguishment, of that certain promissory note (the "Renewed Note") dated May
5, 1995, made by Drilex Systems, Inc., Drilex Holdings Corp., Shareco, Inc. and
Cobb Directional Drilling Company, L.L.C., payable to the order of Payee and in
the maximum principal amount of Nine Million Dollars ($9,000,000). All Liens
securing the Renewed Note are hereby ratified, confirmed,
Page 2 of 4 Pages
<PAGE>
renewed, extended, rearranged and brought forward as security for this note, in
addition to and cumulative of all other security.
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 HOLDINGS CORP.,
a Delaware corporation
/s/ John Forrest
By: __________________________
John Forrest,
President
DRILEX SYSTEMS, INC.,
a Texas corporation
/s/ John Forrest
By: __________________________
John Forrest,
President
SHAREWELL, INC.,
a Delaware corporation
/s/ John Forrest
By: __________________________
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 Holdings Corp.,
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>
Exhibit 4.11
TERM NOTE
$17,450,000 Houston, Texas September 29, 1995
FOR VALUE RECEIVED, SHAREWELL, INC., a Delaware corporation (formerly
Shareco, Inc. ("Shareco")), DRILEX HOLDINGS CORP., a Delaware corporation, COBB
DIRECTIONAL DRILLING COMPANY, L.L.C., a Delaware limited liability company, and
DRILEX SYSTEMS, INC., a Texas corporation (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 SEVENTEEN
MILLION FOUR HUNDRED FIFTY THOUSAND DOLLARS ($17,450,000) (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 that certain
Interest Rate Agreement dated concurrently herewith executed by and between the
Makers and the Payee (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. Any term defined in
the Interest Rate Agreement and used in this note shall have the meaning
ascribed to it in the Interest Rate Agreement.
The principal of this note shall be due and payable as follows:
(i) in nineteen (19) equal quarterly installments, each in the amount of
$872,500, the first such installment to be due and payable on December
31, 1995 and a like installment to be due and payable on the last day
of each March, June, September and December thereafter through and
including June 30, 2000; and
(ii) on September 30, 2000, the final maturity of this note, when the
entire unpaid principal balance of this note, together with all
accrued and unpaid interest hereon, shall be finally due and payable.
(iii) Simultaneously with the delivery of the Financial Statements
pursuant to Section 6.2 of the Credit Agreement as of April 30 of each
fiscal year of DHC (commencing with April 30, 1996), the Makers will
make an annual prepayment on this note (applied to the above described
principal installments in inverse order of their maturity) in an
amount equal to 50% of Excess Cash Flow (hereinafter defined) of DHC
(on a consolidated basis) for the immediately preceding twelve (12)
month period ending on such April 30th; provided, that no prepayments
shall
Page 1 of 5 Pages
<PAGE>
be required under this clause on any April 30th if the Debt to
Capitalization Ratio of DHC (on a consolidated basis) shall be less
than or equal to 45% on such April 30th. The term "Excess Cash Flow"
as used herein shall mean, for any period, EBITDA plus net proceeds
realized from the sale of assets, other than assets sold in the normal
course of business, minus tax expense, interest expense, scheduled
principal payments on Debt and capitalized leases and Nominal Capital
Expenditures (hereinafter defined), in each case for the applicable
period and for DHC (on a consolidated basis). The term "Nominal
Capital Expenditures" as used herein shall mean the lesser of (1)
actual Capital Expenditures or (2) $5,000,000 for the period from May
1, 1995 through April 30, 1996 and $4,500,000 for each applicable
period from any May 1 through the next April 30 thereafter.
Accrued and unpaid interest shall be due and payable as provided in the
Interest Rate Agreement.
Subject to the provisions of the Interest Rate Agreement, Makers may at any
time pay the full amount or any part of this note without payment of any premium
or fee.
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.
Reference is hereby made to that certain Amended and Restated Credit
Agreement (as amended, supplemented and restated, the "Credit Agreement") dated
concurrently herewith among Makers; Drilex Systems Limited, and Payee. Any term
defined in the Credit Agreement and used in this note shall have the meaning
ascribed to it in the Credit Agreement. The Payee shall be entitled to all
rights and benefits provided for in the Credit Agreement regarding conditions to
advances as if this note were one of the "Notes" under the Credit Agreement and
each of the Credit Documents securing or guarantying the Notes shall also secure
or guaranty this note. The terms and provisions of the Credit Agreement shall
continue in full force and effect for the purposes of this note notwithstanding
payment in full of the Obligations, termination of the Commitments and
termination of the Credit Agreement by its own express terms.
Page 2 of 5 Pages
<PAGE>
If any Event of Default occurs and continues under the Credit Agreement or
if the Makers shall fail to pay or prepay any principal of this note when due or
if the Makers shall fail to pay any interest on this note or any other
obligation hereunder payable by Makers as and within three Business Days of when
due, then the obligation (if any) of Payee to make further advances against this
note shall cease and terminate and the owner or holder hereof may, at its, his
or her option, exercise any or all rights, powers and remedies afforded under
any Credit Document and by law, including the right to declare the unpaid
balance of principal and accrued interest on this note at once mature and
payable.
Advances under this note may not be reborrowed. Advances hereunder shall
be used solely to pay costs incurred in connection with the transactions
contemplated under the Sharewell Acquisition Documents and to refinance certain
existing indebtedness of one or more Makers payable to the Payee, and for no
other purpose.
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.
This note is given in renewal, extension and rearrangement, and not in
extinguishment, of that certain promissory note (the "Renewed Note") dated May
5, 1995, made by Drilex Systems, Inc., Drilex Holdings Corp., Shareco, Inc. and
Cobb Directional Drilling Company, L.L.C., payable to the order of Payee and in
the maximum principal amount of Eleven Million Dollars ($11,000,000). All Liens
securing the Renewed Note are hereby ratified, confirmed, renewed, extended,
rearranged and brought forward as security for this note, in addition to and
cumulative of all other security.
Page 3 of 5 Pages
<PAGE>
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.
SHAREWELL, INC.,
a Delaware corporation
/s/ John Forrest
By: ___________________________________________
John Forrest,
Chief Executive Officer
DRILEX HOLDINGS CORP.,
a Delaware corporation
/s/ John Forrest
By: ___________________________________________
John Forrest,
President
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex Holdings Corp., a Delaware
corporation, Member
/s/ John Forrest
By: ______________________________________
John Forrest,
President
By: Drilex Systems, Inc., a Delaware
corporation, Member
/s/ John Forrest
By: ______________________________________
John Forrest,
President
Page 4 of 5 Pages
<PAGE>
DRILEX SYSTEMS, INC.,
a Texas corporation
/s/ John Forrest
By: ___________________________________________
John Forrest,
President
Page 5 of 5 Pages
<PAGE>
Exhibit 4.12
INTEREST RATE AGREEMENT
(Revolver)
This Interest Rate Agreement (as amended, supplemented and restated, this
"Agreement") dated as of September 29, 1995 among TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Lender"); DRILEX HOLDINGS CORP. ("DHC"), DRILEX SYSTEMS, INC.
("DSI"), COBB DIRECTIONAL DRILLING COMPANY, L.L.C. ("Cobb"), SHAREWELL, INC.
("Sharewell") (formerly Shareco, Inc. ("Shareco")), and DRILEX SYSTEMS LIMITED
("DSL");
W I T N E S S E T H:
-------------------
WHEREAS, DHC, 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, DHC, 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
1
<PAGE>
by (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.
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
2
<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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, 1995, (1) 0.50% with respect to Base
Rate Borrowings and (2) 2.00% with respect to Euro Borrowings.
(b) On and after October 1, 1995, 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 DHC 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 60% 2.00 0.50
Less than or equal to 60%
but greater than 50% 1.75 0.00
Less than or equal to 50% 1.50 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.
Prime Rate shall mean the prime rate as announced from time to time by the
Lender and thereafter entered in the minutes of the Lender's Loan and Discount
Committee. 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
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<PAGE>
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) 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
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<PAGE>
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.
(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
7
<PAGE>
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
(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;
8
<PAGE>
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
(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
9
<PAGE>
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 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
10
<PAGE>
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 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
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<PAGE>
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, 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
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<PAGE>
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 May 5, 1995 executed
by and among Lender, DHC, DSI, Cobb and Shareco.
EXECUTED as of the date first set forth above.
DRILEX HOLDINGS CORP.,
a Delaware corporation
/s/ John Forrest
By: ______________________________
John Forrest,
President
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<PAGE>
DRILEX SYSTEMS, INC.,
a Texas corporation
/s/ John Forrest
By: ________________________________________
John Forrest,
President
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex Holdings Corp.,
a Delaware corporation,
Member
/s/ John Forrest
By: ___________________________________
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
/s/ John Forrest
By: ___________________________________
John Forrest,
President
SHAREWELL,INC.,
a Delaware corporation
/s/ John Forrest
By: ___________________________________
John Forrest,
Chief Executive Officer
14
<PAGE>
DRILEX SYSTEMS LIMITED,
a company incorporated in Scotland under the
Companies Act
WITNESSES to
execution by Drilex Systems Limited:
/s/ John Forrest
By: ___________________________________
John Forrest,
Director
/s/ Ed Holmes
_________________________________
Name: Ed Holmes
Address: 4707 Pin Oak Park #412
Houston, TX 77081
Occupation: Attorney
/s/ Nicholas J. Evanoff
_________________________________
Name: Nicholas J. Evanoff
Address: 5205 Holly
Bellaire, TX 77401
Occupation: Lawyer
15
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION,
a national banking association
By: /s/ Diane Duplichan
___________________________________
Name: Diane Duplichan
Title: Vice President
Exhibit A - Rate Designation Notice
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<PAGE>
RATE DESIGNATION NOTICE
(Revolver)
Drilex Holdings Corp.; Drilex Systems, Inc.; Cobb Directional Drilling
Company, L.L.C.; Sharewell, Inc., formerly Shareco, 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 29, 1995. 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: $/L______________
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)): $/L _______
2. Date Interest Option is to be effective: ___________, 199_
3. Interest Option to be applicable (check one):
[ ] Base Rate (note 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].
<PAGE>
Exhibit 4.13
INTEREST RATE AGREEMENT
(Term Loan)
This Interest Rate Agreement (as amended, supplemented and restated, this
"Agreement") dated as of September 29, 1995 between TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Lender") and SHAREWELL, INC., a Delaware corporation (formerly
Shareco, Inc. ("Shareco")), COBB DIRECTIONAL DRILLING COMPANY, L.L.C., a
Delaware limited liability company, DRILEX HOLDINGS CORP., a Delaware
corporation, and DRILEX SYSTEMS, INC., a Texas corporation (collectively, the
"Borrowers");
W I T N E S S E T H:
-------------------
WHEREAS, the Borrowers have executed and delivered to the Lender that
certain promissory note dated concurrently herewith in the original principal
amount of $17,450,000 (as renewed, extended, modified and rearranged, the
"Note");
WHEREAS, for convenience, the Borrowers and the Lender desire to gather the
provisions of relating solely to interest on the Note, including the selection
of interest rate options, into a supplemental agreement;
NOW, THEREFORE, in consideration of the execution and delivery of the Note,
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 that certain Amended and
Restated Credit Agreement dated concurrently herewith executed by the Borrowers;
Drilex Systems Limited and the Lender (as amended, supplemented and restated,
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 (b) the
difference of (1) 1.0000 minus (2) the Eurodollar Reserve Requirement in effect
on the first day of such Interest Period.
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<PAGE>
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
Note 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 Business Day shall mean a Business Day on which transactions in Dollar
deposits between banks may be carried on in the Eurodollar Interbank Market.
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.
Eurodollar Rate shall mean for any day a rate per annum (rounded upwards,
if necessary, to the nearest 1/8th%, 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 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 Note 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,
2
<PAGE>
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.
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 the 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 the Note on or before such
day.
Funding Loss shall mean, with respect to (a) the Borrowers' payment or
prepayment of principal of a Eurodollar Rate Borrowing on a day other than the
last day of the applicable Interest Period; (b) the Borrowers' failure to borrow
a Eurodollar Rate Borrowing on the date specified by the Borrowers; (c) the
Borrowers' failure to make any a prepayment of a Eurodollar Rate Borrowing on
the date specified by the Borrowers, or (d) any cessation of a Eurodollar Rate
to apply to the Note 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 an advance
under the Note).
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 and each Eurodollar 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) Eurodollar Rate 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 the Note.
Interest Period shall mean, for each Eurodollar Rate Borrowing, a period
commencing on the date such Eurodollar Rate 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 Eurodollar Rate
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
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<PAGE>
the next preceding Euro Business Day; (b) any Interest Period with respect to a
Eurodollar Rate Borrowing which begins on the last 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, and (d) Interest
Periods shall be selected by the Borrowers in such a manner that the Interest
Period with respect to any portion of the Note which shall become due shall not
extend beyond such due date.
Margin Percentage means:
(a) On any day prior to October 1, 1995, (1) 0.50% with respect to Base
Rate Borrowings and (2) 2.00% with respect to Euro Borrowings.
(b) On and after October 1, 1995, 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 DHC 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 60% 2.00 0.50
Less than or equal to 60%
but greater than 50% 1.75 0.00
Less than or equal to 50% 1.50 0.00
</TABLE>
Past Due Rate shall mean the lesser of the Highest Lawful Rate or the Prime
Rate plus 3% per annum.
4
<PAGE>
Prime Rate shall mean the prime rate as announced from time to time by the
Lender and thereafter entered in the minutes of the Lender's Loan and Discount
Committee. Without notice to the Borrowers 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 Eurodollar Rate Borrowings, the date three Euro Business Days
preceding the first day of any proposed Interest Period.
Rate Designation Notice shall mean 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 the 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 the Note
equals the total amount of interest which would have accrued if there had been
no Highest Lawful Rate. Without notice to the Borrowers 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 Note
shall bear interest at the lesser of (a) the Base Rate 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) subject to the
provisions hereof, the Borrowers shall have the option of having all or any
portion of the principal balance of the Note from time to time outstanding bear
interest at a Eurodollar Rate. The records of the Lender with respect to
Interest Options, Interest Periods and the amount of Note to which they are
applicable shall be binding and conclusive, absent manifest error. Interest on
the Note shall be calculated at the Base Rate except where it is expressly
provided pursuant to this Agreement that a Eurodollar Rate is to apply.
Interest on
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<PAGE>
the amount of each advance against the 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 the Note the interest rate
produced by the aggregate of all sums paid or agreed to be paid to the holder of
the Note for the use, forbearance or detention of the debt evidenced thereby
shall not exceed the Highest Lawful Rate.
2.2 Designation and Conversion. The Borrowers shall have the right to
designate or convert 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, the
Borrowers may elect to have a Eurodollar Rate apply or continue to apply to all
or any portion of the principal balance of the Note. Each change in Interest
Options shall be a conversion of the rate of interest applicable to the
specified portion of the Note, but such conversion shall not change the
outstanding principal balance of the Note evidencing such portion of the Note.
The Interest Options shall be designated or converted in the manner provided
below:
(a) The Borrowers 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) Each designation or conversion of a Eurodollar Rate Borrowing shall
occur on a Euro Business Day.
(d) Except as provided in Section 2.3, no Eurodollar Rate Borrowing shall
be converted on any day other than the last day of the applicable Interest
Period.
(e) Each Eurodollar Rate Borrowing shall be in the amount of at least
$250,000.
2.3 Special Provisions Applicable to Eurodollar Rate 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 Eurodollar Rate
Borrowing, the commitment of the Lender to establish or maintain such Eurodollar
Rate Borrowing shall forthwith be canceled and the Borrowers shall forthwith,
upon demand by the Lender to Borrowers, (1) convert any Eurodollar Rate
Borrowing with respect to which such demand was made to a Base 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
6
<PAGE>
conversion. If, when the Lender so notifies the Borrowers, the 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
Note 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 the
Note being maintained on the basis of a Eurodollar 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 Eurodollar 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 Borrowers to the
Lender under any Eurodollar Rate Borrowing (otherwise than by a change in the
rate of taxation of the overall net income of the Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement included in the
calculation of the applicable Eurodollar 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 Eurodollar
Rate 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 Eurodollar
Rate Borrowing, or materially reduce the amount of principal or interest
received by the Lender then, upon demand by the Lender, the Borrowers 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 Borrowers shall have the right, if they receive 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
Eurodollar Rate Borrowing with respect to which such notice was given, together
with any
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<PAGE>
accrued and unpaid interest thereon, or (2) to convert any Eurodollar Rate
Borrowing which is the subject of the demand to a Base 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 Eurodollar Rate, or
(2) by reason of circumstances affecting the Eurodollar Interbank
Market 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 Eurodollar Rate Borrowing requested by the Borrowers, or
(3) any applicable Eurodollar Rate will not adequately and fairly
reflect the cost to the Lender of making and maintaining such Eurodollar Rate
Borrowing hereunder for any proposed Interest Period,
then the Lender shall give the Borrowers notice thereof and thereupon, (A) any
Rate Designation Notice previously given by Borrowers designating the applicable
Eurodollar Rate 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 (B) until the Lender shall
notify Borrowers that the circumstances giving rise to such notice from the
Lender no longer exist (which notice shall be given promptly to Borrowers 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 Eurodollar Rate Borrowing then outstanding shall be converted,
without any notice to or from Borrowers, upon the termination of the Interest
Period then in effect with respect to it, to a Base Rate Borrowing.
(d) Funding Losses. The Borrowers shall indemnify the Lender against and
hold the Lender harmless from any Funding Loss with respect to the Note and the
loans made thereunder. A certificate as to any additional amounts payable
pursuant to this paragraph submitted by the Lender to the Borrowers shall be
conclusive and binding upon the Borrowers, absent manifest error, and may be
prepared using any reasonable averaging and attribution methods.
(e) Application of Prepayments. If the Borrowers makes a prepayment on the
Note and any Eurodollar Rate Borrowing is outstanding, then, notwithstanding
anything in the Note to the contrary, such prepayment shall be applied as
follows:
8
<PAGE>
(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 Eurodollar Rate
Borrowings; prepayments on Eurodollar Rate Borrowings shall be applied first to
unpaid accrued interest on the Eurodollar Rate Borrowings in inverse order of
their respective Interest Payment Dates and then to the outstanding principal of
the Eurodollar Rate 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 Eurodollar Rate 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 Eurodollar
Rate Borrowings in such manner as shall minimize the resulting Funding Losses
(with the Funding Loss plus accrued and unpaid interest on a prepaid Eurodollar
Rate Borrowing to be added to the amount of any mandatory principal prepayment
required by the Note).
(f) Obligations Survive. The Borrowers' obligations under this Section
shall survive the payment of the Note and the termination of the Lender's
obligation to make advances thereunder; 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 the Note shall be due and payable on
each Interest Payment Date and upon the payment or prepayment of the Note,
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 Eurodollar Rate Borrowing by causing a branch or Affiliate
of the Lender to make such advance and may transfer and carry such advance 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 advance shall be
deemed to have been made by the Lender, and the obligation of the Borrowers to
repay such advance 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 the Borrowers.
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
9
<PAGE>
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 Note in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if the Lender had actually funded and maintained each
Eurodollar Rate 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 Eurodollar 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 the Note 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 the Note shall be amortized, prorated, allocated and
spread, in equal parts during the full term of the Note; (c) all advances under
the Note shall be treated as but a single extension of credit (and the Borrowers
and the Lender agree that such is the case and that provisions in the Note for
multiple advances to the Borrowers is for convenience only), and (d) the parties
shall exclude voluntary prepayments and the effects thereof. In no event shall
the Borrowers 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 Note at the
Highest Lawful Rate. None of the terms and provisions contained in the Note
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. The Borrowers and the Lender agree that Chapter 15 of the
Texas Credit Code shall not apply to the Note or any advance thereunder.
3.6 Use of Loans. The Borrowers represent and warrant to the Lender that
all of the advances under the Note are and will be for business, commercial,
investment or other similar
10
<PAGE>
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 the Note 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, 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
Borrowers 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 the Borrowers 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 Obligations of Borrowers Joint and Several. The obligations of the
Borrowers under this Agreement shall be joint and several.
EXECUTED as of the date first set forth above.
SHAREWELL,INC.,
a Delaware corporation
/s/ John Forrest
By: ________________________________________
John Forrest,
Chief Executive Officer
DRILEX HOLDINGS CORP.,
a Delaware corporation
/s/ John Forrest
By: ________________________________________
John Forrest,
President
11
<PAGE>
DRILEX SYSTEMS, INC.,
a Texas corporation
/s/ John Forrest
By: ________________________________________
John Forrest,
President
COBB DIRECTIONAL DRILLING COMPANY,
L.L.C., a Delaware limited liability company
By: Drilex Holdings Corp.,
a Delaware corporation,
Member
/s/ John Forrest
By: _________________________________
John Forrest,
President
By: Drilex Systems, Inc.,
a Texas corporation,
Member
/s/ John Forrest
By: _________________________________
John Forrest,
President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ Diane Duplichan
_______________________________________
Name: Diane Duplichan
Title: Vice President
Exhibit A - Rate Designation Notice
12
<PAGE>
RATE DESIGNATION NOTICE
(Term Loan)
Drilex Holdings Corp.; Drilex Systems, Inc.; Cobb Directional Drilling
Company, L.L.C.; Sharewell, Inc., 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
29, 1995. 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. Amount of the existing Base Rate Borrowings or the expiring Eurodollar
Rate Borrowing covered by this Rate Designation Notice: $
-------------
2. Expiration of current Interest Period, if applicable:
________________, 199_
B. Proposed election
1. Amount of the new Base Rate Borrowings or the new Eurodollar Rate
Borrowing covered by this Rate Designation Notice (repeat this Section B
if the existing Base Rate Borrowings or expiring Eurodollar Rate Borrowing
is to be divided between Base Rate Borrowings and/or Eurodollar Rate
Borrowing(s)): $_______
2. Date Interest Option is to be effective: ___________, 199_
3. Interest Option to be applicable (check one):
[ ] Base Rate
[ ] Eurodollar Rate
4. Interest Period (if applicable) (check one):
[ ] one month [ ] three months
[ ] two months [ ] six months
EXHIBIT A
<PAGE>
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 4.14
SECURITY AGREEMENT
------------------
DRILEX HOLDINGS CORP. ("Debtor"), a Delaware corporation, whose address is
15151 Sommermeyer, Houston, Harris County, Texas 77041, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION ("Secured Party"), a national banking association, whose
address is 712 Main Street, Houston, Harris County, Texas 77002, agree as
follows:
ARTICLE 1
Creation of Security Interest
-----------------------------
In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, Debtor hereby grants
to Secured Party a security interest in and mortgages, assigns, transfers,
delivers, pledges, sets over and confirms to Secured Party all of Debtor's
remedies, powers, privileges, rights, titles and interests (including all power
of Debtor, if any, to pass greater title than it has itself) of every kind and
character now owned or hereafter acquired, created or arising in and to the
following:
Inventory
---------
all goods, merchandise, raw materials, work in process, finished goods,
and other tangible personal property of whatever nature now owned by
Debtor or hereafter from time to time existing or acquired, wherever
located and held for sale or lease, including those held for display or
demonstration or out on lease or consignment, or furnished or to be
furnished under contracts of service or used or usable or consumed or
consumable in Debtor's business or which are finished or unfinished goods
and all accessions and appurtenances thereto, together with all warehouse
receipts and other documents evidencing any of the same and all
containers, packing, packaging, shipping and similar materials;
Accounts
--------
(a) all accounts, receivables, accounts receivable, book debts, contract
rights and rights to payment received by or belonging to Debtor for
goods sold or leased and/or services rendered by Debtor, no matter
how evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under leases
of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or
services rendered by Debtor;
<PAGE>
(c) all purchase orders, instruments and other documents (including all
documents of title) evidencing obligations to Debtor, for or
representing obligations for goods sold or leased and/or services
rendered by Debtor:
(d) all monies due or to become due to Debtor under all contracts for the
sale or lease of goods and/or performance of services by Debtor no
matter how evidenced and whether or not earned by performance;
(e) all accounts, receivables, accounts receivable, contract rights, and
general intangibles arising as a result of Debtor's having paid
accounts payable (or having had goods sold to or leased to Debtor or
services performed for Debtor giving rise to accounts payable) which
accounts payable were paid for or were incurred by Debtor on behalf
of any third parties pursuant to an agreement or otherwise; and
(f) all accounts, receivables, accounts receivable, contract rights, and
general intangibles arising as a result of the making of any loan,
advance or transfer of property to any entity (each a "Subsidiary")
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, Debtor, or by one or more of its affiliates
(provided, however, that this Security Agreement shall not cover any
equity interests owned by Debtor in any such Subsidiary);
Equipment
---------
all goods, equipment, machinery, furnishings, fixtures, furniture,
appliances, accessories, leasehold improvements, chattels and other
articles of personal property of whatever nature (whether or not the same
constitute fLxtures) now owned by Debtor or hereafter acquired, and all
component parts thereof and all appurtenances thereto;
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Debtor
or Secured Party in respect of the foregoing) and together with all general
intangibles now owned by Debtor or existing or hereafter acquired, created or
arising (whether or not related to any of the foregoing property). All of the
properties and interests described in this Article are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize Debtor to
sell, dispose of or otherwise use the Collateral in any manner not authorized
herein. The Collateral includes all property of Debtor this day delivered to
and deposited with Secured Party, and all money and property of Debtor
heretofore delivered or which shall hereafter be delivered to or come into the
possession, custody or control of Secured Party in any manner or for any
purpose whatever
2
<PAGE>
during the existence of this Agreement (unless held in a special account, or
deposited for safekeeping), and all other property which Debtor may hereafter
become entitled to receive on account of such property, and in the event Debtor
receives any such property, Debtor will immediately deliver same to Secured
Party to be held by Secured Party in the same manner as the property originally
deposited as Collateral. It is expressly contemplated that additional
Collateral may from time to time be pledged to Secured Party as additional
security for the Debt (hereinafter defined), and the term "Collateral" as used
herein shall be deemed for all purposes hereof to include all such Collateral,
together with all other property of the types described above related to the
Collateral.
ARTICLE 2
Secured Indebtedness
--------------------
2.1 This Agreement is made to secure all of the following present and
future debt and obligations:
(a) All obligations and indebtedness of Debtor, Drilex Systems, Inc., a
Texas corporation ("DSI"), Cobb Directional Drilling Company, L.L.C., a
Delaware limited liability company ("Cobb") or Sharewell, Inc., a Delaware
corporation ("Sharewell") (formerly Shareco, Inc., a Delaware corporation
("Shareco")) now or hereafter created or incurred under that certain Amended
and Restated Credit Agreement dated concurrently herewith among Debtor, DSI,
Cobb, Sharewell, Drilex Systems Limited ("DSL"), and Secured Party, relating to
a $13,000,000 revolving credit facility, as the same may be amended,
supplemented, restated or replaced from time to time (collectively, the "Credit
Agreement"). Any term defined in the Credit Agreement, not defined in this
Agreement and used in this Agreement shall have the meaning ascribed to it in
the Credit Agreement.
(b) All obligations of Debtor, DSI, Cobb and/or Sharewell under that
certain promissory note dated concurrently herewith executed by Debtor, DSI,
Cobb and Sharewell payable to the order of Secured Party in the original
principal amount of $17,450,000, as the same may be renewed, extended, modified
or rearranged from time to time.
(c) All other obligations, if any, of Debtor described or referred to in
any other place in this Agreement.
(d) Any and all sums and the interest which accrues on them as provided in
this Agreement which Secured Party may advance or which Debtor may owe Secured
Party pursuant to this Agreement on account of Debtor's failure to keep,
observe or perform any of Debtor's covenants under this Agreement.
(e) Interest Rate Risk Indebtedness and all other present and future debts
and obligations under or pursuant to the Credit Documents (which for purposes
of this Agreement shall include "Credit Documents" as defined in the Credit
Agreement and as defined in the promissory note described in Section 2.0l(b)
hereof).
3
<PAGE>
2.2 The term "Debt" means and includes all debt and obligations described
or referred to in Section 2.1. The Debt includes interest and other
obligations accruing or arising after (a) commencement of any case under any
bankruptcy or similar laws by or against Debtor or any other Person now or
hereafter primarily or secondarily obligated to pay all or any part of the
Debt (Debtor and each such other Person being herein called an "Obligor") or
(b) the obligations of any Obligor shall cease to exist by operation of law or
for any other reason. The Debt also includes all reasonable attorneys' fees
and any other expenses incurred by Secured Party in enforcing any of the
Credit Documents.
ARTICLE 3
Representations and Warranties
------------------------------
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral, free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, Permitted Liens and those other security interests
(if any) expressly referred to or described in this Agreement. Debtor agrees
to defend the Collateral and its proceeds against all other claims and demands
of any person at any time claiming the Collateral, its proceeds or any
interest in either. Debtor has not heretofore signed any financing statement
directly or indirectly affecting the Collateral1 or any part of it which has
not been completely terminated of record, and no such financing statement
signed by Debtor is now on file in any public office except only those
statements (if any) true and correct copies of which Debtor has actually
delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning of
this Agreement and in this regard, Debtor's location is defined to mean
Debtor's chief executive office.
(c) All of Debtor's books and records with regard to the Collateral are
maintained and kept at the address of Debtor set forth at the beginning of
this Agreement.
(d) Except as heretofore disclosed to Secured Party, no part of the
Collateral is covered by a certificate of title or subject to any certificate
of title law.
(e) No part of the Collateral consists or will consist of consumer goods,
farm products, timber, minerals and the like (including oil and gas) or
accounts resulting from the sale thereof.
(0 Except as heretofore disclosed to Secured Party, Debtor has never
changed its name, whether by amendment of its Organizational Documents or
otherwise.
(g) Debtor is now solvent, and no bankruptcy or insolvency proceedings
are pending or contemplated by or--to Debtor's knowledge--against Debtor.
Debtor's liabilities and obligations under this Agreement and any other Credit
Documents to which Debtor is a party
4
<PAGE>
do not and will not render Debtor insolvent, cause Debtor's liabilities to
exceed Debtor's assets or leave Debtor with too little capital to properly
conduct all of its business as now conducted or contemplated to be conducted.
(h) As of the date hereof, the tangible Collateral is free from damage
caused by fire or other casualty.
ARTICLE 4
Covenants
---------
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
reasonably required by Secured Party to assure the transferability of the
Collateral when and as often as may be requested by Secured Party.
(b) Debtor will cause to be paid (except as set forth in the Credit
Agreement) before delinquency all taxes, charges, liens and assessments
heretofore or hereafter levied or assessed against the Collateral, or any part
thereof, or against Secured Party for or on account of the Debt or the interest
created by this Agreement and will, upon the request of Secured Party, furnish
Secured Party with receipts showing payment of such taxes and assessments at
least ten days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights,
titles, security interests or other interests created or evidenced hereby shall
be attacked, endangered or questioned or if any legal proceedings are
instituted with respect thereto and such matters might reasonably be expected
to materially and adversely jeopardize the Collateral or Secured Party's rights
with respect thereto, Debtor will give prompt written notice thereof to Secured
Party and at Debtor's own cost and expense will diligently endeavor to cure any
defect that may be developed or claimed, and will take all necessary and proper
steps for the defense of such legal proceedings, and Secured Party (whether or
not named as a party to legal proceedings with respect thereto) is hereby
authorized and empowered to take such additional steps as in its judgment and
discretion may be necessary or proper for the defense of any such legal
proceedings or the protection of the validity or priority of this Agreement and
the rights, titles, security interests and other interests created or evidenced
hereby, and all expenses so incurred of every kind and character shall
constitute sums advanced pursuant to Section 4.2.
(d) Debtor will, on reasonable request of Secured Party, (1) promptly
correct any defect, error or omission which may be discovered in the contents
of this Agreement or in any other instrument executed in connection herewith or
in the execution or acknowledgment thereof; (2) execute, acknowledge, deliver
and record or file such further instruments (including further security
agreements, financing statements and continuation statements) and do such
further acts as may be reasonably necessary, desirable or proper to carry out
more effectively the purposes of this Agreement and such other instruments and
to subject to the security interests hereof and thereof any property intended
by the terms hereof and thereof to be covered hereby and thereby
5
<PAGE>
including specifically any renewals, additions, substitutions, replacements or
appurtenances to the then Collateral, and (3) execute, acknowledge, deliver,
procure and record or file any document or instrument (including specifically
any financing statement) reasonably deemed advisable by Secured Party to
protect the security interest hereunder against the rights or interests of
third persons, and Debtor will pay all costs connected with any of the
foregoing.
(e) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the
Credit Agreement, sell, lease, exchange, lend, rent, assign, transfer or
otherwise dispose of, or pledge, hypothecate or grant any security interest in,
or permit to exist any lien, security interest, charge or encumbrance against,
all or any part of the Collateral1 or any interest therein or permit any of the
foregoing to occur or arise or permit title to the Collateral, or any interest
therein, to be vested in any other party, in any manner whatsoever, by
operation of law or otherwise, without the express prior written consent of
Secured Party. Except as permitted in the Credit Agreement, Debtor shall not,
without the express prior written consent of Secured Party, (1) acquire any
such Collateral under any arrangement whereby the seller or any other person
retains or acquires any security interest in such Collateral or (2) return or
give possession of any such Collateral to any supplier or any other Person
except in the ordinary course of business.
(f) Debtor shall account fully and faithfully for and, if Secured Party so
elects during the existence of an Event of Default, shall promptly pay or turn
over to Secured Party the proceeds in whatever form received from the sale or
disposition or realization in any manner of any of the Collateral, whether the
Debt is mature or not. Debtor shall at all times keep the Collateral and its
proceeds separate and distinct from other property of Debtor and shall keep
accurate and complete records of the Collateral and its proceeds. Debtor shall,
where applicable, at Debtor's own expense take all reasonable and appropriate
steps in its reasonable credit judgment to enforce the collection of the
Collateral and items representing proceeds thereof.
(g) After the occurrence and during the continuation of an Event of
Default, Debtor shall from time to time at the request of Secured Party furnish
Secured Party with a schedule of the Collateral constituting the Collateral,
containing such information as Secured Party may specify. After the occurrence
and during the continuation of an Event of Default, Secured Party shall also
have the right to make test verifications of the Collateral or any portion
thereof.
(h) Debtor shall at all times keep accurate books and records reflecting
all facts concerning the Collateral including those pertaining to Debtor's
warranties, representations and agreements under this Agreement. Immediately
upon the execution of this Agreement, at the request of Secured Party, Debtor
will make or allow Secured Party to make written designation on Debtor's books
and records to reflect thereon the assignment to Secured Party of the
Collateral covered by this Agreement; provided that the failure of Debtor
and/or Secured Party to make such a written designation shall not affect the
rights of Secured Party to any of the Collatera1.
6
<PAGE>
(i) If the Collateral is evidenced by promissory notes, trade acceptances
or other instruments for the payment of money, Debtor will, at the request of
Secured Party, immediately deliver them to Secured Party, appropriately
endorsed to Secured Party's order and regardless of the form of endorsement,
Debtor waives presentment, demand, notice of dishonor, protest and notice of
protest.
(j) Debtor will not use, or allow the use of, the tangible Collateral in
any manner which constitutes a public or private nuisance or which makes void,
voidable or cancelable, or increases the premium of, any insurance then in
force with respect thereto if such matters may reasonably be expected to
materially and adversely affect the Dollar Borrowers and their Subsidiaries,
taken as a whole. Debtor will not do or suffer to be done any act whereby the
value of anY part of the tangible Collateral may be lessened, normal wear and
tear excepted.
(k) Debtor agrees to provide, maintain and keep in force casualty,
liability and other insurance for that portion of the tangible Collateral
which is tangible personal property as required by Secured Party. Debtor agrees
that all required insurance will be written on forms acceptable to Secured
Party and by companies having a Best's Insurance Guide Rating of not less than
A+ and which are otherwise acceptable to Secured Party, and that such insurance
(other than third party liability insurance) shall be written or endorsed so
that all losses are payable to Secured Party. Debtor shall deliver certificates
reflecting such insurance to Secured Party, and Debtor shall deliver the
original policies evidencing such insurance to Secured Party upon request
therefor. Each such policy shall expressly prohibit cancellation or
modification of insurance without 30 days' written notice to Secured Party.
Debtor agrees to furnish due proof of payment of the premiums for all such
insurance to Secured Party promptly upon request therefor. Subject to Debtor's
right to adjust any claim thereunder, Debtor hereby assigns to Secured Party
the exclusive right to collect any and all monies that may become payable under
any insurance policies covering any part of the tangible Collateral, or any
risk to or about the tangible Collateral. Foreclosure of this Agreement shall
automatically constitute foreclosure upon all policies of insurance insuring
any part of or risk to the tangible Collateral and all claims thereunder
arising from post-foreclosure events. The successful bidder or bidders for the
tangible Collateral at foreclosure, as their respective interests may appear,
shall automatically accede to all of Debtor's rights in, under and to such
policies and all post-foreclosure event claims, and such bidder(s) shall be
named as insured(s) on request, whether or not the bill of sale to any such
successful bidder mentions insurance. All proceeds of insurance which was paid
for by Debtor or by anyone other than Secured Party or another holder of any of
the Debt and which proceeds are actually received by Secured Party before
foreclosure shall be applied in payment of the Debt or, at the option of
Secured Party, shall be paid to Debtor or to such other person as is legally
entitled to them. Unless Secured Party or Secured Party's representative
reserves at the foreclosure sale the right to collect any uncollected insurance
proceeds recoverable for events occurring before foreclosure (in which event
the successful bidder at the sale, if not Secured Party, shall have no interest
in such proceeds and Secured Party shall apply them, if and when collected, to
the Debt in such order and manner as Secured Party shall then elect and remit
any remaining balance to Debtor or to such other Person as is legally entitled
to them), all proceeds of all such insurance which are not so reserved by
Secured Party at the foreclosure sale and are not actually received by Secured
Party until after
7
<PAGE>
foreclosure shall be the property of the successful bidder or bidders at
foreclosure, as their interests may appear, and Debtor shall have no interest
in them and shall receive no credit for them. Secured Party shall have no duty
to Debtor or anyone else to either require or provide any insurance or to
determine the adequacy or disclose any inadequacy of any insurance. If Secured
Party elects at any time or for any reason to purchase insurance relating to
the tangible Collateral, it shall have no obligation to cause Debtor or anyone
else to be named as an insured, to cause Debtor's or anyone else's interests to
be insured or protected or to inform Debtor or anyone else that his or its
interests are uninsured or underinsured.
(1) Except as otherwise expressly permitted herein, the Collateral is and
shall remain in Debtor's possession or control at all times at Debtor's risk of
loss at one or more of Debtor's locations described on Exhibit A, where Secured
Party may inspect it at any time, except for its temporary removal in
connection with its ordinary use or unless Debtor notifies Secured Party in
writing and Secured Party consents in writing in advance of. its removal to
another location.
(m) Debtor shall, at its expense, diligently prosecute any proceedings
arising out of injury or damage to the tangible Collateral, or any portion
thereof, and shall consult with Secured Party, its attorneys and experts, and
cooperate with them in the carrying on or defense of any such proceedings.
(n) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time reasonably request or as may be
required from time to time by any Credit Document.
(o) Subject to its reasonable collection judgment, Debtor will not agree
to a material modification of any of the terms of any of the Collateral
described in Article 1 under the heading "Accounts" without the prior written
consent of Secured Party.
(p) Unless an Event of Default has occurred and is continuing, Debtor may
use the tangible Collateral in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon
and may also sell or lease such tangible Collateral in the ordinary course of
business. A sale in the ordinary course of business does not include a transfer
in partial or total satisfaction of a debt. Unless an Event of Default has
occurred and is continuing, Debtor may also use and consume any raw materials
or supplies, the use and consumption of which are necessary to carry on
Debtor's business.
(q) Except as disclosed to Secured Party in writing, none of the
Collateral described in Article 1 under the caption "Equipment" is or shall be
wholly or partly affixed to real estate or other goods so as to become fixtures
on such real estate or accessions to such other goods. To the extent any of
such Collateral is or shall be wholly or partly affixed to real estate or other
goods so as to become fixtures on such real estate or accessions to such other
goods, Debtor has supplied to Secured Party a description of the real estate or
other goods to which such Collateral is or shall be wholly or partly affixed.
Said real estate is not subject to any lien or mortgage except as disclosed to
Secured Party in writing. Debtor will, on demand by Secured Party, furnish or
cause to be furnished to Secured Party a disclaimer or disclaimers, signed by
all
8
<PAGE>
persons having an interest in the applicable real estate or other goods to
which such Collateral is or shall be wholly or partly affixed, of any interest
in such Collateral which is before Secured Party's interest.
(r) The Collateral described in Article 1 under the caption "Equipment"
will be used in the business of Debtor (which shall include leases of such
Collateral to unaffiliated third parties in the ordinary course of Debtor's
business).
ARTICLE 5
Assignment of Payments: Certain Powers of Secured Party
-------------------------------------------------------
Debtor hereby authorizes and directs each account debtor and each other
person or entity obligated to make payment in respect of any of the Collateral
(each a "Collateral Obligor), after the occurrence and during the continuation
of an Event of Default, to pay over to Secured Party, its officers, agents or
assigns, upon demand by Secured Party, all or any part of the Collateral
without making any inquiries as to the status or balance of the Debt and
without any notice to or further consent of Debtor. Debtor hereby agrees to
indemnify each Collateral Obligor and hold each Collateral Obligor harmless
from all expenses and losses which it may incur or suffer as a result of any
payment it makes to Secured Party pursuant to this paragraph OTHER THAN THOSE
ARISING OUT OF ANY COLLATERAL OBLIGOR'S GROSS NEGLIGENCE, BAD FAITH OR WILLFUL
MISCONDUCT. To facilitate the rights of Secured Party hereunder, Debtor hereby
authorizes Secured Party, its officers, employees, agents or assigns, after the
occurrence and during the continuation of an Event of Default -
(a) to notify Collateral Obligors of Secured Party's security interest in
the Collateral and to collect all or any part of the Collateral without further
notice to or further consent by Debtor, and Debtor hereby constitutes and
appoints Secured Party the true and lawful attorney of Debtor (such agency
being coupled with an interest), irrevocably, with power of substitution, in
the name of Debtor or in its own name or otherwise, to take any of the actions
described in the following clauses (b), (c), (d), (e), (f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound and
give acquittance for any and all amounts which may be or become due or payable
under the Collateral and to settle and/or adjust all disputes and/or claims
directly with any Collateral Obligor and to compromise, extend the time for
payment, arrange for payment in installments, otherwise modify the terms of, or
release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to execute, sign, endorse, transfer and deliver (in the name of
Debtor or in its own name or otherwise) any and all receipts or other orders
for the payment of money drawn on the Collateral and all notes, acceptances,
commercial paper, drafts, checks, money orders and other instruments given in
payment or in part payment thereof and all invoices, freight and express bills
and bills of lading, storage receipts, warehouse receipts and other instruments
and
9
<PAGE>
documents in respect of any of the Collateral and any other documents necessary
to evidence, perfect and realize upon the security interests and obligations of
this Agreement;
(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts against
Collateral Obligors, assignments or verifications of any of the Collateral and
notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on Debtor's
premises for the purpose of exercising any rights, benefits or privileges
available to Secured Party hereunder or under any of the Credit Documents or at
law or in equity, including receiving collections and taking possession of
books and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred into
the name of Secured Party or any nominee or nominees of Secured Party.
The powers conferred on Secured Party pursuant to this Article are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Texas Uniform Commercial Code.
5.1 If Debtor should fail to comply with any of its agreements, covenants
or obligations under any Credit Document after notice to Debtor, then Secured
Party (in Debtor's name or in Secured Party's own name) may perform them or
cause them to be performed for Debtor's account and at Debtor's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Upon making any such payment or incurring any such expense, Secured Party shall
be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by Debtor
to Secured Party pursuant to this or any other provision of this Agreement
shall automatically and without notice be and become a part of the Debt and
shall be secured by this and all other instruments securing the Debt. The
amount and nature of any such expense and the time when it was paid shall be
fully established by the affidavit of Secured Party or any of Secured Party's
officers or agents. The exercise of the privileges granted to Secured Party in
this Section shall in no event be considered or constitute a cure of the
default or a waiver of Secured Party's right at any time after an Event of
Default to declare the Debt to be at once due and payable, but is cumulative of
such right and of all other rights given by the Credit Documents and of all
rights given Secured Party by law.
10
<PAGE>
ARTICLE 6
Remedies in Event of Default
----------------------------
6.1 Upon the occurrence of an Event of Default (herein so called) under
the Credit Agreement or under the promissory note described in Section 2.1(b)
hereof), and at any time thereafter
(a) Secured Party is authorized, in any legal manner and without breach
of the peace, to take possession of the Collateral (Debtor hereby WAIVING, to
the fullest extent permitted by applicable law, all claims for damages arising
from or connected with any such taking) and of all books, records and accounts
relating thereto and to exercise without interference from Debtor any and all
rights which Debtor has with respect to the management, possession, operation,
protection or preservation of the Collateral, including the right to sell or
rent the same for the account of Debtor and to deduct from such sale proceeds
or such rents all costs, expenses and liabilities of every character incurred
by Secured Party in collecting such sale proceeds or such rents and in
managing, operating, maintaining, protecting or preserving the Collateral and
to apply the remainder of such sales proceeds or such rents on the Debt in
such manner as Secured Party may elect. Before any sale, Secured Party may, at
its option, complete the processing of any of the Collateral and/or repair or
recondition the same to such extent as Secured Party may deem advisable and
any sums expended therefor by Secured Party shall be reimbursed by Debtor.
Secured Party may take possession of Debtor's premises to complete such
processing, repairing and/or reconditioning, using the facilities and other
property of Debtor to do so, to store any Collateral and to conduct any sale
as provided for herein, all without compensation to Debtor. All reasonable
costs, expenses, and liabilities incurred by Secured Party in collecting such
sales proceeds or such rents, or in managing, operating, maintaining,
protecting or preserving such properties, or in processing, repairing and/or
reconditioning the Collateral if not paid out of such sales proceeds or such
rents as hereinabove provided, shall constitute a demand obligation owing by
Debtor and part of the Debt. If necessary to obtain the possession provided
for above, secured party may invoke any and all legal remedies to dispossess
Debtor, including specifically one or more actions for forcible entry and
detainer. In connection with any action taken by Secured Party pursuant to
this paragraph, Secured Party shall not be liable for any loss sustained by
Debtor resulting from any failure to sell or let the Collateral, or any part
thereof, or from other act or omission of Secured Party with respect to the
Collateral UNLESS SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR BAD FAITH OF SECURED PARTY, nor shall Secured Party be obligated
to perform or discharge any obligation, duty, or liability under any sale or
lease agreement covering the Collateral or any part thereof or under or by
reason of this instrument or the exercise of rights or remedies hereunder.
(b) Secured Party may, without notice except as hereinafter provided,
sell the Collateral or any part thereof at public or private sale (with or
without appraisal or having the Collateral at the place of sale) for cash,
upon credit, or for future delivery, and at such price or prices as Secured
Party may deem best, and Secured Party may be the purchaser of any and all of
the Collateral so sold and may apply upon the purchase price therefor any of
the Debt and thereafter hold the same absolutely free from any right or claim
of whatsoever kind. Upon any
11
<PAGE>
such sale Secured Party shall have the right to deliver, assign and transfer to
the purchaser thereof the Collateral so sold. To the fullest extent permitted by
applicable law, each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right of whatsoever kind, including any equity
or right of redemption, stay or appraisal which Debtor has or may have under any
rule of law or statute now existing or hereafter adopted. To the extent notice
is required by applicable law, Secured Party shall give Debtor written notice as
provided in the Credit Agreement (which shall satisfy any requirement of notice
or reasonable notice in any applicable statute) of Secured Party's intention to
make any such public or private sale. Such notice (if any is required by
applicable law) shall be personally delivered or mailed, postage prepaid, at
least ten days before the date fixed for a public sale, or at least ten days
before the date after which the private sale or other disposition is to be made,
unless the Collateral is of a type customarily sold on a recognized market, is
perishable or threatens to decline speedily in value. Such notice (if any is
required by applicable law), in case of public sale, shall state the time and
place fixed for such sale or, in case of private sale or other disposition other
than a public sale, the time after which the private sale or other such
disposition is to be made. Any public sale shall be held at such time or times,
within the ordinary business hours and at such place or places, as Secured Party
may fix in the notice of such sale. At any sale the Collateral may be sold in
one lot as an entirety or in separate parcels as Secured Party may determine.
Secured Party shall not be obligated to make any sale pursuant to any such
notice. Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at any time and place fixed for the sale, and such sale may be made at any time
or place to which the same may be so adjourned. In case of any sale of all or
any part of the Collateral on credit or for future delivery, the Collateral so
sold may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each obligor on the
indebtedness secured hereby, to the extent applicable, shall remain liable for
any deficiency.
(c) Secured Party shall have all the rights of a secured party after
default under the Texas Uniform Commercial Code and in conjunction with, in
addition to or in substitution for those rights and remedies:
(1) Secured Party may require Debtor to assemble the Collateral and
make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(2) it shall not be necessary that Secured Party take possession of
the Collateral or any part thereof before the time that any sale pursuant to the
provisions of this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
12
<PAGE>
(3) before application of proceeds of disposition of the Collateral
to the Debt, such proceeds shall be applied to the reasonable expenses of
retaking, holding, preparing for sale or lease, selling, leasing and the like
and the reasonable attorneys' fees and legal expenses incurred by Secured
Party, each Obligor, to the extent applicable, to remain liable for any
deficiency; and
(4) the sale by Secured Party of less than the whole of the
Collateral shall not exhaust the rights of Secured Party hereunder, and Secured
Party is specifically empowered to make successive sale or sales hereunder
until the whole of the Collateral shall be sold; and, if the proceeds of such
sale of less than the whole of the Collateral shall be less than the aggregate
of the Debt, this Agreement and the security interest created hereby shall
remain in full force and effect as to the unsold portion of the Collateral just
as though no sale had been made; and
(5) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not, to the fullest extent
permitted by applicable law, exhaust the rights of Secured Party hereunder and
Secured Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(6) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(7) Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(8) demand of performance, advertisement and presence of property at
sale are hereby WAIVED, to the fullest extent permitted by applicable law, and
Secured Party is hereby authorized to sell hereunder any evidence of debt it
may hold as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED, to the fullest extent permitted by applicable law,
by Debtor. Debtor WAIVES, to the fullest extent permitted by applicable law,
the right to require Secured Party to pursue any other remedy for the benefit
of Debtor and agrees that Secured Party may proceed against any Obligor for the
amount of the Debt owed to Secured Party without taking any action against any
other Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
6.2 All remedies herein expressly provided for are cumulative of any and
all other remedies existing at law or in equity and are cumulative of any and
all other remedies provided for in any other instrument securing the payment of
the Debt, or any part thereof, or otherwise benefiting tiny Secured Party, and
the resort to any remedy provided for hereunder or under any such
13
<PAGE>
other instrument or provided for by law shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies.
6.3 Secured Party may resort to any security given by this Agreement or to
any other security now existing or hereafter given to secure the payment of the
Debt, in whole or in part, and in such portions and in such order as may seem
best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
6.4 To the full extent Debtor may do so, Debtor agrees that Debtor will
not at any time insist upon, plead, claim or take the benefit or advantage of
any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's successors,
receivers, trustees and assigns, and for any and all persons ever claiming any
interest in the Collateral, to the extent permitted by law, hereby WAIVES and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or to declare due the whole of the Debt, notice
of election to mature or to declare due the whole of the Debt and all rights to
a marshaling of the assets of Debtor, including the Collateral, or to a sale in
inverse order of alienation in the event of foreclosure of the security
interest hereby created.
ARTICLE 7
Additional Agreements
---------------------
7.1 Upon full payment of the Debt, complete performance of all of the
obligations of Debtor, DSI, Cobb, Shareco and DSL under the Credit Documents
and final termination of Secured Party's obligations--if any--to make any
further advances or to provide any financial accommodations to Debtor, DSI,
Cobb, Shareco and/or DSL, all rights under this Agreement shall terminate and
the Collateral shall become wholly clear of the security interest evidenced
hereby, and upon written request by Debtor such security interest shall be
released by Secured Party in due form and at Debtor's cost.
7.2 Secured Party may at any time and from time to time in writing (a)
release any part of the Collateral, or any interest therein, from the security
interest of this Agreement or (b) release any party liable, either directly or
indirectly, for the Debt or for any covenant herein or in any other instrument
now or hereafter securing the payment of the Debt, without impairing or
releasing the liability of any other party. No such act shall in any way impair
the rights of Secured Party hereunder except to the extent specifically agreed
to by Secured Party in such writing.
7.3 Secured Party shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral.
7.4 The security interest and other rights of Secured Party hereunder
shall not be impaired by any indulgence, moratorium or release granted by
Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with
14
<PAGE>
respect to the Debt; (b) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant in respect of
any item of the Collateral, or any part thereof or any interest therein, or (c)
any release or indulgence granted to any endorser, guarantor or surety of the
Debt.
7.5 Secured Party may call at Debtor's place or places of business at
intervals to be determined by Secured Party and, without hindrance or delay,
inspect, audit, check and make extracts from and copies of the books, records,
journals, orders, receipts, correspondence and other data relating to the
Collateral or to any transaction between Debtor and Secured Party, and Debtor
shall assist Secured Party in such actions.
7.6 A carbon, photographic or other reproduction of this Agreement or of
any financing statement relating to this Agreement shall be sufficient as a
financing statement.
7.7 Debtor will cause all financing statements and continuation statements
relating hereto to be recorded, filed, re-recorded and refiled in such manner
and in such places as Secured Party shall reasonably request and will pay all
such recording, filing, re-recording, and refiling taxes, fees and other
charges.
7.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a person other than Debtor, Secured Party may, without notice
to Debtor, deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in
any way vitiating or discharging Debtor's liability hereunder or upon the Debt.
No sale of the Collateral, and no forbearance on the part of Secured Party and
no extension of the time for the payment of the Debt given by Secured Party
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Debtor hereunder for the payment of the Debt or the
liability of any other person hereunder for the payment of the Debt, except as
agreed to in writing by Secured Party.
7.9 Any other or additional security taken for the payment of any of the
Debt shall not in any manner affect the security given by this Agreement.
7.10 To the extent that proceeds of the Debt are used to pay indebtedness
secured by any outstanding lien, security interest, charge or prior encumbrance
against the Collateral, such proceeds have been advanced by Secured Party at
Debtor's request and Secured Party shall be subrogated to any and all rights,
security interests and liens owned by any owner or holder of such outstanding
liens, security interests, charges or encumbrances, irrespective of whether
said liens, security interests, charges or encumbrances are released.
7.11 If any part of the Debt cannot be lawfully secured by this Agreement,
or if the lien, assignments and security interests of this Agreement cannot be
lawfully enforced to pay any part of the Debt, then and in either such event,
at the option of Secured Party, all payments on the Debt shall be deemed to
have been first applied against that part of the Debt.
15
<PAGE>
7.12 Secured Party may assign this Agreement so that the assignee shall
be entitled to the rights and remedies of Secured Party hereunder and in the
event of such assignment, Debtor will assert no claims or defenses it may have
against the assignee except those granted in this Agreement.
7.13 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
7.14 Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure
of Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured
Party shall not be responsible in any way for any depreciation in the value of
the Collateral, nor shall any duty or responsibility whatsoever rest upon
Secured Party to take any steps to preserve rights against prior parties or to
enforce collection of the Collateral by legal proceedings or otherwise, the
sole duty of Secured Party, its successors and assigns, being to receive
collections, remittances and payments on such Collateral as and when made and
received by Secured Party and, at Secured Party's option, to apply the amount
or amounts so received, after deduction of any collection costs incurred, as
payment upon any of the Debt or to hold the same for the account and order of
Debtor.
7.15 In the event Debtor instructs Secured Party, in writing or orally, to
deliver any or all of the Collateral to a third person, and Secured Party
agrees to do so, the following conditions shall be conclusively deemed to be a
part of Secured Party's agreement, whether or not they are specifically
mentioned to Debtor at the time of such agreement: (a) Secured Party shall
assume no responsibility for checking the-genuineness or authenticity of any
person purporting to be a messenger, employee or representative of such third
person to whom Debtor has directed Secured Party to deliver the Collateral, or
the genuineness or authenticity of any document of instructions delivered by
such person; (b) Debtor will be considered by requesting any such delivery to
have assumed all risk of loss as to the Collateral; (c) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof, and (d) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable
care.
7.16 Secured Party is hereby authorized at any time and from time to time,
without notice to any person or entity (and Debtor hereby WAIVES any such
notice) to the fullest extent not prohibited by law, to set-off and apply any
and all monies, securities and other properties of Debtor now or in the future
in the possession, custody or control of Secured Party, or on deposit with or
otherwise owed to Debtor by Secured Party--including all such monies,
securities and other properties held in general, time, demand, provisional or
final accounts (other than special accounts or for safekeeping) or as
collateral or otherwise (but excluding those accounts
16
<PAGE>
clearly designated as escrow or trust accounts held by Debtor for others
unaffiliated with Debtor)--against any and all of Debtor's obligations to
Secured Party now or hereafter existing under this Agreement or any of the
Credit Documents, irrespective of whether Secured Party shall have made any
demand hereunder or thereunder. Secured Party agrees to use reasonable efforts
to promptly notify Debtor after any such set-off and application, provided that
failure to give--or delay in giving--any such notice shall not affect the
validity of such set-off and application or impose any liability on Secured
Party. Secured Party's rights under this Section are in addition to other rights
and remedies (including other rights of set-off) which Secured Party may have.
7.17 This Agreement amends and restates in its entirety that certain
Security Agreement dated as of May 5, 1995 executed by Debtor in favor of
Secured Party.
EXECUTED as of September 29, 1995.
DRILEX HOLDINGS CORP., a Delaware
corporation
By: /s/JOHN FORREST
-------------------------------
John Forrest,
President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking
association
By: /s/DIANE DUPLICHAN
-------------------------------
Name: DIANE DUPLICHAN
------------------------
Title: VICE PRESIDENT
------------------------
Exhibit A - Inventory Locations
17
<PAGE>
EXHIBIT A
to
Security Agreement
Drilex Holdings Corp.
None
<PAGE>
SECURITY AGREEMENT
------------------
SHAREWELL, INC. ("Debtor") (formerly Shareco, Inc. ("Shareco")), a Delaware
corporation, whose address is 15151 Sommermeyer, Houston, Harris County, Texas
77041, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Secured Party"), a
national banking association, whose address is 712 Main Street, Houston, Harris
County, Texas 77002, agree as follows:
ARTICLE 1
Creation of Security Interest
-----------------------------
In order to secure the prompt and unconditional payment of the indebtedness
herein referred to and the performance of the obligations, covenants, agreements
and undertakings herein described, Debtor hereby grants to Secured Party a
security interest in and mortgages, assigns, transfers, delivers, pledges, sets
over and confirms to Secured Party all of Debtor's remedies, powers, privileges,
rights, titles and interests (including all power of Debtor, if any, to pass
greater title than it has itself) of every kind and character now owned or
hereafter acquired, created or arising in and to the following:
Inventory
---------
all goods, merchandise, raw materials, work in process, finished goods, and
other tangible personal property of whatever nature now owned by Debtor or
hereafter from time to time existing or acquired, wherever located and held
for sale or lease, including those held for display or demonstration or out
on lease or consignment, or furnished or to be furnished under contracts of
service or used or usable or consumed or consumable in Debtor's business or
which are finished or unfinished goods and all accessions and appurtenances
thereto, together with all warehouse receipts and other documents
evidencing any of the same and all containers, packing, packaging, shipping
and similar materials;
Accounts
--------
(a) all accounts, receivables, accounts receivable, book debts, contract
rights and rights to payment received by or belonging to Debtor for
goods sold or leased and/or services rendered by Debtor, no matter how
evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under leases
of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or
services rendered by Debtor;
<PAGE>
(c) all purchase orders, instruments and other documents (including all
documents of title) evidencing obligations to Debtor, for or
representing obligations for goods sold or leased and/or services
rendered by Debtor;
(d) all monies due or to become due to Debtor under all contracts for the
sale or lease of goods and/or performance of services by Debtor no
matter how evidenced and whether or not earned by performance; and
(e) all accounts, receivables, accounts receivable, contract rights, and
general intangibles arising as a result of Debtor's having paid
accounts payable (or having had goods sold to or leased to Debtor or
services performed for Debtor giving rise to accounts payable) which
accounts payable were paid for or were incurred by Debtor on behalf of
any third parties pursuant to an agreement or otherwise;
Equipment
---------
all goods, equipment, machinery, furnishings, fixtures, furniture,
appliances, accessories, leasehold improvements, chattels and other
articles of personal property of whatever nature (whether or not the same
constitute fixtures) now owned by Debtor or hereafter acquired, and all
component parts thereof and all appurtenances thereto;
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Debtor or
Secured Party in respect of the foregoing) and together with all general
intangibles now owned by Debtor or existing or hereafter acquired, created or
arising (whether or not related to any of the foregoing property). All of the
properties and interests described in this Article are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize Debtor to
sell, dispose of or otherwise use the Collateral in any manner not authorized
herein. The Collateral includes all property of Debtor this day delivered to
and deposited with Secured Party, and all money and property of Debtor
heretofore delivered or which shall hereafter be delivered to or come into the
possession, custody or control of Secured Party in any manner or for any purpose
whatever during the existence of this Agreement (unless held in a special
account, or deposited for safekeeping), and all other property which Debtor may
hereafter become entitled to receive on account of such property, and in the
event Debtor receives any such property, Debtor will immediately deliver same to
Secured Party to be held by Secured Party in the same manner as the property
originally deposited as Collateral. It is expressly contemplated that
additional Collateral may from time to time be pledged to Secured Party as
additional security for the Debt (hereinafter defined), and the term
"Collateral" as used herein shall be deemed for all purposes hereof to include
all such Collateral, together with all other property of the types described
above related to the Collateral.
2
<PAGE>
ARTICLE 2
Secured Indebtedness
--------------------
2.1 This Agreement is made to secure all of the following present and
future debt and obligations:
(a) All obligations and indebtedness of Debtor, Drilex Holdings Corp., a
Delaware corporation ("DHC"), Drilex Systems, Inc., a Texas corporation ("DSI")
or Cobb Directional Drilling Company, L.L.C., a Delaware limited liability
company ("Cobb") now or hereafter created or incurred under that certain Amended
and Restated Credit Agreement dated concurrently herewith among Debtor, DHC,
DSI, Cobb, Drilex Systems Limited ("DSL"), and Secured Party, relating to a
$13,000,000 revolving credit facility, as the same may be amended, supplemented,
restated or replaced from time to time (collectively, the "Credit Agreement").
Any term defined in the Credit Agreement, not defined in this Agreement and used
in this Agreement shall have the meaning ascribed to it in the Credit Agreement.
(b) All obligations of Debtor, DHC, DSI and/or Cobb under that certain
promissory note dated concurrently herewith executed by Debtor, DHC, DSI and
Cobb payable to the order of Secured Party in the original principal amount of
$17,450,000, as the same may be renewed, extended, modified or rearranged from
time to time.
(c) All other obligations, if any, of Debtor described or referred to in
any other place in this Agreement.
(d) Any and all sums and the interest which accrues on them as provided in
this Agreement which Secured Party may advance or which Debtor may owe Secured
Party pursuant to this Agreement on account of Debtor's failure to keep, observe
or perform any of Debtor's covenants under this Agreement.
(e) Interest Rate Risk Indebtedness and all other present and future debts
and obligations under or pursuant to the Credit Documents (which for purposes of
this Agreement shall include "Credit Documents" as defined in the Credit
Agreement and as defined in the promissory note described in Section 2.1(b)
hereof).
2.2 The term "Debt" means and includes all debt and obligations described
or referred to in Section 2.1. The Debt includes interest and other obligations
accruing or arising after (a) commencement of any case under any bankruptcy or
similar laws by or against Debtor or any other Person now or hereafter primarily
or secondarily obligated to pay all or any part of the Debt (Debtor and each
such other Person being herein called an "Obligor") or (b) the obligations of
any Obligor shall cease to exist by operation of law or for any other reason.
The Debt also includes all reasonable attorneys' fees and any other expenses
incurred by Secured Party in enforcing any of the Credit Documents.
3
<PAGE>
ARTICLE 3
Representations and Warranties
------------------------------
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral, free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, Permitted Liens and those other security interests (if
any) expressly referred to or described in this Agreement. Debtor agrees to
defend the Collateral and its proceeds against all other claims and demands of
any person at any time claiming the Collateral, its proceeds or any interest in
either. Debtor has not heretofore signed any financing statement directly or
indirectly affecting the Collateral or any part of it which has not been
completely terminated of record, and no such financing statement signed by
Debtor is now on file in any public office except only those statements (if any)
true and correct copies of which Debtor has actually delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning
of this Agreement and in this regard, Debtor's location is defined to mean
Debtor's chief executive office.
(c) All of Debtor's books and records with regard to the Collateral
are maintained and kept at the address of Debtor set forth at the beginning of
this Agreement.
(d) Except as heretofore disclosed to Secured Party, no part of the
Collateral is covered by a certificate of title or subject to any certificate of
title law.
(e) No part of the Collateral consists or will consist of consumer
goods, farm products, timber, minerals and the like (including oil and gas) or
accounts resulting from the sale thereof.
(f) Except as heretofore disclosed to Secured Party, Debtor has never
changed its name, whether by amendment of its Organizational Documents or
otherwise.
(g) Debtor is now solvent, and no bankruptcy or insolvency proceedings
are pending or contemplated by or--to Debtor's knowledge--against Debtor.
Debtor's liabilities and obligations under this Agreement and any other Credit
Documents to which Debtor is a party do not and will not render Debtor
insolvent, cause Debtor's liabilities to exceed Debtor's assets or leave Debtor
with too little capital to properly conduct all of its business as now conducted
or contemplated to be conducted.
(h) As of the date hereof, the tangible Collateral is free from damage
caused by fire or other casualty.
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ARTICLE 4
Covenants
---------
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
reasonably required by Secured Party to assure the transferability of the
Collateral when and as often as may be requested by Secured Party.
(b) Debtor will cause to be paid (except as set forth in the Credit
Agreement) before delinquency all taxes, charges, liens and assessments
heretofore or hereafter levied or assessed against the Collateral, or any part
thereof, or against Secured Party for or on account of the Debt or the interest
created by this Agreement and will, upon the request of Secured Party, furnish
Secured Party with receipts showing payment of such taxes and assessments at
least ten days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights,
titles, security interests or other interests created or evidenced hereby shall
be attacked, endangered or questioned or if any legal proceedings are instituted
with respect thereto and such matters might reasonably be expected to materially
and adversely jeopardize the Collateral or Secured Party's rights with respect
thereto, Debtor will give prompt written notice thereof to Secured Party and at
Debtor's own cost and expense will diligently endeavor to cure any defect that
may be developed or claimed, and will take all necessary and proper steps for
the defense of such legal proceedings, and Secured Party (whether or not named
as a party to legal proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2.
(d) Debtor will, on reasonable request of Secured Party, (1) promptly
correct any defect, error or omission which may be discovered in the contents of
this Agreement or in any other instrument executed in connection herewith or in
the execution or acknowledgment thereof; (2) execute, acknowledge, deliver and
record or file such further instruments (including further security agreements,
financing statements and continuation statements) and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purposes of this Agreement and such other instruments and to subject to the
security interests hereof and thereof any property intended by the terms hereof
and thereof to be covered hereby and thereby including specifically any
renewals, additions, substitutions, replacements or appurtenances to the then
Collateral, and (3) execute, acknowledge, deliver, procure and record or file
any document or instrument (including specifically any financing statement)
reasonably deemed advisable by Secured Party to protect the security interest
hereunder against the rights or interests of third persons, and Debtor will pay
all costs connected with any of the foregoing.
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(e) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the Credit
Agreement, sell, lease, exchange, lend, rent, assign, transfer or otherwise
dispose of, or pledge, hypothecate or grant any security interest in, or permit
to exist any lien, security interest, charge or encumbrance against, all or any
part of the Collateral or any interest therein or permit any of the foregoing to
occur or arise or permit title to the Collateral, or any interest therein, to be
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, without the express prior written consent of Secured Party. Except
as permitted in the Credit Agreement, Debtor shall not, without the express
prior written consent of Secured Party, (1) acquire any such Collateral under
any arrangement whereby the seller or any other person retains or acquires any
security interest in such Collateral or (2) return or give possession of any
such Collateral to any supplier or any other person except in the ordinary
course of business.
(f) Debtor shall account fully and faithfully for and, if Secured
Party so elects during the existence of an Event of Default, shall promptly pay
or turn over to Secured Party the proceeds in whatever form received from the
sale or disposition or realization in any manner of any of the Collateral,
whether the Debt is mature or not. Debtor shall at all times keep the
Collateral and its proceeds separate and distinct from other property of Debtor
and shall keep accurate and complete records of the Collateral and its proceeds.
Debtor shall, where applicable, at Debtor's own expense take all reasonable and
appropriate steps in its reasonable credit judgment to enforce the collection of
the Collateral and items representing proceeds thereof.
(g) After the occurrence and during the continuation of an Event of
Default, Debtor shall from time to time at the request of Secured Party furnish
Secured Party with a schedule of the Collateral constituting the Collateral,
containing such information as Secured Party may specify. After the occurrence
and during the continuation of an Event of Default, Secured Party shall also
have the right to make test verifications of the Collateral or any portion
thereof.
(h) Debtor shall at all times keep accurate books and records
reflecting all facts concerning the Collateral including those pertaining to
Debtor's warranties, representations and agreements under this Agreement.
Immediately upon the execution of this Agreement, at the request of Secured
Party, Debtor will make or allow Secured Party to make written designation on
Debtor's books and records to reflect thereon the assignment to Secured Party of
the Collateral covered by this Agreement; provided that the failure of Debtor
and/or Secured Party to make such a written designation shall not affect the
rights of Secured Party to any of the Collateral.
(i) If the Collateral is evidenced by promissory notes, trade
acceptances or other instruments for the payment of money, Debtor will, at the
request of Secured Party, immediately deliver them to Secured Party,
appropriately endorsed to Secured Party's order and regardless of the form of
endorsement, Debtor waives presentment, demand, notice of dishonor, protest and
notice of protest.
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(j) Debtor will not use, or allow the use of, the tangible Collateral
in any manner which constitutes a public or private nuisance or which makes
void, voidable or cancelable, or increases the premium of, any insurance then in
force with respect thereto if such matters may reasonably be expected to
materially and adversely affect the Dollar Borrowers and their Subsidiaries,
taken as a whole. Debtor will not do or suffer to be done any act whereby the
value of any part of the tangible Collateral may be lessened, normal wear and
tear excepted.
(k) Debtor agrees to provide, maintain and keep in force casualty,
liability and other insurance for that portion of the tangible Collateral which
is tangible personal property as required by Secured Party. Debtor agrees that
all required insurance will be written on forms acceptable to Secured Party and
by companies having a Best's Insurance Guide Rating of not less than A+ and
which are otherwise acceptable to Secured Party, and that such insurance (other
than third party liability insurance) shall be written or endorsed so that all
losses are payable to Secured Party. Debtor shall deliver certificates
reflecting such insurance to Secured Party, and Debtor shall deliver the
original policies evidencing such insurance to Secured Party upon request
therefor. Each such policy shall expressly prohibit cancellation or
modification of insurance without 30 days' written notice to Secured Party.
Debtor agrees to furnish due proof of payment of the premiums for all such
insurance to Secured Party promptly upon request therefor. Subject to Debtor's
right to adjust any claim thereunder, Debtor hereby assigns to Secured Party the
exclusive right to collect any and all monies that may become payable under any
insurance policies covering any part of the tangible Collateral, or any risk to
or about the tangible Collateral. Foreclosure of this Agreement shall
automatically constitute foreclosure upon all policies of insurance insuring any
part of or risk to the tangible Collateral and all claims thereunder arising
from post-foreclosure events. The successful bidder or bidders for the tangible
Collateral at foreclosure, as their respective interests may appear, shall
automatically accede to all of Debtor's rights in, under and to such policies
and all post-foreclosure event claims, and such bidder(s) shall be named as
insured(s) on request, whether or not the bill of sale to any such successful
bidder mentions insurance. All proceeds of insurance which was paid for by
Debtor or by anyone other than Secured Party or another holder of any of the
Debt and which proceeds are actually received by Secured Party before
foreclosure shall be applied in payment of the Debt or, at the option of Secured
Party, shall be paid to Debtor or to such other person as is legally entitled to
them. Unless Secured Party or Secured Party's representative reserves at the
foreclosure sale the right to collect any uncollected insurance proceeds
recoverable for events occurring before foreclosure (in which event the
successful bidder at the sale, if not Secured Party, shall have no interest in
such proceeds and Secured Party shall apply them, if and when collected, to the
Debt in such order and manner as Secured Party shall then elect and remit any
remaining balance to Debtor or to such other Person as is legally entitled to
them), all proceeds of all such insurance which are not so reserved by Secured
Party at the foreclosure sale and are not actually received by Secured Party
until after foreclosure shall be the property of the successful bidder or
bidders at foreclosure, as their interests may appear, and Debtor shall have no
interest in them and shall receive no credit for them. Secured Party shall have
no duty to Debtor or anyone else to either require or provide any insurance or
to determine the adequacy or disclose any inadequacy of any insurance. If
Secured Party elects at any time or for any reason to purchase insurance
relating to the tangible Collateral, it shall have no obligation to cause Debtor
or anyone else to be named as an insured,
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to cause Debtor's or anyone else's interests to be insured or protected or to
inform Debtor or anyone else that his or its interests are uninsured or
underinsured.
(l) Except as otherwise expressly permitted herein, the Collateral is
and shall remain in Debtor's possession or control at all times at Debtor's risk
of loss at one or more of Debtor's locations described on Exhibit A, where
---------
Secured Party may inspect it at any time, except for its temporary removal in
connection with its ordinary use or unless Debtor notifies Secured Party in
writing and Secured Party consents in writing in advance of its removal to
another location.
(m) Debtor shall, at its expense, diligently prosecute any proceedings
arising out of injury or damage to the tangible Collateral, or any portion
thereof, and shall consult with Secured Party, its attorneys and experts, and
cooperate with them in the carrying on or defense of any such proceedings.
(n) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time reasonably request or as may be
required from time to time by any Credit Document.
(o) Subject to its reasonable collection judgment, Debtor will not
agree to a material modification of any of the terms of any of the Collateral
described in Article 1 under the heading "Accounts" without the prior written
consent of Secured Party.
(p) Unless an Event of Default has occurred and is continuing, Debtor
may use the tangible Collateral in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon and
may also sell or lease such tangible Collateral in the ordinary course of
business. A sale in the ordinary course of business does not include a transfer
in partial or total satisfaction of a debt. Unless an Event of Default has
occurred and is continuing, Debtor may also use and consume any raw materials or
supplies, the use and consumption of which are necessary to carry on Debtor's
business.
(q) Except as disclosed to Secured Party in writing, none of the
Collateral described in Article 1 under the caption "Equipment" is or shall be
wholly or partly affixed to real estate or other goods so as to become fixtures
on such real estate or accessions to such other goods. To the extent any of
such Collateral is or shall be wholly or partly affixed to real estate or other
goods so as to become fixtures on such real estate or accessions to such other
goods, Debtor has supplied to Secured Party a description of the real estate or
other goods to which such Collateral is or shall be wholly or partly affixed.
Said real estate is not subject to any lien or mortgage except as disclosed to
Secured Party in writing. Debtor will, on demand by Secured Party, furnish or
cause to be furnished to Secured Party a disclaimer or disclaimers, signed by
all persons having an interest in the applicable real estate or other goods to
which such Collateral is or shall be wholly or partly affixed, of any interest
in such Collateral which is before Secured Party's interest.
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(r) The Collateral described in Article 1 under the caption
"Equipment" will be used in the business of Debtor (which shall include leases
of such Collateral to unaffiliated third parties in the ordinary course of
Debtor's business).
ARTICLE 5
Assignment of Payments; Certain Powers of Secured Party
-------------------------------------------------------
Debtor hereby authorizes and directs each account debtor and each
other person or entity obligated to make payment in respect of any of the
Collateral (each a "Collateral Obligor"), after the occurrence and during the
continuation of an Event of Default, to pay over to Secured Party, its officers,
agents or assigns, upon demand by Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of the Debt
and without any notice to or further consent of Debtor. Debtor hereby agrees to
indemnify each Collateral Obligor and hold each Collateral Obligor harmless from
all expenses and losses which it may incur or suffer as a result of any payment
it makes to Secured Party pursuant to this paragraph OTHER THAN THOSE ARISING
OUT OF ANY COLLATERAL OBLIGOR'S GROSS NEGLIGENCE, BAD FAITH OR WILLFUL
MISCONDUCT. To facilitate the rights of Secured Party hereunder, Debtor hereby
authorizes Secured Party, its officers, employees, agents or assigns, after the
occurrence and during the continuation of an Event of Default:
(a) to notify Collateral Obligors of Secured Party's security interest
in the Collateral and to collect all or any part of the Collateral without
further notice to or further consent by Debtor, and Debtor hereby constitutes
and appoints Secured Party the true and lawful attorney of Debtor (such agency
being coupled with an interest), irrevocably, with power of substitution, in the
name of Debtor or in its own name or otherwise, to take any of the actions
described in the following clauses (b), (c), (d), (e), (f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all amounts which may be or become due or
payable under the Collateral and to settle and/or adjust all disputes and/or
claims directly with any Collateral Obligor and to compromise, extend the time
for payment, arrange for payment in installments, otherwise modify the terms of,
or release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to execute, sign, endorse, transfer and deliver (in the name of
Debtor or in its own name or otherwise) any and all receipts or other orders for
the payment of money drawn on the Collateral and all notes, acceptances,
commercial paper, drafts, checks, money orders and other instruments given in
payment or in part payment thereof and all invoices, freight and express bills
and bills of lading, storage receipts, warehouse receipts and other instruments
and documents in respect of any of the Collateral and any other documents
necessary to evidence, perfect and realize upon the security interests and
obligations of this Agreement;
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(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts against
Collateral Obligors, assignments or verifications of any of the Collateral and
notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on
Debtor's premises for the purpose of exercising any rights, benefits or
privileges available to Secured Party hereunder or under any of the Credit
Documents or at law or in equity, including receiving collections and taking
possession of books and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred
into the name of Secured Party or any nominee or nominees of Secured Party.
The powers conferred on Secured Party pursuant to this Article are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Texas Uniform Commercial Code.
5.1 If Debtor should fail to comply with any of its agreements,
covenants or obligations under any Credit Document after notice to Debtor, then
Secured Party (in Debtor's name or in Secured Party's own name) may perform them
or cause them to be performed for Debtor's account and at Debtor's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Upon making any such payment or incurring any such expense, Secured Party shall
be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by Debtor
to Secured Party pursuant to this or any other provision of this Agreement shall
automatically and without notice be and become a part of the Debt and shall be
secured by this and all other instruments securing the Debt. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Secured Party or any of Secured Party's officers
or agents. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by the Credit Documents and of all rights given Secured
Party by law.
ARTICLE 6
Remedies in Event of Default
----------------------------
6.1 Upon the occurrence of an Event of Default (herein so called)
under the Credit Agreement or under the promissory note described in Section
2.1(b) hereof), and at any time thereafter:
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(a) Secured Party is authorized, in any legal manner and without
breach of the peace, to take possession of the Collateral (Debtor hereby
WAIVING, to the fullest extent permitted by applicable law, all claims for
damages arising from or connected with any such taking) and of all books,
records and accounts relating thereto and to exercise without interference from
Debtor any and all rights which Debtor has with respect to the management,
possession, operation, protection or preservation of the Collateral, including
the right to sell or rent the same for the account of Debtor and to deduct from
such sale proceeds or such rents all costs, expenses and liabilities of every
character incurred by Secured Party in collecting such sale proceeds or such
rents and in managing, operating, maintaining, protecting or preserving the
Collateral and to apply the remainder of such sales proceeds or such rents on
the Debt in such manner as Secured Party may elect. Before any sale, Secured
Party may, at its option, complete the processing of any of the Collateral
and/or repair or recondition the same to such extent as Secured Party may deem
advisable and any sums expended therefor by Secured Party shall be reimbursed by
Debtor. Secured Party may take possession of Debtor's premises to complete such
processing, repairing and/or reconditioning, using the facilities and other
property of Debtor to do so, to store any Collateral and to conduct any sale as
provided for herein, all without compensation to Debtor. All reasonable costs,
expenses, and liabilities incurred by Secured Party in collecting such sales
proceeds or such rents, or in managing, operating, maintaining, protecting or
preserving such properties, or in processing, repairing and/or reconditioning
the Collateral if not paid out of such sales proceeds or such rents as
hereinabove provided, shall constitute a demand obligation owing by Debtor and
part of the Debt. If necessary to obtain the possession provided for above,
secured party may invoke any and all legal remedies to dispossess Debtor,
including specifically one or more actions for forcible entry and detainer. In
connection with any action taken by Secured Party pursuant to this paragraph,
Secured Party shall not be liable for any loss sustained by Debtor resulting
from any failure to sell or let the Collateral, or any part thereof, or from
other act or omission of Secured Party with respect to the Collateral UNLESS
SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BAD FAITH OF
SECURED PARTY, nor shall Secured Party be obligated to perform or discharge any
obligation, duty, or liability under any sale or lease agreement covering the
Collateral or any part thereof or under or by reason of this instrument or the
exercise of rights or remedies hereunder.
(b) Secured Party may, without notice except as hereinafter provided,
sell the Collateral or any part thereof at public or private sale (with or
without appraisal or having the Collateral at the place of sale) for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party may
deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold and may apply upon the purchase price therefor any of the
Debt and thereafter hold the same absolutely free from any right or claim of
whatsoever kind. Upon any such sale Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
To the fullest extent permitted by applicable law, each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law or statute now existing or
hereafter adopted. To the extent notice is required by applicable law, Secured
Party shall give Debtor written notice as provided in the Credit Agreement
(which shall satisfy any requirement of notice or reasonable
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notice in any applicable statute) of Secured Party's intention to make any such
public or private sale. Such notice (if any is required by applicable law)
shall be personally delivered or mailed, postage prepaid, at least ten days
before the date fixed for a public sale, or at least ten days before the date
after which the private sale or other disposition is to be made, unless the
Collateral is of a type customarily sold on a recognized market, is perishable
or threatens to decline speedily in value. Such notice (if any is required by
applicable law), in case of public sale, shall state the time and place fixed
for such sale or, in case of private sale or other disposition other than a
public sale, the time after which the private sale or other such disposition is
to be made. Any public sale shall be held at such time or times, within the
ordinary business hours and at such place or places, as Secured Party may fix in
the notice of such sale. At any sale the Collateral may be sold in one lot as
an entirety or in separate parcels as Secured Party may determine. Secured
Party shall not be obligated to make any sale pursuant to any such notice.
Secured Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at any
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, the Collateral so sold
may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each obligor on the
indebtedness secured hereby, to the extent applicable, shall remain liable for
any deficiency.
(c) Secured Party shall have all the rights of a secured party after
default under the Texas Uniform Commercial Code and in conjunction with, in
addition to or in substitution for those rights and remedies:
(1) Secured Party may require Debtor to assemble the Collateral and
make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(2) it shall not be necessary that Secured Party take possession of
the Collateral or any part thereof before the time that any sale pursuant to the
provisions of this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
(3) before application of proceeds of disposition of the Collateral to
the Debt, such proceeds shall be applied to the reasonable expenses of retaking,
holding, preparing for sale or lease, selling, leasing and the like and the
reasonable attorneys' fees and legal expenses incurred by Secured Party, each
Obligor, to the extent applicable, to remain liable for any deficiency; and
(4) the sale by Secured Party of less than the whole of the Collateral
shall not exhaust the rights of Secured Party hereunder, and Secured Party is
specifically empowered to
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make successive sale or sales hereunder until the whole of the Collateral shall
be sold; and, if the proceeds of such sale of less than the whole of the
Collateral shall be less than the aggregate of the Debt, this Agreement and the
security interest created hereby shall remain in full force and effect as to the
unsold portion of the Collateral just as though no sale had been made; and
(5) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not, to the fullest extent
permitted by applicable law, exhaust the rights of Secured Party hereunder and
Secured Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(6) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(7) Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(8) demand of performance, advertisement and presence of property at
sale are hereby WAIVED, to the fullest extent permitted by applicable law, and
Secured Party is hereby authorized to sell hereunder any evidence of debt it may
hold as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED, to the fullest extent permitted by applicable law,
by Debtor. Debtor WAIVES, to the fullest extent permitted by applicable law,
the right to require Secured Party to pursue any other remedy for the benefit of
Debtor and agrees that Secured Party may proceed against any Obligor for the
amount of the Debt owed to Secured Party without taking any action against any
other Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
6.2 All remedies herein expressly provided for are cumulative of any
and all other remedies existing at law or in equity and are cumulative of any
and all other remedies provided for in any other instrument securing the payment
of the Debt, or any part thereof, or otherwise benefiting Secured Party, and the
resort to any remedy provided for hereunder or under any such other instrument
or provided for by law shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
6.3 Secured Party may resort to any security given by this Agreement
or to any other security now existing or hereafter given to secure the payment
of the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
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6.4 To the full extent Debtor may do so, Debtor agrees that Debtor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's successors,
receivers, trustees and assigns, and for any and all persons ever claiming any
interest in the Collateral, to the extent permitted by law, hereby WAIVES and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or to declare due the whole of the Debt, notice of
election to mature or to declare due the whole of the Debt and all rights to a
marshaling of the assets of Debtor, including the Collateral, or to a sale in
inverse order of alienation in the event of foreclosure of the security interest
hereby created.
ARTICLE 7
Additional Agreements
---------------------
7.1 Upon full payment of the Debt, complete performance of all of the
obligations of Debtor, DHC, DSI, Cobb and DSL under the Credit Documents and
final termination of Secured Party's obligations--if any--to make any further
advances or to provide any financial accommodations to Debtor, DHC, DSI, Cobb
and/or DSL, all rights under this Agreement shall terminate and the Collateral
shall become wholly clear of the security interest evidenced hereby, and upon
written request by Debtor such security interest shall be released by Secured
Party in due form and at Debtor's cost.
7.2 Secured Party may at any time and from time to time in writing
(a) release any part of the Collateral, or any interest therein, from the
security interest of this Agreement or (b) release any party liable, either
directly or indirectly, for the Debt or for any covenant herein or in any other
instrument now or hereafter securing the payment of the Debt, without impairing
or releasing the liability of any other party. No such act shall in any way
impair the rights of Secured Party hereunder except to the extent specifically
agreed to by Secured Party in such writing.
7.3 Secured Party shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Collateral.
7.4 The security interest and other rights of Secured Party hereunder
shall not be impaired by any indulgence, moratorium or release granted by
Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with respect to the Debt; (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant in respect of any item of the Collateral, or any
part thereof or any interest therein, or (c) any release or indulgence granted
to any endorser, guarantor or surety of the Debt.
7.5 Secured Party may call at Debtor's place or places of business at
intervals to be determined by Secured Party and, without hindrance or delay,
inspect, audit, check and make extracts from and copies of the books, records,
journals, orders, receipts, correspondence and
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other data relating to the Collateral or to any transaction between Debtor and
Secured Party, and Debtor shall assist Secured Party in such actions.
7.6 A carbon, photographic or other reproduction of this Agreement or
of any financing statement relating to this Agreement shall be sufficient as a
financing statement.
7.7 Debtor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
7.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a person other than Debtor, Secured Party may, without notice
to Debtor, deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in any
way vitiating or discharging Debtor's liability hereunder or upon the Debt. No
sale of the Collateral, and no forbearance on the part of Secured Party and no
extension of the time for the payment of the Debt given by Secured Party shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Debtor hereunder for the payment of the Debt or the liability
of any other person hereunder for the payment of the Debt, except as agreed to
in writing by Secured Party.
7.9 Any other or additional security taken for the payment of any of
the Debt shall not in any manner affect the security given by this Agreement.
7.10 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Collateral, such proceeds have been advanced by Secured
Party at Debtor's request and Secured Party shall be subrogated to any and all
rights, security interests and liens owned by any owner or holder of such
outstanding liens, security interests, charges or encumbrances, irrespective of
whether said liens, security interests, charges or encumbrances are released.
7.11 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the lien, assignments and security interests of this Agreement
cannot be lawfully enforced to pay any part of the Debt, then and in either such
event, at the option of Secured Party, all payments on the Debt shall be deemed
to have been first applied against that part of the Debt.
7.12 Secured Party may assign this Agreement so that the assignee
shall be entitled to the rights and remedies of Secured Party hereunder and in
the event of such assignment, Debtor will assert no claims or defenses it may
have against the assignee except those granted in this Agreement.
7.13 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
15
<PAGE>
7.14 Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured
Party shall not be responsible in any way for any depreciation in the value of
the Collateral, nor shall any duty or responsibility whatsoever rest upon
Secured Party to take any steps to preserve rights against prior parties or to
enforce collection of the Collateral by legal proceedings or otherwise, the sole
duty of Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party and, at Secured Party's option, to apply the amount or amounts so
received, after deduction of any collection costs incurred, as payment upon any
of the Debt or to hold the same for the account and order of Debtor.
7.15 In the event Debtor instructs Secured Party, in writing or
orally, to deliver any or all of the Collateral to a third person, and Secured
Party agrees to do so, the following conditions shall be conclusively deemed to
be a part of Secured Party's agreement, whether or not they are specifically
mentioned to Debtor at the time of such agreement: (a) Secured Party shall
assume no responsibility for checking the genuineness or authenticity of any
person purporting to be a messenger, employee or representative of such third
person to whom Debtor has directed Secured Party to deliver the Collateral, or
the genuineness or authenticity of any document of instructions delivered by
such person; (b) Debtor will be considered by requesting any such delivery to
have assumed all risk of loss as to the Collateral; (c) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof, and (d) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
7.16 Secured Party is hereby authorized at any time and from time to
time, without notice to any person or entity (and Debtor hereby WAIVES any such
notice) to the fullest extent not prohibited by law, to set-off and apply any
and all monies, securities and other properties of Debtor now or in the future
in the possession, custody or control of Secured Party, or on deposit with or
otherwise owed to Debtor by Secured Party--including all such monies, securities
and other properties held in general, time, demand, provisional or final
accounts (other than special accounts or for safekeeping) or as collateral or
otherwise (but excluding those accounts clearly designated as escrow or trust
accounts held by Debtor for others unaffiliated with Debtor)--against any and
all of Debtor's obligations to Secured Party now or hereafter existing under
this Agreement or any of the Credit Documents, irrespective of whether Secured
Party shall have made any demand hereunder or thereunder. Secured Party agrees
to use reasonable efforts to promptly notify Debtor after any such set-off and
application, provided that failure to give--or delay in giving--any such notice
shall not affect the validity of such set-off and application or impose any
liability on Secured Party. Secured Party's rights under this Section are in
addition to other rights and remedies (including other rights of set-off) which
Secured Party may have.
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<PAGE>
7.17 This Agreement amends and restates in its entirety that certain
Security Agreement dated as of May 5, 1995 executed by Debtor in favor of
Secured Party.
EXECUTED as of September 29, 1995.
SHAREWELL, INC.,
a Delaware corporation
By: /s/JOHN FORREST
-------------------------
John Forrest,
Chief Executive Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: /s/DIANE DUPLICHAN
--------------------------
Name: DIANE DUPLICAHN
Title:VICE PRESIDENT
Exhibit A - Inventory Locations
17
<PAGE>
SHARECO SECURITY AGREEMENT
INVENTORY LOCATIONS
EXHIBIT A
================================================================================
13393 Murphy Road
Stafford, TX
S.H.S.L.
Spencer House
Stephenson Way
Crawley
West Sussex RH10 1TN
United Kingdom
Center Drill, Inc.
15215 Wagon Trail Road
Pearland, TX 77584
<PAGE>
SECURITY AGREEMENT
------------------
COBB DIRECTIONAL DRILLING COMPANY, L.L.C. ("Debtor"), a Delaware limited
liability company, whose address is 15151 Sommermeyer, Houston, Harris County,
Texas 77041, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Secured Party"), a
national banking association, whose address is 712 Main Street, Houston, Harris
County, Texas 77002, agree as follows:
ARTICLE 1
Creation of Security Interest
-----------------------------
In order to secure the prompt and unconditional payment of the indebtedness
herein referred to and the performance of the obligations, covenants, agreements
and undertakings herein described, Debtor hereby grants to Secured Party a
security interest in and mortgages, assigns, transfers, delivers, pledges, sets
over and confirms to Secured Party all of Debtor's remedies, powers, privileges,
rights, titles and interests (including all power of Debtor, if any, to pass
greater title than it has itself) of every kind and character now owned or
hereafter acquired, created or arising in and to the following:
Inventory
---------
all goods, merchandise, raw materials, work in process, finished goods, and
other tangible personal property of whatever nature now owned by Debtor or
hereafter from time to time existing or acquired, wherever located and held
for sale or lease, including those held for display or demonstration or out
on lease or consignment, or furnished or to be furnished under contracts of
service or used or usable or consumed or consumable in Debtor's business or
which are finished or unfinished goods and all accessions and appurtenances
thereto, together with all warehouse receipts and other documents
evidencing any of the same and all containers, packing, packaging, shipping
and similar materials;
Accounts
--------
(a) all accounts, receivables, accounts receivable, book debts, contract
rights and rights to payment received by or belonging to Debtor for
goods sold or leased and/or services rendered by Debtor, no matter how
evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under leases
of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or
services rendered by Debtor;
<PAGE>
(c) all purchase orders, instruments and other documents (including all
documents of title) evidencing obligations to Debtor, for or
representing obligations for goods sold or leased and/or services
rendered by Debtor;
(d) all monies due or to become due to Debtor under all contracts for the
sale or lease of goods and/or performance of services by Debtor no
matter how evidenced and whether or not earned by performance; and
(e) all accounts, receivables, accounts receivable, contract rights, and
general intangibles arising as a result of Debtor's having paid
accounts payable (or having had goods sold to or leased to Debtor or
services performed for Debtor giving rise to accounts payable) which
accounts payable were paid for or were incurred by Debtor on behalf of
any third parties pursuant to an agreement or otherwise;
Equipment
---------
all goods, equipment, machinery, furnishings, fixtures, furniture,
appliances, accessories, leasehold improvements, chattels and other
articles of personal property of whatever nature (whether or not the same
constitute fixtures) now owned by Debtor or hereafter acquired, and all
component parts thereof and all appurtenances thereto;
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Debtor or
Secured Party in respect of the foregoing) and together with all general
intangibles now owned by Debtor or existing or hereafter acquired, created or
arising (whether or not related to any of the foregoing property). All of the
properties and interests described in this Article are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize Debtor to
sell, dispose of or otherwise use the Collateral in any manner not authorized
herein. The Collateral includes all property of Debtor this day delivered to
and deposited with Secured Party, and all money and property of Debtor
heretofore delivered or which shall hereafter be delivered to or come into the
possession, custody or control of Secured Party in any manner or for any purpose
whatever during the existence of this Agreement (unless held in a special
account, or deposited for safekeeping), and all other property which Debtor may
hereafter become entitled to receive on account of such property, and in the
event Debtor receives any such property, Debtor will immediately deliver same to
Secured Party to be held by Secured Party in the same manner as the property
originally deposited as Collateral. It is expressly contemplated that
additional Collateral may from time to time be pledged to Secured Party as
additional security for the Debt (hereinafter defined), and the term
"Collateral" as used herein shall be deemed for all purposes hereof to include
all such Collateral, together with all other property of the types described
above related to the Collateral.
2
<PAGE>
ARTICLE 2
Secured Indebtedness
--------------------
2.1 This Agreement is made to secure all of the following present and
future debt and obligations:
(a) All obligations and indebtedness of Debtor, Drilex Holdings Corp., a
Delaware corporation ("DHC"), Drilex Systems, Inc., a Texas corporation ("DSI")
or Sharewell, Inc., a Delaware corporation ("Sharewell") (formerly Shareco,
Inc., a Delaware corporation ("Shareco")) now or hereafter created or incurred
under that certain Amended and Restated Credit Agreement dated concurrently
herewith among Debtor, DHC, DSI, Sharewell, Drilex Systems Limited ("DSL"), and
Secured Party, relating to a $13,000,000 revolving credit facility, as the same
may be amended, supplemented, restated or replaced from time to time
(collectively, the "Credit Agreement"). Any term defined in the Credit
Agreement, not defined in this Agreement and used in this Agreement shall have
the meaning ascribed to it in the Credit Agreement.
(b) All obligations of Debtor, DHC, DSI and/or Sharewell under that certain
promissory note dated concurrently herewith executed by Debtor, DHC, DSI and
Sharewell payable to the order of Secured Party in the original principal amount
of $17,450,000, as the same may be renewed, extended, modified or rearranged
from time to time.
(c) All other obligations, if any, of Debtor described or referred to in
any other place in this Agreement.
(d) Any and all sums and the interest which accrues on them as provided in
this Agreement which Secured Party may advance or which Debtor may owe Secured
Party pursuant to this Agreement on account of Debtor's failure to keep, observe
or perform any of Debtor's covenants under this Agreement.
(e) Interest Rate Risk Indebtedness and all other present and future debts
and obligations under or pursuant to the Credit Documents (which for purposes of
this Agreement shall include "Credit Documents" as defined in the Credit
Agreement and as defined in the promissory note described in Section 2.1(b)
hereof).
2.2 The term "Debt" means and includes all debt and obligations described
or referred to in Section 2.1. The Debt includes interest and other obligations
accruing or arising after (a) commencement of any case under any bankruptcy or
similar laws by or against Debtor or any other Person now or hereafter primarily
or secondarily obligated to pay all or any part of the Debt (Debtor and each
such other Person being herein called an "Obligor") or (b) the obligations of
any Obligor shall cease to exist by operation of law or for any other reason.
The Debt also includes all reasonable attorneys' fees and any other expenses
incurred by Secured Party in enforcing any of the Credit Documents.
3
<PAGE>
ARTICLE 3
Representations and Warranties
------------------------------
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral, free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, Permitted Liens and those other security interests (if
any) expressly referred to or described in this Agreement. Debtor agrees to
defend the Collateral and its proceeds against all other claims and demands of
any person at any time claiming the Collateral, its proceeds or any interest in
either. Debtor has not heretofore signed any financing statement directly or
indirectly affecting the Collateral or any part of it which has not been
completely terminated of record, and no such financing statement signed by
Debtor is now on file in any public office except only those statements (if any)
true and correct copies of which Debtor has actually delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning
of this Agreement and in this regard, Debtor's location is defined to mean
Debtor's chief executive office.
(c) All of Debtor's books and records with regard to the Collateral
are maintained and kept at the address of Debtor set forth at the beginning of
this Agreement.
(d) Except as heretofore disclosed to Secured Party, no part of the
Collateral is covered by a certificate of title or subject to any certificate of
title law.
(e) No part of the Collateral consists or will consist of consumer
goods, farm products, timber, minerals and the like (including oil and gas) or
accounts resulting from the sale thereof.
(f) Except as heretofore disclosed to Secured Party, Debtor has never
changed its name, whether by amendment of its Organizational Documents or
otherwise.
(g) Debtor is now solvent, and no bankruptcy or insolvency proceedings
are pending or contemplated by or--to Debtor's knowledge--against Debtor.
Debtor's liabilities and obligations under this Agreement and any other Credit
Documents to which Debtor is a party do not and will not render Debtor
insolvent, cause Debtor's liabilities to exceed Debtor's assets or leave Debtor
with too little capital to properly conduct all of its business as now conducted
or contemplated to be conducted.
(h) As of the date hereof, the tangible Collateral is free from damage
caused by fire or other casualty.
4
<PAGE>
ARTICLE 4
Covenants
---------
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
reasonably required by Secured Party to assure the transferability of the
Collateral when and as often as may be requested by Secured Party.
(b) Debtor will cause to be paid (except as set forth in the Credit
Agreement) before delinquency all taxes, charges, liens and assessments
heretofore or hereafter levied or assessed against the Collateral, or any part
thereof, or against Secured Party for or on account of the Debt or the interest
created by this Agreement and will, upon the request of Secured Party, furnish
Secured Party with receipts showing payment of such taxes and assessments at
least ten days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights,
titles, security interests or other interests created or evidenced hereby shall
be attacked, endangered or questioned or if any legal proceedings are instituted
with respect thereto and such matters might reasonably be expected to materially
and adversely jeopardize the Collateral or Secured Party's rights with respect
thereto, Debtor will give prompt written notice thereof to Secured Party and at
Debtor's own cost and expense will diligently endeavor to cure any defect that
may be developed or claimed, and will take all necessary and proper steps for
the defense of such legal proceedings, and Secured Party (whether or not named
as a party to legal proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2.
(d) Debtor will, on reasonable request of Secured Party, (1) promptly
correct any defect, error or omission which may be discovered in the contents of
this Agreement or in any other instrument executed in connection herewith or in
the execution or acknowledgment thereof; (2) execute, acknowledge, deliver and
record or file such further instruments (including further security agreements,
financing statements and continuation statements) and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purposes of this Agreement and such other instruments and to subject to the
security interests hereof and thereof any property intended by the terms hereof
and thereof to be covered hereby and thereby including specifically any
renewals, additions, substitutions, replacements or appurtenances to the then
Collateral, and (3) execute, acknowledge, deliver, procure and record or file
any document or instrument (including specifically any financing statement)
reasonably deemed advisable by Secured Party to protect the security interest
hereunder against the rights or interests of third persons, and Debtor will pay
all costs connected with any of the foregoing.
5
<PAGE>
(e) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the Credit
Agreement, sell, lease, exchange, lend, rent, assign, transfer or otherwise
dispose of, or pledge, hypothecate or grant any security interest in, or permit
to exist any lien, security interest, charge or encumbrance against, all or any
part of the Collateral or any interest therein or permit any of the foregoing to
occur or arise or permit title to the Collateral, or any interest therein, to be
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, without the express prior written consent of Secured Party. Except
as permitted in the Credit Agreement, Debtor shall not, without the express
prior written consent of Secured Party, (1) acquire any such Collateral under
any arrangement whereby the seller or any other person retains or acquires any
security interest in such Collateral or (2) return or give possession of any
such Collateral to any supplier or any other person except in the ordinary
course of business.
(f) Debtor shall account fully and faithfully for and, if Secured
Party so elects during the existence of an Event of Default, shall promptly pay
or turn over to Secured Party the proceeds in whatever form received from the
sale or disposition or realization in any manner of any of the Collateral,
whether the Debt is mature or not. Debtor shall at all times keep the
Collateral and its proceeds separate and distinct from other property of Debtor
and shall keep accurate and complete records of the Collateral and its proceeds.
Debtor shall, where applicable, at Debtor's own expense take all reasonable and
appropriate steps in its reasonable credit judgment to enforce the collection of
the Collateral and items representing proceeds thereof.
(g) After the occurrence and during the continuation of an Event of
Default, Debtor shall from time to time at the request of Secured Party furnish
Secured Party with a schedule of the Collateral constituting the Collateral,
containing such information as Secured Party may specify. After the occurrence
and during the continuation of an Event of Default, Secured Party shall also
have the right to make test verifications of the Collateral or any portion
thereof.
(h) Debtor shall at all times keep accurate books and records
reflecting all facts concerning the Collateral including those pertaining to
Debtor's warranties, representations and agreements under this Agreement.
Immediately upon the execution of this Agreement, at the request of Secured
Party, Debtor will make or allow Secured Party to make written designation on
Debtor's books and records to reflect thereon the assignment to Secured Party of
the Collateral covered by this Agreement; provided that the failure of Debtor
and/or Secured Party to make such a written designation shall not affect the
rights of Secured Party to any of the Collateral.
(i) If the Collateral is evidenced by promissory notes, trade
acceptances or other instruments for the payment of money, Debtor will, at the
request of Secured Party, immediately deliver them to Secured Party,
appropriately endorsed to Secured Party's order and regardless of the form of
endorsement, Debtor waives presentment, demand, notice of dishonor, protest and
notice of protest.
6
<PAGE>
(j) Debtor will not use, or allow the use of, the tangible Collateral
in any manner which constitutes a public or private nuisance or which makes
void, voidable or cancelable, or increases the premium of, any insurance then in
force with respect thereto if such matters may reasonably be expected to
materially and adversely affect the Dollar Borrowers and their Subsidiaries,
taken as a whole. Debtor will not do or suffer to be done any act whereby the
value of any part of the tangible Collateral may be lessened, normal wear and
tear excepted.
(k) Debtor agrees to provide, maintain and keep in force casualty,
liability and other insurance for that portion of the tangible Collateral which
is tangible personal property as required by Secured Party. Debtor agrees that
all required insurance will be written on forms acceptable to Secured Party and
by companies having a Best's Insurance Guide Rating of not less than A+ and
which are otherwise acceptable to Secured Party, and that such insurance (other
than third party liability insurance) shall be written or endorsed so that all
losses are payable to Secured Party. Debtor shall deliver certificates
reflecting such insurance to Secured Party, and Debtor shall deliver the
original policies evidencing such insurance to Secured Party upon request
therefor. Each such policy shall expressly prohibit cancellation or
modification of insurance without 30 days' written notice to Secured Party.
Debtor agrees to furnish due proof of payment of the premiums for all such
insurance to Secured Party promptly upon request therefor. Subject to Debtor's
right to adjust any claim thereunder, Debtor hereby assigns to Secured Party the
exclusive right to collect any and all monies that may become payable under any
insurance policies covering any part of the tangible Collateral, or any risk to
or about the tangible Collateral. Foreclosure of this Agreement shall
automatically constitute foreclosure upon all policies of insurance insuring any
part of or risk to the tangible Collateral and all claims thereunder arising
from post-foreclosure events. The successful bidder or bidders for the tangible
Collateral at foreclosure, as their respective interests may appear, shall
automatically accede to all of Debtor's rights in, under and to such policies
and all post-foreclosure event claims, and such bidder(s) shall be named as
insured(s) on request, whether or not the bill of sale to any such successful
bidder mentions insurance. All proceeds of insurance which was paid for by
Debtor or by anyone other than Secured Party or another holder of any of the
Debt and which proceeds are actually received by Secured Party before
foreclosure shall be applied in payment of the Debt or, at the option of Secured
Party, shall be paid to Debtor or to such other person as is legally entitled to
them. Unless Secured Party or Secured Party's representative reserves at the
foreclosure sale the right to collect any uncollected insurance proceeds
recoverable for events occurring before foreclosure (in which event the
successful bidder at the sale, if not Secured Party, shall have no interest in
such proceeds and Secured Party shall apply them, if and when collected, to the
Debt in such order and manner as Secured Party shall then elect and remit any
remaining balance to Debtor or to such other Person as is legally entitled to
them), all proceeds of all such insurance which are not so reserved by Secured
Party at the foreclosure sale and are not actually received by Secured Party
until after foreclosure shall be the property of the successful bidder or
bidders at foreclosure, as their interests may appear, and Debtor shall have no
interest in them and shall receive no credit for them. Secured Party shall have
no duty to Debtor or anyone else to either require or provide any insurance or
to determine the adequacy or disclose any inadequacy of any insurance. If
Secured Party elects at any time or for any reason to purchase insurance
relating to the tangible Collateral, it shall have no obligation to cause Debtor
or anyone else to be named as an insured,
7
<PAGE>
to cause Debtor's or anyone else's interests to be insured or protected or to
inform Debtor or anyone else that his or its interests are uninsured or
underinsured.
(l) Except as otherwise expressly permitted herein, the Collateral is
and shall remain in Debtor's possession or control at all times at Debtor's risk
of loss at one or more of Debtor's locations described on Exhibit A, where
Secured Party may inspect it at any time, except for its temporary removal in
connection with its ordinary use or unless Debtor notifies Secured Party in
writing and Secured Party consents in writing in advance of its removal to
another location.
(m) Debtor shall, at its expense, diligently prosecute any proceedings
arising out of injury or damage to the tangible Collateral, or any portion
thereof, and shall consult with Secured Party, its attorneys and experts, and
cooperate with them in the carrying on or defense of any such proceedings.
(n) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time reasonably request or as may be
required from time to time by any Credit Document.
(o) Subject to its reasonable collection judgment, Debtor will not
agree to a material modification of any of the terms of any of the Collateral
described in Article 1 under the heading "Accounts" without the prior written
consent of Secured Party.
(p) Unless an Event of Default has occurred and is continuing, Debtor
may use the tangible Collateral in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon and
may also sell or lease such tangible Collateral in the ordinary course of
business. A sale in the ordinary course of business does not include a transfer
in partial or total satisfaction of a debt. Unless an Event of Default has
occurred and is continuing, Debtor may also use and consume any raw materials or
supplies, the use and consumption of which are necessary to carry on Debtor's
business.
(q) Except as disclosed to Secured Party in writing, none of the
Collateral described in Article 1 under the caption "Equipment" is or shall be
wholly or partly affixed to real estate or other goods so as to become fixtures
on such real estate or accessions to such other goods. To the extent any of
such Collateral is or shall be wholly or partly affixed to real estate or other
goods so as to become fixtures on such real estate or accessions to such other
goods, Debtor has supplied to Secured Party a description of the real estate or
other goods to which such Collateral is or shall be wholly or partly affixed.
Said real estate is not subject to any lien or mortgage except as disclosed to
Secured Party in writing. Debtor will, on demand by Secured Party, furnish or
cause to be furnished to Secured Party a disclaimer or disclaimers, signed by
all persons having an interest in the applicable real estate or other goods to
which such Collateral is or shall be wholly or partly affixed, of any interest
in such Collateral which is before Secured Party's interest.
8
<PAGE>
(r) The Collateral described in Article 1 under the caption
"Equipment" will be used in the business of Debtor (which shall include leases
of such Collateral to unaffiliated third parties in the ordinary course of
Debtor's business).
ARTICLE 5
Assignment of Payments; Certain Powers of Secured Party
-------------------------------------------------------
Debtor hereby authorizes and directs each account debtor and each
other person or entity obligated to make payment in respect of any of the
Collateral (each a "Collateral Obligor"), after the occurrence and during the
continuation of an Event of Default, to pay over to Secured Party, its officers,
agents or assigns, upon demand by Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of the Debt
and without any notice to or further consent of Debtor. Debtor hereby agrees to
indemnify each Collateral Obligor and hold each Collateral Obligor harmless from
all expenses and losses which it may incur or suffer as a result of any payment
it makes to Secured Party pursuant to this paragraph OTHER THAN THOSE ARISING
OUT OF ANY COLLATERAL OBLIGOR'S GROSS NEGLIGENCE, BAD FAITH OR WILLFUL
MISCONDUCT. To facilitate the rights of Secured Party hereunder, Debtor hereby
authorizes Secured Party, its officers, employees, agents or assigns, after the
occurrence and during the continuation of an Event of Default:
(a) to notify Collateral Obligors of Secured Party's security interest
in the Collateral and to collect all or any part of the Collateral without
further notice to or further consent by Debtor, and Debtor hereby constitutes
and appoints Secured Party the true and lawful attorney of Debtor (such agency
being coupled with an interest), irrevocably, with power of substitution, in the
name of Debtor or in its own name or otherwise, to take any of the actions
described in the following clauses (b), (c), (d), (e), (f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all amounts which may be or become due or
payable under the Collateral and to settle and/or adjust all disputes and/or
claims directly with any Collateral Obligor and to compromise, extend the time
for payment, arrange for payment in installments, otherwise modify the terms of,
or release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to execute, sign, endorse, transfer and deliver (in the name of
Debtor or in its own name or otherwise) any and all receipts or other orders for
the payment of money drawn on the Collateral and all notes, acceptances,
commercial paper, drafts, checks, money orders and other instruments given in
payment or in part payment thereof and all invoices, freight and express bills
and bills of lading, storage receipts, warehouse receipts and other instruments
and documents in respect of any of the Collateral and any other documents
necessary to evidence, perfect and realize upon the security interests and
obligations of this Agreement;
9
<PAGE>
(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts against
Collateral Obligors, assignments or verifications of any of the Collateral and
notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on
Debtor's premises for the purpose of exercising any rights, benefits or
privileges available to Secured Party hereunder or under any of the Credit
Documents or at law or in equity, including receiving collections and taking
possession of books and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred
into the name of Secured Party or any nominee or nominees of Secured Party.
The powers conferred on Secured Party pursuant to this Article are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Texas Uniform Commercial Code.
5.1 If Debtor should fail to comply with any of its agreements,
covenants or obligations under any Credit Document after notice to Debtor, then
Secured Party (in Debtor's name or in Secured Party's own name) may perform them
or cause them to be performed for Debtor's account and at Debtor's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Upon making any such payment or incurring any such expense, Secured Party shall
be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by Debtor
to Secured Party pursuant to this or any other provision of this Agreement shall
automatically and without notice be and become a part of the Debt and shall be
secured by this and all other instruments securing the Debt. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Secured Party or any of Secured Party's officers
or agents. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by the Credit Documents and of all rights given Secured
Party by law.
ARTICLE 6
Remedies in Event of Default
----------------------------
6.1 Upon the occurrence of an Event of Default (herein so called)
under the Credit Agreement or under the promissory note described in Section
2.1(b) hereof), and at any time thereafter:
10
<PAGE>
(a) Secured Party is authorized, in any legal manner and without
breach of the peace, to take possession of the Collateral (Debtor hereby
WAIVING, to the fullest extent permitted by applicable law, all claims for
damages arising from or connected with any such taking) and of all books,
records and accounts relating thereto and to exercise without interference from
Debtor any and all rights which Debtor has with respect to the management,
possession, operation, protection or preservation of the Collateral, including
the right to sell or rent the same for the account of Debtor and to deduct from
such sale proceeds or such rents all costs, expenses and liabilities of every
character incurred by Secured Party in collecting such sale proceeds or such
rents and in managing, operating, maintaining, protecting or preserving the
Collateral and to apply the remainder of such sales proceeds or such rents on
the Debt in such manner as Secured Party may elect. Before any sale, Secured
Party may, at its option, complete the processing of any of the Collateral
and/or repair or recondition the same to such extent as Secured Party may deem
advisable and any sums expended therefor by Secured Party shall be reimbursed by
Debtor. Secured Party may take possession of Debtor's premises to complete such
processing, repairing and/or reconditioning, using the facilities and other
property of Debtor to do so, to store any Collateral and to conduct any sale as
provided for herein, all without compensation to Debtor. All reasonable costs,
expenses, and liabilities incurred by Secured Party in collecting such sales
proceeds or such rents, or in managing, operating, maintaining, protecting or
preserving such properties, or in processing, repairing and/or reconditioning
the Collateral if not paid out of such sales proceeds or such rents as
hereinabove provided, shall constitute a demand obligation owing by Debtor and
part of the Debt. If necessary to obtain the possession provided for above,
secured party may invoke any and all legal remedies to dispossess Debtor,
including specifically one or more actions for forcible entry and detainer. In
connection with any action taken by Secured Party pursuant to this paragraph,
Secured Party shall not be liable for any loss sustained by Debtor resulting
from any failure to sell or let the Collateral, or any part thereof, or from
other act or omission of Secured Party with respect to the Collateral UNLESS
SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BAD FAITH OF
SECURED PARTY, nor shall Secured Party be obligated to perform or discharge any
obligation, duty, or liability under any sale or lease agreement covering the
Collateral or any part thereof or under or by reason of this instrument or the
exercise of rights or remedies hereunder.
(b) Secured Party may, without notice except as hereinafter provided,
sell the Collateral or any part thereof at public or private sale (with or
without appraisal or having the Collateral at the place of sale) for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party may
deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold and may apply upon the purchase price therefor any of the
Debt and thereafter hold the same absolutely free from any right or claim of
whatsoever kind. Upon any such sale Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
To the fullest extent permitted by applicable law, each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law or statute now existing or
hereafter adopted. To the extent notice is required by applicable law, Secured
Party shall give Debtor written notice as provided in the Credit Agreement
(which shall satisfy any requirement of notice or reasonable
11
<PAGE>
notice in any applicable statute) of Secured Party's intention to make any such
public or private sale. Such notice (if any is required by applicable law)
shall be personally delivered or mailed, postage prepaid, at least ten days
before the date fixed for a public sale, or at least ten days before the date
after which the private sale or other disposition is to be made, unless the
Collateral is of a type customarily sold on a recognized market, is perishable
or threatens to decline speedily in value. Such notice (if any is required by
applicable law), in case of public sale, shall state the time and place fixed
for such sale or, in case of private sale or other disposition other than a
public sale, the time after which the private sale or other such disposition is
to be made. Any public sale shall be held at such time or times, within the
ordinary business hours and at such place or places, as Secured Party may fix in
the notice of such sale. At any sale the Collateral may be sold in one lot as
an entirety or in separate parcels as Secured Party may determine. Secured
Party shall not be obligated to make any sale pursuant to any such notice.
Secured Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at any
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, the Collateral so sold
may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each obligor on the
indebtedness secured hereby, to the extent applicable, shall remain liable for
any deficiency.
(c) Secured Party shall have all the rights of a secured party after
default under the Texas Uniform Commercial Code and in conjunction with, in
addition to or in substitution for those rights and remedies:
(1) Secured Party may require Debtor to assemble the Collateral and
make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(2) it shall not be necessary that Secured Party take possession of
the Collateral or any part thereof before the time that any sale pursuant to the
provisions of this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
(3) before application of proceeds of disposition of the Collateral to
the Debt, such proceeds shall be applied to the reasonable expenses of retaking,
holding, preparing for sale or lease, selling, leasing and the like and the
reasonable attorneys' fees and legal expenses incurred by Secured Party, each
Obligor, to the extent applicable, to remain liable for any deficiency; and
(4) the sale by Secured Party of less than the whole of the Collateral
shall not exhaust the rights of Secured Party hereunder, and Secured Party is
specifically empowered to
12
<PAGE>
make successive sale or sales hereunder until the whole of the Collateral shall
be sold; and, if the proceeds of such sale of less than the whole of the
Collateral shall be less than the aggregate of the Debt, this Agreement and the
security interest created hereby shall remain in full force and effect as to the
unsold portion of the Collateral just as though no sale had been made; and
(5) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not, to the fullest extent
permitted by applicable law, exhaust the rights of Secured Party hereunder and
Secured Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(6) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(7) Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(8) demand of performance, advertisement and presence of property at
sale are hereby WAIVED, to the fullest extent permitted by applicable law, and
Secured Party is hereby authorized to sell hereunder any evidence of debt it may
hold as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED, to the fullest extent permitted by applicable law,
by Debtor. Debtor WAIVES, to the fullest extent permitted by applicable law,
the right to require Secured Party to pursue any other remedy for the benefit of
Debtor and agrees that Secured Party may proceed against any Obligor for the
amount of the Debt owed to Secured Party without taking any action against any
other Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
6.2 All remedies herein expressly provided for are cumulative of any
and all other remedies existing at law or in equity and are cumulative of any
and all other remedies provided for in any other instrument securing the payment
of the Debt, or any part thereof, or otherwise benefiting Secured Party, and the
resort to any remedy provided for hereunder or under any such other instrument
or provided for by law shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
6.3 Secured Party may resort to any security given by this Agreement
or to any other security now existing or hereafter given to secure the payment
of the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
13
<PAGE>
6.4 To the full extent Debtor may do so, Debtor agrees that Debtor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's successors,
receivers, trustees and assigns, and for any and all persons ever claiming any
interest in the Collateral, to the extent permitted by law, hereby WAIVES and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or to declare due the whole of the Debt, notice of
election to mature or to declare due the whole of the Debt and all rights to a
marshaling of the assets of Debtor, including the Collateral, or to a sale in
inverse order of alienation in the event of foreclosure of the security interest
hereby created.
ARTICLE 7
Additional Agreements
---------------------
7.1 Upon full payment of the Debt, complete performance of all of the
obligations of Debtor, DHC, DSI, Shareco and DSL under the Credit Documents and
final termination of Secured Party's obligations--if any--to make any further
advances or to provide any financial accommodations to Debtor, DHC, DSI, Shareco
and/or DSL, all rights under this Agreement shall terminate and the Collateral
shall become wholly clear of the security interest evidenced hereby, and upon
written request by Debtor such security interest shall be released by Secured
Party in due form and at Debtor's cost.
7.2 Secured Party may at any time and from time to time in writing
(a) release any part of the Collateral, or any interest therein, from the
security interest of this Agreement or (b) release any party liable, either
directly or indirectly, for the Debt or for any covenant herein or in any other
instrument now or hereafter securing the payment of the Debt, without impairing
or releasing the liability of any other party. No such act shall in any way
impair the rights of Secured Party hereunder except to the extent specifically
agreed to by Secured Party in such writing.
7.3 Secured Party shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Collateral.
7.4 The security interest and other rights of Secured Party hereunder
shall not be impaired by any indulgence, moratorium or release granted by
Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with respect to the Debt; (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant in respect of any item of the Collateral, or any
part thereof or any interest therein, or (c) any release or indulgence granted
to any endorser, guarantor or surety of the Debt.
7.5 Secured Party may call at Debtor's place or places of business at
intervals to be determined by Secured Party and, without hindrance or delay,
inspect, audit, check and make extracts from and copies of the books, records,
journals, orders, receipts, correspondence and
14
<PAGE>
other data relating to the Collateral or to any transaction between Debtor and
Secured Party, and Debtor shall assist Secured Party in such actions.
7.6 A carbon, photographic or other reproduction of this Agreement or
of any financing statement relating to this Agreement shall be sufficient as a
financing statement.
7.7 Debtor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
7.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a person other than Debtor, Secured Party may, without notice
to Debtor, deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in any
way vitiating or discharging Debtor's liability hereunder or upon the Debt. No
sale of the Collateral, and no forbearance on the part of Secured Party and no
extension of the time for the payment of the Debt given by Secured Party shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Debtor hereunder for the payment of the Debt or the liability
of any other person hereunder for the payment of the Debt, except as agreed to
in writing by Secured Party.
7.9 Any other or additional security taken for the payment of any of
the Debt shall not in any manner affect the security given by this Agreement.
7.10 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Collateral, such proceeds have been advanced by Secured
Party at Debtor's request and Secured Party shall be subrogated to any and all
rights, security interests and liens owned by any owner or holder of such
outstanding liens, security interests, charges or encumbrances, irrespective of
whether said liens, security interests, charges or encumbrances are released.
7.11 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the lien, assignments and security interests of this Agreement
cannot be lawfully enforced to pay any part of the Debt, then and in either such
event, at the option of Secured Party, all payments on the Debt shall be deemed
to have been first applied against that part of the Debt.
7.12 Secured Party may assign this Agreement so that the assignee
shall be entitled to the rights and remedies of Secured Party hereunder and in
the event of such assignment, Debtor will assert no claims or defenses it may
have against the assignee except those granted in this Agreement.
7.13 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
15
<PAGE>
7.14 Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured
Party shall not be responsible in any way for any depreciation in the value of
the Collateral, nor shall any duty or responsibility whatsoever rest upon
Secured Party to take any steps to preserve rights against prior parties or to
enforce collection of the Collateral by legal proceedings or otherwise, the sole
duty of Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party and, at Secured Party's option, to apply the amount or amounts so
received, after deduction of any collection costs incurred, as payment upon any
of the Debt or to hold the same for the account and order of Debtor.
7.15 In the event Debtor instructs Secured Party, in writing or
orally, to deliver any or all of the Collateral to a third person, and Secured
Party agrees to do so, the following conditions shall be conclusively deemed to
be a part of Secured Party's agreement, whether or not they are specifically
mentioned to Debtor at the time of such agreement: (a) Secured Party shall
assume no responsibility for checking the genuineness or authenticity of any
person purporting to be a messenger, employee or representative of such third
person to whom Debtor has directed Secured Party to deliver the Collateral, or
the genuineness or authenticity of any document of instructions delivered by
such person; (b) Debtor will be considered by requesting any such delivery to
have assumed all risk of loss as to the Collateral; (c) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof, and (d) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
7.16 Secured Party is hereby authorized at any time and from time to
time, without notice to any person or entity (and Debtor hereby WAIVES any such
notice) to the fullest extent not prohibited by law, to set-off and apply any
and all monies, securities and other properties of Debtor now or in the future
in the possession, custody or control of Secured Party, or on deposit with or
otherwise owed to Debtor by Secured Party--including all such monies, securities
and other properties held in general, time, demand, provisional or final
accounts (other than special accounts or for safekeeping) or as collateral or
otherwise (but excluding those accounts clearly designated as escrow or trust
accounts held by Debtor for others unaffiliated with Debtor)--against any and
all of Debtor's obligations to Secured Party now or hereafter existing under
this Agreement or any of the Credit Documents, irrespective of whether Secured
Party shall have made any demand hereunder or thereunder. Secured Party agrees
to use reasonable efforts to promptly notify Debtor after any such set-off and
application, provided that failure to give--or delay in giving--any such notice
shall not affect the validity of such set-off and application or impose any
liability on Secured Party. Secured Party's rights under this Section are in
addition to other rights and remedies (including other rights of set-off) which
Secured Party may have.
16
<PAGE>
7.17 This Agreement amends and restates in its entirety that certain
Security Agreement dated as of May 5, 1995 executed by Debtor in favor of
Secured Party.
EXECUTED as of September 29, 1995.
COBB DIRECTIONAL DRILLING
COMPANY, L.L.C., a Delaware limited
liability company
By: Drilex Holdings Corp.,
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
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: /s/DIANE DUPLICHAN
------------------------
Name: DIANE DUPLICHAN
------------------------
Title: VICE PRESIDENT
------------------------
Exhibit A-Inventory Locations
17
<PAGE>
EXHIBIT A
to
Security Agreement
Cobb Directional Drilling Company, L.L.C.
P.O. Box 558
Broussard, Louisiana 70518
<PAGE>
SECURITY AGREEMENT
------------------
DRILEX SYSTEMS, INC. ("Debtor"), a Texas corporation, whose address is
15151 Sommermeyer, Houston, Harris County, Texas 77041, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION ("Secured Party"), a national banking association, whose
address is 712 Main Street, Houston, Harris County, Texas 77002, agree as
follows:
ARTICLE 1
Creation of Security Interest
-----------------------------
In order to secure the prompt and unconditional payment of the indebtedness
herein referred to and the performance of the obligations, covenants, agreements
and undertakings herein described, Debtor hereby grants to Secured Party a
security interest in and mortgages, assigns, transfers, delivers, pledges, sets
over and confirms to Secured Party all of Debtor's remedies, powers, privileges,
rights, titles and interests (including all power of Debtor, if any, to pass
greater title than it has itself) of every kind and character now owned or
hereafter acquired, created or arising in and to the following:
Inventory
---------
all goods, merchandise, raw materials, work in process, finished goods, and
other tangible personal property of whatever nature now owned by Debtor or
hereafter from time to time existing or acquired, wherever located and held
for sale or lease, including those held for display or demonstration or out
on lease or consignment, or furnished or to be furnished under contracts of
service or used or usable or consumed or consumable in Debtor's business or
which are finished or unfinished goods and all accessions and appurtenances
thereto, together with all warehouse receipts and other documents
evidencing any of the same and all containers, packing, packaging, shipping
and similar materials;
Accounts
--------
(a) all accounts, receivables, accounts receivable, book debts, contract
rights and rights to payment received by or belonging to Debtor for
goods sold or leased and/or services rendered by Debtor, no matter how
evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under leases
of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or
services rendered by Debtor;
<PAGE>
(c) all purchase orders, instruments and other documents (including all
documents of title) evidencing obligations to Debtor, for or
representing obligations for goods sold or leased and/or services
rendered by Debtor;
(d) all monies due or to become due to Debtor under all contracts for the
sale or lease of goods and/or performance of services by Debtor no
matter how evidenced and whether or not earned by performance; and
(e) all accounts, receivables, accounts receivable, contract rights, and
general intangibles arising as a result of Debtor's having paid
accounts payable (or having had goods sold to or leased to Debtor or
services performed for Debtor giving rise to accounts payable) which
accounts payable were paid for or were incurred by Debtor on behalf of
any third parties pursuant to an agreement or otherwise;
Equipment
---------
all goods, equipment, machinery, furnishings, fixtures, furniture,
appliances, accessories, leasehold improvements, chattels and other
articles of personal property of whatever nature (whether or not the same
constitute fixtures) now owned by Debtor or hereafter acquired, and all
component parts thereof and all appurtenances thereto;
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Debtor or
Secured Party in respect of the foregoing) and together with all general
intangibles now owned by Debtor or existing or hereafter acquired, created or
arising (whether or not related to any of the foregoing property). All of the
properties and interests described in this Article are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize Debtor to
sell, dispose of or otherwise use the Collateral in any manner not authorized
herein. The Collateral includes all property of Debtor this day delivered to
and deposited with Secured Party, and all money and property of Debtor
heretofore delivered or which shall hereafter be delivered to or come into the
possession, custody or control of Secured Party in any manner or for any purpose
whatever during the existence of this Agreement (unless held in a special
account, or deposited for safekeeping), and all other property which Debtor may
hereafter become entitled to receive on account of such property, and in the
event Debtor receives any such property, Debtor will immediately deliver same to
Secured Party to be held by Secured Party in the same manner as the property
originally deposited as Collateral. It is expressly contemplated that
additional Collateral may from time to time be pledged to Secured Party as
additional security for the Debt (hereinafter defined), and the term
"Collateral" as used herein shall be deemed for all purposes hereof to include
all such Collateral, together with all other property of the types described
above related to the Collateral.
2
<PAGE>
ARTICLE 2
Secured Indebtedness
--------------------
2.1 This Agreement is made to secure all of the following present and
future debt and obligations:
(a) All obligations and indebtedness of Debtor, Drilex Holdings Corp., a
Delaware corporation ("DHC"), Cobb Directional Drilling Company, L.L.C., a
Delaware limited liability company ("Cobb") or Sharewell, Inc., a Delaware
corporation ("Sharewell") (formerly Shareco, Inc., a Delaware corporation
("Shareco")) now or hereafter created or incurred under that certain Amended and
Restated Credit Agreement dated concurrently herewith among Debtor, DHC, Cobb,
Sharewell, Drilex Systems Limited ("DSL"), and Secured Party, relating to a
$13,000,000 revolving credit facility, as the same may be amended, supplemented,
restated or replaced from time to time (collectively, the "Credit Agreement").
Any term defined in the Credit Agreement, not defined in this Agreement and used
in this Agreement shall have the meaning ascribed to it in the Credit Agreement.
(b) All obligations of Debtor, DHC, Cobb and/or Sharewell under that
certain promissory note dated concurrently herewith executed by Debtor, DHC,
Cobb and Sharewell payable to the order of Secured Party in the original
principal amount of $17,450,000, as the same may be renewed, extended, modified
or rearranged from time to time.
(c) All other obligations, if any, of Debtor described or referred to in
any other place in this Agreement.
(d) Any and all sums and the interest which accrues on them as provided in
this Agreement which Secured Party may advance or which Debtor may owe Secured
Party pursuant to this Agreement on account of Debtor's failure to keep, observe
or perform any of Debtor's covenants under this Agreement.
(e) Interest Rate Risk Indebtedness and all other present and future debts
and obligations under or pursuant to the Credit Documents (which for purposes of
this Agreement shall include "Credit Documents" as defined in the Credit
Agreement and as defined in the promissory note described in Section 2.1(b)
hereof).
2.2 The term "Debt" means and includes all debt and obligations described
or referred to in Section 2.1. The Debt includes interest and other obligations
accruing or arising after (a) commencement of any case under any bankruptcy or
similar laws by or against Debtor or any other Person now or hereafter primarily
or secondarily obligated to pay all or any part of the Debt (Debtor and each
such other Person being herein called an "Obligor") or (b) the obligations of
any Obligor shall cease to exist by operation of law or for any other reason.
The Debt also includes all reasonable attorneys' fees and any other expenses
incurred by Secured Party in enforcing any of the Credit Documents.
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ARTICLE 3
Representations and Warranties
------------------------------
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral, free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, Permitted Liens and those other security interests (if
any) expressly referred to or described in this Agreement. Debtor agrees to
defend the Collateral and its proceeds against all other claims and demands of
any person at any time claiming the Collateral, its proceeds or any interest in
either. Debtor has not heretofore signed any financing statement directly or
indirectly affecting the Collateral or any part of it which has not been
completely terminated of record, and no such financing statement signed by
Debtor is now on file in any public office except only those statements (if any)
true and correct copies of which Debtor has actually delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning
of this Agreement and in this regard, Debtor's location is defined to mean
Debtor's chief executive office.
(c) All of Debtor's books and records with regard to the Collateral
are maintained and kept at the address of Debtor set forth at the beginning of
this Agreement.
(d) Except as heretofore disclosed to Secured Party, no part of the
Collateral is covered by a certificate of title or subject to any certificate of
title law.
(e) No part of the Collateral consists or will consist of consumer
goods, farm products, timber, minerals and the like (including oil and gas) or
accounts resulting from the sale thereof.
(f) Except as heretofore disclosed to Secured Party, Debtor has never
changed its name, whether by amendment of its Organizational Documents or
otherwise.
(g) Debtor is now solvent, and no bankruptcy or insolvency proceedings
are pending or contemplated by or--to Debtor's knowledge--against Debtor.
Debtor's liabilities and obligations under this Agreement and any other Credit
Documents to which Debtor is a party do not and will not render Debtor
insolvent, cause Debtor's liabilities to exceed Debtor's assets or leave Debtor
with too little capital to properly conduct all of its business as now conducted
or contemplated to be conducted.
(h) As of the date hereof, the tangible Collateral is free from damage
caused by fire or other casualty.
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ARTICLE 4
Covenants
---------
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
reasonably required by Secured Party to assure the transferability of the
Collateral when and as often as may be requested by Secured Party.
(b) Debtor will cause to be paid (except as set forth in the Credit
Agreement) before delinquency all taxes, charges, liens and assessments
heretofore or hereafter levied or assessed against the Collateral, or any part
thereof, or against Secured Party for or on account of the Debt or the interest
created by this Agreement and will, upon the request of Secured Party, furnish
Secured Party with receipts showing payment of such taxes and assessments at
least ten days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights,
titles, security interests or other interests created or evidenced hereby shall
be attacked, endangered or questioned or if any legal proceedings are instituted
with respect thereto and such matters might reasonably be expected to materially
and adversely jeopardize the Collateral or Secured Party's rights with respect
thereto, Debtor will give prompt written notice thereof to Secured Party and at
Debtor's own cost and expense will diligently endeavor to cure any defect that
may be developed or claimed, and will take all necessary and proper steps for
the defense of such legal proceedings, and Secured Party (whether or not named
as a party to legal proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2.
(d) Debtor will, on reasonable request of Secured Party, (1) promptly
correct any defect, error or omission which may be discovered in the contents of
this Agreement or in any other instrument executed in connection herewith or in
the execution or acknowledgment thereof; (2) execute, acknowledge, deliver and
record or file such further instruments (including further security agreements,
financing statements and continuation statements) and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purposes of this Agreement and such other instruments and to subject to the
security interests hereof and thereof any property intended by the terms hereof
and thereof to be covered hereby and thereby including specifically any
renewals, additions, substitutions, replacements or appurtenances to the then
Collateral, and (3) execute, acknowledge, deliver, procure and record or file
any document or instrument (including specifically any financing statement)
reasonably deemed advisable by Secured Party to protect the security interest
hereunder against the rights or interests of third persons, and Debtor will pay
all costs connected with any of the foregoing.
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(e) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the Credit
Agreement, sell, lease, exchange, lend, rent, assign, transfer or otherwise
dispose of, or pledge, hypothecate or grant any security interest in, or permit
to exist any lien, security interest, charge or encumbrance against, all or any
part of the Collateral or any interest therein or permit any of the foregoing to
occur or arise or permit title to the Collateral, or any interest therein, to be
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, without the express prior written consent of Secured Party. Except
as permitted in the Credit Agreement, Debtor shall not, without the express
prior written consent of Secured Party, (1) acquire any such Collateral under
any arrangement whereby the seller or any other person retains or acquires any
security interest in such Collateral or (2) return or give possession of any
such Collateral to any supplier or any other person except in the ordinary
course of business.
(f) Debtor shall account fully and faithfully for and, if Secured
Party so elects during the existence of an Event of Default, shall promptly pay
or turn over to Secured Party the proceeds in whatever form received from the
sale or disposition or realization in any manner of any of the Collateral,
whether the Debt is mature or not. Debtor shall at all times keep the
Collateral and its proceeds separate and distinct from other property of Debtor
and shall keep accurate and complete records of the Collateral and its proceeds.
Debtor shall, where applicable, at Debtor's own expense take all reasonable and
appropriate steps in its reasonable credit judgment to enforce the collection of
the Collateral and items representing proceeds thereof.
(g) After the occurrence and during the continuation of an Event of
Default, Debtor shall from time to time at the request of Secured Party furnish
Secured Party with a schedule of the Collateral constituting the Collateral,
containing such information as Secured Party may specify. After the occurrence
and during the continuation of an Event of Default, Secured Party shall also
have the right to make test verifications of the Collateral or any portion
thereof.
(h) Debtor shall at all times keep accurate books and records
reflecting all facts concerning the Collateral including those pertaining to
Debtor's warranties, representations and agreements under this Agreement.
Immediately upon the execution of this Agreement, at the request of Secured
Party, Debtor will make or allow Secured Party to make written designation on
Debtor's books and records to reflect thereon the assignment to Secured Party of
the Collateral covered by this Agreement; provided that the failure of Debtor
and/or Secured Party to make such a written designation shall not affect the
rights of Secured Party to any of the Collateral.
(i) If the Collateral is evidenced by promissory notes, trade
acceptances or other instruments for the payment of money, Debtor will, at the
request of Secured Party, immediately deliver them to Secured Party,
appropriately endorsed to Secured Party's order and regardless of the form of
endorsement, Debtor waives presentment, demand, notice of dishonor, protest and
notice of protest.
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(j) Debtor will not use, or allow the use of, the tangible Collateral
in any manner which constitutes a public or private nuisance or which makes
void, voidable or cancelable, or increases the premium of, any insurance then in
force with respect thereto if such matters may reasonably be expected to
materially and adversely affect the Dollar Borrowers and their Subsidiaries,
taken as a whole. Debtor will not do or suffer to be done any act whereby the
value of any part of the tangible Collateral may be lessened, normal wear and
tear excepted.
(k) Debtor agrees to provide, maintain and keep in force casualty,
liability and other insurance for that portion of the tangible Collateral which
is tangible personal property as required by Secured Party. Debtor agrees that
all required insurance will be written on forms acceptable to Secured Party and
by companies having a Best's Insurance Guide Rating of not less than A+ and
which are otherwise acceptable to Secured Party, and that such insurance (other
than third party liability insurance) shall be written or endorsed so that all
losses are payable to Secured Party. Debtor shall deliver certificates
reflecting such insurance to Secured Party, and Debtor shall deliver the
original policies evidencing such insurance to Secured Party upon request
therefor. Each such policy shall expressly prohibit cancellation or
modification of insurance without 30 days' written notice to Secured Party.
Debtor agrees to furnish due proof of payment of the premiums for all such
insurance to Secured Party promptly upon request therefor. Subject to Debtor's
right to adjust any claim thereunder, Debtor hereby assigns to Secured Party the
exclusive right to collect any and all monies that may become payable under any
insurance policies covering any part of the tangible Collateral, or any risk to
or about the tangible Collateral. Foreclosure of this Agreement shall
automatically constitute foreclosure upon all policies of insurance insuring any
part of or risk to the tangible Collateral and all claims thereunder arising
from post-foreclosure events. The successful bidder or bidders for the tangible
Collateral at foreclosure, as their respective interests may appear, shall
automatically accede to all of Debtor's rights in, under and to such policies
and all post-foreclosure event claims, and such bidder(s) shall be named as
insured(s) on request, whether or not the bill of sale to any such successful
bidder mentions insurance. All proceeds of insurance which was paid for by
Debtor or by anyone other than Secured Party or another holder of any of the
Debt and which proceeds are actually received by Secured Party before
foreclosure shall be applied in payment of the Debt or, at the option of Secured
Party, shall be paid to Debtor or to such other person as is legally entitled to
them. Unless Secured Party or Secured Party's representative reserves at the
foreclosure sale the right to collect any uncollected insurance proceeds
recoverable for events occurring before foreclosure (in which event the
successful bidder at the sale, if not Secured Party, shall have no interest in
such proceeds and Secured Party shall apply them, if and when collected, to the
Debt in such order and manner as Secured Party shall then elect and remit any
remaining balance to Debtor or to such other Person as is legally entitled to
them), all proceeds of all such insurance which are not so reserved by Secured
Party at the foreclosure sale and are not actually received by Secured Party
until after foreclosure shall be the property of the successful bidder or
bidders at foreclosure, as their interests may appear, and Debtor shall have no
interest in them and shall receive no credit for them. Secured Party shall have
no duty to Debtor or anyone else to either require or provide any insurance or
to determine the adequacy or disclose any inadequacy of any insurance. If
Secured Party elects at any time or for any reason to purchase insurance
relating to the tangible Collateral, it shall have no obligation to cause Debtor
or anyone else to be named as an insured,
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to cause Debtor's or anyone else's interests to be insured or protected or to
inform Debtor or anyone else that his or its interests are uninsured or
underinsured.
(l) Except as otherwise expressly permitted herein, the Collateral is
and shall remain in Debtor's possession or control at all times at Debtor's risk
of loss at one or more of Debtor's locations described on Exhibit A, where
Secured Party may inspect it at any time, except for its temporary removal in
connection with its ordinary use or unless Debtor notifies Secured Party in
writing and Secured Party consents in writing in advance of its removal to
another location.
(m) Debtor shall, at its expense, diligently prosecute any proceedings
arising out of injury or damage to the tangible Collateral, or any portion
thereof, and shall consult with Secured Party, its attorneys and experts, and
cooperate with them in the carrying on or defense of any such proceedings.
(n) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time reasonably request or as may be
required from time to time by any Credit Document.
(o) Subject to its reasonable collection judgment, Debtor will not
agree to a material modification of any of the terms of any of the Collateral
described in Article 1 under the heading "Accounts" without the prior written
consent of Secured Party.
(p) Unless an Event of Default has occurred and is continuing, Debtor
may use the tangible Collateral in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon and
may also sell or lease such tangible Collateral in the ordinary course of
business. A sale in the ordinary course of business does not include a transfer
in partial or total satisfaction of a debt. Unless an Event of Default has
occurred and is continuing, Debtor may also use and consume any raw materials or
supplies, the use and consumption of which are necessary to carry on Debtor's
business.
(q) Except as disclosed to Secured Party in writing, none of the
Collateral described in Article 1 under the caption "Equipment" is or shall be
wholly or partly affixed to real estate or other goods so as to become fixtures
on such real estate or accessions to such other goods. To the extent any of
such Collateral is or shall be wholly or partly affixed to real estate or other
goods so as to become fixtures on such real estate or accessions to such other
goods, Debtor has supplied to Secured Party a description of the real estate or
other goods to which such Collateral is or shall be wholly or partly affixed.
Said real estate is not subject to any lien or mortgage except as disclosed to
Secured Party in writing. Debtor will, on demand by Secured Party, furnish or
cause to be furnished to Secured Party a disclaimer or disclaimers, signed by
all persons having an interest in the applicable real estate or other goods to
which such Collateral is or shall be wholly or partly affixed, of any interest
in such Collateral which is before Secured Party's interest.
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(r) The Collateral described in Article 1 under the caption
"Equipment" will be used in the business of Debtor (which shall include leases
of such Collateral to unaffiliated third parties in the ordinary course of
Debtor's business).
ARTICLE 5
Assignment of Payments; Certain Powers of Secured Party
-------------------------------------------------------
Debtor hereby authorizes and directs each account debtor and each
other person or entity obligated to make payment in respect of any of the
Collateral (each a "Collateral Obligor"), after the occurrence and during the
continuation of an Event of Default, to pay over to Secured Party, its officers,
agents or assigns, upon demand by Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of the Debt
and without any notice to or further consent of Debtor. Debtor hereby agrees to
indemnify each Collateral Obligor and hold each Collateral Obligor harmless from
all expenses and losses which it may incur or suffer as a result of any payment
it makes to Secured Party pursuant to this paragraph OTHER THAN THOSE ARISING
OUT OF ANY COLLATERAL OBLIGOR'S GROSS NEGLIGENCE, BAD FAITH OR WILLFUL
MISCONDUCT. To facilitate the rights of Secured Party hereunder, Debtor hereby
authorizes Secured Party, its officers, employees, agents or assigns, after the
occurrence and during the continuation of an Event of Default:
(a) to notify Collateral Obligors of Secured Party's security interest
in the Collateral and to collect all or any part of the Collateral without
further notice to or further consent by Debtor, and Debtor hereby constitutes
and appoints Secured Party the true and lawful attorney of Debtor (such agency
being coupled with an interest), irrevocably, with power of substitution, in the
name of Debtor or in its own name or otherwise, to take any of the actions
described in the following clauses (b), (c), (d), (e), (f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all amounts which may be or become due or
payable under the Collateral and to settle and/or adjust all disputes and/or
claims directly with any Collateral Obligor and to compromise, extend the time
for payment, arrange for payment in installments, otherwise modify the terms of,
or release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to execute, sign, endorse, transfer and deliver (in the name of
Debtor or in its own name or otherwise) any and all receipts or other orders for
the payment of money drawn on the Collateral and all notes, acceptances,
commercial paper, drafts, checks, money orders and other instruments given in
payment or in part payment thereof and all invoices, freight and express bills
and bills of lading, storage receipts, warehouse receipts and other instruments
and documents in respect of any of the Collateral and any other documents
necessary to evidence, perfect and realize upon the security interests and
obligations of this Agreement;
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(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts against
Collateral Obligors, assignments or verifications of any of the Collateral and
notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on
Debtor's premises for the purpose of exercising any rights, benefits or
privileges available to Secured Party hereunder or under any of the Credit
Documents or at law or in equity, including receiving collections and taking
possession of books and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred
into the name of Secured Party or any nominee or nominees of Secured Party.
The powers conferred on Secured Party pursuant to this Article are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Texas Uniform Commercial Code.
5.1 If Debtor should fail to comply with any of its agreements,
covenants or obligations under any Credit Document after notice to Debtor, then
Secured Party (in Debtor's name or in Secured Party's own name) may perform them
or cause them to be performed for Debtor's account and at Debtor's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Upon making any such payment or incurring any such expense, Secured Party shall
be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by Debtor
to Secured Party pursuant to this or any other provision of this Agreement shall
automatically and without notice be and become a part of the Debt and shall be
secured by this and all other instruments securing the Debt. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Secured Party or any of Secured Party's officers
or agents. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by the Credit Documents and of all rights given Secured
Party by law.
ARTICLE 6
Remedies in Event of Default
----------------------------
6.1 Upon the occurrence of an Event of Default (herein so called)
under the Credit Agreement or under the promissory note described in Section
2.1(b) hereof), and at any time thereafter:
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(a) Secured Party is authorized, in any legal manner and without
breach of the peace, to take possession of the Collateral (Debtor hereby
WAIVING, to the fullest extent permitted by applicable law, all claims for
damages arising from or connected with any such taking) and of all books,
records and accounts relating thereto and to exercise without interference from
Debtor any and all rights which Debtor has with respect to the management,
possession, operation, protection or preservation of the Collateral, including
the right to sell or rent the same for the account of Debtor and to deduct from
such sale proceeds or such rents all costs, expenses and liabilities of every
character incurred by Secured Party in collecting such sale proceeds or such
rents and in managing, operating, maintaining, protecting or preserving the
Collateral and to apply the remainder of such sales proceeds or such rents on
the Debt in such manner as Secured Party may elect. Before any sale, Secured
Party may, at its option, complete the processing of any of the Collateral
and/or repair or recondition the same to such extent as Secured Party may deem
advisable and any sums expended therefor by Secured Party shall be reimbursed by
Debtor. Secured Party may take possession of Debtor's premises to complete such
processing, repairing and/or reconditioning, using the facilities and other
property of Debtor to do so, to store any Collateral and to conduct any sale as
provided for herein, all without compensation to Debtor. All reasonable costs,
expenses, and liabilities incurred by Secured Party in collecting such sales
proceeds or such rents, or in managing, operating, maintaining, protecting or
preserving such properties, or in processing, repairing and/or reconditioning
the Collateral if not paid out of such sales proceeds or such rents as
hereinabove provided, shall constitute a demand obligation owing by Debtor and
part of the Debt. If necessary to obtain the possession provided for above,
secured party may invoke any and all legal remedies to dispossess Debtor,
including specifically one or more actions for forcible entry and detainer. In
connection with any action taken by Secured Party pursuant to this paragraph,
Secured Party shall not be liable for any loss sustained by Debtor resulting
from any failure to sell or let the Collateral, or any part thereof, or from
other act or omission of Secured Party with respect to the Collateral UNLESS
SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BAD FAITH OF
SECURED PARTY, nor shall Secured Party be obligated to perform or discharge any
obligation, duty, or liability under any sale or lease agreement covering the
Collateral or any part thereof or under or by reason of this instrument or the
exercise of rights or remedies hereunder.
(b) Secured Party may, without notice except as hereinafter provided,
sell the Collateral or any part thereof at public or private sale (with or
without appraisal or having the Collateral at the place of sale) for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party may
deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold and may apply upon the purchase price therefor any of the
Debt and thereafter hold the same absolutely free from any right or claim of
whatsoever kind. Upon any such sale Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
To the fullest extent permitted by applicable law, each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law or statute now existing or
hereafter adopted. To the extent notice is required by applicable law, Secured
Party shall give Debtor written notice as provided in the Credit Agreement
(which shall satisfy any requirement of notice or reasonable
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notice in any applicable statute) of Secured Party's intention to make any such
public or private sale. Such notice (if any is required by applicable law)
shall be personally delivered or mailed, postage prepaid, at least ten days
before the date fixed for a public sale, or at least ten days before the date
after which the private sale or other disposition is to be made, unless the
Collateral is of a type customarily sold on a recognized market, is perishable
or threatens to decline speedily in value. Such notice (if any is required by
applicable law), in case of public sale, shall state the time and place fixed
for such sale or, in case of private sale or other disposition other than a
public sale, the time after which the private sale or other such disposition is
to be made. Any public sale shall be held at such time or times, within the
ordinary business hours and at such place or places, as Secured Party may fix in
the notice of such sale. At any sale the Collateral may be sold in one lot as
an entirety or in separate parcels as Secured Party may determine. Secured
Party shall not be obligated to make any sale pursuant to any such notice.
Secured Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at any
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, the Collateral so sold
may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each obligor on the
indebtedness secured hereby, to the extent applicable, shall remain liable for
any deficiency.
(c) Secured Party shall have all the rights of a secured party after
default under the Texas Uniform Commercial Code and in conjunction with, in
addition to or in substitution for those rights and remedies:
(1) Secured Party may require Debtor to assemble the Collateral and
make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(2) it shall not be necessary that Secured Party take possession of
the Collateral or any part thereof before the time that any sale pursuant to the
provisions of this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
(3) before application of proceeds of disposition of the Collateral to
the Debt, such proceeds shall be applied to the reasonable expenses of retaking,
holding, preparing for sale or lease, selling, leasing and the like and the
reasonable attorneys' fees and legal expenses incurred by Secured Party, each
Obligor, to the extent applicable, to remain liable for any deficiency; and
(4) the sale by Secured Party of less than the whole of the Collateral
shall not exhaust the rights of Secured Party hereunder, and Secured Party is
specifically empowered to
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make successive sale or sales hereunder until the whole of the Collateral shall
be sold; and, if the proceeds of such sale of less than the whole of the
Collateral shall be less than the aggregate of the Debt, this Agreement and the
security interest created hereby shall remain in full force and effect as to the
unsold portion of the Collateral just as though no sale had been made; and
(5) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not, to the fullest extent
permitted by applicable law, exhaust the rights of Secured Party hereunder and
Secured Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(6) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(7) Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(8) demand of performance, advertisement and presence of property at
sale are hereby WAIVED, to the fullest extent permitted by applicable law, and
Secured Party is hereby authorized to sell hereunder any evidence of debt it may
hold as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED, to the fullest extent permitted by applicable law,
by Debtor. Debtor WAIVES, to the fullest extent permitted by applicable law,
the right to require Secured Party to pursue any other remedy for the benefit of
Debtor and agrees that Secured Party may proceed against any Obligor for the
amount of the Debt owed to Secured Party without taking any action against any
other Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
6.2 All remedies herein expressly provided for are cumulative of any
and all other remedies existing at law or in equity and are cumulative of any
and all other remedies provided for in any other instrument securing the payment
of the Debt, or any part thereof, or otherwise benefiting Secured Party, and the
resort to any remedy provided for hereunder or under any such other instrument
or provided for by law shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
6.3 Secured Party may resort to any security given by this Agreement
or to any other security now existing or hereafter given to secure the payment
of the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
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6.4 To the full extent Debtor may do so, Debtor agrees that Debtor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's successors,
receivers, trustees and assigns, and for any and all persons ever claiming any
interest in the Collateral, to the extent permitted by law, hereby WAIVES and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or to declare due the whole of the Debt, notice of
election to mature or to declare due the whole of the Debt and all rights to a
marshaling of the assets of Debtor, including the Collateral, or to a sale in
inverse order of alienation in the event of foreclosure of the security interest
hereby created.
ARTICLE 7
Additional Agreements
---------------------
7.1 Upon full payment of the Debt, complete performance of all of the
obligations of Debtor, DHC, Cobb, Shareco and DSL under the Credit Documents and
final termination of Secured Party's obligations--if any--to make any further
advances or to provide any financial accommodations to Debtor, DHC, Cobb,
Shareco and/or DSL, all rights under this Agreement shall terminate and the
Collateral shall become wholly clear of the security interest evidenced hereby,
and upon written request by Debtor such security interest shall be released by
Secured Party in due form and at Debtor's cost.
7.2 Secured Party may at any time and from time to time in writing
(a) release any part of the Collateral, or any interest therein, from the
security interest of this Agreement or (b) release any party liable, either
directly or indirectly, for the Debt or for any covenant herein or in any other
instrument now or hereafter securing the payment of the Debt, without impairing
or releasing the liability of any other party. No such act shall in any way
impair the rights of Secured Party hereunder except to the extent specifically
agreed to by Secured Party in such writing.
7.3 Secured Party shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Collateral.
7.4 The security interest and other rights of Secured Party hereunder
shall not be impaired by any indulgence, moratorium or release granted by
Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with respect to the Debt; (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant in respect of any item of the Collateral, or any
part thereof or any interest therein, or (c) any release or indulgence granted
to any endorser, guarantor or surety of the Debt.
7.5 Secured Party may call at Debtor's place or places of business at
intervals to be determined by Secured Party and, without hindrance or delay,
inspect, audit, check and make extracts from and copies of the books, records,
journals, orders, receipts, correspondence and
14
<PAGE>
other data relating to the Collateral or to any transaction between Debtor and
Secured Party, and Debtor shall assist Secured Party in such actions.
7.6 A carbon, photographic or other reproduction of this Agreement or
of any financing statement relating to this Agreement shall be sufficient as a
financing statement.
7.7 Debtor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
7.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a person other than Debtor, Secured Party may, without notice
to Debtor, deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in any
way vitiating or discharging Debtor's liability hereunder or upon the Debt. No
sale of the Collateral, and no forbearance on the part of Secured Party and no
extension of the time for the payment of the Debt given by Secured Party shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Debtor hereunder for the payment of the Debt or the liability
of any other person hereunder for the payment of the Debt, except as agreed to
in writing by Secured Party.
7.9 Any other or additional security taken for the payment of any of
the Debt shall not in any manner affect the security given by this Agreement.
7.10 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Collateral, such proceeds have been advanced by Secured
Party at Debtor's request and Secured Party shall be subrogated to any and all
rights, security interests and liens owned by any owner or holder of such
outstanding liens, security interests, charges or encumbrances, irrespective of
whether said liens, security interests, charges or encumbrances are released.
7.11 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the lien, assignments and security interests of this Agreement
cannot be lawfully enforced to pay any part of the Debt, then and in either such
event, at the option of Secured Party, all payments on the Debt shall be deemed
to have been first applied against that part of the Debt.
7.12 Secured Party may assign this Agreement so that the assignee
shall be entitled to the rights and remedies of Secured Party hereunder and in
the event of such assignment, Debtor will assert no claims or defenses it may
have against the assignee except those granted in this Agreement.
7.13 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
15
<PAGE>
7.14 Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured
Party shall not be responsible in any way for any depreciation in the value of
the Collateral, nor shall any duty or responsibility whatsoever rest upon
Secured Party to take any steps to preserve rights against prior parties or to
enforce collection of the Collateral by legal proceedings or otherwise, the sole
duty of Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party and, at Secured Party's option, to apply the amount or amounts so
received, after deduction of any collection costs incurred, as payment upon any
of the Debt or to hold the same for the account and order of Debtor.
7.15 In the event Debtor instructs Secured Party, in writing or
orally, to deliver any or all of the Collateral to a third person, and Secured
Party agrees to do so, the following conditions shall be conclusively deemed to
be a part of Secured Party's agreement, whether or not they are specifically
mentioned to Debtor at the time of such agreement: (a) Secured Party shall
assume no responsibility for checking the genuineness or authenticity of any
person purporting to be a messenger, employee or representative of such third
person to whom Debtor has directed Secured Party to deliver the Collateral, or
the genuineness or authenticity of any document of instructions delivered by
such person; (b) Debtor will be considered by requesting any such delivery to
have assumed all risk of loss as to the Collateral; (c) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof, and (d) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
7.16 Secured Party is hereby authorized at any time and from time to
time, without notice to any person or entity (and Debtor hereby WAIVES any such
notice) to the fullest extent not prohibited by law, to set-off and apply any
and all monies, securities and other properties of Debtor now or in the future
in the possession, custody or control of Secured Party, or on deposit with or
otherwise owed to Debtor by Secured Party--including all such monies, securities
and other properties held in general, time, demand, provisional or final
accounts (other than special accounts or for safekeeping) or as collateral or
otherwise (but excluding those accounts clearly designated as escrow or trust
accounts held by Debtor for others unaffiliated with Debtor)--against any and
all of Debtor's obligations to Secured Party now or hereafter existing under
this Agreement or any of the Credit Documents, irrespective of whether Secured
Party shall have made any demand hereunder or thereunder. Secured Party agrees
to use reasonable efforts to promptly notify Debtor after any such set-off and
application, provided that failure to give--or delay in giving--any such notice
shall not affect the validity of such set-off and application or impose any
liability on Secured Party. Secured Party's rights under this Section are in
addition to other rights and remedies (including other rights of set-off) which
Secured Party may have.
16
<PAGE>
7.17 This Agreement amends and restates in its entirety that certain
Security Agreement dated as of May 5, 1995 executed by Debtor in favor of
Secured Party.
EXECUTED as of September 29, 1995.
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/ John Forrest
_________________________________________
John Forrest,
President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: /s/ Diane Duplichan
__________________________________________
Name: Diane Duplichan
Title: Vice President
Exhibit A - Inventory Locations
17
<PAGE>
EXHIBIT A
to
Security Agreement
Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
6300 Petersburg
Anchorage, Alaska 99507
No street address - Slope
c/o Brian Bingham
Prudhoe Bay, Alaska 99507
1283 North Derrick Drive
Mills, Wyoming 82604
102 Cason Road
Broussard, Louisiana 70518
<PAGE>
SECURITY AGREEMENT-PLEDGE
-------------------------
DRILEX SYSTEMS, INC. ("Debtor"), a Texas corporation, whose address is
15151 Sommermeyer, Houston, Harris County, Texas 77041, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION ("Secured Party"), a national banking association, whose
address is 712 Main Street, Houston, Harris County, Texas 77002, agree as
follows:
ARTICLE 1
Creation of Security Interest
-----------------------------
In order to secure the prompt and unconditional payment of the indebtedness
herein referred to and the performance of the obligations, covenants, agreements
and undertakings herein described, Debtor hereby grants to Secured Party a
security interest in and mortgages, assigns, transfers, delivers, pledges, sets
over and confirms to Secured Party all of Debtor's remedies, powers, privileges,
rights, titles and interests (including all power of Debtor, if any, to pass
greater title than it has itself) of every kind and character now owned or
hereafter acquired, created or arising in and to the following:
(a) all of the investment securities listed on Exhibit A, hereto attached
and hereby made a part hereof; and
(b) all dividends (cash or otherwise), rights to receive dividends, stock
dividends, dividends paid in stock, distributions upon redemption or
liquidation, distributions as a result of split-ups, recapitalizations or
rearrangements, stock rights, rights to subscribe, voting rights, rights to
receive securities, and all new securities and other property which Debtor may
hereafter become entitled to receive on account of the foregoing (Debtor hereby
agreeing that in the event Debtor receives any such new securities, Debtor will
immediately deliver the same to Secured Party to be held by Secured Party
subject to the terms and provisions of this Agreement);
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing and together
with all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper and
documents arising therefrom. All of the properties and interests described in
this Article are herein collectively called the "Collateral." The inclusion of
proceeds does not authorize Debtor to sell, dispose of or otherwise use the
Collateral in any manner not authorized herein. The Collateral includes all
property of Debtor this day delivered to and deposited with Secured Party, and
all money and property of Debtor heretofore delivered or which shall hereafter
be delivered to or come into the possession, custody or control of Secured Party
in any manner or for any purpose whatever during the existence of this Agreement
(unless held in a special account, or deposited for safekeeping), and all other
property which Debtor may hereafter become entitled to receive on account of
such property, and in the event Debtor
<PAGE>
receives any such property, Debtor will immediately deliver same to Secured
Party to be held by Secured Party in the same manner as the property originally
deposited as Collateral. It is expressly contemplated that additional
Collateral may from time to time be pledged to Secured Party as additional
security for the Debt (hereinafter defined), and the term "Collateral" as used
herein shall be deemed for all purposes hereof to include all such Collateral,
together with all other property of the types described above related to the
Collateral.
ARTICLE 2
Secured Indebtedness
--------------------
2.1 This Agreement is made to secure all of the following present and
future debt and obligations:
(a) All obligations and indebtedness of Debtor, Drilex Holdings Corp., a
Delaware corporation ("DHC"), Cobb Directional Drilling Company, L.L.C., a
Delaware limited liability company ("Cobb") or Sharewell, Inc., a Delaware
corporation ("Sharewell") (formerly Shareco, Inc., a Delaware corporation
("Shareco")) now or hereafter created or incurred under that certain Amended and
Restated Credit Agreement dated concurrently herewith among Debtor, DHC, Cobb,
Sharewell, Drilex Systems Limited ("DSL"), and Secured Party, relating to a
$13,000,000 revolving credit facility, as the same may be amended, supplemented,
restated or replaced from time to time (collectively, the "Credit Agreement").
Any term defined in the Credit Agreement, not defined in this Agreement and used
in this Agreement shall have the meaning ascribed to it in the Credit Agreement.
(b) All obligations of Debtor, DHC, Cobb and/or Sharewell under that
certain promissory note dated concurrently herewith executed by Debtor, DHC,
Cobb and Sharewell payable to the order of Secured Party in the original
principal amount of $17,450,000, as the same may be renewed, extended, modified
or rearranged from time to time.
(c) All other obligations, if any, of Debtor described or referred to in
any other place in this Agreement.
(d) Any and all sums and the interest which accrues on them as provided in
this Agreement which Secured Party may advance or which Debtor may owe Secured
Party pursuant to this Agreement on account of Debtor's failure to keep, observe
or perform any of Debtor's covenants under this Agreement.
(e) Interest Rate Risk Indebtedness and all other present and future debts
and obligations under or pursuant to the Credit Documents (which for purposes of
this Agreement shall include "Credit Documents" as defined in the Credit
Agreement and as defined in the promissory note described in Section 2.1(b)
hereof).
2.2 The term "Debt" means and includes all debt and obligations described
or referred to in Section 2.1. The Debt includes interest and other obligations
accruing or arising after (a) commencement of any case under any bankruptcy or
similar laws by or against Debtor or any
2
<PAGE>
other Person now or hereafter primarily or secondarily obligated to pay all or
any part of the Debt (Debtor and each such other Person being herein called an
"Obligor") or (b) the obligations of any Obligor shall cease to exist by
operation of law or for any other reason. The Debt also includes all reasonable
attorneys' fees and any other expenses incurred by Secured Party in enforcing
any of the Credit Documents. Any Collateral Obligor (as defined in Article 5)
shall be deemed to be an "Obligor" for all purposes under this Agreement.
ARTICLE 3
Representations and Warranties
------------------------------
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, the Permitted Liens and those other security interests
(if any) expressly referred to or described in this Agreement. Debtor agrees to
defend the Collateral and its proceeds against all other claims and demands of
any person at any time claiming the Collateral, its proceeds or any interest in
either. Debtor has not heretofore signed any financing statement directly or
indirectly affecting the Collateral or any part of it which has not been
completely terminated of record, and no such financing statement signed by
Debtor is now on file in any public office except only those statements (if any)
true and correct copies of which Debtor has actually delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning of
this Agreement and in this regard, Debtor's location is defined to mean Debtor's
chief executive office.
(c) All of Debtor's books and records with regard to the Collateral are
maintained and kept at the address of Debtor set forth at the beginning of this
Agreement.
(d) No part of the Collateral is covered by a certificate of title or
subject to any certificate of title law.
(e) No part of the Collateral consists or will consist of consumer goods,
farm products, timber, minerals and the like (including oil and gas) or accounts
resulting from the sale thereof.
(f) Except as heretofore disclosed to Secured Party, Debtor has never
changed its name, whether by amendment of its Organizational Documents or
otherwise.
(g) Debtor is now solvent, and no bankruptcy or insolvency proceedings are
pending or contemplated by or--to Debtor's knowledge--against Debtor. Debtor's
liabilities and obligations under this Agreement and any other Credit Documents
to which Debtor is a party do not and will not render Debtor insolvent, cause
Debtor's liabilities to exceed Debtor's assets or leave Debtor with too little
capital to properly conduct all of its business as now conducted or contemplated
to be conducted.
3
<PAGE>
(h) The Collateral is genuine, free from any restriction on transfer (other
than any restrictions which may be created under applicable securities laws),
duly and validly authorized and issued, constituting the valid and non-
assessable shares of the issuer or issuers thereof (each an "Issuer"), and is
hereby duly and validly pledged and hypothecated to Secured Party in accordance
with law.
(i) The Collateral includes--and at all times hereafter will include--at
least 65% of the outstanding indicia of equity ownership issued by each Issuer.
ARTICLE 4
Covenants
---------
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
required by Secured Party to assure the transferability of the Collateral when
and as often as may be requested by Secured Party.
(b) Debtor will cause to be paid (except as set forth in the Credit
Agreement) before delinquency all taxes, charges, liens and assessments
heretofore or hereafter levied or assessed against the Collateral, or any part
thereof, or against Secured Party for or on account of the Debt or the interest
created by this Agreement and will, upon the request of Secured Party, furnish
Secured Party with receipts showing payment of such taxes and assessments at
least ten days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights, titles,
security interests or other interests created or evidenced hereby shall be
attacked, endangered or questioned or if any legal proceedings are instituted
with respect thereto and such matters might reasonably be expected to materially
and adversely jeopardize the Collateral or Secured Party's rights with respect
thereto, Debtor will give prompt written notice thereof to Secured Party and at
Debtor's own cost and expense will diligently endeavor to cure any defect that
may be developed or claimed, and will take all necessary and proper steps for
the defense of such legal proceedings, and Secured Party (whether or not named
as a party to legal proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2.
(d) Debtor will, on reasonable request of Secured Party, (1) promptly
correct any defect, error or omission which may be discovered in the contents of
this Agreement or in any other instrument executed in connection herewith or in
the execution or acknowledgment thereof; (2) execute, acknowledge, deliver and
record or file such further instruments (including further security agreements,
financing statements and continuation statements) and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purposes
4
<PAGE>
of this Agreement and such other instruments and to subject to the security
interests hereof and thereof any property intended by the terms hereof and
thereof to be covered hereby and thereby including specifically any renewals,
additions, substitutions, replacements or appurtenances to the then Collateral,
and (3) execute, acknowledge, deliver, procure and record or file any document
or instrument (including specifically any financing statement) reasonably deemed
advisable by Secured Party to protect the security interest hereunder against
the rights or interests of third persons, and Debtor will pay all costs
connected with any of the foregoing.
(e) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the Credit
Agreement, sell, lease, exchange, lend, rent, assign, transfer or otherwise
dispose of, or pledge, hypothecate or grant any security interest in, or permit
to exist any lien, security interest, charge or encumbrance against, all or any
part of the Collateral or any interest therein or permit any of the foregoing to
occur or arise or permit title to the Collateral, or any interest therein, to be
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, without the express prior written consent of Secured Party.
(f) Debtor shall account fully and faithfully for and, if Secured Party so
elects during the existence of an Event of Default, shall promptly pay or turn
over to Secured Party the proceeds in whatever form received from the sale or
disposition or realization in any manner of any of the Collateral, whether the
Debt is mature or not. Debtor shall at all times keep the Collateral and its
proceeds separate and distinct from other property of Debtor and shall keep
accurate and complete records of the Collateral and its proceeds. Debtor shall,
where applicable, at Debtor's own expense take all reasonable and appropriate
steps in its reasonable credit judgment to enforce the collection of the
Collateral and items representing proceeds thereof.
(g) Debtor shall at all times keep accurate books and records reflecting
all facts concerning the Collateral including those pertaining to Debtor's
warranties, representations and agreements under this Agreement. Immediately
upon the execution of this Agreement, at the request of Secured Party, Debtor
will make or allow Secured Party to make written designation on Debtor's books
and records to reflect thereon the assignment to Secured Party of the Collateral
covered by this Agreement; provided, however, that the failure of Debtor and/or
Secured Party to make such a written designation shall not affect the rights of
Secured Party to any of the Collateral.
(h) If the Collateral is evidenced by promissory notes, trade acceptances
or other instruments for the payment of money, Debtor will, at the request of
Secured Party, immediately deliver them to Secured Party, appropriately endorsed
to Secured Party's order and regardless of the form of endorsement, Debtor
waives presentment, demand, notice of dishonor, protest and notice of protest.
(i) Debtor shall, at its expense, diligently prosecute any proceedings
arising out of injury or damage to the tangible Collateral, or any portion
thereof, and shall consult with
5
<PAGE>
Secured Party, its attorneys and experts, and cooperate with them in the
carrying on or defense of any such proceedings.
(j) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time reasonably request or as may be
required from time to time by any Credit Document.
(k) Debtor will not agree to a material modification of any of the terms of
any part of the Collateral without the express prior written consent of Secured
Party.
ARTICLE 5
Assignment of Payments;
-----------------------
Certain Powers of Secured Party; Voting Rights
----------------------------------------------
Debtor hereby authorizes and directs each Issuer and each account debtor
and each other Person obligated to make payment in respect of any of the
Collateral (each Issuer and each such account debtor and other Person being
herein called a "Collateral Obligor"), after the occurrence and during the
continuation of an Event of Default, to pay over to Secured Party, its officers,
agents or assigns, upon demand by Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of the Debt
and without any notice to or further consent of Debtor. Debtor hereby agrees to
indemnify each Collateral Obligor and hold each Collateral Obligor harmless from
all expenses and losses which it may incur or suffer as a result of any payment
it makes to Secured Party pursuant to this paragraph, OTHER THAN THOSE ARISING
OUT OF ANY COLLATERAL OBLIGOR'S GROSS NEGLIGENCE, BAD FAITH OR WILLFUL
MISCONDUCT. To facilitate the rights of Secured Party hereunder, Debtor hereby
authorizes Secured Party, its officers, employees, agents or assigns, after the
occurrence and during the continuation of an Event of Default:
(a) to notify Collateral Obligors of Secured Party's security interest in
the Collateral and to collect all or any part of the Collateral without further
notice to or further consent by Debtor, and Debtor hereby constitutes and
appoints Secured Party the true and lawful attorney of Debtor (such agency being
coupled with an interest), irrevocably, with power of substitution, in the name
of Debtor or in its own name or otherwise, to take any of the actions described
in the following clauses (b), (c), (d), (e), (f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound and
give acquittance for any and all amounts which may be or become due or payable
under the Collateral and to settle and/or adjust all disputes and/or claims
directly with any Collateral Obligor and to compromise, extend the time for
payment, arrange for payment in installments, otherwise modify the terms of, or
release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to execute, sign, endorse, transfer and deliver (in the name of Debtor
or in its own name or otherwise) any and all receipts or other orders for the
payment of money drawn
6
<PAGE>
on the Collateral and all notes, acceptances, commercial paper, drafts, checks,
money orders and other instruments given in payment or in part payment thereof
and all invoices, freight and express bills and bills of lading, storage
receipts, warehouse receipts and other instruments and documents in respect of
any of the Collateral and any other documents necessary to evidence, perfect and
realize upon the security interests and obligations of this Agreement;
(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts against
Collateral Obligors, assignments or verifications of any of the Collateral and
notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on Debtor's
premises for the purpose of exercising any rights, benefits or privileges
available to Secured Party hereunder or under any of the Credit Documents or at
law or in equity, including receiving collections and taking possession of books
and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred into
the name of Secured Party or any nominee or nominees of Secured Party.
Unless and until an Event of Default shall have occurred and is continuing,
Debtor shall be entitled to exercise all voting and consensual powers and rights
pertaining to the Collateral or any part thereof for all purposes not
inconsistent with the terms of this Agreement and, except as herein provided,
shall be entitled to receive and retain all dividends on the Collateral or any
part thereof. Upon and after the occurrence and during the continuation of an
Event of Default, Secured Party shall have the right to the extent permitted by
applicable law (but shall not be obligated to exercise such right), and Debtor
shall take all such action as may be necessary or appropriate to give effect to
such right, to vote and give consents, ratifications and waivers, and take any
other action with respect to any or all of the Collateral with the same force
and effect as if Secured Party were the owner thereof. All dividends in stock
or property representing stock, and all subscription warrants or any other
rights or options issued in connection with the Collateral, and all liquidating
dividends or distributions or return of capital upon or in respect of the
Collateral or any part thereof, or resulting from any split, revision or
reclassification of the Collateral or any part thereof or received in exchange
for the Collateral or any part thereof as a result of a merger, consolidation or
otherwise, shall be paid or transferred directly to Secured Party, or if paid to
or received by Debtor, shall, immediately upon receipt thereof, be paid over,
transferred and delivered to Secured Party and shall be Collateral pledged under
and subject to the terms of this Agreement.
The powers conferred on Secured Party pursuant to this Article are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Texas Uniform Commercial Code.
7
<PAGE>
5.1 If Debtor should fail to comply with any of its agreements, covenants
or obligations under any Credit Document after notice to Debtor, then Secured
Party (in Debtor's name or in Secured Party's own name) may perform them or
cause them to be performed for Debtor's account and at Debtor's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Upon making any such payment or incurring any such expense, Secured Party shall
be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by Debtor
to Secured Party pursuant to this or any other provision of this Agreement shall
automatically and without notice be and become a part of the Debt and shall be
secured by this and all other instruments securing the Debt. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Secured Party or any of Secured Party's officers
or agents. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by the Credit Documents and of all rights given Secured
Party by law.
ARTICLE 6
Remedies in Event of Default
----------------------------
6.1 Upon the occurrence of an Event of Default (herein so called) under
the Credit Agreement or under the promissory note described in Section 2.1(b)
hereof), and at any time thereafter:
(a) Secured Party may, without notice except as hereinafter provided, sell
the Collateral or any part thereof at public or private sale or at any broker's
board or on any securities exchange (with or without appraisal or having the
Collateral at the place of sale) for cash, upon credit, or for future delivery,
and at such price or prices as Secured Party may deem best, and Secured Party
may be the purchaser of any and all of the Collateral so sold and may apply upon
the purchase price therefor any of the Debt and thereafter hold the same
absolutely free from any right or claim of whatsoever kind. Secured Party is
authorized at any such sale, if Secured Party deems it advisable or is required
by applicable law so to do, (1) to restrict the prospective bidders on or
purchasers of any of the Collateral to a limited number of sophisticated
investors who will represent and agree that they are purchasing for their own
account for investment and not with a view to the distribution or resale of any
of the Collateral; (2) to cause to be placed on certificates for any or all of
the Collateral a legend to the effect that such security has not been registered
under the Securities Act of 1933 and may not be disposed of in violation of the
provisions of said Act, and (3) to impose such other limitations or conditions
in connection with any such sale as Secured Party deems necessary or advisable
in order to comply with said Act or any other applicable law. Debtor covenants
and agrees that it will execute and deliver such documents and take such other
action as Secured Party deems necessary or advisable in order that any such sale
may be made in compliance with applicable law. Upon any such sale Secured Party
shall have the right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold. To the fullest extent permitted by applicable law, each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right of
8
<PAGE>
whatsoever kind, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law or statute now existing or
hereafter adopted. To the extent notice is required by applicable law, Secured
Party shall give Debtor written notice as provided in the Credit Agreement
(which shall satisfy any requirement of notice or reasonable notice in any
applicable statute) of Secured Party's intention to make any such public or
private sale. Such notice (if any is required by applicable law) shall be
personally delivered or mailed, postage prepaid, at least ten days before the
date fixed for a public sale, or at least ten days before the date after which
the private sale or other disposition is to be made, unless the Collateral is of
a type customarily sold on a recognized market or threatens to decline speedily
in value. Such notice (if any is required by applicable law), in case of public
sale, shall state the time and place fixed for such sale or, in case of private
sale or other disposition other than a public sale, the time after which the
private sale or other such disposition is to be made. In case of sale at
broker's board or on a securities exchange, such notice shall state the board or
exchange at which such sale is to be made and the day on which the Collateral or
that portion thereof so being sold will first be offered for sale at such board
or exchange. Any public sale shall be held at such time or times, within the
ordinary business hours and at such place or places, as Secured Party may fix in
the notice of such sale. At any sale the Collateral may be sold in one lot as
an entirety or in separate parcels as Secured Party may determine. Secured
Party shall not be obligated to make any sale pursuant to any such notice.
Secured Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at any
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, the Collateral so sold
may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall incur no liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each obligor on the
indebtedness secured hereby, to the extent applicable, shall remain liable for
any deficiency.
(b) Secured Party shall have all the rights of a secured party after
default under the Texas Uniform Commercial Code and in conjunction with, in
addition to or in substitution for those rights and remedies:
(1) it shall not be necessary that the Collateral or any part thereof
be present at the location of any sale pursuant to the provisions of this
Article; and
(2) before application of proceeds of disposition of the Collateral to
the Debt, such proceeds shall be applied to the reasonable expenses of retaking,
holding, preparing for sale, selling and the like and the reasonable attorneys'
fees and legal expenses incurred by Secured Party, each Obligor, to the extent
applicable, to remain liable for any deficiency; and
(3) the sale by Secured Party of less than the whole of the Collateral
shall not exhaust the rights of Secured Party hereunder, and Secured Party is
specifically empowered to make successive sale or sales hereunder until the
whole of the Collateral shall be sold; and, if
9
<PAGE>
the proceeds of such sale of less than the whole of the Collateral shall be less
than the aggregate of the Debt, this Agreement and the security interest created
hereby shall remain in full force and effect as to the unsold portion of the
Collateral just as though no sale had been made; and
(4) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not, to the fullest extent
permitted by applicable law, exhaust the rights of Secured Party hereunder and
Secured Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(5) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(6) Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(7) demand of performance, advertisement and presence of property at
sale are hereby WAIVED, to the fullest extent permitted by applicable law, and
Secured Party is hereby authorized to sell hereunder any evidence of debt it may
hold as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED, to the fullest extent permitted by applicable law,
by Debtor. Debtor WAIVES, to the fullest extent permitted by applicable law,
the right to require Secured Party to pursue any other remedy for the benefit of
Debtor and agrees that Secured Party may proceed against any Obligor for the
amount of the Debt owed to Secured Party without taking any action against any
other Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
6.2 All remedies herein expressly provided for are cumulative of any and
all other remedies existing at law or in equity and are cumulative of any and
all other remedies provided for in any other instrument securing the payment of
the Debt, or any part thereof, or otherwise benefiting Secured Party, and the
resort to any remedy provided for hereunder or under any such other instrument
or provided for by law shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
6.3 Secured Party may resort to any security given by this Agreement or to
any other security now existing or hereafter given to secure the payment of the
Debt, in whole or in part, and in such portions and in such order as may seem
best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
10
<PAGE>
6.4 To the full extent Debtor may do so, Debtor agrees that Debtor will
not at any time insist upon, plead, claim or take the benefit or advantage of
any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's successors,
receivers, trustees and assigns, and for any and all persons ever claiming any
interest in the Collateral, to the extent permitted by law, hereby WAIVES and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of intention to mature or to declare due the whole of the Debt, notice of
election to mature or to declare due the whole of the Debt and all rights to a
marshaling of the assets of Debtor, including the Collateral, or to a sale in
inverse order of alienation in the event of foreclosure of the security interest
hereby created.
ARTICLE 7
Additional Agreements
---------------------
7.1 Upon full payment of the Debt, complete performance of all of the
obligations of Debtor, DHC, Cobb, Shareco and DSL under the Credit Documents and
final termination of Secured Party's obligations--if any--to make any further
advances or to provide any other financial accommodations to Debtor, DHC, Cobb,
Shareco and/or DSL, all rights under this Agreement shall terminate and the
Collateral shall become wholly clear of the security interest evidenced hereby,
and upon written request by Debtor such security interest shall be released by
Secured Party in due form and at Debtor's cost.
7.2 Secured Party may, at any time and from time to time, in writing (a)
release any part of the Collateral, or any interest therein, from the security
interest of this Agreement or (b) release any party liable, either directly or
indirectly, for the Debt or for any covenant herein or in any other instrument
now or hereafter securing the payment of the Debt, without impairing or
releasing the liability of any other party. No such act shall in any way impair
the rights of Secured Party hereunder except to the extent specifically agreed
to by Secured Party in such writing.
7.3 Secured Party shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral.
7.4 The security interest and other rights of Secured Party hereunder
shall not be impaired by any indulgence, moratorium or release granted by
Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with respect to the Debt; (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant in respect of any item of the Collateral, or any
part thereof or any interest therein, or (c) any release or indulgence granted
to any endorser, guarantor or surety of the Debt.
7.5 Secured Party may call at Debtor's place or places of business at
intervals to be determined by Secured Party and, without hindrance or delay,
inspect, audit, check and make extracts from and copies of the books, records,
journals, orders, receipts, correspondence and
11
<PAGE>
other data relating to the Collateral or to any transaction between Debtor and
Secured Party, and Debtor shall assist Secured Party in such actions.
7.6 A carbon, photographic or other reproduction of this Agreement or of
any financing statement relating to this Agreement shall be sufficient as a
financing statement.
7.7 Debtor will cause all financing statements and continuation statements
relating hereto to be recorded, filed, re-recorded and refiled in such manner
and in such places as Secured Party shall reasonably request and will pay all
such recording, filing, re-recording, and refiling taxes, fees and other
charges.
7.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a person other than Debtor, Secured Party may, without notice
to Debtor, deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in any
way vitiating or discharging Debtor's liability hereunder or upon the Debt. No
sale of the Collateral, and no forbearance on the part of Secured Party and no
extension of the time for the payment of the Debt given by Secured Party shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Debtor hereunder for the payment of the Debt or the liability
of any other person hereunder for the payment of the Debt, except as agreed to
in writing by Secured Party.
7.9 Any other or additional security taken for the payment of any of the
Debt shall not in any manner affect the security given by this Agreement.
7.10 To the extent that proceeds of the Debt are used to pay indebtedness
secured by any outstanding lien, security interest, charge or prior encumbrance
against the Collateral, such proceeds have been advanced by Secured Party at
Debtor's request and Secured Party shall be subrogated to any and all rights,
security interests and liens owned by any owner or holder of such outstanding
liens, security interests, charges or encumbrances, irrespective of whether said
liens, security interests, charges or encumbrances are released.
7.11 If any part of the Debt cannot be lawfully secured by this Agreement,
or if the lien, assignments and security interests of this Agreement cannot be
lawfully enforced to pay any part of the Debt, then and in either such event, at
the option of Secured Party, all payments on the Debt shall be deemed to have
been first applied against that part of the Debt.
7.12 Secured Party may assign this Agreement so that the assignee shall be
entitled to the rights and remedies of Secured Party hereunder and in the event
of such assignment, Debtor will assert no claims or defenses it may have against
the assignee except those granted in this Agreement.
7.13 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
12
<PAGE>
7.14 Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured
Party shall not be responsible in any way for any depreciation in the value of
the Collateral, nor shall any duty or responsibility whatsoever rest upon
Secured Party to take any steps to preserve rights against prior parties or to
enforce collection of the Collateral by legal proceedings or otherwise, the sole
duty of Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party and, at Secured Party's option, to apply the amount or amounts so
received, after deduction of any collection costs incurred, as payment upon any
of the Debt or to hold the same for the account and order of Debtor.
7.15 In the event Debtor instructs Secured Party, in writing or orally, to
deliver any or all of the Collateral to a third person, and Secured Party agrees
to do so, the following conditions shall be conclusively deemed to be a part of
Secured Party's agreement, whether or not they are specifically mentioned to
Debtor at the time of such agreement: (a) Secured Party shall assume no
responsibility for checking the genuineness or authenticity of any person
purporting to be a messenger, employee or representative of such third person to
whom Debtor has directed Secured Party to deliver the Collateral, or the
genuineness or authenticity of any document of instructions delivered by such
person; (b) Debtor will be considered by requesting any such delivery to have
assumed all risk of loss as to the Collateral; (c) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof, and (d) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
7.16 Secured Party is hereby authorized at any time and from time to time,
without notice to any Person (and Debtor hereby WAIVES any such notice) to the
fullest extent not prohibited by law, to set-off and apply any and all monies,
securities and other properties of Debtor now or in the future in the
possession, custody or control of Secured Party, or on deposit with or otherwise
owed to Debtor by Secured Party--including all such monies, securities and other
properties held in general, time, demand, provisional or final accounts (other
than special accounts or for safekeeping) or as collateral or otherwise (but
excluding those accounts clearly designated as escrow or trust accounts held by
Debtor for others unaffiliated with Debtor)--against any and all of Debtor's
obligations to Secured Party now or hereafter existing under this Agreement or
any of the Credit Documents, irrespective of whether Secured Party shall have
made any demand hereunder or thereunder. Secured Party agrees to use reasonable
efforts to promptly notify Debtor after any such set-off and application,
provided that failure to give--or delay in giving--any such notice shall not
affect the validity of such set-off and application or impose any liability on
Secured Party. Secured Party's rights under this Section are in addition to
other rights and remedies (including other rights of set-off) which Secured
Party may have.
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<PAGE>
7.17 This Agreement amends and restates in its entirety that certain
Security Agreement-Pledge dated as of May 5, 1995 executed by Debtor in favor of
Secured Party.
EXECUTED as of September 29, 1995.
DRILEX SYSTEMS, INC.,
a Texas corporation
By: /s/JOHN FORREST
-------------------------
John Forrest,
President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking
association
By: /s/DIANE DUPLICHAN
------------------------
Name: DIANE DUPLICHAN
------------------------
Title: VICE PRESIDENT
------------------------
14
<PAGE>
EXHIBIT A
NO. 16 3,315 Ordinary Shares
---- --------------
DRILEX U.K. LIMITED
-------------------
LIMITED
Incorporated under the Companies Act, 19
CAPITAL - - - - - Pounds
Divided into
THIS IS TO CERTIFY that Texas Commerce Bank National Association of 712 Main
Street, Houston, Harris County, Texas is the Registered Proprietor of
Three Thousand Three Hundred and Fifteen Ordinary Shares of Pounds 1 each,
in the above-named Company, subject to the Memorandum and Articles of
Association of the Company,
GIVEN , this 30th day of June 1994
[signature appears here] }
} Directors
[signature appears here] }
NOTE.--No transfer of any of the above-mentioned Shares can be registered until
this Certificate has been deposited at the Company's Registered Office.
<PAGE>
Exhibit 10.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
DRILEX HOLDINGS CORP.
(BUYER)
AND
MASCOTECH, INC.
(SELLER)
MARCH 31, 1994
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions........................................................... 1
2. Purchase and Sale of Drilex Shares.................................... 5
(a) Basic Transaction................................................ 6
(b) Consideration.................................................... 6
(c) Transactions Prior to Closing.................................... 6
(d) The Closing...................................................... 7
(e) Deliveries at the Closing........................................ 7
3. Representations and Warranties Concerning the Transaction............. 7
(a) Representations and Warranties of the Seller..................... 7
(b) Representations and Warranties of the Buyer...................... 8
4. Representations and Warranties Concerning Drilex and its Subsidiaries. 9
(a) Organization, Qualification and Corporate Power.................. 9
(b) Capitalization................................................... 9
(c) Noncontravention................................................. 9
(d) Broker's Fees.................................................... 10
(e) Assets........................................................... 10
(f) Subsidiaries..................................................... 10
(g) Financial Statements; Budgets.................................... 10
(h) Absence of Certain Liabilities and Changes....................... 10
(i) Legal Compliance................................................. 12
(j) Tax Matters...................................................... 12
(k) Real Property.................................................... 12
(l) Intellectual Property............................................ 12
(m) Contracts........................................................ 13
(n) Powers of Attorney............................................... 14
(o) Inventory........................................................ 15
(p) Notes and Accounts Receivable.................................... 15
(q) Litigation....................................................... 15
(r) Employee Benefits................................................ 15
(s) Enviromental, Health and Safety Laws............................. 17
(t) Accuracy of Disclosure........................................... 17
(u) Undisclosed Liabilities.......................................... 17
(v) Insurance........................................................ 17
5. Post-Closing Covenants................................................ 17
(a) General.......................................................... 17
(b) Books and Records; Litigation Support............................ 17
(c) Transition....................................................... 18
(d) Covenant Not to Compete.......................................... 18
(e) Releases......................................................... 18
(f) Termination of Seller Services................................... 18
(g) Adjustment of Consideration...................................... 18
(h) Cash Management.................................................. 21
i
<PAGE>
(i) Seller's DC Plans............................................... 23
(j) Refunds......................................................... 23
(k) Certain Employee Matters........................................ 23
(l) Settlement Agreement............................................ 24
(m) Buyer Releases................................................... 24
6. Remedies for Breaches of this Agreement; Indemnification.............. 24
(a) Survival of Representations, Warranties and Covenants........... 24
(b) Indemnification Provisions...................................... 24
(c) Matters Involving Third Parties................................. 27
(d) Determination of Adverse Consequences........................... 28
(e) Sole and Exclusive Remedy....................................... 28
(f) Assignment of Rights............................................ 28
(g) Initial Offset Limit............................................ 28
(h) Payment of Indemnification Claims by Seller..................... 28
(i) Inventory Claims................................................ 29
(j) Environmental Investigation and Remediation..................... 29
7. Taxes................................................................ 29
(a) Tax Representations............................................. 29
(b) Section 338(h)(10) Elections.................................... 30
(c) Preparation and Filing of Tax Returns........................... 30
(d) Access to Information........................................... 31
(e) Seller Tax Indemnifications..................................... 32
(f) Buyer Indemnifications.......................................... 32
(g) Indemnification Procedures...................................... 32
(h) Survival........................................................ 33
(i) Conflict........................................................ 33
8. Arbitration.......................................................... 33
(a) Agreement to Arbitrate.......................................... 33
(b) Selection of Arbitrators........................................ 34
(c) Enforcement..................................................... 34
(d) Arbitration Expenses............................................ 34
9. Miscellaneous........................................................ 34
(a) Press Releases and Public Announcements......................... 34
(b) No Third-Party Beneficiaries.................................... 34
(c) Entire Agreement and Incorporation by Reference................. 34
(d) Succession and Assignment....................................... 34
(e) Counterparts.................................................... 34
(f) Headings........................................................ 35
(g) Notices......................................................... 35
(h) Governing Law................................................... 35
(i) Amendments and Waivers.......................................... 35
(j) Severability.................................................... 35
(k) Expenses........................................................ 36
(l) Construction.................................................... 36
(m) Knowledge....................................................... 36
ii
<PAGE>
Appendix A - Calculation of Net Liquid Assets
Exhibit A - Drilex Guaranty
Exhibit B - Drilex Note
Exhibit C - Amendment to Articles of Incorporation of
Drilex Systems, Inc.
Exhibit D - Mortgage
Exhibit E - Security Agreement
Disclosure Schedule - Exceptions to Representations and
Warranties Concerning Drilex
and its Subsidiaries
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into on March 31,
1994, by and between DRILEX HOLDINGS CORP., a Delaware corporation (the
"Buyer"), and MASCOTECH, INC., a Delaware corporation (the "Seller"). The Buyer
and the Seller are referred to individually as a "Party" and collectively herein
as the "Parties."
The Seller owns all of the outstanding capital stock of Drilex Systems, Inc.,
a Texas corporation ("Drilex").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the Drilex
Shares in return for cash.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCOUNTING FIRM" has the meaning set forth in Section 5(g) below.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses and
fees, including without limitation, court costs and reasonable attorneys' and
paralegals' fees and expenses incurred in connection with any of the foregoing.
Without limiting the generality of the foregoing, "Adverse Consequences" shall
include all reasonable costs and expenses incurred by any Indemnified Party in
enforcing its rights under this Agreement, including but not limited to (a)
reasonable attorneys' and paralegals' fees and disbursements; (b) the fees and
expenses of any litigation, administrative, bankruptcy, insolvency, receivership
and any similar proceeding; (c) the expenses of the Indemnified Party and its
employees, agents, attorneys and witnesses in preparing for litigation,
administrative, bankruptcy, insolvency and other proceedings and for lodging,
travel and attendance at meetings, hearings, depositions and trials; and (d)
consulting and witness fees incurred by the Subject Party in connection with any
litigation or other proceedings.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code Sec.
1504.
"AGREEMENTS" has the meaning set forth in Section 4(m) below.
"BASE AMOUNT" has the meaning set forth in Section 5(g) below.
"BENEFIT PROGRAM OR AGREEMENT" means each written personnel policy stock
option plan, collective bargaining agreement, bonus plan or arrangement,
incentive award plan, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other written employee benefit plan, agreement, arrangement, program,
practice or understanding which is not an Employee
1
<PAGE>
Benefit Plan and which is or was sponsored, maintained or contributed to, by
Drilex or any of the Subsidiaries, and has been so sponsored, maintained or
contributed to only on or within six years prior to the Closing Date.
"BONUS RETENTION" has the meaning set forth in Section 5(k) below.
"BUYER" has the meaning set forth in the preface above.
"BUYER INDEMNIFIED PARTIES" has the meaning set forth in Section 6(b) below.
"BUYER'S NEW PLAN" has the meaning set forth in Section 5(i) below.
"BUYER'S POST-CLOSING CERTIFICATE" has the meaning set forth in Section 5(g)
below.
"CASH" means cash and cash equivalents (including marketable securities and
short term investments).
"CASH ADJUSTMENT AMOUNT" has the meaning set forth in Section 5(g) below.
"CASH DIFFERENTIAL" shall mean the amount, if any, by which A exceeds B, where
A means $5,532,100, which represents the four-month average for November 1993
through February 1994 of Net Liquid Assets set forth on Appendix A, and B means
the amount of Net Liquid Assets as of the Determination Time, calculated in
accordance with GAAP and in the manner set forth on Appendix A.
"CLOSING" has the meaning set forth in Section 2(d) below.
"CLOSING DATE" has the meaning set forth in Section 2(d) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMONLY CONTROLLED ENTITY" has the meaning set forth in Section 4(r) below.
"DETERMINATION TIME" shall mean the close of business on the Closing Date.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
"DISPUTED ITEMS" has the meaning set forth in Section 5(g) below.
"DRILEX" has the meaning set forth in the preface above.
"DRILEX GUARANTY" means a certain guaranty dated March 31, 1994 delivered to
Seller by Drilex which Drilex Guaranty is attached as Exhibit A hereto.
"Drilex Note" means a certain promissory note dated March 31, 1994 and
delivered to Seller in the aggregate principal amount of Six Million Five
Hundred Thousand Dollars ($6,500,000), which Drilex Note is attached as Exhibit
B hereto.
"DRILEX PARTICIPANT" means an employee of Drilex or a Subsidiary on the
Closing Date who has an account balance under a Seller's DC Plan as of such
date.
"DRILEX PREFERRED STOCK" means five hundred (500) shares of preferred stock of
Drilex, without par value per share, which shares are redeemable and have the
other features set forth in the Amendment to the Articles of Incorporation of
Drilex attached as Exhibit C hereto.
2
<PAGE>
"DRILEX SHARES" means one thousand (1,000) issued and outstanding shares of
common stock of Drilex, $1.00 par value per share, as further described in
Section 4(b) below.
"EMPLOYEE BENEFIT PLAN" means each "employee benefit plan." as such term is
defined in Section 3(3) of ERISA (including, but not limited to, employee
benefit plans, such as foreign plans, which are not subject to the provisions of
ERISA), which is or was sponsored, maintained or contributed to by Drilex or
any of the Subsidiaries, and has been so sponsored, maintained or contributed to
only on or within six years prior to the Closing Date.
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each
as amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCESS AMOUNT" has the meaning set forth in Section 5(k) below.
"FINAL BALANCE SHEET" has the meaning set forth in Section 5(g) below.
"FINAL NET WORTH" has the meaning set forth in Section 5(g) below.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(g) below.
"FORMS" has the meaning set forth in Section 7(b) below.
"FRANCHISE TAXES" means state franchise Taxes.
"GAAP" has the meaning set forth in Section 4(g) of the Disclosure Schedule.
"INCOME TAXES" means Taxes determined or measured by reference to income or
gain.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6(c) below.
"INDEMNIFIED SUBSTANCES" has the meaning set forth in Section 6(b) below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6(c) below.
"INITIAL OFFSET LIMIT" has the meaning set forth in Section 6(g) below.
"INTELLECTUAL PROPERTY" MEANS (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adoption,
derivations, and combinations thereof and including all goodwill associated
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therewith, and all applications, registrations, and renewals in connection
therewith; (c) all copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith; (d) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (e) all computer software (including data and related
documentation); (f) all other proprietary rights; and (g) all copies and
tangible embodiments thereof (in whatever form or medium).
"LOCKBOX BANK ACCOUNT" has the meaning set forth in Section 2(c) below.
"KNOWLEDGE OF SELLER" has the meaning set forth in Section 9(m) below.
"MASTER SERVICE AGREEMENTS" has the meaning set forth in Section 4(c) below.
"MORTGAGE" means a certain mortgage, assignment, security agreement and
financing statement granted to Seller by Drilex dated March 31, 1994, which
Mortgage is attached hereto as Exhibit D.
"NBD ACCOUNT" has the meaning set forth in Section 5(g) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PAST SEVERANCE PRACTICE" means the severance practice identified as item
A.2.g of Section 4(r)(i) of the Disclosure Schedule.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity (or any department, agency, or political subdivision
thereof), or any other entity.
"PRE-CLOSING TAXABLE PERIOD" means all or a portion of (a) any taxable period
up to and including the Closing Date, or (b) any taxable period with respect to
which the Tax is computed by reference to Tax items, assets, capital or
operations of Drilex or a Subsidiary arising on or before, or existing as of the
Closing Date.
"POST-CLOSING TAXABLE PERIOD" means all or a portion of (a) any taxable period
after the Closing Date, or (b) any taxable period with respect to which the Tax
is computed by reference to Tax items, assets, capital or operations of Drilex
or a Subsidiary arising after, or existing subsequent to, the Closing Date.
"REAL PROPERTY"" has the meaning set forth in Section 4(k) below.
"RECENT BALANCE SHEET" has the meaning set forth in Section 4(g) below.
"REPORTABLE EVENT" has he meaning set forth in ERISA Sec. 4043.
"SCOTTISH DOCUMENTS" shall mean a Guarantee by Drilex Systems Limited, a
Subsidiary of Drilex ("DSL") in favour of Seller; a Ranking Agreement among DSL,
Texas Commerce Bank, National Association, and Seller; and a Bond and Floating
Charge by Drilex in favour of Seller
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"SECTION 338(h)(10) ELECTIONS" has the meaning set forth in Section 7(b)
below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means a certain security agreement dated March 31, 1994
between Drilex and the Seller which is attached hereto as Exhibit E.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) mechanic's, materialmen's, and similar
liens securing amounts incurred in the ordinary course of business and not yet
due and payable; (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings; and
(c) purchase money liens and liens securing rental payments under capital lease
arrangements.
"SELLER" has the meaning set forth in the preface above.
"SELLER GROUP" has the meaning set forth in Section 7(b) below.
"SELLER'S DC PLANS" means the MascoTech, Inc. Master Defined Contribution Plan
and the MascoTech, Inc. Salaried Savings Plan.
"SELLER'S POST-CLOSING CERTIFICATE" has the meaning set forth in Section 5(g)
below.
"SPECIAL SEVERANCE" has the meaning set forth in Section 5(k) below.
"SUBSIDIARIES" means Drilex U.K. Limited (United Kingdom), Drilex Overseas
Corporation Limited (Bahamas), Drilex Systems Limited (Scotland) and Drilex
Systems, S.A. (Venezuela).
"TAX" or "TAXES" shall mean all federal, foreign, state, local or other net or
gross income (whether measured by or based on income), gross receipts, sales,
use, stamp, documentary, transfer, occupation, service, rental, lease, real
property gains or transfer, ad valorem, property, value-added, franchise,
production, withholding, payroll, employment, excise or similar taxes,
assessments, duties, fees, levies or other governmental charges, together with
any interest thereon, any penalties, additions to tax or additional amounts with
respect thereto and any interest in respect of such penalties, additions or
additional amounts.
"TAX AUTHORITY" means any federal, state or local governmental agency
charged with responsibility for the determination and/or collection of Taxes.
"TAX ITEMS" has the meaning set forth in Section 7(d) below.
"TAX LOSSES" has the meaning set forth in Section 7(e) below.
"TAX RETURN" means any return (or amended return), declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto.
"THIRD PARTY CLAIM" has the meaning set forth in Section 6(c) below.
2. PURCHASE AND SALE OF DRILEX SHARES.
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(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties set forth in
Sections 3,4 and 7 hereof, the Buyer agrees to purchase from the Seller, and the
Seller agrees to sell to the Buyer, all of the Drilex Shares for the
consideration specified below in this Section 2, as adjusted (if at all)
pursuant to Section 5(g).
(b) CONSIDERATION. The Buyer agrees to pay to the Seller at the Closing
consideration in the amount of Eleven Million Dollars ($11,000,000) payable by
wire transfer or delivery of other immediately available funds.
(c) TRANSACTIONS PRIOR TO CLOSING.
(i) Immediately prior to the Closing, the Seller shall have caused the
balance in the NationsBank lockbox bank depository account no. 0171280 of Drilex
(the "Lockbox Bank Account") to be not less than $300,000, and the Seller may
cause Drilex to distribute to the Seller an amount equal to any excess over
$300,000 in such account. The Seller may cause Drilex to make any such payment
to it in the form of a dividend, a redemption, or a repayment of intercompany
indebtedness or obligations.
(ii) On or before the Closing Date, the Seller shall have caused (x)
each Drilex Participant to have a fully vested and nonforfeitable interest
in his or her accrued benefits under the Seller's DC Plans as of the Closing
Date, and (y) each employee employed by Drilex or a Subsidiary immediately prior
to the Closing Date who has a accrued benefit under the MascoTech, Inc. Master
Hourly Employees' Pension Plan to have a fully vested and nonforfeitable
interest in such accrued benefit under the terms of such plan as of the Closing
Date. Further, on or before the Closing Date, the Seller shall cause all of the
Employee Benefit Plans that include Drilex (except for the Past Severance
Practice, Special Severance and Bonus Retention) to be amended to exclude Drilex
as a participating employer, effective immediately prior to the Closing Date,
and shall further assume all past, present and future obligations and
liabilities of Drilex (including contingent liabilities and liabilities for
claims incurred but not yet reported as of the Closing Date, but excluding those
liabilities to be assumed by Buyer's New Plan pursuant to Section 5(i) hereof)
relating to such Employee Benefit Plans; provided, however, that the Seller's
liabilities with respect to the provision of benefits under the Past Severance
Practice shall not apply to the provision of benefits on or after the Closing
Date, and further provided that the Seller's liabilities with respect to the
provision of benefits under the Special Severance or the Bonus Retention shall
not apply to the provision of benefits on or after the Closing Date, except as
expressly set forth in Section 5(k)(i).
(iii) On or before the Closing Date, Seller shall have made capital
contributions to each of Drilex and its Subsidiaries of, and/or caused each of
Drilex and its Subsidiaries to repay and discharge, all intercompany accounts
payable, notes payable, advances, or other intercompany indebtedness or
obligations (and the corresponding accounts, notes and advances receivable,
etc.), other than the Drilex Note and the Drilex Preferred Stock, between (A)
the Seller and its direct and indirect subsidiaries and Affiliates (excluding
Drilex and its Subsidiaries) and (B) Drilex and its Subsidiaries, such that, at
the Determination Time:
(1) neither Drilex not its Subsidiaries shall, directly or
indirectly, be obligated for any indebtedness of any kind to Seller or any of
its direct or indirect subsidiaries or Affiliates other than for:
(x) obligations with respect to the Drilex Note, the Security
Agreement, the Mortgage, the Drilex Guaranty and the Scottish
Documents;
(y) obligations with respect to the Drilex Preferred Stock; and
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(z) obligations with respect to net cash contributions by Seller to
Drilex after the Determination Time (if any) pursuant to the Cash Management
Procedures described in Section 5(h);
(2) none of the Seller or its direct and indirect subsidiaries
or Affiliates (excluding Drilex and its Subsidiaries) shall, directly or
indirectly, be obligated for any indebtedness of any kind to Drilex or any of
its Subsidiaries other than for obligations with respect to net cash withdrawals
by Seller from Drilex after the Determination Time (if any) pursuant to the Cash
Management Procedures described in Section 5(h).
(d) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of counsel to the
Buyer in Houston, Texas, commencing at 9:00 a.m. local time on March 31, 1994,
or such other time or date as the Buyer and the Seller may mutually determine
(the "Closing Date").
(e) DELIVERIES AT THE CLOSING. On the Closing Date, and contemporaneously
with the execution and delivery of this Agreement:
(i) the Buyer shall deliver to the Seller the cash specified in
Section 2(b) above;
(ii) the Seller shall deliver to the Buyer a stock certificate
representing all of the Drilex Shares, endorsed in blank or accompanied by duly
executed assignment documents;
(iii) the Seller and Drilex shall enter into the Drilex shall enter
into the Drilex Guaranty as set forth in Exhibit A;
(iv) the Seller shall deliver to the Buyer resignations of the
directors and officers of Drilex and its Subsidiaries as set forth on Schedule
2(e)(iv) attached hereto;
(v) the Seller shall deliver to the Buyer all of Drilex's and its
Subsidiaries' corporate minute books, stock registers, and check books that are
not in the possession of Drilex, its Subsidiaries, or their agents; and
(vi) the Seller shall deliver to the Buyer appropriately executed
amendments to the Employee Benefit Plans evidencing the actions required
pursuant to Section 2(c)(ii) hereof.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3(a) are
true, correct and complete as of the date of this Agreement.
(i) ORGANIZATION OF SELLER. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(ii) AUTHORIZATION OF TRANSACTION. The Seller has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions. No consent, waiver, approval or authorization of or by, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other Person, is required to be made or obtained by the Seller
in connection with the execution, delivery or performance of this Agreement or
the consummation of the transactions contemplated hereby.
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(iii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) conflict with or violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Seller is subject,
or any provision of its charter or bylaws, or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel or require
any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Seller is a party or by which it is bound or to which
any of its assets is subject.
(iv) BROKERS' FEES. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could be liable
or obligated.
(v) DRILEX SHARES. The Seller holds of record and owns beneficially
all of the Drilex Shares, free and clear of any restrictions on transfer (other
than restrictions under the Securities Act and state securities laws), taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Other than the terms of the Drilex Preferred
Stock, the Seller is not a party to any option, warrant, purchase right or other
contract or commitment that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of Drilex (other than this Agreement).
Other than the terms of the Drilex Preferred Stock, the Seller is not a party to
any voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Drilex.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this Section 3(b) are
true, correct and complete as of the date of this Agreement.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions. No consent, waiver, approval or authorization of or by, or
declaration, filing or registration with, any governmental or regulatory
authority, or any other Person, is required to be made or obtained by the Buyer
in connection with the execution, delivery or performance of this Agreement or
the consummation of the transactions contemplated hereby.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) conflict with or violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws, or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to which
any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could be liable
or obligated.
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(v) INVESTMENT. The Buyer (A) understands that the Drilex Shares
have not been registered under the Securities Act or under any state securities
laws and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (B) is acquiring
the Drilex Shares solely for its own account for investment purposes, and not
with a view to the distribution thereof, (C) is a sophisticated investor with
knowledge and experience in business and financial matters, (D) has received
certain information concerning the Seller and Drilex and its Subsidiaries and
has and the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Drilex Shares, (E) is
able to bear the economic risk and lack of liquidity inherent in holding the
Drilex Shares, and (F) is an Accredited Investor.
4. REPRESENTATIONS AND WARRANTIES CONCERNING DRILEX AND ITS SUBSIDIARIES. The
Seller represents and warrants to the Buyer that the statements contained in
this Section 4 are true, correct and complete as of the date of this Agreement.
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Except as set forth
in Section 4(a) of the Disclosure Schedule attached hereto (the "Disclosure
Schedule"), each of Drilex and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Except as set forth in Section 4(a) of the
Disclosure Schedule, each of Drilex and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not be material. Each of Drilex and its Subsidiaries has
full corporate power and authority to carry on the business in which it is
engaged and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of Drilex and its
Subsidiaries.
(b) CAPITALIZATION. The entire authorized capital stock of Drilex consists
of (i) one thousand (1,000) shares of common stock, $1.00 par value per share,
of which one thousand (1,000) are issued and outstanding and of which none are
held in treasury; and (ii) five hundred (500) shares of Drilex Preferred Stock,
without par value per share, all of which are issued and outstanding and held by
the Seller. All of issued and outstanding Drilex Shares and Drilex Preferred
Stock have been duly authorized and are held beneficially and of record as set
forth in Section 4(b) of the Disclosure Schedule, and all of the issued and
outstanding Drilex Shares are validly issued, fully paid and nonassessable.
Other than the terms of the Drilex Preferred Stock, there are no outstanding or
authorized options, warrants, purchase rights, preemptive rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require Drilex to issue, sell or otherwise cause to become
outstanding any of its capital stock. Except for the Drilex Preferred Stock,
there are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Drilex.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate or conflict with (A) any material constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Drilex or its
Subsidiaries are subject, or (B) any provision of the charters or bylaws of
Drilex and its Subsidiaries, or (ii) except as may be the case with any of the
master service agreements listed in Section 4(m) of the Disclosure Schedule
("the Master Service Agreements"), conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any material agreement, contract, lease, license, instrument, or other
agreement to which Drilex or its Subsidiaries is a party or by which any of them
is bound or to which any of their respective assets is subject (or result in
the imposition of any Security Interest upon any of their respective assets).
No consent, waiver, approval or authorization of or by, or declaration, filing
or registration with, any governmental or regulatory authority, or except as may
be the case with any of the Master Service Agreements, any other Person, is
required to be
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made or obtained by the Seller in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(d) BROKERS' FEES. None of Drilex and its Subsidiaries has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(e) ASSETS. Except as set forth in Section 4(e) of the Disclosure Schedule,
Drilex and its Subsidiaries own or have the right to use the assets and
properties necessary for the conduct of the respective business and operations
of Drilex and its Subsidiaries in the Ordinary Course of Business (including,
without limitation, all Intellectual Property significant to the conduct of each
of Drilex and its Subsidiaries' respective business). Except as set forth in
Section 4(e) of the Disclosure Schedule, each of Drilex and its Subsidiaries has
good, valid and marketable title to its tangible assets as set forth in the
Recent Balance Sheet (as defined in Section 4(g) below), except for inventory
disposed of in the Ordinary Course of Business and immaterial dispositions of
such tangible assets. Except for inventory, which is the subject of Section
4(o), substantially all of the tangible assets of Drilex or its Subsidiaries are
in good, safe and operable condition in all material respects, normal wear and
tear excepted.
(f) SUBSIDIARIES. Section 4(f) of the Disclosure Schedule sets forth for
each Subsidiary of Drilex (i) its name and jurisdiction of incorporation, (ii)
the number of shares of authorized capital stock of each class of its capital
stock, (iii) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof, and the number of shares held
by each such holder, and (iv) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of each
Subsidiary of Drilex have been duly authorized and are validly issued, fully
paid, and nonassessable and are held of record and beneficially by the holders
set forth in Section 4(f) of the Disclosure Schedule. There are no outstanding
or authorized options, warrants, purchase rights, preemptive rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require any of Drilex and its Subsidiaries to sell,
transfer, or otherwise dispose of any capital stock of any of its Subsidiaries
or that could require any Subsidiary of Drilex to issue, sell, or otherwise
cause to become outstanding any of its own capital stock. There are no
outstanding stock appreciation, phantom stock, profit participation, or similar
rights with respect to any Subsidiary of Drilex. There are no voting trusts,
proxies, or other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary of Drilex. None of Drilex and its Subsidiaries
controls directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust or other business
association which is not a Subsidiary of Drilex.
(g) FINANCIAL STATEMENTS; BUDGETS. Section 4(g) of the Disclosure Schedule
sets forth the unaudited consolidated balance sheets of Drilex and its
Subsidiaries as of December 31, 1991, December 31, 1992 and December 31, 1993
(such December 31, 1993 balance sheet being hereinafter referred to as the
"Recent Balance Sheet") and the related unaudited consolidated statements of
income and corresponding statements of cash flow and each of the years then
ended (collectively, the "Financial Statements"). Section 4(g) of the Disclosure
Schedule also contains the fiscal 1994 budget and capital budget of Drilex and
its Subsidiaries. The Financial Statements were prepared in accordance with GAAP
and, except as set forth in Section 4(g) of the Disclosure Schedule, fairly
present the financial position and statements of income as of the respective
dates and for the respective periods stated above.
(h) ABSENCE OF CERTAIN LIABILITIES AND CHANGES. Since September 30, 1993,
Drilex and its Subsidiaries have operated in the Ordinary Course of Business,
and except as set forth in Section 4(h) of the Disclosure Schedule, there has
not been:
(i) any material adverse change in the business, financial condition or
results of operations of Drilex and its Subsidiaries taken as a whole;
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(ii) any sale, lease or transfer of Drilex's or any of its Subsidiaries'
assets, except sales of inventory and obsolete or surplus equipment in the
Ordinary Course of Business;
(iii) except for any payments pursuant to Section 2(c)(i) hereof, the
delivery of the Drilex Note, a dividend of $2,500,000 from the proceeds of the
loan of even date herewith to Drilex by Texas Commerce Bank, the issuance of the
Drilex Preferred Stock, and as otherwise provided by this Agreement, any split,
combination or reclassification of any shares of capital stock of Drilex or its
Subsidiaries or any declaration, set aside or payment of any dividends or other
distributions in respect of their capital stock or any redemption, purchase or
other acquisition of any of their capital stock;
(iv) any material transaction by Drilex or any of its Subsidiaries not in
the Ordinary Course of Business;
(v) any material damage, destruction or loss to any material assets used in
the business of Drilex whether or not covered by insurance;
(vi) any termination, or, to the Knowledge of Seller, any threatened
termination, or material modification, in each case not in the Ordinary Course
of Business, of (A) any relationship of Drilex or any of its Subsidiaries with
any customer or supplier (for this purpose, affiliated companies are to be
considered as a single customer or supplier) who in the aggregate accounted for
in excess of $50,000 of sales or purchases during the 1992 or 1993 fiscal year
to or from Drilex and its Subsidiaries on a combined basis, or (B) any contract
that is material to any such relationship;
(vii) any change by Drilex or any of its Subsidiaries in accounting methods
or principles or the application thereof (including depreciation or amortization
lives and inventory capitalization, expensing or amortization principles or
practices with respect to rental tools and parts) or any material change by
Drilex or its Subsidiaries in tax methods or principles or the application
thereof (including depreciation or amortization lives and inventory
capitalization, expensing or amortization principles or practices with respect
to rental tools and parts);
(viii) any acceleration or deceleration of shipments, sales or orders or
collection of accounts receivable or payments of accounts payable, or other
similar action by Drilex or any of its Subsidiaries in contemplation of this
Agreement or otherwise not in the Ordinary Course of Business;
(ix) any bonus payments, salary increases, commission increases or
modifications, the execution of any employment agreement, severance arrangement,
consulting arrangement or similar documents or agreement, or other changes in
employee benefits or other compensation involving employees, agents or
contractors of Drilex or any of its Subsidiaries, except in the Ordinary Course
of Business;
(x) any waiver by Drilex or any of its Subsidiaries of any rights that,
singly or in the aggregate, are material to the business or the financial
condition or results of operations of Drilex or any of its Subsidiaries;
(xi) any transaction between (A) the Seller or any of its direct or
indirect subsidiaries or Affiliates (other than Drilex and its Subsidiaries)
and (B) Drilex or any of its Subsidiaries, except in the Ordinary Course of
Business; and
(xii) any contract or commitment by the Seller or Drilex or any of its
Subsidiaries to do or cause to be done any of the foregoing.
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(i) LEGAL COMPLIANCE. Each of the Drilex and its Subsidiaries has complied
and is currently in compliance with all material applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local and foreign
governments (and all agencies thereof).
(j) TAX MATTERS. See Section 7. This Section has been intentionally
omitted.
(k) REAL PROPERTY.
(i) Section 4(k)(i) of the Disclosure Schedule lists all real property
(the "Real Property") that Drilex and its Subsidiaries own. With respect to each
such parcel of Real Property:
(A) except as set forth in Section 4(k)(i)(A) of the Disclosure
Schedule, the identified owner has good and marketable title to the
parcel of Real Property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for any of the
foregoing that do not individually or in the aggregate materially
decrease the value of the Real Property or materially interfere with
its use or operation;
(B) except as set forth in Sections 4(k)(i)(A) and (B) of the
Disclosure Schedule, there are no leases, subleases, licenses,
concessions, or other agreements granting to any party or parties the
right of use or occupancy of any portion of the parcel of Real
Property; and
(C) there are no outstanding options or rights of first refusal
to purchase the parcel of Real Property, or any portion thereof or
interest therein.
(ii) Section 4(k)(ii) of the Disclosure Schedule lists all real
property leased or subleased to Drilex and its Subsidiaries. The Seller has
delivered to the Buyer true, correct and complete copies of the leases and
subleases for the property listed in Section 4(k)(ii) of the Disclosure
Schedule. To the Knowledge of the Seller, each lease and sublease required to be
listed in Section 4(k)(ii) of the Disclosure Schedule is legal, valid, binding,
enforceable, and in full force and effect.
(l) INTELLECTUAL PROPERTY.
(i) Except as set forth in Section 4(l)(i) of the Disclosure Schedule,
for the five years preceding the Closing, none of Drilex and its Subsidiaries
has interfered with, infringed upon, misappropriated, or violated any material
Intellectual Property right of third parties in any material respect, and none
of the Seller and the directors and officers of Drilex and its Subsidiaries has
ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that any of Drilex and its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party). Except as set forth in Section
4(l)(ii) of the Disclosure Schedule, and to the Knowledge of the Seller, no
third party has interfered with, infringed upon, misappropriated, or violated
any material Intellectual Property rights of any of Drilex and its Subsidiaries
in any material respect.
(ii) Section 4(l)(ii) of the Disclosure Schedule identifies each
patent or registration which has been issued to any of Drilex and its
Subsidiaries with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which any of Drilex
and its Subsidiaries has made with respect to any of its Intellectual Property,
and identifies each material license, agreement, or other permission which any
of Drilex and its Subsidiaries has granted to any third party with respect to
any of its Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer true, correct and complete copies of all such patents
(excluding foreign patents), registrations, applications, licenses (excluding
foreign trademarks), agreements and permissions. Section 4(l)(ii) of the
Disclosure Schedule also identifies each material trade name or unregistered
trademark used by any of Drilex and its Subsidiaries in connection
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with any of their businesses. With respect to each item of Intellectual Property
required to be identified in Section 4(l)(ii) of the Disclosure Schedule:
(A) except as provided in Section 4(1)(ii)(A) of the Disclosure Schedule,
either Drilex or its Subsidiaries are the record owners and have good title to
the item, free and clear of any Security Interest, license, or other
restriction;
(B) except as set forth in Section 4(1)(ii)(B) of the Disclosure Schedule,
the item is not subject to any outstanding injunction, judgment, order, decree,
ruling or charge;
(C) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand is pending, or to the Knowledge of the Seller is threatened,
which challenges the legality, validity, enforceability, use or ownership of the
item; and
(D) except as set forth in Section 4(l)(ii)(D) of the Disclosure Schedule,
none of Drilex and its Subsidiaries has ever agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(iii) Section 4(l)(iii) of the Disclosure Schedule identifies each material
item of Intellectual Property that any third party owns and that any of Drilex
and its Subsidiaries uses pursuant to license, sublicense, agreement, or
permission. Section 4(i)(iii) of the Disclosure Schedule includes true, correct
and complete copies of all such licenses, sublicenses, agreements and
permissions. With respect to each item of Intellectual Property required to be
identified in Section 4(l)(iii) of the Disclosure Schedule, to the Knowledge of
the Seller:
(A) the license, sublicense, agreement or permission covering the item is
legal, valid, binding, enforceable, and in full force and effect in all material
respects;
(B) no party to the license, sublicense, agreement or permission covering
the item is in material breach or default thereof and no event has occurred
which with notice or lapse of time would constitute a material breach or default
thereof or permit termination, modification or acceleration thereunder;
(C) no party to the license, sublicense, agreement, or permission has
repudiated any material provision thereof;
(D) none of Drilex and its Subsidiaries has granted any sublicense or
similar right with respect to the license, sublicense, agreement or permission
covering the item;
(E) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand is pending, or to the Knowledge of the Seller is threatened,
which challenges the legality, validity, enforceability, use or ownership of any
item described or required to be identified in Section 4(l)(iii) of the
Disclosure Schedule; and
(F) with respect to the down hole positive displacement motor to which the
V./O. Licensentorg documentation relates, which documentation is listed in
Section 4(l)(ii) of the Disclosure Schedule, there are no continuing or future
obligations on the part of Drilex or any of its Subsidiaries, and it is fully
prepaid.
(m) CONTRACTS. Except for the Master Service Agreements, of which only a
listing is set forth in Section 4(m) of the Disclosure Schedule, Section 4(m) of
the Disclosure Schedule lists and includes true,
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correct and complete copies of the following contracts and agreements and
commitments (collectively "Agreements") to which any of Drilex and its
Subsidiaries is a party:
(i) Any Agreement (or group of related Agreements) for the lease of
personal property to or form any Person providing for lease payments in excess
of $25,000 per annum.
(ii) Any Agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, equipment parts, or
other real or personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one year or
involve aggregate consideration in excess of $25,000 per annum.
(iii) Any Agreement concerning a partnership or joint venture.
(iv) Any Agreement (or group of related Agreements) under which any of
Drilex and its Subsidiaries has created, incurred, assumed, or is otherwise
obligated in respect of or guaranteed any indebtedness for borrowed money, or
any capitalized lease obligation, in excess of $50,000 or under which any of
Drilex and its Subsidiaries has imposed a Security Interest on any of its
assets, tangible or intangible.
(v) Any Agreement concerning confidentiality or noncompetition.
(vi) Any collective bargaining Agreement.
(vii) Except for the Master Services Agreements and except for the items
listed in Sections 4(m) and 4(l)(ii)(D) of the Disclosure Schedule, any
Agreement under which Drilex or any Subsidiary is a surety, guarantor, or
indemnitor with respect to nay obligations of any party other than Drilex or any
of Subsidiaries.
(viii) Any Agreement for the employment of any individual in a full-time,
part-time, consulting or other basis providing annual compensation in excess of
U.S. $50,000 or providing material severance benefits.
(ix) Any Agreement under which it has advanced or loaned any amount to any
of its directors, officers, and employees excluding any travel advances in the
Ordinary Course of Business.
(x) Any Agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of Drilex and
its Subsidiaries taken as a whole.
(xi) Any other Agreement (or group of related Agreements) the performance
of which involves consideration in excess of $25,000.
(xii) Any Agreement between (A) Seller or its Affiliates (excluding Drilex
and its Subsidiaries) and (B) Drilex or its Subsidiaries: (1) that cannot be
cancelled by Drilex or its Subsidiaries immediately upon notice at any time
after the Closing without penalty, or (2) under which Drilex or its Subsidiaries
will have any material obligation after the Closing.
(n) POWERS OF ATTORNEY. Except for the powers of attorney listed in Schedule
4(n) of the Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of any of Drilex and its Subsidiaries.
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(o) INVENTORY. The inventory of Drilex and its Subsidiaries has been
accounted for in accordance with Section 4(o) of the Disclosure Schedule. All
inventory of Drilex and its Subsidiaries is suitable and usable for the
production or completion of merchantable or rentable products, for sale or rent
in the Ordinary Course of Business and none of such inventory is below standard
quality, except for obsolete items and items below stand and quality as to which
adequate provision has been made on the books of Drilex and its Subsidiaries.
The inventory of Drilex (including the expendable inventory defined in Section
4(o) of the Disclosure Schedule) would have had a value in the aggregate at
least equal to the inventory value shown on the Recent Balance Sheet had the
expendable been valued at the lower of cost or market, on a first-in-first-out
basis (with the other inventory valued as set forth in Section 4(o) of the
Disclosure Schedule).
(p) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
Drilex and its Subsidiaries which either are reflected on the Recent Balance
Sheet, or were created subsequent to the date of the Recent Balance Sheet, are
valid, genuine and subsisting and have arisen out of bona fide sales and
deliveries of goods, performance of services or other business transactions in
the Ordinary Course of Business, are owned free and clear and not subject to any
lien or encumbrance, are not subject to any resale conditions and are current
and collectible net of any reserves shown on the Recent Balance Sheet or, with
respect to notes and accounts receivable recorded subsequent to the date of the
Recent Balance Sheet, reflected on the books of Drilex and its Subsidiaries and
were calculated in accordance with GAAP.
(q) LITIGATION. Section 4(q) of the Disclosure Schedule sets forth each
instance in which each of Drilex and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge, or (ii) is a
party to any action, suit, proceeding, hearing, or investigation of, in or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction.
(r) EMPLOYEE BENEFITS.
(i) Section 4(r)(i) of the Disclosure Schedule lists and includes true,
correct and complete copies of each Employee Benefit Plan that is currently in
effect and, with respect to each Employee Benefit Plan, includes the most recent
report on Form 5500 and the summary plan description. Section 4(r)(i) of the
Disclosure Schedule lists and includes true, correct and complete copies or
descriptions of all Benefit Programs or Agreements that are currently in effect.
(ii) Except as otherwise set forth in Section 4(r)(ii) of the Disclosure
Schedule:
(A) Each Employee Benefit Plan and each Benefit Program or Agreement
has been administered, maintained, funded and operated in accordance with the
terms thereof and in compliance with the provisions of applicable law
(including, where applicable, ERISA and the Code);
(B) Each of the Employee Benefit Plans intended to be qualified under
Section 401 of the Code satisfies the requirements of such Section and is so
qualified, and there has been no termination or partial termination or any such
plan within the meaning of Section 411(d)(3) of the Code;
(C) There are no actions, suits or claims pending (other than routine
claims for benefits) or threatened against, or with respect to, any of the
Employee Benefit Plans or Benefit Programs and Agreements or their assets, and
there is no matter pending (other than routine qualification determination
filings) with respect to any such plan, program or agreement with any
governmental authority;
(D) As to any Employee Benefit Plan subject to Title IV of ERISA, no
accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA
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or Section 412 of the Code has been incurred, no Reportable Event has occurred,
no notice of intent to terminate the plan has been given under Section 404l of
ERISA, no proceeding has been instituted under Section 4042 of ERISA to
terminate the plan, no liability to the PBGC has been incurred, and the assets
of the plan equal or exceed the acturial present value of the benefit
liabilities, within the meaning of Section 4041 of ERISA, under the plan, based
upon reasonable actuarial assumptions and the asset valuation principles
established by the PBGC;
(E) No act, omission or transaction has occurred which would result in
imposition on Drilex or any Subsidiary of (1) breach of fiduciary duty liability
damages under Section 409 of ERISA (2) a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or (3) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code; and
(F) With respect to any employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is not listed in the Disclosure Schedule but which
is sponsored, maintained or contributed to by any corporation, trade, business
or entity under common control with Drilex or any Subsidiary with the meaning
of Section 414(b), (c) or (m) of the Code or Section 4001 or ERISA ("Commonly
Controlled Entity"),(1) no withdrawal liability, within the meaning of Section
4201 of ERISA, material to such Commonly Controlled Entity has been incurred,
which withdrawal liability has not been satisfied, (2) no liability to the PBGC
material to such Commonly Controlled Entity has been incurred by any Commonly
Controlled Entity, which liability has not been satisfied, (3) no accumulated
funding deficiency, whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code, material to such Commonly Controlled Entity,
has been incurred, and (4) all contributions (including installments) to such
plan required by Section 302 of ERISA and Section 412 of the Code, which if not
timely made in the aggregate would be material to such Commonly Controlled
Entity, have been timely made.
(G) No unfunded liability or obligation exists with respect to any
foreign Employee Benefit Plan or Benefit Plan or Agreement.
(iii) Termination of employment of any employee of Drilex or any Subsidiary
after consummation of the transactions contemplated by this Agreement would not
result in payments under the Employee Benefit Plans and Benefit Programs or
Agreements which, in the aggregate, would result in imposition of the sanctions
imposed under Sections 280G and 4999 of the Code.
(iv) Each Employee Benefit Plan which is an "employee welfare benefit plan"
as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or
terminated in its entirety without liability except as to benefits accrued
thereunder prior to such amendment or termination.
(v) Section 4(r)(v) of the Disclosure Schedule sets forth, separately for
Drilex and each Subsidiary, by number and employment classification the
approximate numbers of employees employed by each such entity as of the date of
this Agreement, and, except as set forth therein, none of said employees are
subject to union or collective bargaining agreements. Except as otherwise set
forth in the Disclosure Schedule, neither Drilex nor any Subsidiary has at any
time had or been threatened with any work stoppages or other labor disputes or
controversies with respect to its employees.
(vi) No law, rule, regulation or governmental authority (including, without
limitation, foreign laws, rules, regulations and governmental authorities) could
require Drilex or any Subsidiary to make a payment or provide any other form of
compensation or benefit to any person performing services for Drilex or a
Subsidiary which would not be payable or provided in the absence of the
consummation of the transactions completed by this Agreement.
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(s) ENVIRONMENTAL, HEALTH AND SAFETY LAWS. Each of Drilex and its
Subsidiaries:
(i) has complied and is in compliance with the Environmental, Health
and Safety Laws in all material respects (and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against it alleging any failure to comply with the
Environmental, Health and Safety Laws).
(ii) has obtained, has been and is in compliance in all material
respects with all of the terms and conditions of all material permits, licenses,
and other authorizations that are required under the Environmental, Health and
Safety Laws.
(iii) has complied and is in compliance in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables that are contained in the
Environmental, Health, and Safety Laws.
(t) ACCURACY OF DISCLOSURE. No representation or warranty of the Seller
contained in this Agreement, nor any of the information contained in any of the
Exhibits or in the Disclosure Schedule furnished by or on behalf of the Seller
to the Buyer, when taken as a whole, contains an untrue statement of material
fact or omits to state any material fact required to be stated in order to make
the statements made herein or therein not misleading. Copies of all documents
heretofore delivered or made available to Buyer pursuant hereto were complete
and accurate with respect to financial matters and were substantially complete
and accurate with respect to all other matters.
(u) UNDISCLOSED LIABILITIES. Except as disclosed in the Recent Balance
Sheet included in the Financial Statements, or in Section 4(u) of the Disclosure
Schedule, and except for contractual obligations which do not arise by reason of
a default in performance and which are not required to be reflected in the
Financial Statements in accordance with generally accepted accounting principles
in the United States, neither Drilex nor any of the Subsidiaries has any
material liabilities or obligations (whether accrued, contingent, absolute,
known, unknown or otherwise), except liabilities or obligations arising in the
Ordinary Course of Business of Drilex and its Subsidiaries since December
31, 1993.
(v) INSURANCE. Section 4(v) of the Disclosure Schedule sets forth each
policy of insurance maintained by or on behalf of Drilex and its Subsidiaries
with respect to their respective properties and businesses, identifying the
type, amount of coverage and deductible amount with respect thereto. All such
insurance is in full force and effect in all material respects.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing:
(a) GENERAL. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 6 below).
(b) BOOK AND RECORDS; LITIGATION SUPPORT. The Seller and the Buyer
agree that so long as any books, records and files retained by the Seller
relating to Drilex or its Subsidiaries or delivered to the Buyer hereunder (or
retained by Drilex or its Subsidiaries), to the extent that they pertain to the
operations of Drilex or its Subsidiaries prior to the Closing Date, remain in
existence and available as provided in the immediately succeeding sentence, each
Party shall have the right to inspect, to make available to taxing authorities
and to make copies (at the requesting Party's expense) of the same at any time
during business hours (upon reasonable notice to the other) for any proper
purpose. Neither of the Parties will destroy, without first
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having offered to deliver to the other Party, any of such books, records and
files for a period of six years after the Closing Date. Each Party agrees that
it will make available to the other, at the expense of the Party requesting the
same, records and information including, without limitation, financial records
and information (and personnel responsible for preparing or maintaining such
records and information to the extent that same shall not unreasonably
interfere with the performance of their work responsibilities) needed in
connection with any tax matters, litigation (other than among the parties
hereto), preparation of financial statements of the Company for periods prior to
those covered by the Financial Statements, or other similar matters.
(c) TRANSITION. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Drilex and its Subsidiaries from
maintaining the same business relationships with Drilex and its Subsidiaries
after the Closing as it maintained with Drilex and its Subsidiaries prior to the
Closing; PROVIDED, HOWEVER, that nothing in this Section 5(c) shall be construed
to require Seller to renew any of the items listed in Section 5(e) of the
Disclosure Schedule.
(d) COVENANT NOT TO COMPETE. For a period of five years from and after
the Closing Date, the Seller will not engage directly or indirectly in any
business that any of Drilex and its Subsidiaries conducts as of the Closing Date
in any geographic area in which any of Drilex and its Subsidiaries conducts that
business as of the Closing Date; PROVIDED, HOWEVER, that this restriction shall
not apply (i) to any acquisition by the Seller or an entity controlled by the
Seller where less than 20% of the business of such acquired entity is in
competition with the business of any of Drilex or its Subsidiaries, or (ii) to
any business in which Seller or an entity controlled by the Seller currently has
a passive investment interest, or (iii) to any business in which Seller or an
entity controlled by the Seller were engaged in prior to the Closing Date. If
the final judgment of a court of competent jurisdiction declares that any term
or provision of this Section 5(d) is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific works or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(e) RELEASES. As soon as possible after the Closing Date, Buyer shall
cause Drilex to use commercially reasonable efforts to cause Seller to be
released from any and all bonds, letters of credit, sureties, and guarantees
that are listed in Section 5(e) of the Disclosure Schedule which relate to
Drilex or any of its Subsidiaries and its or their obligations; provided,
however, that Drilex shall not be obligated to cancel any contracts or issue any
letters of credit to accomplish the foregoing, except in cases of a renewal of
any item listed in Section 5(e) of the Disclosure Schedule or any obligation
underlying any such item.
(f) TERMINATION OF SELLER SERVICES. Unless as otherwise provided in this
Agreement or under applicable law, after the Closing Date, neither Seller nor
any of its Affiliates shall be required to perform any services for Drilex or
any of its Subsidiaries.
(g) ADJUSTMENT OF CONSIDERATION.
(i) The consideration shall be adjusted as follows:
(A) If the consolidated net worth (defined as total assets
less total liabilities and in accordance with this Section 5(g)) of Drilex and
its Subsidiaries determined in accordance with this Section 5(g) as of the
Determination Time (the "Final Net Worth") is less than $11,000,000 (the "Base
Amount"), the consideration shall be decreased by an amount equal to the
difference between the Final Net Worth and the Base Amount.
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(B) If the Final Net Worth is greater than the Base Amount, the
consideration shall be increased by an amount equal to the difference between
the Final Net Worth and the Base Amount.
(ii) The Final Net Worth shall be determined based upon the consolidated
balance sheet of Drilex and its Subsidiaries as of the Determination Time (the
"Final Balance Sheet"). The Final Balance Sheet:
(A) shall be prepared in accordance with GAAP:
(B) shall reflect adjustments to:
(1) exclude all obligations with respect to all Income and all
Franchise Taxes (for which the Seller shall be responsible
pursuant to this Agreement);
(2) reclassify, to the extent not settled in full pursuant to
Section 2(c)(iii), as equity (net worth) all intercompany
accounts payable (including the amounts, if any, in respect
of Subsection (D) below), notes payable, advances, or other
intercompany indebtedness or obligations (and the
corresponding accounts, notes and advances receivable,
etc.) between (x) the Seller and its direct and indirect
subsidiaries and affiliates (excluding Drilex and its
Subsidiaries) and (y) Drilex and its Subsidiaries (such
intercompany accounts shall be repaid, contributed or
otherwise discharged in full on or before the Determination
Time):
(3) include appropriate reserves (if not already provided for)
relating to the property leased by Drilex at Shuttle Worth
Close, Gapton Hall Industrial Estate, Great Yarmouth, U.K.;
(4) exclude all obligations with respect to the Special
Severance and Bonus Retention arrangement and group health
obligations described in Section 5(k) of this Agreement for
which Seller shall be responsible pursuant to this
Agreement; and
(5) include a $50,000 reserve transferred form the Seller's
balance sheet with respect to Drilex's group health
obligations.
(C) shall reflect (without duplication) borrowings by Drilex under
the Texas Commerce Bank loan facility ($2.5 million), issuance of the Drilex
Note ($6.5 million) and issuance of the Drilex Preferred Stock ($5.0 million),
and for purposes of determining Final Net Worth, all such amounts shall be
deemed to be obligations (liabilities rather than equity or net worth) of Drilex
and its Subsidiaries in the Final Balance Sheet;
(D) shall reflect, to the extent not already so reflected,
outstanding checks (those issued by Drilex and Subsidiaries which have not yet
cleared the bank accounts) issued by Drilex on the NBD Bank, N.A. Account No.
581-90 of Drilex (the "NBD Account"), as credits against equity (net worth) and
amounts with respect thereto shall not be treated as reductions in the book
balances of cash and cash items or as accounts payable or other obligations of
Drilex; and
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(E) shall reflect, to the extent not already reflected, a
reduction in cash and a corresponding reduction in equity (net worth) with
respect to Seller's withdrawals initiated with any bank of Drilex and its
Subsidiaries prior to the Determination Time which have not been completed
through clearings by such bank prior to the Determination Time.
(iii) The Final Balance Sheet shall be prepared pursuant to the following
procedures:
(A) The Buyer shall deliver to the Seller a draft of the Final
Balance Sheet within 60 days after the Closing Date, together with a certificate
(the "Buyer's Post-Closing Certificate") signed by an office of the Buyer (1)
setting forth the amount of the Final Net Worth reflected in such Final Balance
Sheet, (2) stating that such Final Balance Sheet has, to the best knowledge and
belief of such officer, been prepared in accordance with the terms of this
Agreement and (3) setting forth the amount of any required adjustment to the
consideration pursuant to this Section 5(g).
(B) The Seller shall deliver to the Buyer a draft of the final
Balance Sheet within 60 days after the Closing Date, together with a
certificate (the "Seller's Post-Closing Certificate") signed by an officer of
the Seller (1) setting forth the amount of the Final Net Worth reflected in such
Final Balance Sheet, (2) stating that such Final Balance Sheet has, to the best
knowledge and belief of such officer, been prepared in accordance with the terms
of this Agreement and (3) setting forth the amount of any required adjustment to
the consideration pursuant to this Section 5(g). The Buyer shall cause Drilex
and its Subsidiaries to provide the Seller such assistance and access during
normal business hours to the books and records of Drilex and its Subsidiaries as
may be reasonably requested in connection with the preparation of such Final
Balance Sheet. The Seller shall be provided the opportunity to observe any
physical inventory of Drilex and its Subsidiaries taken by the Buyer in
connection with the preparation of the Final Balance Sheet.
(C) As soon as practicable after the deliveries of the Buyer's
Post-Closing Certificate nd the Seller's Post-Closing Certificate, and in any
event within 90 days after the Closing Date, the Buyer and the Seller shall
confer and attempt to reconcile any differences in their respective versions of
the Final Balance Sheet (or, in the event either party shall have failed to
deliver a draft of the Final Balance Sheet as contemplated by the foregoing
provisions, to discuss and attempt to resolve any objections such party may have
with respect to the draft of the Final Balance Sheet that has been delivered by
the other party). In connection with such conferral, each of the Buyer and the
Seller shall provide to the other all reasonable access to the schedules,
workpapers and other supporting documentation relating to their respective
drafts of the Final Balance Sheet, and each of the Buyer and the Seller hereby
consents to, and agrees to use its best efforts to cause its respective
independent accountants to permit review by the other party of any workpapers
prepared in connection with such Final Balance Sheet. If the Buyer and the
Seller are able to reach agreement with respect to the reconciliation of all
such matters and reduce such agreement to writing, then the Final Balance Sheet
shall be finalized (and become binding on the parties hereto) based on such
reconciliation, and the Buyer or the Seller (as the case may be) shall be
entitled to payment in accordance with the provisions of Section 5(g)(iv)
hereof.
(D) If, at the end of the 90-day period following the Closing Date,
the Buyer and the Seller shall have failed to reach written agreement with
respect to the reconciliation of any difference in their respective versions of
the Final Balance Sheet, then the parties will (1) jointly engage one of the six
major independent accounting firms as may be mutually agreed upon by the Buyer
and the Seller (the "Accounting Firm") to review only such matters as to which
written agreement has not been reached (Disputed Items") and (2) request the
Accounting Firm to act promptly and to resolve all Disputed Items within 60 days
after being retained by the Parties. In such event, the Accounting Firm shall
be directed to evaluate each of the Disputed Items and shall
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consider each such item to be material. The Buyer and the Seller shall, and the
Buyer shall cause Drilex and its Subsidiaries to, cooperate fully with the
Accounting Firm in connection with the resolution of any such Disputed Items.
The Accounting Firm shall confine itself only to Disputed Items. In arriving at
its determination with respect to each Disputed Item, the Accounting Firm shall
make its determination within the range of the respective amounts claimed by the
Buyer and the Seller. Each of the Buyer and the Seller shall have the right to
submit supporting or explanatory material to the Accounting Firm, provided that
a copy of such material is concurrently submitted to the other Party. The
Accounting Firm shall provide a written explanation of its final determination
with respect to the Disputed Items to each of the Buyer and the Seller, and the
Final Balance Sheet shall be immediately finalized (and become binding on the
Parties) based on such final determination and based on the reconciliation of
any items by agreement between the Buyer and the Seller in the manner provided
in paragraph (3) above, and the Buyer or the Seller (as the case may be) shall
be entitled to payment in accordance with the provisions of Section 5(g)(iv)
hereof. The resolution of the Disputed Items by the Accounting Firm shall be
final and binding on the parties, and the Parties agree that they shall forever
abide by such determination, shall treat such determination as a final
arbitration of any disputes which were the subject of the disagreement resulting
in the review and determination by the Accounting Firm and shall not litigate or
otherwise have recourse to a court or other forum with respect thereto. Each of
the Buyer and the Seller, in connection with any engagement of the Accounting
Firm, agrees to indemnify and hold harmless the Accounting Firm from and against
any losses, claims, damages, liabilities (or actions in respect thereof) and
expenses, including, without limitation, court costs and reasonable attorneys'
fees, to which the Accounting Firm may become subject to the extent that such
losses, claims, damages, liabilities or expenses arise out of or are based upon
the services provided by the Accounting Firm in connection with such engagement
or the report of the Accounting Firm with respect to the Disputed Items, other
than losses, claims, damages, liabilities or expenses caused by the Accounting
Firm's gross negligence or willful misconduct, it being the specific intent of
the Buyer and the Seller to so indemnify the Accounting Firm against its own
ordinary negligence. The fees and expenses of the Accounting Firm shall be borne
equally by the Seller and the Buyer.
(iv) Within two business days after the date on which the Final
Balance Sheet shall become final and binding upon the Parties pursuant to the
provisions of this Section 5(g), (A) if the Base Amount exceeds the Final Net
Worth, (x) to the extent there is any Cash Differential, the Seller shall pay to
the Buyer an amount (the "Cash Adjustment Amount") equal to the lesser of the
amount of the Cash Differential or the amount by which the Base Amount exceeds
the Final Net Worth, by wire transfer of immediately available funds to a bank
account designated by Buyer, and (2) the outstanding principal balance of the
Drilex Note (commencing with the next principal payment due under the Drilex
Note) shall be reduced by the amount, if any, by which the Base Amount exceeds
the sum of (x) the Final Net Worth and (y) the Cash Adjustment Amount, or (B)
the Buyer shall pay to the Seller the amount, if any, by which the Final Net
Worth is greater than the Base Amount by wire transfer of immediately available
funds to a bank account designated by the Seller.
(h) CASH MANAGEMENT Procedures.
(i) Commencing immediately following the Determination Time:
(A) Drilex shall discontinue further issuance of checks in
disbursement of funds from (drawn against) the NBD Account,
(B) Seller shall assume full, final and sole responsibility for
the NBD Account and fund at its sole cost (and without recourse to Drilex or
Buyer) funding and payment of all checks
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issued by Drilex on or prior to the Determination Time which are presented
for payment (clear) against the NBD Account after the Determination
Time, and
(C) Seller shall discontinue the withdrawal of funds from the
Lockbox Bank Account and any other bank accounts of Drilex and its
Subsidiaries; provided however, Seller's withdrawals initiated with the
Lockbox Bank Account prior to the Determination Time shall, if not
completed through clearings by the Lockbox Bank Account prior to the
Determination Time, be permitted to clear the Lockbox Bank Account after
the Determination Time.
(ii) On or before May 31, 1994, Buyer shall prepare a reconciliation of
cash deposits by Seller and its Subsidiaries and affiliates to, and cash
withdrawals by Seller and its subsidiaries and Affiliates from, the bank
accounts of Drilex and its Subsidiaries during the period subsequent to the
Determination Time and
(A) if Seller's and its subsidiaries' and Affiliates' deposits to
Drilex's and its Subsidiaries' bank accounts exceed Seller's and its
subsidiaries' and Affiliates' withdrawals from Drilex's and its
Subsidiaries' bank accounts, a net contribution has occurred, and Buyer
shall then be obligated to pay to Seller the amount of such net
contribution, or
(B) if Seller's and its subsidiaries and Affiliates' withdrawals
from Drilex's and its Subsidiaries' bank accounts exceed Seller's and its
subsidiaries' and Affiliates' deposits to Drilex's and its Subsidiaries'
bank accounts, a net distribution has occurred, and Seller shall then be
obligated to pay to Buyer the amount of such net distribution;
provided however, that for the purposes of this clause (ii) Seller's and
its subsidiaries' and Affiliates' deposits into the bank accounts of
Drilex and Subsidiaries shall not include (x) any amounts in respect of
deposits to the NBD Account after the Determination Time to fund the
presentment of checks issued by Drilex and its Subsidiaries on or before
the Determination Time, and instead the provisions of Section 5(h)(iii)
below shall apply in determining the amount of Seller's deposits in
respect of such account or (y) any amounts reimbursed by Seller to Drilex,
its Subsidiaries or Buyer pursuant to this Agreement, and
(iii) With respect to checks issued (drawn) (net of checks cancelled) on
the NBD Account by Drilex and its Subsidiaries
(A) on or prior to the Determination Time, Seller shall be
obligated to fund (using its own funds and without recourse to Drilex or
Buyer) all such checks upon presentment to the NBD Account after the
Determination Time, including those presented for payment after the
Determination Time and upon presentment and funding thereof no amounts
shall be credited to Seller with respect to deposits in the reconciliation
referred to in Section 5(h)(ii) above, and
(B) for purposes of determining net cash contributions and net cash
distributions in the reconciliation referred to in Subsection (ii) above
for the period subsequent to the Determination Time, the Seller shall be
credited with having made a "deemed" contribution to the NBD Account in
the aggregate amount of all such checks issued (net of checks cancelled)
by Drilex against the NBD Account during the period subsequent to the
Determination Time for which funding is required by Seller.
(iv) Seller shall have up to 30 days to review Buyer's reconciliation of
cash deposits (contributions) to and cash withdrawals (distributions) from the
bank accounts of Drilex and its Subsidiaries and
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(A) if Seller objects to any part of the reconciliation, the
provisions of Section 5(g)(iii)(D) shall be followed in resolution of the
disputed portions thereof, or
(B) if Seller accepts Buyer's reconciliation or, if such
reconciliation is disputed, upon final resolution of the disputed items by
the Accounting Firm, then within ten business days of such acceptance or
final resolution the amounts finally determined for net cash contributions
or net cash distributions shall be paid, without interest, to the Buyer or
Seller as the case may be.
(v) Notwithstanding anything to the contrary set forth in Section
5(h)(ii) or Section 5(h)(iii) above, Seller shall not be credited with any
"deemed" contribution to Drilex's and its Subsidiaries' bank accounts in respect
of any check issued in favor of Seller or its subsidiaries and Affiliates after
the Determination Time.
(vi) Commencing immediately following the Determination Time, Seller
shall (A) if it receives funds attributable to Drilex and its Subsidiaries,
promptly and fully surrender such funds to Drilex and no amounts with respect to
such funds shall be considered deposits or contributions of Seller for purposes
of the reconciliation described in Section 5(h)(ii) above, and (B) relinquish
dominion, as soon as reasonably possible, over the Lockbox Bank Account to
Drilex and shall so advise appropriate officials of such bank.
(i) SELLER'S DC PLANS. As soon as practicable after the Closing Date, Buyer
shall cause Drilex to take all action necessary and appropriate to establish a
defined contribution plan ("Buyer's New Plan") qualified under sections 401(a)
and 501(a) of the Code. As soon as practicable following the later of (A) the
Closing Date, and (B) the establishment of the Buyer's New Plan, the Seller
shall cause to be transferred from the trustees of the Seller's DC Plans to the
trustee of the Buyer's New Plan an amount in cash equal to the aggregate account
balances of the Drilex Participants under the Seller's DC Plans determined as of
the transfer date utilizing the most recent available regular plan valuation
adjusted for the period following such valuation to the date of transfer by
application of the NBD Bank, N.A. sort term investment fund rate for such
period, and where available, the current account valuation in accordance with
the methods of valuation set forth in the Seller's DC Plans; provided, however,
that to the extent any Drilex Participant owes any amount to a Seller's DC Plan
pursuant to the terms of a loan from such plan to such Drilex Participant, an
assignment of such loan shall be made in lieu of the transfer of cash. From and
after the date of such transfer, the Buyer shall cause the Buyer's New Plan to
assume the obligations of the Seller's DC Plans with respect to benefits accrued
by the Drilex Participants under the Seller's DC Plans, and the Seller and the
Seller's DC Plans shall cease to be responsible therefor. The Buyer and the
Seller shall cooperate in making all appropriate Internal Revenue Service
filings in connection with the transfer described above.
(j) REFUNDS. Any and all refunds for Taxes paid by Seller for any
Pre-Closing Taxable Period shall be paid to Seller by Buyer or Drilex within
three business days after receipt by Buyer or Drilex. Any and all refunds for
Taxes paid by Buyer or Drilex for any Post-Closing Taxable Period shall be paid
to Buyer or Drilex, as applicable, within three business days after receipt by
Seller.
(k) CERTAIN EMPLOYEE MATTERS.
(i) Reference is hereby made to the special severance package ("Special
Severance") and bonus retention letters ("Bonus Retention") listed as items
(A)(2)(i) and (A)(2)(j), respectively, in Section 4(r)(i) of the Disclosure
Schedule. Section 4(r)(i) of the Disclosure Schedule identifies each individual
to whom the Special Severance applies and each individual to whom the Bonus
Retention applies and includes a true and correct copy of the Special Severance
and each Bonus Retention. Notwithstanding any term or provision hereof, the
Seller hereby agrees to reimburse Drilex for (A) the Excess Amount paid by
Drilex or any Subsidiary with respect to each individual to whom amounts are
paid under the Special Severance and (B) any and all amounts required to be paid
by Drilex or any Subsidiary under the bonus Retention. Buyer
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shall cause Drilex to pay all such amounts when due. For purposes of this
Section 5(k)(i), the "Excess Amount" paid with respect to any individual who is
paid an amount under the Special Severance shall mean an amount equal to the
difference, if any, between (1) the amount paid to such individual under the
Special Severance, and (2) the amount that would have been paid to such
individual under the Past Severance Practice had such practice continued to be
applicable to such individual. Amounts payable by the Seller to Drilex under
this Section 5(k)(i) shall be paid by the Seller to Drilex within ten days after
notice from the Buyer that such amount is owed to Drilex.
(ii) With respect to Ms. Dawn Agee, Seller shall reimburse Drilex for
the actual cost of medical benefits paid by Drilex (and not reimbursed to
Drilex) to her or with respect to her for costs incurred by her during the
one-year period after the Closing Date that would have been payable but for the
sale to Buyer hereunder under Seller's group health plan as in effect
immediately prior to the Closing Date, up to a maximum of $50,000.
(iii) Except as set forth in Section 5(k)(ii), Seller shall not be liable
for any Drilex group health plan costs incurred after the Closing Date.
(l) Settlement Agreement. Buyer shall use commercially reasonable efforts not
to take any action, or fail to take any action, that would cause Drilex to
violate any terms or conditions of the Settlement Agreement, effective February
11, 1994, by and among Halliburton Company, Drilex, Seller and Smith
International, Inc.
(m) BUYER RELEASES. The Buyer hereby releases and forever discharges the
Seller from any and all liabilities, debts, claims, demands, damages, causes of
action, and obligations of any nature whatsoever, past and present, whether or
not now known, suspected or claimed, that relate to (a) the issuance by Drilex
to Seller of the Drilex Preferred Stock; (b) the issuance and payments by Drilex
to Seller under the Drilex Note; and (c) the payment by Drilex to Seller of the
proceeds from the $2,500,000 Texas Commerce Bank loan; provided, however, that
such release and discharge shall specifically exclude the Buyer's rights under
this Agreement (including without limitation the Buyer's rights under Section 6
of this Agreement), which rights shall not be affected in any way by this
release and discharge.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT; INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the
representations and warranties of the Parties contained in Section 3 above
survive the Closing hereunder and continue in full force and effect
indefinitely. All of the representations and warranties of the Seller contained
in Section 4 above shall survive the Closing and continue in full force and
effect for three years thereafter, except for the representations and warranties
in Section 4(l) (Intellectual Property), Section 4(q) (Litigation), and Section
4(s) (Environmental, Health and Safety Laws), which shall survive the Closing
and continue in full force and effect for a period of five years thereafter. All
of the covenants to be performed by either Party under this Agreement (except
for covenants to be performed entirely prior to or at the Closing) shall survive
and continue in full force and effect indefinitely unless earlier terminated
pursuant to its terms:
(b) INDEMNIFICATION PROVISIONS.
(i) Subject to the provisions of Section 6(b)(v), 6(b)(vi) and 6(b)(vii), if
the Seller breaches any of its (A) representations and warranties contained in
Section 3 or Section 4 hereof (except for any matter covered under Section 6(b)
(ii) or (B) covenants contained herein, and the Buyer makes a written claim for
indemnification against the Seller (with respect to representations and
warranties, within the applicable survival period thereof set forth in Section
6(a) the Seller shall indemnify the Buyer, Drilex and its Subsidiaries, and
their respective directors, officers, employees, agents and representatives (the
"Buyer
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Indemnified Parties"), from and against any and all Adverse Consequences any of
them shall suffer as a result of such breach.
(ii) Subject to the provisions of Section 6(b)(vii), for a period of ten
(10) years after the Closing, the Seller shall indemnify and hold harmless the
Buyer Indemnified Parties from and against any and all Adverse Consequences any
of them shall suffer as a result of any and all of the following matters:
(A) Any claim, action or proceeding initiated by a third party
(including any claim, action or proceeding initiated by any governmental
authority), whether asserted before or after the Closing Date, to the extent
relating to the operation of the business and assets of Drilex prior to the
Closing Date; and
(B) Whether or not a claim could also be made under Section 6(b)(ii)(A):
(1) the past or present presence of Indemnified Substances (as
defined below) for which remediation or clean-up is required by Environmental,
Health and Safety Laws in effect at the time of the claim, which Indemnified
Substances are or were located on, within or under any real properties owned,
leased or operated at any time by Drilex or its Subsidiaries; in each case to
the extent such presence, remediation or clean-up is attributable to periods on
or prior to the Closing Date;
(2) subject to the provisions of Sections 6(b)(v), any product
liability claims concerning products manufactured, rented or sold by Drilex or
its Subsidiaries or any of their respective predecessors on or prior to the
Closing Date (excluding products refurbished by Drilex or its Subsidiaries after
the Closing);
(3) subject to the provisions of Sections 6(b)(v), any medical or
other benefits for former employees of Drilex or its Subsidiaries who retired
from employment with Drilex or its Subsidiaries on or before the Closing Date
and which are either not disclosed in the Disclosure Schedule as being due and
owing or are not fully reflected as an obligation in the Final Balance Sheet;
(4) subject to the provisions of Sections 6(b)(v), any and all
actions, suits, proceedings, hearings, claims or demands pending before any
court or other tribunal on the Closing Date (or pending after the Closing Date
but arising out of or related to any of the foregoing) against or with respect
to Drilex or its Subsidiaries;
(5) subject to the provisions of Sections 6(b)(v), any breach by
Seller of its representations and warranties set forth in Section 3(a)(v).
(iii) For an indefinite period after the Closing, Seller shall indemnify and
hold harmless the Buyer Indemnified Parties from and against any and all Adverse
Consequences, any of them shall suffer in respect of claims brought by any third
party (including any claim, action or proceeding initiated by any governmental
authority), whether asserted before or after the Closing Date, that relate to
(1) that certain litigation identified as Civil Action No. H-91-3550, filed in
the United States District Court for the Southern District of Texas,styled Smith
International, Inc., et al. v. Drilex Systems, Inc., et al., or any of the
events or circumstances described in any complaint, response, pleading or other
document filed in connection therewith, including without limitation, the
letters described under item 3 of Section 4(l)(ii) of the Disclosure Schedule,
or (2) any business or assets (including stock) owned (either
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currently or in the past) by Drilex, which became Drilex businesses or assets
through contribution, consolidation or merger to or with Drilex by Seller or
at the request of Seller or its Affiliates and which did not relate to the
business of Drilex as it existed at the time Drilex was acquired by Seller.
(iv) Buyer agrees to indemnify the Seller and its directors, officers,
employees, agents and representatives the "Seller Indemnified Parties") from and
against any and all Adverse Consequences any of them shall suffer as a result
of:
(1) any breach by Buyer of its representations, warranties and
covenants contained in this Agreement;
(2) claims by third party creditors (or assignees thereof) arising out
of (A) the issuance by Drilex to Seller of the Drilex Preferred Stock; (B) the
issuance and payments by Drilex to Seller under the Drilex Note; and (C) the
payment by Drilex to Seller of the proceeds from the $2,500,000 Texas Commerce
Bank loan; and
(3) any payments made by Seller with respect to the items listed in
Section 5(e) of the Disclosure Schedule; provided, however, that Seller shall
give Buyer prompt notice it may receive of any and all demands for such payments
and other material communications with respect to any such items.
Indemnification claims for which Buyer is liable to the Seller Indemnified
Parties shall be paid in cash to Seller within five business days after Buyer's
receipt of such request, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to the terms of this Agreement.
(v) No Indemnified Party shall be entitled to indemnification pursuant to
Section 6(b)(i)(A), 6(b)(ii)(A) or 6(b)(ii)(B)(5) until the aggregate amount of
any and all amounts to be paid under all such Sections exceeds $250,000, and
then only to the extent of such excess over $250,000.
(vi) Notwithstanding the above, the aggregate amount owed by the Seller
pursuant to Section 6(b)(i)(A) of this Agreement shall not exceed:
(A) for claims made during the period from the Closing Date through
the first anniversary thereof, $13,500,000;
(B) for claims made during the period from the first anniversary of
the Closing Date through the third anniversary date thereof, $9,000,000; and
(C) for claims made during the period from the third anniversary of
the Closing Date through the fifth anniversary thereof, $5,000,000.
provided, however, in no events shall the amount owned by Seller pursuant to
6(b)(i)(A) exceed in the aggregate $13,500,000.
(vii) Notwithstanding the above, the aggregate amount owed by the Seller
pursuant to Sections 6(b)(i)(A) and 6(b)(ii) of this Agreement shall not exceed
$25,000,000.
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(viii) Indemnification pursuant to Section 6(b)(iii) shall have no
monetary or time limits.
(ix) The Buyer, at its option, shall have the right from time to time to
notify the Seller that amounts to be paid by the Seller in indemnification under
this Section 6 to Drilex or its Subsidiaries shall be paid to the Buyer and not
to Drilex or its Subsidiaries, and from and after any such notice, the Seller
shall make such indemnification payments under this Section 6 only to or at the
discretion of the Buyer and not to Drilex or its Subsidiaries, unless and until
notified to the contrary by the Buyer.
(x) For purposes of Section 6(b)(ii)(B), "Indemnified Substances"
means any pollutant, toxic substance, asbestos, solid or hazardous waste, or any
constituent of any such substance, waste or product, whether solid, liquid or
gaseous in form, described in or regulated under the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), or
under any other federal, state or local law, statute, ordinance, rule,
regulation, order, judicial decision, arbitration decision or determination of
any governmental authority, and shall include petroleum, natural gas, natural
gas liquids, crude oil and any fraction or product thereof.
(xi) THE INDEMNIFICATION OBLIGATIONS UNDER THIS SECTION 6(b) SHALL APPLY
REGARDLESS OF THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, GROSS
NEGLIGENCE OR STRICT LIABILITY OF DRILEX OR ITS SUBSIDIARIES OR THEIR RESPECTIVE
OFFICERS, DIRECTORS AND EMPLOYEES PRIOR TO THE CLOSING. IN THE EVENT THAT BOTH
(A) ANY BUYER INDEMNIFIED PARTY AND (B) THE SELLER ARE NEGLIGENT OR OTHERWISE AT
FAULT OR STRICTLY LIABLE WITH RESPECT TO ADVERSE CONSEQUENCES, THE
INDEMNIFICATION OBLIGATIONS UNDER THIS SECTION 6 SHALL CONTINUE, BUT THE SELLER
SHALL NOT BE OBLIGATED TO INDEMNIFY THE BUYER INDEMNIFIED PARTY FOR THE
PERCENTAGE OF RESPONSIBILITY OF THE ADVERSE CONSEQUENCES THAT IS ATTRIBUTABLE TO
ACTS OR OMISSIONS BY ANY BUYER INDEMNIFIED PARTY AFTER THE CLOSING. IN SUCH A
SITUATION, IT IS INTENDED THAT, TO THE EXTENT EITHER ANY BUYER INDEMNIFIED PARTY
OR THE SELLER SUFFERS ANY ADVERSE CONSEQUENCES, THESE OBLIGATIONS OF
INDEMNIFICATION SHALL FUNCTION AS A CONTRACTUAL ARRANGEMENT OF CONTRIBUTION.
THIS CONTRACTUAL ARRANGEMENT OF CONTRIBUTION SHALL SURVIVE SETTLEMENT OF ANY
UNDERLYING THIRD PARTY CLAIM AND, PROVIDED THAT THE BUYER INDEMNIFIED PARTY HAS
COMPLIED WITH SECTION 6(C), SHALL APPLY TO VOLUNTARY SETTLEMENTS MADE BY THE
BUYER INDEMNIFIED PARTY WITH ANY THIRD PARTY.
(c) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify Buyer, Seller or Drilex or its
Subsidiaries, or any of their respective directors, officers, employees, agents
and representatives, (the "Indemnified Party") with respect to any matter (a
"Third Party Claim") which may give rise to a claim for indemnification against
either Seller or Buyer (the "Indemnifying Party") under this Section 6, then the
Indemnified Party shall promptly (and in any event within ten (10) business days
after receiving notice of the Third Party Claim) notify the Indemnifying Party
thereof in writing; provided, that the failure to notify the Indemnifying Party
within such ten business day-period shall not affect the rights and obligations
under this Section 6 except to the extent the Indemnifying Party is materially
adversely prejudiced by such failure.
(ii) Any Indemnifying Party will have the right to assume and thereafter
conduct the defense of the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party; provided, however, that the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without prior written
consent of the Indemnified Party (not
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to be withheld unreasonably) unless the judgment or proposed settlement involves
only the payment of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(iii) Unless and until an Indemnifying Party assumes the defense of the
Third Party Claim as provided in Section 6(c)(ii) above, however, the
Indemnified party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not to be withheld
unreasonably), unless the Indemnifying Party has refused to assume the defense
of the Third Party Claim.
(d) DETERMINATION OF ADVERSE CONSEQUENCES. In determining Adverse
Consequences for the purposes of this Section 6, the Parties shall make
appropriate adjustments or reimbursements for the net tax benefits actually
received (without regard to timing). All indemnification payments under this
Section 6 shall be deemed adjustments to the consideration and be effected in
accordance with the terms of this Agreement.
(e) SOLE AND EXCLUSIVE REMEDY. The indemnification provisions in this
Section 6 are the sole and exclusive remedy any Party may have for the breach of
any representation or warranty of this Agreement.
(f) ASSIGNMENT OF RIGHTS. To the extent indemnification is paid for the
total loss of value of any note or account receivable, the Buyer agrees that it
shall cause Drilex to assign or transfer to the Seller any and all rights Drilex
may have to such note or account receivable without recourse to Drilex or its
Subsidiaries.
(g) INITIAL OFFSET LIMIT. In connection with the payment of any
indemnification obligation under this Section 6, the Seller shall have the right
to offset any indemnification obligation of Seller owed to Buyer, Drilex or its
Subsidiaries under this Section 6 against amounts owed to Seller under the
Drilex Note subject (except as set forth in Section 6(h) below) to the following
limitations: (i) the maximum amount Seller shall be entitled to offset against
the Drilex Note in any annual period is $100,000 and (ii) the maximum total
amount Seller shall be entitled to offset against the Drilex Note shall be
$250,000. In each case, the offset limit set forth under Section 6(g)(i) and
Section 6(g)(ii) is hereafter referred to as the "Initial Offset Limit."
(h) PAYMENT OF INDEMNIFICATION CLAIMS BY SELLER. Indemnification claims for
which Seller is liable to Buyer or Drilex or its Subsidiaries pursuant to this
Section 6 shall be paid by Seller as follows:
(i) First, the Seller shall have the right to offset amounts owed
pursuant to the Drilex Note (commencing with the next principal payment due
under the Drilex Note) against such amount owed by the Seller up to the Initial
Offset Limit;
(ii) Second, the Seller shall pay cash to Buyer, Drilex or its
Subsidiaries, as appropriate, up to an amount equal to (A) the sum of (1)
$13,500,000, (2) any principal amounts theretofore paid to the Seller in cash
under the Drilex Note, plus (3) any amounts theretofore paid to the Seller in
cash as a redemption of the Drilex Preferred Stock;
(iii) Third, notwithstanding the provisions of Section 6(g) above, the
Seller shall have the right to offset amounts owed pursuant to the Drilex Note
(commencing with the next principal payment due under the Drilex Note) against
any remaining amounts owed by the Seller, up to the outstanding principal
balance of the Drilex Note;
(iv) Fourth, the Seller shall have the right to redeem shares of Drilex
Preferred Stock owned and held by Seller and apply any redemption amount owed to
Seller against any remaining amount
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owed by the Seller to any Buyer Indemnified Party, up to the total redemption
value of all shares of Drilex Preferred Stock owned and held by the Seller; and
(v) Fifth, the Seller shall pay cash to Buyer for any remaining amount
owed by the Seller.
(i) INVENTORY CLAIMS. Notwithstanding the provisions of Sections 6(g) and
6(h), with respect to indemnification claims for which the Seller is liable to
Buyer or Drilex and its Subsidiaries under Section 6(b)(i)(A) arising out of a
breach of Section 4(o), the Seller shall have the right to offset amounts owed
pursuant to the Drilex Note (commencing with the next principal payment due
under the Drilex Note) against any remaining amounts owed by the Seller, up to
the outstanding principal balance of the Drilex Note.
(j) ENVIRONMENTAL INVESTIGATION AND REMEDIATION. If any clean-up,
remediation or assessment is required as to which Seller is responsible under
Section 6(b)(ii)(B)(1), Seller shall have the right to control and direct any
such clean-up or remediation or assessment. At the option of Seller, Seller may
initially pursue a risk assessment analysis instead of a clean-up or
remediation; and Seller may implement a risk assessment-based remedy with (i)
the reasonable approval of Buyer as to the assumptions under such remedy and
(ii) the approval of applicable governmental authorities. Seller shall have the
right to enter the site where clean-up or remediation is required and to perform
all acts appropriate to complete remediation or clean-up in accordance with any
governmental approved remediation plan as to which Seller is responsible under
Section 6(b)(ii)(B)(1), and shall indemnify and hold harmless the Buyer
Indemnified Parties with respect to personal injury or property claims by third
parties arising out of such acts. Seller shall use commercially reasonable
efforts in preparing and implementing any remediation or clean-up plan to avoid
unreasonable interference with Drilex's use and enjoyment of such site,
provided, however, that nothing herein shall limit Seller's ability to comply
with any valid order of any governmental agency having jurisdiction over
environmental matters on such site. Seller shall under no circumstances be
responsible for any damages suffered relating to any interruption of the
business of Drilex. Seller shall use commercially reasonable efforts to (i)
minimize any diminution of the value of the site or any improvements thereon,
(ii) minimize any other consequential damages caused directly or indirectly as a
result of the implementation of an approved remediation plan and (iii) restore
such site and improvements thereon to the condition that such site and
improvements would have been in, but for the past or present presence of
Indemnified Substances or remediation or clean-up with respect thereto, which
presence, remediation or clean-up is attributable to periods on or prior to the
Closing Date. Except to the extent Seller is responsible under Section
6(b)(ii)(B)(1), any environmental investigation conducted after the Closing
(including any Phase 2 investigations) regarding the properties owned, leased or
operated by Drilex or its Subsidiaries on or prior to the Closing Date shall be
at the expense of Buyer or Drilex, and Buyer will keep Seller advised with
respect to any such investigation and permit Seller to participate in any such
investigation, including the right to split any soil samples taken on any of
such properties.
7. TAXES. Except as provided below, Seller shall be responsible for all Taxes
for all Pre-closing Taxable Periods for Drilex and its Subsidiaries other than
to the extent reflected on the Final Balance Sheet and Buyer shall be
responsible for all Taxes for all Post-Closing Taxable Periods for Drilex and
its Subsidiaries and for Taxes for Pre-Closing Taxable Periods to the extent
reflected on the Final Balance Sheet;
(a) TAX REPRESENTATIONS. Seller represents and warrants as follows:
(i) Section 7(a)(i) of the Disclosure Schedule lists all income Tax
Returns filed with respect to Drilex and its Subsidiaries with respect to which
the statute of limitations is still open, indicates those income Tax Returns
that have been audited, and indicates all income Tax Returns that currently are
the subject of audit;
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(ii) None of Drilex and its Subsidiaries has been a member of an
Affiliated Group filing a consolidated United States Federal income Tax Return
other than a group, the common parent of which is the Seller;
(iii) All Tax sharing agreements or similar arrangements with respect to
or involving Drilex or any Subsidiary have been or will be terminated prior to
the Closing Date, and after the Closing Date neither Drilex nor any Subsidiary
shall have any obligation under any such agreement for any past, current or
future period.
(iv) None of the property of Drilex or any Subsidiary is held in an
arrangement that could be classified as a partnership for Tax purposes, and
neither Drilex nor any Subsidiary own any interest in any passive foreign
investment company (as defined in section 1296 of the Code), or other entity
the income of which is required to be included in the income of Drilex or any
Subsidiary;
(v) Neither Drilex nor any Subsidiary is obligated to take any action or
refrain from taking any action in connection with any agreement with any Taxing
Authority involving an abatement of any Tax; and
(vi) The Seller filed a consolidated federal income Tax Return that
included Drilex and each Subsidiary for the taxable year immediately preceding
the current taxable year and the Seller is eligible to make an election under
Section 338(h)(10) of the Code with respect to Drilex and each Subsidiary.
(vii) There is not in force any extension of time with respect to the
due date for the filing of any Tax Return of, or with respect to, Drilex or any
Subsidiary or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of, or with respect to, Drilex or any
Subsidiary.
(b) SECTION 338(H)(10) ELECTIONS. The Seller, as the common parent of the
Affiliated Group of corporations filing a consolidated U.S. federal income Tax
Return which includes Drilex and the Subsidiaries (the "Seller Group"), shall
join the Buyer in making a timely, irrevocable and effective election under
Section 338(h)(10) of the Code and a similar election under any applicable state
income tax law (collectively the "Section 338(h)(10) Elections") with respect to
the Buyer's purchase of the Drilex Shares. To facilitate such election, the
Seller shall deliver to the Buyer an Internal Revenue Service Form 8023 and any
similar forms under applicable state income tax law requested by Buyer following
the Closing (the "Forms") with respect to the Buyer's purchase of the Drilex
Shares, which Forms shall have been duly executed by an authorized person for
the Seller. The Buyer shall cause the Forms to be duly executed by an authorized
person for the Buyer, shall complete the schedules required to be attached
thereto, shall provide a copy of the executed Form and schedules to the Seller,
and shall duly and timely file the Forms as prescribed by Treasury Regulation
1.338(h)(10)-1 or the corresponding provisions of applicable state income tax
law.
(c) PREPARATION AND FILING OF TAX RETURNS.
(i) With respect to each Tax Return covering a taxable period ending on
or before the Closing Date that is required to be filed after the Closing Date
for, by or with respect to Drilex or any Subsidiary (other than the Tax Returns
described in Section 7(c)(iii)), the Seller shall cause such Tax Return to be
prepared, shall cause to be included in such Tax Return all items of income,
gain, loss, deduction and credit or other items (collectively "Tax Items")
required to be included therein, and deliver such Tax Returns to Buyer for
examination and filing by Drilex along with a check payable to the relevant Tax
Authority for the amount of Tax shown on the Tax Return no later than 5 days
prior to the due date of the Tax Return. Drilex shall file such Tax Return with
the appropriate Tax Authority on a timely basis along with a check received from
Seller made payable to the relevant Tax Authority.
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(ii) With respect to each Tax Return covering (A) a taxable
period beginning on or before the Closing Date and ending after the Closing
Date, or (B) a taxable period beginning after the Closing Date, that is required
to be filed after the Closing Date for, by or with respect to Drilex or any
Subsidiary (other than the Tax Returns described in Section 7(c)(iii)), the
Buyer shall cause such Tax Return to be prepared and shall cause to be included
in such Tax Return all Tax Items required to be included therein. The Buyer
shall determine (by an interim closing of the books as of the Closing Date,
except for ad valorem Taxes and franchise Taxes based on capital which shall be
prorated on a daily basis) the portion, if any, of the Tax due with respect to
the period covered by such Tax Return which is attributable to Drilex or the
respective Subsidiary for a Pre-Closing Taxable Period. At least 30 days prior
to the due date (including extensions) of such Tax Return, the Buyer shall
deliver to the Seller a copy of such Tax Return and of its determinations. The
Seller shall pay to the Buyer the amount of such Taxes attributable to a Pre-
Closing Taxable Period not less than 5 days prior to the due date of such Tax
Return. The Buyer shall cause Drilex or the respective Subsidiary to file timely
such Tax Return with the appropriate taxing authority and to pay timely the
amount of Taxes shown to be due on such Tax Return.
(iii) The Seller cause to be included in the consolidated U.S.
federal income Tax Returns (and the state income Tax Returns of any state that
permits consolidated, combined or unitary income Tax Returns, if any) of the
Seller Group for all periods ending on or before or which include the Closing
Date, all Tax Items of Drilex and the Subsidiaries which are required to be
included therein, shall file timely all such Tax Returns with the appropriate
taxing authorities and shall pay timely all Taxes due with respect to the
periods covered by such Tax Returns.
(iv) Any Tax Return to be prepared pursuant to the
provisions of this Section 7 shall be prepared in a manner consistent with
practices followed in prior years with respect to similar Tax Returns, except
for changes required by changes in law, changes in facts, or corrections of
errors.
(d) ACCESS TO INFORMATION.
(i) The Seller and each member of the Seller Group grant to
the Buyer (or its designees) access at all reasonable times to all of the
information, books and records relating to Drilex and the Subsidiaries within
the possession of the Seller or any member of the Seller Group (including
workpapers and correspondence with Tax Authorities), and shall afford the Buyer
(or its designees) the right (at the Buyer's expense) to take extracts therefrom
and to make copies thereof, to the extent reasonable necessary to permit the
Buyer (or its designees) to prepare Tax Returns to conduct negotiations with Tax
authorities, and to implement the provisions of, or to investigate or defend any
claims between the parties arising under, this Agreement.
(ii) The Buyer shall grant or cause Drilex and the
Subsidiaries to grant to the Seller (or its designees) access at all reasonable
times to all of the information, books and records relating to Drilex and the
Subsidiaries within the possession of the Buyer, Drilex or the Subsidiaries
(including workpapers and correspondence with taxing authorities), and shall
afford the Seller (or its designees) the right (at Seller's expense) to take
extracts therefrom and to make copies thereof, to the extent reasonably
necessary to permit the Seller (or its designees) to prepare Tax Returns, to
conduct negotiations with Tax Authorities, and to implement the provisions of,
or to investigate or defend any claims between the parties arising under, this
Agreement.
(iii) Each of the Parties will preserve and retain all
schedules, workpapers and other documents relating to any Tax Returns of or with
respect to Drilex or any Subsidiary or to any claims, audits or other
proceedings affecting Drilex or any Subsidiary until the expiration of the
statue of limitations (including extensions) applicable to the taxable period to
which such documents relate or until the final
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determination of any controversy with respect to such taxable period, and until
the final determination of any payments that may be required with respect to
such taxable period under this Agreement.
(e) SELLER TAX INDEMNIFICATIONS. The Seller hereby agrees to protect,
defend, indemnify and hold harmless the Buyer, Drilex and the Subsidiaries from
and against, and agrees to pay, all Taxes imposed and all costs and expenses
(including, without limitation, litigation costs and reasonable attorneys' and
accountants' fees and disbursements) incurred (all herein referred to as "Tax
Losses") as a result of:
(i) A claim, notice of deficiency, or assessment by, or any
obligation owing to, any taxing authority for:
(A) Any Taxes of Drilex or any Subsidiary attributable
to any Pre-Closing Taxable Period;
(B) Any Taxes of any corporation (other than Drilex and
the Subsidiaries) that is or was a member of the Seller Group or of any other
affiliated group of corporations of which Drilex or any Subsidiary was a member
at any time on or prior to the Closing Date.
(C) Any Taxes resulting from any election under section
338 of the Code (or similar provision); provided that if any one or more Taxing
Authorities impose an income Tax on both the Seller's sale of the Drilex Shares
and upon the deemed sale of the assets of Drilex, the Seller's obligation under
this Section 7(e)(i)(C) shall be reduced by the lesser of (1) 50% of the Taxes
imposed on the Seller by such Taxing Authorities on the sale of the Drilex
Shares (exclusive of any Taxes imposed on any deemed sale of the Drilex assets)
and (2) $50,000; and
(D) Any Taxes attributable to the transactions
contemplated by this Agreement; and
(ii) Any breach of any representation of the Seller set forth
in Section 7(a) of this Agreement; and
Notwithstanding the provisions of this Section 7(e), the Seller shall not be
obligated to indemnify the Buyer for any Taxes to the extent accrued for on the
Final Balance Sheet.
(f) BUYER INDEMNIFICATIONS. The Buyer agrees to protect, defend,
indemnify and hold harmless the Seller from and against, and agrees to pay, all
Tax Losses incurred as a result of (i) a claim, notice of deficiency, or
assessment by, or any obligation owing to, any taxing authority for any Taxes of
Drilex or any Subsidiary attributable to any Post-Closing Taxable Period, and
(ii) any breach of any representation, warranty or obligation of the Buyer under
this Agreement.
(g) INDEMNIFICATION PROCEDURES. (i) If a claim shall be made by any
taxing authority that, if successful, would result in the indemnification of a
party under this Agreement (referred to herein as the "Tax Indemnified Party"),
the Tax Indemnified Party shall promptly notify the party obligated under this
Agreement to so indemnify (referred to herein as the "Tax Indemnifying Party")
in writing of such fact.
(ii) The Tax Indemnified Party shall take such action in
connection with contesting such claim as the Tax Indemnifying Party shall
reasonably request in writing from time to time, including the selection of
counsel and experts and the execution of powers of attorney, provided that (A)
within 30 days after the notice described in Section 7(g)(i) has been delivered
(or such earlier date that any payment of Taxes
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is due by the Tax Indemnified Party but in no event sooner than 5 days after the
Tax Indemnifying Party's receipt of such notice), the Tax Indemnifying Party
requests that such claim be contested, (B) the Tax Indemnified Party incurs in
connection with contesting such claim, including, without limitation, reasonable
attorneys', paralegals' and accountants fees and disbursements, and (C) if the
Tax Indemnified Party is requested by the Tax Indemnifying Party to pay the Tax
claimed and sue for a refund, the Tax Indemnifying Party shall have advanced to
the Tax Indemnified Party, on an interest-free basis, the amount of such claim.
The Tax Indemnified Party shall not make any payment of such claim for at least
30 days (or such shorter period as may be required by applicable law) after the
giving of the notice required by Section 7(g)(i),shall give to the Tax
Indemnifying Party any information reasonably requested relating to such claim
and otherwise shall cooperate with the Tax Indemnifying Party in good faith in
order to contest effectively any such claim.
(iii) Subject to the provisions of Section7(g)(ii), the Tax
Indemnified Party shall enter into a settlement of such contest with the
applicable Tax Authority or prosecute such contest to a determination in a court
or other tribunal of initial or appellate jurisdiction, all as the Tax
Indemnifying Party may request.
(iv) If, after actual receipt by the Tax Indemnified Party of
an amount advanced by the Tax Indemnifying Party pursuant to Section
(7)(g)(ii)(C), the extent of the liability of the Tax Indemnified Party with
respect to the claim shall be established by the final judgment or decree of a
court or other tribunal or a final and binding settlement with an administrative
agency having jurisdiction thereof, the Tax Indemnified Party shall promptly
repay to the Tax Indemnifying Party the amount advanced to the extent of any
refund received by the Tax Indemnified Party with respect to the claim together
with any interest received thereon from the applicable taxing authority and any
recovery of legal fees from such taxing authority, net of any Taxes as are
required to be paid by the Tax Indemnified Party with respect to such refund,
interest or legal fees (calculated at the maximum applicable statutory rate of
Tax without regard to any other Tax Items). Notwithstanding the foregoing, the
Tax Indemnified Party shall not be required to make any payment hereunder before
such time as the Tax Indemnifying Party shall have made all payments or
indemnities then due with respect to the Tax Indemnified Party pursuant to this
Agreement.
(v) Promptly after a final determination the Tax Indemnifying
Party shall pay to the Tax Indemnified Party the amount of any Tax Losses to
which the Tax Indemnified Party may become entitled by reason of the provisions
of this Section 7.
(h) SURVIVAL. Anything to the contrary in this Agreement
notwithstanding, the representations, warranties, covenants, agreements, rights
and obligations of the parties hereto with respect to any Tax covered by this
Agreement shall survive the Closing and shall not terminate until one day after
the expiration of the statue of limitations (including extensions) applicable to
such Tax.
(i) CONFLICT. In the event of a conflict between the provisions of
this Section 7 and any other provisions of this Agreement, the provisions of
this Section 7 shall control.
8. ARBITRATION.
(a) AGREEMENT TO ARBITRATE. Any controversy, dispute or claim
arising out of, or relating to, this Agreement, including questions concerning
the scope and applicability of this Section 8, shall be settled by arbitration
in Denver, Colorado in accordance with the rules of commercial arbitration then
followed by the American Arbitration Association or any successor to the
functions thereof, except as set forth in Section 8(c). This agreement to
arbitrate shall be specifically enforceable against each of the parties.
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(b) SELECTION OF ARBITRATORS. When a matter has been submitted for
arbitration, within 30 days of such submission, the Buyer will choose an
arbitrator and the Seller will choose an arbitrator, and an additional
arbitrator independent of the parties will be selected unanimously by the two
arbitrators chosen by the parties. The dispute shall then be resolved by
majority vote of the three arbitrators. If the arbitrator chosen by the Buyer
and the arbitrator chosen by the Seller cannot agree upon a third independent
arbitrator within 30 days of their appointment, the independent third arbitrator
will be selected according to the procedures of the American Arbitration
Association. The parties hereby waive any claim of evident partiality on the
part of an appointed arbitrator.
(c) ENFORCEMENT. All the parties hereto agree that an action to compel
arbitration pursuant to this Agreement may be brought in any court of competent
jurisdiction. Application may also be made to any such court for confirmation of
any decision or award of the arbitrators, for an order of enforcement and for
any other remedies which may be necessary to effectuate such decision or award.
All the parties hereto hereby consent to the jurisdiction of the arbitrators and
of such court and waive any objection to the jurisdiction of such arbitrator and
court.
(d) ARBITRATION EXPENSES. One or more of the parties to any arbitration
proceeding commenced hereunder shall be entitled as a part of the arbitration
award to the costs and expenses (including reasonable attorney's fees and
interest on any award) of investigating, preparing and pursuing an arbitration
claim as such costs and expenses are awarded by the arbitration panel.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Seller; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT AND INCORPORATION BY REFERENCE. This Agreement
(including the Exhibits, Schedule and Appendix referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they have related in any way to the subject matter hereof. The Exhibits,
Schedule and Appendix identified in this Agreement are incorporated herein by
reference and made a part hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors and permitted
assigns. Seller may assign any or all of its rights, interests, or obligations
hereunder to an Affiliate of Seller (in any and all of which cases the Seller
nonetheless shall remain responsible for all of its obligations hereunder).
Neither the Buyer nor Drilex may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Seller; provided, however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates or to
lenders in connection with loans secured by receivables and (ii) designate one
or more of its Affiliates to perform its obligations hereunder (in any and all
of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
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(f) HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLER: COPY TO:
MascoTech, Inc. MascoTech, Inc.
21001 Van Born Road 21001 Van Born Road
Taylor, Michigan 48180 Taylor, Michigan 48180
Attn: President Attn: General Counsel
AND A COPY TO:
Mary Ellen Pisanelli, Esq.
Shumaker, Loop & Kendrick
1000 Jackson
Toledo, Ohio, 43624
IF TO THE BUYER:
Drilex Holdings Corp.
600 Travis, Suite 6600
Houston, Texas 77002
Attn: Laurence E. Simmons
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
facsimile, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequently default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions
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hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) EXPENSES. The Buyer and the Seller will bear their own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller shall not allocate any such
fees and expenses to Drilex or its Subsidiaries.
(l) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall means including without limitation.
(m) KNOWLEDGE. "Knowledge of Seller" as used in this Agreement means the
actual knowledge of (i) the officers and directors of Drilex and its
Subsidiaries, except John S. Kornis, and (ii) John Halso and Alan Hegedus,
employees of Seller. Although certain of the individuals referenced herein
assisted with the preparation of the Disclosure Schedule, none of such
individuals were required to perform any independent investigation with
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respect to the representations or warranties of Seller contained in this
Agreement, and Buyer understands and acknowledges that no such independent
investigation was required of such individuals. The individuals referenced
herein who are involved with Drilex on a daily basis did review such
representations and warranties with counsel for Seller.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ LAURENCE E. SIMMONS
---------------------------
Name: Laurence E. Simmons
Title: President
MASCOTECH, INC.
By: /s/ TIMOTHY WALDEN
---------------------------
Title: Vice President
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EXHIBIT A
DRILEX GUARANTY
To induce MASCOTECH Inc., a Delaware corporation ("Seller"), to enter into
the Stock Purchase Agreement ("Agreement") dated March 31, 1994 (the "Effective
Date") with Drilex Systems, Inc., a Texas Corporation ("Drilex"), Drilex agrees
to the following:
1. Guaranty. Drilex unconditionally guarantees to Seller the full and
punctual performance by Drilex, of all the terms, covenants, and conditions to
be performed or met by Drilex under the Supply Agreement and Patent License
Agreement dated February 11, 1994 (the "Supply Agreement"), by and between
Drilex and Halliburton company, a Delaware corporation ("Halliburton"), which
Supply Agreement is attached hereto as Exhibit A, for which Seller may become
obligated by reason of the letter of Timothy Wadhams, Vice President of Seller,
to Halliburton dated February 11, 1994, in which Seller guaranteed to
Halliburton certain payments by Drilex under the Supply Agreement (the "Letter
of Guaranty"), which Letter of Guaranty is attached hereto as Exhibit B. Drilex
shall further indemnify, hold harmless and defend seller from and against any
and all damages and costs, including reasonably attorneys' and paralegals' fees
and expenses, incurred by Seller in connection with a claim made by Halliburton
under the Letter of Guaranty. Seller may enforce this guaranty against Drilex
without first enforcing its rights or remedies against Drilex, any other
guarantor, any other person, or any security held by Seller.
2. No Effect. The liability of Drilex under this guaranty shall in no way
be affected by: (a) the release of discharge of Drilex in any creditor's,
receivership, bankruptcy, other insolvency proceedings, or other proceedings;
(b) impairment, limitation or modification of the liability of Drilex or the
estate of Drilex in bankruptcy or of any remedy for the enforcement of Drilex's
liability under the Supply Agreement, resulting from the operation of any
present or future provisions of the federal Bankruptcy Code or other statutes or
from the decision of any court; (c) the rejection or disaffirmance of the Supply
Agreement in any such proceedings; (d) the assignment or transfer of the Supply
Agreement by Drilex; (e) any disability or other defense of Drilex; (f) the
cessation from any cause whatsoever of the liability of Drilex under the Supply
Agreement; or (g) any reorganization, merger, consolidation, combination, or
sale of substantially all the assets of Drilex.
3. Waiver of Surety's Defenses. DRILEX WAIVES ALL SURETYSHIP AND OTHER
SIMILAR DEFENSES.
4. Continuing Obligation. This guaranty shall apply to the Supply Agreement
and the Letter of Guaranty, any extension,
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renewal, assignment, amendment or modification thereof and to any holdover term
following the initial term thereof or any extension or renewal term, all without
notice to Drilex, for so long as Seller's obligations under the Letter of
Guaranty have not terminated. Drilex's liability under this guaranty shall not
be reduced or cancelled by any such action and shall be deemed modified in
accordance with the terms of such action, whether or not Drilex has notice of
such action.
5. Successors. This guaranty shall be binding upon not only Drilex but also
Drilex's successors and assigns and shall inure to the benefit of Seller and its
successors and assigns.
6.Termination and Revocation. This guaranty shall terminate on the later of
(a) the date on which all of the obligations of Seller have terminated under the
Letter of Guaranty and (b) the date on which all amounts incurred by Drilex
hereunder have been paid by Drilex.
7. Governing Law. This guaranty shall be construed and interpreted in
accordance with the laws of the State of Delaware.
8. Enforceability. If any part of this guaranty or the application thereof
shall be adjusted invalid or unenforceable to any extent, this guaranty shall be
deemed amended by the minimum amount necessary to permit it to be enforceable.
Each provision of this guaranty shall be valid and enforceable to the fullest
extent permitted by law.
9. Amendment. This guaranty may not be amended except in a writing signed
by Drilex and Seller. All references to this guaranty, whether in this guaranty
or any other document or instrument, shall be deemed to incorporate all
amendments, modifications, renewals and extensions of this guaranty and all
substitutions therefor made after the date hereof.
IN WITNESS WHEREOF, this guaranty has been executed as of the Effective
Date.
DRILEX SYSTEMS, INC.
By: /s/ JOHN FORREST
-----------------------
John Forrest, President
2
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Exhibit A
SUPPLY AGREEMENT AND PATENT LICENSE AGREEMENT
THIS AGREEMENT is made this 11th day of February, 1994, (hereinafter the
"Execution Date") by and between DRILEX SYSTEMS, INC., a Texas corporation,
having a place of business at 15151 Sommermeyer, Houston, TX 77041 (hereinafter
"Drilex"), and Halliburton Company, a Delaware corporation, having a place of
business at 5151 San Felipe, Houston, TX 77056 (hereinafter "Halliburton").
WITNESSETH:
WHEREAS, Drilex manufactures, sells and leases positive displacement
downhole drilling motors of varying sizes, and parts therefor, (hereinafter
"Products") for use in performance and horizontal drilling or workover
(hereinafter "Services"); and
WHEREAS, Halliburton desires to purchase and lease Products from Drilex
to perform such Services and Drilex is willing to sell and lease Products to
Halliburton on the terms and conditions set forth in this Agreement; and
WHEREAS, Halliburton is the owner of United States Reissue Patent
No. 33,751 (hereinafter the "'751 Patent") which covers
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certain of the Products and Services; and Drilex desires to obtain from
Halliburton a fully paid-up non-exclusive license under the '751 Patent to
practice the inventions disclosed and claimed therein for the life of said
patent in partial consideration for the settlement of an infringement suit
against Drilex over the '751 Patent as more particularly set out in Settlement
Agreement between the parties of even date herewith.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Drilex and Halliburton agree as
follows:
I. SUPPLY AGREEMENT
1.01 Sale and Delivery and Lease of Products
A. Subject to the terms and conditions set forth in this
Agreement, Drilex agrees to sell and/or lease to Halliburton, and Halliburton
agrees to purchase and/or lease from Drilex, Products manufactured or supplied
by Drilex under, respectively, Drilex's standard Terms and Conditions of Sale
and Drilex's standard Terms and Conditions of Sale and Drilex's standard Terms
and Conditions (Rental), both attached as Exhibit 1. The attached terms and
conditions shall be construed, to the extent possible, as consistent with the
terms and conditions set forth in this Agreement and as cumulative; provided,
however, that if such construction is unreasonable the terms and conditions set
forth herein shall control. Other than quantity terms or descriptions of
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Products, terms and conditions contained on Halliburton's purchase orders shall
be of no force or effect.
B. For planning purposes but not as a requirement to purchase,
Halliburton presently estimates the dollar amount of its requirements for
Products for each Contract Year of this Agreement will be as set forth on
Exhibit 2, attached hereto. A "Contract Year" shall commence on January 1st and
end on December 31st with the first Contract Year commencing on the Execution
Date of this Agreement and ending on December 31, 1994. Each month Halliburton
shall provide Drilex with a rolling three-month forecast of Halliburton's
requirements for motors, spare parts, or other Products and place firm orders
for Products for the first month of such rolling three-month forecasts by the
issuance of purchase orders to Drilex. The Product volume for the second and
third months of such rolling three-month forecasts shall be for planning
purposes only. Drilex shall fill such purchase orders on a schedule consistent
with its current delivery practices to Drilex operational bases. Drilex shall
also endeavor to supply Products over and above the forecasted volume on an
emergency basis from its manufacturing plant(s) or operational basis.
1.02 Base Price
A. The base prices for certain of the Products to be purchased
in Contract Year 1994 are set forth on Exhibit 3, attached hereto. Exhibit 3
lists slim hole motor prices for reference, but this Agreement includes all
Products offered commercially by Drilex. Base prices for additional Drilex
Products
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will be established on the same basis (that is, "most favored customer" prices
with the same credits to Halliburton under Paragraph 1.05) as those Products
specifically referred to in Exhibit 3. Halliburton and Drilex shall meet
annually, not later than January 31 of each Contract Year beginning in 1995, to
review the base prices and lease prices then being charged by Drilex and to
negotiate in good faith the base prices and lease prices to be charged by Drilex
in that Contract Year. If the parties cannot agree on the base prices and lease
prices, the issue shall be subject to arbitration under paragraph 3.09. The base
prices established under this Agreement shall be equivalent to Drilex's "most
favored customer" prices. Annual price adjustments should be limited to and
reflect changes (either higher or lower) in Drilex's manufacturing costs. The
base prices and lease prices for the previous Contract Year shall be used until
mutual agreement by the parties to revise the same; provided, however, price
changes implemented for a new Contract Year shall be retroactively applied to
January 1 of such year. The "Net Price" for any Product, defined in this
Agreement to mean the Product base price minus the credit Halliburton is
entitled to pursuant to Paragraph 1.05 of this Agreement, shall not be less than
Drilex's Fully Burdened Manufactured Cost (as hereinafter defined) for that
Product under any circumstance. Drilex confirms and acknowledges that for the
1994 Contract Year, for each of the Products set out on Exhibit C its Net Price
is greater than its Fully Burdened Manufactured Cost.
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B. The "most favored customer" rental/lease prices set out in Exhibit 3
are for reference purposes only; in practice such prices are understood to vary
over time and from one geographic region to another. Halliburton shall be
invoiced at the "most favored customer" lease rates in effect at the time of the
rental in the particular geographic region, and shall be given the 15% credit
set out in Paragraph 1.05 of this Agreement at the time of the invoice. The
"most favored customer" rental/lease prices and the 15% credits based thereon
shall apply to all Products available for rental or lease from Drilex.
1.03 Fully Burdened Manufactured Cost
"Fully Burdened Manufactured Cost" means Drilex's cost of materials,
labor and fully burdened overhead. "Materials" includes direct material cost and
inbound freight on raw materials. "Labor" means through-put labor. Overhead is
allocated on the basis of labor and material. "Fully burdened overhead" means
variable and fixed overhead (including labor and materials elements). Variable
overhead includes maintenance, tool room, inspection, shipping and receiving,
and indirect labor; overtime premium, vacation and holiday, bonus, payroll
taxes, workman's compensation insurance, group insurance, pension and profit
sharing and other fringe benefits, company vehicle expense, cartons and
containers, shop supplies, repair and maintenance M & E, oil and lubrication,
energy cost, other shop expenses, plating acids and solutions, shop service
credit, personnel recruiting, temporary help and miscellaneous manufacturing
expenses. Fixed overhead includes
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plant supervision, production control, engineering, and purchasing salaries,
overtime pay, bonus, payroll taxes, workman's compensation insurance, group
insurance, pension and profit sharing, other fringe benefits, travel and
entertainment, communication, heat, light and water, plant protection, repair
and maintenance, building, real property taxes, personal property taxes, general
insurance, development expenses, rent expenses, depreciation building and
grounds, depreciation M and E, depreciation tooling, depreciation leasehold
improvements, depreciation company vehicles, and patent amortization. Also
included are manufacturing administrative expenses, education expenses, courier,
employee moving and other related miscellaneous personnel expenses. The costs
included in the Fully Burdened Manufactured Cost should be limited to costs
incurred in connection with manufacturing activities in accordance with
regularly accepted accounting principles in the United States. The fully
burdened manufactured cost is updated by Drilex on a regular basis. If Drilex
asserts to Halliburton that any price on Exhibit 3, or in negotiations to revise
Exhibit 3 pursuant to paragraph 1.02 above, is below Drilex's Fully Burdened
Manufactured Cost, Halliburton may, at its expense, have an independent
Certified Public Accountant review Drilex's Fully Burdened Manufactured Cost
under confidential restrictions, which accountant shall report to Halliburton
only the accuracy of Drilex's calculation and no other information.
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1.04 Minimum Purchases By Halliburton
The total amount of all orders for purchases and leases of Products
(based on cumulative base prices and lease prices, disregarding credits applied
at the time of the invoice under paragraph 1.05) by Halliburton during the term
of the Supply Agreement of this Article I shall be not less than six million
dollars ($6,000,000.00), with the proviso that the dollar amounts realized by
Drilex from leases shall not exceed twenty-five percent (25%) of such six
million dollars, and with the further proviso that Drilex shall commit to design
and build new 3-1/2" motors to Halliburton specifications. The amount of Product
orders constituting purchases or leases by Halliburton during the term of this
Supply Agreement in excess of six million dollars is at the discretion of
Halliburton.
1.05 Credits to Halliburton for Products
A. Credit for Purchased Products. Drilex will invoice
Halliburton for all purchases of Products at the base prices set forth on
Exhibit 3, as amended from time to time during this Agreement pursuant to
Paragraph 1.02, less the applicable credits as setout below, which credits shall
be applied against such purchases of Products strictly at the time of invoicing.
The credits to which Halliburton shall be entitled under this Agreement in
connection with purchases of Products are in consideration of past damages for
infringement of the '751 Patent and of the Patent License set out in Article II
below, and shall be earned at the time orders for Products are placed, and
issued or applied at the
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time of invoicing for such purchases. The credits to which Halliburton shall be
entitled for Product purchase orders placed during the term of this Agreement
are as follows:
Contract Year Credit Due
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During Year 1994 25% of base price
During Year 1995 25% of base price
During Year 1996 20% of base price
During Year 1997 15% of base price
B. Credit for Leased Products. Drilex will invoice Halliburton for all
leases of Products at the "most favored customer" local lease prices in effect
at the time of the lease, less the applicable credits as set out below, which
credits shall be applied against such leases of Products strictly at the time of
invoicing. The credits to which Halliburton shall be entitled under this
Agreement in connection with leases of Products are in consideration of past
damages for infringement of the '751 Patent and of the Patent License set out in
Article II below, and shall be earned at the time of invoicing for such leases.
The credits to which Halliburton shall be entitled for Product lease orders
placed during the term of this Agreement are as follows:
Contract Year Credit Due
------------- ----------
During Year 1994 15% of base price
During Year 1995 15% of base price
During Year 1996 15% of base price
During Year 1997 15% of base price
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C. Maximum Dollar Amount of Credit. The total cumulative credit provided
Halliburton under this paragraph 1.05 during the effective term of this
Agreement shall not exceed four million U.S. dollars ($4,000,000.00).
1.06 Term and Expiration of Supply Agreement
A. The Supply Agreement of this Article I shall be effective as
of the Effective Date and, unless otherwise terminated as provided herein, shall
continue in full force and effect through and including December 31, 1997. No
delivery of Products after December 31, 1997 shall be required of Drilex without
its written consent, except for firm orders previously placed by Halliburton and
accepted by Drilex. Notwithstanding the foregoing, the parties agree to
negotiate in good faith to continue operating within a form of this Supply
Agreement, beyond its natural expiration.
B. Upon natural expiration of this Supply Agreement, Drilex
shall pay to Halliburton any credits then due Halliburton not previously applied
against purchases or leases of Products by Halliburton.
1.07 Termination of Supply Agreement
A. The Supply Agreement of this Article I shall terminate if the
aggregate credit provided to Halliburton under paragraph 1.05 of this Supply
Agreement reaches four million dollars (U.S. $4,000,000.00) prior to natural
expiration of this Agreement. Both parties agree to negotiate in good faith the
terms and conditions of their relationship for the period beginning after
termination of this Agreement in accordance with this paragraph.
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B. Halliburton may terminate the Supply Agreement of this
Article I should Drilex:
(1) be unable to meet mutually agreed quality standards, fail to meet
delivery commitments or otherwise fail to perform any material obligation under
this Supply Agreement (and such failure is unexcused) and then be unable to cure
such deficiency in performance within sixty (60) days of receipt of written
notice of deficiency from Halliburton, or
(2) be sold, merged, reorganized, or liquidated, whether by sale of
assets, stock or some combination and whether in or outside of a formal
bankruptcy proceeding, and the successor or its controlling owners do not assume
this Supply Agreement, or if not assumed, be unwilling to confirm within thirty
(30) days of Halliburton's written request to do so, its agreement to continue
the purchase and lease relationship established between Drilex and Halliburton
by this Supply Agreement.
1.08 Post Termination Rights of Halliburton
Should Halliburton terminate this Supply Agreement for either of the
reasons set forth in paragraph 1.07 B. above:
A. Drilex will pay Halliburton an amount equal to the difference
between Two Million Dollars ($2,000,000.00) and the cumulative credits actually
received by Halliburton under paragraph 1.05 of this Supply Agreement.
B. Additionally, Drilex will license Halliburton, at no cost to
Halliburton, to maintain and rebuild motors purchased from
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Drilex by Halliburton under this Supply Agreement. Under this license Drilex
will provide Halliburton with manufacturing drawings, specifications, bills of
material, equipment and tooling lists, methods, vendors and other information
reasonably necessary for Halliburton to maintain and rebuild the motors, much of
which material is highly confidential. Drilex shall provide Halliburton with
such design and manufacturing documentation which is current and up-to-date at
the time of termination, and has no obligation to provide Halliburton with
updates or support. All such materials shall be provided to Halliburton on a
strictly confidential basis, and no use of such materials shall be made by
Halliburton except for the maintenance and rebuilding of motors purchased from
Drilex. Halliburton cannot increase the number of motors in its possession
purchased from Drilex or made using Drilex's confidential material and shall not
use such materials for the purpose of building additional motors. On or before
December 31, 2002, Halliburton shall return all confidential materials provided
to it by Drilex and Halliburton shall cease the use thereof in all respects.
C. The provisions of this paragraph 1.08 shall be Halliburton's
sole remedy upon termination of this Supply Agreement for any reason.
1.09 Taxes, Excises and Other Charges
Unless otherwise provided by law, in addition to the price, Halliburton
shall pay to Drilex any and all taxes, excises or other charges (other than
taxes measured by Drilex's income) which Drilex may be required to pay to or
collect for any government, whether
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local, state or federal, and which are based upon or measured by the production,
sale, transportation, delivery or use of Products sold and delivered hereunder.
1.10 Change of Specifications
Halliburton shall have the right to request modification of Products to
specifications of Halliburton. Drilex shall review Halliburton's request and
notify Halliburton of its decision regarding such modification, including any
adjustment in base price or warranty regarding the same, within thirty (30) days
of receipt. Drilex shall keep in strict confidence any information or materials
comprised in Halliburton's change requests which is/are designated by
Halliburton orally or in writing (and if orally, reduced to writing with thirty
(30) days) as constituting confidential information, and shall use such
confidential information or materials solely in Products to be purchased or
leased by Halliburton under this Agreement. In addition, Drilex shall notify
Halliburton of any new or improved Products offered by Drilex and shall make
them available to Halliburton for purchase or rental on the same terms as the
other Products referred to herein, that is, "most favored customer" prices net
of the respective credits in effect at the time.
1.11 Training and Notices
Halliburton personnel shall be provided the training that Drilex
provides its customers in maintenance and use of Products at Drilex's facilities
in Houston, TX. Drilex will provide such training in Houston for a maximum of
ten (10) Halliburton personnel
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once per calendar quarter during the first Contract Year of this Agreement.
After this initial period, Drilex will train Halliburton employees in a number
consistent with Halliburton's purchases and the training provided to other
customers of Drilex. Drilex agrees to provide Halliburton with fifteen (15) sets
of the complete repair and maintenance manuals and operational procedures for
the Products provided its other customers and users and in addition, Drilex will
copy Halliburton on any revisions to such controlled documents. All other
materials, information and notices Drilex provides its customers and users will
be provided to Halliburton on the same terms and conditions. Halliburton will be
responsible for all traveling and living expenses of its personnel.
1.12 Products for Use by Halliburton
The motors and other materials sold to Halliburton by Drilex shall be
for use by Halliburton and shall not be sold to third parties, except that
Halliburton may transfer title to an affiliate. However, Drilex agrees to
negotiate in good faith with Halliburton to sell products through Halliburton as
part of broader purchase agreements, joint ventures, technology transfers, and
the like, that could be of mutual benefit to the parties.
1.13 No Effect of Later Finding Adverse to Patent
This Supply Agreement is not subject to termination, renegotiation,
reopening, amendment, alteration, modification, or the like as a result of any
finding, ruling, judgment, holding, or decree rendered after the Effective Date
hereof in any other lawsuit or proceeding between Halliburton and any third
party that
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the '751 Patent is invalid or unenforceable. Moreover, under no circumstances
shall any credits issued to Halliburton pursuant to this Agreement be refundable
to Drilex as a result of any such adverse finding, ruling, judgment, holding, or
decree concerning the '751 Patent.
II. PATENT LICENSE
2.01 Grant of Patent License to Drilex
Halliburton hereby grants to Drilex and its affiliates the fully paid-
up, non-exclusive, irrevocable, worldwide right to make, have made, use, sell
and lease, without the right to sublicense others, methods and apparatus covered
by the claims of the '751 Patent and any reissue thereof, and any corresponding
patents in countries foreign to the United States of America. An "affiliate" of
a party to this Agreement shall mean any third party in which such party to this
Agreement has an equity interest amounting to forty percent (40%) or more of the
equity thereof and over which the party to this Agreement has effective control.
2.02 Term of Patent License
The license granted by paragraph 2.01 shall be for the full term of the
patents licensed and any reissues or extensions thereof. The Patent License
granted under this Article II shall survive expiration or termination for any
reason of the Supply Agreement of Article I above.
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2.03 Patent Marking
Drilex agrees to comply with all applicable patent marking statutes,
regulations, or other requirements with respect to products made, sold, or
leased by Drilex under this Patent License. Drilex agrees to submit to
Halliburton for its prior approval, which shall not unreasonably be withheld,
the text of any proposed notice or legend indicating that any of the Products
are being made or offered for sale or rental by Drilex pursuant to a license
from Halliburton under its '751 Patent.
2.04 No Liability on Halliburton as Patent Owner
Halliburton assumes no liability for the operations of Drilex under this
license and makes no warranty as to fitness of design or suitability of design
for any use of the patented technology licensed hereunder by Drilex, its
customers, or other persons.
2.05 No Trademark License
Nothing within this Agreement shall be construed as granting to either
party a license to use any trademarks, service marks, or trade names owned or
controlled by the other party.
III. GENERAL PROVISIONS
3.01 Applicable Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, as applied to contracts executed in and performed
wholly within the State of Texas.
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3.02 Non-Waiver
A waiver by either party of any breach or failure to enforce any term or
condition of this Agreement shall not in any way affect, limit or waive such
party's right at any time to enforce strict compliance with that or any other
term or condition of this Agreement.
3.03 Entire Agreement
This Agreement, along with a Consent Judgment, Settlement Agreement and
Guarantee Letter of even date herewith, sets forth the entire understanding of
the parties with respect to the subject matter of this Agreement and supersedes
all prior understandings, negotiations, and dealings between the paries hereto
with respect to this subject matter. No agreement or understanding, oral or
written, in any way purporting to modify the terms hereof shall be binding on
either party hereto unless contained in a written document expressly described
as an amendment to or extension of this Agreement and duly executed by both
parties.
3.04 Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of both
paries and their respective successors and assigns, including but not limited
to, assignees and/or any successor in interest to the '751 patent. Neither party
shall assign this Agreement without the written consent of the other except to
the successors of a party's entire business or of substantially all of a party's
assets to which this Supply Agreement and Patent License Agreement relates.
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3.05 Notices
Any notice, request, demand or other communication given under this Agreement,
or the Supply Agreement and Patent License granted herein, shall be in writing
and shall be deemed sufficiently given:
A. Upon the date received by the intended recipient if delivered by hand or
fax, or
B. If the sender so elects, upon the date deposited in the United States
mails, certified with return receipt requested, postage prepaid, or sent
at the sender's expense by express courier service addressed to the
intended recipient as follows:
To Drilex: Drilex Systems, Inc.
15151 Sommermeyer
Houston, Tx 77041
Fax No. 713-849-2561
ATTN: President
with copy: MascoTech, Inc.
21001 Van Born Road
Taylor, MI 48180
Fax No. 313-374-6430
ATTN: General Counsel
To Halliburton: Halliburton Company
5151 San Felipe
Houston, TX 77056
Fax No. 713-624-3200/3221
ATTN: President
Or to other address or addresses as either party may hereinafter
designate in writing.
3.06 Captions
The Article and Paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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3.07 Severability
If any provision in this Agreement is determined, by any court having
jurisdiction over the parties, to be unenforceable, the provision shall be
amended to become enforceable or, at the election of the parties, severed from
this Agreement, and this Agreement shall otherwise remain in full force and
effect for the remaining term.
3.08 Confidentiality of Terms
Both parties agree to maintain the substantive terms of this Agreement,
including financial details, and the negotiations which preceded it on a
confidential basis (subject to any applicable requirements by law) along with
any other proprietary confidential information provided by one party to the
other.
3.09 Arbitration
All disputes or controversies arising between the parties to the Agreement
shall be settled by arbitration conducted in the English language under the
Rules of Arbitration of the American Arbitration Association (AAA) in Houston,
Harris County, Texas or at a neutral location agreed to by the parties. The
arbitration shall be conducted by a single arbitrator who shall state in writing
that he is independent and capable of serving as an impartial neutral upon
acceptance of employment as an arbitrator, that he agrees to conform to the AAA
canons of ethics for neutral arbitrations and to the Rules of the AAA, and that
he has time available to conduct the arbitration expeditiously and that no other
project will be given a higher priority than that given to
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the timely administration and arbitration of the dispute or controversy under
this Agreement. The arbitrator shall be selected from a list of 15 arbitrators
supplied by the AAA. Each party will rank the arbitrators in order of selection
from one (first choice) to fifteen (last choice) and the one having the highest
composite ranking (lowest combined number rating) will be selected. If there is
a tie in the corporate rating, selection between such individuals will be by
coin toss. If such person cannot serve, the one having the next highest
composite ranking, and so forth, will be selected. If the dispute or controversy
involves patent related issues, the AAA Patent Rules shall govern. As to other
legal matters the AAA Commercial Rules and the law of the State of Texas shall
govern. There shall be no ex parte communications about the arbitration between
any party and the arbitrator. The arbitrator shall have jurisdiction to construe
the contract to arbitrate and determine the scope of its jurisdiction. The
arbitrator shall submit its determination in writing and such determination
shall be final and binding upon the parties and shall be enforceable in any
court of competent jurisdiction. The cost of the arbitration proceedings shall
be allocated between the parties by the arbitrator in whatever proportion it
deems just under the circumstances. The parties further agree that arbitration
proceedings must be instituted within one year after the dispute or claimed
controversy arose, and that the failure to institute arbitration proceedings
within such period shall constitute an
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institute bar to the institution of any proceedings and a waiver of all claims
regarding such dispute or controversy.
3.10 Limited Restrictions on Disclosure or Use of Information
The restrictions set forth in this Agreement concerning disclosure and/or use
of confidential information provided by one party to the other shall not apply
to any information which: at the time of disclosure is, or after disclosure
becomes, generally available to the public through no fault of the receiving
party; was already in the possession of the receiving party at the time of
disclosure, as adequately documented by that party, and was not previously
received directly or indirectly from the other party; or after disclosure by a
party, is received from a third party having no direct or indirect obligation of
confidentiality to the disclosing party with respect to such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
DILEX SYSTEMS, INC. HALLIBURTON COMPANY
By /s/ JOHN FORREST By /s/ KEN R. LESUER
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Ken R. LeSuer
Title PRESIDENT Title President and Chief Operating
Officer
Halliburton Energy Services
Division
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EXHIBIT B
MascoTech
February 11, 1994
Halliburton Company
5151 San Felipe
Houston, TX 77046
Re: Supply Agreement and Patent License Agreement
between Drilex Systems, Inc. and Halliburton
Company, dated February 11, 1994
Dear Sirs:
If Halliburton Company reasonably terminates the above-referenced agreement
pursuant to the terms of paragraph 1.07B. thereof, MascoTech, Inc. hereby
guarantees payment by Drilex Systems, Inc. of the amount owed Halliburton
Company pursuant to paragraph 1.08A. of such agreement, providing (a) MascoTech,
Inc. promptly is advised of any deficiencies noticed to Drilex Systems, Inc.
under paragraph 1.07B.(1) and of any request made to a successor owner of Drilex
Systems, Inc. under paragraph 1.07B.(2), and (b) MascoTech, Inc. is provided a
reasonable opportunity to correct the deficiency or obtain the consent required.
Nothing in this letter agreement shall be interpreted to preclude either Drilex
Systems, Inc. or MascoTech, Inc. from contesting the reasonableness of the
termination by Halliburton Company.
Any dispute or disagreement arising out of, or relating to, this letter
agreement or any modification or extension thereof, including any claim for
damages or rescission, or both, shall be submitted to arbitration and finally
settled under the rules of the American Arbitration Agreement ("AAA") pursuant
to paragraph 3.09 of the referenced agreement between Halliburton and Drilex.
Very truly yours,
/s/ TIMOTHY WADHAMS
--------------------------
Timothy Wadhams
Vice President
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EXHIBIT B
PROMISSORY NOTE
U.S. $6,500,000 MARCH 31,1994
HOUSTON, TEXAS
DRILEX SYSTEMS, INC., a Texas corporation ("Drilex"), shall pay to the
order of MASCOTECH, INC., a Delaware corporation ("MascoTech"), Six Million Five
Hundred Thousand Dollars (U.S. S6,500,000.00), or as such amount may be adjusted
as agreed upon by the Parties pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated March 31, 1994, by and between DRILEX HOLDINGS CORP.,
a Delaware corporation, and MASCOTECH, plus interest from the date of this Note
until it has been paid in full. All amounts owed hereunder, as adjusted, are
referred to herein as the "Obligations." All capitalized terms used but not
otherwise defined herein shall have the respective meanings given them in the
Stock Purchase Agreement.
1. INTEREST RATE. Interest on this Note shall be paid at the rate of
seven percent (7%) per annum ("Note Rate") unless an Event of Default occurs, in
which case the interest rate shall increase to the lesser of (a) the Note Rate
plus 4% per annum and (b) the maximum rate permitted by applicable law ("Default
Rate").
2. INTEREST PAYMENTS. Installments of interest shall be paid in
arrears on the last Business Day (as defined below) of each fiscal quarter, or
any portion thereof as the case may be, beginning on June 30, 1994, and on the
last Business Day of each fiscal quarter thereafter until the outstanding
principal owed under this Note is paid.
3. BUSINESS DAY. for purposes of this Note, "Business Day" shall mean
any day which is not a Saturday or Sunday or a public holiday under the laws of
the United States of America or the State of Texas.
4. PRINCIPAL PAYMENTS. Principal shall be paid in the minimum amount
of Five Hundred Thousand Dollars ($500,000) for each twelve month period from
April 1 to March 31 ("Fiscal Year"), payable quarterly in arrears on the last
Business Day of each fiscal quarter in the amount of One Hundred Twenty-Five
Thousand Dollars (S125,000) beginning on June 30, 1994. If the Operating Cash
Flow (as defined below) of Drilex's business:
(a) exceeds Two Million Dollars ($2,000,000), but is less than
Three Million Dollars ($3,000,000) for any Fiscal year, then the next
quarterly installment of principal due on June 30 shall be increased by Two
Hundred Fifty Thousand Dollars ($250,000); or
(b) exceeds Three Million Dollars ($3,000,000), but is less than
Four Million Dollars ($4,000,000) for any Fiscal Year, then the next
quarterly installment of principal due on June 30 shall be increased by
Five Hundred Thousand Dollars ($500,000); or
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(c) exceeds Four Million Dollars ($4,000,000) for any Fiscal
Year, then the next quarterly installment of principal due on June 30
shall be increased by Seven Hundred Fifty Thousand Dollars (S750,000).
5. OPERATING CASH FLOW. For purposes of this Note, Operating Cash
Flow for any period shall mean with respect to Drilex, the consolidated
earnings before Interest, Income Taxes and Depreciation (each as defined
below) of Drilex and its Subsidiaries determined in accordance with GAAP (as
defined in the Stock Purchase Agreement) and the following:
(a) rental tools/motors and related parts (collectively,
"inventory") shall be accounted for in accordance with the past practices
of Drilex, as defined in Section 4(o) of the Disclosure Schedule to the
Stock Purchase Agreement;
(b) "Depreciation" shall include
(i) depreciation, write-downs, impairments and write-offs of
fixed assets (personal property and real property, in each case
whether owned or recognized as capitalized leases), and
(ii) amortization, write-downs, impairments and write~offs of
the cost of intangible assets (including amounts in respect of
capitalized leases, goodwill, capitalized or deferred costs relating
to financings, organization of the business, non~compete agreements,
patents, trademarks and other similar intangibles);
provided, however, that prepaid insurance or other prepaid services, for
purposes of determining Operating Cash Flow, shall not be considered to
be intangible assets (and charges with respect thereto shall therefore be
considered to be properly deductible costs or expenses, not elements of
Depreciation); and provided further, however, that in determining
Depreciation, there shall be excluded therefrom all amounts in respect of
charges relating to inventory as defined above.
(c) "Interest" shall mean (i) interest charges and expenses (but
there shall be excluded therefrom any amounts in respect of amortization
of deferred financing costs), net of capitalized interest, and (ii)
interest income and credits; and
(d) "Income Taxes" shall mean any federal, state, local or foreign
income tax, including any interest (without duplication), penalty, or
addition thereto, whether in dispute or not.
(e) Operating Cash Flow shall be determined using carryover basis
using GAAP and, accordingly, for purposes of determining earnings,
Depreciation, Interest, and Income Taxes, there shall be excluded
therefrom, without duplication, (1)
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any direct or indirect effects of purchase accounting by Drilex Holdings Corp
(including any "push down" thereof to Drilex or its Subsidiaries) and the
related financing transactions contemplated by the Stock Purchase Agreement,
(2) in the event of changes in generally accepted accounting principles in the
United States or changes by Drilex in its accounting principles or application
thereof subsequent to the Closing Date under the Stock Purchase Agreement, any
direct and indirect effects of such changes, and (3) management fees or
retainer fees or charges, unless such fees or charges represent direct pass
through of costs or expenses paid to unaffiliated third parties.
6. PREPAYMENT. All or any part of this Note may be prepaid at any
time without penalty. All regularly scheduled payments shall continue to be
made without interruption regardless of any partial prepayments.
7. MATURITY. This Note shall mature and all Obligations hereunder
shall be paid in full no later than March 31, 2007.
8. METHOD AND PLACE OF PAYMENT. All payments on this Note shall be
paid in same day funds to MascoTech, Inc., 21001 Van Born Road, Taylor,
Michigan 48180, or at such other place as the holder hereof may designate.
9. SECURITY. This Note is secured by that certain Security Agreement
to even date herewith by Drilex in favor of MascoTech against property
described on Exhibit A, and by a mortgage of even date herewith granted to
MascoTech by Drilex pursuant to a Mortgage, Assignment, Security Agreement and
Financing Statement (the "Mortgage"). As further security, Drilex Systems
Limited ("DSL"), an indirect subsidiary of Drilex, has guaranteed $1,000,000
of the indebtedness under this Note pursuant to a Guarantee by DSL in favor of
MascoTech and Ranking Agreement among DSL, Texas Commerce Bank, National
Association, and MascoTech, the obligations under which are secured by a Bond
and Floating Charge by DSL in favor of MascoTech (collectively, the "Scottish
Documents").
10. EVENTS OF DEFAULT UNDER NOTE. The occurrence of any of the
following shall be events of default ("Events of Default"):
(a) Failure to make any payment of the Obligations within
7 days after the due date thereof; or
(b) Any default by Drilex under an agreement for borrowed
money, the indebtedness under which exceeds $500,000, that permits the
lender to accelerate the payment of principal and interest thereunder and
the acceleration by such lender of the principal and interest thereunder;
or
(c) Failure to perform any terms or conditions of, or a breach
of any representations, warranties, covenants or agreements contained in
this Note (excluding the failure described in Section 10(a) hereof), the
Security Agreement and such failure is not cured within 15 days after
notice thereof to Drilex by MascoTech; or
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(d) (i) Drilex applies for or consents to the appointment of a
receiver, trustee or liquidator of itself or of a significant portion to
its or any of its Subsidiaries (as defined in the Stock Purchase
Agreement); (ii) Drilex is unable, or admits in writing its inability, to
pay its debts as they mature; (iii) Drilex makes a general assignment for
the benefit of creditors; (iv) Drilex is adjudicated a bankrupt or
insolvent; or (v) Drilex files a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or any arrangement with
creditors or to take advantage of any insolvency law, or any answer
admitting the material allegations of a petition filed against it in any
bankruptcy, reorganization or insolvency proceedings; or
(e) A proceeding shall be instituted without the application,
approval or consent of Drilex seeking, in respect of Drilex, adjudication
in bankruptcy, dissolution, winding up, reorganization, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
receiver, trustee, liquidator or the like to Drilex or of a significant
portion of its assets or the assets of any of its Subsidiaries and the
same shall continue undismissed or unstayed and in effect for any period
of thirty (30) consecutive days; or
(f) Judgment for the payment of money in excess of S250,000
shall be rendered against Drilex and Drilex shall not discharge the same
or provide for its discharge, or procure a stay of execution thereof
within thirty (30) days from the date of entry thereof, and within said
period of thirty (30) days or such longer period during which execution of
such judgment shall have been stayed, move to vacate said judgment or
appeal therefrom and cause the execution thereof to be stayed pending
determination of such motion or during such appeal; or
(9) (i) The winding up, liquidation or dissolution of the
business or affairs of Drilex and its Subsidiaries taken as a whole; (ii)
a merger, consolidation or other business combination involving Drilex and
its Subsidiaries, unless Drilex is the survivor of such transaction, if
such transaction is a merger, or, if Drilex is not the survivor, of if the
transaction is not a merger, (A) the surviving, resulting or acquiring
corporation in such transaction is a corporation organized under the laws
of any State of the United States, (B) such corporation expressly assumes
in writing the obligations under this Note pursuant to an instrument in
form and substance reasonably satisfactory to the Seller, and (C) after
such transaction, such corporation shall own all or substantially all of
the assets of Drilex; or (iii) a sale, lease, transfer, conveyance or
disposition (in one or a series of related transactions) of more than
twenty-five percent (25%) of the assets of Drilex and its Subsidiaries
taken as a whole, other than in the ordinary course of its business; or
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(h) any amount of Collateral (as defined in the Security
Agreement) having a book value in excess of 20% of the aggregate book
value of all the Collateral securing the Obligations shall become lost,
stolen or destroyed and not covered by insurance such that MascoTech in
good faith believes the Collateral is insufficient security for the
Obligations, or any part of the Collateral is attached, levied or seized
upon in any proceeding and such process is not discharged within thirty
(30) consecutive days; or
(i) Failure to pay all applicable taxes except for taxes for
which adequate reserves have been established in accordance with generally
accepted accounting principles applied on a consistent basis or the
payment of which is being contested by Drilex in good faith and by
appropriate proceedings and the non-payment of which would not have a
material adverse effect and such failure is not cured or remedied within
10 business days after the occurrence thereof; or
(j) Failure to maintain a consolidated net worth (calculated by
excluding from net worth all amounts in respect of preferred stock) as of
the most recent unaudited balance sheet of Drilex of at least $7,500,000;
or
(k) The payment by Drilex of dividends on common stock in excess
of the consolidated net income of Drilex for any fiscal year; or
(l) Drilex enters into any transaction with Drilex Partners, LP.
or SCF Partners, LP. or any of their respective partners on terms less
favorable than those which could have been obtained from a third party
possessing equivalent capabilities and expertise; or
(m) Drilex enters into any "prohibited transaction" under the
Employee Retirement Income Security Act of 1974, as amended.
11. REMEDIES AND ACCELERATION. Upon the occurrence, and in the case
of 10(a), the continuance of any Event of Default, in addition to all other
remedies under this Note, the Security Agreement, the Mortgage, the Scottish
Documents, the Stock Purchase Agreement, or any exhibit attached thereto, and
at law or in equity, at the option of MascoTech, the entire amount of the
remaining unpaid balance of the Obligations shall become immediately due and
payable (provided, however, that in the case of the occurrence of any event
described in the foregoing clauses (d) and (e), the entire amount of the
Obligations on this Note shall become due and payable forthwith without the
requirement of any notice of any kind, which is hereby expressly waived).
Drilex waives presentment for payment, protest and notice of nonpayment of this
Note.
12. APPLICATION OF PAYMENTS AND OFFSET. Unless MascoTech elects
otherwise, all payments and other amounts received by MascoTech shall be
credited as follows: (a) first, to any charges, costs, expenses and fees
payable by Drilex under this
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Note, the Mortgage, the Security Agreement or the Scottish Documents; (b)
second, to interest on the foregoing amounts at the Note Rate from the due date
or date of payment by MascoTech, as the case may be; (c) third, to accrued but
unpaid interest on this Note; (d) fourth, to the principal amount outstanding;
and (e) fifth, to the balance, if any, to Drilex. Any amounts owed pursuant to
the Stock Purchase Agreement may be offset from amounts owed hereunder as
provided under the Stock Purchase Agreement.
13. ATTORNEY'S FEES AND EXPENSES. In the case of an Event of
Default, Drilex shall pay to MascoTech all costs and expenses incurred by
MascoTech in enforcing or preserving MascoTech's rights under this Note or the
Security Agreement, including but not limited to, (a) reasonable attorney's and
paralegal's fees and disbursements; (b) the fees and expenses of any
litigation, administrative, bankruptcy, insolvency, receivership and any other
similar proceeding; (c) court costs; (d) the expenses of MascoTech, its
employees, agents, attorneys and witnesses in preparing for litigation,
administrative, bankruptcy, insolvency and other proceedings and for lodging,
travel, and attendance at meetings, hearings, depositions, and trials; and (e)
consulting and witness fees incurred by MascoTech in connection with any
litigation or other proceeding.
14. NO WAIVERS. Drilex shall not rely on any course of conduct or
dealing between MascoTech and Drilex as a waiver or amendment of any provision
of this Note or any right that MascoTech may otherwise have, including but not
limited to, the following: (a) Drilex will not rely on MascoTech's acceptance
of one or more late or partial payments as an indication that MascoTech will
accept late or partial payments in the future; (b) MascoTech's exercise of any
right or remedy that MascoTech may have will not be a waiver of MascoTech's
other rights and remedies; (c) Drilex will not rely on MascoTech's failure to
exercise any right or remedy as an indication that MascoTech will not do so in
the future; or (d) MascoTech's exercise of any one or more rights or remedies
shall not preclude MascoTech from exercising other rights or remedies.
15. APPLICABLE LAW. This Note shall be deemed to be entered into in
Texas and shall be governed by and construed in accordance with Texas law,
excluding conflicts-of-law principles.
16. SAVINGS CLAUSE. Notwithstanding and term or provision hereof to
the contrary, nothing contained in this note shall require the payment or
permit the collection of interest at a rate exceeding the maximum rate
permitted by applicable law. If the amount of interest payable on any date
would exceed the maximum amount permitted by applicable law, the amount of
interest payable on such date shall be automatically reduced to such maximum
amount. If the amount of interest payable with respect of any interest
computation period is reduced pursuant to the preceding sentence, and the
amount of interest payable in respect of any subsequent interest computation
period, computed in accordance with the standard terms of this Note, would be
less than the maximum amount permitted by applicable law, then the amount of
interest payable in respect to such subsequent interest computation period
shall be automatically increased to such maximum amount; provided, however,
that at no time shall the aggregate amount by which interest has been increased
pursuant to this
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sentence exceed the aggregate amount by which interest has theretofore been
reduced pursuant to the preceding sentence.
17. ASSIGNMENT. Drilex shall neither assign its rights nor delegate
its obligations under this Note. MascoTech may assign this Note to any of its
Affiliates effective upon 10 days' written notice by MascoTech to Drilex;
provided that MascoTech shall make a notation on the Note of any principal and
interest payments theretofore made on the Note.
18. AMENDMENT. This Note may only be amended by a writing signed by
MascoTech and Drilex. All references to this Note, whether in this Note or in
any other document or instrument, shall be deemed to incorporate all
amendments, modifications, extensions, and renewals of this Note and any
substitutions therefore made after the date hereof.
19. TIMELINESS. Drilex acknowledges that Drilex must perform its
obligations under this Note promptly: time is of the essence.
20. NOTICES. All notices, payments and communications under this Note
shall be delivered personally, by nationally recognized overnight courier or by
first class United States mail, postage prepaid, to Drilex or MascoTech, as the
case may be, at the following addresses or to such other addresses as either
party may designate in writing unless applicable law requires a different
method of notice or service:
Drilex: Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
Attention: President
Phone: 713-937-8888
With a Copy to: DRLX Partners, LP.
c/o SCF Partners, LP.
600 Travis, Suite 6600
Attention: L E. Simmons
Phone: 713-227-7888
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MascoTech: Masco Tech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
Attention: President
Phone: 313-274-7400
With a Copy to: MascoTech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
Attention: General Counsel
Phone: 313-274-7400
All notices shall be in writing and shall be deemed to be given upon actual
receipt or two days after mailing, whichever occurs first.
DRILEX SYSTEMS, INC.
By:
---------------------
Title:
-------------
Date:
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EXHIBIT C
AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
DRILEX SYSTEMS, INC.
DRILEX SYSTEMS, INC., a Texas corporation ("Drilex"), does hereby certify:
1. That the Board of Directors of Drilex, by the unanimous written consent
of its members dated as of March 30, 1994, resolved that the Articles of
Incorporation of Drilex be amended as follows:
RESOLVED, that the first paragraph of Article IV be amended to read as
follows:
The aggregate number of shares which the Corporation shall have
authority to issue is 1,000 shares of common stock ("Drilex Common") of the
par value of One Dollar ($1.00) each, and 500 shares of preferred stock
("Drilex Preferred"). Drilex Preferred is described more fully in Article V
below. The Corporation shall have the authority to purchase, directly or
indirectly, its own shares to the extent of the aggregate of unrestricted
capital surplus available therefor and unrestricted reduction surplus
available therefor.
RESOLVED FURTHER, that a New Article V be created to read as follows:
Section 1. Preferred Stock. The Corporation shall have authority to
issue up to 500 shares of Drilex Preferred, upon the terms and subject to
the conditions set forth in this Article V.
Section 2. Number of Shares. The number of authorized shares of Drilex
Preferred is five hundred (500), without par value. Shares of Drilex
Preferred acquired by the Corporation, whether by way of redemption or
otherwise, may not be subsequently reissued as shares of Drilex Preferred,
and must be cancelled in a reasonable period of time after redemption.
Section 3. Dividends. The holders of shares of Drilex Preferred shall
be entitled to receive, out of the
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assets of the Corporation legally available therefore and as and when declared
by the Board of Directors of the Corporation, in its discretion, cash dividend
at the rate of (a) Six Hundred Dollars ($600) per share per annum for the period
commencing April 1, 1994 and ending March 31, 1996; (b) Seven Hundred Dollars
($700) per share per annum for the period commencing April 1, 1996 and ending
March 31, 1998; and (c) Eight Hundred Dollars ($800) per share per annum
commencing April 1, 1998 and thereafter until all shares of Drilex Preferred are
redeemed. Dividends shall be paid quarterly, in arrears, commencing June 30,
1994 and each quarter thereafter until all shares of Drilex Preferred are
redeemed and dividends thereon have been paid. Dividends on Drilex Preferred
shall be deemed to accrue from day to day whether or not declared, shall be
cumulative (whether or not in any quarterly dividend period there shall be funds
of the Corporation legally available for the payment of such dividends and
whether or not the Board of Directors has declared dividends in its discretion)
and shall be payable in preference to and in priority over dividends, if any,
upon the Drilex Common, and any other class or series of securities (excluding
debt securities) at any time created, designated or issued by the Corporation,
whether on, before, or after March 31, 1994 ("Other Securities"). So long as any
shares of Drilex Preferred are outstanding, no dividends may be paid or declared
with respect to Drilex Common or any Other Securities, and no shares of the
Drilex Common or any other Securities may be purchased, retired, redeemed or
otherwise acquired by the Corporation, unless all accrued and unpaid dividends
on Drilex Preferred, including the full dividends for the then current period,
shall have been declared and paid, and then only if the aggregate amount of such
dividends and other amounts paid in any fiscal year to holders of shares of the
Drilex Common or Other Securities with respect to any such purchase, retirement,
redemption, or other acquisition by the Corporation shall not exceed the
consolidated net income of the Corporation for such fiscal year.
Section 4. Mandatory Redemption. Subject to adjustment by reason of Early
Redemption made pursuant to Section 5 or Section 6 below, the Corporation shall
on each date set forth below (each such date a "Mandatory Redemption Date")
redeem out of funds legally available therefor, in immediately available funds,
at a redemption price of Ten Thousand Dollars ($10,000) per share, plus any
accrued and unpaid dividends ("Redemption Price")
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the number of shares set forth below for each such Mandatory Redemption Date:
(a) one hundred (100) shares shall be redeemed on June 30, 1999;
(b) two hundred (200) shares shall be redeemed on June 30, 2000; and
(c) two hundred (200) shares shall be redeemed on June 30, 2001.
Section 5. Mandatory Early Redemptions. (a)(1) If the Operating Cash Flow
(as defined below) of the Corporation exceeds Five Million Dollars ($5,000,000)
for any of the twelve month periods from April 1, through March 31, commencing
April 1, 1994 through March 31, 1998, then on the 30th day of June immediately
following each such twelve month period, twenty-five (25) shares of Drilex
Preferred shall be redeemed for the Redemption Price, or (2) if any offsets to
amounts owed by MascoTech, Inc. pursuant to a certain Stock Purchase Agreement
dated March 31, 1994, are allowed to be made through redemption of Drilex
Preferred pursuant to the terms of such Stock Purchase Agreement, then a number
of shares of Drilex Preferred equal to the amount of such offset divided by the
Redemption Price shall be deemed redeemed in satisfaction of the offset amount
(the "Offset Shares"). The number of shares of Drilex Preferred to be redeemed
on the next scheduled Mandatory Redemption Date shall be reduced by the number
of shares of Drilex Preferred theretofore redeemed, or deemed to be redeemed,
pursuant to Section 5 or Section 6, as the case may be.
(b) If Drilex Holdings Corp. ("DHC") ceases to own (the "Disposition") in
excess of 50% of the Drilex Common (other than through the issuance or sale of
securities resulting in the Corporation's becoming a reporting company under
Section 13 or 15 of the Securities Exchange Act of 1934, as amended), then all
of the shares of Drilex Preferred shall be redeemed for the Redemption Price on
or prior to the date of Disposition in accordance with Section 7.
Section 6. Optional Redemption by the Company. The Corporation shall have
the option to redeem shares of Drilex Preferred out of funds legally available
therefor
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at any time, in immediately available funds, in whole or from time to time in
part, at the Redemption Price.
Section 7. Redemption Procedures. In the event the Corporation shall redeem
shares of Drilex Preferred pursuant to Sections 4, 5 (to the extent applicable),
or 6 hereof, the Corporation shall observe the following procedures; provided
that with respect to any deemed redemption under Section 5(a)(2), only the
procedures set forth in the last sentence of paragraph (a) below, paragraph (c)
below and the last sentence of paragraph (d) below shall apply.
(a) The Corporation shall give notice of such redemption by first class
mail, postage prepaid, mailed not less than 20 nor more than 60 days
prior to the redemption date, to each holder of record of the shares of
Drilex Preferred to be redeemed, at such holder's address as the same
appears on the stock record books of the Corporation. Each such notice
shall state: (i) the redemption date; (ii) the number of shares of
Drilex Preferred to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number (or the basis for
determining the number) of such shares to be redeemed from such holder;
(iii) the Redemption Price (including the amount of accrued and unpaid
dividends); (iv) the place or places where certificates for such shares
are to be surrendered for payment of the Redemption Price; and (v) that
dividends on the shares to be redeemed will cease to accrue on and
after such Redemption Date. If fewer than all the outstanding shares of
Drilex Preferred Stock are or are to be redeemed pursuant to Sections
4, 5 or 6 above, such shares shall be redeemed pro rata, by lot or in
such other manner as the Board of Directors may deem appropriate.
(b) The Corporation shall deposit a sum sufficient to redeem the shares of
Drilex Preferred as to which notice of redemption has been given with a
transfer agent designated by the Corporation's
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Board of Directors, with irrevocable instructions and authority to pay
the Redemption Price to the holders of the Drilex Preferred to be
redeemed in immediately available funds upon surrender of certificates
therefor.
(c) From and after the relevant Redemption Date, dividends on the shares of
Drilex Preferred so called for redemption by the Corporation shall
cease to accrue, and such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of
the Corporation with respect to such shares (except the right to
receive the Redemption Price for redemption other than under Section
5(b)) shall cease and terminate.
(d) Under surrender in accordance with said notice of the certificates for
any shares of Drilex Preferred so redeemed (properly endorsed or
assigned for the transfer, if the Board of Directors of the Corporation
shall require and the notice shall so state), such shares shall be
redeemed by the Corporation at the Redemption Price without interest.
If fewer than all the shares represented by any such certificate are
redeemed, the Corporation shall issue a new certificate representing
the unredeemed shares without cost to the holder thereof.
Section 8. Liquidation Rights. In case of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation
(collectively, "Liquidation"), holders of Drilex Preferred shall be entitled to
receive in full out of the assets of the Corporation, including its capital,
before any amount shall be paid or distributed among the holders of any other
shares of capital stock of the Corporation, an amount equal to the total
Redemption Price to the date of such Liquidation. For so long as any shares of
Drilex Preferred are outstanding, the Corporation shall not create, issue or
permit to be outstanding shares of capital stock having a preference in
voluntary or involuntary Liquidation over such shares of Drilex
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Preferred. Without the affirmative vote of the holders of the majority of the
outstanding shares of Drilex Preferred voting as a class, (i) the consolidation
or merger of the Corporation into or with any corporation or corporations except
where the Corporation is the survivor, or (ii) the sale or transfer by the
Corporation of all or substantially all of its property, shall be deemed a
Liquidation of the Corporation within the meaning of this Section 8.
Section 9. Priority with Respect to Other Drilex Capital Stock. Drilex
Preferred ranks senior to Drilex Common as to dividends. So long as any shares
of Drilex Preferred are outstanding, the Corporation shall not issue any shares
of stock ranking, with respect to dividends, on a parity with or prior to the
Drilex Preferred without the affirmative vote of the holders of the majority of
outstanding shares of Drilex Preferred, voting as a class.
Section 10. Voting Rights and Consents. The Drilex Preferred shall be
non-voting stock, except under the circumstances described in Sections 8, 9, 10
and 12. The vote of the holders of the majority of the outstanding shares of
Drilex Preferred voting as a class shall be necessary to effect:
(a) any amendment of the Articles of Incorporation of the Corporation, if
such amendment would accomplish any of the matters set forth in Article
4.03A(1) through (12) of the Texas Business Corporation Act; or
(b) the Liquidation of the Corporation; or
(c) the granting of any rights or options related to, or the issuance or
sale of, any securities (excluding debt securities) of the Corporation
that has dividend, redemption or liquidation rights equal to or greater
than the Drilex Preferred.
Section 11. Definition of Operating Cash Flow. "Operating Cash Flow" for
any period shall mean with respect to the Corporation, the consolidated earnings
before Interest, Income Taxes and Depreciation of the Corporation and its
subsidiaries determined in accordance with GAAP:
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(a) "GAAP" shall have the meaning set forth in Exhibit A hereto.
(b) rental tools/motors and related parts (collectively, "inventory") shall
be accounted for in accordance with the past practices of the
Corporation as set forth in Exhibit B hereto;
(c) "Depreciation" shall include
(i) depreciation, write-downs, impairments and write-offs of fixed
assets (personal property and real property, in each case whether owned or
recognized as capitalized leases), and
(ii) amortization, write-downs, impairments and write-offs of the cost
of intangible assets (including amounts in respect of capitalized leases,
goodwill, capitalized or deferred costs relating to financings,
organization of the business, non-compete agreements, patents, trademarks
and other similar intangibles);
provided, however, that prepaid insurance or other prepaid services, for
purposes of determining Operating Cash Flow, shall not be considered to be
intangible assets (and charges with respect thereto shall theretofore be
considered to be properly deductible costs or expenses, not elements of
Depreciation); and provided further, however, that in determining Depreciation,
there shall be excluded therefrom all amounts in respect of charges relating to
inventory as defined above.
(d) "Interest" shall mean (i) interest charges and expenses (but there
shall be excluded therefrom any amounts in respect of amortization of
deferred financing costs), net of capitalized interest, and (ii)
interest income and credits; and
(e) "Income Taxes" shall mean any federal, state, local, or foreign income
tax, including any interest, penalty (without duplication), or addition
thereto, whether disputed or not; and
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(f) Operating Cash Flow shall be determined using carryover basis using
GAAP in effect as of the date hereof and, accordingly, for purposes of
determining earnings, Depreciation, Interest, and Income Taxes, there
shall be excluded therefrom, without duplication, (1) any direct or
indirect effects of purchase accounting by Drilex Holdings Corp.
(including any "push down" thereof to the Corporation or its
subsidiaries) and the related financing transactions entered into in
connection with the purchase of Drilex by Drilex Holdings Corp., (2) in
the event of changes in generally accepted accounting principles in the
United States or changes by the Corporation in its accounting
principles or application thereof subsequent to the date hereof, any
direct and indirect effects of such changes, and (3) management or
retainer fees or charges, unless such fees or charges represent direct
pass through of costs or expenses paid to unaffiliated third parties.
Section 12. Right to Elect Directors. If and whenever cumulative dividends
on the Drilex Preferred shall be in arrears in an amount equal to six full
quarterly payments or more per share, then during the period (hereinafter called
the "class voting period") commencing with such time and ending with the time
when all arrears in dividends on the Drilex Preferred shall have been paid and
the full dividend on the Drilex Preferred for the then current quarterly
dividend period shall have been paid or declared and set apart for payment, at
any meeting of the shareholders of the Corporation held for the election of
directors during the class voting period, the holders of a majority of Drilex
Preferred, voting as a class, shall be entitled to elect two members of the
Board of Directors of the Corporation (or if two members do not equal one-third
of the Board of Directors of the Corporation, a number equal to one-third
(rounded up to the nearest whole number) of the number of such directors (after
such election)); provided, that for purposes of calculating whether or not such
one-third representation on the Board of Directors requirement is satisfied,
each director, officer, employee, and nominee of any of the holders of the
Drilex Preferred or their affiliates who are members of the Board of Directors
of the Corporation immediately prior to such election shall be deemed to have
been elected by the holders of the
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Drilex Preferred pursuant to this Section 12. Whenever the right to elect
directors shall have accrued to the holders of Drilex Preferred, the Board of
Directors of the Corporation shall take such necessary corporate action as shall
be required to increase the size of the Board of Directors of the Corporation to
add the appropriate number of additional directorships for the duration of such
class voting period and the proper officers of the Corporation shall call a
meeting for the election of such directors, such meeting to be held not less
than 10 nor more than 60 days after the accrual of such right. Any director who
shall have been elected by a majority of the holders of Drilex Preferred, voting
as a class, or by any director so elected as herein contemplated, may be removed
at any time during a class voting period, either for or without cause, by, and
only by, the affirmative vote of the holders of a majority of the outstanding
shares of Drilex Preferred, voting as a class, given at a special meeting of
such stockholders called for the purpose, and any vacancy thereby created may be
filled during such class voting period only by the holders of Drilex Preferred.
Any director to be elected to replace a director elected by a majority of
holders of Drilex Preferred, voting as a class, or elected by a director as in
this sentence provided, and who dies, resigns or otherwise ceases to be
director, may, except as otherwise provided in the preceding sentence, be
elected by the remaining director(s) theretofore elected by the holders of
Drilex Preferred, voting together. At the end of the class voting period, the
holders of Drilex Preferred shall be automatically divested of all voting power
vested in them under this Section 12, but subject always to the subsequent
vesting hereunder of voting power in the holders of Drilex Preferred in the
event of any subsequent arrearage. The term of all directors elected pursuant to
the provisions of this Section 12 shall expire at the end of the class voting
period.
Section 13. Dividends on Common Stock. Shares of Drilex Preferred may be
issued, upon approval thereof by the Corporation's Board of Directors and in
accordance with the Texas Business Corporation Act, as dividends upon the Drilex
Common.
RESOLVED FURTHER, that old Articles V, VI, VII and VIII, and all references
thereto, be redesignated as Articles VI, VII, VIII, and IX, respectively.
2. That the sole shareholder of Drilex, who owns all 1,000 issued and
outstanding shares of Drilex, approved such Amendment by written consent as of
March 30, 1994.
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3. That pursuant to such Amendment the authorized stated capital of Drilex
will not change.
IN WITNESS WHEREOF, Drilex has caused this Amendment to be executed by John
Forrest, its President, this 30th day of March, 1994.
DRILEX SYSTEMS, INC.
By: /s/ JOHN FORREST
-----------------------
John Forrest, President
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
This instrument was acknowledged before me on March 29, 1994, by John
Forrest, President of Drilex Systems, Inc., a Texas corporation, on behalf of
the corporation.
/s/ ANGIE KREUTZFELDT
--------------------------
Angie Kreutzfeldt
Notary Public
My commission expires: 5-20-96
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EXHIBIT D
MORTGAGE, ASSIGNMENT,
SECURITY AGREEMENT AND FINANCING STATEMENT
*NOTE A COUNTERPART OF THIS MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND
FINANCING STATEMENT IS BEING ATTACHED AS AN EXHIBIT TO A SEPARATE UCC-1
FINANCING STATEMENT FOR FILING PURSUANT TO CHAPTER 9 OF THE LOUISIANA
COMMERCIAL LAW (LA. R.S. 10:9-101, ET SEQ.)
THIS MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT (this
"Mortgage") executed effective as of March 31, 1994, is executed and delivered
by Grantor for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged by Grantor.
ARTICLE I
Certain Definitions; Granting Clauses; Obligations
Section 1.01. Certain Definitions and Reference Terms. In addition to other
terms defined herein, each of the following terms have the meaning assigned to
it:
"Collateral" shall have the meaning assigned such term in Section 1.03
hereof.
"Grantor" shall mean Drilex Systems, inc., a Texas corporation.
"Holder" shall mean the Lender, or the subsequent holder or holders at the
time in question of the Note or any part thereof or interest therein or any of
the Obligations.
"Improvements" shall mean all buildings, structures, fixtures and
improvements now or hereafter situated or to be situated on the Land.
"Land" shall mean the immovable property described in Exhibit A which is
attached hereto and incorporated herein by reference.
"Legal Requirements" shall mean all applicable laws, rules, ordinances,
codes, regulations and orders, and any, easements, restrictions, agreements,
covenants and conditions affecting the Mortgaged Property.
"Lender" shall mean MascoTech, Inc., a Delaware corporation.
"Mortgaged Property" shall have the meaning assigned such term in Section
1.02 hereof.
<PAGE>
"Note" shall mean that certain Note dated of even date herewith made by
Grantor payable to the order of Lender in the principal amount of $ 6,500,000.00
bearing interest as therein provided, containing a provision for the payment of
a reasonable additional amount as attorneys' fees, and finally maturing on June
30, 2006, and all other notes given in substitution therefor or in modification,
renewal or extension thereof, in whole or in part
"Obligations" shall mean (i) the Note, and (ii) all indebtedness and other
obligations, covenants, agreements, warranties and undertakings of Grantor under
the Note or this Mortgage
"Permitted Encumbrances" shall mean (i) the matters, if any, set forth
under the heading "Permitted Encumbrances" in Exhibit A hereto, which are
Permitted Encumbrances only to the extent the same are valid and subsisting and
affect the Mortgaged Property; (ii) the liens and security interests created
pursuant to this Mortgage; (iii) the liens and security interests created
pursuant to that certain Security Agreement between Grantor and Lender dated of
even date herewith; (iv) liens imposed by any Federal, state, municipal, local,
territorial, or other governmental department, commission, board, bureau,
agency, regulatory authority, instrumentality, judicial or administrative body,
domestic or foreign for taxes, assessments or charges not yet due or which are
being contested in good faith and by appropriate proceedings to the extent
nonpayment is permitted under applicable law; (v) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like liens arising in the
ordinary course of business which are not overdue for a period of more than 30
days or which are being contested in good faith and by appropriate proceedings
to the extent nonpayment is permitted under applicable law; and (vi) any other
lien, mortgage, security interest, claim, encumbrance or other matter affecting
the Mortgaged Property arising out of or related to any event occurring prior to
the date hereof.
Notwithstanding the foregoing, the liens described in Subsections (iv) - (vi)
shall not constitute Permitted Encumbrances at such time as foreclosure
proceedings shall be commenced with respect to such liens.
Section 1.02 Mortgaged Property. Grantor, in order to secure the payment
and Performance of the Obligations, does hereby MORTGAGE, PLEDGE, HYPOTHECATE,
GRANT, ASSIGN and SET OVER to Lender the following (collectively, the
"Mortgaged Property"):
(a) The Land, and all its component parts and other rights
appurtenant thereto, including, but not limited to: (i) the Improvements;
and (ii) all right, title and interest of Grantor in and to (A) all
streets, roads, alleys, easements, usufructs, servitudes of right of use,
rights-of-way, licenses, rights of ingress and egress, vehicle parking
rights and public places, existing or proposed, abutting, adjacent, used
in connection with or pertaining to the Land or the Improvements; (B) any
strips or gores between the Land and abutting or adjacent properties; and
(C) all water and water rights, timber, crops and mineral interests on or
pertaining to the Land.
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(b) All fixtures, equipment, machinery, furniture and furnishings, of
every kind and character, now owned or hereafter acquired by Grantor, which
are now or hereafter attached to or situated in, on or about the Land or
the Improvements, or used in or necessary to the complete and proper
planning, development, use, occupancy or operation thereof, or acquired
(whether delivered to the Land or stored elsewhere) for use or installation
in or on the Land or the Improvements, and all renewals and replacements
of, substitutions for and additions to the foregoing.
(c) All (i) proceeds of or arising from the properties, rights, titles
and interest referred to above in this Section 1.02, including but not
limited to proceeds of any sale, lease or other disposition thereof,
proceeds of each policy of insurance relating thereto, proceeds of the
taking thereof or of any rights appurtenant thereto, including change of
grade of streets, curb cuts or other rights of access, by eminent domain or
transfer in lieu thereof for public or quasi-public use under any law, and
proceeds arising out of any damage thereto; and (ii) other interests of
every kind and character which Grantor now has or hereafter acquires in, to
or for the benefit of the properties, rights, title, and interests referred
to above in this Section 1.02 and all property used or useful in connection
therewith, including but not limited to rights of ingress and egress and
remainders, reversions and reversionary rights or interests.
Section 1.03. Security Interest. In order to further secure the payment and
performance of the Obligations, Grantor hereby grants to Holder a security
interest in all of the Mortgaged Property which constitutes personal property or
fixtures (herein sometimes collectively called the "Collateral"). In addition to
its rights hereunder or otherwise, Holder shall have all of the rights of a
secured party under Chapter 9 of the Louisiana Commercial Laws (La. R.S. 10:9-
101, et seq.), or under the Uniform Commercial Code in force in any other
state to the extent the same is applicable law.
Section 1.04. Total Obligations Secured. This Mortgage secures all future
advances and obligations constituting part of the Obligations. The total amount
of obligations and advances secured hereby may increase or decrease from time to
time, but at no time shall the total principal amount of obligations and
advances secured hereby, not including accrued interest, sums expended for the
reasonable protection of the lien and security interest hereby created or
attorneys' fees, exceed a maximum of $7,000,000.00.
ARTICLE II
Representations, Warranties and Covenants
Section 2.01. Grantor represents, warrants, and covenants as follows:
(a) Payment and Performance. Grantor will make due and punctual payment to
the Note and of all other Obligations and of all installments of principal
thereof or interest
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thereon, as the same become due and payable. Grantor will timely and properly
perform and comply with all of the covenants, agreements, and conditions imposed
upon it by this Mortgage and will not permit a default to occur hereunder.
(b) Permitted Encumbrances. Grantor covenants to maintain the Mortgaged
Property free and clear of all liens, security interests, and encumbrances
except for the Permitted Encumbrances.
(c) Taxes and Other Impositions. Grantor will pay, or cause to be paid, all
taxes, assessments and other charges or levies imposed upon or against or with
respect to the Mortgaged Property or the ownership, use, occupancy or enjoyment
of any portion thereof, or any utility service thereto, as the same become due
and payable, including but not limited to all ad valorem taxes assessed against
the Mortgaged Property or any part thereof, except for such taxes, assessments
and other charges which are being contested in good faith by Grantor to the
extent nonpayment is permitted under applicable law, and except for such taxes,
assessments and other charges that were incurred or relate to periods of time
prior to the date hereof.
(d) Business Loan. The loan evidenced by the Note is solely for business
purposes, and is not for personal, family, household or agricultural purposes.
(e) Insurance.
(i) Until the Obligations secured hereby are fully paid, all buildings and
improvements upon the Mortgaged Property and all fixtures therein contained or
installed shall be kept unceasingly insured against loss and damage by such
hazards, casualties and contingencies, and in such amounts as set forth in this
Section 2.01(e). All policies of insurance and renewals thereof shall have
attached thereto standard non-contributory mortgagee clauses and loss payee
clauses acceptable to Holder, which shall provide that such coverage cannot be
terminated or modified as to Holder without thirty (30) days prior written
notice to Holder. All policies of insurance shall, with all premiums fully paid,
be delivered to Holder and all replacement policies of insurance shall, with all
premiums fully paid, be delivered to Holder before the expiration of old
policies, and all such policies shall be held by Holder until all indebtedness
secured hereby is fully paid. In case of sale pursuant to a foreclosure of this
Mortgage or other transfer of title to the Mortgaged Property and extinguishment
of the Obligations secured hereby, complete title to all policies held by
Grantor and/or Holder and to all prepaid or unearned premiums thereon shall pass
to and vest in the purchaser or grantee. Holder shall not by reason of
accepting, rejecting, approving or obtaining insurance incur any liability for
payment of losses.
Without in any way limiting the generality of the foregoing, Grantor
covenants and agrees to maintain insurance coverage on the Mortgaged Property to
include:
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(A) Fire and extended coverage insurance with a 100% replacement cost
endorsement (without depreciation and without co-insurance penalty or limitation
in the policy) covering the entire Mortgaged Property including all improvements
thereon.
(B) Comprehensive General Public Liability and Property Damage Insurance
for an amount not less than $2,000,000 with a combined single limit for claims
arising from any accident or occurrence in or upon the Mortgaged Property with
an umbrella coverage of not less than $5,000,000, and naming Holder as an
additional insured.
(C) Flood insurance with a replacement cost endorsement (without
depreciation) if the Mortgaged Property or any portion thereof is in a flood
prone area, or the extent required by state or federal law or if the Mortgaged
Property shall be designated as being located in a Federal Flood Plain.
(D) Appropriate workers' compensation or other insurance against liability
arising from claims of workers in respect of and during the period of any work
on or about the Mortgaged Property (if applicable).
Grantor shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained hereunder
unless Holder is included thereon under a standard mortgagee clause acceptable
to Holder. Grantor shall immediately notify Holder whenever any such separate
insurance is taken out and shall promptly deliver to Holder the policy or
policies of such insurance.
(ii) In cases of loss or damage by fire or other casualty, Grantor is
authorized to settle and adjust any claim under insurance policies which insure
against such risks and agree with the insurance company or companies on the
amount to be paid in regard to such loss; provided, however, that Grantor shall
not settle or adjust any such claim without first receiving the consent of
Holder, which consent shall not be unreasonably withheld. Holder is authorized
to collect and receive any insurance proceeds. All such insurance proceeds must
be delivered by the insurance company or Grantor to Holder, to be applied as
provided herein. Grantor hereby agrees that if any insurance proceeds should be
paid to it (in violation of this Section 2.01(e)(ii)), such proceeds shall be
held in trust for Holder and shall be immediately paid to Holder. All such
insurance proceeds shall be held by Holder and Holder shall apply the insurance
proceeds (A) first, to reimburse Holder for all reasonable costs and expenses,
including attorneys' fees, incurred in connection with the collection of such
proceeds, (B) second, at the election of Grantor and provided that only so long
as Grantor shall not be in default under this Mortgage or the Note, Holder shall
make the proceeds available to Grantor on a construction draw basis on such
terms and conditions as shall be required by Holder in its sole but reasonable
discretion, and (C) the remainder of such proceeds shall be applied to the
payment of any Obligations secured by this Mortgage, either in whole or in part,
in the order determined by Holder, in its sole and absolute discretion. In any
event, the unpaid portion of the Obligations shall not be excused in the payment
thereof.
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(f) Waste/Compliance with Legal Requirements. Grantor shall (i) abstain
from the commission of material waste on the Mortgaged Property, and (ii) keep
the buildings, equipment and improvements located on the Mortgaged Property in
good condition, order and repair; provided that in no event shall Grantor be
required to keep the buildings, equipment and improvements thereon in better
condition, order and repair than exists as of the day hereof; and (iii) promptly
cause the Mortgaged Property to materially comply with all material Legal
Requirements; provided that in no event shall Grantor be required to comply with
any such Legal Requirements to the extent the Mortgaged Property does not comply
with any such Legal Requirements as of the date hereof.
(g) Hazardous Materials.
(i) Grantor shall only use Hazardous Materials in the ordinary course of
its business at the Mortgaged Property and such use shall not in any material
manner violate any material federal, state or local laws, ordinances, rules,
regulations or policies governing said use.
(ii) Grantor shall conduct and complete all removal and other actions
necessary to clean up and remove all Hazardous Materials on, under, from or
affecting the Mortgaged Property if Grantor is required by applicable federal,
state and local laws, ordinances, rules, regulations and policies to undertake
such acts. Notwithstanding the foregoing, Grantor shall not have any obligations
under this Section 2.01(g)(ii) to the extent same arise out of (1) Hazardous
Materials existing on, over, under, from or affecting the Mortgaged Property
prior to or on the date hereof, or (2) any breach by Holder of any of its
representations, warranties or covenants set forth in that certain Stock
Purchase Agreement dated of even date herewith between Holder and Drilex
Holdings, Corp., a Delaware corporation.
(iii) Grantor shall indemnify, defend and hold harmless Holder, its
employees, agents, officers and directors from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs or expenses
of whatever kind or nature, including reasonable attorney fees, fees of
environmental consultants and laboratory fees, known or unknown, contingent or
otherwise, arising out of (A) the presence, disposal, release or threatened
release of any Hazardous Materials on, over, under, from or affecting the
Mortgaged Property; (B) any personal injury or property damage (real or
personal) arising out of or related to such Hazardous Materials on, over, under,
from or affecting the Mortgaged Property; (C) any lawsuit brought or threatened,
settlement reached or governmental order relating to such Hazardous Materials
with respect to the Mortgaged Property; and/or (D) any violation of laws,
orders, regulations, requirements or demands of government authorities based
upon such Hazardous Materials on, over, under, from or affecting the Mortgaged
Property. Notwithstanding the foregoing, Grantor shall not be obligated to
indemnify, defend and hold harmless Holder, its employees, agents, officers
and directors from and against the matters described in clauses (A) through (D)
of this Section 2.01(g)(iii) to the extent same arise out of (1) Hazardous
Materials existing on, over, under, from or affecting the Mortgaged Property
prior to or on the date hereof, or (2) any breach
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by Holder of any of its representations, warranties or covenants set forth in
that certain Stock Purchase Agreement dated of even date herewith between Holder
and Drilex Holdings, Corp., a Delaware corporation.
(iv) For purposes of this Mortgage, "Hazardous Materials" shall mean any
pollutant, toxic substance, asbestos, solid or hazardous waste, or any
constituent of any such substance, waste or product, whether solid, liquid or
gaseous in form, described in or regulated under the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), or
under any other federal, state or local law, statute, ordinance, rule,
regulation, order, judicial decision, arbitration decision or determination of
any governmental authority, and shall include petroleum, natural gas, natural
gas liquids, crude oil and any fraction or product thereof. The provisions of
this Section 2.01(g) hereof shall be in addition to any and all other
obligations and liabilities which Grantor may have to Holder hereunder, under
the Note and under common law and shall survive the repayment of all sums due
under the Note and hereunder and the satisfaction of all of the other
obligations of Grantor hereunder to the extent Holder shall incur any liability
with respect to Hazardous Materials after the discharge of this Mortgage.
(v) The provisions of this Section 2.01(g) shall survive the discharge or
termination of this Mortgage and shall survive and shall not merge in the event
of a foreclosure of this Mortgage or the acquisition of the Mortgaged Property
by Holder, its successors or assigns.
ARTICLE III
Default
Section 3.01. Events of Default. The occurrence of an Event of Default
under the Note shall be an Event of Default under this Mortgage.
ARTICLE IV
Remedies
Section 4.01. Certain Remedies. If an Event of Default shall occur, Holder
may exercise, in addition to the rights of acceleration contained in the Note,
any one or more of the following remedies, without notice (unless notice is
required by applicable statute):
(a) Right to Suit: Executory Process. Upon the occurrence and continuance
of a default, Holder shall have the right and power to proceed by suit or suits
for specific performance of any covenant or agreement herein contained or in aid
of the execution of
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any power herein granted or for any foreclosure hereunder or for the sale of
the Mortgaged Property under the judgment or decree of any court or courts of
competent jurisdiction, or for the appointment of a receiver pending any
foreclosure hereunder or the sale, whether in part or in whole, of the
Mortgaged Property under the order of a court or courts of competent
jurisdiction or under executory or other legal process, or for the enforcement
of any other appropriate remedy. Grantor agrees to the full extent that it
lawfully may that in case the above described Note or any of the Obligations
be not paid promptly when due, then and in every such case Holder shall, to the
maximum extent allowed by law, have the right and power to enter into and upon
and take possession of all or any part of the Mortgaged Property in the
possession of Grantor, its successors or assigns, or its or their agents or
servants, and may exclude Grantor, its successors or assigns, and all persons
claiming under Grantor and its or their agents or servants wholly or partly
therefrom; and holding the same, Holder may use, administer, operate and
control the Mortgaged Property and conduct the business thereof to the same
extent as Grantor, its successors or assigns, might at the time do and may
exercise all rights and powers of Grantor, in the name, place and stead of
Grantor, or otherwise as Holder shall deem best. For purposes of foreclosure
under Louisiana executory process procedures, Grantor confesses judgment and
acknowledges and agrees to be indebted to Holder up to the full amount of the
Obligations.
(b) Uniform Commercial Code. Without limitation of Holder's rights of
enforcement with respect to the Collateral or any part thereof in accordance
with the procedures for foreclosure of real estate, Holder is and shall be
entitled to exercise all of the rights, powers and remedies afforded to a
secured party for enforcement of the security interests herein granted, with
respect to the Collateral or any part thereof under the Louisiana Commercial
Laws Secured Transactions, La. R.S. 10:9-101, et. seq, as amended (or under the
Uniform Commercial Code in force in any other state to the extent the same is
applicable law).
(c) Entry on Mortgaged PropertY. Holder is authorized, prior or subsequent
to the institution of any foreclosure proceedings, to enter upon the Mortgaged
Property, or any part thereof, and to take possession of the Mortgaged Property
and all books and records relating thereto, and to exercise without
interference from Grantor any and all rights which Guarantor has with respect
to the management, possession, operation, protection or preservation of the
Mortgaged Property.
(d) Other Rights and Remedies. Holder may exercise any and all other
rights and remedies which Holder may have under this Mortgage, or at law or in
equity or otherwise.
(e) Right to Receive Rents. Upon the occurrence of an Event of Default,
Holder shall have the right to receive and collect all rents, royalties or
other payments due or which shall become due with respect to the Mortgaged
Property.
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(f) Right To Be Appointed Keeper. Upon the occurrence of an Event of
Default, the Holder shall have the right to be appointed keeper of the
Mortgaged Property and the Collateral pursuant to the provisions of La. R.S.
9:5131, et seq., and 9:5136, et seq
Section 4 02. Effective as Mortgage. This instrument shall be effective
as a mortgage and upon the occurrence of a default may be foreclosed under
executor or other legal process as to any of the Mortgaged Property in any
manner permitted by applicable law, and any foreclosure suit may be brought by
Holder.
Section 4.03. Proceeds of Foreclosure. To the extent allowed by applicable
law, the proceeds of any sale held by any receiver or public officer in
foreclosure of the liens and security interests evidenced hereby shall be
applied:
FIRST, to the payment of all necessary costs and expenses incident to such
foreclosure sale, including but not limited to all attorneys' fees and legal
expenses, and all court costs and charges of every character in the event
foreclosed by suit;
SECOND, to the payment of the Obligations (including specifically without
limitation the principal, accrued interest and attorneys' fees due and unpaid on
the Note and the amounts due and unpaid and owed to Holder under this Mortgage)
in such manner and order as Holder may elect; and
THIRD, the remainder, if any there shall be, shall be paid to Grantor, or
to Grantor's successors or assigns, or such other persons as may be entitled
thereto by law.
Section 4.04. Holder as Purchaser. Holder shall have the right to become
the purchaser at any sale held by it or by any receiver or public officer or at
any public sale, and any Holder purchasing at any such sale shall have the
right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the Obligations owing to such Holder, or if such
Holder holds less than all of such indebtedness the pro rata part thereof owing
to such Holder.
Section 4.05. Remedies Cumulative. All remedies provided for herein are
cumulative of each other and of any and all other remedies existing at law or
in equity, and Holder shall, in addition to the remedies provided herein, be
entitled to avail itself of all such other remedies as may now or hereafter
exist at law or in equity for the collection of the Obligations and the
enforcement of the covenants herein and the foreclosure of the liens and
security interests evidenced hereby, and the resort to any remedy provided for
hereunder or provided for by law or in equity shall not prevent the concurrent
or subsequent employment of any other appropriate remedy or remedies.
Section 4.06. Holder's Discretion as to Security. Holder may resort to any
security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the Obligations, in whole or in part,
and in such portions and in such order as
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may seem best to Holder in its sole and uncontrolled discretion, and any such
action shall not in anyway be considered as a waiver of any of the rights,
benefits, liens or security interests evidenced by this Mortgage.
Section 407. Delivery of Possession After Foreclosure. In the event there
is a foreclosure sale hereunder and at the time of such sale, Grantor or
Grantor's successors or assigns are occupying or using the Mortgaged Property,
or any part thereof, each and all shall immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day to day,
terminable at the will of either landlord or tenant, at a reasonable rental per
day based upon the value of the property occupied, such rental to be due daily
to the purchaser; and to the extent permitted by applicable law, the purchaser
at such sale shall, notwithstanding any language herein apparently to the
contrary, have the sole option to demand immediate possession following the
sale or to permit the occupants to remain in as tenants at will. In the event
the tenant fails to surrender possession of said property upon demand, the
purchaser shall be entitled to institute and maintain a summary action for
possession of the property (such as an action for forcible detainer) in any
court having jurisdiction.
Section 4.08. Waiver. To the extent permitted under applicable Louisiana
law, Grantor additionally waives: (A) the benefit of appraisal as provided
under Articles 2332, 2336, 2723 and 2724 of the Louisiana Code of Civil
Procedure, and all other laws with regard to appraisal upon judicial sale; (B)
the demand and three days' delay as provided under Articles 2639 and 2721 of
the Louisiana Code of Civil Procedure; (C) the notice of seizure as provided
under Articles 2293 and 2721 of the Louisiana Code of Civil Procedure; (D) the
three (3) days' delay provided under Articles 2331 and 2722 of the Louisiana
Code of Civil Procedure; and (E) all other benefits provided under Articles
2331, 2722 and 2723 of the Louisiana Code of Civil Procedure.
ARTICLE V
Miscellaneous
Section 5.01. Scope of Mortgage. This Mortgage is a mortgage of both
immovable, moveable and mixed property, a security agreement, a financing
statement and an assignment, and also covers proceeds and fixtures.
Section 5.02. Effective as a Financing Statement. This Mortgage shall be
effective as a financing statement filed as a fixture filing with respect to
all fixtures included within the Mortgaged Property and is to be filed for
record in the real estate records of each parish where any part of the
Mortgaged Property (including said fixtures) is situated. This Mortgage shall
also be effective as a financing statement covering minerals or the like
(including oil and gas) and accounts subject to Subsection (5) of R.S. 10:9-103
of the Louisiana Commercial Laws, as amended, and similar provisions (if any)
of the Uniform
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Commercial Code as enacted in any other state where the Mortgaged Property is
situated which will be financed at the wellhead or minehead of the wells or
mines located on the Mortgaged Property and is to be filed for record in the
real estate records of each parish or where any part of the Mortgaged Property
is situated. This Mortgage shall also be effective as a financing statement
covering any other Mortgaged Property and may be filed in any other appropriate
filing or recording office. The mailing address of Grantor is the address of
Grantor set forth at the end of this Mortgage and the address of Holder from
which information concerning the security interests hereunder may be obtained
is the address of Holder set forth at the end of this Mortgage.
Section 5 03. Reproduction of Mortgage as Financing Statement. A carbon,
photograph or other reproduction of this Mortgage or of any financing statement
relating to this Mortgage shall be sufficient as a financing statement for any
of the purposes referred to in Section 5.02.
Section 5.04. Waiver by Holder. Holder may at any time and from time to
time by a specific writing intended for the purpose: (a) waive compliance by
Grantor with any covenant herein made by Grantor to the extent and in the manner
specified in such writing; (b) consent to Grantor's doing any act which
hereunder Grantor is prohibited from doing, or to Grantor's failing to do any
act which hereunder Grantor is required to do, to the extent and in the manner
specified in such writing; (c) release any part of the Mortgaged Property or any
interest therein from the lien and security interest of this Mortgage; or (d)
release any party liable, either directly or indirectly, for the Obligations or
for any covenant herein without impairing or releasing the liability of any
other party. No such act shall in any way affect the rights or powers of Holder
hereunder except to the extent specifically agreed to by Holder in such writing.
Section 5.05. No Impairment of Security. The taking of additional security
by Holder shall not release or impair the lien, security interest or other
security rights of Holder hereunder or affect the liability of Grantor or of any
endorser, guarantor or surety, or improve the right of any junior lienholder in
the Mortgaged Property (without implying hereby Holder's consent to any junior
lien).
SECTION 5.06. Acts Not Constituting Waiver by Holder. Holder may waive any
default without waiving any other prior or subsequent default. Holder may remedy
any default without waiving the default remedied. Neither failure by Holder to
exercise, nor delay by Holder in exercising, any right, power or remedy upon any
default shall be construed as a waiver of such default or as a waiver of the
right to exercise any such right, power or remedy at a later date. No single or
partial exercise by Holder of any right, power or remedy hereunder shall exhaust
the same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time.
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Section 5.07. Grantor's Successors. This Mortgage shall be binding on
Grantor's successors and assigns.
Section 5.08. Place of Payment. All Obligations which may be owing
hereunder at any time by Grantor shall be payable at the place designated in the
Note (or if no such designation is made, at the address of Holder indicated at
the end of this Mortgage).
Section 5.09. Application of Payments to Certain Indebtedness. If any part
of the Obligations cannot be lawfully secured by this Mortgage or if any part of
the Mortgaged Property cannot be lawfully subject to the lien and security
interest hereof to the full extent of such indebtedness, then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.
Section 5.10. Release of Mortgage. If all of the Obligations be paid as the
same becomes due and payable (and such payments shall not be set aside pursuant
to any federal or state bankruptcy or insolvency laws or proceedings) and all of
the covenants, warranties, undertakings and agreements made in this Mortgage are
kept and performed, and all obligations, if any, of Holder for further advances
have been terminated, then, and in that event only, all rights under this
Mortgage shall terminate (except to the extent expressly provided herein with
respect to indemnification and other rights which are to continue following the
release hereof) and the Mortgaged Property shall become wholly clear of the
liens, security interests, conveyances and assignments evidenced hereby, and
such liens and security interests shall be released by Holder in due form at
Grantor's cost. Without limitation, all provisions herein for indemnity of
Holder shall survive discharge of the Obligations and any foreclosure, release
or termination of this Mortgage.
Section 5.11. Notices. All notices shall be given as specified in the
Note.
Section 5.12. Entire Agreement. This Mortgage constitutes the entire
understanding and agreement between Grantor and Holder with respect to the
transactions arising in connection with the indebtedness secured hereby and
supersedes all prior written or oral understandings and agreements between
Grantor and Holder with respect to the matters addressed in this Mortgage.
Grantor hereby acknowledges that, except as incorporated in writing in this
Mortgage, there are not, and were not, and no persons are or were authorized by
Holder to make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the matters addressed in this
Mortgage.
Section 5.13. Invalidity of Certain Provisions. A determination that any
provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
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Section 5.14. Titles; Construction. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions, and shall be disregarded in construing the language contained in
such subdivisions. This Mortgage is intended to cover all things made
susceptible of mortgage by Louisiana Civil Code article 3286. This Mortgage has
been drafted through the mutual efforts of Grantor and Lender with the
assistance of their counsel Both Grantor and Lender agree that it has been
purposefully drafted and correctly reflects their mutual understanding of the
transaction it contemplates.
Section 5.15. Recording. Grantor will cause this Mortgage and all amendments
and supplements thereto and substitutions therefor and all financing statements
and continuation statements relating thereto to be recorded, filed, re-recorded
and refiled in such manner and in such places as Holder shall reasonably request
and will pay all such recording, filing, re-recording and refiling taxes, fees
and other charges.
Section 5.16. Lender as Holder. All persons dealing with the Mortgaged
Property (other than Grantor) shall be entitled to assume that Lender is the
only Holder, and may deal with Lender (including without limitation accepting
from or relying upon full or partial releases hereof executed by Lender only)
without further inquiry as to the existence of other Holders, until given actual
notice of facts to the contrary or until this Mortgage is supplemented or
amended of record to show the existence of other Holders.
Section 5.17. No Partnership, etc. The relationship between Holder and
Grantor is solely that of lender and borrower. Holder has no fiduciary or other
special relationship with Grantor. Nothing contained in this Mortgage is
intended to create any partnership, joint venture or association between Grantor
and Holder or in any way make Holder a co-principal with Grantor with reference
to the Mortgaged Property. Any inferences to the contrary of any of the
foregoing are hereby expressly negated.
Section 5.18. Execution. This Mortgage has been executed in several
counterparts, all of which are identical, and all of which counterparts together
shall constitute one and the same instrument.
Section 5.19. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the successors and assigns
of Grantor, and shall inure to the benefit of Holder and its respective
successors, substitutes and assigns and shall constitute covenants running with
the land. All references in this Mortgage to Grantor or Holder shall be deemed
to include all such successors, substitutes and assigns.
Section 5.20. Modification or Termination. This Mortgage may only be
modified or terminated by a written instrument or instruments intended for that
purpose and executed by the party against which enforcement of the modification
or termination is asserted. Any alleged modification or termination which is not
so documented shall not be effective as to any party.
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Section 5.21. Applicable Law. This Mortgage and its validity, enforcement
and interpretation, shall be governed by Louisiana law (without regard to any
conflict of laws principles) and applicable United States federal law.
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THUS DONE AND PASSED in duplicate originals on the day, month and year herein
first above written, in the presence of Helen M. Haynes and James I. Rothschild,
competent witnesses, who hereunto sign their names with the said appearers and
me, Notary, after reading of the whole.
WITNESSES: GRANTOR:
DRILEX SYSTEMS, INC.
/s/ HELEN M. HAYNES
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Helen M. Haynes
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Printed Name
/s/ JAMES I. ROTHSCHILD By: /s/ JOHN FORREST
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James I. Rothschild Name: John Forrest
- ---------------------- --------------------
Printed Name Title: President
Printed Name
/s/ ROSA C. HERST
------------------
Notary Public
The address and federal tax identification
number of Grantor are:
Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
Attn: Bruce Broussard
Federal Tax I.D. No.:
The address of Holder is:
MascoTech, Inc
21001 Van Born Road
Taylor, Michigan 48180
Attention: President
15
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EXHIBIT E
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SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement), dated as of March 31,
1994, is by and between DRILEX SYSTEMS, INC., a Texas corporation (the
"Debtor"), and MASCOTECH, INC., a Delaware corporation (the "Secured Party").
In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST; DESCRIPTION OF THE COLLATERAL. Other
than special purpose built rigs for environmental, cable laying, river crossing
or other non-oil and gas drilling purposes (any of the foregoing, a "Special
Purpose Rig"), and MWD ("measurement while drilling") tools and related
equipment acquired by the Debtor after the date of this Security Agreement, the
Debtor hereby grants to the Secured Party a security interest in the following
property (collectively, the "Collateral"): all fixed assets and inventory held
by the Debtor, including, but not limited to, machinery and equipment, rental
equipment, tools, dies, jigs and fixtures, office furniture and equipment,
computer hardware and software for sale or rental or to be furnished under
contracts of service if so furnished, or raw materials, work-in-process or
materials used or consumed in the business of the Debtor, wherever located and
whether now owned or hereafter acquired by the Debtor, and including, but not
limited to, all such products and goods which are returned or repossessed, and
all accessions and additions thereto, replacements and products thereof and
proceeds arising from the sale or other disposition thereof (except proceeds
from the rental, sale or use of inventory), and all instruments, contract
rights, chattel paper and intangibles arising therefrom (including leases and
conditional sales contracts), and the proceeds of all the foregoing; provided,
however, if Drilex owns such, at least one Special Purpose Rig shall always
remain part of the Collateral; and provided further, however, the Collateral
shall not include the following:
(a) All accounts, receivables, accounts receivable, book debts,
contract rights and rights to payment received by or belonging to Debtor for
goods sold or leased and/or services rendered by Debtor, no matter how
evidenced.
(b) All chattel paper, notes, drafts, acceptances, payments under
leases of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or services
rendered by Debtor.
<PAGE>
(c) All purchase orders, instruments and other documents (including
all documents of title) evidencing obligations to Debtor, for or representing
obligations for goods sold or leased and/or services rendered by Debtor.
(d) All monies due or to become due to Debtor under all contracts for
sale or lease of goods and/or performance of services by Debtor no matter how
evidenced and whether or not earned by performance.
(e) All accounts, receivables, accounts receivable, contract rights,
and general intangibles arising as a result of Debtor's having paid accounts
payable (or having had goods sold to or leased to Debtor or services performed
for Debtor giving rise to accounts payable) which accounts payable were paid
for or were incurred by Debtor on behalf of any third parties pursuant to an
agreement or otherwise.
Together with all accessions, appurtenances and additions to and substitutions
for any of the foregoing and all products and proceeds of any of the foregoing,
together with all renewals and replacements of any of the foregoing.
2. OBLIGATIONS THAT THE COLLATERAL SECURES. The Collateral shall
secure the payment and the performance of all liabilities and obligations of
the Debtor of every kind and nature whatsoever (the "Obligations") pursuant to
a Promissory Note (the "Note") dated March 31, 1994, delivered by Debtor to
the Secured Party.
3. THE COLLATERAL TO REMAIN PERSONAL PROPERTY; LOCATION OF THE
COLLATERAL. The Debtor agrees that the Collateral which is not a fixture shall
at all times remain personal property, shall not become affixed to, or form a
part of, any real estate regardless of the manner of affixation, and shall be
kept at the Debtor's places of business as set forth in Schedule A hereto.
Without the prior written consent of the Secured Party, the Debtor will not
remove nor allow the removal of the Collateral from such locations, except to
the extent expressly provided by this Agreement.
4. THE DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor represents
and warrants to the Secured Party that:
(a) The Debtor is a corporation, duly organized, validly existing and
in good standing under the laws of Texas.
(b) The execution, delivery and performance of this Agreement and any
other instruments relating to this Agreement have been duly and validly
authorized by the Debtor and do not and will not conflict with any provision of
the Debtor's corporate charter or bylaws or any agreement or instrument to which
the Debtor is now or hereafter becomes a party or by which the Debtor is now or
hereafter becomes a party or by which the Debtor is now or hereafter becomes
bound, and the Debtor has and shall have full corporate power and authority to
enter into this
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Agreement and all other instruments contemplated hereby and to consummate the
transaction contemplated hereby.
(c) The Debtor is and shall be justly indebted to the Secured Party
for the full amount of the Obligations secured hereby.
(d) The Debtor shall now and at all times hereafter lawfully possess
and own the Collateral, except to the extent the Debtor sells the Collateral in
the manner expressly permitted by this Agreement.
(e) Except for the security interest granted hereby, and the
Permitted Liens set forth in Section 5 below, the Collateral shall be free from
all liens, claims, security interests and encumbrances, and no financing
statement covering the Collateral is on file in favor of anyone other than the
Secured Party; provided that the Debtor shall have the right from time to time
to grant a first lien on proceeds of inventory to one or more lenders to secure
additional indebtedness.
(f) The Debtor's principal place of business and the only other
places of any material business of the Debtor and its subsidiaries (which
subsidiaries are listed on Schedule A hereto) ("Subsidiaries") are as set forth
on said Schedule A.
(g) All property now or hereafter located at any of the locations
referred to above or otherwise used in the course of the business of Debtor or
the business of its Subsidiaries which would fit within the definition of
Collateral if the Debtor had an interest in such property shall in fact be
owned by the Debtor or its Subsidiaries and constitute Collateral.
(h) All of the names under which the Debtor does any material
business, and the locations where such names are used, are set forth on
Schedule A hereto.
5. PERMITTED LIENS. For purposes of this Agreement, "Permitted Liens"
shall mean:
(a) Liens created pursuant to this Agreement and that certain
mortgage dated of even date herewith delivered by the Debtor to the Secured
Party;
(b) Liens imposed by any Federal, state, municipal, local,
territorial, or other governmental department, commission, board, bureau,
agency, regulatory authority, instrumentality, judicial or administrative body,
domestic or foreign, for taxes, assessments or charges not yet due or which are
being contested in good faith and by appropriate proceedings;
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(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like liens arising in the ordinary course of business which are not
overdue for a period of more than 60 days or which are being contested in good
faith and by appropriate proceedings; and
(d) any other lien, mortgage, security interest, claim, encumbrance
or other matter affecting the Collateral arising out of or related to any event
occurring prior to or on the date hereof.
6. THE DEBTOR'S COVENANTS. The Debtor agrees that so long as any
Obligation is outstanding:
(a) The Debtor will provide the Secured Party with at least 30 days
prior written notice before it changes its principal places of business from
the locations set forth on Schedule A.
(b) Neither the Debtor nor any of its Subsidiaries shall change their
names or operate their businesses under any other names, or otherwise take any
action which might render any financing statement filed pursuant to this
Agreement to be seriously misleading unless, in each case, the Debtor shall
have given the Secured Party prior written notice thereof and such action shall
not otherwise be prohibited by this Agreement.
(c) The Debtor shall promptly notify the Secured Party of any change
or contemplated change in any of the information provided pursuant to Sections
4(f) or (h) above, of any material impairment in the value of or any occurrence
materially adversely affecting the Collateral, and of the occurrence of any
Event of Default (as hereinafter defined), and the Debtor shall update (no less
frequently than annually or as often as the Secured Party shall reasonably
request) the information furnished to the Secured Party in connection with this
Agreement and such other financial information concerning the Debtor and its
Subsidiaries as the Secured Party may reasonably request from time to time.
(d) The Debtor shall pay to the Secured Party when due, and timely
perform, all of the Obligations subject, in each case, to any applicable grace
period.
(e) The Debtor shall take, and shall cause each of its Subsidiaries
to take, all action that the Secured Party may reasonably request to assure and
maintain the validity, perfection, enforceability and priority of the Secured
Party's security interest in the Collateral and the Secured Party's rights
under this Agreement and in the Collateral and to enable the Secured Party to
protect or preserve the Collateral and the Secured Party's rights therein and
hereunder in any jurisdiction in which the Secured Party reasonably determines
such action to be advisable.
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<PAGE>
(f) The Debtor shall defend, at its own cost, any action, proceeding
or claim affecting title to or rights in the Collateral arising after the date
hereof.
(g) In the case of an Event of Default, Debtor shall pay to the
Secured Party all costs and expenses incurred by the Secured Party in enforcing
or preserving the Secured Party's rights under this Agreement, including but
not limited to, (i) reasonable attorney's and paralegal's fees and
disbursements; (ii) the fees and expenses of any litigation, administrative,
bankruptcy, insolvency, receivership and any other similar proceeding; (iii)
court costs; (iv) the expenses of the Secured Party, its employees, agents,
attorneys and witnesses in preparing for litigation, administrative,
bankruptcy, insolvency and other proceedings and for lodging, travel, and
attendance at meetings, hearings, depositions, and trials; and (v) consulting
and witness fees incurred by the Secured Party in connection with any
litigation or other proceeding.
(h) The Debtor shall pay promptly all taxes, assessments, license
fees and other public or private charges when levied or assessed against the
Collateral, this Agreement or the payments to be made in connection therewith,
other than any of the foregoing being contested in good faith or for which
adequate reserves have been made, and this obligation shall survive the
termination of this Agreement.
(i) The Debtor shall not misuse, fail to keep in good repair, rent,
lend or transfer (except as expressly permitted hereby) any of the Collateral.
(j) The Secured Party may enter upon the Debtor's premises at any
reasonable time to inspect the Collateral and the Debtor's books and records
pertaining thereto, and the Debtor shall cooperate with the Secured Party in
such inspection and shall facilitate the same.
(k) The Debtor shall promptly provide the Secured Party with such
financial information concerning the Debtor as the Secured Party shall
reasonably requested from time to time.
(l) The "value of the Collateral" at all times shall be not less than
175 percent (175%) of the Obligations then outstanding. For purposes of this
Agreement, the "Value of the Collateral" shall mean the value of the
Collateral as reflected on the books of the Debtor determined under GAAP, as
such term is defined in the Stock Purchase Agreement, dated the date hereof,
between Secured Party and Drilex Holdings Corp., a Delaware corporation.
(m) Neither Drilex nor any of its Subsidiaries shall, in any single
transaction or series of transactions, directly or indirectly (a) liquidate or
dissolve, or (b) be a party to any merger or consolidation, unless Drilex is
the survivor.
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(n) Neither Drilex nor any of its Subsidiaries shall enter into any
transaction or agreement with any of its officers, directors or holders of any
of its outstanding capital stock (or any affiliate of any such Person) unless
the same is upon terms substantially similar to those obtainable from wholly
unrelated sources possessing equivalent capabilities and expertise, and such
agreement or transaction is reasonable, given all of the circumstances.
(o) Drilex shall not pay dividends on any class of stock, other than
the preferred stock issued to the Secured Party, in excess of its consolidated
net income for any fiscal year.
(p) Drilex shall maintain a consolidated net worth (calculated by
excluding from net worth all amounts in respect of preferred stock issued to
the Secured Party) of not less than $7,500,000.
(q) If, for so long as any Obligations are outstanding, the Secured
Party reasonably believes that additional collateral is necessary to secure the
Obligations, at the request of the Secured Party, the Debtor shall take, and
shall cause each of its Subsidiaries to take, all action that the Secured Party
may reasonably request to grant the Secured Party a security interest in
property of Drilex's subsidiaries that would have constituted Collateral
hereunder, if such property were owned by the Debtor; provided, however, that
neither the Debtor nor any of its subsidiaries shall be required to move any
such collateral.
7. TAXES; LIENS. The Secured Party may at any time discharge taxes
except taxes the payment of which Debtor is contesting in good faith or for
which Debtor has made adequate reserves and other material encumbrances levied
or placed on the Collateral that are not permitted hereunder and pay any
necessary filing fees with respect thereto. The Debtor shall reimburse the
Secured Party on demand for any such expenditures, and until so reimbursed the
amount thereof shall be deemed to be part of the Obligations. The Secured Party
shall have no obligation to the Debtor to make any expenditures, nor shall the
making thereof cure any default of the Debtor hereunder or under any other
agreement or instrument the performance of the terms of which is secured hereby.
8. DISPOSITION OF THE COLLATERAL BY THE DEBTOR. Each of the Debtor and
its Subsidiaries may sell the Collateral, or any part thereof, in the ordinary
course of business (including without limitation inventory sold in the ordinary
course of business), but only if and provided that no Event of Default under
this Agreement shall have occurred and, to the extent provided in the Note, be
continuing. Upon the Secured Party's request and as often as reasonably
requested, the Debtor shall promptly notify the Secured Party in writing of
those items of the Collateral which are sold by or
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<PAGE>
disposed by the Debtor or any of its Subsidiaries (excluding inventory sold in
the ordinary course of business).
9. INSURANCE AND RISK OF LOSS. The Debtor shall bear the entire risk
of loss, damage to or destruction of the Collateral. The Debtor will procure and
maintain, or cause to be procured and maintained, insurance for the types of
coverage, for amounts of coverage and with deductibles in the amounts set forth
on Schedule B attached hereto, covering the Collateral for the Debtor's full
replacement cost thereof, and promptly deliver each policy to the Secured Party
with a standard lender's loss payable endorsement attached showing loss payable
to the Secured Party or assigns as their respective interest may appear. The
Secured Party's acceptance of policies in lesser amounts or limited risks in one
or more instances shall not be a waiver of the Debtor's foregoing obligation in
any other instance. All such policies of insurance shall provide for not less
than 30 days prior notice of cancellation or amendment to the Secured Party. If
the Debtor fails to secure and maintain, or cause to be secured and maintained,
insurance as herein provided, the Secured Party may, at its option, obtain such
insurance on behalf of the Debtor or any of its Subsidiaries and the Debtor
hereby promises to pay to the Secured Party on demand any amount so expended.
10. EVENTS OF DEFAULT. Any Event of Default as defined in the Note
shall be an Event of Default hereunder and shall allow the Secured Party to take
such action under Section 11 below as the Secured Party, in its sole discretion,
deems appropriate.
11. THE SECURED PARTY'S REMEDIES AFTER DEFAULT; CONSENT TO ENTER
PREMISES. (a) Upon the occurrence and, to the extent provided in the Note, the
continuance of any Event of Default, in addition to all other remedies under
this Agreement, the Note, the Mortgage, the Stock Purchase Agreement dated
March 31, 1994 between Drilex Holdings Corp. and the Secured Party (the "Stock
Purchase Agreement"), or any agreements between or among Drilex Holdings Corp.,
the Debtor and the Secured Party, and at law or in equity, at the option of the
Secured Party, the entire amount of the remaining unpaid balance of the
Obligations shall become immediately due and payable. Upon the occurrence and,
to the extent provided in the Note, the continuance of any Event of Default, the
Secured party shall have, in any jurisdiction where enforcement of this
Agreement is sought, in addition to any and all other rights and remedies it may
have at law, in equity, by statute or otherwise, all the rights and remedies of
a secured creditor under the Uniform Commercial Code, including, without
limitation, the right to any deficiency remaining after disposition of the
Collateral. Upon the occurrence and, to the extent provided in the Note, the
continuance of any Event of Default, the Debtor agrees that the Secured Party or
its agent may, without notice to any person and without judicial process of any
kind, enter any premises or upon any land owned, leased or otherwise under the
real or apparent control of the Debtor, or any of its agents where the
Collateral may be or where the
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Secured Party believes the Collateral may be, and disassemble, render unusable
or repossess all or any item of the Coliateral, separating all the Collateral
from any other property. The Debtor expressly waives all further rights to
possession of the Collateral after an Event of Default and all claims relating
to such entering or repossession; provided, however, the Debtor does not waive
further rights to possession of the Collateral after an Event of Default to the
extent the value of such Collateral repossessed by the Secured Party exceeds the
amount of the Obligations. The Debtor shall, upon the Secured Party's demand and
at the Debtor's expense, assemble the Collateral and deliver it to the Secured
Party at the Debtor's closest facility.
(b) The Secured Party will give the Debtor reasonable notice of the
time and place of any public sale of the Collateral or of the time after which
any private sale of the Collateral or any other intended disposition thereof is
to be made. Unless otherwise provided by law, the requirement of reasonable
notice shall be met if such notice is given by first class United States mail,
certified or registered, postage prepaid, to the address of the Debtor for
notice purposes as provided in this Agreement at least ten (10) days before the
time of the sale of disposition. For purposes of determining the application of
proceeds of this disposition of the Collateral under applicable laws, expenses
of retaking, holding, preparing for sale or lease, selling, leasing and the like
shall include reasonable attorneys' fees and other legal expenses and expenses
incurred in connection with the Secured Party enforcing its rights hereunder.
(c) If the Secured Party seeks to take possession of any or all of the
Collateral by court process, the Debtor hereby waives any bonds and any security
and surety relating thereto required by any statute, court rule or otherwise as
an incident to such possession and waives any demand for possession prior to the
commencement of any suit or action to recover with respect thereto; provided,
however, the Debtor does not waive further rights to possession of the
Collateral after an Event of Default to the extent the proceeds from such
disposition exceed the Obligations.
(d) Demand, presentment, protest and notice of nonpayment are hereby
waived by the Debtor. The Debtor also waives the benefit of all evaluation,
appraisement and exemption laws.
12. FINANCING STATEMENTS. The Debtor shall execute and deliver, or
cause to be executed and delivered to the Secured Party all financing statements
and continuations thereof and other documents which the Secured Party reasonably
deems to be appropriate to perfect and protect its security interest in the
Collateral and the priority thereof. To the fullest extent permitted by
applicable law, the Debtor authorizes the Secured Party to file financing
statements and continuations thereto and such documents with respect to the
Collateral signed only by the Secured Party, or, in lieu thereof, a copy of this
Agreement. After an Event of Default, the Secured Party, or its designee, is
hereby irrevocably authorized, at the Debtor's expense, to file such
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documents or instruments with respect thereto, with or without the signature of
the Debtor or any of its Subsidiaries, as the Secured Party may deem
appropriate, and appoints the Secured Party as the attorney-in-fact of the
Debtor or any of its Subsidiaries to execute such documents and instruments and
to do each and every other act or thing which the Secured Party is authorized to
do or perform on behalf of the Debtor or any of its Subsidiaries by this
Agreement.
13. FINANCIAL STATEMENTS. Commencing with the calendar quarter ending
June 30, 1994, the Debtor shall furnish a balance sheet and an income statement
reflecting the financial condition and operating results of the Debtor for each
fiscal quarter. Such financial statements shall be prepared in accordance with
GAAP (as defined in the Stock Purchase Agreement) and delivered within forty-
five (45) days after the end of such quarter and the delivery of each such
financial statement shall be deemed to be a representation and warranty that
such statement fairly presents the financial position and results of operations
of the Debtor for the applicable period. In connection with the delivery of
quarterly financial statements, the Debtor will deliver a certificate to Secured
Party, signed by an officer of Debtor, certifying that the Debtor is not in
breach of any covenants set forth in Section 6.
14. SATISFACTION AND DISCHARGE OF OBLIGATIONS. After all the
Obligations have been paid or otherwise discharged, this Agreement shall become
null and void, and thereupon the Secured Party shall, upon written request of
the Debtor, promptly execute and deliver valid and proper instruments
acknowledging satisfaction of and discharging this Agreement and releasing all
liens, security interests and encumbrances held by the Secured Party pursuant to
the terms hereof. The provisions of this Section 14 shall survive the
satisfaction and discharge of this Agreement and shall continue in full force
and effect until fully performed by the Secured Party.
15. RELEASE OF SECURITY IN LIMITED CIRCUMSTANCES. The Secured Party
agrees that it shall promptly release its security interest in any Collateral
obtained by Debtor after March 31, 1994 that is used solely for opening up new
lines of business in new geographic areas, so long as the fair market value of
the Secured Party's remaining Collateral will not be impaired by any such
release or subordination in the reasonable opinion of the Secured Party. In
addition, at the request of Debtor, the Secured Party shall promptly release its
security interest in any asset or property of the Debtor not constituting
Collateral hereunder.
16. NOTICES. All notices, payments and communications under this
Agreement shall be delivered personally, by nationally recognized overnight
courier or by first class United States mail, certified or registered, postage
prepaid, to the Debtor or to the Secured Party, as the case may be, at the
following addresses or to such other addresses as either party may designate in
writing unless applicable law requires a different method of notice or service:
-9-
<PAGE>
If to the Debtor to: Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
Attention: President
Phone: 713-937-8888
With a Copy to: DRLX Partners, L.P.
c/o SCF Partners, L.P.
600 Travis, Suite 6600
Houston, Texas 77002
Attention: L.E. Simmons
Phone: 713-227-7888
If to the Secured Party: MascoTech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
Attention: President
Phone: 313-274-7400
With a Copy to: General Counsel
MascoTech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
All notices shall be in writing and shall be deemed to be given upon actual
receipt or two days after mailing, whichever occurs first.
17. MISCELLANEOUS. (a) The Debtor may not assign its rights or
obligations hereunder without the written consent of the Secured Party. All
rights of the Secured Party shall inure to the benefit of its successors and
assigns.
(b) If any provision hereof is invalid under applicable laws, it
shall be inapplicable and deemed omitted herefrom, but the remaining provisions
hereof shall continue in full force and effect.
(c) Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought. The Debtor hereby waives notice of the Secured
Party's acceptance of this Agreement.
(d) No failure or delay on the part of the Secured Party in
exercising any right, power or privilege under this Agreement shall operate as
a waiver thereof, nor shall
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<PAGE>
any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies provided in and
contemplated by this Agreement are cumulative and not exclusive of any rights or
remedies provided by law. No single or partial exercise by the Secured Party of
any right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. The Debtor irrevocably waives trial by jury
in any action or proceeding with respect to this Agreement.
(f) The headings contained in this Agreement are for the purpose of
convenience only and shall not be considered part of or in any way define,
limit, construe or describe the scope or intent of any provision of this
Agreement.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be considered an original and all of which, when taken together,
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
THE SECURED PARTY: THE DEBTOR:
MASCOTECH, INC. DRILEX SYSTEMS, INC.
By: _________________________ By:_____________________________
Name:________________________ Name:___________________________
Title:_______________________ Title:__________________________
-1 1 -
~: Namc: ~:
<PAGE>
SCHEDULE A
A. The Debtor's principal place of business is:
15151 Sommermeyer
Houston, Texas 77041
8. The places of business of the Debtor and its Subsidiaries are
located at:
1. Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
2. Drilex Systems, Inc.
6300 Petersburg
Anchorage, AK 99507
3. Drilex Systems, Inc.
1675 Broadway
Suite 1800
Denver, CO 80202
4. Drilex Systems, Inc.
201 St. Charles Avenue
Suite 2530 & 2556
New Orleans, LA 70170
5. Drilex Systems, Inc.
9629 Northwest 4th Street
Oklahoma City, OK 73127
6. Drilex Systems Limited
17 Howe Moss Drive
Kirkhill Industrial Estate
Dyce, Aberdeen Scotland
7. Drilex Systems, S.A.
Calle Mexico
Las Charas
Anaco-Edo Anzoategui
Venezuela
5. Drilex Systems Limited
P.O. Box 4352
Abu Dhabi, U.A.E.
9. Drilex Systems Limited
Loyang Offshore Supply Base
TW1 BLK1
Loyang Crescent
Singapore 1750
10. Drilex Systems, Inc.
100 & 102 Cason Road
Broussard, LA 70518
11. Drilex Systems, Inc.
1283 North Derrick Drive
Mills, WY 82601
A-1
<PAGE>
SCHEDULE A (CONTINUED)
12. Drilex U.K. Limited
Shuttle Worth Close
Gapton Hall Industrial Estate
Great Yarmouth, U.K.
13. Drilex Overseas Corporation Limited
P.O. Box N-10144
Bitco Building
East Street
Nassau, Bahamas
SUBSIDIARIES:
1. Drilex U.K. Limited
Shuttle Worth Close
Gapton Hall Industrial Estate
Great Yarmouth, U.K.
2. Drilex Overseas Corporation Limited
P.O. Box N-10144
Bitco Building
East Street
Nassau, Bahamas
3. Drilex Systems Limited
17 Howe Moss Drive
Kirkhill Industrial Estate
Dyce, Aberdeen Scotland
4. Drilex Systems, S.A.
Calle Mexico
Las Charas
Anaco-Edo Anzoategui
Venezuela
C. Names under which the Debtor and its Subsidiaries conduct business
and locations at which used:
NAMES LOCATIONS
----- ---------
1. Drilex Systems, Inc. Alabama, Alaska, Arizona, California,
Colorado, Louisiana, Michigan,
Mississippi, New Mexico, Oklahoma,
Texas, Utah and Wyoming
2. A-Z/GRant International California
Company
3. Drilex U.K. Limited United Kingdom
A-2
<PAGE>
4. Drilex Systems Limited Scotland, United Arab Emirates, Singapore
5. Drilex Systems, S.A. Venezuela
6. Drilex Overseas Corporation Bahamas
Limited
The Debtor: DRILEX SYSTEMS, INC.
By
----------------------------------
Its
----------------------------------
The Secured Party: MASCOTECH, INC.
By
----------------------------------
Its
----------------------------------
A-3
<PAGE>
SCHEDULE B
INSURANCE
B-1
<PAGE>
Exhibit 10.2
Repurchase Agreement
between Drilex Systems, Inc. and MascoTech, Inc.
June 30, 1994
<PAGE>
[LETTERHEAD OF DRLX PARTNERS, L.P. APPEARS HERE]
June 30, 1994
MascoTech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
Attention: Mr. John Halso
Re: Sale of Preferred Stock to DRLX Partners, L.P.
Gentlemen:
Enclosed please find a check made payable to the order of MascoTech, Inc.
in the amount of $l.00 in exchange for the delivery by MascoTech, Inc.
to DRLX Partners, L.P. of 500 shares of preferred stock of Drilex
Systems, Inc. Please acknowledge your receipt of the enclosed check by
executing where indicated below and returning an original of this letter
to the undersigned.
Very truly yours,
DRLX Partners, L.P.
By: SCF Partners, L.P.
its general partner
By: SCF Investment Partners, Inc.
its general partner
By: /s/ L.E. Simmons
----------------------------------
L.E. Simmons, President
ACKNOWLEDGED AND AGREED TO:
MascoTech, Inc.
By: /s/ David B. Liner
---------------------------------
Name: David B. Liner
-----------------------------
Title: Associate Corporate Counsel
-----------------------------
<PAGE>
Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
June 30, 1994
MascoTech, Inc.
21001 Van Born Road
Taylor, Michigan 48180
Attention: Keith N. Junk
Re: Purchase of $6,500,000 Promissory Note from MascoTech, Inc.
Gentlemen:
On this date we have wire transferred $6,613,438.36 to the account of
MascoTech, Inc. in exchange for the delivery by MascoTech, Inc. to Drilex
Systems, Inc. of that certain promissory note dated March 31, 1994, executed
by Drilex Systems, Inc. as maker and payable to the order of MascoTech, Inc.
in the original principal amount of $6,500,000. The amount transferred
represents the principal amount outstanding on the Promissory Note plus
accrued interest through the date hereof. Please acknowledge your receipt of
the above-referenced wire transfer of funds by executing where indicated below
and return an original of this letter to the undersigned.
MascoTech agrees to execute and deliver all releases and UCC-3
Termination Statements necessary to fully and completely release and discharge
all liens and security interests securing the Promissory Note.
Very truly yours,
Drilex Systems, Inc.
By /s/ John Forrest
--------------------------------
John Forrest, President
ACKNOWLEDGED AND AGREED TO:
MascoTech, Inc.
By /s/ Timothy Wadham
----------------------------
Name: Timothy Wadham
------------------------
Title: Vice President
------------------------
<PAGE>
Exhibit 10.3
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") dated September 30, 1994 is
among Drilex Holdings Corp., a Delaware corporation ("Parent"), Cobb Directional
Drilling Company, L.L.C., a Delaware limited liability company ("Buyer" and,
together with Parent, the "Buyer Parties"), Cobb Directional Drilling Company,
Inc., a Louisiana corporation ("Cobb"), and Posi-Trak Mud Motors, Inc., a
Louisiana corporation ("Posi-Trak") (individually or collectively, "Seller"),
and Archie A. Cobb, III ("Stockholder" and, together with Seller, the "Seller
Parties").
WHEREAS, Seller is engaged in the business (the "Business") of
directional drilling and related sales and services;
WHEREAS, Parent and Cobb have formed Buyer for the purpose of Buyer's
acquisition of substantially all Seller's assets except as set forth herein;
WHEREAS, Parent desires to acquire a portion of Posi-Trak's assets used
in the Business and to contribute those acquired assets to the Buyer as a
capital contribution;
WHEREAS, Buyer desires to acquire by purchase the remainder of Posi-
Trak's assets used in the Business;
WHEREAS, Cobb desires to contribute to Buyer as a capital contribution
all of its assets used in the Business; and
WHEREAS, Parent is to own 66-2/3% of the limited liability company
interests in Buyer ("LLC Interests") and Cobb is to own 33-1/3% of the LLC
Interests in Buyer;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the parties agree as
follows:
ARTICLE I
CLOSING
Section 1.1 Closing. The closing of the purchase and sale provided for
herein (the "Closing") is taking place on September 30, 1994 ("Closing Date") at
the offices of Baker & Botts, L.L.P., Houston, Texas, concurrently with the
execution and delivery hereof.
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ARTICLE II
PURCHASE, SALE AND DELIVERY
Section 2.1 Purchased Assets. Subject to the terms and conditions of
this Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing, (i) Posi-Trak is selling, transferring,
conveying, assigning and delivering to Buyer, and Buyer is acquiring and
purchasing from Posi-Trak, an undivided 36% interest in the Purchased Assets (as
defined below) held by Posi-Trak, (ii) Cobb is transferring, conveying,
assigning and delivering to Buyer as a contribution to the capital of Buyer, and
Buyer is acquiring from Cobb, the Purchased Assets held by Cobb, (iii) Posi-Trak
is selling, transferring, conveying, assigning and delivering to Parent, and
Parent is acquiring and purchasing from Posi-Trak, an undivided 64% interest in
the Purchased Assets held by Posi-Trak and (iv) immediately following such
acquisition by Parent, Parent is transferring, conveying, assigning and
delivering to Buyer as a capital contribution such undivided 64% interest in the
Purchased Assets previously held by Posi-Trak. Parent, Buyer and Seller agree
that immediately following the Closing, all of the Purchased Assets shall be
owned by Buyer, and Parent consents to the Posi-Trak's conveyance of Parent's
interest in the Purchased Assets directly to Buyer in order to avoid multiple
conveyancing. For purposes of this Agreement, the term "Purchased Assets" shall
mean all of Seller's assets (whether or not included below), including the
following assets, properties and rights of Seller:
(a) All mud motors, drill collars, stabilizers, subs, tools, raw
materials and supplies (collectively, the "Inventory"), a summary listing
of which as of June 30, 1994 is attached as Schedule 2.1(a);
(b) All other tools, equipment, machinery, dies, furniture, fixtures,
automobiles, trucks, service equipment, computer equipment and leasehold
improvements (the "Fixed Assets"), a listing of which is attached as
Schedule 2.1(b);
(c) All contracts and agreements that are listed on Schedule 2.1(c) (the
"Contracts");
(d) All of Seller's rights accruing from and after the Closing Date to
each order or other contract, agreement or commitment for the provision of
services or the sale of goods that (i) was entered into in the ordinary
course of business and is unfilled or underway as of the Closing Date and
(ii) is listed on Schedule 2.1(d) ("Service Contracts");
(e) All of Seller's rights accruing from and after the Closing Date to
each purchase order or other contract, agreement or commitment for the
purchase of Inventory that (i) was entered into in the ordinary course of
business and is unfilled as of the Closing Date and (ii) is listed on
Schedule 2.1(e) ("Purchase Contracts");
(f) All rights of Seller under express or implied warranties, if any,
from the suppliers of Seller, manufacturers or others with respect to the
Purchased Assets; provided, however, that such transfer shall be dissolved
to the extent, but only to the
2
<PAGE>
extent, necessary to permit any claim by Seller for indemnity or
contribution from such persons with respect to any claim for which Seller
is liable;
(g) All intellectual property, including patents, trademarks, trade names
(including, without limitation, "Cobb Directional Drilling" and "Posi-Trak
Mud Motors"), copyrights, blueprints, drawings, computer software and
similar items, together with any goodwill associated therewith and all
rights of action on account of past, present, and future unauthorized use
or infringement thereof, a listing of which is attached as Schedule 2.1(g);
(h) The leases of real property that are listed on Schedule 2.1(h) (the
"Assigned Leases");
(i) Except as set forth below, deposits and other current assets, a
listing of which is attached hereto as Schedule 2.1(i);
(j) All real property, including all buildings and other improvements
thereon, a listing of which is attached hereto as Schedule 2.1(j); and
(k) All books, operating and financial records, correspondence, files,
customer and vendor lists, sales brochures and other data.
Section 2.2 Excluded Assets. Notwithstanding Section 2.1, the Purchased
Assets shall not include, and Buyer will not acquire or purchase, any of the
following (collectively, the "Excluded Assets"):
(a) Any cash or cash equivalents, including checking and savings
accounts, certificates of deposit and any other funds on deposit with any
bank, savings and loan or other financial institution;
(b) Any minute books or stock records of Seller;
(c) Any accounts receivable or notes payable ("Accounts Receivable");
(d) The hunting camp, including all buildings and other improvements
thereon, located in Woodville, Mississippi described on Schedule 2.2 (the
"Hunting Camp");
(e) Any airplanes owned by Seller;
(f) The "split-dollar" life insurance policy on the life of Archie A.
Cobb, III described on Schedule 2.2;
(g) Four shares of stock in Woodstock Hunting Club, Inc.; and
(h) Any other assets listed on Schedule 2.2.
3
<PAGE>
Section 2.3 Purchase Price. The purchase price being paid at the
Closing for the Purchased Assets (the "Purchase Price") is $8,250,000, payable
in accordance with the following provisions. At the Closing:
(a) Parent is:
(i) paying the sum of $1,333,330 in cash to Posi-Trak by wire
transfer to the account designated in writing by Posi-Trak;
(ii) delivering to Posi-Trak 133,333 shares of Common Stock, par value
$.01 per share, of Parent ("Parent Common Stock"), with an agreed
value of $10.00 per share or $1,333,330; and
(iii) delivering to Posi-Trak a promissory note of Parent (the "Note")
in substantially the form of Exhibit A in the principal amount of
$1,333,340, which Note shall be secured by the Security Agreement
(as defined in Section 2.4); and
(b) Buyer is:
(i) paying the sum of $2,250,000 in cash to Posi-Trak by wire
transfer to the account designated in writing by Posi-Trak, which
sum is being obtained by Buyer from a third-party lender as
described in Section 2.6; and
(ii) delivering to Cobb 200,000 shares of LLC Interest (representing
one-third of the outstanding LLC Interests), as described in
Section 2.5(d), with an aggregate agreed value of $2,000,000.
Section 2.4 Security Agreement. The Note shall be entitled to the
benefits of a security agreement executed by Parent (the "Security Agreement")
in substantially the form of Exhibit B, pursuant to which Parent will secure the
Note with its now owned or hereafter acquired LLC Interest in Buyer.
Section 2.5 Formation of Buyer. (a) Subject to the terms and
conditions of this Agreement, and on the basis of the representations and
warranties hereinafter set forth, at the Closing, Parent and Cobb are organizing
Buyer as a limited liability company under the laws of the State of Delaware,
with a limited liability company agreement (the "LLC Agreement") in
substantially the form of Exhibit C.
(b) The LLC Agreement includes provisions with respect to, among other
things, (i) the distribution of cash by Buyer to holders of LLC Interests, (ii)
options to purchase and sell LLC Interests in Buyer and (iii) provisions
relating to the management of Buyer.
(c) In connection with the formation of Buyer, Parent is receiving an
LLC Interest of 400,000 shares in exchange for its contribution to the capital
of the Buyer of an
4
<PAGE>
undivided 64% interest in the Purchased Assets previously held by Posi-Trak and
sold to Parent as described in Section 2.1.
(d) In connection with the formation of Buyer, Seller is receiving an
LLC Interest of 200,000 shares as part of the Purchase Price pursuant to Section
2.3(b)(ii).
Section 2.6 Credit Agreement. At the Closing, Buyer is borrowing at
least $2,250,000 from Texas Commerce Bank National Association pursuant to a
credit agreement (the "Credit Agreement"). Any guarantee of the Credit
Agreement by Parent or Stockholder shall (i) be proportionate based on ownership
in Buyer and (ii) in the case of Cobb, terminate upon Cobb's no longer owning an
LLC Interest in Buyer.
Section 2.7 Audit. Prior to the Closing, Deloitte & Touche (the
"Accounting Firm") has conducted an audit of the combined financial statements
of Seller as of June 30, 1994 and for the twelve months then ended, in
accordance with generally accepted auditing standards and generally accepted
accounting principles ("GAAP").
Section 2.8 Transition Allocation. It is recognized that Seller does
not bill for certain jobs or discrete portions thereof until the job or portion
is completed. Accordingly, all such jobs pending as of the Closing Date will be
prorated between Buyer and Seller on a straight line basis, using the number of
days involved in such job or portion. Third-party accounts payable with respect
to these jobs will be prorated in the same manner. Buyer will not, however, be
responsible for losses occurring on a job prior to Closing, and Seller will not
be responsible for losses occurring after Closing.
Section 2.9 Employment Agreement. At the Closing, Archie A. Cobb, III
and Buyer are entering into an employment agreement (the "Employment Agreement")
in substantially the form of Exhibit D. Under the Employment Agreement, Mr.
Cobb will receive an annual salary of $150,000 per year and be entitled to
participate in benefit plans commensurate with those offered to Parent's
employees generally. The initial term of the Employment Agreement is five years
(unless Mr. Cobb is terminated for cause as defined therein). The Employment
Agreement also contains a five-year noncompetition agreement commencing upon the
termination of Mr. Cobb's employment.
Section 2.10 Lease of Real Property to be Leased. Promptly after the
Closing, Cobb (as lessor) and Buyer (as lessee) will enter into a lease
agreement (the "Hunting Camp Lease") with respect to the Hunting Camp, which
will provide Buyer the right to use the Hunting Camp rent-free for use in
marketing and operations.
Section 2.11 Stockholders' Agreement. At the Closing, Stockholder,
Parent and DRLX Partners, L.P. are entering into a stockholders' agreement in
substantially the form of Exhibit E.
Section 2.12 Allocation Reporting. Buyer and Seller agree to report the
allocation of the Purchase Price among the Purchased Assets and the covenant not
to compete contained in Section 6.2 as set forth in an allocation furnished by
Parent within 90 days after the Closing. As soon as practicable after the
Closing Date, Seller and Buyer shall
5
<PAGE>
jointly prepare IRS Form 8594 to report the allocation of the Purchase Price in
conformity with the preceding sentence which reflects, among other things, the
agreed fair market value of the Purchased Assets. Each party hereto agrees not
to assert, in connection with any tax return, tax audit or similar proceeding,
any allocation that differs from that set forth in this Section 2.12.
Section 2.13 Condition to Transfer of Contracts. Notwithstanding
anything herein to the contrary, the parties hereto acknowledge and agree that
at the Closing Seller is not assigning to Buyer any Contract, Agreement (as
defined below) or other right which by its terms requires the consent of any
other party unless such consent has been obtained prior to the Closing. With
respect to each such unassigned Contract, Agreement or right, after the Closing
Seller shall continue as the prime contracting party and, if requested by Buyer
or Parent, shall use its reasonable efforts to obtain the consent of all
required parties to the assignment of such Contract, Agreement or right, but
Buyer shall be entitled to the benefits of such Contract, Agreement or right
accruing after the Closing to the extent that Seller may provide Buyer with such
benefits without violating the terms of such Contract, Agreement or right, and
Buyer agrees to perform at its sole expense all of the obligations of Seller to
be performed under such Contract, Agreement or right the benefits of which Buyer
is receiving after the Closing Date.
Section 2.14 Taxes Upon Conveyance and Transfer. Seller shall pay all
sales, use, transfer or similar taxes payable in connection with the sale,
transfer and assignment of the Purchased Assets to Parent and to Buyer; provided
that the foregoing shall not apply to any use tax resulting from the transfer
into Louisiana after the Closing of assets located outside of Louisiana at the
Closing.
Section 2.15 Other Taxes, Utilities and Assessments; Other Allocations.
Any real estate taxes, personal property taxes or assessments with respect to
the Purchased Assets, any charges for utilities or similar costs or assessments,
common area maintenance reimbursements to lessors, local business or other
license fees or taxes and other similar periodic charges and all payments under
the Assigned Leases and the Contracts shall be prorated through the Closing Date
(based on estimates or the most recent amounts paid), with Seller being
responsible for all of such prorated charges attributable to the period prior to
the Closing Date and Buyer being responsible for post-closing prorations.
Promptly upon receipt, Buyer or Seller, as appropriate, shall provide the other
with copies of all bills for such items for which the other party is responsible
pursuant to this Section. The resulting amount payable by Buyer or Seller shall
be paid promptly upon demand by the party hereto to whom such payment is owed.
Section 2.16 Accounts Receivable and Bank Account. (a) For a period of
180 days following the Closing Date (the "Collection Period"), Buyer shall use
efforts consistent with Seller's past practices to collect for Seller's account
as Seller's agent all Accounts Receivable, and Seller hereby authorizes Buyer to
undertake such collection efforts on Seller's behalf during the Collection
Period and, if necessary, to endorse with the name of Seller any checks received
on account of any such receivables or other items.
6
<PAGE>
(b) All amounts received by Buyer after the Closing on account of any
Accounts Receivable in existence prior to the Closing shall be promptly paid to
Seller until the expiration of the Collection Period. At the expiration of the
Collection Period, Seller shall retain (without recourse to any Buyer Party) all
uncollected Accounts Receivable and shall take over any collection efforts
desired by Seller.
Section 2.17 Mail Received After Closing. Following the Closing Buyer
may receive and open all mail addressed to Seller and, to the extent that such
mail and the contents thereof relate to the Business or the Purchased Assets,
deal with the contents thereof in its discretion. Buyer shall notify Seller of
(and provide Seller copies of) any mail that on its face obliges any Seller
Party to take any action.
ARTICLE III
LIABILITIES AND OBLIGATIONS
Section 3.1 Obligations Assumed. As part of the consideration for the
Purchased Assets, and subject to Section 3.2, Buyer shall assume Seller's
obligations that accrue after the Closing Date under Contracts listed in
Schedule 2.1(c), under the Service Contracts listed on Schedule 2.1(d), under
the Purchase Contracts listed on Schedule 2.1(e) and under the Assigned Leases
listed on Schedule 2.1(h), in each case if but only if they are assigned or
transferred to Buyer.
Section 3.2 Liabilities and Obligations Not Assumed. Other than as
specifically set forth in Section 3.1 above, Buyer assumes no obligation
whatsoever of Seller, and Buyer expressly disclaims the assumption of any
liability of any type whatsoever of Seller or in connection with any of Seller's
assets or business operations, including without limitation (i) any and all tax
liabilities accruing on or before the Closing Date in connection with any
Purchased Asset or otherwise, (ii) any and all liabilities arising from or under
any environmental laws, including but not limited to federal environmental
statutes (and associated rules and regulations) such as the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
(S) 9601 et seq.) ("CERCLA"), Superfund, Clean Air Act, Clean Water Act, Safe
Drinking Water Act, Community Right to Know Act, or OSHA, or otherwise, or any
similar state or local environmental laws, rules or regulations, (iii) any and
all liabilities in connection with any claim by any person, entity or agency
claiming to have suffered any environmental damage or harm of any type,
including any actual or alleged damage or harm to groundwater, surface water,
well water, ground, soil, or the atmosphere, or otherwise relating to any
Hazardous Substance (as hereafter defined), (iv) any and all employment or
personnel-related liabilities whatsoever of Seller, including, but not limited
to, any liability under any employment contract, liability for wages or salary,
liability for bonuses or commissions, liability for severance (including without
limitation as a result of this transaction), COBRA liability, OSHA liability,
liability for disabled individuals, workers' compensation liability, ERISA
obligations or liability, WARN Act liability, sick pay, vacation accruals, or
similar matters, liability under any profit sharing plan, liability under any
pension plan, liability under any welfare benefit plan, or liability for any
7
<PAGE>
claims alleging illegal discrimination of any type, (v) any indebtedness of
Seller and (vi) any liability or obligation (contingent or otherwise) of Seller
arising out of any claim, litigation or proceeding threatened or pending on or
before the Closing Date or out of any claim, litigation or proceeding threatened
or initiated after the Closing Date to the extent based on or caused by any act
or omission occurring, or condition or circumstances existing, prior to the
Closing Date, or any condition caused by any act or omission occurring prior to
the Closing Date, or any service provided by Seller or product sold or
manufactured by Seller (including all product liability and warranty claims and
product returns with respect thereto).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties, jointly and severally, represent and warrant to Buyer
and Parent the following:
Section 4.1 Corporate Status and Good Standing. Each Seller is a
corporation duly organized, validly existing and in good standing under the laws
of Louisiana, with full corporate power and authority under its certificate or
articles of incorporation and by-laws to own and lease its properties and to
conduct business as the same exists. Each Seller is duly qualified to do
business as a foreign corporation in all states in which the nature of its
business requires such qualification and the failure to do so would have an
adverse effect on such Seller or the Purchased Assets.
Section 4.2 Authorization. Each Seller Party has full corporate power
and authority under its certificate or articles of incorporation and by-laws,
and its board of directors and stockholders have taken all necessary action to
authorize it, to execute and deliver this Agreement and the exhibits and
schedules hereto, to consummate the transactions contemplated herein and to take
all actions required to be taken by it pursuant to the provisions hereof, and
each of this Agreement and the exhibits hereto constitutes the valid and binding
obligation of such Seller Party enforceable in accordance with its terms.
Section 4.3 Non-Contravention. Except as set forth in Schedule 4.3,
neither the execution and delivery of this Agreement or any documents executed
in connection herewith, nor the consummation of the transactions contemplated
herein or therein, does or will violate, conflict with, result in breach of or
require notice or consent under any law, the charter or bylaws of any Seller
Party or any provision of any agreement or instrument to which any Seller Party
is a party. Stockholder owns 100% of the outstanding voting securities of each
Seller. The last regularly prepared annual income statement for Seller shows
revenues of less than $10 million, and the last regularly prepared balance sheet
of Seller shows assets of less than $7 million. For purposes of the foregoing,
the financial statements of all Sellers shall be consolidated. Stockholder is
the ultimate parent entity of Seller and, assuming the accuracy of the
representation in Section 5.3, no filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") is required in connection with the
transactions contemplated by this Agreement.
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Section 4.4 Validity. There are no pending or threatened judicial or
administration actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by any Seller
Party in connection with this Agreement.
Section 4.5 Broker Involvement. No Seller Party has hired, retained or
dealt with any broker or finder in connection with the transactions contemplated
by this Agreement.
Section 4.6 Litigation. Except as set forth on Schedule 4.6, there is
no investigation, claim or proceeding or litigation of any type pending or
threatened involving any Purchased Asset or that might have an adverse effect on
Seller or Buyer as the owner of the Purchased Assets, and Seller is unaware of
any judgment, order, writ, injunction or decree of any court, government or
governmental agency, or arbitral tribunal against or involving Seller or any
Purchased Asset or that might have an adverse effect on Seller or Buyer as the
owner of the Purchased Assets.
Section 4.7 Title. Seller is the true and lawful owner of Purchased
Assets, free and clear of any and all liens, encumbrances, mortgages, options,
security interests, restrictions, liabilities, pledges and assignments of any
kind other than Permitted Encumbrances, and Seller has the full right to sell
and transfer to Buyer good and marketable title to Purchased Assets, free and
clear of any and all liens and encumbrances of any nature or description other
than Permitted Encumbrances. The delivery to Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest good and
marketable title to Purchased Assets in Buyer, free and clear of all liens and
encumbrances of any nature or description other than Permitted Encumbrances.
For purposes hereof, "Permitted Encumbrances" means liens for taxes not yet due
and payable, materialmen's, mechanics', workmen's, repairmen's or other like
liens arising against Seller or the Purchased Assets in the ordinary course of
business, in each case with respect to obligations or claims which are either
not delinquent or are being contested in good faith and by appropriate
proceedings conducted with due diligence.
Section 4.8 Continuity Prior to Closing Date. Except as set forth on
Schedule 4.8, from January 1, 1994 to and including the Closing Date, the Seller
has not conducted its business otherwise than in the usual and customary manner
and in the ordinary course of business, consistent with its historical practice,
and there has not been:
(a) any sale, lease, distribution, transfer, mortgage, pledge or
subjection to lien of Seller's assets, except sales of obsolete or surplus
equipment in the ordinary and usual course of business and the creation of
Permitted Encumbrances;
(b) any material transaction by Seller not in the ordinary and usual
course of business;
(c) any material damage, destruction or loss to the Purchase Assets or
any other assets used in the Business, whether or not covered by insurance;
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(d) a termination, or a threatened termination, or material modification,
in each case not in the ordinary course of business, of any material
contract or the relationship of Seller with any customer or supplier, who
in the aggregate accounted for in excess of $50,000 of sales or purchases
during Seller's last full fiscal year;
(e) any change by Seller in accounting methods or principles or the
application thereof or any change in Seller's policies or practices with
respect to items affecting working capital;
(f) any delay or reduction in capital expenditures in contemplation of
this Agreement or otherwise, or any failure to continue to make capital
expenditures in the ordinary course of business consistent with past
practice;
(g) any acceleration of shipments, sales or orders or other similar
action in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;
(h) any bonus payments, salary increases, commission increases or
modifications, the execution of any employment agreement, severance
arrangement, consulting arrangement or similar document or agreement, or
other changes in employee benefits or other compensation;
(i) any waiver by Seller of any rights that, singly or in the aggregate,
are material to the Business, the Purchased Assets or the financial
condition or results of operation of Seller;
(j) any labor strikes, union organizational activities or other similar
occurrence; or
(k) any contract or commitment by Seller to do or cause to be done any of
the foregoing, except in connection with this Agreement and the
transactions contemplated hereby.
Section 4.9 Contracts and Commitments. Schedule 4.9 lists all
agreements, commitments, contracts, undertakings or understandings not listed on
Schedules 2.1(c), 2.1(d), 2.1(e) or 2.1(h) to which Seller is a party and which
relate to the Business or the Purchased Assets, including but not limited to
trademark, trade name or patent license agreements, service agreements, lease,
purchase or sale agreements, supply agreements, distribution or distributor
agreements, purchase orders, customer orders and equipment rental agreements.
Seller is not in breach of or default under any agreement, lease, contract or
commitment listed in Schedule 2.1(c), 2.1(d), 2.1(e), 2.1(h) or 4.9
(collectively, the "Agreements"). Each Agreement is a valid, binding and
enforceable agreement of Seller and the other parties thereto. There has not
occurred any breach or default under any Agreement on the part of the other
parties thereto, and no event has occurred which with the giving of notice or
the lapse of time, or both, would constitute a default under any Agreement.
There is no dispute between the parties to any Agreement as to the
interpretation thereof or as to whether any party is in breach or default
thereunder, and no
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party to any Agreement has indicated its intention to, or suggested it may
evaluate whether to, terminate any Agreement. Seller is not a party to any
covenant or obligation of any nature limiting the freedom of Seller to compete
in any line of business and binding on Buyer after the Closing. No notice has
been given under any Assigned Lease to extend the term hereof beyond its current
term.
Section 4.10 Trademarks, Trade Names and Intellectual Property.
Schedule 2.1(g) contains an accurate and complete list of (i) all patents,
pending patent applications and invention memoranda relating to the Seller's
business or Purchased Assets, (ii) all registered United States and foreign
trademarks, trade names and logos owned or used by Seller in connection with its
business or Purchased Assets, and all registrations thereof, and (iii) all
unregistered United States and foreign trademarks, trade names and logos used by
Seller in connection with its business or Purchased Assets. Seller has the
right to use all trademarks, trade names, logos, patents, pending patent
applications and invention memoranda referred to herein. There is no pending or
threatened action or claim that would impair any such right.
Section 4.11 All Assets of Business. The Purchased Assets listed on
Schedules 2.1(a), 2.1(b), 2.1(c), 2.1(d), 2.1(e), 2.1(g), 2.1(h), 2.1(i) and
2.1(j) and the Purchased Assets referred to in Section 2.1(f) and 2.1(k)
constitute all assets owned by Seller or used in Seller's business (other than
the Excluded Assets). All assets and items located on Seller's premises or used
in Seller's business other than those listed on Schedule 4.11 or those leased
pursuant to the Contracts are owned by Seller and (other than the Excluded
Assets) are being sold. All Purchased Assets will be delivered to Buyer on the
Closing Date.
Section 4.12 Financial Records; Budget. The financial statements of (i)
Posi-Trak as of and for the years ended December 31, 1993, 1992, 1991 and as of
and for June 30, 1994, and (ii) Cobb as of and for the years ended June 30,
1994, 1993 and 1992, in each case previously delivered to Buyer (the "Financial
Statements"), are accurate and complete, were prepared on a consistent basis
(except as set forth therein) and fairly present the financial condition and
results of operations of Seller. The audited financial statements referred to
in Section 2.7 are accurate and complete, were prepared in accordance with GAAP
applied on a consistent basis and fairly present the financial condition and
results of operations of Sellers. Schedule 4.12 reflects all intercompany
transactions between Seller and its stockholders or its affiliates since January
1, 1993.
Section 4.13 Condition of Purchased Assets. All the Purchased Assets
are in good, serviceable condition and fit for the particular purposes for which
they are used in the Seller's business, subject only to normal maintenance
requirements and normal wear and tear reasonably expected in the ordinary course
of business. All items of Inventory are suitable and useable for the Business
in the ordinary course of business, none of such items is below standard quality
and each item is reflected in the Financial Statements in accordance with
generally accepted accounting principles.
Section 4.14 Liabilities. Except as set forth in Schedule 4.14 or in
the financial statements and notes thereto referred to in Section 4.12, there is
no existing, contingent or threatened liability, obligation, lien or claim of
any nature (absolute, accrued,
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contingent or otherwise) that relates to or has been or may be asserted against
Seller or the Purchased Assets.
Section 4.15 Employees and Related Matters. Schedule 4.15 is a complete
list of all employees of either Seller, listing the title or position held, base
salary, any commissions or other compensation paid or payable, all employee
benefits received by such employees and any other terms of any oral or written
agreement with any Seller Party or any affiliate thereof.
Section 4.16 No Material Change. There has been no material adverse
change in the Purchased Assets or their value or in the Business from January 1,
1994 to and including the Closing Date, and no event has occurred which could be
expected to lead to or cause such a material adverse change.
Section 4.17 Investment Intention. Seller is acquiring the Note, the
Parent Common Stock and the LLC Interests in Buyer hereunder for investment,
solely for its own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof.
Section 4.18 Compliance With Law. Seller is not in violation of any
provision of any law, decree, order, regulation, license, permit, consent,
approval, authorization or qualification or order, including, without
limitation, those relating to health, the environment or Hazardous Substances,
and Seller has received no notice of any alleged violation of such law, decree,
order, regulation, license, permit, consent, approval, authorization or
qualification or order.
Section 4.19 WARN Act Notices. Any notice required under the Federal
Workers Adjustment and Retraining Notification Act ("WARN Act") that is, has
been or will be required of Seller to its employees or former employees by
reason of its obligations under the WARN Act resulting from the transactions
contemplated by this Agreement has been or will be given by Seller.
Section 4.20 Insurance. Seller has heretofore delivered to Buyer a list
and copies of all insurance policies of Seller or relating to the Purchased
Assets or the conduct of the Business. Such policies are in full force and
effect, and Seller is not in default under any of them.
Section 4.21 Government Licenses, Permits and Related Approvals.
Schedule 4.21 hereto sets forth a list of all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
required for the conduct of the Business by Seller as currently conducted, all
of which are in full force and effect.
Section 4.22 Taxes. Seller has caused to be timely filed with
appropriate federal, state, local and other governmental authorities all tax
returns, information returns or statements and reports ("Tax Returns") required
to be filed with respect to the Purchased Assets, Seller's operations or the
conduct of the Business, and has paid or caused to be paid all taxes due with
respect thereto. Seller has neither received nor has knowledge of any
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notice of deficiency or assessment or proposed deficiency or assessment with
respect to any of the Purchased Assets, Seller's operations or the conduct of
the Business from any taxing authority, and there are no outstanding agreements
or waivers that extend any statutory period of limitations applicable to any
federal, state or local income or franchise Tax Returns that include or reflect
the use and operation of the Purchased Assets, Seller's operations or the
conduct of the Business. There are no threatened audits of, or assessments
against, Seller with respect to taxes that may be asserted against Seller.
Seller is not a party to any action or proceeding by any governmental authority
for the collection or assessment of taxes.
Section 4.23 Safety Reports. Schedule 4.23 sets forth a complete
listing of all injury reports, worker's compensation reports and claims, safety
citations and reports, OSHA reports and all documents relating to any of the
foregoing since January 1, 1990.
Section 4.24 Transactions with Certain Persons. Except as set forth on
Schedule 4.24, during the past three years Seller has not, directly or
indirectly, purchased, leased or otherwise acquired any property or obtained any
services from, or sold, leased or otherwise disposed of any property or
furnished any services to, or otherwise dealt with (except with respect to
remuneration for services rendered as a director, officer or employee of
Seller), in the ordinary course of business or otherwise, (i) any officer,
director or stockholder of any Seller Party or any subsidiary thereof or (ii)
any person, firm or corporation which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common control with any
Seller Party or any stockholder of any Seller Party. No Seller Party owes any
amount to, or have any contract with or commitment to, any of its shareholders,
directors, officers, employees or consultants (other than compensation for
current services not yet due and payable and reimbursement of expenses arising
in the ordinary course of business not in excess of $10,000 in the aggregate),
and none of such persons owes any amount to Seller.
Section 4.25 Studies, Etc. Schedule 4.25 sets forth a complete list of
all studies, reports, plans, analyses or similar documents (whether prepared by
Seller employees or others) in the possession or control of any Seller Party or
any affiliate thereof relating to safety, the environment, Hazardous Substances,
intellectual property, markets, competitors, strategic planning, product
liability, warranties or otherwise relating in any way to the Business.
Section 4.26 Disclosure. All schedules to this Agreement are complete
and accurate. No representation or warranty by any Seller Party in this
Agreement or in any schedule or exhibit to this Agreement, or in any statement
or certificate or other document furnished to either Buyer Party by any Seller
Party or any representative of any Seller Party, contains or will contain any
untrue statement of a material fact or omits or will omit a material fact
necessary to make the statements therein not misleading.
Section 4.27 Employee Benefits. Schedule 4.28 27 contains a complete
list of "employee welfare plans" (as that term is defined in Section 3(1) of
ERISA) in which active or former employees of Seller (collectively, the
"Affected Employees") participate (which plans as applied to such Affected
Employees are hereinafter referred to as "Welfare Plans").
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Schedule 4.27 also contains a complete list of "employee pension benefit plans"
as that term is defined in Section 3(2) of ERISA in which Affected Employees
participate (which plans as applied to such Affected Employees are hereinafter
referred to as "Pension Plans"). No Affected Employees participate in any
"multiemployer plan" (as that term is defined in Section 3(37) of ERISA). The
Welfare Plans and Pension Plans are hereinafter collectively referred to as
"Seller's Plans." Each of Seller's Plans is in compliance with the provisions
of all applicable laws, rules and regulations, including, without limitation,
ERISA and the Code. None of the Pension Plans have incurred any "accumulated
funding deficiency" (as defined in Section 412(a) of the Code). Seller has not
incurred any liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063 or 4064 of ERISA, or any withdrawal liability under Title IV
of ERISA with respect to any multiemployer plan. Seller has no employees
covered by a collective bargaining agreement.
Section 4.28 Distributed Products. Schedule 4.28 sets forth a complete
listing of all products (i) distributed by Seller (and the manufacturer thereof
and the person, if different, for whom Seller distributes such product) or (ii)
manufactured or sold by Seller and distributed by others (and the name of such
distributor). Such schedule also sets forth the terms of each such distribution
arrangement. Seller has full right to distribute all products referred to in
clause (i) of the preceding sentence.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to each Seller Party the following:
Section 5.1 Corporate Status and Good Standing. Parent is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, with full corporate power and authority under its certificate or
articles of incorporation and by-laws to conduct its business as the same exists
on the date hereof and on the Closing Date.
Section 5.2 Authorization. Parent has full corporate power and
authority under its certificate or articles of incorporation and by-laws, and
its board of directors has taken all necessary corporate action to authorize it,
to execute and deliver this Agreement and the exhibits and schedules hereto, to
consummate the transactions contemplated herein and to take all actions required
to be taken by it pursuant to the provisions hereof or thereof, and each of this
Agreement and the exhibits hereto to which Parent is a party (including, without
limitation, the Note) constitutes the valid and binding obligation of Parent
enforceable in accordance with its terms. The Parent Common Stock is duly
authorized, validly issued, fully paid and nonassessable.
Section 5.3 Non-Contravention. Neither the execution and delivery of
this Agreement and the schedules and exhibits hereto, nor the consummation of
the transactions contemplated herein or therein, does or will violate, conflict
with or result in breach of or require notice or consent under any law, the
charter or bylaws of Parent or any provision of any agreement or instrument to
which Parent is a party. DRLX Partners, L.P., a
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Delaware limited partnership, owns more than 90% of the outstanding Parent
Common Stock (which constitutes the only class of voting securities or other
equity security issued by Parent). No person (including any ultimate parent
entity) has the right to 50% or more of the profits of DRLX Partners, L.P. or
the right in the event of a dissolution thereof to 50% or more of the assets
thereof. The only assets of DRLX Partners, L.P. are its investment in Parent
and less than $100,000 in cash. The last regularly prepared annual income
statement for Parent shows revenues of less than $40 million, and the last
regularly prepared balance sheet of Parent shows assets of less than $40
million. DRLX Partners, L.P. is the ultimate parent entity of Parent and,
assuming the accuracy of the representation in Section 4.3, no filing under the
HSR Act is required in connection with the transactions contemplated by this
Agreement.
Section 5.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Parent in
connection with this Agreement.
Section 5.5 Broker Involvement. Parent has not hired, retained or dealt
with any broker or finder in connection with the transactions contemplated by
this Agreement.
Section 5.6 Financial Statements. The unaudited financial statements of
Parent as of and for the four months ended July 31, 1994 to be furnished to
Seller were prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as set forth therein) and fairly present
the financial condition and results of operations of Parent as of such dates and
for the periods indicated.
ARTICLE VI
COVENANTS
Section 6.1 Employees. Seller shall permit Parent or Buyer to interview
any employees of Seller and Seller shall encourage any of its employees to whom
Buyer extends an offer of employment to accept said offer, although Parent and
Buyer shall have no obligation to employ any employees of Seller (other than
Stockholder), or to assume any liability of Seller to any employee or former
employee. If Buyer extends an offer of employment to such an employee and such
employee accepts such offer, Seller hereby transfers to Buyer any non-
competition, confidentiality or other employment contract obligation which might
otherwise restrict said employee's right to be employed by Buyer. Promptly
after Closing, Seller will pay its employees all amounts due them (including,
without limitation, on account of vacation pay). The provisions of this
Agreement are for the benefit of the Seller Parties only, and no employee of any
Seller Party or any other person shall have any rights hereunder.
Section 6.2 Covenant Against Competition. As an essential consideration
for the obligations of the Buyer Parties under this Agreement, each Seller Party
hereby agrees and covenants that, for a period of five years following the
Closing Date, no Seller Party or
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affiliate thereof shall engage in any manner in providing, marketing or
brokering services of the same general type as those provided or marketed by
Seller, or associated services, in the geographic areas in which Seller has
operated since January 1, 1992. If Parent or Buyer believes any Seller Party or
affiliate has violated the provisions of this Section 6.2, Parent or Buyer shall
have the right to seek relief from any court of competent jurisdiction. Each
Seller Party acknowledges that money damages alone will not adequately
compensate Parent or Buyer in the event of a breach of the covenants of this
Section. Therefore, each Seller Party agrees that in addition to all remedies
available at law, in equity or under this Agreement, Parent and Buyer shall be
entitled to injunctive relief for the enforcement of this covenant. Each Seller
Party agrees that the covenants in this Section are reasonable with respect to
their duration, scope and geographical area. If, at the time of enforcement of
this Section, a court should hold that the restrictions herein are unreasonable
under the circumstances then existing or otherwise, the parties agree that the
maximum duration, scope or geographical area legally permissible under such
circumstances will be substituted for the duration, scope or area stated herein.
Section 6.3 Further Assistance. The Seller Parties and the Buyer
Parties shall execute and deliver, at Closing or thereafter, any other
instrument which may be requested by a party and which is reasonably appropriate
to perfect or evidence any of the sales, assignments, transfers, conveyances or
other transactions contemplated by this Agreement or to transfer any Purchased
Assets identified after Closing.
Section 6.4 Name Change. Each Seller shall change its name to a name
that does not include "Cobb," "Posi-Trak" or any similar phrase within 30 days
after the Closing and shall give Buyer five business days' prior notice of the
effective date of such change. After the Closing, Seller will not offer or sell
any goods or services under or using the "Cobb" or "Posi-Trak" name.
Section 6.5 Consents. After the Closing, the Seller Parties will use
their best efforts to obtain any consents required in connection with the
transactions contemplated hereby that are requested by Parent or Buyer and that
have not been previously obtained.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Seller's Indemnity Obligations. Each Seller Party, jointly
and severally, shall indemnify and hold each Buyer Party (including its
officers, directors, employees and agents) harmless from and against any and all
claims, actions, causes of action, arbitrations, proceedings, losses, damages,
liabilities, judgments and expenses (including, without limitation, reasonable
attorneys' fees) ("Indemnified Amounts") incurred by a Buyer Party as a result
of (a) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of any Seller Party in this
Agreement, (b) any violation or breach by any Seller Party of or default by any
Seller Party under the terms of this Agreement, (c) any act or omission
occurring, or condition or circumstances existing, prior to the Closing Date, or
any condition or circumstances caused
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by any act or omission occurring prior to the Closing Date, by Seller or with
respect to the Purchased Assets or the Business, including the items set forth
on Schedule 4.6, (d) the past or present presence, release, remediation or
clean-up of, or exposure to, Hazardous Substances (as defined below) relating to
or located on, within or under the Purchased Assets, (e) any product liability
or other claims concerning services provided or products sold by Seller prior to
the Closing Date and (f) any debts, liabilities or obligations of Seller, direct
or indirect, fixed, contingent or otherwise, that are not expressly assumed by
Buyer in this Agreement. Buyer shall be entitled to recover its reasonable and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of its rights under this Section.
"Hazardous Substances" means any pollutant, toxic substance, asbestos,
hazardous waste, or any constituent of any such substance, waste or product,
whether solid, liquid or gaseous in form, described in or regulated under RCRA,
CERCLA, Superfund or under any other federal, state or local law, statute,
ordinance, rule, regulation, order, judicial decision, arbitration decision or
determination of any governmental authority, and shall include petroleum,
natural gas, natural gas liquids, crude oil and any fraction or product thereof.
Section 7.2 Buyer's Indemnity Obligations. Buyer shall indemnify and
hold each Seller Party (including its officers, directors, employees and agents)
harmless from and against any and all Indemnified Amounts incurred by a Seller
Party as a result of (a) any error, inaccuracy, breach or misrepresentation in
any of the representations and warranties made by or on behalf of any Buyer
Party in this Agreement, (b) any violation or breach by any Buyer Party of or
default by any Buyer Party under the terms of this Agreement, (c) (except to the
extent Section 7.1 applies) any act or omission occurring after the Closing
Date, or any condition or circumstances caused by any act or omission occurring
after the Closing Date, by Buyer or with respect to the Purchased Assets, or any
service provided or product sold by Buyer, (d) (except to the extent Section 7.1
applies) any product liability claims concerning services provided or products
manufactured, or purchased from third parties and resold, by Buyer after the
Closing Date, (e) (except to the extent Section 7.1 applies) the presence,
release, remediation or clean-up of, or exposure to, Hazardous Substances
occurring after the Closing Date relating to or located on any real property
owned or leased by Buyer, or (f) any liabilities or obligations of Seller
expressly assumed by Buyer in this Agreement. The failure of any Buyer Party to
cure, remediate or otherwise repair any condition or circumstance existing at
the Closing or caused by any Seller Party shall not be deemed an "omission" for
purposes hereof. Seller shall be entitled to recover its reasonable and
necessary attorneys' fees and litigation expenses incurred in connection with
successful enforcement of its rights under this Section.
Section 7.3 Survival. The representations, warranties and indemnities
set forth in this Agreement and in any certificate or instrument delivered in
connection herewith shall be continuing and shall survive the Closing. The
covenants and agreements entered into pursuant to this Agreement to be performed
after the Closing shall survive the Closing without limitation. No party shall
be liable under this Article VII for the breach of any representation or
warranty unless the aggregate amount of such liability (for all such claims)
exceeds $50,000 (unless any one such claim exceeds $25,000, in which case this
limitation
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shall not apply to such item, as to which the Indemnifying Party shall be fully
liable), in which event the Indemnifying Party shall be fully liable without
regard to such threshold.
Section 7.4 Indemnification Procedures. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party Claim") for
which indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "Election Period"),
the Indemnifying Party shall notify the Indemnified Party whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim.
If the Indemnifying Party does not dispute its potential liability to the
Indemnified Party within the Election Period, the Indemnified Party shall give
the Indemnifying Party an opportunity to control negotiations toward resolution
of such claim without the necessity of litigation, and if litigation ensues, to
defend the same with counsel reasonably acceptable to the Indemnified Party, at
the Indemnifying Party's expense, and the Indemnified Party shall extend
reasonable cooperation in connection with such defense. The Indemnified Party
shall be entitled to participate in, but not to control, the defense of any
Third Party Claim resulting in litigation, at its own cost and expense;
provided, however, that if the parties to any suit or proceeding shall include
the Indemnifying Party as well as the Indemnified Party and the Indemnified
Party shall have been advised by counsel that one or more legal defenses may be
available to it that may not be available to the Indemnifying Party, then the
Indemnified Party shall be entitled to participate in the defense of such suit
or proceeding along with the Indemnifying Party, but the Indemnified Party shall
be obligated to bear the fees and expenses of counsel of the Indemnified Party,
which shall be selected by the Indemnified Party in its complete and sole
discretion. If the Indemnifying Party does not dispute its potential liability
to the Indemnified Party within the Election Period and the Indemnified Party
fails to assume control of the negotiations prior to litigation or to defend
such action within a reasonable time, the Indemnifying Party shall be entitled,
but not obligated, to assume control of such negotiations or defense of such
action, and the Indemnifying Party shall be liable to the Indemnified Party for
its expenses reasonably incurred or amounts paid in connection therewith. If
the Indemnifying Party disputes its potential liability to the Indemnified Party
within the Election Period, then the Indemnified Party shall be entitled to
assume control of such negotiations or defense of action and the liability for
the expense thereof, as well as any liability with respect to such Third Party
Claim, shall be determined as provided in Section 7.5 below.
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Neither the Indemnifying Party nor the Indemnified Party shall settle,
compromise, or make any other disposition of any Third Party Claim which would
or might result in any liability to the Indemnified Party or the Indemnifying
Party under this Article VII without the written consent of such other party.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder.
Section 7.5 Arbitration of Disputes. If the Indemnifying Party
disputes, either as to the amount or liability, that any claim described in a
Claim Notice or an Indemnity Notice, as the case may be, is covered by such
Indemnifying Party's covenant to indemnify contained in this Article VII, then
the Indemnifying Party and the Indemnified Party agree to promptly negotiate in
good faith to resolve their differences and to mutually agree upon an amount, if
any, owed to Indemnified Party by the Indemnifying Party hereunder. If
Indemnifying Party and Indemnified Party fail to agree within 30 days
thereafter, the dispute shall be resolved by binding and final arbitration of a
single arbitrator mutually agreed to by Buyer and Seller conducted in Houston,
Texas in accordance with the rules of commercial arbitration of the American
Arbitration Association. If the parties cannot mutually agree to an
arbitrator, each party shall appoint their own arbitrator and the two
arbitrators shall then appoint a third arbitrator and the decision of these
three arbitrators shall be binding and final. The prevailing party in any such
arbitration proceeding shall be entitled to attorney's fees and other out-of-
pocket expenses reasonably and necessarily incurred in connection with such
proceeding, the amounts of which shall be contained in the award of the
arbitrator.
Section 7.6 General. The indemnification obligations under this Article
VII shall apply regardless of whether any suit or action results solely or in
part from the active, passive or concurrent negligence of the Indemnified Party.
The rights of the parties to indemnification under this Article VII shall not be
limited due to any investigations heretofore or hereafter made by such parties
or their representatives, regardless of negligence in the conduct of any such
investigations. All representations, warranties and covenants and agreements
made by the parties shall not be deemed merged into any instruments or
agreements delivered in connection with the Closing or otherwise in connection
with the transactions contemplated hereby.
Section 7.7 Note. The principal amount of the Note may be reduced by
any amount due to Buyer pursuant to Article VII or under any other provision of
this Agreement, but the existence or exercise of such right of offset shall in
no event limit the liability of any Seller Party to any Buyer Party hereunder.
Stockholder agrees that he will
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not assign, sell, transfer, hypothecate or pledge the Note, the Parent Common
Stock or any part thereof in violation of applicable law (including the federal
securities law). If, at a time when a dispute exists concerning a claim as to
which Seller may have liability as an Indemnifying Party hereunder, or with
respect to any other amounts claimed to be due from Seller hereunder, a payment
shall become due upon the Note, then Buyer shall make a good faith determination
of the amount of such liability (the "Estimated Dispute Amount") and shall
withhold from such payment an amount equal to the Estimated Dispute Amount,
which amount shall instead be paid into escrow pursuant to an Escrow Agreement
between Buyer and Seller. In any such event, (x) any amounts determined to be
due shall first be settled by payment out of the escrow of the Escrow Agreement,
and (y) no interest with respect to such amount shall accrue under the Note,
which shall be deemed paid to the extent of the estimated Dispute Amount. No
purported assignment, sale, transfer, hypothecation or pledge of the Note shall
modify the right of offset provided herein. Appropriate legends to such effect
shall be placed on the Note and the Parent Common Stock.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
Section 8.1 General Conditions Precedent. At the Closing, each party
shall have satisfied all conditions or obligations set forth in this Agreement
which such party is required to fulfill prior to or on the Closing Date.
ARTICLE IX
ACTIONS TO BE TAKEN AT CLOSING
Section 9.1 Actions to be Taken by Seller at the Closing. Seller shall
take the following actions at the Closing:
(a) Seller shall deliver to Buyer and Parent copies certified by its
Secretary of resolutions duly adopted by the boards of directors and
stockholders of each of the Seller Parties and authorizing and approving
the execution and delivery of this Agreement, including the exhibits and
schedules hereto, and the consummation of the transactions contemplated
herein.
(b) Stockholder shall execute and deliver the LLC Agreement.
(c) Seller shall execute and deliver to Buyer a bill of sale and deeds,
assignments and any other necessary instruments, satisfactory in form and
content and approved prior to Closing by Parent, conveying all the
Purchased Assets to Buyer.
(d) Seller shall deliver to Buyer estoppel certificates in form and
substance satisfactory to Parent executed by the landlords under each of
the Assigned Leases.
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Section 9.2 Actions to be Taken by Parent and Buyer at the Closing.
Parent or Buyer shall take the following actions at the Closing:
(a) Parent shall deliver to Seller a copy certified by its Secretary of
resolutions duly adopted by the boards of directors of Parent authorizing
and approving the execution and delivery of this Agreement, including the
exhibits and schedules hereto, the issuance of the Note, issuance of the
Parent Common Stock and the consummation of the transactions contemplated
herein.
(b) Parent shall execute and deliver the LLC Agreement.
(c) Parent and Buyer shall make the payment of funds specified for
payment at Closing under Section 2.3 and 2.5 above.
(c) Parent shall execute and deliver the Note and the Security Agreement
and issue the Parent Common Stock.
(d) Buyer and Mr. Cobb shall execute and deliver the Employment
Agreement.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Confidentiality; Publicity; Books and Records. (a) After
the Closing, no Seller Party will, directly or indirectly, disclose or provide
to any other person any non-public information of a confidential nature
concerning the Business, the Purchased Assets or the business or operations of
Seller, except as is required in governmental filings or judicial,
administrative or arbitration proceedings. The parties hereto will promptly
advise, and obtain the approval of, the other parties before issuing any press
release with respect to this Agreement or the transactions contemplated hereby.
(b) For a period of five years after the Closing Date, Buyer will
preserve and retain the books and records of constituting part of the Purchased
Asset and make such books and records available at the then current
administrative headquarters of Buyer to Seller or Parent and its officers,
employees and agents, upon reasonable notice and at reasonable times, at the
requesting party's cost and expense, it being understood that the requesting
party shall be entitled to make copies of any such books and records as shall be
reasonably necessary.
Section 10.2 Seller Parties to Enforce Certain Agreements. Each Seller
Party will enforce any agreement, arrangement or other legal right it may have
with or relating to any employee (or former employee) or other party (i) with
respect to the confidentiality of any information relating to Seller or the
Business or (ii) limiting such employee or other party from competing in any
line of business currently engaged in by Seller. With respect
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to employees of any Seller Party who become employees of Buyer, Seller hereby
assigns its rights to Buyer in lieu of being obligated to enforce such rights.
Section 10.3 Expenses. The Buyer and Seller shall pay their own
respective expenses, including the fees and disbursements of their respective
counsel in connection with the negotiation, preparation and execution of this
Agreement and the consummation of the transactions contemplated herein; provided
that Buyer and Seller shall each pay one-half of the cost of the phase I
environmental report prepared by Applied Earth Sciences (the "Environmental
Report").
Section 10.4 Entire Agreement. This Agreement, including all schedules
and exhibits hereto, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and may not be modified, amended or
terminated except by a written instrument specifically referring to this
Agreement signed by all the parties hereto.
Section 10.5 Waivers and Consents. All waivers and consents given
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 10.6 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been received only if and when
(i) personally delivered or (ii) on the third day after mailing, by United
States mail, first class, postage prepaid, by certified mail return receipt
requested, addressed in each case as follows (or to such other address as may be
specified by like notice):
(a) If to Parent, to:
Drilex Holdings Corp.
c/o SCF Partners
600 Travis, Suite 6600
Houston, Texas 77002
Attention: David Baldwin
(b) If to Buyer, to:
Cobb Directional Drilling Company, L.L.C.
c/o Drilex Systems, Inc.
15151 Sommermeyer
Houston, Texas 77041
Attention: John Forrest
(c) If to any Seller Party, to:
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Section 10.7 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
Section 10.8 Compliance with Bulk Sales Laws. Buyer and Seller waive
compliance with the requirements of any applicable bulk sales laws of any
jurisdiction.
Section 10.9 Performance. Seller and Stockholder agree to cause each
Seller Party to perform all its obligations and agreements under this Agreement
and hereby guarantees the payment and performance by each Seller Party of all
such obligations and agreements.
Section 10.10 Title and Risk of Loss. Title to, liability for and in
connection with, and risk of loss of Purchased Assets shall remain with Seller
in every instance until the Closing.
Section 10.11 Limitation on Interest. Regardless of any provision
contained herein or any other document executed in connection with this
Agreement, the parties hereto shall not be obliged to pay, and the parties
hereto shall never be entitled to charge, reserve, receive, collect or apply, as
interest (it being understood that interest shall be calculated as the aggregate
of all charges that are contracted for, charged, reserved, received, collected,
applied or paid that constitute interest under applicable law) payable hereunder
any amount in excess of the maximum nonusurious contract rate of interest
allowed from time to time by applicable law, and in the event any of the parties
hereto ever charges, reserves, receives, collects or applies, as interest, any
such excess, at the option of the payor of such interest, such amount shall be
deemed a partial prepayment of the amount payable hereunder or promptly refunded
to the payor of such interest.
Section 10.12 Choice of Law; Section Headings; Table of Contents. This
Agreement shall be governed by the internal laws of the State of Texas (without
regard to the choice of law provisions thereof). The section headings and table
of contents contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
Section 10.13 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ DAVID C. BALDWIN
----------------------------
COBB DIRECTIONAL DRILLING
COMPANY, L.L.C.
By: /s/ JOHN FORREST
----------------------------
COBB DIRECTIONAL DRILLING
COMPANY, INC.
By: /s/ ARCHIE A. COBB, III
-------------------------
POSI-TRAK MUD MOTORS, INC.
By: /s/ ARCHIE A. COBB, III
-------------------------
Archie A. Cobb, III
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED
OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE
UNDER THE SECURITIES ACT OF 1933 OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation (hereinafter called
"Maker"), for value received, promises and agrees to pay on or before September
30, 1997, the third anniversary of the date of this note, to POSI-TRAK MUD
MOTORS, INC., a Louisiana corporation (hereinafter called "Payee"), in Houston,
Harris County, Texas, in lawful money of the United States of America the
principal sum of ONE MILLION THREE HUNDRED THIRTY THREE THOUSAND THREE HUNDRED
FORTY AND 00/100 DOLLARS ($1,333,340.00), together with interest thereon
(calculated on the basis of a 365-day year, or a 366-day year in the case of a
leap year) from and after the date hereof until maturity at 7% per annum, but in
no event to exceed the maximum rate of nonusurious interest allowed from time to
time by law (hereinafter called the "Highest Lawful Rate"). After maturity (by
acceleration or otherwise), interest shall be so computed at 9% per annum, but
in no event to exceed the Highest Lawful Rate.
ACCRUED INTEREST is due and payable quarterly beginning on December
31, 1994 and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest with respect to such principal amount prepaid is due
and payable on the date of such prepayment. If any amount owing under this note
is due and payable on a day that is not a business day, such payment shall
instead be due and payable on the next succeeding business day. Maker has the
right to prepay this note in whole or in part at any time and from time to time
without penalty, on not less than two business days' prior notice.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note, (b) default is made in the payment when due of any installment of
interest on this note and such default has not been cured within five days after
the date on which such payment is due, (c) Maker shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (d) an involuntary
case or other proceeding shall be commenced against Maker which seeks
liquidation, reorganization or other relief with respect to Maker or its debts
or other liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect and such involuntary case or other proceeding shall
remain undismissed for a period of 120 days or (e) default is made under any
credit facility extended to Maker by any financial institution
(Page 1 of 3 Pages)
<PAGE>
$1,333,340.00 Houston, Texas September 30, 1994
and such default results in the acceleration of the payment of any principal
amount due pursuant to such credit facility in excess of $1 million and such
acceleration is not cured or withdrawn, or all amounts owing pursuant to such
credit facility are not paid in full, within thirty days after the date of such
acceleration. Upon the occurrence of any Event of Default described in clause
(a) or (b) of the first sentence of this paragraph, Payee may by written notice
to Maker declare the entire principal amount then outstanding under this note,
together with interest then accrued thereon, to be immediately due and payable.
Upon the occurrence of any Event of Default described in clause (e) of the first
sentence of this paragraph, Payee may by written notice to Maker demand that
such Event of Default be cured and, if any such Event of Default is not cured
within thirty days after the receipt of such notice by Maker, Payee may declare
the entire principal amount then outstanding under this note, together with
interest then accrued thereon, to be immediately due and payable. Upon the
occurrence of any Event of Default described in clauses (c) or (d) of the first
sentence of this paragraph, the entire principal amount of all indebtedness then
outstanding under this note, together with interest then accrued thereon, shall
become immediately due and payable.
THIS NOTE is subject to the terms and provisions of the Asset Purchase
Agreement (the "Agreement") dated the date hereof among Maker, Payee and certain
other parties, the terms and conditions of which are incorporated herein by
reference. Pursuant to such Agreement, the principal amount of this note may be
reduced as a result of certain obligations to Maker. This note is also entitled
to the benefits of the Security Agreement dated the date hereof executed by
Maker.
IT IS the intention of Maker and Payee to conform strictly to
applicable usuary laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
(Page 2 of 3 Pages)
<PAGE>
$1,333,340.00 Houston, Texas September 30, 1994
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:_________________
(Page 3 of 3 Pages)
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of September 30, 1994, made
by Drilex Holdings Corp., a Delaware corporation (the "Pledgor"), to Posi-Trak
Mud Motors, Inc., a Louisiana corporation (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor is the owner of 400,000 shares (the "Pledged Shares") of
limited liability company interest in Cobb Directional Drilling Company, L.L.C.
(the "Issuer").
(2) Pledgor has executed a promissory note (the "Note") dated the date
hereof payable to Pledgee to finance a portion of the purchase price of certain
assets pursuant to an Asset Purchase Agreement dated the date hereof among
Pledgee, Pledgor and certain other parties (the "Asset Purchase Agreement")
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein and for other good and valuable consideration, the
adequacy, receipt and sufficiency of which are hereby acknowledged, and in order
to induce Pledgee to accept the Note in connection with the Asset Purchase
Agreement, the Pledgor hereby agrees as follows:
Section 1. Defined Terms and Related Matters.
(a) The capitalized terms used herein which are defined in the Note or
the Asset Purchase Agreement and not otherwise defined herein shall have
the meanings specified therein.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(c) Unless otherwise defined herein or in the Asset Purchase
Agreement, the terms defined in Articles 8 and 9 of the Uniform Commercial
Code as enacted in the State of Texas, as amended from time to time (the
"UCC"), are used herein as therein defined.
Section 2. Pledge. The Pledgor hereby pledges and delivers to the
Pledgee, and hereby grants to the Pledgee, a security interest in and a lien on
the Pledged Shares and any certificates representing the Pledged Shares, and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares, and any and all other shares or equity interests in the
Issuer now owned or hereafter acquired by the Pledgor (the "Pledged
Collateral").
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Section 3. Security for Obligations. This Agreement secures the
prompt and complete payment of all obligations of Pledgor under the Note and any
other loans, advances, extensions of credit or other financial accommodations to
or in favor of Pledgor from or by Pledgee, whether such obligations are now
existing or hereafter arising, and all renewals, extensions, amendments,
supplements and rearrangements thereof, whether for principal, interest or any
other amount payable by Pledgor to the Pledgee under the terms of the Note (all
such obligations, covenants and conditions described in this Section 3 being
hereinafter collectively referred to as the "Obligations").
Section 4. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral have been
delivered to and held by or on behalf of the Pledgee pursuant hereto. The
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing the Pledged Collateral in its possession for
certificates or instruments of smaller or larger denominations.
Section 5. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) This Agreement is a legal, valid and binding obligation of the
Pledgor enforceable against the Pledgor in accordance with its terms,
except as enforceability may be (i) limited by applicable debtor laws and
(ii) subject to the general effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding is
equity or at law).
(b) The Pledgor is the legal and beneficial owner of the Pledged
Collateral free and clear of any lien, and the Pledgor has not sold,
granted any option with respect to, assigned, transferred or otherwise
disposed of any of its rights or interests in or to the Pledged Collateral.
(c) This Agreement and the delivery of the Pledged Collateral to the
Pledgee create a valid first priority lien in the Pledged Collateral
securing the payment of the Obligations.
Section 6. Further Assurances. The Pledgor agrees that at any time
and from time to time, at the request of the Pledgee, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be reasonably necessary or desirable, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Pledgee to exercise and enforce its rights and remedies hereunder
with respect to any of the Pledged Collateral.
Section 7. Voting Rights; Dividends; Etc. So long as Pledgee shall
not have foreclosed upon the Pledged Collateral:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights (including, without limitation, the right
to give consents, waivers and notifications in respect of the Pledged
Collateral) pertaining to the Pledged Collateral or any part thereof;
and
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(ii) The Pledgor shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Pledged Collateral;
provided, however, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral,
(B) dividends and other distributions hereafter paid or
payable in cash in respect of any Pledged Collateral in
connection with a liquidation or dissolution, and
(C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Pledged Collateral and shall, if received by the Pledgor, be received
in trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor and be forthwith delivered to the
Pledgee as Pledged Collateral in the same form as so received (with
any necessary endorsement).
Section 8. Transfers and Other Liens. Except as set forth in the LLC
Agreement, the Pledgor shall not sell, exchange or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral or create or
permit to exist any lien, pledge, change or security interest upon or with
respect to any of the Pledged Collateral.
Section 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee as the Pledgor's attorney-in-fact, effective
upon and during the continuance of an Event of Default, with full authority in
the place and stead of the Pledgor and in the name of the Pledgor, the Pledgee
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument which the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with subsection (a) above; and
(c) to file any claims or take any action or institute any proceedings
which the Pledgee may deem necessary or desirable for the collection of any
of the Pledged Collateral or otherwise to enforce the rights of the Pledgee
with respect to any of the Pledged Collateral.
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Section 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor.
Section 11. Possession; Reasonable Care. The Pledgee shall hold in
its possession all Pledged Collateral pledged, assigned or transferred hereunder
and from time to time constituting a portion of the Pledged Collateral, except
as from time to time any documents or instruments may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
thereby represented. The Pledgee may, from time to time, in its sole
discretion, appoint one or more agents (which in no case shall be the Pledgor or
an affiliate of the Pledgor) to hold physical custody, for the account of the
Pledgee, of any or all of the Pledged Collateral.
Section 12. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party upon
default under the UCC (whether or not the UCC applies to the affected
Pledged Collateral), or under the laws of any other applicable
jurisdiction.
(b) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale of, collection
from, or other realization upon all or any part of the Pledged Collateral
may, in the discretion of the Pledgee, be held by the Pledgee as collateral
for, and then or at any time thereafter applied in whole or in part by the
Pledgee against, the Obligations in such order as the Pledgee shall select.
Any surplus of such cash or cash proceeds and interest accrued thereon, if
any, held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over to the Pledgor or to whomsoever may be
lawfully entitled to receive such surplus.
(c) All rights and remedies of the Pledgee expressed herein are in
addition to all other rights and remedies possessed by the Pledgee in the
Note and any other agreement or instrument relating to the Obligations.
Section 13. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by the Pledgor herefrom shall in
any event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 14. Addresses for Notices. Except as otherwise expressly
provided herein, all notices and other communications provided for hereunder
shall be in writing (including telegraphic, telex, facsimile or cable
communication) as set forth in the Asset Purchase Agreement.
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Section 15. Security Interest Absolute. All rights of the Pledgee,
all obligations of the Pledgor hereunder and the security interest hereunder
shall, to the extent permitted by applicable law, be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of the Note;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations or any other amendment or
waiver of or any consent to any departure from the Note;
(c) any exchange, release or nonperfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or
(d) any other circumstance (other than payment in full of the
Obligations) which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations.
Section 16. Continuing Security Interest. This Agreement and the
delivery of the Pledged Collateral to the Pledgee shall create a continuing
security interest in the Pledged Collateral and shall (a) remain in full force
and effect until the indefeasible payment in full of the Obligations; (b) be
binding upon the Pledgor and its successors and assigns; and (c) inure to the
benefit of the Pledgee, and its successors, transferees and assigns. Upon the
payment in full of the Obligations, the Pledgor shall be entitled to the return
of such of the Pledged Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof.
Section 17. Limitation by Law. All rights, remedies and powers
provided in this Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to the extent
necessary so that they will not render this Agreement invalid, unenforceable, in
whole or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.
Section 18. Separability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Should any clause, sentence, paragraph, subsection or
Section of this Agreement be judicially declared to be invalid, unenforceable or
void, such decision will not have the effect of invalidating or voiding the
remainder of this Agreement, and the parties hereto agree that the part or parts
of this Agreement so held to be invalid, unenforceable or void will be deemed to
have been stricken herefrom by the parties hereto, and the remainder will have
the same force and effectiveness as if such stricken part or parts had never
been included herein.
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<PAGE>
Section 19. Captions. The captions in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Section 20. No Waiver; Remedies. No failure on the part of any the
Pledgee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PLEDGED COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered as of the date first above written.
DRILEX HOLDINGS CORP.
By:_________________________________________
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EXHIBIT C
LIMITED LIABILITY COMPANY AGREEMENT
OF
COBB DIRECTIONAL DRILLING COMPANY, L.L.C.
Effective as of September 30, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I DEFINITIONS................................ 1
ARTICLE II FORMATION OF THE COMPANY................... 5
2.1 Formation.................................. 5
2.2 Name....................................... 5
2.3 Place of Business.......................... 5
2.4 Registered Office and Registered Agent..... 5
2.5 Term....................................... 5
2.6 Purpose of the Company..................... 5
ARTICLE III INITIAL MEMBERS............................ 5
ARTICLE IV CAPITAL OF THE COMPANY..................... 6
4.1 Common Shares; Initial Contributions....... 6
4.2 Additional Contributions................... 6
4.3 Failure to Make Additional Contributions... 6
4.4 Capital Account............................ 7
4.5 Additional Issuances of Securities......... 7
4.6 Record of Contributions.................... 9
4.7 Splits and Combinations.................... 9
4.8 No Fractional Shares....................... 9
4.9 Interest................................... 9
4.10 Loans from Members......................... 9
4.11 Withdrawal or Reduction of Members' Capital
Contributions.............................. 10
4.12 Loans to Company........................... 10
4.13 Borrowing.................................. 10
4.14 No Further Obligation...................... 10
ARTICLE V RIGHTS AND OBLIGATIONS OF MEMBERS.......... 10
5.1 Limitation of Members' Responsibility,
Liability.................................. 10
5.2 Return of Distributions.................... 11
5.3 Priority and Return of Capital............. 11
ARTICLE VI MEETINGS OF MEMBERS; AMENDMENTS............ 11
6.1 Annual Meeting............................. 11
6.2 Special Meetings........................... 11
6.3 Place of Meetings.......................... 11
6.4 Notice of Meetings......................... 11
6.5 Meeting of All Members..................... 11
6.6 Record Date................................ 11
6.7 Quorum..................................... 12
6.8 Manner of Acting........................... 12
</TABLE>
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<TABLE>
<CAPTION>
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<C> <S> <C>
6.9 Proxies..................................... 12
6.10 Action by Members Without a Meeting......... 12
6.11 Waiver of Notice............................ 12
6.12 Special Prohibitions and Limitations........ 13
6.13 Amendments to be Adopted Solely by the
Managers.................................... 13
6.14 Amendments.................................. 14
ARTICLE VII RIGHTS AND DUTIES OF MANAGERS............... 14
7.1 Management.................................. 14
7.2 Number and Qualifications................... 14
7.3 Powers of the Managers...................... 14
7.4 Initial Managers............................ 15
7.5 Election.................................... 15
7.6 Vacancy; Removal............................ 16
7.7 Place of Meetings........................... 16
7.8 Annual Meetings of Managers................. 16
7.9 Regular Meetings of Managers................ 16
7.10 Special Meetings of Managers................ 16
7.11 Quorum...................................... 16
7.12 Attendance and Waiver of Notice............. 16
7.13 Compensation of Managers.................... 17
7.14 Committees.................................. 17
7.15 Liability of Managers....................... 17
7.16 Officers.................................... 17
ARTICLE VIII INDEMNIFICATION............................. 18
8.1 Indemnification............................. 18
8.2 Power to Indemnify in Actions, Suits or
Proceedings Other Than Those by or in the
Right of the Company........................ 18
8.3 Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the
Company..................................... 18
8.4 Authorization of Indemnification............ 19
8.5 Good Faith Defined.......................... 19
8.6 Indemnification by a Court.................. 19
8.7 Advancement or Reimbursement of Expenses.... 20
8.8 Nonexclusivity and Survival of
Indemnification............................. 20
8.9 Insurance................................... 20
ARTICLE IX ISSUANCE OF CERTIFICATES.................... 21
9.1 Issuance of Certificates.................... 21
9.2 Lost, Stolen or Destroyed Certificates...... 21
9.3 Registered Owners........................... 21
</TABLE>
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<TABLE>
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ARTICLE X TAX ALLOCATIONS............................. 22
10.1 Managers' Authority......................... 22
10.2 In General.................................. 22
10.3 Net Income and Net Loss..................... 22
10.4 Restrictions on Allocations................. 22
10.5 Special Allocations......................... 24
10.6 Section 754 Allocations..................... 24
10.7 Assignments and Issuance of Additional Shares 24
ARTICLE XI NET CASH FLOW AND DISTRIBUTIONS............. 24
11.1 Free Cash Flow.............................. 24
11.2 Distributions of Free Cash Flow............. 25
11.3 Limitation Upon Distributions............... 25
ARTICLE XII ACCOUNTING METHOD, PERIOD, RECORDS AND
REPORTS..................................... 25
12.1 Accounting Method........................... 25
12.2 Accounting Period........................... 25
12.3 Records, Audits and Reports................. 25
12.4 Inspection.................................. 25
ARTICLE XIII TAX MATTERS................................. 25
13.1 Tax Returns and Elections................... 25
13.2 Tax Controversies........................... 26
13.3 State, Local or Foreign Income Taxes........ 27
ARTICLE XIV RESTRICTIONS ON TRANSFERABILITY; OPTIONS AND
BUY-SELL PROVISIONS; ADMISSION OF SUBSTITUTE
MEMBERS..................................... 27
14.1 Generally................................... 27
14.2 Restriction on Transfer..................... 28
14.3 Put and Call Options........................ 28
14.4 Buy-Sell Procedure.......................... 28
14.5 Certain Involuntary Dispositions............ 29
14.6 General..................................... 29
14.7 Substituted Members......................... 30
ARTICLE XV DISSOLUTION AND TERMINATION................. 31
15.1 Dissolution................................. 31
15.2 Effect of Dissolution....................... 31
15.3 Winding Up, Liquidating and Distribution of
Assets...................................... 32
15.4 Certificate of.............................. 32
15.5 Return of Contribution Non-recourse to Other
Members..................................... 33
</TABLE>
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<TABLE>
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ARTICLE XVI MERGER AND CONSOLIDATION.................... 33
ARTICLE XVII MISCELLANEOUS PROVISIONS.................... 34
17.1 Notices..................................... 34
17.2 Books of Account and Records................ 34
17.3 Application of Delaware Law................. 34
17.4 Waiver of Action for Partition.............. 34
17.5 Execution of Additional Instruments......... 34
17.6 Headings.................................... 34
17.7 Waivers..................................... 34
17.8 Rights and Remedies Cumulative.............. 35
17.9 Severability................................ 35
17.10 Heirs, Successors and Assigns............... 35
17.11 Creditors................................... 35
17.12 Counterparts................................ 35
</TABLE>
iv
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement (this "Agreement") is made and
entered into as of September 30, 1994, by and between Drilex Holdings Corp., a
Delaware corporation ("Drilex"), and Cobb Directional Drilling Company, a
Louisiana corporation ("Cobb").
WHEREAS, Drilex and Cobb are parties to an Asset Purchase Agreement (the
"Purchase Agreement") that is being executed and delivered concurrently with the
execution and delivery hereof; and
WHEREAS, the Purchase Agreement calls for Drilex and Cobb to form a
Delaware limited liability company under the name "Cobb Directional Drilling
Company, L.L.C." pursuant to the Delaware Limited Liability Company Act, as
amended; and
WHEREAS, a certificate of formation of Cobb Company, L.L.C. (the "Company")
has been filed with the Secretary of State of the State of Delaware; and
WHEREAS, the parties hereto desire to provide for the orderly management of
the affairs of the Company;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Agreement shall have the following
meanings (unless otherwise expressly provided herein):
"Additional Member" shall mean any Person admitted to the Company as an
Additional Member pursuant to Section 4.5 of this Agreement.
"Adjusted Capital Account Deficit" shall mean, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant year, after giving effect to the following adjustments: (i) credit
to such Capital Account the Member's share of Minimum Gain; (ii) credit to such
Capital Account the Member's share of Member Minimum Gain; and (iii) debit to
such Capital Account the items described in Treasury Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
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"Affiliate" with respect to a specified Person shall mean a Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified. For
purposes of this definition, "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" shall mean this Agreement as originally executed and as it may
be amended from time to time hereafter.
"Capital Contribution" shall mean any contribution to the capital of the
Company in cash or property by a Member whenever made. "Initial Capital
Contribution" shall mean the initial Capital Contribution by a Member pursuant
to this Agreement.
"Capital Percentage" shall mean a Member's ownership interest in the
Company expressed as a percentage of the total Shares issued and outstanding.
"Certificate of Formation" shall mean the Certificate of Formation of the
Company filed with and endorsed by the Secretary of State of the State of
Delaware, as such certificate may be amended from time to time hereafter.
"Closing Date" shall mean September 30, 1994.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent superseding federal revenue laws.
"Cumulative Net Income" shall mean the excess of the aggregate Net Income
of the Company since its inception, over the aggregate Net Loss of the Company
since its inception.
"Delaware Act" shall mean the Delaware Limited Liability Company Act, as
the same may be amended from time to time hereafter.
"Entity" shall mean any foreign or domestic general partnership, limited
partnership, limited liability company, corporation, joint enterprise, trust,
business trust, employee benefit plan, cooperative or association.
"Fiscal Year" means the Company's fiscal year, which shall be determined by
the Managers in accordance with Section 706(b) of the Code.
"Manager" shall mean any of the managers of the Company duly appointed or
elected to serve in such capacity under Delaware law and this Agreement.
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<PAGE>
"Member" shall mean each Person who executes a counterpart of this
Agreement as a Member and each Person who may hereafter become an Additional
Member pursuant to Section 4.5 or a Substituted Member pursuant to Section 14.7.
"Member Minimum Gain" shall mean the aggregate of the partner nonrecourse
debt minimum gain amounts of the Company computed in accordance with Treasury
Regulation (S) 1.704-2(i)(3).
"Member Nonrecourse Deductions" shall be determined in accordance with the
principles of Treasury Regulation (S) 1.704-2(i)(1). The amount of Member
Nonrecourse Deductions for a Company fiscal year is determined in accordance
with Treasury Regulation (S) 1.704-2(i)(2) and generally equals the net
increase, if any, in the amount of Member Minimum Gain during that fiscal year,
determined pursuant to Treasury Regulation (S) 1.704-2(i)(3).
"Minimum Gain" shall mean the aggregate gain, if any, that would be
realized by the Company for purposes of computing income or loss with respect to
each Company asset if each Company asset were disposed of by the Company in a
taxable transaction in full satisfaction of all nonrecourse liabilities of the
Company secured by such asset. Minimum Gain with respect to each Company asset
shall be further determined in accordance with the rules of Treasury Regulation
(S) 1.704-2(d) and any subsequent rule or regulation governing the determination
of minimum gain. A Member's share of Minimum Gain at the end of any Company
year shall equal the aggregate Nonrecourse Deductions allocated to such Member
(or his predecessors in interest) up to that time, less such Member's (and
predecessors') aggregate share of decreases in Minimum Gain determined in
accordance with Treasury Regulation (S) 1.704-2(g).
"Net Cash Flow" of the Company is defined in Section 11.1.
"Net Income" shall mean for a taxable year of the Company or other period
the excess of (i) the income and gain of the Company for such year or period
determined in accordance with the accounting principles described in Article
XII, over (ii) the deductions and losses of the Company for such year or period
determined in accordance with the accounting principles described in Article
XII.
"Net Loss" shall mean for a taxable year of the Company or other period the
excess of (i) the deductions and losses of the Company for such year or period
determined in accordance with the accounting principles described in Article
XII, over (ii) the income and gain of the Company for such year or period
determined in accordance with the accounting principles described in Article
XII.
"Nonrecourse Deductions" shall mean the excess, if any, of the net increase
in the amount of Minimum Gain during a Company year over the aggregate amount of
any distributions during such year of proceeds of a nonrecourse liability that
are allocable to an increase in Minimum Gain. The Nonrecourse Deductions of a
year shall
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consist first of depreciation with respect to each item of Company property to
the extent of the increase in Minimum Gain attributable to nonrecourse
liabilities of the Company secured by such Company property, with the remainder
of any Nonrecourse Deductions made up of a pro rata portion of the Company's
other items of loss. Nonrecourse Deductions shall be further determined in
accordance with the rules of Treasury Regulation (S)(S) 1.704-2(b)(1) and 1.704-
2(c) and any subsequent rule or regulation governing the determination of
nonrecourse deductions.
"Person" shall mean any individual or Entity, and any heir, executor,
administrator, legal representative, successor or assign of such "Person" where
the context so admits.
"Prime Rate" shall mean the prime rate of interest as announced from time
to time by Texas Commerce Bank, National Association.
"Recapture Income" shall mean the portion of any gain recognized on the
disposition of property which is classified as ordinary income under Sections
1245, 1250 and 1254 of the Code, or under other sections of the Code, the amount
of which is determined by deductions previously allowable with respect to such
property.
"Related Person" shall mean, with respect to a natural person, any spouse,
child, grandchild, brother, sister or parent and any spouse of any such person.
"Requisite Interest" shall mean the (i) Members holding more than 50% of
the issued and outstanding Shares of a particular class held by Members at any
given time or (ii) Members holding more than the percentage of a class of
outstanding Shares held by Members at any given time specified in the instrument
defining the rights of such class of Shares.
"Reserves" shall mean, with respect to any fiscal period, funds set aside
or amounts allocated during such period to reserves which shall be maintained in
amounts deemed sufficient by the Managers for working capital and to pay taxes,
insurance, debt service or other costs or expenses incident to the ownership or
operation of the Company's business.
"Share" shall mean an undivided portion of all or a specified category of
the rights, duties, obligations and ownership interests in the Company.
"Substituted Member" shall mean any transferee or assignee of Shares that
is admitted to the Company as a Member pursuant to Section 14.7.
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<PAGE>
ARTICLE II
FORMATION OF THE COMPANY
2.1 Formation. On September 23, 1994, the Certificate of Formation of
the Company was filed with the Secretary of State of the State of Delaware
pursuant to the Delaware Act.
2.2 Name. The name of the Company is Cobb Directional Drilling Company,
L.L.C. If the Company shall conduct business in any jurisdiction other than the
State of Delaware, it shall register the Company or its trade name with the
appropriate authorities in such state in order to have the legal existence of
the Company recognized.
2.3 Place of Business. The Company may locate its places of business and
registered office at any place or places as the Managers may from time to time
deem advisable.
2.4 Registered Office and Registered Agent. The Company's registered
office shall be at the office of its registered agent at 1209 Orange Street,
Wilmington, Delaware 19801, and the name of its initial registered agent at such
address shall be The Corporation Trust Company.
2.5 Term. The Company and this Agreement shall continue until the
earliest of (a) such time as all of the Company's assets have been sold or
otherwise disposed of, (b) such time as the Company's existence has been
terminated as otherwise provided herein or in the Delaware Act, or (c) 30 years
from the date hereof.
2.6 Purpose of the Company. The purpose of the Company shall be to
conduct any lawful business whatsoever, except that it shall not engage in the
business of banking or insurance, all as provided under the Delaware Act. The
Company shall have any and all powers necessary or desirable to carry out the
purpose and business of the Company to the extent the same may be legally
exercised by limited liability companies under the Delaware Act. The Company
shall carry out the foregoing activities pursuant to the Certificate of
Formation and this Agreement.
ARTICLE III
INITIAL MEMBERS
The names and places of business of the initial Members (the "Initial
Members") are as follows:
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Drilex Holdings Corp.
600 Travis, Suite 6600
Houston, Texas 77002
Cobb Directional Drilling Company, Inc.
P.O. Box 558
Broussard, Louisiana 70518
ARTICLE IV
CAPITAL OF THE COMPANY
4.1 Common Shares; Initial Contributions.
(a) A class of Shares denominated the "Common Shares" is hereby designated
as the sole initial class of Shares of the Company. Each Common Share shall
entitle any Member holding the same to one vote in respect of all matters coming
before the Members for consideration and to an undivided portion of all of the
other rights, duties, obligations and ownership interests in the Company.
(b) Simultaneously with the execution and delivery of this Agreement, the
Company is issuing to Drilex 400,000 Common Shares in exchange for the
consideration described in the Purchase Agreement with an agreed initial value
of $4,000,000, and the Company is issuing to Cobb 200,000 Common Shares in
exchange for the consideration described in the Purchase Agreement with an
agreed initial value of $2,000,000. The consideration so given in exchange for
the Common Shares so issued shall be deemed to be the "Initial Capital
Contribution" of each of Drilex and Cobb.
4.2 Additional Contributions. No Member shall be required to make
additional Capital Contributions unless such Member so agrees. If the Members
agree to make additional Capital Contributions, any call for such additional
Capital Contributions shall be made solely at the discretion of the Managers,
and the existence of liabilities of the Company in excess of the amount of
assets available to discharge such liabilities shall not, in the absence of a
call by the Managers for further contributions, create a liability on the part
of any Member for additional Capital Contributions to meet such deficit. The
obligations of Members to make additional Capital Contributions and their
liability to the Company and other Members with respect thereto shall not confer
any rights on any third parties. All additional Capital Contributions shall be
made in proportion to the relative Capital Percentages of the Members and shall
be evidenced by the issuance of additional Shares to the contributing Member
pursuant to Section 4.5.
4.3 Failure to Make Additional Contributions. If, at any time, any
Member (the "Defaulting Member") should fail to contribute any sum required
under the terms of Section 4.2 that such Member has agreed to contribute, and
such failure shall continue for
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10 days, then the other Members in the relative proportions of their Capital
Percentages, or any proportion they may otherwise agree to (the "Advancing
Members") may advance on behalf of the Defaulting Member the sum which such
Defaulting Member shall have failed to contribute, and such amount shall be
treated as a Capital Contribution by the Defaulting Member. Upon any such
advance or advances, the Defaulting Member shall be obligated to repay such sum
to the Advancing Members, and such sum shall bear interest at the lesser of (i)
two percent (2%) above the Prime Rate and (ii) the maximum non-usurious rate
allowed by applicable law from the date of the advance by the Advancing Members
until such sum is repaid (including accrued interest). Debt service with respect
to the amount advanced (the "Advance") shall equal, at any time, the lesser of
(x) all amounts otherwise distributable to the Defaulting Member at that time
pursuant to Article XI, and (y) the principal of and interest on the Advance
then remaining to be paid, and said debt service shall be payable from all
amounts otherwise distributable to the Defaulting Member pursuant to Article XI
hereof, notwithstanding anything in Article XI to the contrary. The repayment of
the Advance shall be secured by a security interest in favor of the Advancing
Members in the Shares issued to the Defaulting Member in connection with the
additional Capital Contribution due from such Member, and the Advancing Member
may enforce such security interest by foreclosure or otherwise unless the
Advance is repaid in full with interest thereon within 30 days after demand. Any
pledgee or assignee of the Defaulting Member's Shares shall take such Shares
subject to the Advancing Members' security interest therein and the Advancing
Member's rights to recover the Advance, together with interest thereon, from all
amounts distributable on account of the Defaulting Member's Shares. All amounts
that are so applied to debt service on any such Advance shall be deemed to be
distributed to the Defaulting Member for purposes of the allocation provisions
set forth in Article X.
4.4 Capital Account. A "Capital Account" shall be established for each
Member. The initial balance of a Member's Capital Account shall be the amount
of that Member's Initial Capital Contribution. Each Member's Capital Account as
of any date shall be increased by (i) the amount of cash contributed by that
Member to the Company on or prior to that date; (ii) the fair market value of
any property (reduced by any liabilities which are assumed by the Company or to
which such property is subject) which is contributed by that Member to the
Company on or prior to that date and (iii) any item of Company income or gain
which is allocated to such Member pursuant to Article X on or prior to that
date; and is decreased by (iv) any Company deduction or loss which is allocated
to such Member pursuant to Article X on or prior to that date, (v) the amount of
cash distributed by the Company to such Member on or prior to that date and (vi)
the fair market value of any property (reduced by any liabilities which are
assumed by the distributee Member or to which the property is subject) which is
distributed by the Company to the Member on or prior to that date.
4.5 Additional Issuances of Securities.
(a) In the event of any additional Capital Contributions, and in order to
raise additional capital or to acquire assets, to redeem or retire Company debt
or for any other purpose, the Company is authorized to issue Shares and other
securities in
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addition to those issued pursuant to Section 4.1 from time to time to Members or
to other Persons, subject to the approval of the Requisite Interest. The Company
may assume liabilities in connection with any such issuance. The Managers shall
determine the consideration and terms and conditions with respect to any such
issuance of Shares. The Managers shall do all things necessary to comply with
the Delaware Act and are authorized and directed to do all things they deem to
be necessary or advisable in connection with any such issuance, including,
without limitation, compliance with any statute, rule, regulation or guideline
of any federal, state or other governmental agency.
(b) Shares to be issued by the Company shall be issuable from time to time
in one or more classes with such voting rights, designations, preferences,
limitations, restrictions and relative rights (including rights senior to
existing classes of Shares) as may be fixed by the Managers, including without
limitation (i) the allocation, for federal income and other tax purposes, to
such class of Shares of items of income, gain, loss, deduction and credit; (ii)
the rights of such class of Shares to share in distributions by the Company;
(iii) the rights of such class of Shares upon dissolution and liquidation of the
Company; (iv) whether such class of Shares is redeemable by the Company and, if
so, the price at, and the terms and conditions on, which such class of Shares
may be redeemed by the Company; (v) whether such class of Shares is issued with
the privilege of conversion and, if so, the rate at and the terms and conditions
upon which such class of Shares may be converted into any other class of Shares;
(vi) the terms and conditions of the issuance of such class of Shares; and (vii)
the rights of such class of Shares to vote on matters relating to the Company
and this Agreement. Upon the issuance of any class of Shares, the Managers
(pursuant to the Managers' powers of attorney from the Members), without the
approval at the time of any Member, may amend any provision of this Agreement,
and execute, swear to, verify, acknowledge, deliver, file and record, if
required, an amended Certificate of Formation and any other documents that may
be required in connection therewith, as shall be necessary or desirable to
reflect the authorization and issuance of such class of Shares and the relative
rights of such class of Shares as to the matters set forth in the preceding
sentence. The Managers are also authorized to cause the issuance of any other
type of security of the Company from time to time to Members or other Persons on
terms and conditions established by the Managers. Such securities may include,
without limitation, unsecured and secured debt obligations of the Company, debt
obligations of the Company convertible into any class of Shares that may be
issued by the Company, options, rights or warrants to purchase any such class of
Shares or any combination of any of the foregoing. Any class of Shares may be
issued in one or more series, provided that all Shares of a series shall have
voting rights, designations, preferences, limitations, restrictions and relative
rights identical with those of other Shares of the same series and, except to
the extent otherwise provided in the description of the series, with those of
other series of the same class.
(c) Upon (i) the execution and delivery to the Company of this Agreement,
as it may be amended as provided in subparagraph (b) of this Section 4.5, by the
Members of the Company and any Person who is issued Shares of any class, (ii)
receipt by the Company of the Capital Contribution of such Person made in
connection with the
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issuance of such Shares and (iii) any other action required by Delaware law,
such Person shall be admitted as an Additional Member of the Company.
4.6 Record of Contributions. The books and records of the Company shall
include true and full information regarding the amount of cash and cash
equivalents and designation and statement of the value of any other property
contributed by each Member to the Company.
4.7 Splits and Combinations.
(a) The Company may make a distribution in Shares to all Members or may
effect a subdivision or combination of Shares, but in each case only on a pro
rata basis so that, after such distribution, subdivision or combination, each
Member shall have the same percentage interest in the Company as before such
distribution, subdivision or combination.
(b) Whenever such a distribution, subdivision or combination is declared,
the Managers may select a record date as of which the distribution, subdivision
or combination shall be effective and shall notify each Member of the
distribution, subdivision or combination.
(c) Promptly following such distribution, subdivision or combination, the
Managers may cause the Company to issue to the Members new Certificates
representing the new number of Shares, or adopt such other procedures as it may
deem appropriate to reflect such distribution, subdivision or combination;
provided however, that the Managers may require, as a condition to the delivery
of such new Certificate, the surrender of any Certificate representing the
Shares prior to such declaration.
4.8 No Fractional Shares. No fractional Shares shall be issued by the
Company unless otherwise determined by the Managers; instead, each fractional
Share shall be rounded to the nearest whole Share.
4.9 Interest. No interest shall be paid by the Company on Capital
Contributions.
4.10 Loans from Members. Loans by a Member to the Company shall not be
considered Capital Contributions.
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4.11 Withdrawal or Reduction of Members' Capital Contributions.
(a) A Member shall not be entitled to withdraw any part of his Capital
Contribution or to receive any distribution from the Company, except as
otherwise provided in this Agreement.
(b) A Member shall not receive out of the Company's property any part of
his Capital Contributions until all liabilities of the Company, except
liabilities to Members on account of their Capital Contributions, have been paid
or there remains property of the Company sufficient to pay them.
(c) A Member, irrespective of the nature of his Capital Contribution, has
only the right to demand and receive cash in return for his Capital
Contribution.
4.12 Loans to Company. Nothing in this Agreement shall prevent any
Member from making secured or unsecured loans to the Company by agreement with
the Company.
4.13 Borrowing. In the event that the Company, in order to discharge
costs, expenses or indebtedness, requires funds in excess of the funds provided
by Capital Contributions of the Members pursuant to Section 4.2 and by revenues,
the Managers shall be authorized, at any time and from time to time, to cause
the Company to borrow additional funds, as shall in the judgment of the Managers
be sufficient for such purposes and upon such terms as the Managers may deem
advisable.
4.14 No Further Obligation. Except as expressly provided for in or
contemplated by this Article IV, no Member shall have any obligation to provide
funds to the Company, whether by Capital Contributions, loans, return of monies
received pursuant to the terms of this Agreement or otherwise.
ARTICLE V
RIGHTS AND OBLIGATIONS OF MEMBERS
5.1 Limitation of Members' Responsibility, Liability. The Members shall
not perform any act on behalf of the Company, incur any expense, obligation or
indebtedness of any nature on behalf of the Company, or in any manner
participate in the management of the Company or receive or be credited with any
amounts, except as specifically contemplated hereunder. The Members shall not
be personally liable for any amount in excess of their respective Capital
Contributions, and shall not be liable for any of the debts or losses of the
Company, except to the extent that a liability of the Company is founded upon or
results from an unauthorized act or activity of such Member. In addition, each
Member's liability shall be limited as set forth in the Delaware Act and other
applicable law hereafter in effect.
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5.2 Return of Distributions. In accordance with Section 18-607 of the
Delaware Act, a Member will be obligated to return any distribution from the
Company only as provided by applicable law.
5.3 Priority and Return of Capital. Except as may be provided in this
Agreement, no Member shall have priority over any other Member, either as to the
return of Capital Contributions or as to profits, losses or distributions;
provided that this Section shall not apply to loans (as distinguished from
Capital Contributions) which a Member has made to the Company.
ARTICLE VI
MEETINGS OF MEMBERS; AMENDMENTS
6.1 Annual Meeting. The annual meeting of the Members shall be held at
such time as shall be determined by resolution of the Members, commencing with
the year 1995, for the purpose of the transaction of such business as may come
before the meeting.
6.2 Special Meetings. Special meetings of the Members, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by any
Manager or by any Member or Members holding at least 30% of the Shares entitled
to vote on such matter.
6.3 Place of Meetings. The Members may designate any place as the place
of meeting for any meeting of the Members. If no designation is made, the
meeting shall be held at the principal offices of the Company.
6.4 Notice of Meetings. Except as provided in Section 6.5, written
notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the Manager or person calling the meeting, to
each Member entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the Member at his address as it appears on the books of the Company, with
postage thereon prepaid. If transmitted by way of facsimile, such notice shall
be deemed to be delivered on the date of such facsimile transmission to the fax
number, if any, for the respective Member which has been supplied by such Member
to the Manager and identified as such Member's facsimile number.
6.5 Meeting of All Members. If all of the Members shall meet at any time
and place and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting lawful action
may be taken.
6.6 Record Date. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members, the Managers may set a record
date. When
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a determination of Members entitled to vote at any meeting of Members has been
made as provided in this Section, such determination shall apply to any
adjournment thereof.
6.7 Quorum. Members holding at least a majority of each class of Shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of Members. In the absence of a quorum at any such meeting,
Members holding a majority of such class of Shares so represented may adjourn
the meeting from time to time for a period not to exceed 60 days without further
notice. However, if the adjournment is for more than 60 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each Member of record entitled to vote
at the meeting.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The Members present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal during such meeting of Members holding that number of Shares whose
absence would cause less than a quorum.
6.8 Manner of Acting. If a quorum is present, the affirmative vote of
the Requisite Interest on the subject matter shall be the act of the Members,
unless the vote of a greater or lesser proportion or number is otherwise
required by the Delaware Act, by the Certificate of Formation or by this
Agreement.
6.9 Proxies. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized attorney-in-
fact. Such proxy shall be filed with the Managers of the Company before or at
the time of the meeting. No proxy shall be valid after 11 months from the date
of its execution, unless otherwise provided in the proxy.
6.10 Action by Members Without a Meeting. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken, signed
by Members entitled to vote thereon holding not less than the number of Shares
required to approve such action and delivered to the Managers of the Company for
inclusion in the minutes or for filing with the Company records. Action taken
under this Section is effective when all Members entitled to vote thereon
holding not less than the number of Shares required to approve such action have
signed the consent, unless the consent specifies a different effective date.
The record date for determining Members entitled to take action without a
meeting shall be the date the first Member signs a written consent.
6.11 Waiver of Notice. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the Person entitled to such
notice, whether before, at or after the time stated therein, shall be equivalent
to the giving of such notice.
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6.12 Special Prohibitions and Limitations. Without the prior approval of
the Requisite Interest, the Company shall not (i) sell, exchange or otherwise
dispose of all or substantially all of the assets of the Company outside the
ordinary course of business of the Company (provided, however, that this
provision shall not be interpreted to preclude or limit the mortgage, pledge,
hypothecation or grant of a security interest in all or substantially all of the
assets of the Company and shall not apply to any forced sale of any or all of
the assets of the Company pursuant to the foreclosure of (or in lieu of
foreclosure), or other realization upon, any such encumbrance), (ii) merge,
consolidate or combine with any other Person, or (iii) issue additional Shares
of any class.
6.13 Amendments to be Adopted Solely by the Managers. The Managers,
without the consent at the time of any Member, may amend any provision of this
Agreement and execute, swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith, to reflect:
(a) a change in the name of the Company or the location of the principal
place of business of the Company;
(b) the admission, substitution or withdrawal of Members in accordance with
this Agreement;
(c) a change that is necessary or advisable in the opinion of the Managers
to qualify the Company as a company in which members have limited liability
under the laws of any state or other jurisdiction or to ensure that the Company
will not be treated as an association taxable as a corporation for federal
income tax purposes;
(d) a change that (i) in the sole discretion of the Managers does not
adversely affect the Members in any material respect, (ii) is necessary or
desirable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or contained in any federal or state statute or (iii) is required or
contemplated by this Agreement;
(e) an amendment that is necessary, as reflected in an opinion of counsel,
to prevent the Company or any Member or its directors or officers from, in any
manner, being subjected to the provisions of the Investment Company Act of 1940,
as amended, the Investment Advisers Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act of 1974,
as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(f) a change in any provision of this Agreement which requires any action
to be taken by or on behalf of the Company or the Members pursuant to the
requirements of Delaware law if the provisions of Delaware law are amended,
modified or revoked so that the taking of such action is no longer required;
provided that this Section 6.13(f) shall be applicable only if such changes are
not materially adverse to the Members;
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(g) a change that is necessary or desirable in connection with the issuance
of any class of Shares pursuant to Section 4.5; or
(h) any other amendments similar to the foregoing.
Each Member hereby appoints each Manager as its attorney-in-fact to execute
any amendment permitted by this Section 6.13.
6.14 Amendments. A proposed amendment (other than one permitted by
Section 6.13) shall be effective upon its adoption by the affirmative vote of
80% of the Shares entitled to vote. The Company shall notify all Members upon
final adoption or rejection of any proposed amendment.
ARTICLE VII
RIGHTS AND DUTIES OF MANAGERS
7.1 Management. The powers of the Company shall be exercised by or under
the authority of, and the business and affairs of the Company shall be managed
under, its Managers. In addition to the powers and authorities expressly
conferred by this Agreement upon the Managers, the Managers may exercise all
such powers of the Company and do all such lawful acts and things as are not
directed or required to be exercised or done by the Members by the Delaware Act,
the Certificate of Formation of the Company or this Agreement.
7.2 Number and Qualifications. The numbers of Managers of the Company
shall be three. Managers need not be residents of the State of Delaware or
Members of the Company. The Managers, in their discretion, may elect a chairman
of the Managers who shall preside at meetings of the Managers.
7.3 Powers of the Managers. Without limiting the generality of Section
7.1, the Managers shall have power and authority, acting in concert in
accordance with this Agreement, to cause the Company to take any of the
following actions:
(a) To acquire property in the name of the Company from any Person;
(b) To incur debt or liabilities on behalf of the Company;
(c) To purchase liability and other insurance to protect the Company's
property and business;
(d) To hold and own any Company real and/or personal properties, foreign or
domestic, in the name of the Company;
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(e) To invest any Company funds temporarily (by way of example but not
limitation) in time deposits, short-term governmental obligations, commercial
paper or other investments;
(f) To sell or otherwise dispose of the assets of the Company;
(g) To execute on behalf of the Company instruments and documents,
including, without limitation, checks, drafts, notes and other negotiable
instruments, mortgages or deeds of trust, security agreements, financing
statements, documents providing for the acquisition, mortgage or disposition of
the Company's property, assignments, bills of sale, leases, partnership
agreements, and other instruments or documents necessary to the business of the
Company;
(h) To employ accountants, legal counsel, managing agents or other experts
to perform services for the Company and to compensate them from Company funds;
(i) To enter into any and all other agreements on behalf of the Company,
with any other Person for any purpose, in such forms as the Managers may
approve;
(j) To form or invest in any Entity, to conduct the business of the Company
or for any other purpose; and
(k) To do and perform all other acts as may be necessary or appropriate to
the conduct of the Company's business.
Unless authorized to do so by this Agreement or by the Managers of the Company,
no Member, agent or employee of the Company shall have any power or authority to
bind the Company in any way, to pledge its credit or to render it liable
pecuniarily for any purpose. No debt may be contracted or liability incurred by
or on behalf of the Company except upon the approval of the Managers as provided
in this Agreement.
7.4 Initial Managers. The initial Managers shall be John Forrest and
Bruce Broussard (deemed appointed by Drilex) and Archie A. Cobb, III (deemed
appointed by Cobb). So long as the Initial Members are the only Members, each
shall have the right (a) to designate one or more Managers in proportion to such
Member's respective ownership of Shares and (b) to remove, replace or fill any
vacancy occurring for any reason of any Manager appointed by such Member.
7.5 Election. Except as provided in Section 7.4, at each annual meeting
of the Members, the Members shall elect the Managers to hold office until the
next succeeding annual meeting. Unless removed in accordance with this
Agreement, each Manager shall hold office for the term for which he is elected
and until his successor shall be elected and qualified. Each Member shall be
entitled at all elections of Managers to as many votes as
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shall equal the number of votes which (except for this provision as to
cumulative voting) it would be entitled to cast for the election of Managers
with respect to its Shares multiplied by the number of Managers to be elected,
and such holder may cast all of such votes for a single Manager or may
distribute them among the number to be voted for, or for any two or more of them
as it may see fit.
7.6 Vacancy; Removal. Except as provided in Section 7.4, any vacancy
occurring by reason of death, resignation, removal or any other reason causing a
change in the number of Managers may be filled by the affirmative vote of the
remaining Managers at a special meeting called for such purpose. A Manager
elected to fill such vacancy shall be elected for the unexpired term of the
predecessor in office. A Manager may be removed at any time, with or without
cause, by the affirmative vote of the Requisite Interest.
7.7 Place of Meetings. All meetings of the Managers of the Company or
committees thereof may be held either within or without the State of Delaware.
Any Manager may participate in a meeting by means of conference telephone or
similar equipment, and participation by such means shall constitute presence in
person at the meeting.
7.8 Annual Meetings of Managers. The annual meeting of Managers shall be
held, without further notice, immediately following the annual meeting of
Members, and at the same place, or at such other time and place as shall be
fixed with the consent in writing of all of the Managers.
7.9 Regular Meetings of Managers. Regular meetings of the Managers may
be held without notice at such time and place, either within or without the
State of Delaware, as shall from time to time be determined by the Managers.
7.10 Special Meetings of Managers. Special meetings of the Managers may
be called by any Manager on two days' notice to each Manager, either personally
or by mail, telephone or telegram.
7.11 Quorum. At all meetings of the Managers, the presence of a majority
of the Managers shall be necessary and sufficient to constitute a quorum for the
transaction of business unless a greater number is required by law. The act of
a majority of the Managers present at a meeting at which a quorum is present
shall be the act of the Managers, except as otherwise provided by law,
Certificate of Formation or this Agreement. If a quorum shall not be present at
any meeting of the Managers, the Managers present at the meeting may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
7.12 Attendance and Waiver of Notice. Attendance of a Manager at any
meeting shall constitute a waiver of notice of such meeting, except where a
Manager attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened. Neither the business to be
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transacted at, nor the purpose of, any regular or special meeting of the
Managers need be specified in the notice or waiver of notice of such meeting.
7.13 Compensation of Managers. Managers, as such, shall not receive any
stated salary for their services, but shall receive such compensation for their
services as may be from time to time approved by the Managers, provided that
nothing contained in this Agreement shall preclude any Manager from serving the
Company in any other capacity and receiving compensation for service. In
addition, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Managers.
7.14 Committees. The Managers may, by resolution, designate from among
the Managers one or more committees, each of which shall be comprised of one or
more Managers, and may designate one or more of the Managers as alternate
members of any committee, who may, subject to any limitations imposed by the
Managers, replace absent or disqualified Managers at any meeting of that
committee. Such committee shall have and may exercise all of the authority of
the Managers, subject to the limitations set forth in this Agreement and under
the Delaware Act.
7.15 Liability of Managers. A Manager shall not be liable under any
judgment, decree or order of a court, or in any other manner, for any debt,
obligation or liability of the Company by reason of his acting as a Manager of
the Company. A Manager of the Company shall not be personally liable to the
Company or its Members for monetary damages for breach of fiduciary duty as a
Manager, except for liability for any acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or for a
distribution, redemption or purchase of or with respect to Shares in the Company
in violation of Delaware law as a result of the willful or grossly negligent act
or omission of the Manager. If the laws of the State of Delaware are amended
after the date of this Agreement to authorize action further eliminating or
limiting the personal liability of Managers, then the liability of a Manager of
the Company, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended laws of
the State of Delaware. Any repeal or modification of this Section 7.15 by the
Members of the Company shall be prospective only, and shall not adversely affect
any limitation on the personal liability of a Manager of the Company existing at
the time of such repeal or modification or thereafter arising as a result of
acts or omissions prior to the time of such repeal or modification.
7.16 Officers. The Managers of the Company may elect the officers of the
Company, who shall hold offices specified by the Managers for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Managers; and each officer of the Company shall hold office
until his successor is chosen and qualified or until his earlier resignation or
removal. Any officer elected by the Managers may be removed at any time by the
affirmative vote of the Managers. Any vacancy occurring in any office of the
Company may be filled by the Managers. The salaries of all officers of the
Company shall be fixed by the Managers.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. Each person who at any time shall be, or shall have
been, a Manager or officer of the Company, or any person who, while a Manager,
officer, employee or agent of the Company, is or was serving at the request of
the Company as a director, member, manager, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of an Entity, shall
be entitled to indemnification as and to the fullest extent permitted by the
provisions of Delaware law or any successor statutory provisions, as from time
to time amended. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which one to be indemnified may be entitled as
a matter of law or under this Agreement, any other agreement, by vote of the
Members or disinterested Managers or otherwise, both as to any action in an
official capacity and as to action in another capacity while holding such
office. Any repeal of this Section 8.1 shall be prospective only, and shall not
adversely affect any right of indemnification existing at the time of such
repeal or modification or thereafter arising as a result of acts or omissions
prior to the time of such repeal or modification.
8.2 Power to Indemnify in Actions, Suits or Proceedings Other Than Those
by or in the Right of the Company. Without limiting the provisions of Section
8.1, subject to Section 8.4 the Company shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a Manager or officer of the Company, or is or was
serving at the request of the Company as a director, member, manager, officer,
employee or agent of an Entity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
8.3 Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Company. Without limiting the provisions of Section 8.1, subject
to Section 8.4, the Company shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a Manager or officer of the Company, or is
or was serving at the request of the Company as a director, member, manager,
officer, employee or agent of an Entity against expenses
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(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
8.4 Authorization of Indemnification. Any indemnification under this
Article VIII (unless ordered by a court) shall be made by the Company as
permitted by Delaware Law or as authorized in the specific case upon a
determination that indemnification is proper in the circumstances because it is
permitted under Delaware law or the applicable standards of conduct set forth in
Section 8.2 or Section 8.3, as the case may be, have been met. Such
determination shall be made (i) by the Managers by a majority vote of a quorum
consisting of Managers who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested Managers so directs, by independent legal counsel in a written
opinion or (iii) by the Members by a vote of a majority of Shares held by
Members who were not parties to such action, suit or proceeding. To the extent,
however, that a Manager or officer of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding described
above, or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
8.5 Good Faith Defined. For purposes of any determination under this
Article VIII, a person shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
upon the records of the Company and upon such information, opinions, reports or
statements presented to the Company by any of the other Managers, Members,
officers, employees or committees of the Company or by any other person as to
matters the member or manager reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Company, including information, opinions, reports or
statements as to the value and amount of assets, liabilities, profits or losses
of the Company or any other facts pertinent to the existence and amount of
assets from which distributions to the Members might properly be paid. The
provisions of this Section 8.5 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in the provisions of the Delaware Act,
or in Section 8.2 or Section 8.3, as the case may be.
8.6 Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 8.4, and notwithstanding the
absence of any determination
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thereunder, any Member, Manager, officer, employee or agent may apply to any
court of competent jurisdiction for indemnification to the extent otherwise
permissible under Delaware law or this Article VIII. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the Member, Manager, officer, employee or agent is proper in
the circumstances because it is permitted under the provisions of the Delaware
Act, or the Member, Manager, officer, employee or agent has met the applicable
standards of conduct set forth in Section 8.2 or Section 8.3, as the case may
be. Notice of any application for indemnification pursuant to this Section 8.6
shall be given to the Company promptly upon the filing of such application.
8.7 Advancement or Reimbursement of Expenses. The Company shall pay in
advance or reimburse expenses actually or reasonably incurred or anticipated by
such Manager or officer in connection with his appearance as a witness or other
participation in a proceeding whether or not such Manager or officer is a named
defendant or a respondent in the proceeding. To obtain indemnification or an
expense advance, the person requesting indemnification shall submit to the
Company a written request with such information as is reasonably available to
him. If the expense advance is to be paid prior to final disposition of the
proceeding, there shall be included a written statement of such person's good
faith belief that he has met the necessary standard of conduct under the
Delaware Act and an undertaking to repay any amount paid if it is ultimately
determined that those conduct requirements were not met. Upon receipt of the
request, the Company shall determine (whether made by special counsel or
otherwise) whether such person is entitled to indemnification or an expense
advance. If the request is rejected, the Company shall notify such person of
the reason therefor. If, within sixty days of the Company's receipt of the
request, the request for payment is rejected or not acted on, such person shall
have the right to an adjudication in any court of competent jurisdiction of such
person's entitlement to such indemnification or expense advance.
8.8 Nonexclusivity and Survival of Indemnification. The indemnification
and advancement of expenses provided by, or granted pursuant to, the other
subsections of this Article VIII shall not be deemed exclusive of any other
rights to which one seeking indemnification and advancement of expenses may be
entitled under this Agreement, any other agreement, by vote of Members or
disinterested Managers or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, it being the
policy of the Company that indemnification of any person specified in this
Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in this Article VIII but whom
the Company has the power or obligation to indemnify under the provisions of the
Delaware Act or otherwise.
8.9 Insurance. The Company may purchase and maintain insurance on behalf
of any person who is or was a Member, Manager, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a Member,
Manager, director, officer, employee or agent of an Entity against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not
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the Company would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
ARTICLE IX
ISSUANCE OF CERTIFICATES
9.1 Issuance of Certificates. Upon the issuance of Shares, the Company
shall issue one or more Certificates in the name of the Members owning such
Shares. Upon the transfer of a Share, the Company shall issue replacement
Certificates according to such procedures as the Company may reasonably
establish.
9.2 Lost, Stolen or Destroyed Certificates. The Company shall issue a
new Certificate in place of any Certificate previously issued if the registered
owner of the Certificate:
(a) makes proof by affidavit, in form and substance satisfactory to the
Company, that a previously issued Certificate has been lost, destroyed or
stolen;
(b) requests the issuance of a new Certificate before the Company has
notice that the Certificate has been acquired by a purchaser for value in good
faith and without notice of an adverse claim;
(c) if requested by the Company, delivers to the Company a bond, in form
and substance satisfactory to the Company, with such surety or sureties and with
fixed or open penalty as the Company may direct to indemnify the Company against
any claim that may be made on account of the alleged loss, destruction or theft
of the Certificate; and
(d) satisfies any other reasonable requirements imposed by the Company.
When a Certificate has been lost, destroyed or stolen, and the Member fails to
notify the Company within a reasonable time after he has notice of it, and a
transfer of the Shares represented by the Certificate is registered before the
Company receives such notification, the Member shall be precluded from making
any claim against the Company for such transfer or for a new Certificate.
9.3 Registered Owners. The Company shall be entitled to treat the
registered owner of any Shares as the Person that owns such Shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Shares on the part of any other Person, regardless of whether
it shall have actual or other notice thereof, except as otherwise provided by
law.
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ARTICLE X
TAX ALLOCATIONS
10.1 Managers' Authority. The income, deductions and credits of the
Company shall be allocated among the Members in the manner that the Managers
determine is required by the Code. If, as to one or more classes of tax items,
the Managers determine that more than one method is permitted or that the
correct method is uncertain, the Managers may adopt such method for reporting
purposes that they think is in the best interest of the Company, taking into
account ease of administration, the desire to match taxable income and
deductions with economic income and deductions, the economic interests of the
Member, and the risk of proposed adjustments by the Internal Revenue Service;
provided, however, that the Company shall allocate the items set forth in
Section 10.3 in the manner specified therein unless the Managers determine that
another allocation is required by the Code.
10.2 In General. The recognition and classification of the items of
income, gain, loss and deduction of the Company (whether recognized prior to or
during winding up) shall be the same for purposes of this Article X as their
recognition and classification for federal income tax purposes determined (i)
without regard to any Section 754 Election which may have been made and (ii)
without regard to any provision of the Code which provides that an item of
income or gain is not includable in gross income or that an expenditure is not
deductible or chargeable to a capital account.
10.3 Net Income and Net Loss. Net Income and Net Loss shall be allocated
to the Members in accordance with their respective Capital Percentages.
10.4 Restrictions on Allocations. Notwithstanding anything in this
Article X to the contrary:
(a) The Net Loss allocated to a Member pursuant to Section 10.3 hereof
shall not exceed the maximum amount of Net Loss that can be so allocated without
causing the Member to have an Adjusted Capital Account Deficit at the end of the
fiscal year. All Net Loss in excess of the limitation set forth in this Section
10.4(a) shall be allocated to the Members who do not have Adjusted Capital
Account Deficits in proportion to their Capital Percentages but only to the
extent that the Net Loss does not cause any Member to have an Adjusted Capital
Account Deficit.
(b) In the event a Member receives any adjustments, allocations or
distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), items of Net Income shall be specially allocated to such Member in
an amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit of the Member as
quickly as possible.
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(c) In the event a Member has an Adjusted Capital Account Deficit at the
end of any Company fiscal year, such Member shall be specially allocated items
of Net Income in the amount and manner sufficient to eliminate, to the extent
required by Treasury Regulations, the Adjusted Capital Account Deficit of the
Member as quickly as possible.
(d) Notwithstanding any other provision of this Agreement, but subject to
the exceptions set forth in Treasury Regulation (S) 1.704-2(f)(2), (3), (4) or
(5), if there is a net decrease in Minimum Gain during a Company fiscal year,
the Members must be allocated items of Net Income for such year (and, if
necessary, subsequent years) in the proportion to, and to the extent of, an
amount equal to such Member's share of the net decrease in Minimum Gain (as such
share is determined in accordance with Treasury Regulation Section 1.704-
2(g)(2)). The Minimum Gain chargeback shall consist first of Net Income from
the disposition of Company assets subject to nonrecourse liabilities of the
Company with the remainder of the Minimum Gain chargeback, if any, made up of a
pro rata portion of the Company's other items of Net Income for such year and
shall be determined in accordance with Treasury Regulation (S)(S) 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provisions. If such Net
Income from the disposition of Company assets exceeds the amount of Minimum Gain
chargeback, a proportionate share of each item of such Net Income shall
constitute a part of the Minimum Gain chargeback.
(e) Notwithstanding any other provision of this Agreement, but subject to
the exceptions referenced in Treasury Regulation (S) 1.704-2(i)(4), if there is
a net decrease in Member Minimum Gain during any Company year, items of income
and gain for such year (and, if necessary subsequent years) shall first be
allocated to each Member with a share of that Member Minimum Gain in proportion
to, and to the extent of, an amount equal to such Member's share of the net
decrease in Member Minimum Gain (as such share is determined in accordance with
Treasury Regulation (S) 1.704-2(i)(4)). The items to be so allocated shall be
determined in accordance with Treasury Regulation (S) 1.704-2(i)(4), or any
successor provision.
(f) Nonrecourse Deductions for any taxable year shall be allocated among
the Members in the same manner as are the other Profits and Losses of the
Company for such year. Member Nonrecourse Deductions for any taxable year
should be allocated among the Members in accordance with Treasury Regulation (S)
1.704-2(i)(1).
(g) The allocations set forth in this Section 10.4 ("Regulatory
Allocations") are intended to comply with certain requirements of Treasury
Regulation (S)(S) 1.704-1 and 1.704-2. Notwithstanding any other provision of
this Section 10.4 (other than the Regulatory Allocations), the Regulatory
Allocations shall be taken into account in allocating other Net Income and Net
Loss among the Members so that, to the extent possible, the net amount of such
allocations of other Net Income and Net Loss and the Regulatory Allocations to
the Members shall be equal to the net amount that would have been allocated to
the Members if the Regulatory Allocations had not occurred.
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10.5 Special Allocations.
Notwithstanding anything in this Agreement to the contrary, the Company
shall allocate the following items in the manner indicated:
(a) Recapture Income. In the event of the sale or other disposition of
depreciable or depletable property, Recapture Income shall be allocated among
the Members in the ratio in which the deductions giving rise to such Recapture
Income were allocated.
(b) Contributed Property. In accordance with Section 704(c) of the Code
and applicable Treasury Regulations, income, gain, loss and deduction with
respect to any property contributed to the Company (or any predecessor thereto)
shall, solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company (or any predecessor thereto) for federal income tax purposes and the
fair market value of such property for federal income tax purposes at the time
of contribution. In addition, in the event that any asset of the Company is
revalued pursuant to the provisions of Section 704(b) of the Code and the
Treasury Regulations thereunder, subsequent allocations of income, gain, loss
and deduction for tax purposes with respect to such asset shall take account of
any variation between the adjusted basis of such assets for federal income tax
purposes and its adjusted value, in the same manner as under Section 704(c) of
the Code and the applicable Treasury Regulations. Any elections or other
decisions relating to such allocations shall be made by the Managers in any
manner that reasonably reflects the purpose and intention of this Agreement.
10.6 Section 754 Allocations. Income, deductions, credits and basis of
the Company that are attributable to an election under Section 754 of the Code
shall be allocated to the Members in the manner that the Managers determine is
reasonable.
10.7 Assignments and Issuance of Additional Shares. The Company shall
allocate taxable items attributable to a Share that is assigned or newly issued
during a Fiscal Year between the assignor and the assignee of such Share or the
existing Members and the new Members by closing the books of the Company as of
the end of the day prior to the day in which such Shares are assigned or issued.
ARTICLE XI
NET CASH FLOW AND DISTRIBUTIONS
11.1 Free Cash Flow. "Free Cash Flow" shall mean all income and revenues
of the Company less (i) all expenses and costs, (ii) all accrued and unpaid or
unfunded costs and expenses, (iii) all principal and interest paid or payable on
indebtedness and (iv) all reasonable reserves established by the Manager for
working capital requirements or to provide funds for other contingencies.
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11.2 Distributions of Free Cash Flow. The Managers shall determine the
availability of Free Cash Flow for distribution, and shall distribute such
available Free Cash Flow at such reasonable intervals as it may select, on at
least an annual basis. To the extent Free Cash Flow is available, such
distributions shall be made to the Members in accordance with their respective
Capital Percentages.
11.3 Limitation Upon Distributions. No distribution shall be declared
and paid unless, after the distribution is made, the fair value of the assets of
the Company are in excess of the fair value of all liabilities of the Company,
except liabilities to Members on account of their Capital Contributions and
liabilities for which the recourse of creditors is limited to a specified
property of the Company.
ARTICLE XII
ACCOUNTING METHOD, PERIOD, RECORDS AND REPORTS
12.1 Accounting Method. The books and records of account of the Company
shall be maintained in accordance with the accrual method of accounting.
12.2 Accounting Period. The Company's accounting period shall be the
Fiscal Year.
12.3 Records, Audits and Reports. At the expense of the Company, the
Managers shall maintain records and accounts of all operations and expenditures
of the Company.
12.4 Inspection. The books and records of the Company shall be
maintained at the principal place of business of the Company and shall be open
to inspection by the Members at all reasonable times during any business day.
ARTICLE XIII
TAX MATTERS
13.1 Tax Returns and Elections. The Managers shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. Copies of such returns,
or pertinent information therefrom, shall be furnished to the Members within 90
days after the close of the Company's Fiscal Year.
The Company shall make the following tax elections:
(a) at the request of any Member, an election under Section 754 of the Code
relating to the adjustment of the adjusted basis of Company assets as provided
in Sections 734 and 743 of the Code, subject to the Company's right to seek to
revoke any such
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election upon the Managers' determination that such revocation is in the best
interest of the Members;
(b) an election to deduct expenses incurred in organizing the Company
ratably over a 60-month period as provided in Section 709 of the Code; and
(c) any other election permitted to be made by the Company upon the
affirmative vote of the Managers.
13.2 Tax Controversies.
(a) The Members hereby designate Drilex as the tax matters partner, as
defined in the Code (herein referred to as the "TMP"), who is authorized and
required to represent the Company (at the Company's expense) in connection with
all examinations of the Company's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to be reimbursed by the
Company for funds for professional services and out-of-pocket costs associated
therewith. The TMP shall not be liable to the Company or any other Member for
any act or omission taken or suffered by it in such capacity in good faith and
in the belief that such act or omission is in or is not opposed to the best
interest of the Company, provided that such act or omission is not in violation
of this Agreement and does not constitute gross negligence, fraud or a willful
violation of the law. The first return filed with respect to the Company shall
include a statement that all of the Members are "notice partners" as defined in
Section 6231(a)(8) of the Code. The TMP shall have the authority to sign any
tax return required to be filed by the Company.
(b) Upon receipt by the TMP of any notice of examination or any other
notice, request, inquiry or statement of a material nature from the Internal
Revenue Service, the TMP shall within ten days send the other Members a copy of
the documents so received. Subject to the provisions of paragraph (c) below,
which shall control as to any matters specified therein, in the event that such
documents require a response, the TMP shall provide a copy of its proposed
response to the other Members in a timely fashion so as to allow the Members ten
days to comment upon such proposed response. The TMP and the other Members
agree to cooperate in good faith so as to cause such response to be agreeable to
all Members.
(c) Without the written consent of the other Members, the TMP shall not act
on behalf of the Company to:
(i) consent to an extension of the statute of limitations applicable to the
assessment and collection of any tax;
(ii) commence litigation in the Tax Court; or
(iii) file a claim for refund (or request for an administrative adjustment
by the Internal Revenue Service) or sue for refund of any income taxes.
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If the TMP or any other Member concludes it is in the best interest of the
Company to take any of the actions enumerated in the preceding sentence, it
shall advise the other Members in writing of the action it would propose for the
Company to take. If any Member disagrees with such proposed action, it shall so
advise the other Members and the TMP in writing in a timely fashion setting
forth the reasons for its disagreement. The Members shall thereafter use their
best efforts, acting in good faith, to reach agreement with respect to such
proposed action. If agreement is reached, the TMP shall effect such action, but
if agreement cannot be reached, no such action shall be taken by the Company.
In the event the TMP or one of the other Members, acting on its own behalf,
intends to take any action of the sort described in this paragraph with respect
to Company items, it shall so notify the other Members at least 15 days prior to
taking such action.
(d) In the event of an examination of a Company return by the Internal
Revenue Service, the Members do not waive their rights to participate in the
Internal Revenue Service administrative proceedings. The Members agree to use
their best efforts to coordinate their work and cooperate with each other during
the Internal Revenue Service administrative proceedings relating to the
examination including the appellate conference. In the event any Member intends
to enter into a settlement with the Internal Revenue Service, the Member
intending to settle shall notify the TMP and the other Members of the terms of
such proposed settlement 15 days prior to entering into a definitive agreement
of settlement. Any such settlement by any Member shall be only as a Member, and
not as tax matters partner so as to bind the Company or any other Member to such
settlement.
13.3 State, Local or Foreign Income Taxes. In the event state or foreign
income taxes become applicable, any references to federal income taxes or to
"income taxes" contained herein shall refer to federal, state, local and foreign
income taxes. References to the Code or Treasury Regulations shall be deemed to
refer to corresponding provisions which may become applicable under state, local
or foreign income tax statutes and regulations.
ARTICLE XIV
RESTRICTIONS ON TRANSFERABILITY;
OPTIONS AND BUY-SELL PROVISIONS;
ADMISSION OF SUBSTITUTE MEMBERS
14.1 Generally. All Shares at any time and from time to time outstanding
shall be held subject to the conditions and restrictions set forth in this
Article, which conditions and restrictions shall apply equally to the Members
and their respective transferees (except as otherwise expressly stated), and
each Member by executing this Agreement or by accepting a certificate or other
indicia of ownership therefor from the Company agrees with the Company and with
each other Member to such conditions and restrictions. Without limiting the
generality of the foregoing, the Company shall require as a condition to the
transfer of record ownership of Shares that the transferee of such Shares
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execute and deliver this Agreement as evidence that such Shares are held subject
to the terms, conditions and restrictions set forth herein.
14.2 Restriction on Transfer. No Shares shall be sold, assigned, given,
transferred, exchanged, devised, bequeathed, pledged or otherwise disposed of to
any Person except in accordance with the terms of this Agreement. All
certificates representing the respective Shares shall contain conspicuous
notation on such certificate indicating that the transfer of such Shares is
subject to the terms and restrictions of this Agreement, and each Member
consents to the placement of such legend on the certificate or certificates
representing the Shares owned by such Member.
14.3 Put and Call Options.
(a) Drilex shall have the option, exercisable at any time prior to the date
one year after the Closing Date (the "First Anniversary"), to purchase Cobb's
Interest from Cobb (or any successor to Cobb's Interest) for a purchase price
equal to $2,000,000 plus the Cobb Fraction of Undistributed Income (as defined
below).
(b) Cobb shall have the option, exercisable at any time prior to the First
Anniversary, to sell Cobb's Interest to Driles for a purchase price equal to
$1,000,000 plus the Cobb Fraction of Undistributed Income.
(c) For purposes of this Section 14.3, "Undistributed Income" shall mean
the Cumulative Net Income (before provision for federal or state income taxes
imposed on the members, but after all taxes imposed on the Company) of the
Company, less all distributions made to Members, in each case from the Closing
to the date of sale and computed in accordance with generally accepted
accounting principles. The "Cobb Fraction" shall mean a fraction, the numerator
of which is the number of Shares owned by Cobb and the denominator of which is
the total number of Shares issued.
14.4 Buy-Sell Procedure. If a sale is not consummated pursuant to the
options provided for in Section 14.3 or 14.5, at any time after the date three
years after the Closing Date and prior to the date five years after the Closing
Date, either Drilex or Cobb may institute the procedures set forth in this
Section 14.4 for the purchase of the Interest of the other party. To exercise
this right, the exercising party (the "Originating Party") shall deliver to the
other party (the "Offeree") an offer (the "Offer") in writing, stating a deemed
price at which the Originating Party is willing to value all outstanding Shares
and the resulting per Share purchase price (the "Per Share Price") at which the
Originating Party offers either to (1) purchase all the Offeree's Interest from
the Offeree or (2) sell all the Originating Party's Interest to the Offeree.
The Offeree shall then be obligated either to:
(a) sell all its Interest to the Originating Party at a price per Share
equal to the Per Share Price; or
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(b) purchase all the Interest of the Originating Party at a price per Share
equal to the Per Share Price.
The Offeree shall give written notice of its election to the Originating Party
within 90 days after receipt of the Offer. Failure of the Offeree to give the
Originating Party notice of its election within such 90 day period shall be
conclusively deemed to be an election under clause (a) above. Upon an election
or deemed election, the originating Party and the Offeree shall be bound to
purchase and sell the applicable Interest as set forth herein.
14.5 Certain Involuntary Dispositions.
(a) Upon the death of Archie A. Cobb, III ("Mr. Cobb"), Drilex shall have
the option to purchase all of Cobb's Interest, and Cobb shall be obligated to
sell Cobb's Interest to Drilex, at a purchase price equal to the Payment Amount.
Such sale shall be consummated within six months after the date of Mr. Cobb's
death.
(b) Prior to any (1) involuntary transfer or disposition of Cobb's Interest
or (2) any direct or indirect transfer or disposition of any equity interest in
Cobb not consented to by Drilex, Cobb shall give written notice thereof,
disclosing in full to Drilex the nature and details of such disposition, and
Drilex shall have the option to purchase for six months after the receipt of
such written notice, at a purchase price equal to the Payment Amount.
(c) For purposes of this Section 14.5, "Payment Amount" means the greater
of (i) $2,000,000 plus the Cobb Fraction of Undistributed Income and (ii) the
equivalent in cash of the price set forth in a bona fide written proposal (an
"Acquisition Proposal") from a third party to acquire all of Cobb's Interest
that is furnished to Drilex within four months of the date of the event giving
rise to the need to determine the Payment Amount (the "Trigger Date"). If Drilex
does not exercise the options set forth in this Section 14.5 within five months
of the Trigger Date, then Cobb shall be permitted, at any time within, but not
after, six months after the Trigger Date, to sell all (but not less than all) of
Cobb's Interest; provided, however, that no such sale shall be made at a lower
price or on more favorable terms or to any person other than specified in the
Acquisition Proposal. Cobb's Interest shall remain subject to the terms of this
Agreement (including this Article XIV) after any such sale. If no such sale
pursuant to such Acquisition Proposal is consummated, Drilex shall again have
the option to purchase Cobb's Interest, exercisable for a period of 30 days
after the lapse of such six-month period, for a Payment Amount of $2,000,000
plus the Cobb Fraction of Undistributed Income.
14.6 General.
(a) The closing of a purchase pursuant to this Article XIV shall be held at
the principal executive office of Drilex or such other location as may be
mutually agreed upon on a mutually acceptable date not more than 60 days after
(i) the date of exercise of an option provided for in Section 14.3 or 14.5 or
(ii) the effective date of the
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Offeree's election or deemed election under Section 14.4; provided, however,
that if the consent or approval of any governmental entity is necessary for such
purchase or if the expiration of any waiting period following the giving of any
notice to a governmental entity is required before such purchase may be
effected, the date of closing shall be extended to such date not more than ten
days after the date on which such consent or approval is obtained or notice
period expired. At such closing the selling party shall assign, or cause to be
assigned to the extent any of its Interest is then held by another person, to
the purchasing party all right, title and interest in and to its Interest, free
and clear of all liens. The selling party shall also, at the request of the
purchasing party, execute all other documents and take such other actions as may
be reasonably necessary or desirable to effectuate the transfer of its Interest
and to carry out the purposes of this Agreement.
(b) The purchase price for the Interest to be purchased pursuant to Article
XIV shall be paid in cash by wire transfer at the closing of the purchase to an
account designated by the selling party at least two business days prior to such
closing or in other immediately available funds.
(c) The parties shall use their best efforts to obtain all consents,
approvals and authorizations of all governmental entities and other persons
necessary to effect the transfer of an Interest as provided herein and otherwise
permit the transfer and sale of such Interest as provided herein, and shall use
their best efforts to take all other actions, and to cause their affiliates to
take such actions, as may be necessary to permit such transfer, including the
filing of a notification and report form under the HSR Act, if applicable, and
any other notices and filings with governmental entities as may be required to
effect the transaction.
(d) If either party is required to purchase the Interest of the other party
pursuant to Section 14.4 but thereafter does not close the purchase of such
Interest as required by the terms of this Agreement, such party shall be deemed
to be in default of a material obligation hereunder and the other party, in
addition to any other rights and remedies that may exist, may purchase the
Interest of the defaulting party at the purchase price for such Interest as
provided herein within 30 days thereafter.
(e) For purposes of this Article XIV, a party's "Interest" means all Shares
originally issued to such party together with any Shares issued in respect
thereto or issued to such party or any successor to such party's interest.
14.7 Substituted Members. Any assignee of any Shares that is not already
a Member shall not have the right to participate in the management of the
business and affairs of the Company, to vote such Shares, or to become a member
of the Company unless the Requisite Interest of the Members of the Company other
than the Member who is proposing to assign part or all of its Shares approve of
the proposed assignment, which approval may be given or withheld within the sole
discretion of each such Member. If such an assignee of Shares is not admitted
as a Member of the Company, such assignee only is
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entitled to receive the share of profits, distributions, and allocations of
income, gain, loss, deduction, credit, or similar item to which the assignor was
entitled, to the extent assigned.
ARTICLE XV
DISSOLUTION AND TERMINATION
15.1 Dissolution.
(a) The Company shall dissolve upon the occurrence of any of the following
events:
(i) when the period fixed for the duration of the Company shall expire;
(ii) if the Members so agree in writing;
(iii) upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which terminates
the continued membership of a Member in the Company (a "Withdrawal Event"),
unless the business of the Company is continued by the consent of the Requisite
Interest of the remaining Members within 90 days after written notice thereof is
provided to the Members by the Company and there are at least two remaining
Members; or
(iv) as otherwise provided under Delaware law.
(b) Notwithstanding anything to the contrary in this Agreement, if the
Requisite Interest votes to dissolve the Company, then the Requisite Interest of
the Members shall agree in writing to dissolve the Company as soon as possible
(but in any event not more than 10 days) thereafter.
(c) The personal representative (or other successor-in-interest) of a
deceased Member shall, subject to the provisions of Article XIV, succeed to the
deceased Member's interest in the Company. However, such personal
representative (or other successor in interest) shall not be entitled to be
admitted as a Member unless the conditions specified in Article XIV are met.
15.2 Effect of Dissolution. Upon the occurrence of any of the events
specified in this Article effecting the dissolution of the Company, the Company
shall cease to carry on its business, except insofar as may be necessary for the
winding up of its business, but its separate existence shall continue until a
certificate of cancellation has been issued by the Secretary of State or until a
decree dissolving the Company has been entered by a court of competent
jurisdiction.
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15.3 Winding Up, Liquidating and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made of the accounts of the
Company and of the Company's assets, liabilities and operations, from the date
of the last previous accounting until the date of dissolution. The Managers
shall immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be wound up, the
Managers shall (1) sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Managers may determine to
distribute any assets in kind to the Members), (2) allocate any income or loss
resulting from such sales to the Members in accordance with Article X hereof,
(3) discharge all liabilities to creditors in the order of priority as provided
by law, (4) discharge all liabilities of the Members (other than liabilities to
Members or for Capital Contributions to the extent unpaid in breach of an
obligation to do so), including all costs relating to the dissolution, winding
up and liquidation and distribution of assets, (5) establish such reserves as
the Managers may determine to be reasonably necessary to provide for contingent
liabilities of the Company, (6) discharge any liabilities of the Company to the
Members other than on account of their interests in Company capital or profits
and (7) distribute the remaining assets to the Members, either in cash or in
kind, as determined by the Managers, pro rata according to the relative number
and class of Shares held by each. If any assets of the Company are to be
distributed in kind, the net fair market value of such assets as of the date of
dissolution shall be determined by independent appraisal or by agreement of the
Managers.
(c) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation of the Company no Member shall have any obligation to make any
contribution to the capital of the Company other than any Capital Contributions
such Member agreed to make in accordance with this Agreement.
(d) Upon completion of the winding up, liquidation and distribution of the
assets, the Company shall be deemed terminated.
(e) The Managers shall comply with any applicable requirements of
applicable law pertaining to the winding up of the affairs of the Company and
the final distribution of its assets.
(f) Any Member who defaults under Section 4.2 and 4.3 hereof shall be
deemed to have consented to the direct payment of such cash or property
distributions due him to the contributing Members in accordance with Section
4.3.
15.4 Certificate of Cancellation. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, a Certificate of Cancellation shall be executed in duplicate, and
verified by the person signing the Certificate
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of Cancellation and filed with the Delaware Secretary of State, which
Certificate shall set forth the information required by the Delaware Act.
15.5 Return of Contribution Non-recourse to Other Members. Except as
provided by law, upon dissolution, each Member shall look solely to the assets
of the Company for the return of the Member's Capital Contribution. If the
Company property remaining after the payment or discharge of the debts and
liabilities of the Company is insufficient to return the cash or other property
contribution of one or more Members, such Member or Members shall have no
recourse against any other Member.
ARTICLE XVI
MERGER AND CONSOLIDATION
16.1 Company May Merge. Pursuant to an agreement of merger or
consolidation approved pursuant to Section 6.12, the Company may merge or
consolidate with or into one or more Entities. In connection with such merger or
consolidation, rights or securities of, or interests in, the Company or any
Entity which is a constituent party to the merger or consolidation may be
exchanged for or converted into cash, property, rights or securities of, or
interests in, the surviving or resulting Entity or any other Entity as provided
by the agreement of merger or consolidation and the Delaware Act.
16.2 Effect of Merger. When any merger or consolidation shall have become
effective under the Delaware Act, all of the rights, privileges and powers of
the Company and any other Entities that have merged or consolidated, and all
property, real, personal and mixed, and all debts due to either the Company or
any of said Entities, shall be vested in the surviving or resulting Entity and
shall thereafter be the property of the surviving or resulting Entity as they
were of each of the Company and any other Entity that have merged or
consolidated, and the title to any real property vested by deed or otherwise,
under Delaware law, in either the Company or any such Entities, shall not revert
or be in any way impaired except as provided by the Delaware Act. All rights of
creditors and all liens upon any property of any of the Company or said Entities
shall be preserved unimpaired, and all debts, liabilities and duties of each of
the Company or said Entities shall thenceforth attach to the surviving or
resulting Entity, and may be enforced against the surviving or resulting Entity
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it. Unless otherwise provided in the agreement of merger or
consolidation, regardless of whether the Company is the resulting or surviving
Entity of a merger or consolidation, such merger or consolidation of the Company
shall not require the Company to wind up its affairs or distribute its assets
pursuant to the Delaware Act.
16.3 Certificate of Merger. If the Company merges or consolidates
pursuant to this Article XVI, the Entity surviving or resulting in or from such
merger or consolidation shall file a certificate of merger or consolidation in
the Office of the Secretary of State of Delaware in accordance with the Delaware
Act. The certificate of merger or consolidation
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shall act as a certificate of cancellation for the Company in the event the
Company is not the surviving or resulting Entity in said merger or
consolidation.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Notices. Any notice, demand or communication required or permitted
to be given by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered personally to the
party or to an executive officer of the party to whom the same is directed or if
sent by registered or certified mail, postage and charges prepaid, addressed to
the Member's and/or Company's address, as appropriate, which is set forth in
this Agreement. If mailed, any such notice shall be deemed to be delivered two
calendar days after being deposited in the United States mail with postage
thereon prepaid, addressed and sent as aforesaid.
17.2 Books of Account and Records. Proper and complete records and books
of account in which shall be entered fully and accurately all transactions and
other matters relating to the Company's business in such detail and completeness
as is customary and usual for businesses of the type engaged in by the Company
shall be kept or shall be caused to be kept by the Company. Such books and
records shall be maintained as provided in Section 12.4. The books and records
shall at all times be maintained at the principal executive office of the
Company and shall be open to the reasonable inspection and examination of the
Members or their duly authorized representatives during reasonable business
hours.
17.3 Application of Delaware Law. This Agreement, and the application of
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of Delaware, and specifically the Delaware Act.
17.4 Waiver of Action for Partition. Each Member irrevocably waives,
during the term of the Company, any right that such Member may have to maintain
any action for partition with respect to the property of the Company.
17.5 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
17.6 Headings. The headings in this Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision hereof.
17.7 Waivers. No waiver of any right under this Agreement shall be
effective unless evidenced in writing and executed by the Person entitled to the
benefits thereof. The failure of any party to seek redress for violation of or
to insist upon the strict performance
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of any covenant or condition of this Agreement shall not prevent another act or
omission, which would have originally constituted a violation, from having the
effect of an original violation.
17.8 Rights and Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other rights or
remedies. Said rights and remedies are given in addition to any other rights
the parties may have by law, statute, ordinance or otherwise.
17.9 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
17.10 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
17.11 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Company.
17.12 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
<PAGE>
EXECUTED as of this 30th day of September, 1994.
DRILEX HOLDINGS CORP.
By:
------------------------------
Name:
Title:
COBB DIRECTIONAL DRILLING
COMPANY, INC.
By:
------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement"), dated as of September 30, 1994,
is among Drilex Holdings Corp., a Delaware corporation ("Corporation"), the
stockholder or stockholders of the Corporation whose signatures appear on the
signature pages of this Agreement under the caption "Stockholders" (referred to
herein individually as a "Stockholder" and collectively as the "Stockholders")
and, where applicable, the respective spouses of the Stockholders.
1. Introduction. The Corporation is incorporated under the laws of the
State of Delaware. The Corporation and the Stockholders believe that it is in
the best interests of each, respectively, to restrict transfers of the Common
Stock of the Corporation with a view to, among other things, (i) minimizing the
likelihood of discord and deadlocks; (ii) maximizing the likelihood that the
ownership of Common Stock will remain with those who are active in corporation
affairs, thus enhancing motivation and incentive of such owners; (iii) avoiding
defaults in or accelerations of payment obligations under material agreements to
which the Corporation is or may be a party; and (iv) otherwise assuring the
orderly continuity of management, the non-attainment of any of which would
result in adverse consequences to the Corporation. Accordingly, in
consideration of the mutual promises contained herein, and subject to the terms
and conditions herein set forth, the parties have entered into this Agreement.
2. Certain Definitions. As used in this Agreement:
(i) The term "Acquisition Proposal" means a bona fide written proposal
to a Stockholder for the acquisition of Common Stock by the person or
entity making such proposal.
(ii) The term "Affiliate" of any person shall mean an entity or other
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
person. As used in this definition, the term "control", including the
correlative terms "controlling", "controlled by" and "under common control
with" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of management or policies (whether through ownership
of securities or any partnership or other ownership interest, by contract
or otherwise) of a person, corporation or other entity.
(iii) The term "Board" means the Board of Directors of the
Corporation and any duly authorized committee thereof. All determinations
by the Board required pursuant to the terms of this Agreement to be made by
the Board shall be binding and conclusive.
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(iv) The term "Common Stock" means (a) all shares of common stock of
the Corporation owned by each of the Stockholders on the date hereof, (b)
all shares of common stock hereafter issued by the Corporation to or
acquired by any Stockholder (whether or not from the Corporation), whether
in connection with a purchase, issuance, grant, stock split, stock
dividend, reorganization, warrant, option, convertible security, right to
acquire or otherwise, and (c) all securities of the Corporation or any
other corporation or entity which any Stockholder acquires in respect of
his or her shares of Common Stock in connection with any exchange, merger,
recapitalization, consolidation, reorganization or other transaction to
which the Corporation is a party. All references herein to Common Stock
owned by a Stockholder include the community interest or similar marital
property interest, if any of the spouse of such Stockholder in such Common
Stock. The term "common stock" shall mean any stock of any class of the
Corporation which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which is not subject to
redemption by the Corporation (whether or not shares of such class have
voting rights).
(v) The term "Disposition" shall mean any direct or indirect transfer,
assignment, sale, gift, pledge, hypothecation or other encumbrance, or any
other disposition, of Common Stock (or any interest therein or right
thereto) or of all or part of the voting power (other than the granting of
a revocable proxy) associated with the Common Stock (or any interest
therein) whatsoever, or any other transfer of beneficial ownership of
Common Stock whether voluntary or involuntary, including, without
limitation (a) as a part of any liquidation of the Stockholder's assets or
(b) as a part of any reorganization of a Stockholder pursuant to the United
States or other bankruptcy law or other similar debtor relief laws;
provided, that the participation by Stockholders in a proposed underwritten
public offering of common stock of the Corporation (including the entry
into an underwriting agreement, a custody agreement and other agreements
ordinarily executed by selling stockholders in connection therewith), which
public offering, if consummated, would constitute an Initial Public
Offering, and the consummation thereof, shall not constitute a Disposition,
it being understood that, if such proposed underwritten public offering is
terminated or abandoned prior to consummation or is not consummated in a
manner which constitutes an Initial Public Offering, the Common Stock of
such participating Stockholders shall remain subject to this Agreement and
no Disposition thereof (whether pursuant to agreements entered into in
connection with such proposed underwritten public offering or otherwise)
shall be permitted hereunder without compliance with the terms of this
Agreement. For a Stockholder that is not an individual, "Disposition"
shall specifically include any direct or indirect, voluntary or involuntary
transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance or any other disposition of any equity interest in such
Stockholder.
(vi) The term "Eligible Offerees" shall mean the Corporation and/or a
purchaser or purchasers designated by the Corporation.
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(vii) The term "Family Member" of an individual Stockholder shall
mean (a) any member of the immediate family of such individual Stockholder,
including parents, siblings, spouse and children (including those by
adoption); the parents, siblings, spouse or children (including those by
adoption) of such immediate family member; and in any such case any trust
whose primary beneficiary is such individual Stockholder or one or more
members of such immediate family and/or such Stockholder's lineal
descendants, and (b) the legal representative or guardian of such
individual Stockholder or of any such immediate family member in the event
such individual Stockholder or any such immediate family member becomes
mentally incompetent.
(viii) The term "Initial Public Offering" shall mean the consummation
of an underwritten public offering of common stock of the Corporation
pursuant to a registration statement filed under the Securities Act after
the date hereof (other than any registration statement relating to
warrants, options or shares of capital stock granted or to be granted or
sold primarily to employees, directors, or officers of the Corporation, a
registration statement filed pursuant to Rule 145 under the Securities Act
or any successor rule, a registration statement relating to employee
benefit plans or interests therein and any registration statement covering
preferred stock or securities issued in connection with any debt or
preferred stock financing of the Corporation) wherein the aggregate net
proceeds (after deducting all costs, discounts, commissions and other
expenses of the offering) to the Corporation, the selling stockholders or
the Corporation and the selling stockholders are at least $10,000,000.
(ix) The term "Purchase Price" shall mean, subject to adjustment
pursuant to Paragraph 5.4 and the provisions of this Paragraph 2(ix), (a)
for purposes of the purchase of Shares Subject to the Offer under Paragraph
3.1, the price per share set forth in the Acquisition Proposal and (b) for
purposes of the purchase of Shares Subject to the Offer under Paragraphs
3.2 through 3.4, and shares of Common Stock purchased by a Divorced
Stockholder or a Surviving Stockholder under Paragraphs 3.2 and 3.3, the
per share fair market value of the outstanding common stock of the
Corporation as last determined in good faith by the Board prior to the
Pricing Date, or if the Board determines in good faith that the per share
fair market value of the outstanding common stock of the Corporation has
materially changed from the amount as last determined prior to the Pricing
Date, the per share fair market value of the outstanding common stock of
the Corporation as determined in good faith by the Board as of the most
recent practicable date prior to the Pricing Date, or, if the Corporation
has consummated an Initial Public Offering within the three month period
immediately preceding the Pricing Date, the per share fair market value of
the Corporation as determined in good faith by the Board as of the most
recent practicable date (but in no event shall such date predate the
consummation of such Initial Public Offering) prior to the Pricing Date.
For purposes hereof, the "Pricing Date" is (as applicable) the date of the
Offer (as defined in paragraphs 3.2, 3.3 and 3.4, as applicable) or the
first date on which the options referred to in paragraphs 3.2 and 3.3 are
exercisable. The Board shall have no obligation to determine the value of
the common stock of the Corporation more or less often than once each year.
If the transferor of the Common Stock shall disagree with the Purchase
Price as so
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determined by the Board pursuant to clause (b) of the first sentence of
this Paragraph 2(ix), such transferor may give written notice of such
disagreement to the Corporation and the Corporation shall promptly cause an
independent third party appraiser (who shall be satisfactory to the
Corporation and such transferor) to determine the per share value of the
outstanding common stock as of the most recent practicable date prior to
the Pricing Date, and the determination by such appraiser shall be deemed
the Purchase Price for such transaction and shall be final and binding on
the Corporation and such transferor. Such written notice of disagreement
shall contain the agreement by such transferor to pay one-half of the fees
and expenses of such appraiser in connection with such appraisal. Neither
the Corporation nor any officer, director, employee or agent thereof shall
have any liability with respect to valuation of shares of Common Stock
bought or sold at the Purchase Price, as determined pursuant to this
Paragraph 2(ix), even though the Purchase Price as so determined may be
more or less than actual fair market value, and shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation
by any person as to matters which the Corporation or such director,
officer, employee or agent reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. As used in this
Paragraph (ix) the term "per share fair market value" shall mean (I) the
value of the common equity of the Corporation, taken as a whole, based on
the Corporation continuing as a going concern divided by (II) the number of
shares of common equity of the Corporation outstanding. The per share fair
market value shall not be discounted for minority shareholder interests or
for reasons of illiquidity.
(x) The term "Related Dispositions" shall mean a series of
Dispositions to one person or group of persons (as "group" is defined for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act") and
as so defined, "Group") (a) within any 180-day period or (b) pursuant to a
common agreement or plan of disposition among the persons making such
Dispositions, whether written or oral.
(xi) The term "Required Voting Percentage" shall mean a majority of
the shares of Common Stock outstanding owned by the Stockholders as of the
date the vote is taken.
(xii) The term "Retirement" means the termination of employment with
the Corporation or any of its subsidiaries by an employee in accordance
with the Company's normal retirement policy.
(xiii) The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations thereunder.
(xiv) The term "Shares Subject to the Offer" shall mean (a) with
respect to an Offer required under Paragraph 3.1 as a result of an
Acquisition Proposal, all shares of Common Stock subject to such
Acquisition Proposal, and no others,
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(b) with respect to an Offer required under Paragraph 3.2, all shares of
Common Stock transferred to or retained by or vested in the Divorced Spouse
(as defined therein) and not elected to be purchased by the Divorced
Stockholder (as defined therein) within the time limits specified therein,
and no others, (c) with respect to an Offer required under Paragraph 3.3,
all shares of Common Stock vesting in or transferable to any heir or
legatee of the deceased spouse other than the Surviving Stockholder (as
defined therein) and not elected to be purchased by the Surviving
Stockholder within the time limits specified therein, and no others and (d)
all shares of Common Stock owned by a Stockholder required to make an Offer
under Paragraph 3.4.
3. General Rule. No Stockholder shall make or permit any Disposition,
directly or indirectly, through an Affiliate or Family Member or otherwise
(regardless of the manner in which such Stockholder initially acquired Common
Stock), without compliance with the provisions of this Agreement.
3.1 Acquisition Proposal. In the event any Stockholder desires, and is
permitted under Paragraphs 6 and 9, to make a Disposition involving the sale of
any Common Stock (except for Dispositions as provided in Paragraphs 3.2 through
3.4 or pursuant to the applicable provisions of Paragraph 7), such Disposition
may only be made after the fifth anniversary of the date hereof and then only if
an Acquisition Proposal is received by the Stockholder with respect thereto, and
then only in compliance with this Agreement. Upon receipt of an Acquisition
Proposal which Stockholder is permitted hereunder to accept and desires to
accept, the Stockholder desiring to accept the Acquisition Proposal ("Offeror")
shall offer (the "Offer"), by written notice to the Corporation, to sell the
Shares Subject to the Offer to the Eligible Offerees pursuant to the terms of
this Agreement. Offers under this Paragraph 3.1 shall (i) be irrevocable for so
long as the Eligible Offerees have the right to purchase any Shares Subject to
the Offer, (ii) be sent by the Offeror to the Corporation, (iii) state the
consideration for and the number of Shares Subject to the Offer, and (iv)
contain a description of and a copy of the Acquisition Proposal. In addition,
the Offeror shall provide to the Corporation all other information with respect
to the Acquisition Proposal and the proposed transferee reasonably requested by
the Corporation in order to enable it to evaluate the Acquisition Proposal and
verify the bona fide nature thereof. The date of such Offer shall be deemed to
be the date such written notice satisfying the provisions of this Paragraph 3.1
is delivered to the Corporation.
3.2 Divorce of Stockholder. If the marital relationship of a Stockholder
is terminated by divorce, and pursuant to such divorce or any property
settlement in connection with such divorce, Common Stock (or any interest
therein) previously registered in the name of such Stockholder ("Divorced
Stockholder") is transferred to, or a community property interest or similar
marital property interest is retained by or vested in, the spouse of the
Divorced Stockholder ("Divorced Spouse"), the Divorced Stockholder shall
promptly notify the Corporation of such event. The Divorced Stockholder shall
have the option to purchase all of the Divorced Stockholder's Common Stock (and
all interests therein) which has been transferred to or which is retained by or
vested in the Divorced Spouse by virtue of the divorce decree, property
settlement, or by operation of the community property or similar marital
property laws for the Purchase Price, and the Divorced Spouse shall be
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obligated to sell such Common Stock (and all interests therein) to the Divorced
Stockholder for the Purchase Price. Such option must be exercised, and the
purchase consummated, within 30 days after the Common Stock is transferred to or
allowed to be retained by or vested in the Divorced Spouse. The option shall be
exercised by the giving of written notice of exercise to the Divorced Spouse.
The Divorced Stockholder shall, within five days after the expiration of such
30-day period, deliver written notice to the Corporation as to whether the
Divorced Stockholder has purchased all of the Common Stock (and all interests
therein) so transferred to or otherwise vested in or retained by the Divorced
Spouse. In the event such written notice states that the Divorced Stockholder
has not purchased all such Common Stock (and all interests therein), or no such
notice is delivered to the Corporation within the time required, the Divorced
Spouse shall be deemed to have made an irrevocable offer (the "Offer") of all
such Common Stock (and all interests therein) to the Eligible Offerees as of (i)
the date of receipt of such notice by the Corporation if delivered within the
time required, or (ii) if such notice is not delivered within the time required,
the date of the receipt by the Corporation of evidence satisfactory to it that
all such Common Stock (and all interests therein) was not purchased by the
Divorced Stockholder within such 30-day period. All such Common Stock (and all
interests therein) shall be deemed to be Shares Subject to the Offer pursuant to
this Paragraph 3.2.
3.3 Death of Spouse. If the spouse of a Stockholder dies, and all or any
portion of the Common Stock registered in the name of such Stockholder
("Surviving Stockholder") vests in or is transferable to any heir or legatee
other than the Surviving Stockholder, the Surviving Stockholder shall promptly
notify the Corporation of such event. The Surviving Stockholder shall have the
option to purchase all of the Common Stock vesting in or transferable to such
heir or legatee for the Purchase Price, and the estate of the deceased spouse
shall be obligated to sell such Common Stock to the Surviving Stockholder for
the Purchase Price. Such option must be exercised by the Surviving Stockholder,
and the purchase consummated, within 60 days after the last to occur of (i) the
entry of an order of a probate or similar court (having jurisdiction over the
estate of the deceased spouse) (a) admitting to probate the will of the deceased
spouse, or (b) determining the heirs of the deceased spouse if the deceased
spouse is determined to have died intestate, or (ii) the appointment of the
executor, administrator or legal representative of the estate of the deceased
spouse. The option shall be exercised by the giving of written notice of
exercise to the executor, administrator or legal representative of the deceased
spouse's estate. The Surviving Stockholder shall, within five days after the
expiration of such 60-day period, deliver written notice to the Corporation as
to whether the Surviving Stockholder has purchased all of the Common Stock
vesting in or transferable to any such heir or legatee. In the event such
written notice states that the Surviving Stockholder has not purchased all such
Common Stock, or no such notice is delivered to the corporation within the time
required, all such heirs and legatees shall be deemed to have made an
irrevocable offer (the "Offer") of such Common Stock to the Eligible Offerees as
of (A) the date of the receipt of such notice by the Corporation, if delivered
within the time required, or (B) if such notice is not given within the time
required, the date of the receipt by the Corporation of evidence satisfactory to
it that all such Common Stock was not purchased by the Surviving Stockholder
within such 60-day period. All such Common Stock shall be deemed Shares Subject
to the Offer pursuant to this Paragraph 3.3.
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3.4 Bankruptcy; Transfer of Interest in Stockholder. If any of the
following occur:
(i) any Stockholder shall (a) voluntarily be adjudicated a bankrupt or
insolvent, (b) consent to or not contest the appointment of a receiver or
trustee for himself, herself or itself or for all or any part of his, her
or its property, (c) file a petition seeking relief under the bankruptcy,
rearrangement, reorganization or other debtor relief laws of the United
States or any state or any other competent jurisdiction, (d) make a general
assignment for the benefit of his, her or its creditors, or (e) become
insolvent,
(ii) if a petition is filed against a Stockholder seeking relief under
the bankruptcy, rearrangement, reorganization or other debtor relief laws
of the United States or any state or other competent jurisdiction, or a
court of competent jurisdiction enters an order, judgment or decree
appointing a receiver or trustee for a Stockholder, or for any part of his,
her or its property, and such petition, order, judgment or decree shall not
be and remain discharged or stayed within a period of 60 days after its
entry, or
(iii) if a Disposition described in the last sentence of Paragraph
2(v) shall occur with respect to a Stockholder that is not an individual,
any such event shall be deemed an irrevocable "Offer", and such Stockholder
shall promptly notify the Corporation of such event and the date of such Offer
shall be the date such Stockholder so notifies the Corporation (or, if no such
notice is delivered to the Corporation by the Stockholder, the Offer will be
deemed to be made on the date of the Corporation's receipt of evidence,
satisfactory to it, of any of the foregoing events). All Common Stock
registered in the name of such Stockholder shall be Shares Subject to the Offer
pursuant to this Paragraph 3.4.
4. [Intentionally omitted]
5. Procedures; Price.
5.1 Eligible Offerees. The Eligible Offerees (in the aggregate) shall
have the right, for 30 days following the date of an Offer pursuant to
Paragraphs 3.1 through 3.4, to accept the Offer for all (but not less than all)
of the Shares Subject to the Offer. If the Corporation shall not have
sufficient surplus to permit it lawfully to purchase Shares Subject to the Offer
which the Corporation has accepted in whole or in part, the Stockholders shall
promptly upon the request of the Corporation, take such action to vote their
respective shares to reduce the stated capital of the Corporation or to
authorize such other steps as may be appropriate or necessary in order to enable
the Corporation, if possible, lawfully to purchase such Shares Subject to the
Offer.
5.2 Certain Effects of Offers. If the Eligible Offerees do not accept an
Offer for all of the Shares Subject to the Offer, and such Offer has been made
under Paragraph 3.1, the Offeror desiring to make the Disposition pursuant to
Paragraph 3.1 shall be permitted, subject to compliance with Paragraphs 6 and 9,
at any time or times within, but not after,
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30 days after the expiration of all rights to accept such Offer, to make a
Disposition of all (but not less than all) of the Shares Subject to the Offer;
provided, however, that no such Disposition shall be made at a lower price or on
more favorable terms or to any person other than specified in the Acquisition
Proposal. All Common Stock transferred in accordance with the terms of this
Agreement to any third party or to any Eligible Offeree (other than the
Corporation), and all Shares Subject to the Offer pursuant to Paragraph 3.1 and
remaining unsold after such 30-day period, and all Shares Subject to the Offer
under Paragraphs 3.2 through 3.4 (unless acquired by the Corporation), shall
remain subject to the terms of this Agreement.
5.3 Acceptance; Closing. Eligible Offerees who accept an Offer as to all
or any portion of the Shares Subject to the Offer shall evidence their
acceptance by delivering, within 30 days after the date of the Offer, to the
Offeror or other transferor a written notice of intent to purchase such Shares
Subject to the Offer ("Acceptance Notice"). The closing of the acquisitions of
Shares Subject to the Offer by Eligible Offerees shall be consummated within 30
days following the delivery of the Acceptance Notice. In the case of all
acquisitions of Shares Subject to the Offer by Eligible Offerees, such
acquisitions shall be consummated at a closing held at the principal offices of
the Corporation (unless otherwise mutually agreed), at which time the Purchase
Price (if cash, in the form of a cashier's check) shall be delivered to the
transferor of the Common Stock or the transferor's representative, and the
transferor or the transferor's representative shall deliver to the Eligible
Offeree(s) purchasing such shares certificates representing all of the Shares
Subject to the Offer, duly endorsed for transfer or accompanied by duly executed
stock powers, and such evidence of good title to the Shares Subject to the Offer
and the absence of liens, encumbrances and adverse claims with respect thereto
as the Corporation reasonably requests and such other matters as are necessary
for the proper transfer of the Shares Subject to the Offer to the acquiring
Eligible Offeree(s) on the books of the Corporation.
5.4 Form of Payment. The Purchase Price of any Shares Subject to the
Offer purchased by Eligible Offerees pursuant to an Offer made under Paragraph
3.1 shall be on such terms as contemplated by the Acquisition Proposal;
provided, however, that if (i) the party which has made the Acquisition Proposal
has proposed to acquire Shares Subject to the Offer not wholly in cash and (ii)
any Eligible Offeree desires to consummate the acquisition(s) of Shares Subject
to the Offer (pursuant to the terms hereof) wholly in cash, then, upon request
by such Eligible Offeree, the Board shall determine the per share cash value of
the Acquisition Proposal, and such amount shall be the cash price per share to
be paid to the Offeror by any Eligible Offeree who desires to purchase the
Shares Subject to the Offer for cash. If the transferor of the Common Stock
shall disagree with the per share cash value as so determined by the Board, such
transferor may give written notice of such disagreement to the Corporation and
the Corporation shall promptly cause an independent third party appraiser (who
shall be satisfactory to the Corporation and such transferor) to determine such
per share cash value, and the determination by such appraiser shall be the cash
price per share for such transaction and shall be final and binding on the
Corporation, such Eligible Offeree and such transferor. Such written notice of
disagreement shall contain the agreement by such transferor to pay one-half of
the fees and expenses of such appraiser in connection with such appraisal. The
Purchase Price of all Shares Subject to the Offer pursuant to an offer made
under Paragraphs 3.2 through 3.4 shall be paid in cash.
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6. Loan and Other Agreements. Notwithstanding anything herein to the
contrary, no Stockholder shall make any Disposition (including but not limited
to a Disposition pursuant to Paragraph 3 or 7 hereof) which, in the
Corporation's reasonable judgment (as evidenced by a resolution of the Board),
would cause a breach or default or acceleration of payments under any loan
agreement, note, indenture or other agreement or instrument to which the
Corporation and/or any of its Affiliates is a party and under which the
indebtedness or liability of the Corporation and/or any of its Affiliates
exceeds $1 million ("Material Agreement"). Such a determination by the
Corporation will have no effect if such Stockholder delivers to the Corporation
an opinion of counsel addressed to the Corporation and reasonably satisfactory
to the Corporation to the effect that no such breach, default or acceleration
will be caused. Therefore, each Stockholder desiring or required to make a
Disposition shall, prior to attempting to effect any such Disposition, (i) give
written notice to the Corporation describing the proposed Disposition and the
proposed transferee in sufficient detail, setting forth the number of shares of
Common Stock as to which such Stockholder desires to make a Disposition, and
(ii) provide such other information concerning the Disposition as the
Corporation reasonably requests. If the proposed Disposition would cause
(determined as set forth above) a breach or default or acceleration of payments
under any Material Agreement, then such Disposition may not be made, and any
attempted Disposition shall be null and void. If such Disposition is permitted
by this Section 6 and any shares of Common Stock with respect to which approval
has been given are not actually transferred within 30 days from the date of such
approval, then all of the provisions of this Agreement shall apply to any
subsequent transaction affecting such Common Stock or any interest therein.
Additionally, all shares of Common Stock transferred (whether to a third party
or any Eligible Offeree other than the Corporation) pursuant to the terms hereof
shall remain subject to this Agreement.
7. Permitted Dispositions. The following Dispositions shall be permitted
without compliance with the provisions of Paragraphs 3 and 5 (but the other
provisions of this Agreement, including Paragraphs 6 and 9, shall apply to each
of the following Dispositions):
(i) by any Stockholder to an Eligible Offeree or any person in a
Disposition to which the Corporation consents, it being understood that the
Corporation has no obligation to consent to any such Disposition;
(ii) after the second anniversary of the date hereof by such
Stockholder to any Family Member of such Stockholder, or from a Family
Member of any Stockholder to such Stockholder;
(iii) upon the death of any Stockholder, to the estate, heirs,
beneficiaries or legatees of such Stockholder;
(iv) by any Stockholder to a bank or other financial institution for
purposes of securing a loan to such Stockholder; provided, that such bank
or financial institution shall have first delivered to the Corporation its
written agreement, in form and substance satisfactory to the Corporation,
that upon any foreclosure or any transaction in lieu of foreclosure with
respect to such Common Stock such bank or financial institution shall
assume and be bound by all the terms of this Agreement;
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(v) after the second anniversary of the date hereof, to an entity
organized under Section 501(c)(3) of the Internal Revenue Code of 1986 or
any successor statute (the "Code");
(vi) after the second anniversary of the date hereof, by any
Stockholder during his lifetime to (a) a guardian of the estate of such
Stockholder, (b) an inter-vivos trust for the benefit of such Stockholder
or whose primary beneficiary is one or more of such Stockholder's lineal
descendants (including lineal descendants by adoption), (c) the spouse of
such Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption);
(vii) after the second anniversary of the date hereof, to a
Stockholder by (a) a guardian of the estate of such Stockholder, (b) an
inter-vivos trust for the benefit of such Stockholder or whose primary
beneficiary is one or more of such Stockholder's lineal descendants
(including lineal descendants by adoption), (c) the spouse of such
Stockholder during marriage and not incident to divorce, or (d) such
Stockholder's lineal descendants (including lineal descendants by
adoption); and
(viii) by Posi-Trak Mud Motors, Inc. to Archie A. Cobb, III;
provided, however, that as a condition to any such permitted transfer any person
(including such person's spouse, if any) or entity (other than the Corporation)
so acquiring such Common Stock shall be required to subject the Common Stock
acquired by such person or entity to the provisions of this Agreement, and
thereafter any such person or entity shall be deemed a "Stockholder" for the
purposes of this Agreement.
8. Conditions To Permitted Transfers. As a condition to the
Corporation's obligation to effect a transfer permitted hereunder, any
transferee of Common Stock shall be required to become a party to this
Agreement, and shall have all the rights and obligations of a Stockholder
hereunder, by executing an Adoption Agreement in the form of Exhibit "A"
attached hereto or in such other form that is satisfactory to the Corporation.
9. Standstill Agreement; Securities Matters.
9.1 Standstill Agreement. At any time that the Corporation is engaged in
an underwritten public offering of its securities, each Stockholder agrees that
he will make no Disposition of Common Stock on any securities exchange or in the
over-the-counter or any other public trading market for whatever period of time
the Corporation (upon the recommendation of its underwriters) requests by
written notice to each Stockholder; provided, however, (i) that such request
shall not be for a period extending longer than 180 days following the later of
(a) the effectiveness of the registration statement to which the public offering
relates or (b) the date of the underwriting agreement. If a public offering
giving rise to the obligations set forth under this Paragraph 9 will terminate
this Agreement pursuant to the provisions of Paragraph 12(v), then the
obligations in this Paragraph 9 shall survive the termination of this Agreement
for 180 days after the Initial Public Offering, after which time the obligations
in this Paragraph 9 shall terminate.
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9.2. Securities Laws. No Stockholder shall make any Disposition of Common
Stock at any time if such action would constitute a violation of any federal or
state securities or blue sky laws or a breach of the conditions to any exemption
from registration of the Common Stock under any such laws or a breach of any
undertaking or agreement of a Stockholder entered into pursuant to such laws or
in connection with obtaining an exemption thereunder, and the Corporation shall
not transfer upon its books any shares of Common Stock unless prior thereto the
Corporation shall have received an opinion of counsel in form and substance
satisfactory to the Corporation that such transaction is in compliance with this
Paragraph 9.2. Each Stockholder agrees that any certificates representing
shares of Common Stock shall bear appropriate legends restricting the sale or
other transfer of such Common Stock in accordance with applicable federal or
state securities or blue sky laws and in accordance with the provisions of this
Agreement. This Paragraph 9.2 shall survive termination of this Agreement for
the maximum period permitted by applicable law.
10. Endorsement of Stock Certificates. All certificates of Common Stock
of the Corporation now owned or that may hereafter be acquired by the
Stockholders or any transferee (which transferee is subject to the terms of this
Agreement) shall be endorsed on the reverse side thereof substantially as
follows:
BY THE TERMS OF A STOCKHOLDERS' AGREEMENT, CERTAIN RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The foregoing legend shall be in addition to any and all other legends required
by applicable law or contract to be placed on certificates representing Common
Stock, including those referred to in Paragraph 9.
11. Notices. In the event a notice or other document is required to be
sent hereunder to the Corporation or to any Stockholder or the spouse or legal
representative of a Stockholder, such notice or other document, if sent by mail,
shall be sent by registered mail, return receipt requested, to the party
entitled to receive such notice or other document at (i) Drilex Holdings Corp.,
6600 Texas Commerce Tower, Houston, Texas 77002, Attention President, in the
case of the Corporation, (ii) at the addresses shown on the stock transfer
records of the Corporation in the case of the Stockholders, their spouses and
their respective legal representatives, or (iii) at such other address as any
such party shall request as to such party in a written notice sent to the
Corporation. Any such notice shall be effective and deemed received three days
after proper deposit in the mails, but actual notice shall be effective however
and whenever received. The Corporation or any Stockholder or spouse or their
respective legal representatives may effect a change of address for purposes of
this Agreement by giving notice of such change to the Corporation, and the
Corporation shall, upon the request of any party hereto, notify such party of
such change in the manner provided herein. Until such notice of change of
address is properly given, the addresses set forth herein shall be effective for
all purposes.
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12. Miscellaneous Provisions.
(i) This Agreement shall be subject to and governed by the laws of the
State of Delaware.
(ii) Whenever the context requires, the gender of all words used
herein shall include the masculine, feminine and neuter, and the number of
all words shall include the singular and plural.
(iii) This Agreement shall be binding upon the Corporation, the
Stockholders, any spouses of the Stockholders, and their respective heirs,
executors, administrators and permitted successors and assigns.
(iv) This Agreement may be amended or waived from time to time by an
instrument in writing signed by the Corporation and the holders of at least
the Required Voting Percentage at the time of such amendment, and such
instrument shall be designated on its face as an "Amendment" to this
Agreement.
(v) This Agreement shall terminate after ten days prior written notice
by the Corporation to all parties hereto (which notice may be conditional
upon the occurrence or nonoccurrence of specified events), and shall
terminate automatically upon (a) the dissolution of the Corporation, or (b)
the later of (A) five years after the date hereof or (B) the completion of
the Initial Public Offering, provided, however, that Paragraph 9 of this
Agreement shall survive any such termination to the extent and for the
periods set forth in such Paragraphs.
(vi) Any Stockholder who disposes of all such Stockholder's Common
Stock in conformity with the terms hereof shall cease to be a party to this
Agreement and shall have no further rights or obligations hereunder.
(vii) The spouses of the individual Stockholders are fully aware of,
understand and fully consent and agree to the provisions of this Agreement
and its binding effect upon any community property interests or similar
marital property interests in the Common Stock they may now or hereafter
own, and agree that the termination of their marital relationship with any
Stockholder for any reason shall not have the effect of removing any Common
Stock of the Corporation otherwise subject to this Agreement from the
coverage hereof and that their awareness, understanding, consent and
agreement are evidenced by their signing this Agreement. Furthermore, each
individual Stockholder agrees to cause his or her spouse (and any
subsequent spouse) to execute and deliver, upon the request of the
Corporation, a counterpart of this Agreement, or an Adoption Agreement in
the form attached hereto as Exhibit "A", or in a form satisfactory to the
Corporation.
(viii) Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect; provided that the Corporation may
determine to treat any attempted Disposition in breach of this Agreement as
an Offer pursuant to Paragraph 3.4; and if so the date of the Offer shall
be deemed to be the date the
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Corporation, after receipt of evidence satisfactory to it that such
Disposition or attempted Disposition has occurred, gives written notice of
such Disposition or attempted Disposition to the Eligible Offerees, and the
Corporation shall have a period of 180 days after receipt of actual
knowledge of the Disposition and all relevant facts to give such notice.
In connection with any attempted Disposition in breach of this Agreement,
the Corporation may hold and refuse to transfer any Common Stock or any
certificate therefor tendered to it for transfer, in addition to and
without prejudice to any and all other rights or remedies which may be
available to it or the Stockholders. Each party hereto acknowledges that a
remedy at law for any breach or attempted breach hereof will be inadequate,
agrees that each other party hereto shall be entitled to specific
performance and injunctive and other equitable relief in case of any such
breach or attempted breach and further agrees to waive any requirement for
the obtaining of any such injunctive or other equitable relief.
(ix) Each Stockholder and his or her spouse, if any, hereby appoint
the Corporation as their agent and attorney to make the Offers required and
take all actions necessary under Paragraphs 3.2 through 3.4 and 12(viii) on
their behalf and to execute any required Adoption Agreement on their
behalf, and expressly bind themselves to such Offers and to the
Corporation's execution of any such Adoption Agreement without further
action on their part, and such powers of attorney granted herein are deemed
to be coupled with an interest in the Common Stock and shall survive the
death, disability, bankruptcy or dissolution of such Stockholder or his or
her spouse, if any.
(x) If any portion of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, such declaration
shall not affect the validity of the remaining provisions.
(xi) This Agreement sets forth the entire agreement of the parties
hereto as to the subject matter hereof and supersedes all previous
agreements among all or some of the parties hereto, whether written, oral
or otherwise. This Agreement may be executed in multiple counterparts, any
one of which may contain the signature of more than one party, but all of
which counterparts together shall constitute one and the same instrument.
(xii) No person or entity not a party to this Agreement shall have
rights under this Agreement as a third party beneficiary or otherwise.
(xiii) Each Stockholder, if an employee of the Corporation or any of
its subsidiaries, acknowledges and agrees that neither the acquisition of
Common Stock by such Stockholder nor the execution of this Agreement by the
Corporation or such Stockholder creates any obligation whatsoever by the
Corporation or any of its subsidiaries to continue such Stockholder's
employment or otherwise affects the Corporation's right, which the
Stockholder hereby acknowledges, to terminate such Stockholder's employment
at will, with or without cause in the sole discretion of the Corporation or
any of its subsidiaries which is an employer of such Stockholder.
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(xiv) If any Common Stock is pledged to a bank or other financial
institution as permitted by Paragraph 7(iv) and such shares are to be sold
to Eligible Offeree(s), the Stockholders and their spouses, if the
transferor of such shares, hereby authorize any such bank or financial
institution to deliver certificates representing such shares to the
Corporation against receipt of the Purchase Price therefor, and authorize
the Eligible Offeree(s) to make payment of the Purchase Price to such bank
or financial institution for application to any indebtedness secured by any
such shares, and such bank or financial institution is hereby authorized to
apply such Purchase Price so received to any such indebtedness.
(xv) If, and as often as, there are any changes in the Common Stock or
the common stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be
made in the provisions hereof, as may be required, so that the rights,
privileges, duties and obligations hereunder shall continue with respect to
the Common Stock or common stock as so changed.
13. Rights and Obligations to Participate in Stock Sales.
13.1 In the event (a) DRLX Partners, L.P. ("DRLX") receives a bona fide
written proposal (a "DRLX Acquisition Proposal") for the purchase of all of the
shares of Common Stock of the Corporation (other than pursuant to an Initial
Public Offering) and (b) the Stockholders have not elected pursuant to Section
13.2 to participate in such transaction to the maximum extent provided in such
Section, DRLX shall promptly notify the Corporation of such fact (which notice
shall include a copy of such DRLX Acquisition Proposal) and the Corporation
shall send a copy of such notice (which notice shall include a copy of such DRLX
Acquisition Proposal) to all of the Stockholders. If such DRLX Acquisition
Proposal is acceptable to DRLX, then DRLX shall have the right and option,
exercisable by notifying the Corporation within 20 Business Days of its receipt
of the DRLX Acquisition Proposal (and the Corporation, in turn, shall promptly
notify each of the other Stockholders of its receipt of such notice), to require
each Stockholder to sell, and upon DRLX's exercise of such option, each
Stockholder shall be obligated to sell, to the purchaser pursuant to the terms
of the DRLX Acquisition Proposal, all of such Stockholder's shares of Common
Stock. In order for the provisions of this Section 13.1 to apply, a DRLX
Acquisition Proposal must (1) be from a third party that is not an Affiliate of
DRLX and (2) provide the same price per share and the same form of consideration
(or the same right of election of consideration) to all Stockholders and to
DRLX.
13.2 If DRLX receives a DRLX Acquisition Proposal for the purchase of any
of its shares of Common Stock (other than pursuant to an Initial Public Offering
or a sale to an Affiliate thereof), and desires to accept such DRLX Acquisition
Proposal (such desire to be evidenced in writing to the Board together with a
copy of such DRLX Acquisition Proposal), the Corporation shall notify the
Stockholders of such DRLX Acquisition Proposal (the "DRLX Acquisition Proposal
Notice") and furnish a copy of the DRLX Acquisition Proposal thereto, and
thereafter each of the Stockholders shall have the right and option to elect, by
giving written notice to the Corporation within 5 Business Days following
receipt of the DRLX Acquisition Proposal Notice (and the Corporation shall
promptly notify the
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other Stockholders of each Stockholder's election pursuant to this Paragraph
13.2) to sell, pursuant to the terms of the DRLX Acquisition Proposal, a portion
of such Stockholder's shares of Common Stock equal to (or, at each such
Stockholder's election, less than) the fraction (not to exceed 1) obtained by
dividing the total number of outstanding shares of Common Stock to be sold
pursuant to the DRLX Acquisition Proposal by the total number of shares of
Common Stock held by DRLX, by all Stockholders electing to sell pursuant to the
DRLX Acquisition Proposal and by any other stockholders of the Corporation
having rights similar to the rights in this Section 13.2 or otherwise having the
right to participate in such transaction.
This Agreement is executed by the Corporation and by each Stockholder and
spouse of a Stockholder to be effective as of the date first above written.
CORPORATION:
DRILEX HOLDINGS CORP.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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STOCKHOLDERS
------------
SHARES OWNED AT
STOCKHOLDERS TIME OF EXECUTION
------------ -----------------
POSI-TRAK MUD MOTORS, INC.
By:_______________________ 133,333
(Stockholder)
SPECIAL JOINDER BY DRLX PARTNERS, L.P.
--------------------------------------
DRLX Partners, L.P. hereby joins in this Agreement for the sole
purpose of evidencing its agreement to be bound by the provisions set forth in
Paragraph 13. The parties acknowledge and agree that DRLX Partners, L.P. is not
a "Stockholder" for purposes of this Agreement.
DRLX Partners, L.P.
By: SCF Partners, L.P.
By: SCF Investment Partners, Inc.,
Its General Partner
By:______________________________
L. E. Simmons
President
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EXHIBIT "A"
ADOPTION AGREEMENT (form)
This Adoption Agreement ("Adoption") is executed pursuant to the terms of
the Stockholders' Agreement dated as of _______________, 1994, a copy of which
is attached hereto and is incorporated herein by reference (the "Stockholders'
Agreement"), by the transferee ("Transferee") executing this Adoption. By the
execution of this Adoption, the Transferee agrees as follows:
1. Acknowledgment. Transferee acknowledges that Transferee is acquiring
certain shares of the common stock of Drilex Holdings Corp., a Delaware
corporation (the "Corporation"), subject to the terms and conditions of the
Stockholders' Agreement. Capitalized terms used herein without definition are
defined in the Stockholders' Agreement and are used herein with the same
meanings set forth therein.
2. Agreement. Transferee (i) agrees that shares of the common stock of
the Corporation, acquired by Transferee, and certain other shares of common
stock and other securities that may be acquired by the Transferee in the future,
shall be bound by and subject to the terms of the Stockholders' Agreement
pursuant to the terms thereof and (ii) hereby adopts the Stockholders' Agreement
with the same force and effect as if he were originally a party thereto.
3. Notice. Any notice required as permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed beside Transferee's
signature below.
4. Joinder. The spouse of the undersigned Transferee, if applicable,
executes this Adoption to acknowledge its fairness and that it is in such
spouse's best interests and to bind such spouse's community interest, if any, in
the shares of common stock and other securities referred to above and in the
Stockholders' Agreement to the terms of the Stockholders' Agreement.
EXECUTED AND DATED this the day of , 1994.
------- --------------
TRANSFEREE:
By:
------------------------------------
Address:
-------------------------------
---------------------------------------
SPOUSE:
By:
------------------------------------
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Agreed to on behalf of the Corporation and all Stockholders and their
respective spouses pursuant to Paragraph 12(ix) of the Stockholders' Agreement.
DRILEX HOLDINGS CORP.
(For itself and as Attorney-in-Fact for the
Stockholders and their respective spouses)
By:
-----------------------------------------
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Exhibit 10.4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of March 23,
1995, among Drilex Holdings Corp., a Delaware corporation (the "Buyer"), Drilex
Systems, Inc., a Texas corporation ("Buyer Sub" and, together with Buyer, the
"Buyer Parties"), Cobb Directional Drilling, Inc., a Louisiana corporation (the
"Seller"), and Archie A. Cobb, III (the "Stockholder" and, together with the
Seller, the "Seller Parties"),
W I T N E S S E T H:
WHEREAS, the Seller owns 200,000 shares (the "Shares") of the limited
liability company interests ("LLC Interests") in Cobb Directional Drilling
Company, L.L.C., a Delaware limited liability company (the "Company"), and such
Shares represent 33-1/3% of all the issued and outstanding LLC Interests in the
Company;
WHEREAS, pursuant to an Asset Purchase Agreement dated as of September
30, 1994 (the "Asset Purchase Agreement") among the Buyer, the Company, the
Seller, Posi-Trak Mud Motors, Inc., a Louisiana corporation ("Posi-Trak"), and
the Stockholder, the Company has purchased from the Seller and Posi-Trak
substantially all their assets, which assets are used in the business of
directional drilling and related sales and services;
WHEREAS, pursuant to the Asset Purchase Agreement, the Buyer acquired and
now owns 66-2/3% of the LLC Interests in the Company, and the Seller acquired
and continues to own the Shares, representing the other 33-1/3% of the LLC
Interests in the Company;
WHEREAS, pursuant to the Asset Purchase Agreement, the Buyer and the
Seller entered into the Limited Liability Company Agreement dated as of
September 30, 1994 (the "LLC Agreement") with respect to the Company;
WHEREAS, Article XIV of the LLC Agreement provides for certain purchase
and sale options with respect to the LLC Interests held by the parties,
including the Shares;
WHEREAS, in lieu of exercising the provisions of Article XIV of the LLC
Agreement, the Buyer desires to acquire the Shares from the Seller, and the
Seller desires to sell the Shares to the Buyer, upon the terms and subject to
the conditions hereinafter set forth; and
WHEREAS, in order to preserve the existence of the Company as a limited
liability company, the Buyer desires that simultaneously with the purchase of
the Shares, the Buyer contribute 6,000 Shares to the capital of Buyer Sub, such
that the Buyer will hold 194,000 of the Shares and Buyer Sub will hold 6,000 of
the Shares;
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NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Sale. Upon the terms and subject to the conditions of this
Agreement, at the Closing the Seller is selling, assigning, transferring and
delivering to the Buyer the Shares, and the Buyer is purchasing and acquiring
such Shares from the Seller. Simultaneously with the Closing (as hereinafter
defined), Buyer is contributing 6,000 Shares to the capital of Buyer Sub.
1.2 Purchase Price. The aggregate purchase price for all the Shares
(the "Purchase Price") is $2,111,533, and is being paid by the delivery of the
Buyer's promissory notes (the "Notes") payable to the order of the Seller (i) in
substantially the form of Exhibit A hereto in the principal amount of $1,000,000
and due on March 23, 1998 (the "Long-Term Note") and (ii) in substantially the
form of Exhibit B hereto in the principal amount of $1,111,533 and due on July
1, 1995 (the "Short-Term Note").
1.3 Security Agreement. The Notes shall be entitled to the benefits of
a security agreement executed by the Buyer (the "Security Agreement") in
substantially the form of Exhibit C hereto, pursuant to which the Buyer will
secure the Notes with the Shares.
1.4 Release of Guaranty. At the Closing, the Guaranty by the Seller
dated September 30, 1994 in favor of Texas Commerce Bank National Association
shall terminate, and the Seller shall be released therefrom.
1.5 Post-Closing Adjustment. (a) On or before June 30, 1995, the Buyer
shall prepare and deliver to the Seller an income statement (the "Closing Date
Income Statement") of the Company for the period from February 1, 1995 to the
Closing, and a statement (the "Statement") reflecting the calculation of the
adjustment, if any, pursuant to this Section 1.5. The Closing Date Income
Statement shall be prepared in accordance with generally accepted accounting
principles as applied by the Company ("GAAP"). The Buyer shall provide the
Seller with access to copies of all work papers and other relevant documents to
permit the Seller to verify the accuracy of the entries contained in the Closing
Date Income Statement. The Seller shall have a period of 30 calendar days after
delivery of the Closing Date Income Statement and the Statement to review it and
make any objections it may have in writing to the Buyer. If written objections
to the Closing Date Income Statement or the Statement are delivered to the Buyer
by the Seller within such 30-day period, then the Seller and the Buyer shall
attempt to resolve the matter or matters in dispute. If no written objections
are made by the Seller within such 30-day period, then the Closing Date Income
Statement and the Statement shall be final and binding on the parties hereto.
If disputes with respect to the Closing Date Income Statement cannot be resolved
by the Seller and the Buyer within 30 calendar days after the delivery of the
objections to the Closing Date Income Statement or the Statement, then, at the
request of the Buyer or the Seller, the specific matters in dispute shall be
submitted to the Houston office of Deloitte & Touche LLP or such other
independent accounting firm as may be approved by the
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Seller and the Buyer, which firm shall render its opinion as to such matters.
The fees and expenses of such independent accounting firm shall be borne one-
half by the Seller and one-half by Buyer.
(b) If Undistributed Income (as defined herein) reflected on the Closing
Date Income Statement is positive, then the Buyer shall pay the Seller one-third
of Undistributed Income. If Undistributed Income reflected on the Closing Date
Income Statement is negative, then the aggregate principal amount of the Notes
shall be decreased by one-third of Undistributed Income. As used herein, the
term "Undistributed Income" shall mean the Cumulative Net Income (as defined in
the LLC Agreement) (before provision for federal or state income taxes imposed
on the members, but after all taxes imposed on the Company) of the Company, less
all distributions made to members, in each case from February 1, 1995 to the
Closing and computed in accordance with GAAP.
ARTICLE II
CLOSING
The closing of the transactions contemplated hereby (the "Closing") is
being held at the offices of Baker & Botts, L.L.P., Houston, Texas, on March 23,
1995 at 9:00 a.m., Houston time, concurrently with the execution and delivery of
this Agreement. The date of the Closing is referred to herein as the "Closing
Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties, jointly and severally, represent and warrant to the
Buyer and Buyer Sub the following:
3.1 Corporate Status and Good Standing. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Louisiana, with full corporate power and authority under its certificate or
articles of incorporation and by-laws to own and lease its properties and to
conduct business as the same exists. The Seller is duly qualified to do
business as a foreign corporation in all states in which the nature of its
business requires such qualification and the failure to do so would have a
material adverse effect on the Seller.
3.2 Authorization. The Seller has full corporate power and authority
under its certificate or articles of incorporation and by-laws, and its board of
directors and stockholders have taken all necessary action to authorize it, to
execute and deliver this Agreement and the exhibits hereto, to consummate the
transactions contemplated herein and to take all actions required to be taken by
it pursuant to the provisions hereof, and this Agreement constitutes the valid
and binding obligation of Seller enforceable in accordance with its terms.
3.3 Non-Contravention. Neither the execution and delivery of this
Agreement or any documents executed in connection herewith, nor the consummation
of the transactions
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contemplated herein or therein, does or will violate, conflict with, result in
breach of or require notice or consent under any law, the charter or bylaws of
the Seller or any provision of any agreement or instrument to which any Seller
Party is a party. The Stockholder owns 100% of the outstanding securities of
the Seller.
3.4 Validity. There are no pending or threatened judicial or
administration actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by any Seller
Party in connection with this Agreement.
3.5 Broker Involvement. No Seller Party has hired, retained or dealt
with any broker or finder in connection with the transactions contemplated by
this Agreement.
3.6 Title to Shares. The Seller owns beneficially and of record the
200,000 Shares, free and clear of all liens, charges, encumbrances, rights of
others, mortgages, pledges or security interests, and the Shares are not subject
to any agreements or understandings with respect to the voting or transfer
thereof other than as set forth in the LLC Agreement. Except as set forth in
the LLC Agreement, there are no outstanding subscriptions, options, convertible
securities, warrants or calls of any kind issued or granted by, or binding upon,
the Seller to purchase or otherwise acquire or to sell or otherwise dispose of
any security of or equity interest in the Company. The Seller has full legal
right to sell, assign and transfer the Shares to the Buyer and will, upon
delivery of a certificate or certificates representing such Shares to the Buyer
pursuant to the terms hereof, transfer to the Buyer title to such Shares, free
and clear of any liens, charges, encumbrances, rights of others, mortgages,
pledges or security interests. The Shares constitute all the LLC Interest held
by the Seller Parties or any affiliates thereof.
3.7 Investor Status. The Seller (i) is an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act of 1933, (ii) is
acquiring the Notes for investment for its own account, and not with a view to,
or for resale in connection with, any distribution thereof and (iii) understands
that the Notes have not been registered under the Securities Act of 1933 and
that the Notes may not be transferred except in compliance with the Securities
Act of 1933 and applicable state securities laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to each Seller Party the following:
4.1 Corporate Status and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
with full corporate power and authority under its certificate or articles of
incorporation and by-laws to conduct its business as the same exists. The Buyer
is duly qualified to do business as a foreign corporation in all states in which
the nature of its business requires such qualification and the failure to do so
would have a material adverse effect on the Buyer.
4
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4.2 Authorization. The Buyer has full corporate power and authority
under its certificate or articles of incorporation and by-laws, and its board of
directors has taken all necessary corporate action to authorize it, to execute
and deliver this Agreement and the exhibits and schedules hereto, to consummate
the transactions contemplated herein and to take all actions required to be
taken by it pursuant to the provisions hereof or thereof, and each of this
Agreement and the exhibits hereto to which the Buyer is a party (including,
without limitation, the Notes) constitutes the valid and binding obligation of
the Buyer enforceable in accordance with its terms.
4.3 Non-Contravention. Neither the execution and delivery of this
Agreement and the exhibits hereto, nor the consummation of the transactions
contemplated herein or therein, does or will violate, conflict with, result in
breach of or require notice or consent under any law, the charter or bylaws of
the Buyer or any provision of any agreement or instrument to which the Buyer is
a party.
4.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Buyer in
connection with this Agreement.
4.5 Broker Involvement. Buyer has not hired, retained or dealt with any
broker or finder in connection with the transactions contemplated by this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
5.1 Amendment to Prior Security Agreement. The Buyer and the Seller
agree that the Security Agreement dated September 30, 1994 (the "Prior Security
Agreement") from the Buyer to the Seller is amended so that (i) the "Pledged
Collateral" as defined therein shall not include the Shares and (ii) the
"Obligations" as defined therein shall not include the Notes.
5.2 Agreements with Respect to LLC Agreement. The parties agree that
the transactions contemplated hereby are in lieu of those contemplated by
Article XIV and Section 14.3 of the LLC Agreement. The Buyer and the Seller
agree that (i) notwithstanding Section 14.2 of the LLC Agreement, the Seller may
sell the Shares to the Buyer and Buyer Sub as contemplated by this Agreement and
(ii) Buyer Sub is approved by the Buyer and by the Seller for admission as a
Member of the Company as contemplated by Section 14.7 of the LLC Agreement. The
Buyer and Buyer Sub agree and consent to continue the business of the Company as
contemplated by Section 15.1(iii) of the LLC Agreement, so that the Company
shall not dissolve as a result of the transactions contemplated hereby.
5.3 Offset of Notes. The principal amount of the Notes may be reduced
by any amount due to the Buyer or the Company pursuant to Article VII of the
Asset Purchase Agreement or under any other provision of the Asset Purchase
Agreement, but the existence or exercise of such right of offset shall in no
event limit the liability of any party under the Asset Purchase Agreement. The
Seller Parties agree that neither will, directly or indirectly, assign, sell,
5
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transfer, hypothecate or pledge the Notes or any part thereof in violation of
applicable law (including the federal securities law). If, at a time when a
dispute exists concerning a claim as to which the Seller may have liability as
an Indemnifying Party under the Asset Purchase Agreement, or with respect to any
other amounts claimed to be due from a Seller Party under the Asset Purchase
Agreement, a payment shall become due upon either Note, then the Buyer shall
make a good faith determination of the amount of such liability (the "Estimated
Dispute Amount") and shall withhold from such payment an amount equal to the
Estimated Dispute Amount, which amount shall instead be paid into escrow
pursuant to an Escrow Agreement between the Buyer and the Seller. In any such
event, (x) any amounts determined to be due shall first be settled by payment
out of the escrow of the Escrow Agreement, and (y) no interest with respect to
such amount shall accrue under the applicable Note, which shall be deemed paid
to the extent of the Estimated Dispute Amount. No purported assignment, sale,
transfer, hypothecation or pledge of either Note shall modify the right of
offset provided herein. Appropriate legends to such effect shall be placed on
the Notes.
5.4 Asset Purchase Agreement Unaffected. The parties agree that, except
as set forth herein, the Asset Purchase Agreement and all documents executed in
connection therewith or that otherwise relate thereto (including, without
limitation, the Employment Agreement (as defined in the Asset Purchase
Agreement)) shall not be affected, modified or changed by this Agreement or the
transactions contemplated hereby, and that, except as set forth herein, the
rights of the parties thereunder shall be unaffected hereby.
5.5 Further Assurances. Each Seller Party shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered to the Buyer or
its affiliates such assignments or other instruments of transfer, assignment and
conveyance, in form and substance satisfactory to counsel of the Buyer, as shall
be necessary to vest in the Buyer all of the right, title and interest in and to
the Shares free and clear of all liens, charges, encumbrances, rights of others,
mortgages, pledges or security interests.
ARTICLE VI
NOTICES; MISCELLANEOUS
6.1 Expenses. The Buyer and the Seller shall pay their own respective
expenses, including the fees and disbursements of their respective counsel in
connection with the negotiation, preparation and execution of this Agreement and
the consummation of the transactions contemplated herein.
6.2 Entire Agreement. This Agreement, including all exhibits hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and may not be modified, amended or terminated except by a
written instrument specifically referring to this Agreement signed by all the
parties hereto.
6.3 Waivers and Consents. All waivers and consents given hereunder
shall be in writing. No waiver by any party hereto of any breach or anticipated
breach of any provision hereof by any other party shall be deemed a waiver of
any other contemporaneous, preceding or succeeding breach or anticipated breach,
whether or not similar.
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6.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been received only if and when (i)
personally delivered or (ii) on the third day after mailing, by United States
mail, first class, postage prepaid, by certified mail return receipt requested,
addressed in each case as follows (or to such other address as may be specified
by like notice):
(a) If to the Buyer or Buyer Sub, to:
Drilex Holdings Corp.
c/o SCF Partners, L.P.
600 Travis, Suite 6600
Houston, Texas 77002
Attention: David Baldwin
(b) If to any Seller Party, to:
Archie Cobb III
P. O. Box 558
Broussard, Louisiana 70518
6.5 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
6.6 Performance. The Stockholder agrees to cause the Seller to perform
all its obligations and agreements under this Agreement and hereby guarantees
the payment and performance by the Seller of all such obligations and
agreements.
6.7 Limitation on Interest. Regardless of any provision contained
herein or any other document executed in connection with this Agreement, the
parties hereto shall not be obliged to pay, and the parties hereto shall never
be entitled to charge, reserve, receive, collect or apply, as interest (it being
understood that interest shall be calculated as the aggregate of all charges
that are contracted for, charged, reserved, received, collected, applied or paid
that constitute interest under applicable law) payable hereunder any amount in
excess of the maximum nonusurious contract rate of interest allowed from time to
time by applicable law, and in the event any of the parties hereto ever charges,
reserves, receives, collects or applies, as interest, any such excess, at the
option of the payor of such interest, such amount shall be deemed a partial
prepayment of the amount payable hereunder or promptly refunded to the payor of
such interest.
6.8 Choice of Law; Section Headings. This Agreement shall be governed
by the internal laws of the State of Texas (without regard to the choice of law
provisions thereof). The section headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
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6.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
8
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ DAVID C. BALDWIN
----------------------------
David C. Baldwin, Vice President
DRILEX SYSTEMS, INC.
By: /s/ JOHN FORREST
----------------------------
John Forrest
President
COBB DIRECTIONAL DRILLING COMPANY, INC.
By: /s/ ARCHIE A. COBB, III
----------------------------
/s/ ARCHIE A. COBB, III
----------------------------
Archie A. Cobb, III
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED
OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE
UNDER THE SECURITIES ACT OF 1933 OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation (hereinafter called
"Maker"), for value received, promises and agrees to pay on or before March 23,
1998, to COBB DIRECTIONAL DRILLING COMPANY, INC., a Louisiana corporation
(hereinafter called "Payee"), in Houston, Harris County, Texas, in lawful money
of the United States of America the principal sum of ONE MILLION AND 00/100
DOLLARS ($1,000,000.00), together with interest thereon (calculated on the basis
of a 365-day year, or a 366-day year in the case of a leap year) from and after
the date hereof until maturity at 7.5% per annum, but in no event to exceed the
maximum rate of nonusurious interest allowed from time to time by law
(hereinafter called the "Highest Lawful Rate"). After maturity (by acceleration
or otherwise), interest shall be so computed at 9.5% per annum, but in no event
to exceed the Highest Lawful Rate.
ACCRUED INTEREST is due and payable quarterly beginning on June 30,
1995, and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest with respect to such principal amount prepaid is due
and payable on the date of such prepayment. Principal payments of $83,330 shall
be due and payable quarterly on each regular interest payment date prior to
maturity. If any amount owing under this note is due and payable on a day that
is not a business day, such payment shall instead be due and payable on the next
succeeding business day. Maker has the right to prepay this note in whole or in
part at any time and from time to time without penalty, on not less than two
business days' prior notice.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note, (b) default is made in the payment when due of any installment of
interest on this note and such default has not been cured within five days after
the date on which such payment is due, (c) Maker shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (d) an involuntary
case or other proceeding shall be commenced against Maker which seeks
liquidation, reorganization or other relief with respect to Maker or its debts
or other liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect and such involuntary case or other proceeding shall
remain undismissed for a period of 120 days or (e) default is made under any
credit facility extended to Maker by any financial institution and such default
results in the acceleration of the payment of any principal amount due pursuant
to such credit facility in excess of $1 million and such acceleration is not
cured or withdrawn, or all amounts owing pursuant to such credit facility are
not paid in full,
(Page 1 of 3 Pages)
<PAGE>
$1,000,000.00 Houston, Texas March 23, 1995
within thirty days after the date of such acceleration. Upon the occurrence of
any Event of Default described in clause (a) or (b) of the first sentence of
this paragraph, Payee may by written notice to Maker declare the entire
principal amount then outstanding under this note, together with interest then
accrued thereon, to be immediately due and payable. Upon the occurrence of any
Event of Default described in clause (e) of the first sentence of this
paragraph, Payee may by written notice to Maker demand that such Event of
Default be cured and, if any such Event of Default is not cured within thirty
days after the receipt of such notice by Maker, Payee may declare the entire
principal amount then outstanding under this note, together with interest then
accrued thereon, to be immediately due and payable. Upon the occurrence of any
Event of Default described in clauses (c) or (d) of the first sentence of this
paragraph, the entire principal amount of all indebtedness then outstanding
under this note, together with interest then accrued thereon, shall become
immediately due and payable.
THIS NOTE is subject to the terms and provisions of the Stock Purchase
Agreement (the "Agreement") dated the date hereof among Maker, Payee and certain
other parties, the terms and conditions of which are incorporated herein by
reference. Pursuant to such Agreement, the principal amount of this note may
be reduced as a result of certain obligations to Maker. This note is also
entitled to the benefits of the Security Agreement dated the date hereof
executed by Maker.
IT IS the intention of Maker and Payee to conform strictly to
applicable usuary laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
(Page 2 of 3 Pages)
<PAGE>
$1,000,000.00 Houston, Texas March 23, 1995
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:__________________________
(Page 3 of 3 Pages)
<PAGE>
EXHIBIT B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED
OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE
UNDER THE SECURITIES ACT OF 1933 OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation (hereinafter called
"Maker"), for value received, promises and agrees to pay on or before July 1,
1995, to COBB DIRECTIONAL DRILLING COMPANY, INC., a Louisiana corporation
(hereinafter called "Payee"), in Houston, Harris County, Texas, in lawful money
of the United States of America the principal sum of ONE MILLION ONE HUNDRED
ELEVEN THOUSAND FIVE HUNDRED THIRTY-THREE AND 00/100 DOLLARS ($1,111,533.00),
together with interest thereon (calculated on the basis of a 365-day year, or a
366-day year in the case of a leap year) from and after the date hereof until
maturity at 7.5% per annum, but in no event to exceed the maximum rate of
nonusurious interest allowed from time to time by law (hereinafter called the
"Highest Lawful Rate"). After maturity (by acceleration or otherwise), interest
shall be so computed at 9.5% per annum, but in no event to exceed the Highest
Lawful Rate.
ACCRUED INTEREST is due and payable at maturity; provided, however,
that if the principal of this note is prepaid in whole or in part, at any time
after the date hereof, all accrued and unpaid interest with respect to such
principal amount prepaid is due and payable on the date of such prepayment. If
any amount owing under this note is due and payable on a day that is not a
business day, such payment shall instead be due and payable on the next
succeeding business day. Maker has the right to prepay this note in whole or in
part at any time and from time to time without penalty, on not less than two
business days' prior notice.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note, (b) default is made in the payment when due of any installment of
interest on this note and such default has not been cured within five days after
the date on which such payment is due, (c) Maker shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (d) an involuntary
case or other proceeding shall be commenced against Maker which seeks
liquidation, reorganization or other relief with respect to Maker or its debts
or other liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect and such involuntary case or other proceeding shall
remain undismissed for a period of 120 days or (e) default is made under any
credit facility extended to Maker by any financial institution and such default
results in the acceleration of the payment of any principal amount due pursuant
to such credit facility in excess of $1 million and such acceleration is not
cured or withdrawn, or all amounts owing pursuant to such credit facility are
not paid in full, within thirty days after the date of such acceleration. Upon
the occurrence of any Event of Default described in clause (a) or (b) of the
first sentence of this paragraph, Payee may by written
(Page 1 of 3 Pages)
<PAGE>
$1,111,533.00 Houston, Texas March 23, 1995
notice to Maker declare the entire principal amount then outstanding under this
note, together with interest then accrued thereon, to be immediately due and
payable. Upon the occurrence of any Event of Default described in clause (e) of
the first sentence of this paragraph, Payee may by written notice to Maker
demand that such Event of Default be cured and, if any such Event of Default is
not cured within thirty days after the receipt of such notice by Maker, Payee
may declare the entire principal amount then outstanding under this note,
together with interest then accrued thereon, to be immediately due and payable.
Upon the occurrence of any Event of Default described in clauses (c) or (d) of
the first sentence of this paragraph, the entire principal amount of all
indebtedness then outstanding under this note, together with interest then
accrued thereon, shall become immediately due and payable.
THIS NOTE is subject to the terms and provisions of the Stock Purchase
Agreement (the "Agreement") dated the date hereof among Maker, Payee and certain
other parties, the terms and conditions of which are incorporated herein by
reference. Pursuant to such Agreement, the principal amount of this note may be
reduced as a result of certain obligations to Maker. This note is also entitled
to the benefits of the Security Agreement dated the date hereof executed by
Maker.
IT IS the intention of Maker and Payee to conform strictly to
applicable usuary laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
(Page 2 of 3 Pages)
<PAGE>
$1,111,533.00 Houston, Texas March 23, 1995
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:________________________
(Page 3 of 3 Pages)
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of March 23, 1995, made by
Drilex Holdings Corp., a Delaware corporation (the "Pledgor"), to Cobb
Directional Drilling, Inc., a Louisiana corporation (the "Pledgee").
PRELIMINARY STATEMENTS:
(1) The Pledgor is purchasing 194,000 shares (the "Pledged Shares") of
limited liability company interest in Cobb Directional Drilling Company, L.L.C.
(the "Issuer") from the Pledgee.
(2) Pledgor has executed two promissory notes (the "Notes") dated the date
hereof payable to Pledgee to evidence the purchase price of the Pledged Shares
pursuant to a Stock Purchase Agreement dated the date hereof among Pledgee,
Pledgor and certain other parties (the "Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein and for other good and valuable consideration, the
adequacy, receipt and sufficiency of which are hereby acknowledged, and in order
to induce Pledgee to accept the Notes in connection with the Stock Purchase
Agreement, the Pledgor hereby agrees as follows:
Section 1. Defined Terms and Related Matters.
(a) The capitalized terms used herein which are defined in the Notes
or the Stock Purchase Agreement and not otherwise defined herein shall have
the meanings specified therein.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(c) Unless otherwise defined herein or in the Asset Purchase
Agreement, the terms defined in Articles 8 and 9 of the Uniform Commercial
Code as enacted in the State of Texas, as amended from time to time (the
"UCC"), are used herein as therein defined.
Section 2. Pledge. The Pledgor hereby pledges and delivers to the
Pledgee, and hereby grants to the Pledgee, a security interest in and a lien on
the Pledged Shares and any certificates representing the Pledged Shares, and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares, and any and all other shares or equity interests in the
Issuer now owned or hereafter acquired by the Pledgor (other than the collateral
pledged to Pledgee pursuant to the Security Agreement dated as of September 30,
1994) (the "Pledged Collateral").
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Section 3. Security for Obligations. This Agreement secures the
prompt and complete payment of all obligations of Pledgor under the Notes and
any other loans, advances, extensions of credit or other financial
accommodations to or in favor of Pledgor from or by Pledgee (other than
Pledgor's Note dated September 30, 1994 to Pledgee), whether such obligations
are now existing or hereafter arising, and all renewals, extensions, amendments,
supplements and rearrangements thereof, whether for principal, interest or any
other amount payable by Pledgor to the Pledgee under the terms of the Notes (all
such obligations, covenants and conditions described in this Section 3 being
hereinafter collectively referred to as the "Obligations").
Section 4. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral have been
delivered to and held by or on behalf of the Pledgee pursuant hereto. The
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing the Pledged Collateral in its possession for
certificates or instruments of smaller or larger denominations.
Section 5. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) This Agreement is a legal, valid and binding obligation of the
Pledgor enforceable against the Pledgor in accordance with its terms,
except as enforceability may be (i) limited by applicable debtor laws and
(ii) subject to the general effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding is
equity or at law).
(b) The Pledgor is the legal and beneficial owner of the Pledged
Collateral free and clear of any lien, and the Pledgor has not sold,
granted any option with respect to, assigned, transferred or otherwise
disposed of any of its rights or interests in or to the Pledged Collateral.
(c) This Agreement and the delivery of the Pledged Collateral to the
Pledgee create a valid first priority lien in the Pledged Collateral
securing the payment of the Obligations.
Section 6. Further Assurances. The Pledgor agrees that at any time
and from time to time, at the request of the Pledgee, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be reasonably necessary or desirable, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Pledgee to exercise and enforce its rights and remedies hereunder
with respect to any of the Pledged Collateral.
Section 7. Voting Rights; Dividends; Etc. So long as Pledgee shall
not have foreclosed upon the Pledged Collateral:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights (including, without limitation, the right
to give consents,
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waivers and notifications in respect of the Pledged Collateral)
pertaining to the Pledged Collateral or any part thereof; and
(ii) The Pledgor shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Pledged Collateral;
provided, however, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral,
(B) dividends and other distributions hereafter paid or
payable in cash in respect of any Pledged Collateral in
connection with a liquidation or dissolution, and
(C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral,
shall be, and shall be forthwith delivered to the Pledgee to hold as,
Pledged Collateral and shall, if received by the Pledgor, be received
in trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor and be forthwith delivered to the
Pledgee as Pledged Collateral in the same form as so received (with
any necessary endorsement).
Section 8. Transfers and Other Liens. Except as set forth in the LLC
Agreement, the Pledgor shall not sell, exchange or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral or create or
permit to exist any lien, pledge, change or security interest upon or with
respect to any of the Pledged Collateral.
Section 9. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee as the Pledgor's attorney-in-fact, effective
upon and during the continuance of an Event of Default, with full authority in
the place and stead of the Pledgor and in the name of the Pledgor, the Pledgee
or otherwise, from time to time in the Pledgee's discretion, to take any action
and to execute any instrument which the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with subsection (a) above; and
(c) to file any claims or take any action or institute any proceedings
which the Pledgee may deem necessary or desirable for the collection of any
of the Pledged
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Collateral or otherwise to enforce the rights of the Pledgee with respect
to any of the Pledged Collateral.
Section 10. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Pledgee incurred in
connection therewith shall be payable by the Pledgor.
Section 11. Possession; Reasonable Care. The Pledgee shall hold in
its possession all Pledged Collateral pledged, assigned or transferred hereunder
and from time to time constituting a portion of the Pledged Collateral, except
as from time to time any documents or instruments may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
thereby represented. The Pledgee may, from time to time, in its sole
discretion, appoint one or more agents (which in no case shall be the Pledgor or
an affiliate of the Pledgor) to hold physical custody, for the account of the
Pledgee, of any or all of the Pledged Collateral.
Section 12. Remedies. If any Event of Default shall have occurred
and be continuing:
(a) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party upon
default under the UCC (whether or not the UCC applies to the affected
Pledged Collateral), or under the laws of any other applicable
jurisdiction.
(b) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale of, collection
from, or other realization upon all or any part of the Pledged Collateral
may, in the discretion of the Pledgee, be held by the Pledgee as collateral
for, and then or at any time thereafter applied in whole or in part by the
Pledgee against, the Obligations in such order as the Pledgee shall select.
Any surplus of such cash or cash proceeds and interest accrued thereon, if
any, held by the Pledgee and remaining after payment in full of all the
Obligations shall be paid over to the Pledgor or to whomsoever may be
lawfully entitled to receive such surplus.
(c) All rights and remedies of the Pledgee expressed herein are in
addition to all other rights and remedies possessed by the Pledgee in the
Note and any other agreement or instrument relating to the Obligations.
Section 13. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by the Pledgor herefrom shall in
any event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 14. Addresses for Notices. Except as otherwise expressly
provided herein, all notices and other communications provided for hereunder
shall be in writing (including telegraphic, telex, facsimile or cable
communication) as set forth in the Stock Purchase Agreement.
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Section 15. Security Interest Absolute. All rights of the Pledgee,
all obligations of the Pledgor hereunder and the security interest hereunder
shall, to the extent permitted by applicable law, be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of either of the Notes;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations or any other amendment or
waiver of or any consent to any departure from either of the Notes;
(c) any exchange, release or nonperfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or
(d) any other circumstance (other than payment in full of the
Obligations) which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations.
Section 16. Continuing Security Interest. This Agreement and the
delivery of the Pledged Collateral to the Pledgee shall create a continuing
security interest in the Pledged Collateral and shall (a) remain in full force
and effect until the indefeasible payment in full of the Obligations; (b) be
binding upon the Pledgor and its successors and assigns; and (c) inure to the
benefit of the Pledgee, and its successors, transferees and assigns. Upon the
payment in full of the Obligations, the Pledgor shall be entitled to the return
of such of the Pledged Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof.
Section 17. Limitation by Law. All rights, remedies and powers
provided in this Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to the extent
necessary so that they will not render this Agreement invalid, unenforceable, in
whole or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.
Section 18. Separability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Should any clause, sentence, paragraph, subsection or
Section of this Agreement be judicially declared to be invalid, unenforceable or
void, such decision will not have the effect of invalidating or voiding the
remainder of this Agreement, and the parties hereto agree that the part or parts
of this Agreement so held to be invalid, unenforceable or void will be deemed to
have been stricken herefrom by the parties hereto, and the remainder will have
the same force and effectiveness as if such stricken part or parts had never
been included herein.
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Section 19. Captions. The captions in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Section 20. No Waiver; Remedies. No failure on the part of any the
Pledgee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PLEDGED COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered as of the date first above written.
DRILEX HOLDINGS CORP.
By:___________________________
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Exhibit 10.5
STOCK REPURCHASE AGREEMENT
This STOCK REPURCHASE AGREEMENT (this "Agreement"), dated as of March 23,
1995, among Drilex Holdings Corp., a Delaware corporation (the "Buyer"), Posi-
Trak Mud Motors, Inc., a Louisiana corporation (the "Seller"), and Archie A.
Cobb, III (the "Stockholder" and, together with the Seller, the "Seller
Parties"),
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement dated as of September
30, 1994 (the "Asset Purchase Agreement") among the Buyer, Cobb Directional
Drilling Company, L.L.C., Cobb Directional Drilling Company, Inc., the Seller
and the Stockholder, the Seller acquired 133,333 shares of Common Stock, par
value $.01 per share, of the Buyer (the "Initial Shares");
WHEREAS, the Buyer and the Seller entered into a Stockholders' Agreement
dated as of September 30, 1994 (the "Stockholders' Agreement") with respect to
the Initial Shares;
WHEREAS, the Buyer desires to repurchase 80,000 of the Initial Shares
(the "Shares") from the Seller, and the Seller desires to sell the Shares to the
Buyer, upon the terms and subject to the conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Sale. Upon the terms and subject to the conditions of this
Agreement, at the Closing the Seller is selling, assigning, transferring and
delivering the Shares to the Buyer, and the Buyer is purchasing and acquiring
the Shares from the Seller.
1.2 Purchase Price. The aggregate purchase price for the Shares (the
"Purchase Price") is $1,000,000.00, and is being paid by wire transfer of
immediately available funds to an account designated by the Seller.
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ARTICLE II
CLOSING
The closing of the transactions contemplated hereby (the "Closing") is
being held at the offices of Baker & Botts, L.L.P., Houston, Texas, on March 23,
1995 at 9:00 a.m., Houston time, concurrently with the execution and delivery of
this Agreement. The date of the Closing is referred to herein as the "Closing
Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties, jointly and severally, represent and warrant to the
Buyer:
3.1 Corporate Status and Good Standing. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Louisiana, with full corporate power and authority under its certificate or
articles of incorporation and by-laws to own and lease its properties and to
conduct business as the same exists. The Seller is duly qualified to do
business as a foreign corporation in all states in which the nature of its
business requires such qualification and the failure to do so would have an
adverse effect on the Seller.
3.2 Authorization. The Seller has full corporate power and authority
under its certificate or articles of incorporation and by-laws, and its board of
directors and stockholders have taken all necessary action to authorize it, to
execute and deliver this Agreement, to consummate the transactions contemplated
herein and to take all actions required to be taken by it pursuant to the
provisions hereof, and this Agreement constitutes the valid and binding
obligation of Seller enforceable in accordance with its terms.
3.3 Non-Contravention. Neither the execution and delivery of this
Agreement or any documents executed in connection herewith, nor the consummation
of the transactions contemplated herein or therein, does or will violate,
conflict with, result in breach of or require notice or consent under any law,
the charter or bylaws of the Seller or any provision of any agreement or
instrument to which any Seller Party is a party. The Stockholder owns 100% of
the outstanding securities of the Seller.
3.4 Validity. There are no pending or threatened judicial or
administration actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by any Seller
Party in connection with this Agreement.
3.5 Broker Involvement. No Seller Party has hired, retained or dealt
with any broker or finder in connection with the transactions contemplated by
this Agreement.
3.6 Title to Shares. The Seller owns beneficially and of record the
Initial Shares, free and clear of all liens, charges, encumbrances, rights of
others, mortgages, pledges or security interests, and the Initial Shares are not
subject to any agreements or understandings with respect to the voting or
transfer thereof other than as set forth in the Stockholders'
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Agreement. Except as set forth in the Stockholders' Agreement, there are no
outstanding subscriptions, options, convertible securities, warrants or calls of
any kind issued or granted by, or binding upon, the Seller to purchase or
otherwise acquire or to sell or otherwise dispose of any security of or equity
interest in the Buyer. The Seller has full legal right to sell, assign and
transfer the Shares to the Buyer and will, upon delivery of a certificate or
certificates representing such Shares to the Buyer pursuant to the terms hereof,
transfer to the Buyer title to such Shares, free and clear of any liens,
charges, encumbrances, rights of others, mortgages, pledges or security
interests.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to each Seller Party the following:
4.1 Corporate Status and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
with full corporate power and authority under its certificate or articles of
incorporation and by-laws to conduct its business as the same exists.
4.2 Authorization. The Buyer has full corporate power and authority
under its certificate or articles of incorporation and by-laws, and its board of
directors has taken all necessary corporate action to authorize it, to execute
and deliver this Agreement, to consummate the transactions contemplated herein
and to take all actions required to be taken by it pursuant to the provisions
hereof or thereof, and this Agreement constitutes the valid and binding
obligation of the Buyer enforceable in accordance with its terms.
4.3 Non-Contravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated herein, does or
will violate, conflict with, result in breach of or require notice or consent
under any law, the charter or bylaws of the Buyer or any provision of any
agreement or instrument to which the Buyer is a party.
4.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Buyer in
connection with this Agreement.
4.5 Broker Involvement. Buyer has not hired, retained or dealt with any
broker or finder in connection with the transactions contemplated by this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
5.1 Agreements with Respect to Stockholders' Agreement. The Buyer and
the Seller agree that (i) the sale of the Shares is in compliance with Section
7(i) and 2(vi) of the Stockholders'Agreement and (ii) the Stockholders'
Agreement shall not be affected, modified or
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changed by this Agreement or the transactions contemplated hereby, and that the
rights of the parties thereunder shall be unaffected hereby.
5.2 Asset Purchase Agreement Unaffected. The parties agree that the
Asset Purchase Agreement and all documents executed in connection therewith or
that otherwise relate thereto (including, without limitation, the Employment
Agreement (as defined in the Asset Purchase Agreement)) shall not be affected,
modified or changed by this Agreement or the transactions contemplated hereby,
and that, except as set forth herein, the rights of the parties thereunder shall
be unaffected hereby.
5.3 Further Assurances. Each Seller Party shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered to the Buyer or
its affiliates such assignments or other instruments of transfer, assignment and
conveyance, in form and substance satisfactory to counsel of the Buyer, as shall
be necessary to vest in the Buyer all of the right, title and interest in and to
the Shares free and clear of all liens, charges, encumbrances, rights of others,
mortgages, pledges or security interests.
ARTICLE VI
NOTICES; MISCELLANEOUS
6.1 Expenses. The Buyer and the Seller shall pay their own respective
expenses, including the fees and disbursements of their respective counsel in
connection with the negotiation, preparation and execution of this Agreement and
the consummation of the transactions contemplated herein.
6.2 Entire Agreement. This Agreement, including all exhibits hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and may not be modified, amended or terminated except by a
written instrument specifically referring to this Agreement signed by all the
parties hereto.
6.3 Waivers and Consents. All waivers and consents given hereunder
shall be in writing. No waiver by any party hereto of any breach or anticipated
breach of any provision hereof by any other party shall be deemed a waiver of
any other contemporaneous, preceding or succeeding breach or anticipated breach,
whether or not similar.
6.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been received only if and when (i)
personally delivered or (ii) on the third day after mailing, by United States
mail, first class, postage prepaid, by certified mail return receipt requested,
addressed in each case as follows (or to such other address as may be specified
by like notice):
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(a) If to the Buyer or Buyer Sub, to:
Drilex Holdings Corp.
c/o SCF Partners, L.P.
600 Travis, Suite 6600
Houston, Texas 77002
Attention: David Baldwin
(b) If to any Seller Party, to:
Archie Cobb III
P. O. Box 558
Broussard, Louisiana 70518
6.5 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
6.6 Performance. The Stockholder agrees to cause the Seller to perform
all its obligations and agreements under this Agreement and hereby guarantees
the payment and performance by the Seller of all such obligations and
agreements.
6.7 Choice of Law; Section Headings. This Agreement shall be governed
by the internal laws of the State of Texas (without regard to the choice of law
provisions thereof). The section headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
6.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ DAVID C. BALDWIN
------------------------------
David C. Baldwin, Vice President
POSI-TRAK MUD MOTORS, INC.
By: /s/ ARCHIE A. COBB, III
------------------------------
/s/ ARCHIE A. COBB, III
------------------------------
Archie A. Cobb, III
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Exhibit 10.6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 5,
1995, between Drilex Holdings Corp., a Delaware corporation ("Buyer"), and the
persons listed on Schedule 1 hereto (each a "Seller" and collectively
"Sellers"),
W I T N E S S E T H:
WHEREAS, each Seller listed on Part A of Schedule 1 (each, a "Stockholder
Seller") owns the number of shares of common stock, par value $.01 per share
("Common Stock"), of Shareco, Inc., a Delaware corporation (the "Company"), set
forth opposite such Seller's name on Schedule 1 hereto, and such shares (which
aggregate a total of 98,413 shares) (the "Shares") collectively represent all
the issued and outstanding capital stock of the Company; and
WHEREAS, Buyer desires to acquire the Shares from the Stockholder
Sellers, and the Stockholder Sellers desire to sell the Shares to Buyer, upon
the terms and subject to the conditions hereinafter set forth; and
WHEREAS, each Seller listed on Part B of Schedule 1 (each, an "Employee
Optionee") has the right to acquire on exercise of options as set forth in
Section 2.7 the number of shares of Common Stock of the Company set forth
opposite such Seller's name on Schedule 1 hereto;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
The terms set forth below in this Article I shall have the meanings
ascribed to them below:
Affiliate: with respect to any person, means any person that directly or
indirectly controls, is controlled by or is under common control with such
persons.
Hazardous Substances: means any pollutant, toxic substance, asbestos,
hazardous waste, or any constituent of any such substance, waste or product,
whether solid, liquid or gaseous in form, described in the Resource Conservation
and Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et
seq.) ("CERCLA"), or regulated under RCRA, CERCLA, Superfund
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or under any other federal, state or local law, statute, ordinance, rule,
regulation, order, judicial decision, arbitration decision or determination of
any governmental authority, and shall include petroleum, natural gas, natural
gas liquids, crude oil and any fraction or product thereof.
Lien: means any lien, pledge, claim, charge, security interest or other
encumbrance, option or other similar rights of any third person of any nature
whatsoever.
Permitted Liens: means (a) Liens for current taxes and assessments not
yet due, (b) inchoate mechanic and materialmen liens for construction in
progress, (c) inchoate workmen, repairmen, warehousemen, customer, employee and
carriers liens arising in the ordinary course of business, (d) Liens arising
under this Agreement or the agreements contemplated by this Agreement and (e)
Liens and imperfections of title (including Liens created by the operation of
law) that, singly or in the aggregate, would not materially affect the value or
operation of the asset subject to such Lien in the hands of a purchaser thereof.
person: means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, government or agency or subdivision thereof or any other entity.
Subsidiary: of any person, means any corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person, by one or more other Subsidiaries of such person or by such person and
one or more other Subsidiaries of such person. Unless otherwise specified,
Subsidiary refers to a Subsidiary of the Company.
Taxes: means all federal, state, local, foreign and other taxes or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, profit share,
license, lease, service, service use, value added, withholding, payroll,
employment, excise, estimated severance, stamp, occupation, premium, property,
windfall profits, or other taxes of any kind whatsoever, together with any
interests, penalties, additions to tax, fines or other additional amounts
imposed thereon or related thereto, and the term "Tax" means any one of the
foregoing Taxes.
Tax Returns: means all returns, declarations, reports, statements and
other documents of, relating to, or required to be filed in respect of, any and
all Taxes.
ARTICLE II
PURCHASE AND SALE
2.1 The Sale. Upon the terms and subject to the conditions of this
Agreement, at the Closing each Stockholder Seller is selling, assigning,
transferring and delivering to Buyer, or to a wholly owned Subsidiary of Buyer
designated in writing by Buyer, that number of Shares owned by such Stockholder
Seller as set forth in Schedule 1 (together with a stock power or powers
executed in blank), and Buyer (or such Subsidiary) is purchasing and acquiring
such Shares.
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2.2 Purchase Price. The aggregate purchase price payable to the Seller
Stockholders for all the Shares (the "Purchase Price") shall be subject to
adjustment pursuant to Section 2.3 and shall be divided among Seller
Stockholders pro rata based on the number of Shares owned by each of them as set
forth on Schedule 1. The Purchase Price is being paid at the Closing (a) by
wire transfer of an aggregate of $1,000,000 in immediately available funds to
accounts designated in writing by Sellers prior to the Closing, (b) by the
delivery of Buyer's promissory notes in the form of Exhibit A hereto
appropriately completed (the "Notes") payable to the order of each Seller in the
aggregate principal amount of $3,000,000 and due on April 30, 2000 (the
"Notes"), and (c) by the issuance and delivery of warrants ("Warrants") issuable
pursuant to a Warrant Agreement in the form of Exhibit B hereto to purchase an
aggregate of 100,000 shares of Common Stock, par value $.01 per share, of Buyer
("Buyer Stock"). The aggregate Purchase Price paid for the Shares to the
Stockholder Sellers set forth in the prior sentence shall be reduced pro rata by
the consideration issuable to the Employee Optionees on exercise of their
options as set forth in Section 2.7.
2.3 Post Closing Adjustment. (a) On or before September 29, 1995,
Buyer shall prepare and deliver to Sellers a consolidated balance sheet (the
"Post-Closing Balance Sheet") of the Company and its Subsidiaries as of June 30,
1995, and a statement (the "Statement") reflecting the Net Worth (as hereinafter
defined) and the calculation of the adjustment, if any, to the Purchase Price
pursuant to this Section 2.3. The Post-Closing Balance Sheet shall be prepared
in accordance with generally accepted accounting principles as historically and
consistently applied by the Company ("GAAP"), provided that (1) all debt as of
the Closing shall be reflected on a pro forma basis in the Post-Closing Balance
Sheet, (2) no purchase accounting adjustments shall be made with respect to the
purchase of the Shares, and (3) the effect of any extraordinary transaction
undertaken by Buyer shall be excluded. Buyer may, after Closing, conduct (with
Sellers having the right to participate) a physical inventory of the assets of
the Company and its Subsidiaries (or any part thereof) for this purpose. Buyer
shall provide Sellers with access to copies of all work papers and other
relevant documents to permit Sellers to verify the accuracy of the entries
contained in the Post-Closing Balance Sheet. Sellers (acting by the prior
holders of a majority of the Shares) shall have a period of 30 calendar days
after delivery of the Post-Closing Balance Sheet and the Statement to review it
and make any objections they may have in writing to Buyer. If written
objections to the Post-Closing Balance Sheet or the Statement are delivered to
Buyer by Sellers (acting as provided above) within such 30-day period, then
Sellers and Buyer shall attempt to resolve the matter or matters in dispute. If
no written objections are made by Sellers (acting as provided above) within such
30-day period, then the Post-Closing Balance Sheet and the Statement shall be
final and binding on the parties hereto. If disputes with respect to the Post-
Closing Balance Sheet cannot be resolved by Sellers and Buyer within 30 calendar
days after the delivery of the objections to the Post-Closing Balance Sheet or
the Statement, then, at the request of Buyer or Sellers (acting as provided
above), the specific matters in dispute shall be submitted to the Houston office
of Deloitte & Touche L.L.P. or such other independent accounting firm as may be
approved by Sellers (acting as provided above) and Buyer, which firm shall
render its opinion as to such matters. Based on such opinion, such independent
accounting firm will then send to Sellers and Buyer its determination on the
specified matters in dispute, which determination shall be final and binding on
the parties hereto. The fees and expenses of such independent accounting firm
shall be borne one-half by Sellers and one-half by Buyer.
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(b) If the Net Worth reflected on the Post-Closing Balance Sheet is less
than $3,100,000 (the "Base Amount"), then the aggregate principal amount of the
Notes issued to all Sellers will be reduced by the amount by which the Net Worth
is less than the Base Amount pro rata based on Sellers' interests. Revised
Notes reflecting any changed principal amount shall be issued in replacement of
the previous Notes. As used herein, the term "Net Worth" means the total
consolidated stockholders' equity of the Company and its Subsidiaries as
reflected in the Post-Closing Balance Sheet, and shall be reduced by any amounts
paid or to be paid by the Company pursuant to Section 8.7.
2.4 Repayment of Company Bank Debt. At the Closing, Buyer will cause
the Company to prepay in full the Company's existing bank debt ("Company Bank
Debt") to Texas Capital Bank in an amount not to exceed $1,255,379.26.
2.5 Repayment of Forest Note. At the Closing, Buyer will cause the
Company to prepay the Company's note dated January 19, 1993 payable to the order
of Frank Forest ("Forest Note") by paying $741,498 in cash to Mr. Forest, and
Buyer, the Company and Mr. Forest will replace the Forest Note with Buyer's
promissory note to Mr. Forest in the form of Exhibit C hereto (the "New Forest
Note") in the principal amount of $1,912,584 and due on April 30, 2000.
2.6 Prepayment of Forest Noncompete. At the Closing, Buyer will cause
the Company to pay to Frank Forest $1,258,502 in full satisfaction of the
Company's obligations under Section 4 of the Agreement Not to Compete (the
"Forest Noncompete") effective January 19, 1993 between the Company and Mr.
Forest, and Mr. Forest acknowledges that (i) such payment satisfies in full the
Noncompetition Fee (as defined therein) and all amounts due thereunder and (ii)
the Forest Noncompete shall otherwise remain in effect in accordance with its
terms.
2.7 Option Exercise Immediately Following Closing. In connection with
the Closing, the stock option agreements between the Company and each Employee
Optionee shall become exercisable pursuant to Section 2 thereof as a result of a
"Change in Control Event," and upon any exercise thereof after Closing, the
Employee Optionee shall be entitled to receive (in lieu of shares of Common
Stock) the consideration he would have received had he exercised such option
prior to the Closing and sold the Common Stock receivable upon such exercise
pursuant to this Agreement. Immediately after the sale provided for in Section
2.1, each Employee Optionee shall exercise such options held by him and shall
thereupon receive the amounts of cash, Notes and Warrants set forth on
Schedule 1.
2.8 Stockholders' Agreement. At the Closing, each Seller, Buyer and
DRLX Partners, L.P. are entering into a stockholders' agreement in substantially
the form of Exhibit D hereto to govern the Warrants and any shares of Buyer
Stock purchased by any Seller upon exercise of Warrants.
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ARTICLE III
CLOSING
The closing of the transactions contemplated hereby (the "Closing") is
being held at the offices of Baker & Botts, L.L.P., Houston, Texas, on May 5,
1995 at 9:00 a.m., Houston time, concurrently with the execution and delivery of
this Agreement. The date of the Closing is referred to herein as the "Closing
Date".
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller represents and warrants to Buyer the following as of the date
hereof:
4.1 Organization and Good Standing of the Company. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and has full
corporate power and authority to own, operate and lease its assets in the manner
currently owned, operated and leased by it. The Shares constitute all the
issued and outstanding capital stock of the Company. Schedule 4.1 sets forth
the name, jurisdiction of incorporation and capitalization of each Subsidiary.
Except as set forth on Schedule 4.1, all of the outstanding shares of capital
stock of each Subsidiary are owned beneficially and of record by the Company.
Except for the options referred to in Section 2.7 that are described in Schedule
4.1, there are no outstanding subscriptions, options, convertible securities,
warrants or calls of any kind issued or granted by, or binding upon, the Company
or any Subsidiary to purchase or otherwise acquire or to sell or otherwise
dispose of any security of or equity interest in the Company or any Subsidiary.
The Company and its Subsidiaries own no capital stock or other interest in any
person other than the stock of the Subsidiaries.
4.2 Seller Status. Such Seller is a natural person.
4.3 Authorization. Such Seller has full power and authority to execute
and deliver this Agreement and the exhibits and schedules hereto, to consummate
the transactions contemplated herein and to take all actions required to be
taken by him pursuant to the provisions hereof, and each of this Agreement and
the exhibits hereto constitutes the valid and binding obligation of such Seller
enforceable in accordance with its terms.
4.4 Non-Contravention. Neither the execution and delivery of this
Agreement or any documents executed in connection herewith, nor the consummation
of the transactions contemplated herein or therein, does or will violate,
conflict with, result in breach of or require notice or consent under any law,
the charter or bylaws of the Company or any Subsidiary or any provision of any
agreement or instrument to which the Company, any Subsidiary or any Seller is a
party. The Seller Stockholders collectively own 100% of the outstanding voting
securities of the Company. The last regularly prepared annual income statement
for the Company shows annual net sales of less than $25 million, and the last
regularly prepared balance sheet of Seller
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shows assets of less than $25 million. The Company has no ultimate parent
entity for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act").
4.5 Validity. There are no pending or threatened judicial or
administration actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by such Seller in
connection with this Agreement.
4.6 Broker Involvement. Neither the Company nor such Seller has hired,
retained or dealt with any broker or finder in connection with the transactions
contemplated by this Agreement.
4.7 Litigation. Except as set forth on Schedule 4.7, there is no
investigation, claim or proceeding or litigation of any type pending or
threatened involving the Company or any Subsidiary or that might have a material
adverse effect on the Company or any Subsidiary or Buyer, and such Seller is
unaware of any judgment, order, writ, injunction or decree of any court,
government or governmental agency, or arbitral tribunal against or involving
Seller, the Company or any Subsidiary or that might have a material adverse
effect on Seller, the Company or any Subsidiary.
4.8 Title to Shares. Such Seller owns beneficially and of record (or,
if so specified, has the right to acquire upon exercise of options as set forth
therein and in Section 2.7) the number of shares of Common Stock set forth
opposite such Seller's respective name on Schedule 1, free and clear of all
Liens, and such shares are not subject to any agreements or understandings with
respect to the voting or transfer of any of shares of Common Stock. Except as
set forth in the previous sentence, there are no outstanding subscriptions,
options, convertible securities, warrants or calls of any kind issued or granted
by, or binding upon, the Company or any Seller to purchase or otherwise acquire
or to sell or otherwise dispose of any security of or equity interest in the
Company except Options held by the Employee Stockholders as set forth in Section
2.7. Each Seller has full legal right to sell, assign and transfer the Shares
owned by such Seller to Buyer (or its Subsidiary) and will, upon delivery of a
certificate or certificates representing such Shares to Buyer (or its
Subsidiary) pursuant to the terms hereof, transfer to Buyer (or such Subsidiary)
title to such Shares, free and clear of any Liens.
4.9 Continuity Prior to Closing Date. Except as set forth on Schedule
4.9, from January 1, 1995 to and including the Closing Date, the Company and its
Subsidiaries have not conducted their respective businesses otherwise than in
the usual and customary manner and in the ordinary course of business,
consistent with their historical practice, and there has not been:
(a) any sale, lease, distribution, transfer, mortgage, pledge or
subjection to lien of assets, except sales or other dispositions of
inventory and obsolete or surplus equipment in the ordinary and usual
course of business and the creation of Permitted Liens;
(b) any material transaction by the Company or any Subsidiary not in the
ordinary and usual course of business;
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(c) any material damage, destruction or loss to the assets of the Company
or any Subsidiary whether or not covered by insurance;
(d) a termination, or a threatened termination, or material modification,
in each case not in the ordinary course of business, of any material
contract or the relationship of the Company or any Subsidiary with any
customer or supplier, who in the aggregate accounted for in excess of
$200,000 of sales or purchases during the Company's last full fiscal year;
(e) any change in accounting methods or principles or the application
thereof or any change in policies or practices with respect to items
affecting working capital;
(f) any delay or reduction in capital expenditures in contemplation of
this Agreement or otherwise, or any failure to continue to make capital
expenditures in the ordinary course of business consistent with past
practice;
(g) any acceleration of shipments, sales or orders or other similar
action in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;
(h) any bonus payments, salary increases, commission increases or
modifications, the execution of any employment agreement, severance
arrangement, consulting arrangement or similar document or agreement, or
other changes in employee benefits or other compensation;
(i) any waiver of any rights that, singly or in the aggregate, are
material to the Company or any Subsidiary or the financial condition or
results of operation of the Company or any Subsidiary;
(j) any labor strikes, union organizational activities or other similar
occurrence; or
(k) any contract or commitment to do or cause to be done any of the
foregoing.
4.10 Contracts and Commitments. Schedule 4.10 lists all agreements,
leases, commitments, contracts, undertakings or understandings to which the
Company or any Subsidiary is a party, including but not limited to trademark,
trade name or patent license agreements, service agreements, lease, purchase or
sale agreements, supply agreements, distribution or distributor agreements
(including those referred to in Section 4.23), purchase orders, customer orders
and equipment rental agreements that are either material to the Company or any
of its Subsidiaries or involve consideration with a value of $50,000 or more.
Seller is not in breach of or default under any such agreement, lease, contract
or commitment (collectively, the "Agreements"). Each Agreement is a valid,
binding and enforceable agreement of Seller and the other parties thereto.
There has not occurred any breach or default under any Agreement on the part of
the other parties thereto, and no event has occurred which with the giving of
notice or the lapse of time, or both, would constitute a default under any
Agreement.
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There is no dispute between the parties to any Agreement as to the
interpretation thereof or as to whether any party is in breach or default
thereunder, and no party to any Agreement has indicated its intention to, or
suggested it may evaluate whether to, terminate any Agreement. Except as set
forth on Schedule 4.10 hereto, neither the Company nor any Subsidiary is a party
to any covenant or obligation of any nature limiting the freedom of the Company
or any Subsidiary to compete in any line of business after the Closing.
4.11 Taxes. Except as set forth in Schedule 4.11 hereto:
(i) All Tax Returns that are required to be filed (taking into
account all extensions) on or before the date of Closing for, by, on
behalf of or with respect to the Company or any Subsidiary, have been
timely filed with the appropriate foreign, federal, state and local
authorities and all Taxes shown to be due and payable on such Tax
Returns or related to such Tax Returns have been timely paid in full;
(ii) All such Tax Returns and the information and data contained
therein have been, in all material respects, properly and accurately
compiled and completed, fairly present in all material respects the
information purported to be shown therein, and reflect all material
liabilities for Taxes for the periods covered by such Tax Returns;
(iii) None of such Tax Returns are now under audit or examination by
any foreign, federal, state or local authority and there are no
agreements, waivers or other arrangements providing for an extension
of time with respect to the assessment or collection of any Tax or
deficiency of any nature against the Company, any Subsidiary or their
respective properties, or with respect to any such Tax Return, or any
suits or other actions, proceedings, investigations or claims now
pending or threatened against the Company, any Subsidiary or their
respective properties with respect to any Tax, or any matters under
discussion with any foreign, federal, state or local authority
relating to any Tax, or any claims for any additional Tax asserted by
any such authority;
(iv) All Taxes due and required to be paid by the Company or any
Subsidiary on or before the date on Closing or assessed and due and
required to be paid by the Company or any Subsidiary on or before the
date of Closing have been timely paid in full;
(v) All withholding Tax and Tax deposit requirements imposed on the
Company, any Subsidiary or their respective properties for any and all
periods prior to and including the date of the Closing have been
timely satisfied in full on or before the Closing Date;
(vi) The Company and each Subsidiary have each made adequate
provision for the payment in full of any and all unpaid Taxes for any
and all periods or portions thereof ending on or before the date of
the Closing;
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(vii) None of the Company and its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Section 280G (relating
to parachute payments) of the Internal Revenue Code of 1986, as
amended (the "Code");
(viii) None of the Company and its Subsidiaries is a party to any
tax allocation or tax sharing agreement;
(ix) None of the Company and its Subsidiaries (A) has been a member
of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which is the Company) or (B)
has any liability for Taxes of any person (other than any of the
Company and its Subsidiaries) under Treasury Regulations (S) 1.1502-6
(or any similar provision of foreign, state or local law), as a
transferee or successor, by contract, or otherwise;
(x) The adjusted issue price (as defined in Section 1272(a)(4) of
the Code and Treasury Regulations (S) 1.1275-1(b)) of the Forest Note
will be not less than $2,654,081 as of the Closing Date;
(xi) The Company has deducted a cumulative amount of $432,074 of the
payments owed by the Company to Mr. Forest under the Forest Noncompete
on its United States federal income Tax Returns for its taxable years
ending March 31, 1993, March 31, 1994 and has accrued a deduction of
$370,349 for such payments on its United States federal income Tax
Return for its taxable year ending March 31, 1995; and
(xii) Immediately prior to the merger of SHI with and into the
Company as described in Section 4.29, the Company owned stock of SHI
meeting the requirements of Section 1504(a)(2) of the Code.
4.12 Title to Properties. Except as set forth in Schedule 4.12 hereto,
each of the Company and its Subsidiaries has good and indefeasible title to all
of their respective assets that are used or needed in their respective
businesses, free and clear of all Liens, except for Permitted Liens.
4.13 Trademarks, Trade Names and Intellectual Property. Schedule 4.13
contains an accurate and complete list of (i) all patents and pending patent
applications owned by the Company or any Subsidiary or used or needed in their
respective businesses and all invention memoranda used or needed in their
respective businesses, (ii) all registered United States and foreign trademarks,
trade names and logos owned or used by the Company or any Subsidiary, and all
registrations thereof, and (iii) all unregistered United States and foreign
trademarks, trade names and logos used by the Company or any Subsidiary. The
Company has the right to use all trademarks, trade names, logos, patents,
pending patent applications and invention memoranda referred to herein. There is
no pending or threatened action or claim that would impair any such right.
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4.14 Financial Records; Budget. The audited financial statements of the
Company and its Subsidiaries as of and for the years ended March 31, 1992, 1993
and 1994, the audited financial statements of Sharewell Horizontal Systems
Limited as of and for the years ended September 30, 1991 and 1992 and the 18-
month period ended March 31, 1994, the audited financial statements of Sharewell
(Far East) Limited as of and for the years ended March 31, 1993 and 1994, and
the unaudited financial statements of the Company and its Subsidiaries, of
Sharewell Horizontal Systems Limited and of Sharewell (Far East) Limited, as of
and for year ended March 31, 1995, previously delivered to Buyer (the "Financial
Statements") are accurate and complete, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as set forth therein) and fairly present the financial condition and results of
operations of the Company, except that the unaudited Financial Statements lack
footnotes and are subject to normal year-end audit adjustments that will not be
material. The Company's fiscal 1996 budget and capital budget previously
furnished by the Company to Buyer (i) are true and complete copies of the
Company's most recent internal budgets for fiscal 1996 and (ii) were prepared by
management of the Company in good faith and on a reasonable basis. Schedule
4.14 reflects all intercompany transactions between the Company or any
Subsidiary and any Sellers or any Affiliates thereof since March 31, 1994.
4.15 Condition of Assets and Inventory. All the assets of the Company or
any Subsidiary are in good, serviceable condition and fit for the particular
purposes for which they are used in the business of the owner thereof, subject
only to normal maintenance requirements and normal wear and tear reasonably
expected in the ordinary course of business. All items of inventory of the
Company or any Subsidiary are merchantable or (in the case of raw materials,
supplies and work in process) suitable and useable for the production or
completion of merchantable products, for sale in the ordinary course of business
as first quality goods at normal mark-ups, none of such items is below standard
quality, each item is reflected in the Financial Statements on the basis of a
physical count and is valued at the lower of cost or market in accordance with
generally accepted accounting principles.
4.16 Liabilities. Except as set forth in Schedule 4.16 or in the
financial statements and notes thereto referred to in Section 4.14, there is no
existing, contingent or threatened liability, obligation, lien or claim of any
nature (absolute, accrued, contingent or otherwise) that relates to or has been
or may be asserted against the Company or any Subsidiary, other than liabilities
arising after the dates of the Financial Statements in the ordinary course of
business consistent with past practice.
4.17 Employees and Related Matters. Schedule 4.17 is a complete list of
all employees of the Company or any Subsidiary, listing the title or position
held, base salary, any commissions or other compensation paid or payable, all
employee benefits received by such employees and any other terms of any oral or
written agreement with the Company, any Subsidiary, any Seller or any affiliate
thereof.
4.18 No Material Change. There has been no material adverse change in
the business, prospects, results of operations, assets or financial position of
the Company or any Subsidiary from January 1, 1995 to and including the Closing
Date, and no event has occurred which could be expected to lead to or cause such
a material adverse change.
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4.19 Compliance With Law. Neither the Company nor any Subsidiary is in
violation of any provision of any law, decree, order, regulation, license,
permit, consent, approval, authorization or qualification or order, including,
without limitation, those relating to health, the environment or Hazardous
Substances, and neither the Company nor any Subsidiary has received any notice
of any alleged violation of such law, decree, order, regulation, license,
permit, consent, approval, authorization or qualification or order.
4.20 WARN Act Notices. Any notice required under the Federal Workers
Adjustment and Retraining Notification Act ("WARN Act") that is, has been or
will be required of the Company or any Subsidiary to its employees or former
employees by reason of its obligations under the WARN Act resulting from the
transactions contemplated by this Agreement has been or will be given by the
Company or such Subsidiary.
4.21 Insurance. The Company has heretofore delivered to Buyer a list and
copies of all insurance policies of the Company or any Subsidiary or relating to
the conduct of the business of the Company or any Subsidiary. Such policies are
in full force and effect, and the Company and the Subsidiaries are not in
default under any of them.
4.22 Government Licenses, Permits and Related Approvals. Schedule 4.22
hereto sets forth a list of all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities required
for the conduct of business by the Company and the Subsidiaries, all of which
are in full force and effect and are not being violated.
4.23 Distributed Products. Schedule 4.23 sets forth a complete listing
of all products (i) distributed by the Company or any Subsidiary (and the
manufacturer thereof and the person, if different, for whom Seller distributes
such product) or (ii) manufactured or sold by the Company or any Subsidiary and
distributed by others (and the name of such distributor). Such schedule also
sets forth the terms of each such distribution arrangement. The Company has
full right to distribute all products referred to in clause (i) of the preceding
sentence.
4.24 Safety Reports. Schedule 4.24 sets forth a complete listing of all
injury reports, worker's compensation reports and claims, safety citations and
reports, OSHA reports and all documents relating to any of the foregoing since
January 1, 1990.
4.25 Outstanding Balances. The outstanding total amounts due under (i)
the Company Bank Debt is $1,255,379.26 and (ii) the Forest Note is
$2,950,095.61.
4.26 Transactions with Certain Persons. Except as set forth on Schedule
4.26, during the past three years neither the Company nor any Subsidiary has,
directly or indirectly, purchased, leased or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with (except with
respect to remuneration for services rendered as a director, officer or employee
of the Company or any Subsidiary), in the ordinary course of business or
otherwise, any Seller or any Affiliate thereof. Except as set forth on Schedule
4.26, neither the Company nor any Subsidiary owes any amount to, or has any
contract with or commitment to, any of its shareholders, directors, officers,
employees or consultants (other than compensation for current services not yet
due and payable and reimbursement of expenses arising in the ordinary course
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of business not in excess of $15,000 in the aggregate), and none of such persons
owes any amount to the Company or any Subsidiary.
4.27 Accounts Receivable. The accounts receivable of the Company and the
Subsidiaries are valid, genuine and subsisting, arise out of bona fide sales and
deliveries of goods, performance of services or other business transactions on
the ordinary course of business, are owned free and clear and not subject to any
Lien, and are current and collectible net of any reserves shown on the Financial
Statements (which reserves are adequate and were calculated consistent with past
practice). Subject to such reserve, each of such accounts receivable will be
collected in full, without any set-off and without resort to litigation, within
180 days after the Closing.
4.28 Employee Benefits. Schedule 4.28 contains a complete list of
"employee welfare plans" (as that term is defined in Section 3(1) of ERISA) ever
maintained by the Company, any Subsidiary or any person or trade or business
under common control with the Company, or in which active or former employees of
the Company or any Subsidiary (collectively, the "Affected Employees")
participate or ever participated (which plans are hereinafter referred to as
"Welfare Plans"). Schedule 4.30 also contains a complete list of "employee
pension benefit plans" as that term is defined in Section 3(2) of ERISA ever
maintained by the Company, any Subsidiary or any person or trade or business
under common control with the Company, or in which any such entity ever
contributed or is or was required to contribute or in which Affected Employees
participate or ever participated (which plans are hereinafter referred to as
"Pension Plans"). Neither the Company, any Subsidiary or any Affected Employees
participate or ever participated in any "multiemployer plan" (as that term is
defined in Section 3(37) of ERISA). The Welfare Plans and Pension Plans are
hereinafter collectively referred to as "Company Plans." Each Company Plan is
in compliance with the provisions of all applicable laws, rules and regulations,
including, without limitation, ERISA and the Code. None of the Pension Plans
has incurred any "accumulated funding deficiency" (as defined in Section 412(a)
of the Code). Neither the Company nor any Subsidiary has incurred any liability
to the Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of
ERISA, or any withdrawal liability under Title IV of ERISA with respect to any
multiemployer plan. Neither the Company nor any Subsidiary has employees
covered by a collective bargaining agreement.
4.29 Reorganization. Immediately prior to the Closing, (i) Sharewell,
Inc. was merged with and into Sharewell Holdings, Inc. ("SHI") pursuant to
Section 253 of the Delaware General Corporation Law (the "DGCL"), and no stock
or securities of any kind were issued in such merger and (ii) SHI was merged
with and into the Company pursuant to Section 252 of the DGCL, and in such
merger the Company issued 5,913 shares of Common Stock to John Teer in exchange
for all the outstanding stock of SHI not owned by the Company. True and correct
copies of all corporate proceedings and of all filings pursuant to the DGCL with
respect to the foregoing have been delivered to Buyer.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Seller the following:
5.1 Corporate Status and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
with full corporate power and authority under its certificate of incorporation
and by-laws to conduct its business as the same exists on the date hereof and on
the Closing Date.
5.2 Authorization. Buyer has full corporate power and authority under
its certificate of incorporation and by-laws, and its board of directors has
taken all necessary corporate action to authorize it, to execute and deliver
this Agreement and the exhibits and schedules hereto, to consummate the
transactions contemplated herein and to take all actions required to be taken by
it pursuant to the provisions hereof or thereof, and each of this Agreement and
the exhibits hereto constitutes the valid and binding obligation of Buyer
enforceable in accordance with its terms.
5.3 Non-Contravention. Neither the execution and delivery of this
Agreement and the schedules and exhibits hereto, nor the consummation of the
transactions contemplated herein or therein, does or will violate, conflict with
or result in breach of or require notice or consent under any law, the charter
or bylaws of Buyer or any provision of any agreement or instrument to which
Buyer is a party. DRLX Partners, L.P., a Delaware limited partnership, owns
more than 90% of the outstanding Buyer Stock (which constitutes the only class
of voting securities or other equity security issued by Buyer). No person
(including any ultimate parent entity) has the right to 50% or more of the
profits of DRLX Partners, L.P. or the right in the event of a dissolution
thereof to 50% or more of the assets thereof. The only assets of DRLX Partners,
L.P. are its investment in Buyer and less than $100,000 in cash. The last
regularly prepared annual income statement for Buyer shows revenues of less than
$50 million, and the last regularly prepared balance sheet of Buyer shows assets
of less than $50 million. DRLX Partners, L.P. is the ultimate parent entity of
Buyer for purposes of the HSR Act.
5.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by Buyer in
connection with this Agreement.
5.5 Broker Involvement. Buyer has not hired, retained or dealt with any
broker or finder in connection with the transactions contemplated by this
Agreement.
5.6 Financial Statements. The unaudited financial statements of Buyer
and its Subsidiaries as of and for the eleven months ended February 28, 1995,
previously delivered to the Sellers, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as set
forth therein) and fairly present the financial condition and results of
operations of Buyer and its Subsidiaries, except the unaudited financial
statements are subject to normal year-end adjustments and lack footnotes.
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5.7 Capitalization. The authorized capital stock of Buyer consists of
3,000,000 shares of Buyer Stock. As of the Closing, there are 2,174,833 shares
of Buyer Stock issued and outstanding. There are no outstanding subscriptions,
options, convertible securities, warrants or calls of any kind issued or granted
by, or binding upon, Buyer or DRLX Partners, L.P. to purchase or otherwise
acquire or to sell or to otherwise dispose of any security of or equity interest
in Buyer, other than (1) options to purchase 37,435 shares of Buyer Stock
granted to employees and directors and (2) stockholders' agreements with
employees and directors with respect to stock owned by them.
5.8 Issuance of Shares Pursuant to the Warrants. The issuance of shares
of Buyer Stock upon exercise of the Warrants has been duly authorized and, when
issued pursuant to the terms thereof, such shares shall be validly issued, fully
paid and nonassessable.
5.9 Litigation. There is no investigation, claim or proceeding or
litigation of any type pending or threatened involving the Buyer or any of its
Subsidiaries that may have a material adverse effect on the Buyer and its
Subsidiaries taken as a whole.
5.10 Absence of Default. Neither Buyer nor any of its Subsidiaries is in
breach of in or in default under any agreement for borrowed money, and no event
has occurred that with the giving of notice or the lapse of time, or both, would
constitute a default thereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS AND COVENANTS
The parties covenant and agree as follows:
6.1 Public Announcements. Subject to applicable securities law or stock
exchange requirements, each Seller shall not, without the prior approval of
Buyer, issue, or permit any of such Seller's employees, agents or other
Affiliates to issue, any press release or other public announcement with respect
to this Agreement or the transactions contemplated hereby.
6.2 Further Assurances. Each Seller shall execute, acknowledge and
deliver or cause to be executed, acknowledged and delivered to Buyer or its
Affiliates such assignments or other instruments of transfer, assignment and
conveyance, in form and substance satisfactory to counsel of Buyer, as shall be
necessary to vest in Buyer all of the right, title and interest in and to the
Shares free and clear of all liens, charges, encumbrances, rights of others,
mortgages, pledges or security interests, and any other document reasonably
requested by Buyer in connection with this Agreement.
6.3 Covenant Against Competition. (a) As an essential consideration for
the obligations of Buyer under this Agreement, each Seller hereby agrees and
covenants that, for the Noncompete Period, neither such Seller nor any Affiliate
thereof controlled such Seller shall engage in any manner in the manufacture,
sale, distribution, buying, brokering, leasing or marketing of products of the
same general type as those produced or marketed by the Company
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or any Subsidiary as of the Closing, or associated services, in the geographic
areas in which the Company or any Subsidiary has marketed products since January
1, 1992 (the "Territory").
(b) In particular, for the Noncompete Period, each Seller agrees that
neither he nor any of his Affiliates controlled by him will:
(i) engage within the Territory in a Competing Business;
(ii) solicit any Customer to purchase or acquire any guidance instruments
or survey instruments or systems from any person other than the Company;
(iii) solicit any person who is or was an employee of the Company to
leave such employment or otherwise terminate such employment; or
(iv) indirectly participate in any of the activities described in
paragraphs (i), (ii), and (iii) (a "Prohibited Activity") by entering into
or acquiring any ownership, contractual or other business relationship with
any person who engages in any of the Prohibited Activities, whether such
relationship is as an officer, director, shareholder, owner, partner, joint
venturer, employee, promoter, consultant, manager, independent contractor,
agent or otherwise, other than the ownership of less than 5% of the
outstanding equity interests in such person.
(c) Each Seller acknowledges and agrees that he has acquired a special
knowledge of the affairs, business and customer operations of the Company, and
each Seller acknowledges and agrees that irreparable loss and damage will be
suffered by the Company if such Seller should breach or violate any of the
covenants and agreements contained in this Section. Each Seller further
acknowledges and agrees that each of the covenants herein contained is
reasonably necessary to protect and preserve value of the Company to Buyer.
Each Seller therefore agrees and consents that, in addition to any other
remedies available to Buyer, to the extent permissible by law, Buyer shall be
entitled to an injunction or other equitable relief to prevent a breach by such
Seller of any of the covenants or agreements contained in this Agreement. In
the event that Buyer brings legal action to enforce its rights hereunder, to the
extent permissible by law, such Seller shall pay all of Buyer's court costs and
reasonable legal fees and expenses arising out of such action.
(d) Each Seller hereby acknowledges and agrees that this Section: (i) is
supported by independent valuable consideration, and (ii) contains reasonable
limitations as to time, geographical area, and scope of activity to be
restrained that do not impose a greater restraint than is necessary to protect
the business of the Company. Buyer has tendered to Sellers the Purchase Price
based on the agreed value of the world wide business engaged in by the Company,
which is based on the technological advantage which the Company possesses over
its competitors and the relationship which the Company has established with its
Customers throughout the world. The technological advantage of the Company
would be substantially impaired if a Seller, who individually developed many of
the processes, inventions, and technologies utilized by the Company and who is
aware of many of the trade secrets and confidential information possessed by the
Companies, competed with the Company within the Territory. The relationship of
the Company with the Customers would similarly be impaired
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if such Seller competed with the Companies since such Seller was personally
involved in developing the relationships of the Companies with many of the
customers.
(e) Should a court of competent jurisdiction declare any of the
provisions of this Section unenforceable due to any unreasonable restriction of
duration, territorial coverage, scope of activity, or otherwise, in lieu of
declaring such provision unenforceable, the court, to the extent permissible by
law, may, at Buyer's request, revise or reconstruct such provisions in a manner
sufficient to cause them to be enforceable.
(f) For purposes of this Section, the following definitions shall apply:
"Company" shall mean the Company and each Subsidiary.
"Company Business" shall mean the business of supplying guidance
instruments and survey instruments and systems to the oil and gas drilling,
pipeline construction, utilities construction, and environmental
industries.
"Competing Business" shall mean any person, concern or entity which is
engaged in a business substantially similar to the Company Business.
"Customer" shall mean a person or entity who has bought goods or services
from the Company (or any predecessor) at any time prior to the date hereof.
"Noncompete Period" with respect to a Seller shall mean the period
beginning at the Closing and ending on the first of the two following dates
to occur: (i) the date which is five years from the date hereof, or (ii)
the date which is two years subsequent to the date upon which the
employment of such Seller with the Company is terminated for any reason.
6.4 Investment Intention; No Resales; Legends. Each Seller hereby
represents and warrants that he is acquiring the Note, the Warrants and any
shares of Buyer Stock issuable upon exercise of the Warrants (collectively, the
"Securities") hereunder or upon exercise of options pursuant to Section 2.7 for
investment, solely for his own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. Each Seller
agrees that he will not purchase, offer, sell or otherwise dispose of any of the
Securities except under circumstances which will not result in a violation of
the Securities Act of 1933 (the "Securities Act"). In order to exercise a
Warrant, the holder thereof must be able to confirm and shall confirm in
writing, by executing a certificate to be supplied by the Company, all of the
representations and other covenants contained in Sections 6.4 through 6.6,
including that the Securities so purchased are being acquired for investment and
not with a view toward distribution or resale. The Securities shall be stamped
or imprinted with, in addition to any other appropriate or required legend, a
legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THE SECURITIES EVIDENCED HEREBY MAY NOT BE
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ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED OR PLEDGED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION REQUIREMENTS ARE NOT
APPLICABLE. COPIES OF THE AGREEMENTS COVERING THE ISSUANCE OF THESE
SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY."
6.5 Securities Unregistered. Each Seller acknowledges and represents
that he has been advised by Buyer that:
(a) the offer and sale of the Securities has not been registered under
the Securities Act;
(b) the Securities acquired by such Seller hereunder must be held
indefinitely and such Seller must continue to bear the economic risk of the
investment in such Securities unless the offer and sale thereof is
subsequently registered under the Securities Act and all applicable state
securities laws or an exemption from such registration is available;
(c) there is no established public or other market for any of the
Securities acquired by Sellers hereunder;
(d) Rule 144 promulgated under the Securities Act is not currently
available with respect to the sale of any securities of the Company and the
Company has not made any covenant to make such Rule available;
(e) when and if securities of the Company may be disposed of without
registration under the Securities Act in reliance on Rule 144, such
disposition can be made only in accordance with the terms and conditions of
such Rule;
(f) if the Rule 144 exemption is not available, public offer or sale of
the Securities without registration will require compliance with Regulation
A or the availability of an exemption under the Securities Act;
(g) a restrictive legend in the form set forth in Section 6.4 shall be
placed on the certificates representing the Securities acquired by such
Seller hereunder; and
(h) a notation shall be made in the appropriate records of the Company,
indicating that the Securities subject to restrictions on transfer, and, if
the Company should at some time in the future engage the services of a
securities transfer agent, appropriate stop-transfer instructions will be
issued to such transfer agent.
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6.6 Additional Investment Representation. Each Seller represents and
warrants that:
(a) such Seller's financial situation is such that he can afford to bear
the economic risk of holding the Securities acquired by him hereunder for
an indefinite period of time, has adequate means for providing for his
current needs and personal contingencies and can afford to suffer the
complete loss of his investment in such Securities;
(b) such Seller's knowledge and experience in financial and business
matters are such that he is capable of evaluating the merits and risks of
the investment in the Securities acquired by him hereunder, or he has been
advised by a representative possessing such knowledge and experience;
(c) (except in the case of each Employee Optionee), such Seller is an
"Accredited Investor" as that term is defined in Rule 501(a) promulgated
under the Securities Act;
(d) such Seller understands that the Securities acquired by him hereunder
are speculative investments that involve a high degree of risk of loss of
his investment therein, that there are substantial restrictions on the
transferability of such Securities and, for an indefinite period following
the Closing, there may be no public market for the Securities and that,
accordingly, it may not be possible for such Seller to liquidate his
investment in case of emergency, if at all;
(e) such Seller and his representatives, including such Seller's
professional, financial, tax and other advisors, have carefully reviewed
all documents furnished to them in connection with the investment in the
Securities acquired by him hereunder, and he understands and has taken
cognizance of all the risk factors related to such investment, and no
representations or warranties have been made to him or his representatives
concerning such investment or the company or its prospects or other matters
except as set forth herein;
(f) in making his decision to acquire the Securities, such Seller has
relied upon independent investigations made by him and, to the extent
believed by him to be appropriate, his representatives, including his own
professional, financial, tax and other advisors;
(g) such Seller and his representatives have been given the opportunity
to examine the documents that he or his representatives deem necessary and
to ask questions of, and to receive answers from, Buyer and the Company and
representatives of each of them concerning the terms and conditions of the
acquisition of the Securities and to obtain any additional information that
he or his representatives deem necessary; and
(h) all information which such Seller has provided to Buyer or the
Company or their representatives concerning him and his financial position
is true, complete and
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correct as of the date of this Agreement, and such Seller agrees to
promptly notify Buyer if at any time this ceases to be the case.
ARTICLE VII
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION
7.1 Indemnification of Buyer. Each Stockholder Seller, severally in
proportion to the number of Shares to be sold by such Seller as set on Schedule
1 as compared to all Shares sold by all Stockholder Sellers, agrees to indemnify
Buyer (including its officers, directors, employees and agents) against, and
hold it harmless from and against, any and all claims, actions, causes of
action, arbitrations, proceedings, losses, damages, liabilities, judgments and
expenses (including, without limitation, reasonable attorneys' fees)
("Indemnified Amounts") incurred by Buyer, the Company or any Subsidiary as a
result of (a) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of such Seller in this
Agreement, (b) any violation or breach by such Seller of or default by such
Seller under the terms of this Agreement, (c) the items set forth on Schedule
4.7 or Schedule 4.11, (d) the presence, release, remediation or clean-up of, or
exposure to, Hazardous Substances relating to or located on, within or under (as
of or prior to the Closing) any assets owned, leased or used by the Company or
any Subsidiary, or (e) any product liability or other claims concerning products
sold or services provided by the Company or any Subsidiary prior to the Closing.
Buyer shall be entitled to recover its reasonable and necessary attorneys' fees
and litigation expenses incurred in connection with successful enforcement of
its rights under this Section.
7.2 Indemnification of Sellers. Buyer agrees to indemnify each Seller
against, and hold it harmless from and against, any and all Indemnified Amounts
incurred by such Seller as a result of (a) any error, inaccuracy, breach or
misrepresentation in any of the representations and warranties made by or on
behalf of Buyer in this Agreement, or (b) any violation or breach by Buyer of or
default by Buyer under the terms of this Agreement. Seller shall be entitled to
recover its reasonable and necessary attorneys' fees and litigation expenses
incurred in connection with successful enforcement of its rights under this
Section.
7.3 Survival; Threshold and Limits of Liability. The representations,
warranties and indemnities set forth in this Agreement and in any certificate or
instrument delivered in connection herewith shall be continuing and shall
survive (subject to any applicable statute of limitations with respect to any
claim by a third party) the Closing until the fifth anniversary of the Closing
Date (except that the representations and warranties set forth in Sections 4.8
and 4.11 and in Section 4.19 with respect to environmental liabilities or
Hazardous Substances and the indemnities set forth in Section 7.1(c) or (d) or
(e) shall survive the Closing without limitation pursuant to the terms hereof)
(the period during which the representations and warranties shall survive being
referred to herein with respect to such representations and warranties as the
"Survival Period"), but shall thereafter terminate and be of no further force
and effect unless a written notice asserting a claim shall have been made
pursuant to this Article VII within the Survival Period with respect to such
matter. Any claim for
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indemnification made during the Survival Period shall remain in effect for
purposes of such indemnification notwithstanding such claim may not be resolved
within the Survival Period. No party shall be liable under this Agreement for
the breach of any representation or warranty (other than with respect to an item
that is taken into account in determining Net Worth, as to which this limitation
shall not apply) unless the aggregate amount of such liability (for all such
claims) exceeds $100,000, in which event the Indemnifying Party shall be fully
liable without regard to such threshold. The maximum liability of Sellers or
Buyer with respect to all Indemnified Amounts (other than the Unlimited Items
referred to below in this Section 7.3) under this Article VII or otherwise under
this Agreement shall be limited to an aggregate of $4.5 million, which amount
shall be reduced on each annual anniversary of the Closing Date by the excess,
if any, of $900,000 over the aggregate amount ultimately due with respect to
claims asserted during the year prior to such anniversary; provided, however,
that any such reduction shall not be effective to relieve a party of any
liability it may have in respect of any claim given prior to such anniversary
date. (For example, if on the first anniversary of the Closing Date, Sellers
otherwise would have been entitled to a $900,000 reduction in potential maximum
liability and Sellers had received a $500,000 Claim Notice from Buyer prior to
such anniversary date, Sellers nevertheless would continue to be liable to Buyer
for up to $500,000 in respect of the matters (and only those matters) identified
in such Claim Notice, and would be liable for up to $3,600,000 with respect to
all other matters). The preceding limitation shall not apply to with respect to
any amounts due with respect to Section 7.1(d) or (e) or with respect to any
other provision as it relates to environmental liabilities or Hazardous
Substances (collectively, the "Unlimited Items"). The limitations of this
Section 7.3 shall apply with respect to any action brought with respect to the
Indemnified Amounts whether such actions are based on this Article VII, Article
IV, any other provision of this Agreement, or otherwise (including clause based
on principles of law other than contract law, such as securities law and tort
law).
7.4 Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party Claim") for
which indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "Election Period"),
the Indemnifying Party shall notify the Indemnified Party whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and, if the Indemnifying Party does not
dispute its potential liability to the Indemnified Party with respect to such
Third Party Claim, whether the Indemnifying Party elects to defend the
Indemnified Party with respect to such Third Party Claim.
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If the Indemnifying Party does not dispute its potential liability to the
Indemnified Party within the Election Period and notifies the Indemnified Party
that he or it has elected to defend the Indemnified Party with respect to such
Third Party Claim, the Indemnifying Party shall control negotiations toward
resolution of such claim without the necessity of litigation, and if litigation
ensues, to defend the same with counsel reasonably acceptable to the Indemnified
Party, at the Indemnifying Party's expense, and the Indemnified Party shall
extend reasonable cooperation in connection with such defense. The Indemnified
Party shall be entitled to participate in, but not to control, the defense of
any Third Party Claim resulting in litigation, at its own cost and expense;
provided, however, that if the parties to any suit or proceeding shall include
the Indemnifying Party as well as the Indemnified Party and the Indemnified
Party shall have been advised by counsel that one or more legal defenses may be
available to it that may not be available to the Indemnifying Party, then the
Indemnified Party shall be entitled to elect to control the defense of such suit
or proceeding, but the Indemnifying Party shall be obligated to bear the fees
and expenses of counsel of the Indemnified Party, which shall be selected by the
Indemnified Party in its complete and sole discretion. If the Indemnifying
Party does not dispute its potential liability to the Indemnified Party within
the Election Period and does not elect to defend the Indemnified Party, but the
Indemnified Party fails to assume control of the negotiations prior to
litigation or to defend such action within a reasonable time, the Indemnifying
Party shall be entitled, but not obligated, to then assume control of such
negotiations or defense of such action, and the Indemnifying Party shall be
liable to the Indemnified Party for its expenses reasonably incurred or amounts
paid in connection therewith. If the Indemnifying Party disputes its potential
liability to the Indemnified Party within the Election Period or elects not to
defend the Indemnified Party, then the Indemnified Party shall be entitled to
assume control of such negotiations or defense of action and the liability for
the expense thereof, as well as any liability with respect to such Third Party
Claim, shall be determined as provided in Section 7.5 below.
If the Indemnifying Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article VII
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all costs
and expenses of such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section, and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
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Neither the Indemnifying Party nor the Indemnified Party shall settle,
compromise, or make any other disposition of any Third Party Claim which would
or might result in any liability to the Indemnified Party or the Indemnifying
Party under this Article VII without the written consent of such other party.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder.
7.5 Arbitration of Disputes. If the Indemnifying Party disputes, either
as to the amount or liability, that any claim described in a Claim Notice or an
Indemnity Notice, as the case may be, is covered by such Indemnifying Party's
covenant to indemnify contained in this Article VII, then the Indemnifying Party
and the Indemnified Party agree to promptly negotiate in good faith to resolve
their differences and to mutually agree upon an amount, if any, owed to
Indemnified Party by the Indemnifying Party hereunder. If Indemnifying Party
and Indemnified Party fail to agree within 30 days thereafter, the dispute shall
be resolved by binding and final arbitration of a single arbitrator mutually
agreed to by Buyer and Seller conducted in Houston, Texas in accordance with the
rules of commercial arbitration of the American Arbitration Association. The
prevailing party in any such arbitration proceeding shall be entitled to
attorney's fees and other out-of-pocket expenses reasonably and necessarily
incurred in connection with such proceeding, the amounts of which shall be
contained in the award of the arbitrator.
7.6 General. The covenants and agreements entered into pursuant to this
Agreement to be performed after the Closing shall survive the Closing without
limitation. The indemnification obligations under this Article VII shall apply
regardless of whether any suit or action results solely or in part from the
active, passive or concurrent negligence of the Indemnified Party. The rights
of the parties to indemnification under this Article VII shall not be limited
due to any investigations heretofore or hereafter made by such parties or their
representatives, regardless of negligence in the conduct of any such
investigations. All representations, warranties and covenants and agreements
made by the parties shall not be deemed merged into any instruments or
agreements delivered in connection with the Closing or otherwise in connection
with the transactions contemplated hereby. To the extent that more than one
Seller is an Indemnifying Party with respect to a matter, they shall act by a
majority in interest based in their prior ownership of Shares unless such
Sellers otherwise agree.
7.7 Notes. The principal amount of the Notes shall be reduced by any
amount due to Buyer or the Company pursuant to Article VII or under any other
provision of this Agreement, but the existence or exercise of such right of
offset shall in no event limit the liability of any Seller to Buyer hereunder.
Each Seller agrees that he will not assign, sell,
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transfer, hypothecate or pledge the Note, the Warrants or any part thereof in
violation of applicable law (including the federal securities law), and no such
assignment, sale, transfer, hypothecation or pledge shall be made unless such
Seller delivers to Buyer an opinion of counsel satisfactory to Buyer that this
condition is met. If, at a time when a dispute exists concerning a claim as to
which a Seller may have liability as an Indemnifying Party hereunder, or with
respect to any other amounts claimed to be due from a Seller hereunder, a
payment shall become due upon such Seller's Note, then Buyer shall make a good
faith determination of the amount of such liability (the "Estimated Dispute
Amount") and shall withhold from such payment an amount equal to the Estimated
Dispute Amount, which amount shall instead be paid into escrow pursuant to an
Escrow Agreement between Buyer and such Seller. In any such event, (x) any
amounts determined to be due shall first be settled by payment out of the escrow
of the Escrow Agreement, (y) such Seller shall receive interest at 8% per annum
with respect to the amount determined to be due to such Seller, and (z) no
interest with respect to the amount paid into escrow shall accrue under the
Note, which shall be deemed paid to the extent of the Estimated Dispute Amount.
No purported assignment, sale, transfer, hypothecation or pledge shall modify
the right of offset provided herein. Appropriate legends to such effect shall
be placed on the Note (and any security issued upon conversion thereof) and the
Warrants.
7.8 Release. Effective as of the Closing, except as set forth in
Schedule 7.8, each Seller does hereby for himself and his heirs, executors,
administrators and legal representatives remise, release, acquit and forever
discharge the Company and its respective Affiliates, partners, officers,
directors, controlling persons or entities, employees, attorneys and successors
and assigns of and from any and all claims, demands, liabilities,
responsibilities, disputes, causes of action and obligations of every nature
whatsoever, liquidated or unliquidated, known or unknown, matured or unmatured,
fixed or contingent, which such Seller now has, owns or holds or has at any time
previously had, owned or held against the Company or any Subsidiary. This
release is expressly intended to apply notwithstanding any act or omission by
the Company or any of such persons, including any negligent acts or omissions by
the Company or any of such persons.
7.9 Insurance Proceeds. In determining the amount of any loss,
liability or expense for which any party is entitled to indemnification under
this Agreement, the gross amount thereof will be reduced by any correlative
insurance proceeds realized or to be realized by such party, and such
correlative insurance benefit shall be net of any insurance premium which
becomes due as a result of such claim.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Confidentiality; Publicity; Books and Records. (a) After the
Closing, no Seller or Affiliate thereof will, directly or indirectly, disclose
or provide to any other person any non-public information of a confidential
nature concerning the Company or any Subsidiary or their business or operations,
except as is required in governmental filings or judicial, administrative or
arbitration proceedings. In the event that any Seller or Affiliate becomes
legally required to disclose any such information in any governmental filings or
judicial,
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administrative or arbitration proceedings, such Seller shall, and shall cause
such Affiliate to, provide Buyer with prompt notice of such requirement so that
Buyer may seek a protective order or other appropriate remedy. In the event
that such protective order or other remedy is not obtained, such Seller shall,
and shall cause such Affiliate to, furnish only that portion of the information
that such Seller or such Affiliate, as the case may be, is advised by its
counsel is legally required and such disclosure shall not result in any
liability hereunder unless such disclosure was caused by or resulted from a
previous disclosure by such Seller or any Affiliate which was not permitted by
this Agreement. Subject to applicable securities law or stock exchange
requirements, the parties hereto will promptly advise, and obtain the approval
of, the other parties before issuing any press release with respect to this
Agreement or the transactions contemplated hereby.
(b) For a period of five years after the Closing Date, Buyer will
preserve and retain the books and records of the Company and make such books and
records available at the then current administrative headquarters of Buyer to
any Seller and his agents, upon reasonable notice and at reasonable times, at
such Seller's cost and expense, it being understood that such Seller shall be
entitled to make copies of any such books and records as shall be reasonably
necessary.
8.2 Expenses. Except as provided in this Section, Buyer and each Seller
shall pay their own respective expenses, including the fees and disbursements of
their respective counsel in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated herein. Cokinos, Bosien & Young ("CBY"), corporate counsel to the
Company, is representing the interests of the Stockholder Sellers in connection
with the negotiation and closing of this transaction, with CBY invoicing the
Company for its services and the Company paying the reasonable fees for such
services. Notwithstanding the payment of CBY's fees by the Company or anything
else to the contrary, CBY shall be considered counsel to such Stockholder
Sellers and not the Company with respect to this transaction.
8.3 Entire Agreement. This Agreement, including all schedules and
exhibits hereto, constitutes the entire agreement of the parties with respect to
the subject matter hereof, and may not be modified, amended or terminated except
by a written instrument specifically referring to this Agreement signed by all
the parties hereto.
8.4 Waivers and Consents. All waivers and consents given hereunder
shall be in writing. No waiver by any party hereto of any breach or anticipated
breach of any provision hereof by any other party shall be deemed a waiver of
any other contemporaneous, preceding or succeeding breach or anticipated breach,
whether or not similar.
8.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been received only if and when (i)
personally delivered or (ii) on the third day after mailing, by United States
mail, first class, postage prepaid, by certified mail return receipt requested,
addressed in each case as follows (or to such other address as may be specified
by like notice):
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(a) If to Buyer, to:
Drilex Holdings Corp.
c/o SCF Partners, L.P.
6600 Texas Commerce Tower
Houston, TX 77002
Attention: David Baldwin
(b) If to any Seller, to the address set forth on Schedule 1 for such
Seller.
8.6 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
8.7 Limitation on Interest. Regardless of any provision contained herein
or any other document executed in connection with this Agreement, the parties
hereto shall not be obliged to pay, and the parties hereto shall never be
entitled to charge, reserve, receive, collect or apply, as interest (it being
understood that interest shall be calculated as the aggregate of all charges
that are contracted for, charged, reserved, received, collected, applied or paid
that constitute interest under applicable law) payable hereunder any amount in
excess of the maximum nonusurious contract rate of interest allowed from time to
time by applicable law, and in the event any of the parties hereto ever charges,
reserves, receives, collects or applies, as interest, any such excess, at the
option of the payor of such interest, such amount shall be deemed a partial
prepayment of the amount payable hereunder or promptly refunded to the payor of
such interest.
8.8 Choice of Law; Section Headings; Table of Contents. This Agreement
shall be governed by the internal laws of the State of Texas (without regard to
the choice of law provisions thereof). The section headings and table of
contents contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ L. E. SIMMONS
----------------------------
/s/ S. R. ANDERSON
-------------------------------
S. R. Anderson
/s/ JOHN TEER
--------------------------------
John Teer
/s/ TODD CASPARY
--------------------------------
Todd Caspary
/s/ FRANK FOREST
--------------------------------
Frank Forest
/s/ GEORGE W. KOWALCZUK
--------------------------------
George W. Kowalczuk
/s/ ANDY F. BROWN
--------------------------------
Andy F. Brown
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EXHIBIT A
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THIS NOTE MAY
NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED OR PLEDGED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION REQUIREMENTS ARE NOT
APPLICABLE.
$________________ May 5, 1995
Houston, Texas
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation (hereinafter called
"Maker"), for value received, promises and agrees to pay on or before April 30,
2000, to _________________________________________________________ (hereinafter
called "Payee"), in Houston, Harris County, Texas, in lawful money of the United
States of America the principal sum of
______________________________________________________________ Dollars
($____________), together with interest thereon (calculated on the basis of a
365-day year, or a 366-day year in the case of a leap year) from and after the
date hereof until maturity at 8% per annum, but in no event to exceed the
maximum rate of nonusurious interest allowed from time to time by law
(hereinafter called the "Highest Lawful Rate"). After maturity (by acceleration
or otherwise), interest shall be so computed at 11% per annum, but in no event
to exceed the Highest Lawful Rate.
PRINCIPAL is due and payable quarterly in 19 equal installments of
$___________ [one-twentieth of the original principal amount] each, beginning on
July 31, 1995 and on the last day of each and every third consecutive calendar
month thereafter until maturity, when all principal remaining unpaid shall be
due and payable. Accrued interest is due and payable quarterly with the
principal payments and at maturity; provided, however, that if the principal of
this note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest with respect to such principal amount prepaid is due
and payable on the date of such prepayment. If any amount owing under this note
is due and payable on a day that is not a business day, such payment shall
instead be due and payable on the next succeeding business day. Maker has the
right to prepay this note in whole or in part at any time and from time to time
without penalty, on not less than two business days' prior notice. Any such
prepayment shall be applied ratably to all remaining installments of principal
not then due.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note, (b) default is made in the payment when due of any installment of
interest on this note and such default has not been cured within five days after
the date on which such payment is due, (c) Maker shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (d) an involuntary
case or other proceeding shall be
(Page 1 of 3 Pages)
<PAGE>
$________________ Houston, Texas May 5, 1995
commenced against Maker which seeks liquidation, reorganization or other relief
with respect to Maker or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect and such involuntary
case or other proceeding shall remain undismissed for a period of 90 days, (e)
default is made under any loan extended to Maker by any financial institution
and such default results in the acceleration of the payment of any principal
amount due pursuant to such loan in excess of $1 million and such acceleration
is not cured or withdrawn, or all amounts owing pursuant to such loan are not
paid in full, within thirty days after the date of such acceleration or (f)
without the consent of the holders of a majority in principal amount of this
note and the other Notes (as defined in the Stock Purchase Agreement referred to
below), Maker shall (i) sell, lease or exchange all or substantially all its
assets or (ii) dissolve. Upon the occurrence of any Event of Default described
in clause (a), (b) or (f) of the first sentence of this paragraph, Payee may by
written notice to Maker declare the entire principal amount then outstanding
under this note, together with interest then accrued thereon, to be immediately
due and payable. Upon the occurrence of any Event of Default described in clause
(e) of the first sentence of this paragraph, Payee may by written notice to
Maker demand that such Event of Default be cured and, if any such Event of
Default is not cured within thirty days after the receipt of such notice by
Maker, Payee may declare the entire principal amount then outstanding under this
note, together with interest then accrued thereon, to be immediately due and
payable. Upon the occurrence of any Event of Default described in clauses (c) or
(d) of the first sentence of this paragraph, the entire principal amount of all
indebtedness then outstanding under this note, together with interest then
accrued thereon, shall become immediately due and payable.
THIS NOTE is subject to the terms and provisions of the Stock Purchase
Agreement (the "Agreement") dated the date hereof among Maker, Payee and certain
other parties, the terms and conditions of which are incorporated herein by
reference. Pursuant to such Agreement, the principal amount of this note may be
reduced as a result of certain obligations to Maker.
IT IS the intention of Maker and Payee to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
(Page 2 of 3 Pages)
<PAGE>
$________________ Houston, Texas May 5, 1995
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:
-----------------------------
(Page 3 of 3 Pages)
<PAGE>
EXHIBIT B
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement"), dated as of May 5, 1995, is made
and entered into by and between Drilex Holdings Corp., a Delaware corporation
(the "Company"), and those persons set forth on Schedule 1 hereto (the
"Warrantholders"). This Agreement is being executed in connection with the
Stock Purchase Agreement of even date herewith by and among the Company and the
Warrantholders (the "Purchase Agreement").
In the Purchase Agreement, the Company has agreed to issue to the
Warrantholders warrants, as hereinafter described (the "Warrants"), to purchase
up to an aggregate of 100,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company. The shares of Common Stock purchasable
upon exercise of the Warrants are herein referred to as the "Shares."
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Warrants and their respective rights and obligations
thereunder, the Company and the Warrantholders hereby agree as follows:
Section 1. Transferability and Form of Warrants.
(a) The Warrants shall be numbered and shall be registered on the books of
the Company when issued.
(b) The Warrants shall not be transferable except as set forth in the
Stockholders' Agreement (the "Stockholders' Agreement") of even date herewith
provided for in the Purchase Agreement. Any attempted sale, assignment, pledge,
hypothecation or other transfer that is not in compliance therewith shall be
void and will not be recognized by the Company. Subject to the foregoing, the
Warrants shall be transferable only on the books of the Company maintained at
its principal office, upon delivery thereof duly endorsed by the Warrantholder
or by its duly authorized attorneys or representatives, accompanied by proper
evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver new Warrants to
the person or persons entitled thereto. As a condition to any transfer, the
Company may require the transferee to execute and deliver a counterpart of this
Agreement.
(c) The form of Warrant certificate and the form of election to purchase
Shares shall be substantially as set forth in Exhibit A attached hereto. The
Warrants shall be executed on behalf of the Company by its President or by a
Vice President. A Warrant bearing the signature of an individual who was at any
time the proper officer of the Company shall bind the Company, notwithstanding
that such individual shall have ceased to hold such office prior to the delivery
of such Warrant or did not hold such office on the date of this Agreement. The
Warrants shall be dated as of the date of signature thereof by the Company
either upon initial issuance or upon division, exchange or substitution.
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(d) Each Warrant certificate shall bear the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW. BY THE TERMS OF A STOCKHOLDERS'
AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN PLACED UPON THE TRANSFER OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE. COPIES OF THE
AGREEMENTS COVERING THE ISSUANCE OF THESE SECURITIES AND VARIOUS
REQUIREMENTS, INCLUDING WITHOUT LIMITATION PROVISIONS RESTRICTING
THEIR TRANSFER, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
Any certificate for Common Stock issued upon exercise shall also bear
a similar legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions. The
Warrantholder consents to the Company making a notation on its records and
giving instructions to any registrar or transfer agent of the Warrants and the
Common Stock in order to implement the restrictions on transfer established in
this Agreement.
Section 2. Exchange of Warrant Certificate. Any Warrant
certificate may be exchanged for another certificate or certificates entitling
the Warrantholder to purchase a like aggregate number of Shares as the
certificate or certificates surrendered then entitled such Warrantholder to
purchase. Any Warrantholder desiring to exchange a Warrant certificate shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement (including, without
limitation, Section 13), the Warrantholder shall have the right, at any time and
from time to time, on day that is not a Saturday, Sunday or public holiday in
Houston, Texas, during the period commencing on the date of this Agreement and
ending at 5:00 p.m., Houston, Texas time, on May 5, 2000 (the "Termination
Date"), to exercise a Warrant and to purchase from the Company up to the number
of fully paid and nonassessable Shares to which the Warrantholder may at the
time be entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office, of the certificate evidencing the Warrants to
be exercised, together with the purchase form on the reverse thereof duly
completed and signed, and upon payment to the Company of the Warrant Price (as
defined herein) for the number of Shares in respect of which such Warrants are
then exercised.
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<PAGE>
(b) Payment by each Warrantholder of the aggregate Warrant Price due
from him shall be made:
(i) subject to Section 13, in immediately available funds or a
certified or cashiers' check or any combination thereof; or
(ii) (x) after the consummation of an Initial Public Offering (as
defined in the Stockholders' Agreement) or (y) effective as of the
Termination Date, by means of a "Cashless Exercise" as described in this
subparagraph (ii). In the event of a Cashless Exercise, the Warrantholder
shall exchange a Warrant for such number of shares of Common Stock
determined by multiplying the number of shares with respect to which such
Warrant is being exercised by a fraction, the numerator of which shall be
the difference between the then-current market price per share of Common
Stock and the Warrant Price, and the denominator of which shall be the
then-current market price per share of Common Stock. For purposes of this
Section, the then-current market price per share of Common Stock at any
date shall be determined as set forth in the Stockholders' Agreement.
(c) Upon such surrender of the Warrants and payment of such Warrant
Price as aforesaid, the Company shall promptly issue and cause to be delivered
to or upon the written order of the exercising Warrantholder and in the name of
the exercising Warrantholder a certificate or certificates for the number of
full Shares so purchased upon the exercise of such Warrant, together with any
cash, as provided in Section 9 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
bear all appropriate restrictive legends, including those set forth or referred
to in Section 1, and shall be deemed to have been issued and the exercising
Warrantholder therein shall be deemed to have become a holder of record of such
securities as of the date of surrender of the Warrants and payment of the
Warrant Price, as aforesaid, notwithstanding that the certificate or
certificates representing such securities shall not actually have been delivered
or that the stock transfer books of the Company shall then be closed. Any
Shares so issued shall be subject to the Stockholders' Agreement, and if
requested by the Company the exercising Warrantholder shall execute and deliver
a counterpart of the Stockholders' Agreement. Any certificate representing such
Shares shall bear the legend required by the Stockholders' Agreement. The
Warrants shall be exercisable, at the election of the Warrantholder, either in
full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants held by the Warrantholder will
be issued by the Company.
Section 4. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the initial issuance of the Warrants or the
Shares; provided, however, the Company shall not be required to pay any tax
which may be payable in respect of any secondary transfer of the Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate
or certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of a Warrantholder, issue and
deliver in exchange and substitution for and upon
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<PAGE>
cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and a bond of
indemnity, if requested, also satisfactory in form and amount at the applicant's
cost. Applicants for such substitute Warrants certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
Section 6. Reservation of Shares. The Company shall at all times
keep reserved so long as the Warrants remain outstanding, out of its authorized
Common Stock, such number of shares of Common Stock as shall be subject to
purchase under the Warrants.
Section 7. Warrant Price. The price per Share at which Shares
shall be purchasable upon the exercise of the Warrants (the "Warrant Price")
shall initially be $10.00, subject to adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Number of Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
(a) In case the Company after the date hereof shall (i) pay a dividend
in Common Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock or (iv) issue by reclassification of
its Common Stock other securities of the Company, the number of Shares
purchasable upon exercise of the Warrants immediately prior thereto shall be
adjusted so that a Warrantholder shall be entitled to receive the kind and
number of Shares or other securities of the Company that it would have owned or
would have been entitled to receive immediately after the happening of any of
the events described above had the Warrants been exercised immediately prior to
the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. Whenever the number of Shares purchasable upon
the exercise of a Warrant is adjusted as provided in this paragraph (a), the
Warrant Price shall be adjusted by multiplying such Warrant Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of this Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of Shares
so purchasable immediately thereafter.
(b) In case the Company after the date hereof shall issue or
distribute rights or warrants to all or substantially all holders of Common
Stock entitling them (for a period expiring within 60 days after the record date
mentioned below) to subscribe for or purchase shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) at a
price per share less than the then-current market price per share of Common
Stock (determined as set forth in the Stockholders' Agreement) on the record
date mentioned below, the Warrant Price in effect immediately prior thereto
shall be adjusted to a price obtained by multiplying such Warrant Price by a
fraction, of which (i) the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus the
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<PAGE>
number of shares which the aggregate offering price of the total number of
shares so to be offered would purchase at such current market price and (ii) the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional shares
of Common Stock to be offered for subscription or purchase; provided, however,
that no adjustment shall be made if the Company issues or distributes to the
Warrantholders the rights or warrants which the Warrantholders would have been
entitled to receive had the Warrants been exercised prior to the record date
mentioned below. Any such adjustments shall be made whenever such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of shareholders entitled to receive such rights or
warrants; provided, however, in the event that all the shares of Common Stock
offered for subscription or purchase are not delivered upon the exercise of such
rights or warrants, upon the expiration of such rights or warrants the Warrant
Price shall be readjusted to the Warrant Price which would have been in effect
had the numerator and the denominator of the foregoing fraction and the
resulting adjustment been made based upon the number of shares of Common Stock
actually delivered upon the exercise of such rights or warrants rather than upon
the number of shares of Common Stock offered for subscription or purchase. For
the purposes of this paragraph (b), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company.
(c) In case the Company after the date hereof shall issue or
distribute to all or substantially all holders of Common Stock evidences of its
indebtedness, cash or assets (excluding any dividend or distribution paid out of
retained earnings) or rights or warrants to subscribe for shares of stock of any
class (excluding those referred to in paragraph (a) or (b) above) or shares of
capital stock of any class other than the Common Stock, in each such case the
Warrant Price in effect immediately prior thereto shall be adjusted to a price
obtained by multiplying such Warrant Price by a fraction, of which (A) the
numerator shall be the then-current market price per share of the Common Stock
(determined as set forth in the Stockholders' Agreement) on the record date
mentioned below less the fair market value (as determined in good faith by the
Board of Directors of the Company and described in a statement delivered to the
Warrantholders) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights or of such shares of capital stock of
any class other than the Common Stock, applicable to one share of Common Stock
and (B) the denominator shall be such then-current market price per share of the
Common Stock on the record date (or, if applicable, the ex-distribution date)
mentioned below; provided, however, that no adjustment shall be made (1) if the
Company issues or distributes to the Warrantholders the subscription rights
referred to above in this paragraph (c) that the Warrantholders would have been
entitled to receive had the Warrants been exercised prior to the record date
(or, if applicable, the ex-distribution date) mentioned below, or (2) if the
Company grants to the Warrantholders the right to receive, upon the exercise of
the Warrants at any time after the distribution of the evidences of indebtedness
or assets or shares of capital stock of any class other than the Common Stock
referred to above in this subsection (c), the evidences of indebtedness or
assets or shares of capital stock of any class other than the Common Stock that
the Warrantholders would have been entitled to receive had the Warrants been
exercised prior to the record date mentioned below. Any such adjustment shall
be made on the date such distribution is made and shall be effective retroactive
to the record date for the determination of shareholders entitled to receive
such distribution.
5
<PAGE>
(d) No adjustment in the number of Shares purchasable pursuant to the
Warrants or in the Warrant Price shall be required unless such adjustment would
require an increase or decrease of at least three percent in the number of
Shares then purchasable upon the exercise of the Warrants or in the Warrant
Price; provided, however, that the Company may make any such adjustment at its
election; provided, further, that any adjustments which by reason of this
paragraph (d) are not required to be made immediately shall be carried forward
and taken into account in any subsequent adjustment.
(e) Upon each adjustment of the Exercise Price as a result of the
calculations made in paragraph (c) of this Section 8, each Warrant outstanding
prior to the making of the adjustment in the Warrant Price shall thereafter
evidence the right to purchase, at the adjusted Warrant Price, that number of
shares of Common Stock (calculated to the nearest hundredth) obtained by (i)
multiplying the number of shares of Common Stock purchasable upon exercise of a
Warrant prior to adjustment of the number of shares of Common Stock by the
Warrant Price in effect prior to the adjustment of the Warrant Price and (ii)
dividing the product so obtained by the Warrant Price in effect after such
adjustment of the Warrant Price.
(f) Whenever the number of Shares purchasable upon the exercise of the
Warrants or the Warrant Price is adjusted as herein provided, the Company shall
cause to be promptly mailed to the Warrantholders by first class mail, postage
prepaid, notice of such adjustment setting forth the number of Shares
purchasable upon the exercise of the Warrants and the Warrant Price after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(g) Except as provided in this Section 8 or in Section 11, during the
term of the Warrants or upon the exercise of the Warrants, no adjustment shall
be made (i) in respect of any dividends or distributions or (ii) in respect of
the consummation of any business combination or other extraordinary transaction.
(h) Irrespective of any adjustments in the number of securities
issuable upon exercise of Warrants or in the Warrant Price, Warrant certificates
theretofore or thereafter issued may continue to express the same number of
securities and Warrant Price as are stated in the Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its sole discretion (which shall be conclusive), make any change in the form of
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant certificate thereafter issued, whether upon
registration of, or in exchange or substitution for, an outstanding Warrant
certificate, may be in the form so changed.
Section 9. Fractional Interests. The Company shall not be
required to issue fractional Shares on the exercise of the Warrants. If any
fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then-current market value of
the Common Stock (determined as set forth in the Stockholders' Agreement)
multiplied by such fraction.
Section 10. No Right as Stockholder. Nothing contained in this
Agreement or in the Warrants shall be construed as conferring upon a
Warrantholder any rights as a stockholder
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of the Company, including the right to vote, receive dividends, consent or
receive notices as a stockholder in respect of any meeting of stockholders for
the election of directors of the Company or any other matter.
Section 11. Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any capital reorganization or reclassification
of the Common Stock of the Company or in case of any share exchange,
consolidation or merger of the Company with another person (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
shares of Common Stock) or in case of any sale or conveyance to another person
of the property of the Company as an entirety or substantially as an entirety,
(i) each Warrantholder shall have the right thereafter, during such period as a
Warrant is exercisable, upon payment of the Warrant Price in effect immediately
prior to such action to purchase upon exercise of a Warrant, in lieu of Shares,
only the kind and amount of shares and other securities and property that it
would have owned or have been entitled to receive after the happening of such
reorganization, reclassification, share exchange, consolidation, merger, sale or
conveyance had such Warrant been exercised immediately prior to such action and
(ii) such right shall be subject to adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Agreement. The provisions of this Section 11 shall similarly apply to
successive reorganizations, reclassifications, exchanges, consolidations,
mergers, sales or conveyances.
Section 12. Notice of Certain Corporate Actions. In case the
Company shall propose to (i) pay any dividend or other distribution payable in
cash, property or stock or securities (including warrants, options, or similar
rights) of any class other than Common Stock to the holders of Common Stock,
(ii) offer the holders of Common Stock rights to subscribe for or to purchase
any shares of stock of any class or any other securities, rights or options,
(iii) effect any reclassification of Common Stock (other than a reclassification
involving only the subdivision or combination of outstanding shares of Common
Stock or a change in par value), (iv) effect any capital reorganization, (v)
effect any share exchange, consolidation, merger or sale, transfer or other
disposition of all or substantially all its property, assets or business, (vi)
effect any transaction contemplated by Section 11 hereof or (vii) effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each Warrantholder a notice of such proposed action,
which shall specify the date on which a record is expected to be taken for the
purposes of such stock dividend, distribution or rights offering, or the date on
which such reclassification, reorganization, share exchange, consolidation,
merger, sale, transfer, disposition, liquidation, dissolution or winding up is
expected to take place and the date of participation therein by the holders of
Common Stock, if any such date is to be fixed, and shall also set forth such
facts with respect thereto that are known by the Company as of the date of such
notice as shall be reasonably necessary to indicate the effect of such action on
the Common Stock and the number and kind of any other shares of stock which will
comprise a share of Common Stock, and the purchase price or prices thereof,
after giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least 10 days prior to the record date for
determining holders of the Common Stock for purposes of such action and, in the
case of any other such action, at least 10 days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier. Failure to give any notice
provided for in this Section 12 shall not affect the validity of the action
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<PAGE>
or transaction. Within 60 days after the end of each of its first three fiscal
quarters, and within 120 days after the end of its fiscal year, the Company will
provide each Warrantholder with consolidated financial statements of the
Company. If the Company regularly prepares audited financial statements as of
the end of any fiscal year, the Company will provide each Warrantholder with
such audited statements.
Section 13. Securities Laws. In order to exercise a Warrant, the
Warrantholder must be able to confirm, and shall confirm by executing a
certificate supplied by the Company, that all of the provisions of Section 6.4
through 6.6 of the Purchase Agreement are true with respect to the exercise of
such Warrant and the purchase of the shares thereunder. Each Warrantholder
agrees that all the provisions of such sections shall apply to the Shares. In
order to exercise a Warrant for cash pursuant to Section 3(b)(i), the
Warrantholder must be able to confirm, and shall confirm by executing a
certificate supplied by the Company, that such Warrantholder is an "Accredited
Investor" as that term is defined in Rule 501(a) promulgated under the
Securities Act of 1933.
Section 14. Notices. Any notice pursuant to this Agreement by the
Company or by a Warrantholder or a holder of Shares shall be in writing and
shall be given as set forth in the Purchase Agreement.
Section 15. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholder or the holders
of Shares shall bind and inure to the benefit of their respective successors and
assigns hereunder. Unless the context indicates otherwise, the term
"Warrantholder" shall include any holder of any Warrant, and term "Warrants"
shall include any and all warrants outstanding pursuant to this Agreement,
including those evidenced by a certificate or certificates issued upon division,
exchange or substitution pursuant to this Agreement. Any holder of a Warrant,
by his receipt thereof of a Warrant, agrees to be bound by and comply with the
terms of this Agreement.
SECTION 16. APPLICABLE LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
Section 17. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Warrantholders any legal or equitable right, remedy or claim under this
Agreement. This Agreement shall be for the sole and exclusive benefit of the
Company and the Warrantholders.
Section 18. Counterparts. This Agreement may be executed in any
number of counterparts each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 19. Amendment. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that any provisions hereof may be amended, waived, discharged
or terminated upon the written consent of the Company and the
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then-current Warrantholders having the right to acquire by virtue of holding the
Warrants at least 50% of the Shares which are then issuable upon exercise of the
then outstanding Warrants.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
DRILEX HOLDINGS CORP.
By:
____________________________
WARRANTHOLDERS:
_______________________________
S. R. Anderson
________________________________
John Teer
________________________________
Todd Caspary
________________________________
Frank Forest
________________________________
George W. Kowalczuk
________________________________
Andy F. Brown
<PAGE>
Exhibit A
THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. BY THE TERMS OF A STOCKHOLDERS' AGREEMENT, CERTAIN RESTRICTIONS
HAVE BEEN PLACED UPON THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. COPIES OF THE AGREEMENTS RELATING TO THE ISSUANCE OF THESE
SECURITIES AND VARIOUS REQUIREMENTS, INCLUDING WITHOUT LIMITATION PROVISIONS
RESTRICTING THEIR TRANSFER, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Warrant Certificate No.________
WARRANTS TO PURCHASE
______________ SHARES OF COMMON STOCK
DRILEX HOLDINGS CORP.
Incorporated under the laws
of the State of Delaware
This certifies that, for value received, ______________, the
registered holder hereof (the "Warrantholder"), is entitled to purchase from
DRILEX HOLDINGS CORP. (the "Company"), at any time during the period commencing
the date hereof and ending at 5:00 p.m., Houston, Texas time, on May 5, 2000, at
a purchase price per share of $10.00 (the "Warrant Price"), the number of shares
of Common Stock of the Company set forth above (the "Shares"). The number of
shares of Common Stock of the Company purchasable upon exercise of each Warrant
evidenced hereby and the Warrant Price shall be subject to adjustment from time
to time as set forth in the Warrant Agreement.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and simultaneous payment of the Warrant Price at the principal
office of the Company. Payment of such price shall be made (i) in immediately
available funds or a certified or cashiers' check or any combination thereof or
(ii) in the circumstances set forth in the Warrant Agreement referred to below,
by a Cashless Exercise (as defined in such Warrant Agreement).
The Warrants evidenced hereby represent are issued under and in
accordance with a Warrant Agreement, dated as of May 5, 1995 (the "Warrant
Agreement"), between the Company and certain Warrantholders and are subject to
the terms and provisions contained in the Warrant Agreement, including certain
restrictions on the exercise hereof, to all of which the Warrantholder by
acceptance hereof consents.
A-1
<PAGE>
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not have
been exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant certificate properly endorsed for one or more new
Warrant certificates of the same aggregate number of Shares as here evidenced by
the Warrant or Warrants exchanged. No fractional shares of Common Stock will be
issued upon the exercise of rights to purchase hereunder, but the Company shall
pay the cash value of any fraction upon the exercise of one or more Warrants.
These Warrants are transferable in the manner and subject to the restrictions
set forth or referred to in the Warrant Agreement.
This Warrant certificate does not entitle any Warrantholder to any of
the rights of a stockholder of the Company.
DRILEX HOLDINGS CORP.
By: ____________________________
Dated: _______________, 1995
A-2
<PAGE>
DRILEX HOLDINGS CORP.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder,_______ shares of Common Stock (the "Shares") provided for therein,
and requests that certificates for the Shares be issued in the name of:
------------------------------------------------------------------
(Please print or type name, address and Social Security Number)
------------------------------------------------------------------
------------------------------------------------------------------
and, if said number of Shares shall not be all the Shares purchasable
thereunder, that a new Warrant certificate with respect to the balance of the
Shares purchasable under the within Warrant certificate be registered in the
name of the undersigned Warrantholder as below indicated and delivered to the
address stated below. The undersigned has also submitted to the Company a
certificate in which it has made the representations and covenants required by
Section 13 of the Warrant Agreement.
Dated:_________________
Name of Warrantholder:
_______________________
(Please Print)
Address:_______________
_______________
Signature:_____________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
A-3
<PAGE>
CASHLESS EXERCISE FORM
The undersigned hereby irrevocably elects to exchange the within
Warrant certificate with respect to ____ shares of Common Stock pursuant to the
Cashless Exercise provisions of the within Warrant certificate, as provided for
in Section 3 of the Warrant Agreement referred to above, and requests that
certificates for shares of Common Stock issuable be issued in the name of:
------------------------------------------------------------------
(Please print or type name, address and Social Security Number)
------------------------------------------------------------------
------------------------------------------------------------------
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant certificate with respect to the balance of the
shares purchasable under the within Warrant certificate be registered in the
name of the undersigned Warrantholder as below indicated and delivered to the
address stated below. The undersigned has also submitted to the Company a
certificate in which it has made the representations and covenants required by
Section 13 of the Warrant Agreement.
Dated:________________________
Name of Warrantholder:
______________________________
(Please Print)
Address:______________________
______________________________
Signature:____________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
A-4
<PAGE>
EXHIBIT C
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THIS NOTE MAY
NOT BE ASSIGNED, SOLD, TRANSFERRED, HYPOTHECATED OR PLEDGED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION REQUIREMENTS ARE NOT
APPLICABLE.
$1,912,584.00 May 5, 1995
Houston, Texas
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation (hereinafter called
"Maker"), for value received, promises and agrees to pay on or before April 30,
2000, to Frank Forest (hereinafter called "Payee"), in Richmond, Fort Bend
County, Texas, in lawful money of the United States of America the principal sum
of ONE MILLION NINE HUNDRED TWELVE THOUSAND FIVE HUNDRED EIGHTY-FOUR AND NO/100
DOLLARS ($1,912,584.00), together with interest thereon (calculated on the basis
of a 365-day year, or a 366-day year in the case of a leap year) from and after
the date hereof until maturity at 8% per annum, but in no event to exceed the
maximum rate of nonusurious interest allowed from time to time by law
(hereinafter called the "Highest Lawful Rate"). After maturity (by acceleration
or otherwise), interest shall be so computed at 11% per annum, but in no event
to exceed the Highest Lawful Rate.
ACCRUED INTEREST is due and payable quarterly beginning on July 31,
1995 and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest with respect to such principal amount prepaid is due
and payable on the date of such prepayment. Principal shall be due and payable
in four annual installments of $250,000.00 each, beginning on April 30, 1996 and
on each succeeding April 30 thereafter until the maturity date, when all
principal remaining unpaid shall be due and payable. If any amount owing under
this note is due and payable on a day that is not a business day, such payment
shall instead be due and payable on the next succeeding business day. Maker has
the right to prepay this note in whole or in part at any time and from time to
time without penalty, on not less than two business days' prior notice. Any
prepayment shall be applied ratably to all remaining installments of principal
not then due.
SO LONG as any principal or interest remains unpaid on this note: (i)
Maker and its subsidiaries shall maintain a consolidated net worth (determined
in accordance with generally accepted accounting principles) of at least
$9,500,000 and (ii) within 60 days after the end of each of its first three
fiscal quarters, and within 120 days after the end of its fiscal year, Maker
will provide Payee with consolidated financial statements of the Maker. If
Maker regularly
(Page 1 of 3 Pages)
<PAGE>
$1,912,584.00 Houston, Texas May 5, 1995
prepares audited financial statements as of the end of any fiscal year, Maker
will provide Payee with such audited statements.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note, (b) default is made in the payment when due of any installment of
interest on this note and such default has not been cured within five days after
the date on which such payment is due, (c) Maker shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (d) an involuntary
case or other proceeding shall be commenced against Maker which seeks
liquidation, reorganization or other relief with respect to Maker or its debts
or other liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect and such involuntary case or other proceeding shall
remain undismissed for a period of 90 days, (e) default is made under any loan
extended to Maker by any financial institution and such default results in the
acceleration of the payment of any principal amount due pursuant to such loan in
excess of $1 million and such acceleration is not cured or withdrawn, or all
amounts owing pursuant to such loan are not paid in full, within thirty days
after the date of such acceleration, (f) without the consent of Payee, Maker
shall (i) sell all or substantially all its assets or (ii) dissolve or (g) Maker
shall not comply with the covenants set forth in the third paragraph hereof.
Upon the occurrence of any Event of Default described in clause (a), (b) or (f)
of the first sentence of this paragraph, Payee may by written notice to Maker
declare the entire principal amount then outstanding under this note, together
with interest then accrued thereon, to be immediately due and payable. Upon the
occurrence of any Event of Default described in clause (e) or (g) of the first
sentence of this paragraph, Payee may by written notice to Maker demand that
such Event of Default be cured and, if any such Event of Default is not cured
within thirty days after the receipt of such notice by Maker, Payee may declare
the entire principal amount then outstanding under this note, together with
interest then accrued thereon, to be immediately due and payable. Upon the
occurrence of any Event of Default described in clauses (c) or (d) of the first
sentence of this paragraph, the entire principal amount of all indebtedness then
outstanding under this note, together with interest then accrued thereon, shall
become immediately due and payable.
IT IS the intention of Maker and Payee to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
(Page 2 of 3 Pages)
<PAGE>
$1,912,584.00 Houston, Texas May 5, 1995
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:__________________________
(Page 3 of 3 Pages)
<PAGE>
Exhibit 10.7
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement"), dated September 29, 1995
among Drilex Holdings Corp., a Delaware corporation ("Parent"), Drilex Systems,
Inc., a Texas corporation ("Buyer" and together with Parent, the "Buyer
Parties"); and ENSCO Technology Company, a Delaware corporation ("Seller"), and
ENSCO International Incorporated, a Delaware corporation ("ENSCO" and, together
with Seller, the "Seller Parties");
W I T N E S S E T H:
WHEREAS, Seller and its Subsidiaries (as defined below) are engaged in
the business (the "Business") of providing directional drilling and surveying
services primarily to the oil and gas industry; and
WHEREAS, the Buyer Parties wish to purchase from the Seller Parties
and the Seller Parties wish to sell, transfer, assign and deliver to the Buyer
Parties substantially all of Seller's assets except as set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, the parties
agree as follows:
ARTICLE I
DEFINITIONS
The terms set forth below in this Article I shall have the meanings
ascribed to them below:
Affiliate: with respect to any person, means any person that directly
or indirectly controls, is controlled by or is under common control with such
person.
best efforts: means a party's efforts in accordance with reasonable
commercial practice and without the incurrence of unreasonable effort or
expense.
Hazardous Substances: means any pollutant, toxic substance, asbestos,
hazardous waste, or any constituent of any such substance, waste or product,
whether solid, liquid or gaseous in form, described in the Resource Conservation
and Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et
seq.) ("CERCLA"), or regulated under RCRA, CERCLA, Superfund or under any other
federal, state or local law, statute, ordinance, rule, regulation, order,
judicial decision, arbitration decision or determination of any governmental
authority, and shall include petroleum, natural gas, natural gas liquids, crude
oil and any fraction or product thereof.
<PAGE>
Lien: means any lien, pledge, claim, charge, security interest or
other encumbrance, option or other rights of any third person of any nature
whatsoever.
Permitted Liens: means (a) (1) Liens for current taxes and
assessments not yet due, (2) inchoate mechanic and materialmen liens for
construction in progress and (3) inchoate workmen, repairmen, warehousemen,
customer, employee and carriers liens arising in the ordinary course of
business, in each case with respect to obligations or claims which are either
not delinquent or are being contested in good faith and by appropriate
proceedings conducted with due diligence and (b) Liens arising under this
Agreement or the agreements contemplated by this Agreement.
person: means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, government or agency or subdivision thereof or any other entity.
Subsidiary: of any person, means any entity, more than 50% of the
outstanding voting interests of which are owned, directly or indirectly, by such
person, by one or more other Subsidiaries of such person or by such person and
one or more other Subsidiaries of such person.
ARTICLE II
PURCHASE, SALE AND DELIVERY
Section 2.1 Purchased Assets. Subject to the terms and conditions of
this Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing (as defined below), (i) Seller shall sell,
transfer, convey, assign and deliver to Parent, and Parent shall acquire and
purchase from Seller the Purchased Assets (as defined below), and (ii)
concurrently with or immediately following such acquisition by Parent, Parent
shall sell, transfer, convey, assign and deliver to Buyer as a capital
contribution the Purchased Assets. For purposes of this Agreement, but subject
to Section 2.2, the term "Purchased Assets" shall mean all assets owned by
Seller immediately prior to the Closing (whether or not included below),
including all of the following assets, properties and rights of Seller
(collectively, the "Purchased Assets"):
(a) All inventories, including all inventories of directional drilling and
surveying equipment, raw materials, supplies and packing and shipping material
(collectively, the "Inventory"), a listing of which as of August 31, 1995 is
attached as Schedule 2.1(a);
(b) All accounts receivable of Seller (the "Accounts Receivable"), a
listing of which as of August 31, 1995 is attached as Schedule 2.1(b);
(c) All tools, equipment, machinery, rolling stock, dies, furniture,
fixtures, store equipment, shop equipment, automobiles, trucks, service
equipment, computer equipment and leasehold improvements (the "Fixed Assets"), a
listing of which as of August 31, 1995 is attached as Schedule 2.1(c);
2
<PAGE>
(d) All contracts and agreements (including distribution contracts)
that are listed on Schedule 2.1(d) or that are entered into in the ordinary
course of business after August 31, 1995 and are not prohibited by this
Agreement (the "Contracts");
(e) All of Seller's rights accruing from and after the Closing Date to each
purchase or sales order or other contract, agreement or commitment for the
purchase, sale or rental of goods or services that was entered into in the
ordinary course of business prior to the Closing Date (the "Purchase, Sale and
Rental Contracts"), a listing of which as of August 31, 1995 is attached as
Schedule 2.1(e);
(f) All rights of Seller under express or implied warranties, if any, from
the suppliers of Seller, manufacturers or others with respect to the Purchased
Assets (the "Warranty Rights");
(g) All intellectual property, including patents, trademarks, trade names,
trade secrets, copyrights, blueprints, drawings, computer software and similar
items, together with any goodwill associated therewith and all rights of action
on account of past, present, and future unauthorized use or infringement thereof
(the "Intellectual Property"), a listing of which as of August 31, 1995 is
attached as Schedule 2.1(g);
(h) All of the capital stock owned by Seller in ENSCO Technology Canada
Inc., a Canadian corporation, representing 70% of the outstanding capital stock
of such corporation, together with all receivables or indebtedness due from ETCI
to Seller;
(i) The leases of real property that are listed on Schedule 2.1(i) (the
"Assigned Leases"); and
(j) All books, operating and financial records, correspondence, files,
customer and vendor lists, sales brochures and other data used in or relating to
the Business (the "Records"); provided, however, that with respect to such
materials located in the Dallas, Texas offices of ENSCO, Seller shall only be
required to deliver, at Seller's expense, copies of any such materials to Buyer
as Buyer may reasonably request.
Section 2.2 Excluded Assets. Notwithstanding Section 2.1, the
Purchased Assets shall not include, and Parent will not acquire or purchase, any
of the following (collectively, the "Excluded Assets"):
(a) Any minute books or stock records of Seller;
(b) Any cash, cash equivalents, deposits and other current assets (other
than accounts receivables) of Seller;
(c) Subject to Section 6.10, all trademarks, trade names, logos or other
rights that utilize the name "ENSCO" or "Energy Service Company."
3
<PAGE>
Section 2.3 Purchase Price. Subject to the adjustments provided in
this Agreement, the purchase price to be paid at the Closing for the Purchased
Assets (the "Purchase Price") is $14,720,000. The Purchase Price shall be
adjusted pursuant to Section 2.5 below and shall be paid in accordance with the
following provisions: At the Closing, Parent shall (i) pay the aggregate sum of
$10,000,000 to Seller by wire transfer in immediately available funds to the
account(s) designated in writing by Seller, (ii) deliver to Seller a promissory
note of Parent (the "First Note") in the form of Exhibit A in the principal
amount of $2,220,000 and (iii) deliver to Seller a convertible promissory note
of Parent (the "Convertible Note" and, together with the First Note, the
"Notes") in the form of Exhibit B in the principal amount of $2,500,000.
Section 2.4 Closing. The closing of the purchase and sale provided for
herein (the "Closing") shall take place at such time and at such date as are
mutually agreed to by Buyer and ENSCO at the offices of Baker & Botts, L.L.P.,
Houston, Texas. The date on which the Closing is held is referred to in this
Agreement as the "Closing Date."
Section 2.5 Post-Closing Adjustment. (a) Within 90 calendar days
following the Closing, Seller shall prepare and deliver to Buyer a consolidated
balance sheet (the "Balance Sheet") of Seller and its Subsidiaries as of the
Closing Date (prior to the effects of the transactions occurring at the Closing)
and a statement (the "Statement") , reflecting the calculation of the
adjustment, if any, to the Purchase Price pursuant to this Section 2.5,
accompanied by a certificate of an officer of Seller to the effect that such
statement has, to his knowledge, been prepared in accordance with the terms of
this Agreement. The Balance Sheet shall be prepared in accordance with generally
accepted accounting principles ("GAAP") and the financial reporting policies and
procedures utilized by Seller prior to the Closing. Buyer shall have a period of
30 calendar days after delivery of the Balance Sheet and the Statement to review
(and cause Buyer's auditors to review) such documents and make any objections it
may have in writing to Seller. If written objections are delivered to Seller by
Buyer within such 30-day period, then Buyer and Seller shall attempt to resolve
the matter or matters in dispute. If no written objections are made by Buyer
within such 30-day period, then the Balance Sheet and the Statement shall be
final and binding on the parties hereto. If disputes with respect to the Balance
Sheet or the Statement cannot be resolved by Buyer and Seller within 30 calendar
days after the delivery of the objections thereto, then, at the request of Buyer
or Seller, the specific matters in dispute shall be submitted to the Houston
office of a "Big Six" accounting firm, other than Price Waterhouse L.L.P. or
Deloitte & Touche L.L.P. (the "Auditors") as may be approved by Seller and
Buyer, which firm shall render its opinion as to such matters. Based on such
opinion, such independent accounting firm will then send to Seller and Buyer its
determination of the specified matters in dispute, which determination shall be
final and binding on the parties hereto. The fees and expenses of the Auditors
shall be borne one-half by Seller and one-half by Buyer. Seller has provided
Buyer the list of Inventory and Fixed Assets based on a physical inventory as of
August 27, 1995 and has provided Buyer the aggregate book value of the items
constituting the Inventory and Fixed Assets. Seller and Buyer agree that no
adjustments will be made to the Purchase Price pursuant to this Section 2.5 in
respect of the aggregate value attributable to the Inventory or the Fixed Assets
except to the extent such adjustments are based on physical discrepancies
between the physical inventory and the Inventory or the Fixed Assets.
4
<PAGE>
(b) If the Net Worth (as defined herein) of Seller and its
Subsidiaries reflected on the Balance Sheet as finally determined pursuant to
Section 2.5(a) is less than $7,500,000 (the "Base Amount"), then within five
days following the final determination thereof, Seller shall pay Parent by wire
transfer in immediately available funds to the account or accounts designated by
Parent the amount by which the Net Worth is less than the Base Amount. If the
Net Worth (as defined herein) of Seller and its Subsidiaries reflected on the
Balance Sheet is greater than the Base Amount, then within five days following
the final determination thereof, Parent shall pay Seller by wire transfer in
immediately available funds to the account or accounts designated by Seller the
lesser of (x) the amount by which the Net Worth is greater than the Base Amount
and (y) $1,790,000. In the event the Net Worth of Seller and its Subsidiaries
reflected in the Balance Sheet is greater than $9,290,000, the principal amount
of the First Note shall be increased by the amount by which the Net Worth
exceeds $9,290,000. As used herein, the term "Net Worth" means the amount
determined by subtracting the amount of the Assumed Liabilities, the liabilities
of ETCI and minority interests from the amount of the Purchased Assets, in each
case as reflected on the Balance Sheet.
Section 2.6 Registration Rights Agreement. At the Closing, Parent and
Seller shall enter into a registration rights agreement in substantially the
form of Exhibit C.
Section 2.7 Stockholders' Agreement. At the Closing, Parent, Seller
and DRLX Partners, L.P., shall enter into a stockholders' agreement in
substantially the form of Exhibit D.
Section 2.8 Allocation Reporting. The Buyer Parties and the Seller
Parties agree to report the allocation of the Purchase Price among the Purchased
Assets as set forth in Schedule 2.8. As soon as practicable after the Closing
Date, but in no event later than December 31, 1995, the Buyer Parties and the
Seller Parties shall jointly prepare IRS Form 8594 to report the allocation of
the Purchase Price in conformity with the preceding sentence which reflects,
among other things, the agreed fair market value of the Purchased Assets. Each
party hereto agrees not to assert, in connection with any tax return, tax audit
or similar proceeding, any allocation that differs from that set forth in this
Section 2.8.
Section 2.9 Taxes Upon Conveyance and Transfer. Seller shall pay all
sales, use, transfer or similar taxes payable in connection with the sale,
transfer and assignment of the Purchased Assets to Parent.
Section 2.10 Other Taxes, Utilities and Assessments; Other
Allocations. Any real estate taxes, personal property taxes or assessments with
respect to the Purchased Assets, any charges for utilities or similar costs or
assessments, common area maintenance reimbursements to lessors, local business
or other license fees or taxes and other similar periodic charges and all
payments under the Assigned Leases and the Contracts shall be prorated through
the Closing Date (based on estimates or the most recent amounts paid), with
Seller being responsible for all of such prorated charges attributable to the
period prior to the Closing Date and Parent being responsible for post-closing
prorations; provided, however, that, notwithstanding such proration, Seller
shall be responsible for timely remitting the funds required to pay such costs
and charges for all bills received by Seller, and Parent shall be responsible
for timely remitting the funds required to pay such costs
5
<PAGE>
and charges for all bills received by Parent. Promptly upon receipt, Parent or
Seller, as appropriate, shall provide the other with copies of all bills for
such items for which the other party is responsible pursuant to this Section
2.10. If the accruals set forth on the Balance Sheet are inadequate to cover
real and personal property taxes, utilities, common area maintenance
reimbursements to lessors, local business or other license fees or taxes, other
similar periodic charges and any other items referred to in this Section 2.10
accrued through the Closing Date, Seller shall pay Parent the deficiency
promptly on request. If the accruals set forth on the Balance Sheet exceed the
real and personal property taxes, utilities, common area maintenance
reimbursements to lessors, local business or other license fees or taxes, other
similar periodic charges and any other items referred to in this Section 2.10
accrued through the Closing Date, Parent shall pay Seller the excess promptly on
request.
Section 2.11 Condition to Transfer of Contracts. Notwithstanding
anything herein to the contrary, the parties hereto acknowledge and agree that
at the Closing, Seller is not assigning to Parent any Contract, Agreement (as
hereinafter defined) or other right which by its terms requires the consent of
any other party unless such consent has been obtained prior to the Closing. With
respect to each such unassigned Contract, Agreement or right, after the Closing
Seller shall continue as the prime contracting party and, if requested by
Parent, shall use its best efforts to obtain the consent of all required parties
to the assignment of such Contract, Agreement or right, but Parent shall be
entitled to the benefits of such Contract, Agreement or right accruing after the
Closing to the extent that Seller may provide Parent with such benefits without
violating the terms of such Contract, Agreement or right, and Parent agrees to
perform at its sole expense all of the obligations of Seller to be performed
under such Contract, Agreement or right the benefits of which Parent is
receiving after the Closing Date.
Section 2.12 Accounts Receivable. Seller agrees that on and after the
Closing Date, Buyer shall have the right and authority to collect all Accounts
Receivable, and, if necessary, to endorse with the name of Seller any checks
received on account of any such receivables. The Seller Parties shall transfer
to Buyer any cash or other property which any of them may receive in respect of
such receivable items no later than seven days after receipt. The Seller Parties
may offset any amount required to be so transferred by the amount of any
reimbursement due to Seller pursuant to the last sentence of Section 3.1;
provided, however, that the Seller Parties may not offset any such amounts
unless and until the statement referred to in such sentence has been received by
the Buyer Parties. If Buyer determines that any Accounts Receivable are not
collectible within the context of Section 4.26 and seeks indemnification with
respect thereto from Seller, Buyer shall reassign its rights to any such
Accounts Receivable to Seller, who shall then have the right and authority to
collect such Accounts Receivable for Seller's account.
Section 2.13 Mail Received After Closing. Following the Closing, Buyer
may receive and open all mail addressed to Seller and, to the extent that such
mail and the contents thereof relate to the business of Seller or the Purchased
Assets, deal with the contents thereof in its discretion. Buyer shall notify
Seller of (and provide Seller copies of) any mail that on its face obliges any
Seller Party to take any action.
6
<PAGE>
ARTICLE III
LIABILITIES AND OBLIGATIONS
Section 3.1 Obligations Assumed. As part of the consideration for
the Purchased Assets, Parent shall assume (the "Assumed Liabilities") (i) the
accrued liabilities of Seller set forth on Schedule 3.1 (in an amount not
exceeding the amount of accrued liabilities reflected in the Balance Sheet),
excluding any items specifically excluded by other provisions of this Agreement,
and the trade accounts payable of Seller, in each case if but only if they were
incurred by Seller in the ordinary course of business prior to the Closing and
are not prohibited by this Agreement, and (ii) Seller's obligations that accrue
after the Closing Date under the Contracts referred to in Schedule 2.1(d), under
the Purchase, Sale and Rental Contracts referred to in Schedule 2.1(e) and under
the Assigned Leases referred to in Schedule 2.1(i), in each case if but only if
they are assigned or transferred to Parent. To the extent that Seller shall pay
any amounts assumed by Parent in accordance with the immediately preceding
sentence, Parent shall reimburse Seller for such payments no later than seven
days after Parent's receipt of evidence of payment thereof. Seller shall pay
all salaries, wages, employee benefits and related employment taxes accrued as
of the Closing, and the Buyer Parties shall reimburse Seller for such payments
to the extent the same constitute Assumed Liabilities hereunder within seven
days after receipt of a statement from Seller setting forth such payments.
Section 3.2 Liabilities and Obligations Not Assumed. Other than as
specifically set forth in Sections 2.10 or 3.1 above, Parent assumes no
obligation whatsoever of Seller, and Parent expressly disclaims the assumption
of any liability of any type whatsoever of Seller or in connection with any of
Seller's assets or business operations, including without limitation (i) any and
all tax liabilities accruing on or before the Closing Date in connection with
any Purchased Asset or otherwise, (ii) any and all liabilities arising from or
under any environmental laws, including but not limited to federal environmental
statutes (and associated rules and regulations) such as RCRA, CERCLA, Superfund,
Clean Air Act, Clean Water Act, Safe Drinking Water Act, Community Right to Know
Act, or OSHA, or otherwise, or any similar state or local environmental laws,
rules or regulations, (iii) any and all liabilities in connection with any claim
by any person, entity or agency claiming to have suffered any environmental
damage or harm of any type, including any actual or alleged damage or harm to
groundwater, surface water, well water, ground, soil, or the atmosphere, or
otherwise relating to any Hazardous Substance (as hereafter defined), (iv) any
and all employment or personnel-related liabilities whatsoever of Seller,
including, but not limited to, any liability under any employment contract,
liability for wages or salary, liability for bonuses or commissions, liability
for severance to employees (including without limitation as a result of this
transaction), COBRA liability, OSHA liability, liability for disabled
individuals, workers' compensation liability, ERISA obligations or liability,
WARN Act liability, liability under any profit sharing plan, liability under any
pension plan, liability under any welfare benefit plan, or liability for any
claims alleging illegal discrimination of any type, (v) any indebtedness of
Seller, (vi) any liabilities to ENSCO or any of its Affiliates and (vii) any
liability or obligation (contingent or otherwise) of Seller arising out of any
claim, litigation or proceeding threatened or pending on or before the Closing
Date or out of any claim, litigation or proceeding threatened or initiated after
the Closing Date to the extent based on or caused by any act or omission
occurring, or condition or circumstances existing, prior to the
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Closing Date, or any condition caused by any act or omission occurring prior to
the Closing Date, or any product sold or manufactured by Seller or a service
provided by Seller (including all product liability and warranty claims and
product returns with respect thereto).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES
The Seller Parties, jointly and severally, represent and warrant to
each Buyer Party the following:
Section 4.1 Corporate Status and Good Standing. Each of ENSCO and
Seller and Seller's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority under its certificate or
articles of incorporation and by-laws to own and lease its properties and to
conduct business as the same exists. Each of ENSCO and Seller and Seller's
Subsidiaries is duly qualified to do business as a foreign corporation in all
states in which the nature of its business requires such qualification and the
failure to do so would have an adverse effect on such party or the Purchased
Assets.
Section 4.2 Authorization. Each Seller Party has full corporate
power and authority under its certificate or articles of incorporation and by-
laws, and its board of directors and stockholders have taken all necessary
action to authorize it, to execute and deliver this Agreement and the exhibits
and schedules hereto, to consummate the transactions contemplated herein and to
take all actions required to be taken by it pursuant to the provisions hereof,
and each of this Agreement and the exhibits hereto constitutes the valid and
binding obligation of each Seller Party that is a party thereto enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally.
Section 4.3 Non-Contravention. Except as set forth in Schedule 4.3,
neither the execution and delivery of this Agreement or any documents executed
in connection herewith, nor the consummation of the transactions contemplated
herein or therein, does or will violate, conflict with, result in breach of or
require notice or consent under any law, the charter or bylaws of any Seller
Party or any Subsidiary of Seller or any provision of any agreement or
instrument to which any Seller Party or any Subsidiary of Seller is a party,
except for required filings with the Federal Trade Commission and the Department
of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and except for required filings with Revenue Canada
and Investment Canada.
Section 4.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by any Seller
Party or any Subsidiary of Seller in connection with this Agreement.
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Section 4.5 Broker Involvement. No Seller Party or Subsidiary of
Seller has hired, retained or dealt with any broker or finder in connection with
the transactions contemplated by this Agreement.
Section 4.6 Litigation. Except as set forth on Schedule 4.6, there
is no investigation, claim or proceeding or litigation of any type pending or
threatened involving any Purchased Asset or that might have a material adverse
effect on Seller or any Subsidiary of Seller, and the Seller Parties and
Subsidiaries of Seller are unaware of any judgment, order, writ, injunction or
decree of any court, government or governmental agency, or arbitral tribunal
against or involving Seller, any Subsidiary of Seller or any Purchased Asset or
that might have a material adverse effect on Seller, any Subsidiary of Seller or
any of the Purchased Assets.
Section 4.7 Title. Seller is the true and lawful owner of the
Purchased Assets, and Seller's Subsidiaries are the true and lawful owners of
all of their respective assets, in each case free and clear of any and all
liens, encumbrances, mortgages, options, security interests, restrictions,
liabilities, pledges and assignments of any kind other than Permitted Liens,
and, except as set forth on Schedule 4.7, Seller has the full right to sell and
transfer to the Buyer Parties good and marketable title to the Purchased Assets,
free and clear of any and all Liens other than Permitted Liens. The delivery to
the Buyer Parties of the instruments of transfer of ownership contemplated by
this Agreement will vest good and marketable title to the Purchased Assets in
Parent, free and clear of all Liens other than Permitted Liens.
Section 4.8 Continuity Prior to Closing Date. Except as set forth on
Schedule 4.8, from August 31, 1995 to and including the Closing Date, Seller and
its Subsidiaries have conducted the Business in the usual and customary manner
and in the ordinary course of business, consistent with historical practice, and
there has not been:
(a) any sale, lease, distribution, transfer, mortgage, pledge or
subjection to lien of any assets of Seller or its Subsidiaries, except sales of
inventory and obsolete or surplus equipment in the ordinary and usual course of
business and the creation of Permitted Liens;
(b) any material transaction by Seller or its Subsidiaries not in the
ordinary and usual course of business;
(c) any material damage, destruction or loss to the Purchased Assets,
any assets of any Subsidiary of Seller or any other assets used in the Business,
whether or not covered by insurance;
(d) a termination, or a threatened termination, or material
modification, in each case not in the ordinary course of business, of any
material contract or the relationship of Seller or its Subsidiaries with any
customer or supplier, who in the aggregate accounted for in excess of $500,000
of sales or purchases during Seller's last full fiscal year;
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(e) any change by Seller or its Subsidiaries in accounting methods or
principles or the application thereof or any change in the policies or practices
with respect to items affecting working capital;
(f) any acceleration of shipments, sales or orders or other similar
action in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;
(g) any bonus payments, salary increases, commission increases or
modifications, the execution of any employment agreement, severance arrangement,
consulting arrangement or similar document or agreement, or other changes in
employee benefits or other compensation, except for such matters the expenses of
which or the payments for which are made or to be made by Seller and that are
not treated as Assumed Liabilities under this Agreement;
(h) any waiver by Seller or its Subsidiaries of any rights that,
singly or in the aggregate, are material to the Business, the Purchased Assets
or the financial condition or results of operation of Seller or its
Subsidiaries;
(i) any labor strikes, union organizational activities or other
similar occurrence; or
(j) any contract or commitment by Seller or its Subsidiaries to do or
cause to be done any of the foregoing.
Section 4.9 Contracts and Commitments. Schedule 4.9 lists all
agreements, commitments, contracts, undertakings or understandings not listed on
Schedules 2.1(d), 2.1(e) or 2.1(i) to which Seller or any of its Subsidiaries is
a party as of August 31, 1995 and which relate to the Business or the Purchased
Assets, including but not limited to trademark, trade name or patent license
agreements, service agreements, lease, purchase or sale agreements, supply
agreements, distribution or distributor agreements, purchase orders, customer
orders and equipment rental agreements that are either material to Seller or any
of its Subsidiaries or involve consideration with a value of $25,000 or more.
Neither Seller nor any of its Subsidiaries is in breach of or default under any
material agreement, lease, contract or commitment listed or of a type required
to be listed (without regard to the date thereof) in Schedules 2.1(d), 2.1(e),
2.1(i) or 4.9 (collectively, the "Agreements"). Each Agreement is a valid,
binding and enforceable agreement of Seller or a Subsidiary of Seller and the
other parties thereto, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally. There has not occurred any
breach or default under any Agreement on the part of the other parties thereto,
and no event has occurred which with the giving of notice or the lapse of time,
or both, would constitute a default under any Agreement. There is no dispute
between the parties to any Agreement as to the interpretation thereof or as to
whether any party is in breach or default thereunder, and no party to any
Agreement has indicated its intention to, or suggested it may evaluate whether
to, terminate any Agreement. Neither Seller nor any Subsidiary of Seller is a
party to any covenant or obligation of any nature limiting the freedom of Seller
to compete in any
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line of business and binding on any Buyer Party after the Closing. No notice
has been given under any Assigned Lease to extend the term hereof beyond its
current term.
Section 4.10 Trademarks, Trade Names and Intellectual Property.
Schedule 2.1(g) contains an accurate and complete list of (i) all patents,
pending patent applications and invention memoranda relating to the Business or
the Purchased Assets, (ii) all registered United States and foreign trademarks,
trade names and logos owned or used by Seller or any Subsidiary of Seller in
connection with its business or Purchased Assets, except for such trademarks,
trade names and logos containing the names "ENSCO" or "Energy Service Company,"
and all registrations thereof, and (iii) all unregistered United States and
foreign trademarks, trade names and logos used by Seller or any Subsidiary of
Seller in connection with its business or Purchased Assets. Seller has the
right to use all trademarks, trade names, logos, patents, pending patent
applications and invention memoranda referred to herein. There is no pending or
threatened action or claim that would impair any such right.
Section 4.11 All Assets of Business. The Purchased Assets listed on
Schedules 2.1(a), 2.1(b), 2.1(c), 2.1(d), 2.1(e), 2.1(g) and 2.1(i) and the
Purchased Assets referred to in Section 2.1(f), 2.1(h) and 2.1(j) constitute all
assets owned by Seller or any Subsidiary of Seller or used in the conduct of the
Business by Seller or any Subsidiary of Seller (other than the Excluded Assets)
on August 31, 1995. All the Purchased Assets will be delivered to the Buyer
Parties on the Closing Date.
Section 4.12 Financial Records; Budget. The financial statements of
Seller as of and for the years ended December 31, 1994, and as of and for the
eight months ended August 31, 1995 previously delivered to Parent and the
Balance Sheet to be delivered to Parent (the "Financial Statements") are or will
be when delivered accurate and complete, were or will be when delivered prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as set forth therein) and fairly present or will when
delivered fairly present the financial condition and results of operations of
Seller. Seller's fiscal 1995 budget and capital budget previously furnished by
Seller to Buyer (i) are true and complete copies of Seller's internal budgets
for fiscal 1995, (ii) were prepared by management of Seller in good faith and
(iii) were prepared on a reasonable basis.
Section 4.13 Condition of Assets. The Purchased Assets are fit for
the particular purposes for which they are used in the Business, subject only to
normal maintenance and repair and normal wear and tear reasonably expected in
the ordinary course of business.
Section 4.14 Liabilities. Except as set forth on any Schedule hereto
or in the financial statements and notes thereto referred to in Section 4.12,
there is no existing, contingent or threatened liability, obligation, lien or
claim of any nature (absolute, accrued, contingent or otherwise) that relates to
or has been or may be asserted against Seller, any Subsidiary of Seller or the
Purchased Assets.
Section 4.15 Employees and Related Matters. Schedule 4.15 is a
complete list of all employees of Seller or any Subsidiary of Seller, listing
the title or position held, base salary, any
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commissions or other compensation or employee benefits to which such employees
are entitled to receive. Seller has previously disclosed orally to Parent the
material terms of any oral or written agreement with any Seller Party or any
Subsidiary of Seller.
Section 4.16 No Material Change. There has been no material adverse
change in the Purchased Assets or their value or in the Business from August 31,
1995 to and including the Closing Date, and no event has occurred which could be
expected to lead to or cause such a material adverse change.
Section 4.17 Ownership. ENSCO owns all the issued and outstanding
capital stock of Seller. The capitalization of each of Seller's Subsidiaries
and Seller's ownership thereof is as set forth on Schedule 4.17. ETCI has no
outstanding options or convertible securities.
Section 4.18 Compliance With Law. Neither Seller nor any Subsidiary
of Seller is in violation of any provision of any law, decree, order,
regulation, license, permit, consent, approval, authorization or qualification
or order, including, without limitation, those relating to health, the
environment or Hazardous Substances, and neither Seller nor any Subsidiary of
Seller has received notice of any alleged violation of such law, decree, order,
regulation, license, permit, consent, approval, authorization or qualification
or order.
Section 4.19 WARN Act Notices. Any notice required under the Federal
Workers Adjustment and Retraining Notification Act ("WARN Act") that is, has
been or will be required of Seller or any Subsidiary of Seller to its employees
or former employees by reason of its obligations under the WARN Act resulting
from the transactions contemplated by this Agreement has been or will be given
by Seller or such Subsidiary.
Section 4.20 Insurance. The insurance currently maintained by Seller
is in such amount and is of such type and scope as is customary in the industry
in which Seller operates.
Section 4.21 Government Licenses, Permits and Related Approvals.
Schedule 4.21 hereto sets forth a list of all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
required for the conduct of the Business by Seller or any Subsidiary of Seller,
all of which are in full force and effect.
Section 4.22 Taxes. Seller has caused to be timely filed with
appropriate federal, state, local and other governmental authorities all tax
returns, information returns or statements and reports ("Tax Returns") required
to be filed prior to the date hereof with respect to the Purchased Assets, the
operations of Seller or its Subsidiaries or the conduct of the Business, and has
paid or caused to be paid all taxes due with respect thereto. Seller has
neither received nor has knowledge of any notice of deficiency or assessment or
proposed deficiency or assessment with respect to any of the Purchased Assets,
the operations of Seller or its Subsidiaries or the conduct of the Business from
any taxing authority, and there are no outstanding agreements or waivers that
extend any statutory period of limitations applicable to any federal, state or
local income or franchise Tax Returns that include or reflect the use and
operation of the Purchased Assets, the operations of Seller or its Subsidiaries
or the conduct of the Business. There are no threatened audits of, or
assessments
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against, Seller or any Subsidiary of Seller with respect to taxes that may be
asserted against Seller. Neither Seller nor any Subsidiary of Seller is a party
to any action or proceeding by any governmental authority for the collection or
assessment of taxes. The transactions contemplated hereby qualify as a
"occasional sale" under Section 151.304 of the Texas Tax Code.
Section 4.23 Safety Reports. Seller has previously provided Buyer
copies of all injury reports, worker's compensation reports and claims, safety
citations and reports, OSHA reports and all documents relating to any of the
foregoing since January 1, 1994.
Section 4.24 Investment Intention. Seller is acquiring the First
Note and the Convertible Note (and any securities issued upon conversion
thereof) hereunder for investment, solely for its own account and not with a
view to the distribution thereof.
Section 4.25 Transactions with Certain Persons. Except as set forth
on Schedule 4.25, during the past three years neither Seller nor any Subsidiary
of Seller has, directly or indirectly, purchased, leased or otherwise acquired
any property or obtained any services from, or sold, leased or otherwise
disposed of any property or furnished any services to, or otherwise dealt with
(except with respect to remuneration for services rendered as a director,
officer or employee of Seller or a Subsidiary of Seller), in the ordinary course
of business or otherwise and that are material in amount, (i) any officer,
director or shareholder of any Seller Party or any subsidiary thereof or (ii)
any person, firm or corporation which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common control with any
Seller Party or any shareholder thereof. No Seller Party owes any amount to, or
has any contract with or commitment to, any employees of Seller or any
Subsidiary of Seller (other than compensation for current services not yet due
and payable and reimbursement of expenses arising in the ordinary course of
business), other than as previously disclosed to Buyer, which shall not be
treated as Assumed Liabilities under this Agreement.
Section 4.26 Accounts Receivable. The Accounts Receivable of Seller
and its Subsidiaries purchased by Parent are valid, genuine and subsisting,
arise out of bona fide sales and deliveries of goods, performance of services or
other business transactions in the ordinary course of business, are owned free
and clear and not subject to any Lien, and all Accounts Receivable billed prior
to the Closing Date are collectible net of any reserves shown on the Financial
Statements (which reserves are adequate and were calculated consistent with past
practice).
Section 4.27 Employee Benefits. Schedule 4.27 contains a complete
list of "employee welfare plans" (as that term is defined in Section 3(1) of
ERISA) in which active or former employees of Seller or any Subsidiary of Seller
(collectively, the "Affected Employees") participate (which plans as applied to
such Affected Employees are hereinafter referred to as "Welfare Plans").
Schedule 4.27 also contains a complete list of "employee pension benefit plans"
as that term is defined in Section 3(2) of ERISA in which Affected Employees
participate (which plans as applied to such Affected Employees are hereinafter
referred to as "Pension Plans"). No Affected Employees participate in any
"multiemployer plan" (as that term is defined in Section 3(37) of ERISA). The
Welfare Plans and Pension Plans are hereinafter collectively referred to as
"Seller's Plans." Each of Seller's Plans is in compliance with the provisions
of all applicable laws, rules and
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regulations, including, without limitation, ERISA and the Code. None of the
Pension Plans have incurred any "accumulated funding deficiency" (as defined in
Section 412(a) of the Code). Neither Seller nor any Subsidiary of Seller has
incurred any liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063 or 4064 of ERISA, or any withdrawal liability under Title IV
of ERISA with respect to any multiemployer plan. Neither Seller nor any
Subsidiary of Seller has employees covered by a collective bargaining agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER PARTIES
The Buyer Parties, jointly and severally, represent and warrant to
each Seller Party the following:
Section 5.1 Corporate Status and Good Standing. Each of Parent and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority under its certificate or articles of incorporation
and by-laws to own and lease its properties and to conduct its business as the
same exists on the date hereof and on the Closing Date. Each of Parent and its
Subsidiaries is duly qualified to do business as a foreign corporation in all
states in which the nature of its business requires such qualification and the
failure to do so would have an adverse effect on such party.
Section 5.2 Authorization. Each Buyer Party has full corporate power
and authority under its certificate or articles of incorporation and by-laws,
and its board of directors and stockholders have taken all necessary action to
authorize it, to execute and deliver this Agreement and the exhibits and
schedules hereto, to consummate the transactions contemplated herein and to take
all actions required to be taken by it pursuant to the provisions hereof or
thereof, and each of this Agreement and the exhibits hereto constitutes the
valid and binding obligation of each Buyer Party that is a party hereto
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally. Any shares of
common stock, par value $.01 per share, of Parent ("Parent Stock") issued
pursuant to the terms of the Convertible Note will be, when issued, duly
authorized, validly issued, fully paid and nonassessable.
Section 5.3 Non-Contravention. Neither the execution and delivery of
this Agreement or any documents executed in connection herewith, nor the
consummation of the transactions contemplated herein or therein, does or will
violate, conflict with or result in breach of or require notice or consent under
any law, the charter or bylaws of any Buyer Party or any Subsidiary of Parent or
any provision of any agreement or instrument to which a Buyer Party or any
Subsidiary of Parent is a party, except for required filings with the Federal
Trade Commission and the Department of Justice pursuant to the HSR Act.
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Section 5.4 Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or any action taken or contemplated by a Buyer Party
in connection with this Agreement.
Section 5.5 Broker Involvement. No Buyer Party or any Subsidiary of
Parent has hired, retained or dealt with any broker or finder in connection with
the transactions contemplated by this Agreement.
Section 5.6 Litigation. Except as set forth on Schedule 5.6, there is
no investigation, claim or proceeding or litigation of any type pending or, to
the Seller Parties' knowledge, threatened that might have a material adverse
effect on Parent or any Subsidiary of Parent, and the Buyer Parties and
Subsidiaries of Parent are unaware of any judgment, order, writ, injunction or
decree of any court, government or governmental agency, or arbitral tribunal
against or involving Parent or any Subsidiary of Parent or that might have a
material adverse effect on Parent or a Subsidiary of Parent.
Section 5.7 Continuity Prior to Closing Date. Except as set forth on
Schedule 5.7, from August 31, 1995 to and including the Closing Date, Parent and
its Subsidiaries have conducted their business in the usual and customary manner
and in the ordinary course of business, consistent with historical practice, and
there has not been:
(a) any material transaction by Parent or its Subsidiaries not in the
ordinary and usual course of business;
(b) any material damage, destruction or loss to any assets of Parent
or any Subsidiary of Parent or any other assets used in their businesses,
whether or not covered by insurance;
(c) a termination, or a threatened termination, or material
modification, in each case not in the ordinary course of business, of any
material contract or the relationship of Parent or its Subsidiaries with any
customer or supplier, who in the aggregate accounted for in excess of $500,000
of sales or purchases during Parent's last full fiscal year;
(d) any change by Parent or its Subsidiaries in accounting methods or
principles or the application thereof or any change in the policies or practices
with respect to items affecting working capital;
(e) any waiver by Parent or its Subsidiaries of any rights that,
singly or in the aggregate, are material to the financial condition or results
of operation of Parent or its Subsidiaries;
(f) any labor strikes, union organizational activities or other
similar occurrence; or
(g) any contract or commitment by Parent or its Subsidiaries to do or
cause to be done any of the foregoing.
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Section 5.8 Financial Quarter Records. The audited financial
statements of Parent as of and for the year ended March 31, 1995, and the
financial statements of Parent and each of its Subsidiaries as of and for the
quarter ended June 30, 1995 and the months ended July 31, 1995 and August 31,
1995, previously delivered to Seller, are accurate and complete, were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as set forth therein) and fairly present the financial
condition and results of operations of Parent and each of its Subsidiaries.
Section 5.9 No Material Change. There has been no material adverse
change in the business of Parent and its Subsidiaries from August 31, 1995 to
and including the Closing Date.
Section 5.10 Ownership. The capitalization of each of Parent's
Subsidiaries and Parent's ownership thereof is as set forth on Schedule 5.10.
Section 5.11 Insurance. The insurance currently maintained by Parent
and its Subsidiaries is in such amount and is of such type and scope as is
customary in the industry in which Parent and its Subsidiaries operate.
Section 5.12 Capitalization. The authorized capital stock of Parent
consists of 3,000,000 shares of Parent Stock. As of the Closing, prior to
giving effect to the transaction contemplated hereby, there are 2,171,491 shares
of Parent Stock issued and outstanding. Except as set forth on Schedule 5.12,
there are no outstanding subscriptions, options, convertible securities,
warrants or calls of any kind issued or granted by, or binding upon, Parent to
purchase or otherwise acquire or to sell or to otherwise dispose of any security
of or equity interest in Buyer.
Section 5.13 Certain Materials. Parent has previously provided or
made available to Seller true and complete copies of (i) all resolutions adopted
by the Board of Directors or stockholders of Parent, (ii) all stockholder and
similar agreements relating to Parent Stock, (iii) all instruments and other
documents relating to indebtedness of over $100,000 to which Parent or any of
its Subsidiaries is party or is bound, and (iv) all agreements or contracts with
customers, the loss of which would have a material adverse effect on Parent and
its Subsidiaries taken as a whole.
Section 5.14 Contracts and Commitments. Except as set forth on
Schedule 5.14, neither Parent nor any of its Subsidiaries is in breach of or
default under any material agreement, lease, contract or commitment to which it
is a party or is bound (a "Buyer Agreement"). Each Buyer Agreement is a valid,
binding and enforceable agreement of Parent or a Subsidiary of Parent and, to
the knowledge of the Buyer Parties, the other parties thereto, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally. There has not occurred, to the knowledge of the Buyer Parties, any
breach or default under any Buyer Agreement on the part of the other parties
thereto, and, to the knowledge of the Buyer Parties, no event has occurred which
with the giving of notice or the lapse of time, or both, would constitute a
default under any Buyer Agreement. There is no dispute between the parties to
any Buyer Agreement as to the interpretation thereof or as to whether any party
is in breach or default thereunder, and no party to any Buyer Agreement has
indicated its intention to, or suggested it may evaluate whether to, terminate
any Buyer Agreement. Neither
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Parent nor any Subsidiary of Parent is a party to any covenant or obligation of
any nature limiting the freedom of Parent to compete in any line of business.
Section 5.15 Liabilities. Except as set forth on any Schedule hereto
or in the financial statements and notes thereto referred to in Section 5.9 and
except as incurred in the ordinary course of business after August 31, 1995,
there is no material existing, contingent, or to the knowledge of the Buyer
Parties, threatened liability, obligation, lien or claim of any nature
(absolute, accrued, contingent or otherwise) that relates to or has been or may
be asserted against Parent or any Subsidiary of Parent or any of their
properties.
Section 5.16 Employees and Related Matters. Buyer has previously
orally disclosed to Seller the identity of all executives of Parent and its
Subsidiaries with a base salary in excess of, or reasonably likely to receive
total compensation in 1995 or 1996 in excess of, $100,000, the title or
position held, base salary, any commissions or other compensation paid or
payable, any material terms of any employment agreements to which such employee
is a party and all employee benefits received by such employees.
Section 5.17 Compliance With Law. Neither Parent nor any Subsidiary
of Parent is in violation of any provision of any law, decree, order,
regulation, license, permit, consent, approval, authorization or qualification
or order, including, without limitation, those relating to health, the
environment or Hazardous Substances, except for violations that could not be
expected to have a material adverse effect on Parent or any Subsidiary of
Parent, and neither Parent nor any Subsidiary of Parent has received notice of
any alleged violation of such law, decree, order, regulation, license, permit,
consent, approval, authorization or qualification or order.
Section 5.18 Taxes. Parent has caused to be timely filed with
appropriate federal, state, local and other governmental authorities all tax
returns, information returns or statements and reports ("Tax Returns") required
to be filed prior to the date hereof with respect to the operations of Parent or
its Subsidiaries or the conduct of their business, and has paid or caused to be
paid all material taxes due with respect thereto. Parent has neither received
nor has knowledge of any notice of deficiency or assessment or proposed
deficiency or assessment with respect to the operations of Parent or its
Subsidiaries or the conduct of their business from any taxing authority, and
there are no outstanding agreements or waivers that extend any statutory period
of limitations applicable to any federal, state or local income or franchise Tax
Returns that include or reflect the operations of Parent or its Subsidiaries or
the conduct of their business. To the knowledge of the Buyer Parties, there are
no threatened audits of, or assessments against, Parent or any Subsidiary of
Parent with respect to taxes that may be asserted against Parent. Neither
Parent nor any Subsidiary of Parent is a party to any action or proceeding by
any governmental authority for the collection or assessment of taxes.
Section 5.19 Transactions with Certain Persons. Except as set forth
on Schedule 5.19, neither Parent nor any Subsidiary of Parent has, directly or
indirectly, purchased, leased or otherwise acquired any property or obtained any
services from, or sold, leased or otherwise disposed of any property or
furnished any services to, or otherwise dealt with (except with respect to
remuneration for services rendered as a director, officer or employee of Parent
or a Subsidiary of
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Parent), in the ordinary course of business or otherwise and that are material
in amount, (i) any officer, director or shareholder of any Buyer Party or any
subsidiary thereof or (ii) any person, firm or corporation which, directly or
indirectly, alone or together with others, controls, is controlled by or is
under common control with any Buyer Party or any shareholder thereof.
Section 5.20 Intellectual Property. "Buyer Intellectual Property"
means all trademarks, trademark rights, trade names, trade name rights, patents,
patent rights, industrial models, inventions, copyrights, service marks, trade
secrets, know-how and other proprietary rights and information used or held for
use in connection with the business of Parent and its Subsidiaries as currently
conducted, together with all applications currently pending for any of the
foregoing. There is no assertion or claim challenging the validity of the Buyer
Intellectual Property which, individually or in the aggregate, would have a
material adverse effect on Parent or any of its Subsidiaries. To the knowledge
of the Buyer Parties, there is no breach that would have a material adverse
effect on Parent or any of its Subsidiaries or cause a loss of material rights
under any license or other agreement pursuant to which Parent or any of its
Subsidiaries has the right to use Buyer Intellectual Property, and there are no
notices from third parties regarding actual or potential infringements by any
Buyer Intellectual Property which, individually or in the aggregate, are
reasonably likely to have a material adverse effect on Parent or any of its
Subsidiaries.
ARTICLE VI
COVENANTS
Section 6.1 Other Offers. From and after the date hereof, no Seller
Party, or any of their respective officers, directors, stockholders, employees,
affiliates, representatives or agents shall, directly or indirectly, (a)
solicit, enter into or conduct discussions relating to, initiate or knowingly
encourage any offer or proposal for, or any indication of interest in, a merger
or business combination involving the Seller or any of its Subsidiaries or the
acquisition of an equity interest in, or a substantial portion of the assets of,
the Seller or any of its Subsidiaries or (b) disclose any nonpublic information
relating to the Seller or any of its Subsidiaries or the Business, or afford
access to the properties, books or records of either of the Seller or any of its
Subsidiaries, to any person or entity.
Section 6.2 Conduct of the Business Pending the Closing. Until the
Closing, the Seller shall comply, and ENSCO shall cause the Seller to comply,
with the provisions set forth below:
(a) Seller shall operate the Business in the ordinary course;
(b) Seller shall promptly notify Buyer of, and furnish to Buyer any
information that Buyer may reasonably request with respect to, the occurrence of
any event or the existence of any state of facts that may result in the
representations and warranties of any Seller Party not being true if they were
made at any time prior to or as of the date of the Closing;
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(c) Except as required by Seller's Plans and set forth on Schedule
4.15, neither Seller nor any of its Subsidiaries shall (i) grant or agree to
grant any bonuses to any employee that will be an Assumed Liability, (ii) grant
any general increase in the rates of salaries or compensation of its or their
employees or any specific increase to any employee, (iii) provide for any new
pension, retirement or other employment benefits to any of its or their
employees or any increase in any existing benefits or (iv) terminate or amend in
any respect or provide for any material increase in benefits under any Seller
Plan;
(d) Neither Seller nor any of its Subsidiaries shall amend its
certificate of incorporation or by-laws or enter into any merger or
consolidation agreement;
(e) Neither Seller nor any of its Subsidiaries shall authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any capital stock of any class
or any other securities or equity equivalents or amend any of the terms of any
such securities or agreements;
(f) The Seller Parties shall use best efforts to maintain and preserve
the Business intact, to retain their present employees so that they will be
available to Buyer after the Closing and to maintain existing relationships with
customers, suppliers and others so that those relationships will be preserved
after the Closing;
(g) Neither Seller nor any of its Subsidiaries shall sell, assign or
dispose of any of its material assets or properties, tangible or intangible, or
incur or assume any liabilities or enter into any sale/leaseback or similar
transaction, except for sales and dispositions made, or liabilities incurred, in
the ordinary course of business consistent with past practices;
(h) Neither Seller nor any of its Subsidiaries shall assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity
except in the ordinary course of business consistent with past practices and in
amounts not material to the Business or make any loans, advances or capital
contributions to or investments in any other person or entity, other than in the
ordinary course of business consistent with past practices and in amounts not
material to the Business;
(i) Seller and its Subsidiaries shall maintain in full force and
effect all insurance currently maintained with respect to the Business;
(j) Neither Seller nor any of its Subsidiaries shall take, or agree in
writing or otherwise to take, any of the actions described in this Section 6.2
or any action that would make any representation or warranty inaccurate or
untrue in any material respect or that would result in any of the conditions set
forth in Article VII hereof not being satisfied;
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(k) Seller and its Subsidiaries shall comply with all applicable
local, state and federal laws, rules and regulations, judgments, decrees,
orders, governmental permits, certificates and licenses, including, without
limitation, Environmental Laws;
(l) Seller shall maintain the books of account and records in the
usual, regular and customary manner consistent with practices employed prior to
the date hereof; and
(m) Seller shall not implement or adopt (i) any change in its
accounting methods or principles or the application thereof (including
depreciation lives) or (ii) any material change in its tax methods or principles
or the application thereof (including depreciation lives), in either case
without the prior written consent of Parent.
Section 6.3 Employees. Seller and its Subsidiaries shall permit
Buyer to interview any employees of Seller and its Subsidiaries, although Buyer
shall have no obligation to employ any employees of Seller and its Subsidiaries,
or to assume any liability of Seller and its Subsidiaries to any employee or
former employee that is not an Assumed Liability. If Buyer extends an offer of
employment to such an employee, Seller and its Subsidiaries will waive any non-
competition, confidentiality or other employment contract obligation which might
otherwise restrict said employee's right to be employed by Buyer. All such
employees hired pursuant to the preceding sentence (i) shall initially be paid
at the same rate of pay as set forth on Schedule 4.15 (exclusive of bonus,
commission, etc.); provided that Buyer shall have the right to change any such
salary after the initial pay period or to terminate the employment of any such
employee at any time after the Closing and (ii) shall be eligible from and after
the Closing to participate in Buyer's health insurance plan on the same basis as
other employees generally. Promptly after the Closing, Seller will pay its
employees all amounts due them (including, without limitation, on account of
vacation pay).
Section 6.4 Further Assistance. Seller shall execute and deliver to
Buyer or Parent, at Closing or thereafter, any other instrument which may be
reasonably requested by Buyer or Parent and which is reasonably appropriate to
perfect or evidence any of the sales, assignments, transfers or conveyances
contemplated by this Agreement or to transfer any Purchased Assets identified
after Closing.
Section 6.5 Consents. After the Closing, the Seller Parties will use
their best efforts to obtain any consents required in connection with the
transactions contemplated hereby that are requested by the Buyer Parties and
that have not been previously obtained.
Section 6.6 Governmental Filings. As promptly as practicable after
the execution of this Agreement, each party shall, in cooperation with the
other, file any reports or notifications that may be required to be filed by it
under applicable law, including filings under the HSR Act with the Federal Trade
Commission and the Antitrust Division of the Department of Justice, and shall
furnish to the other all such information in its possession as may be necessary
for the completion of the reports or notifications to be filed by the other.
Section 6.7 Access to Information. Prior to the Closing, Buyer may
make such investigation of the business and properties of Seller and its
Subsidiaries as Buyer may desire and,
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upon reasonable notice, Seller shall give to Buyer and its counsel, accountants
and other representatives reasonable access, during normal business hours
throughout the period prior to the Closing, to the property, books, commitments,
agreements, records, files and personnel of Seller and its Subsidiaries, and
Seller shall furnish to Buyer during that period all copies of documents and
information concerning the Business as Buyer may reasonably request, subject to
applicable law. Buyer shall hold, and shall cause its counsel, accountants and
other agents and representatives to hold, all such information and documents in
confidence.
Section 6.8 Other Action. Each of the parties shall use its
reasonable efforts to cause the fulfillment at the earliest practicable date
but, in any event, prior to the Closing Date of all of the conditions to their
respective obligations to consummate the transactions under this Agreement.
Section 6.9 Notes. Seller agrees that it will not assign, sell,
transfer, hypothecate or pledge either of the Notes (or any security or other
property issued upon conversion thereof) or any part thereof in violation of
applicable law (including the federal securities laws), and no such assignment,
sale, transfer, hypothecation or pledge shall be made unless Seller delivers to
Parent an opinion of counsel satisfactory to Parent that this condition is met.
Appropriate legends to such effect shall be placed on the First Note and the
Convertible Note (and any security issued upon conversion thereof).
Section 6.10 Elimination of Designations. As soon as practicable,
but in any event within the periods set forth below, the Buyer Parties shall, at
their expense, use their best efforts to eliminate all use of the name "ENSCO"
or "Energy Service Company" or any other designations indicating an affiliation
with Seller or any of its Affiliates: (a) with respect to all stationery, checks
and other business forms (including, without limitation, all purchase orders and
contracts) within 30 days following the Closing Date, (b) with respect to all
motor vehicles, trailers and equipment, within 90 days following the Closing
Date and (c) with respect to uses other than those described in clauses (a) and
(b) above, within 45 days following the Closing Date.
Section 6.11 Cooperation with Financings and Financial Reporting.
The Seller Parties acknowledge and understand that in the event Parent conducts
certain offerings of its securities or is subject to reporting requirements
under the Securities Exchange Act of 1934, as amended, Parent will be required
to obtain certain information relating to the Business and the Purchased Assets,
including, but not limited to, audited or unaudited financial statements of
Seller and ETCI or the Business, and disclose such information in registration
statements and other documents filed with the Securities and Exchange Commission
under the federal securities laws or in disclosure documents given investors in
certain securities offerings. The Seller Parties agree to use their best
efforts to cooperate fully and promptly, and shall cause their affiliates,
accountants, counsel and other agents and representatives to cooperate fully and
promptly, with Parent in connection therewith.
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ARTICLE VII
INDEMNIFICATION
Section 7.1 Seller's Indemnity Obligations. Each Seller Party,
jointly and severally, shall indemnify each Buyer Party (including its officers,
directors, employees and agents) against, and hold harmless from and against,
any and all claims, actions, causes of action, arbitrations, proceedings,
losses, damages, liabilities, judgments and expenses (including, without
limitation, reasonable attorneys' fees) ("Indemnified Amounts") incurred by a
Buyer Party or any of its Affiliates as a result of (a) any error, inaccuracy,
breach or misrepresentation in any of the representations and warranties made by
or on behalf of any Seller Party in this Agreement, (b) any violation or breach
by any Seller Party of or default by any Seller Party under the terms of this
Agreement, (c) the past or present presence, release, remediation or clean-up
of, or exposure to, Hazardous Substances relating to or located on, within or
under the Purchased Assets, the assets subject to the Assigned Leases or the
assets of any Subsidiary of Seller, (d) any product liability or other claims
concerning products sold or services provided by Seller or any Subsidiary of
Seller prior to the Closing and (e) any debts, liabilities or obligations of
Seller or any Subsidiary of Seller, direct or indirect, fixed, contingent or
otherwise, whether known or unknown and whether asserted or unasserted, that are
not Assumed Liabilities, including the items set forth on Schedule 4.6, except
to the extent such Indemnified Amount relates to a matter for which
indemnification would be provided under Section 7.2. The Buyer Parties shall be
entitled to recover their reasonable and necessary attorneys' fees and
litigation expenses incurred in connection with successful enforcement of their
rights under this Section.
Section 7.2 Buyer's Indemnity Obligations. Each Buyer Party, jointly
and severally, shall indemnify each Seller Party (including its officers,
directors, employees and agents) against, and hold it harmless from and against,
any and all Indemnified Amounts incurred by a Seller Party or any of its
Affiliates as a result of (a) any error, inaccuracy, breach or misrepresentation
in any of the representations and warranties made by or on behalf of any Buyer
Party in this Agreement, (b) any violation or breach by any Buyer Party of or
default by any Buyer Party under the terms of this Agreement (c) any product
liability or other claims concerning products sold or services provided by
Parent or any Subsidiary of Parent prior to the Closing and (d) any Assumed
Liabilities, except to the extent such Indemnified Amount relates to a matter
for which indemnification would be provided under Section 7.1 without regard to
the indemnification limitations provided herein or to an action or omission by a
Seller Party after the Closing. The Seller Parties shall be entitled to recover
their reasonable and necessary attorneys' fees and litigation expenses incurred
in connection with successful enforcement of their rights under this Section.
Section 7.3 Survival; Threshold and Limits of Liability. The
representations, warranties and indemnities set forth in this Agreement and in
any certificate or instrument delivered in connection herewith shall be
continuing and shall survive the Closing for three years (except that (i) the
representations and warranties set forth in Sections 4.7 and 4.18 with respect
to environmental liabilities or Hazardous Substances and (ii) the indemnities
contained in Sections 7.1(c) shall survive the Closing without limitation) (the
period during which the representations and warranties shall survive being
referred to herein with respect to such representations and warranties as the
"Survival
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Period"), but shall thereafter terminate and be of no further force and effect
unless a written notice asserting a claim shall have been made pursuant to this
Article VII within the Survival Period with respect to such matter. Any claim
for indemnification made in writing during the Survival Period shall remain in
effect for purposes of such indemnification notwithstanding such claim may not
be resolved within the Survival Period. No party shall be liable under this
Article VII or for the breach of any representation or warranty (other than with
respect to an item that is taken into account in determining Net Worth, as to
which this limitation shall not apply) unless the aggregate amount of such
liability (for all such claims) exceeds $350,000, in which event the
Indemnifying Party shall be fully liable without regard to such threshold. Any
liability under this Article VII shall be limited in the aggregate to a maximum
amount equal, in the case of the Seller Parties, to the Purchase Price, and, in
the case of the Buyer Parties, to the principal amounts outstanding from time to
time under the Notes plus any principal amount converted to Parent Stock
pursuant to the Convertible Note. This Section 7.3 shall not apply under any
provisions of this Agreement other than Article VII.
Section 7.4 Indemnification Procedures. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall with reasonable promptness (i) notify the party from
whom indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party Claim") for
which indemnification is sought and (ii) transmit to the Indemnifying Party a
copy of all papers served with respect to such claim (if any) and a written
notice ("Claim Notice") containing a description in reasonable detail of the
nature of the Third Party Claim, an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement.
Within 15 days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the Indemnified Party whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and, if the Indemnifying Party does not
dispute its potential liability to the Indemnified Party with respect to such
Third Party Claim, whether the Indemnifying Party elects to defend the
Indemnified Party with respect to such Third Party Claim.
If the Indemnifying Party does not dispute its potential liability to
the Indemnified Party within the Election Period and notifies the Indemnified
Party that it elects to defend such Third Party Claim, the Indemnifying Party
shall control negotiations toward resolution of such claim without the necessity
of litigation, and if litigation ensues, to defend the same with counsel
reasonably acceptable to the Indemnified Party, at the Indemnifying Party's
expense, and the Indemnified Party shall extend reasonable cooperation in
connection with such defense. The Indemnified Party shall be entitled to
participate in, but not to control, the defense of any Third Party Claim
resulting in litigation, at its own cost and expense; provided, however, that if
the parties to any suit or proceeding shall include the Indemnifying Party as
well as the Indemnified Party and the Indemnified Party shall have been advised
in writing by counsel that one or more legal defenses may be available to it
that may not be available to the Indemnifying Party, then the Indemnified Party
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shall be entitled to elect to control such suit or proceeding, but the
Indemnifying Party shall be obligated to bear the fees and expenses of counsel
of the Indemnified Party, which shall be selected by the Indemnified Party in
its complete and sole discretion. If the Indemnifying Party does not dispute
its potential liability to the Indemnified Party within the Election Period and
the Indemnifying Party fails to assume control of the negotiations prior to
litigation or to defend such action within a reasonable time, the Indemnified
Party shall be entitled, but not obligated, to assume control of such
negotiations or defense of such action, and the Indemnifying Party shall be
liable to the Indemnified Party for its expenses reasonably incurred or amounts
paid in connection therewith. If the Indemnifying Party disputes its potential
liability to the Indemnified Party within the Election Period or does not elect
to defend such Third Party Claim, then the Indemnified Party shall be entitled
to assume control of such negotiations or defense of action and the liability
for the expense thereof, as well as any liability with respect to such Third
Party Claim, shall be determined as provided in Section 7.5 below. If the
Indemnifying Party disputes its potential liability to the Indemnified Party
within the Election Period, and, if it is determined as provided in Section 7.5
that the Indemnifying Party is liable to the Indemnified Party with respect to
such to such Third Party Claim, the Indemnifying Party may then assume the
defense of such Third Party Claim.
If the Indemnifying Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article VII
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all costs
and expenses of such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section, and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
Neither the Indemnifying Party nor the Indemnified Party shall settle,
compromise, or make any other disposition of any Third Party Claim which would
or might result in any liability to the Indemnified Party or the Indemnifying
Party under this Article VII without the written consent of such other party.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the
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basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 15 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder.
Section 7.5 Arbitration of Disputes. If the Indemnifying Party
disputes, either as to the amount or liability, that any claim described in a
Claim Notice or an Indemnity Notice, as the case may be, is covered by such
Indemnifying Party's covenant to indemnify contained in this Article VII, then
the Indemnifying Party and the Indemnified Party agree to promptly negotiate in
good faith to resolve their differences and to mutually agree upon an amount, if
any, owed to Indemnified Party by the Indemnifying Party hereunder. If
Indemnifying Party and Indemnified Party fail to agree within 30 days
thereafter, the dispute shall be referred to non-binding mediation by a single
mediator mutually agreed to by Buyer and Seller and conducted in Houston, Texas.
The cost of the mediator shall be paid one-half by Buyer and one-half by Seller.
If the Indemnifying Party and the Indemnified Party fail to agree within forty-
five (45) days after the date such matter was referred to mediation, the matter
shall be resolved by binding and final arbitration of a single arbitrator
mutually agreed to by Buyer and Seller conducted in Houston, Texas in accordance
with the rules of commercial arbitration of the American Arbitration
Association. The prevailing party in any such arbitration proceeding shall be
entitled to attorney's fees and other out-of-pocket expenses reasonably and
necessarily incurred in connection with such proceeding, the amounts of which
shall be contained in the award of the arbitrator.
Section 7.6 General. The covenants and agreements entered into
pursuant to this Agreement to be performed after the Closing shall survive the
Closing without limitation. The indemnification rights and obligations under
this Article VII shall apply regardless of whether any suit or action results
solely or in part from negligence of the parties. The rights of the parties to
indemnification under this Article VII shall not be limited due to any
investigations heretofore or hereafter made by such parties or their
representatives, regardless of negligence in the conduct of any such
investigations. All representations, warranties and covenants and agreements
made by the parties shall not be deemed merged into any instruments or
agreements delivered in connection with the Closing or otherwise in connection
with the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions Precedent to Obligations of Buyer. The
obligation of the Buyer Parties to consummate the purchase under this Agreement
is subject to the fulfillment, prior to or at the Closing, of each of the
following conditions (any or all of which may be waived by the Buyer Parties):
(a) all representations and warranties of the Seller Parties contained
in this Agreement shall be true and correct in all respects at and as of the
time of the Closing with the same
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effect as though made again at, and as of, that time, except such as will not
have a material adverse effect and except such as would not reasonably be
expected to have a material adverse effect on any Seller Party's ability to
perform its obligations under this Agreement;
(b) the Seller Parties shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by the Seller Parties prior to or at the
Closing;
(c) the Buyer Parties shall have been furnished with a certificate,
dated the Closing Date, executed by an officer of each Seller Party certifying
to the fulfillment of the conditions specified in Sections 8.1(a) and 8.1(b)
hereof;
(d) the waiting period (and any extension thereof) under the HSR Act
shall have expired or been terminated;
(e) no provision of any applicable law or regulation shall prohibit,
and there shall not be in effect any injunction or restraining order issued by a
court of competent jurisdiction in any action or proceeding against, the
consummation of this Agreement; and
(f) Parent shall have received proceeds from a loan from one or more
commercial banks and from the issuance of its equity totaling at least
$10,000,000 on terms and conditions satisfactory to Parent in order to finance
the transactions contemplated hereby, related transaction costs and working
capital.
Section 8.2 Conditions Precedent to Obligations of the Seller
Parties. The obligation of the Seller Parties to consummate the sale under this
Agreement is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions (any or all of which may be waived by the Seller
Parties):
(a) all representations and warranties of the Buyer Parties contained
in this Agreement shall be true and correct in all respects at and as of the
time of the Closing with the same effect as though made again at, and as of,
that time, except such as will not have a material adverse effect and except
such as would not reasonably be expected to have a material adverse effect on
any Buyer Party's ability to perform its obligations under this Agreement;
(b) the Buyer Parties shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by the Buyer Parties prior to or at the
Closing;
(c) the Seller Parties shall have been furnished with a certificate,
dated the Closing Date, executed by an officer of each Buyer Party certifying to
the fulfillment of the conditions specified in Sections 8.2(a) and 8.2(b)
hereof;
(d) the waiting period (and any extension thereof) under the HSR Act
shall have expired or been terminated;
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(e) no provision of any applicable law or regulation shall prohibit,
and there shall not be in effect any injunction or restraining order issued by a
court of competent jurisdiction in any action or proceeding against, the
consummation of this Agreement; and
(f) the Seller Parties shall have obtained the consents required in
connection with the transactions contemplated hereby and disclosed in Schedule
4.3.
ARTICLE IX
DELIVERIES AT CLOSING
Section 9.1 Documents to be Delivered by the Seller Parties. At the
Closing, the Seller Parties shall deliver, or cause to be delivered, to the
Buyer Parties the following:
(a) a copy of resolutions of the board of directors of each Seller
Party authorizing the execution, delivery and performance of this Agreement by
such Seller Party and a certificate of the secretary or assistant secretary of
such Seller Party, dated the Closing Date, that such resolutions were duly
adopted and are in full force and effect;
(b) the officer's certificate referred to in Section 8.1(c);
(c) a bill of sale and deeds, assignments and any other necessary
instruments, satisfactory in form and content and approved prior to the Closing
by Parent, conveying all the Purchased Assets to Parent;
(d) estoppel certificates in form and substance satisfactory to Parent
executed by the landlords under each of the Assigned Leases; and
(e) a stock certificate or certificates representing 600,000 shares
(70%) of the outstanding capital stock of ETCI, duly endorsed in blank or
accompanied by an irrevocable stock power.
Section 9.2 Documents to be Delivered by Buyer. At the Closing, the
Buyer Parties shall deliver, or cause to be delivered, to the Seller Parties the
following:
(a) the wire transfer referred to in Section 2.3;
(b) the executed First Note;
(c) the executed Convertible Note;
(d) a copy of the resolutions of the board of directors of each Buyer
Party authorizing the execution, delivery and performance of this Agreement by
such Buyer Party and a certificate of the secretary or assistant secretary of
such Buyer Party, dated the Closing Date, that such resolutions were duly
adopted and are in full force and effect; and
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(e) the officer's certificate referred to in Section 8.2(c).
Section 9.3 Other Documents to be Delivered. At the Closing, the
appropriate Buyer Parties and Seller Parties shall deliver the following:
(a) the registration rights agreement referred to in Section 2.6; and
(b) the stockholders' agreement referred to in Section 2.7
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written agreement executed by the Seller Parties and the
Buyer Parties;
(b) by the Buyer Parties, if any of the conditions specified in
Section 8.1 hereof shall not have been satisfied or waived in writing by the
Buyer Parties on or before October 15, 1995; or
(c) by the Seller Parties, if any of the conditions specified in
Section 8.2 hereof shall not have been satisfied or waived in writing by the
Seller Parties on or before October 15, 1995;
provided, however, that a party shall not be allowed to exercise any right of
termination pursuant to this Section 10.1 if the event giving rise to such
termination right shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe in any material respect any of the
covenants or agreements set forth herein to be performed or observed by such
party.
Upon such termination, neither of the parties nor any other person
shall have any liability or further obligation arising out of this Agreement
except for any liability resulting from its breach of this Agreement prior to
termination, except that the provisions of Sections 10.4, 10.10, 10.13 shall
continue to apply.
Section 10.2 Confidentiality; Publicity; Books and Records. (a) No
Seller Party or Affiliate thereof will, directly or indirectly, disclose or
provide to any other person any non-public information of a confidential nature
concerning the Business, the Purchased Assets or the business or operations of
Seller, except as is required in governmental filings or judicial,
administrative or arbitration proceedings. In the event that any Seller Party
or Affiliate becomes legally required to disclose any such information in any
governmental filings or judicial, administrative or arbitration proceedings,
such Seller Party shall, and shall cause such Affiliate to, provide Buyer with
prompt notice of such requirement so that Buyer may seek a protective order or
other appropriate remedy.
28
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In the event that such protective order or other remedy is not obtained, such
Seller Party shall, and shall cause such Affiliate to, furnish only that portion
of the information that such Seller Party or such Affiliate, as the case may be,
is advised by its counsel is legally required and such disclosure shall not
result in any liability hereunder unless such disclosure was caused by or
resulted from a previous disclosure by such Seller Party or any Affiliate that
was not permitted by this Agreement.
(b) No Buyer Party or Affiliate thereof will, directly or indirectly,
disclose or provide to any other person any nonpublic information of a
confidential nature concerning the business or operations of Seller, except as
is required in governmental filings or judicial, administrative or arbitration
proceedings; provided, however, that following the Closing, the obligation not
to disclose shall not apply to disclosures regarding the Business or the
Purchased Assets being acquired. In the event that any Buyer Party or Affiliate
becomes legally required to disclose any such information in any governmental
filings or judicial, administrative or arbitration proceedings, such Buyer Party
shall, and shall cause such Affiliate to, provide Seller with prompt notice of
such requirements so that Seller may seek a protective order or other
appropriate remedy in the event that such protective order or other remedy is
not obtained, such Buyer Party shall, and shall cause such Affiliate to, furnish
only that portion of the information that such Buyer Party or such Affiliate,
as the case may be, as advised by its counsel as legally required, and such
disclosure shall not result in any liability hereunder unless such disclosure
was caused by or resulted from a previous disclosure by such Buyer Party or any
Affiliate that was not permitted by this Agreement.
(c) Subject to applicable securities law or stock exchange
requirements, the parties hereto will promptly advise, and obtain the approval
of, the other parties before issuing any press release with respect to this
Agreement or the transactions contemplated hereby.
(d) For a period of five years after the Closing Date, Buyer will
preserve and retain the books and records of Seller constituting part of the
Purchased Assets and make such books and records available at the then current
administrative headquarters of Buyer to Seller and its officers, employees and
agents, upon reasonable notice and at reasonable times, at Seller's cost and
expense, it being understood that the Seller shall be entitled to make copies of
any such books and records as shall be reasonably necessary.
Section 10.3 Seller Parties to Enforce Certain Agreements. Seller
hereby assigns its rights to Buyer in lieu of being obligated to enforce such
rights under any agreement, arrangement or other legal right it may have with or
relating to any employee (or former employee) or other party with respect to the
confidentiality of any information relating to Seller or the Business.
Section 10.4 Expenses. The Buyer Parties and the Seller Parties
shall pay their own respective expenses, including the fees and disbursements of
their respective counsel in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated herein, except as otherwise provided herein.
Section 10.5 Entire Agreement. This Agreement, including all
schedules and exhibits hereto, constitutes the entire agreement of the parties
with respect to the subject matter
29
<PAGE>
hereof, and may not be modified, amended or terminated except by a written
instrument specifically referring to this Agreement signed by all the parties
hereto.
Section 10.6 Waivers and Consents. All waivers and consents given
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 10.7 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been received only if and when
(i) personally delivered or (ii) on the third day after mailing, by United
States mail, first class, postage prepaid, by certified mail return receipt
requested, addressed in each case as follows (or to such other address as may be
specified by like notice):
(a) If to Buyer, to:
Drilex Holdings Corp.
600 Travis, Suite 6600
Houston, Texas 77002
Attention: John Forrest
With a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002-4995
Attention: J. David Kirkland, Jr.
(b) If to any Seller Party, to:
ENSCO International Incorporated
1445 Ross Avenue, Suite 2700
Dallas, Texas 75202-2792
Attention: C. Christopher Gaut
With a copy to:
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
30
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Section 10.8 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns. No third party shall have any
rights hereunder. No assignment shall release the assigning party.
Section 10.9 Compliance with Bulk Sales Laws. Parent and Seller
waive compliance with the requirements of any applicable bulk sales laws of any
jurisdiction.
Section 10.10 Performance. ENSCO agrees to cause Seller to perform
all its obligations and agreements under this Agreement and hereby guarantees
the payment and performance by Seller of all such obligations and agreements.
Parent agrees to cause Buyer to perform all its obligations and agreements under
this Agreement and hereby guarantees the payment and performance by Buyer of all
such obligations and agreements.
Section 10.11 Title and Risk of Loss. Title to, liability for and in
connection with, and risk of loss of Purchased Assets shall remain with Seller
in every instance until said assets are delivered to Buyer in accordance with
this Agreement.
Section 10.12 Limitation on Interest. Regardless of any provision
contained herein or any other document executed in connection with this
Agreement, the parties hereto shall not be obliged to pay, and the parties
hereto shall never be entitled to charge, reserve, receive, collect or apply, as
interest (it being understood that interest shall be calculated as the aggregate
of all charges that are contracted for, charged, reserved, received, collected,
applied or paid that constitute interest under applicable law) payable hereunder
any amount in excess of the maximum nonusurious contract rate of interest
allowed from time to time by applicable law, and in the event any of the parties
hereto ever charges, reserves, receives, collects or applies, as interest, any
such excess, at the option of the payor of such interest, such amount shall be
deemed a partial prepayment of the amount payable hereunder or promptly refunded
to the payor of such interest.
Section 10.13 Choice of Law; Section Headings; Table of Contents.
This Agreement shall be governed by the internal laws of the State of Texas
(without regard to the choice of law provisions thereof). The section headings
and any table of contents contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
Section 10.14 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
DRILEX HOLDINGS CORP.
By: /s/ JOHN FORREST
---------------------------------
John Forrest
President
DRILEX SYSTEMS, INC.
By: /s/ JOHN FORREST
--------------------------------
John Forrest
President
ENSCO TECHNOLOGY COMPANY
By: /s/ C. C. GAUT
--------------------------------
C. Christopher Gaut
Vice President
ENSCO INTERNATIONAL INCORPORATED
By: /s/ C. C. GAUT
--------------------------------
C. Christopher Gaut
Vice President
32
<PAGE>
Exhibit A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED (OTHER THAN TO ENSCO INTERNATIONAL INCORPORATED OR ANY OF ITS
SUBSIDIARIES) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
NOTE UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE MAKER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
$2,220,000.00 September 30, 1995
Houston, Texas
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation ("Maker") for value
received, promises and agrees to pay to ENSCO Technology Company, a Delaware
corporation or its Permitted Assigns (as defined below) ("Payee"), in lawful
money of the United States of America the principal sum of TWO MILLION TWO
HUNDRED TWENTY THOUSAND AND 00/100 DOLLARS ($2,220,000.00), in five equal
consecutive annual installments each in the amount of $444,000.00 on each
anniversary of the date of this note, commencing on the first anniversary
thereof and ending on the fifth anniversary thereof, together with interest
thereon (calculated on the basis of a 365 day year, or a 366 day year in the
case of a leap year) from and after the date hereof until maturity at a varying
rate per annum (the "Applicable Rate") which is equal to the interest rate
established by Chemical Bank from time to time as its "base rate," but in no
event to exceed the maximum rate of nonusurious interest allowed from time to
time by law (the "Highest Lawful Rate"), with adjustments in such varying rate
to be made on the same date as any change in the base rate and adjustments due
to changes in the Highest Lawful Rate to be made on the effective date of any
change in the Highest Lawful Rate. All past due amounts or principal or
installments thereof, and to the extent permitted by applicable law, unpaid
interest on this note from time to time outstanding, and all unpaid amounts of
principal of this note during any period in which an Event of Default (as
defined below) exists or would exist but for the giving of notice or the passage
of time, shall bear interest from and after maturity at the varying rate equal
to the Applicable Rate plus 3%, but in no event greater than the Highest Lawful
Rate. All sums due under this note are payable to Payee at such address as may
be designated in writing by the holder hereof to the Maker.
ACCRUED INTEREST is due and payable quarterly beginning December 31,
1995 and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest is due and payable on the date of such prepayment.
If any amount owing under this note is due and payable on a day that is not a
business day, such payment shall instead be due and payable on the next
succeeding business day. Maker has the right to prepay this note in whole or in
part at any time and from time to time without premium or penalty upon not less
than five days' notice to Payee. Any principal amount so prepaid shall be
applied in inverse order of maturity to the remaining installments of principal
not then due.
-1-
<PAGE>
$2,220,000.00 Houston, Texas September 30, 1995
MAKER SHALL prepay the remaining principal amount of this note in its
entirety, together with accrued and unpaid interest with respect to such
principal amount, in the event of any Change of Control (as defined below) or
any public offering of Maker's securities resulting in aggregate net proceeds to
Maker of greater than $7,500,000. Such prepayment shall be made within 30 days
after the effective date of such Change of Control or the receipt by maker of
net proceeds of greater than $7,500,000 from the public offering of its
securities. For purposes of this note, a "Change of Control" shall be deemed to
have occurred: (a) at such time as any person, entity or "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), other than DRLX Partners, L.P. or its affiliates on the
date hereof, is or becomes the "beneficial owner"(within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of outstanding shares of
stock of Maker entitling such person, entity or group to exercise 30% or more of
the total voting power of all classes of stock of Maker entitled to vote in an
election of directors, unless the beneficial ownership of DRLX Partners, L.P.
and its affiliates is greater than the beneficial ownership of such person,
entity or group, (b) if a majority of the Board of Directors of Maker shall
consist of persons other than Continuing Directors (as defined below), (c) SCF
Partners, L.P. (or a successor to substantially all of the business thereof with
substantially the same ownership immediately after the succession) shall fail to
be the sole general partner of DRLX Partners, L.P. or (d) upon any sale,
transfer or other disposition of all or substantially all of the assets of
Maker. The term "Continuing Director" shall mean any member of the Board of
Directors on the date hereof and any other member of the Board of Directors who
shall be recommended or elected to succeed a Continuing Director by a majority
of the Continuing Directors who are then members of the Board of Directors.
SO LONG as any principal or interest remains unpaid on this note,
Maker will comply or cause compliance with each of the following covenants:
(a) Maker and its subsidiaries shall maintain a Tangible Net Worth (as
defined below) of at least $4,000,000. The term "Tangible Net Worth" shall
mean the difference of (i) Maker's Common Stockholders' Equity (as defined
below) on a consolidated basis and (ii) all of its intangibles, including (A)
deferred charges and (B) the aggregate of all amounts appearing on the assets
side of Maker's balance sheet for franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill, treasury stock,
experimental or organizational expenses and other like intangibles. The term
"Common Stockholders' Equity" shall mean stockholders equity, including (1)
common stock, (2) paid in capital in excess of par, (3) retained earnings (net
of any reserves of retained earnings) and (4) cumulative translation adjustment,
but excluding any preferred stock.
(b) Maker shall furnish Payee with one copy of any and all financial
information and financial statements furnished to the lenders under Maker's
credit facilities within five days after Maker furnishes such financial
statements and information to such lenders, and Maker shall within 120 days
after the close of each fiscal year of Maker, within 45 days after the end of
the first three quarterly periods in each fiscal year of Maker and within 30
days after the end of each month in each fiscal year of Maker, furnish to Payee
the consolidated and consolidating financial statements of Maker for such period
to the extent not previously furnished to Payee.
-2-
<PAGE>
$2,220,000.00 Houston, Texas September 30, 1995
(c) Maker shall (i) furnish Payee with copies of any and all certificates
and other reports regarding compliance with covenants and agreements relating to
Maker's credit facilities within five days after Maker furnishes such
certificates and reports to any of its lenders and (ii) promptly notify Payee in
writing of any Event of Default under this note.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note or that certain promissory note in the original principal amount of
$2,500,000.00 of even date herewith executed by Maker and payable to Payee or
any other promissory notes executed by Maker and payable to Payee in replacement
thereof (collectively, the "Other Notes"), (b) default is made in the payment
when due of any installment of interest on this note or any of the Other Notes
and such default has not been cured within five days after the date on which
such payment is due, (c) Maker or any of its subsidiaries shall fail to pay when
due, or within any applicable period of grace, any principal of or interest on
any other indebtedness having a principal amount outstanding in excess of
$500,000 and (1) such default is not cured or withdrawn within 60 days after the
date of such default in payment of such amount or (2) such default results in
the acceleration of such indebtedness, (d) Maker shall pay a dividend or make a
distribution to holders of its securities generally other than in shares of
stock or other securities of Maker or rights to purchase stock or other
securities of Maker, (e) Maker fails to comply with any of its other agreements
in this note or any of the Other Notes, (f) Maker or any of its subsidiaries
shall fail to comply with any material financial covenant under any agreement
relating to indebtedness of Maker or such subsidiary to any financial
institution having a principal amount outstanding in excess of $1,000,000 and
(1) such default is not cured or withdrawn within 90 days after the end of the
financial period (or in the case of any annual period, 150 days) for which
financial statements showing such default were required to be delivered under
this note or (2) such default results in the acceleration of such indebtedness,
(g) Maker institutes proceedings to be adjudicated as bankrupt or insolvent, or
consents to institution of bankruptcy or insolvency proceedings against it or
the filing by it of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act or any other applicable federal or
state law, or consents to the filing of any such petition or the appointment of
a receiver, liquidator, assignee, trustee, or other similar official of Maker,
or of any substantial part of its property, or makes an assignment for the
benefit of creditors, or takes corporate action in furtherance of any such
action, or (h) within 60 days after the commencement of an action against Maker
seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or
similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of Maker or all orders or
proceedings thereunder affecting the operations or the business of Maker stayed,
or if the stay of any such order or proceeding shall thereafter be set aside, or
if, within 60 days after the appointment without the consent or acquiescence of
Maker of any trustee, receiver or liquidator of Maker or all or any substantial
part of the properties of the Maker, such appointment shall not have been
vacated.
UPON THE OCCURRENCE and during the continuance of any Event of Default
described in clause (a), (b), (c), (d), (e) or (f) of the foregoing paragraph,
Payee may declare the entire principal amount then outstanding under this note,
together with interest then accrued thereon, to be immediately due and payable.
Upon the occurrence of any Event of Default described in clause (g) or (h) of
the foregoing paragraph, the entire principal amount of all indebtedness then
outstanding
-3-
<PAGE>
$2,220,000.00 Houston, Texas September, 30, 1995
under this note, together with interest then accrued thereon, shall
automatically become immediately due and payable.
THIS NOTE may not be assigned, transferred, hypothecated or pledged by
Payee except to ENSCO International Incorporated or its subsidiaries, who shall
be deemed "Permitted Assigns" hereunder, and any attempt to do so is void and of
no effect.
IT IS the intention of Maker and Payee to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
IF THE holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all reasonable
costs, expenses and fees incurred by the holder, including reasonable attorney's
fees.
MAKER AND each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, and consent to all extensions without notice for any
period or periods of time and partial payments, before or after maturity, all
without prejudice to the holder.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
DRILEX HOLDINGS CORP.
By:/s/ John Forrest
---------------------------
John Forrest
President
-4-
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED (OTHER THAN TO ENSCO INTERNATIONAL INCORPORATED OR ANY OF ITS
SUBSIDIARIES) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
NOTE UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE MAKER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
$3,561,000.00 January 1, 1996
Houston, Texas
PROMISSORY NOTE
DRILEX HOLDINGS CORP., a Delaware corporation ("Maker") for value
received, promises and agrees to pay to ENSCO Technology Company, a Delaware
corporation or its Permitted Assigns (as defined below) ("Payee"), in lawful
money of the United States of America the principal sum of THREE MILLION FIVE
HUNDRED SIXTY-ONE THOUSAND AND 00/100 DOLLARS ($3,561,000.00), in five equal
consecutive annual installments each in the amount of $712,200.00, commencing on
September 30, 1996 and continuing on each anniversary thereof until the fourth
anniversary thereof, upon which date the fifth and final installment shall be
paid, together with interest thereon (calculated on the basis of a 365 day year,
or a 366 day year in the case of a leap year) from and after the date hereof
until maturity at a varying rate per annum (the "Applicable Rate") which is
equal to the interest rate established by Chemical Bank from time to time as its
"base rate," but in no event to exceed the maximum rate of nonusurious interest
allowed from time to time by law (the "Highest Lawful Rate"), with adjustments
in such varying rate to be made on the same date as any change in the base rate
and adjustments due to changes in the Highest Lawful Rate to be made on the
effective date of any change in the Highest Lawful Rate. All past due amounts or
principal or installments thereof, and to the extent permitted by applicable
law, unpaid interest on this note from time to time outstanding, and all unpaid
amounts of principal of this note during any period in which an Event of Default
(as defined below) exists or would exist but for the giving of notice or the
passage of time, shall bear interest from and after maturity at the varying rate
equal to the Applicable Rate plus 3%, but in no event greater than the Highest
Lawful Rate. All sums due under this note are payable to Payee at such address
as may be designated in writing by the holder hereof to the Maker.
ACCRUED INTEREST is due and payable quarterly beginning March 31, 1996
and on the last day of each and every third consecutive calendar month
thereafter and at maturity; provided, however, that if the principal of this
note is prepaid in whole or in part, at any time after the date hereof, all
accrued and unpaid interest is due and payable on the date of such prepayment.
If any amount owing under this note is due and payable on a day that is not a
business day, such payment shall instead be due and payable on the next
succeeding business day. Maker has the right to prepay this note in whole or in
part at any time and from time to time without premium or penalty
1
<PAGE>
$3,561,000.00 Houston, Texas January 1, 1996
upon not less than five days' notice to Payee. Any principal amount so prepaid
shall be applied in inverse order of maturity to the remaining installments of
principal not then due.
MAKER SHALL prepay the remaining principal amount of this note in its
entirety, together with accrued and unpaid interest with respect to such
principal amount, in the event of any Change of Control (as defined below) or
any public offering of Maker's securities resulting in aggregate net proceeds to
Maker of greater than $7,500,000. Such prepayment shall be made within 30 days
after the effective date of such Change of Control or the receipt by maker of
net proceeds of greater than $7,500,000 from the public offering of its
securities. For purposes of this note, a "Change of Control" shall be deemed to
have occurred: (a) at such time as any person, entity or "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), other than DRLX Partners, L.P. or its affiliates on the
date hereof, is or becomes the "beneficial owner"(within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of outstanding shares of
stock of Maker entitling such person, entity or group to exercise 30% or more of
the total voting power of all classes of stock of Maker entitled to vote in an
election of directors, unless the beneficial ownership of DRLX Partners, L.P.
and its affiliates is greater than the beneficial ownership of such person,
entity or group, (b) if a majority of the Board of Directors of Maker shall
consist of persons other than Continuing Directors (as defined below), (c) SCF
Partners, L.P. (or a successor to substantially all of the business thereof with
substantially the same ownership immediately after the succession) shall fail to
be the sole general partner of DRLX Partners, L.P. or (d) upon any sale,
transfer or other disposition of all or substantially all of the assets of
Maker. The term "Continuing Director" shall mean any member of the Board of
Directors on the date hereof and any other member of the Board of Directors who
shall be recommended or elected to succeed a Continuing Director by a majority
of the Continuing Directors who are then members of the Board of Directors.
SO LONG as any principal or interest remains unpaid on this note,
Maker will comply or cause compliance with each of the following covenants:
(a) Maker and its subsidiaries shall maintain a Tangible Net Worth (as
defined below) of at least $4,000,000. The term "Tangible Net Worth" shall
mean the difference of (i) Maker's Common Stockholders' Equity (as defined
below) on a consolidated basis and (ii) all of its intangibles, including (A)
deferred charges and (B) the aggregate of all amounts appearing on the assets
side of Maker's balance sheet for franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, goodwill, treasury stock,
experimental or organizational expenses and other like intangibles. The term
"Common Stockholders' Equity" shall mean stockholders equity, including (1)
common stock, (2) paid in capital in excess of par, (3) retained earnings (net
of any reserves of retained earnings) and (4) cumulative translation adjustment,
but excluding any preferred stock.
(b) Maker shall furnish Payee with one copy of any and all financial
information and financial statements furnished to the lenders under Maker's
credit facilities within five days after Maker furnishes such financial
statements and information to such lenders, and Maker shall within 120 days
after the close of each fiscal year of Maker, within 45 days after the end of
the first three quarterly periods in each fiscal year of Maker and within 30
days
2
<PAGE>
$3,561,000.00 Houston, Texas January 1, 1996
after the end of each month in each fiscal year of Maker, furnish to Payee the
consolidated and consolidating financial statements of Maker for such period to
the extent not previously furnished to Payee.
(c) Maker shall (i) furnish Payee with copies of any and all certificates
and other reports regarding compliance with covenants and agreements relating to
Maker's credit facilities within five days after Maker furnishes such
certificates and reports to any of its lenders and (ii) promptly notify Payee in
writing of any Event of Default under this note.
FOR PURPOSES of this note, an "Event of Default" shall occur whenever:
(a) default is made in the payment when due of any installment of principal on
this note or that certain promissory note in the original principal amount of
$2,500,000.00 of even date herewith executed by Maker and payable to Payee or
any other promissory notes executed by Maker and payable to Payee in replacement
thereof (collectively, the "Other Notes"), (b) default is made in the payment
when due of any installment of interest on this note or any of the Other Notes
and such default has not been cured within five days after the date on which
such payment is due, (c) Maker or any of its subsidiaries shall fail to pay when
due, or within any applicable period of grace, any principal of or interest on
any other indebtedness having a principal amount outstanding in excess of
$500,000 and (1) such default is not cured or withdrawn within 60 days after the
date of such default in payment of such amount or (2) such default results in
the acceleration of such indebtedness, (d) Maker shall pay a dividend or make a
distribution to holders of its securities generally other than in shares of
stock or other securities of Maker or rights to purchase stock or other
securities of Maker, (e) Maker fails to comply with any of its other agreements
in this note or any of the Other Notes, (f) Maker or any of its subsidiaries
shall fail to comply with any material financial covenant under any agreement
relating to indebtedness of Maker or such subsidiary to any financial
institution having a principal amount outstanding in excess of $1,000,000 and
(1) such default is not cured or withdrawn within 90 days after the end of the
financial period (or in the case of any annual period, 150 days) for which
financial statements showing such default were required to be delivered under
this note or (2) such default results in the acceleration of such indebtedness,
(g) Maker institutes proceedings to be adjudicated as bankrupt or insolvent, or
consents to institution of bankruptcy or insolvency proceedings against it or
the filing by it of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act or any other applicable federal or
state law, or consents to the filing of any such petition or the appointment of
a receiver, liquidator, assignee, trustee, or other similar official of Maker,
or of any substantial part of its property, or makes an assignment for the
benefit of creditors, or takes corporate action in furtherance of any such
action, or (h) within 60 days after the commencement of an action against Maker
seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or
similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of Maker or all orders or
proceedings thereunder affecting the operations or the business of Maker stayed,
or if the stay of any such order or proceeding shall thereafter be set aside, or
if, within 60 days after the appointment without the consent or acquiescence of
Maker of any trustee, receiver or liquidator of Maker or all or any substantial
part of the properties of the Maker, such appointment shall not have been
vacated.
3
<PAGE>
$3,561,000.00 Houston, Texas January 1, 1996
UPON THE OCCURRENCE and during the continuance of any Event of Default
described in clause (a), (b), (c), (d), (e) or (f) of the foregoing paragraph,
Payee may declare the entire principal amount then outstanding under this note,
together with interest then accrued thereon, to be immediately due and payable.
Upon the occurrence of any Event of Default described in clause (g) or (h) of
the foregoing paragraph, the entire principal amount of all indebtedness then
outstanding under this note, together with interest then accrued thereon, shall
automatically become immediately due and payable.
THIS NOTE may not be assigned, transferred, hypothecated or pledged by
Payee except to ENSCO International Incorporated or its subsidiaries, who shall
be deemed "Permitted Assigns" hereunder, and any attempt to do so is void and of
no effect.
IT IS the intention of Maker and Payee to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection with or as security for this note, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or under
any of the other aforesaid agreements or otherwise in connection with this note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be cancelled automatically and, if
theretofore paid, shall be credited on the note by the holder hereof (or, to the
extent that this note shall have been or would thereby be paid in full, refunded
to the Maker).
IF THE holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all reasonable
costs, expenses and fees incurred by the holder, including reasonable attorney's
fees.
MAKER AND each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, and consent to all extensions without notice for any
period or periods of time and partial payments, before or after maturity, all
without prejudice to the holder.
4
<PAGE>
$3,561,000.00 Houston, Texas January 1, 1996
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America.
THIS NOTE replaces and supersedes in its entirety that certain
promissory note dated September 30, 1995 in the principal amount of $2,200,000
executed by Drilex Holdings Corp. in favor of ENSCO Technology Company. Upon
the execution and delivery hereof, such promissory note shall be cancelled and
shall be of no further force and effect.
DRILEX HOLDINGS CORP.
By: /s/ JOHN FORREST
------------------------
John Forrest
President
5
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated September 30, 1994 is
between Cobb Directional Drilling Company, L.L.C., a Delaware limited liability
company (the "Company"), and Archie A. Cobb, III ("Employee").
WHEREAS, the Company is acquiring substantially all the assets of Cobb
Directional Drilling Company, Inc. and Posi-Trak Mud Motors, Inc. (collectively,
"Old Cobb");
WHEREAS, Employee owns all the outstanding common stock of Old Cobb;
WHEREAS, Employee is an integral part of the business of the Company, and
the Company desires to retain Employee's services subsequent to the closing of
the acquisition;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the parties agree as
follows:
1. Position and Duties. Employee shall be employed by the Company as
its Chairman and/or President. In such capacity, Employee agrees to devote
substantially all of his time, energy and skill to his duties at the Company.
As used herein, employment with the Company includes employment with the Company
and such of the Company's affiliates and subsidiaries as is necessary or
appropriate in order to implement the intention of this Agreement. These duties
shall include, but not be limited to, any duties consistent with his position
which may be assigned to Employee from time to time by the Board of the Company.
2. Term of Employment. The term of employment pursuant to this
Agreement shall commence September 30, 1994 (the "Commencement Date").
Employee's employment with the Company pursuant to this Agreement is for a five-
year period, commencing on the Commencement Date (the "Term"), subject to the
provisions regarding termination set forth below. Upon the termination of
Employee's employment with the Company, for any reason, neither Employee nor the
Company shall have any further obligation or liability to the other, except as
set forth in paragraphs 4, 5, 6 and 7 below.
3. Compensation. Employee shall be compensated by the Company for his
services as follows:
1
<PAGE>
(a) Salary. Employee shall be paid a monthly salary of $12,500.00
($150,000.00 per year), subject to applicable withholding, in accordance
with the Company's normal payroll procedures. Such salary shall be
reviewed by the Company not less than annually and may be increased as
determined appropriate by the Company. Neither the Company nor Employee is
obligated to agree to any reduction in Employee's time commitment; if,
however, the Company and Employee mutually agree to reduce Employee's time
commitment to less than full time as provided in paragraph 1, the Company
and Employee will mutually agree to a reduced salary in connection with the
reduced time commitment.
(b) Benefits. Employee shall have the right, on the same basis as other
executives of the Company or Drilex Holdings Corp. ("Drilex") who are vice
presidents of Drilex or presidents of divisions or subsidiaries of similar
size as the Company, to participate in and to receive benefits under any of
the Company's employee benefit plans, including the medical, dental, 401(k)
plan and other group plans. In addition, Employee shall be entitled to the
benefits afforded to other senior executives under the Company's or
Drilex's vacation, holiday and other similar policies. Employee shall be
entitled to three weeks paid vacation or such longer period as may be
approved in writing by the Chief Executive Officer of Drilex.
(c) Expense Reimbursement. Upon receipt of proper documentation
establishing the amount of such expenses, the Company shall reimburse
Employee for any reasonable business expenses incurred. Employee agrees to
comply with any and all policies established by the Company regarding
business expenses in seeking reimbursement for such expenses.
4. Benefits Upon Termination. Notwithstanding paragraph 2 above,
Employee agrees that his employment may be terminated by the Company at any
time, with or without cause. In the event of the termination of Employee's
employment by the Company for the reasons set forth below, he shall be entitled
to the following:
(a) Termination for Cause. If Employee's employment is terminated by the
Company for cause as defined below, Employee shall be entitled to no
compensation or benefits from the Company or its subsidiaries or affiliates
other than those earned under paragraph 3 through the date of his
termination.
For purposes of this Agreement, a termination for "cause" occurs if
Employee is terminated for any of the following reasons:
(i) theft, dishonesty, fraud, or falsification of any employment or
Company records;
(ii) improper disclosure of the Company's confidential or
proprietary information;
2
<PAGE>
(iii) any intentional act by Employee which has a material
detrimental effect on the Company's (including its subsidiaries and
affiliates) reputation, business or financial position or results; or
(iv) any material breach of this Agreement, which breach is not
cured within thirty days following written notice of such breach from
the Company.
If "cause" for termination exists but such cause is susceptible of being
remedied, Employee shall have a period of thirty days to cure such cause
after written notice from the Company (including any notice pursuant to
clause (iv) above).
(b) Termination for Other Than Cause. If Employee's employment is
terminated by the Company other than for cause and other than by reason of
death or disability, Employee shall be entitled to the following separation
benefits:
(i) continuation of Employee's salary for the remainder of the Term
of the Agreement; and
(ii) continued provision of the employee benefits, or economic
equivalent thereof, described in paragraph 3(b) for a period of one
year following such termination.
(c) Termination by Reason of Death or Disability. If Employee's
employment is terminated by reason of his death or disability as defined in
the Company's disability plan, Employee shall be entitled to no
compensation or benefits from the Company or its subsidiaries or affiliates
other than those earned under paragraph 3 through the date of his
termination.
(d) Termination by Employee. If Employee terminates his employment
during the Term of this Agreement, Employee shall be entitled to no
compensation benefits from the Company or its subsidiaries or affiliates
other than those under paragraph 3 through the date of his termination.
(e) Certain Insurance Benefits. In the event of termination of
Employee's employment, the Company will, at Employee's cost and expense,
transfer any existing insurance coverages (including health, life and
disability) to Mr. Cobb if permitted by law.
5. Exclusive Remedy. Subject to paragraph 4 above, Employee shall be
entitled to no further compensation for any damage or injury arising out of the
termination of his employment by the Company.
3
<PAGE>
6. Confidential Information and Inventions Agreement.
(a) Employee and the Company (for purposes of this paragraph 6 Company
includes its subsidiaries and affiliates) agree that all inventions,
discoveries, trade secrets, designs or improvements thereto (whether any of
the foregoing are patentable or not), trademarks and copyrights,
specifically including but not limited to computer programs and related
documentation or any other work of authorship conceived, created or made by
Employee, alone or with others, during the term of his employment, whether
or not during working hours or on the Company's premises, which are (i)
within the scope of business operations of the Company or a reasonable or
contemplated expansion thereof, (ii) related to any Company work or
project, present, past or contemplated, (iii) created with the aid of the
Company's materials, equipment or personnel or (iv) based upon information
to which Employee has had or may have access as a result of or in
connection with his employment with the Company (hereinafter "Employee
Developments"), are the sole and exclusive property of the Company; and
Employee hereby assigns all rights, title and interest in and to such
Employee Developments to the Company. Employee agrees to promptly disclose
in writing to the Company any and all such Employee Developments.
(b) If copyright protection is available for any or all Employee
Developments, such Employee Developments shall be considered a work made
for hire under the copyright laws and shall be the exclusive property of
the Company.
(c) Employee hereby agrees to execute for the benefit of the Company, at
no expense to Employee and without any additional compensation by the
Company to Employee, all patent applications, assignment instruments,
affidavits and other documents which may be determined by counsel to the
Company to be necessary or desirable in order to (i) vest in the Company
all rights to Employee Developments owned by the Company pursuant to the
terms of this Agreement and (ii) enable the Company to obtain patent
coverage thereon (if applicable) in any and all countries. Employee agrees
that he will execute and deliver any such documents required in order to
comply with this paragraph (c) at any time as requested by the Company,
whether or not Employee remains in the employ of the Company.
(d) Employee agrees that he will treat Employee Developments as
confidential and not use Employee Developments for any purpose other than
in furtherance of his employment by the Company and that such confidential
and nonuse status will be preserved until such time as the subject Employee
Developments become public knowledge through no fault of Employee, or
through no fault of any third party who is contractually obligated to the
Company to maintain such in confidence.
4
<PAGE>
(e) Employee acknowledges that during the course of his employment with
the Company, Employee may have access and become privy to certain
"Confidential Information". As used in this Agreement, the term
"Confidential Information" means all information disclosed or which becomes
known to Employee as a direct or indirect result of or through his
employment with the Company that is not generally known in the businesses
and industries in which the Company is directly or indirectly engaged, or
which the Company may become engaged during Employee's employment with the
Company, including, without limitation, the following:
(i) information of a technical or research nature, and analyses and
interpretations of such information;
(ii) information of a business nature including, but not limited to,
financial and/or marketing data and information respecting the conduct
of the present or future phases of the business of the Company; and
(iii) information of a legal nature including, but not limited to,
information related to existing, potential, or threatened lawsuits
brought by or against the Company.
Employee agrees that, without prior written consent of the Company, he will
not, at any time, whether before, during or after his employment with the
Company, knowingly use, disseminate, disclose, or communicate (either
directly or indirectly) such Confidential Information to any person or
entity, except as required to perform his duties with respect to his
employment with the Company. Employee agrees and acknowledges that the
Company may have a legal obligation to one or more third parties to keep
such Confidential Information confidential. Employee shall take every
reasonable precaution to prevent others from disclosing information in a
manner prohibited under this Agreement. The foregoing statement of
nondisclosure and nonuse shall extend so long as such Confidential
Information is not in the public domain through no fault of Employee
(including by way of a breach of this Agreement) or through no fault of any
other person or entity that is similarly contractually or otherwise
obligated.
(f) Employee agrees that upon termination of his employment with the
Company for any reason, he will promptly return to the Company all books,
drawings, reports, specifications, models and other documents or materials
which Employee may have obtained during the course of his employment or
which relate to any inventions which are the property of the Company
(including pursuant to this Agreement) or contain any information which
employee is obligated to keep confidential (hereunder or otherwise).
7. Non-Competition Agreement. In the event that Employee's employment
with the Company is terminated for any reason, Employee agrees and covenants
that, until
5
<PAGE>
the end of the five year period commencing with the date of termination of
Employee's employment (hereinafter the "Non-Competition Period"), Employee will
not engage in any manner in providing, marketing or brokering services of the
same general type as those provided or marketed by Buyer, or associated
services, in the geographic areas in which the Company or Old Cobb has operated
since January 1, 1992. If the Company believes Employee has violated the
provisions of this paragraph, the Company shall have the right to seek relief
from any court of competent jurisdiction. Employee acknowledges that money
damages alone will not adequately compensate the Company in the event of a
breach of the covenants of this paragraph. Therefore, Employee agrees that in
addition to all remedies available at law, in equity or under this Agreement,
the Company shall be entitled to injunctive relief for the enforcement of this
covenant. Employee agrees that the covenants in this paragraph are reasonable
with respect to their duration, scope and geographical area. If, at the time of
enforcement of this paragraph, a court should hold that the restrictions herein
are unreasonable under the circumstances then existing or otherwise, the parties
agree that the maximum duration, scope or geographical area legally permissible
under such circumstances will be substituted for the duration, scope or area
stated herein.
For purposes of this Agreement, Employee agrees not to do any of the
following, which shall be considered to be in competition with the Company:
(i) Participate, either for himself or for any other person,
partnership, corporation, company or entity (other than the Company),
in any business or enterprise involved in providing services or
products of a nature provided by the Company;
(ii) Hire, attempt to hire or to assist any other person or entity
in hiring or attempting to hire an employee of the Company, or any
person who was an the Company employee within the prior twelve-month
period;
(iii) Solicit, in competition with the Company, the business of any
the Company customer or any entity whose business the Company was
actively soliciting during the prior twelve-month period;
(iv) Consult with or accept employment with any existing or
prospective customer of the Company with respect to any matters or
transactions in which the Company has an economic or financial
interest (for purposes of this paragraph 7, prospective customer means
any person or entity with which the Company is negotiating for
business purposes); or
(v) Participate voluntarily with any person or entity that is
involved in a potential or existing business or legal dispute with the
Company, including but not limited to litigation, except as may be
required by law.
6
<PAGE>
Employee covenants and agrees that from and after the Commencement Date,
he will use his best efforts to cooperate fully with the Company, its officers,
employees, agents, affiliates and attorneys in the defense or prosecution of any
lawsuit, dispute, investigation or other legal proceedings or any preparation
for any such disputes or proceedings that may be anticipated or threatened
("Proceedings"). Such cooperation shall include providing true and accurate
information or documents concerning, or affidavits or testimony about, all or
any matters at issue in any Proceedings as shall from time to time be requested
by the Company, and shall be within the knowledge of Employee. Such cooperation
shall be provided by Employee without remuneration, but Employee shall be
entitled to reimbursement for all reasonable and appropriate expenses incurred
by him in so cooperating. In any case in which Employee is called as a witness
to testify in any discovery Proceedings or court Proceedings relating to the
Company (other than by the Company), Employee will notify the Company
immediately in order to give the Company a reasonable opportunity to appear
and/or assert any privilege to which it may be entitled.
8. Survival. Employee and the Company agree and acknowledge that the
fulfillment of all of Employee's obligations under this Agreement constitutes a
material condition to Employee's employment with the Company, and such
obligations shall survive the termination of such employment, regardless of the
reason for such termination.
9. Attorneys' Fees. The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
10. Interpretation. Employee and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the internal laws of the
State of Texas (without regard to the choice of law provisions thereof).
11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and is successors and assigns. In view of
the personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his rights,
obligations or benefits under this Agreement, except as otherwise noted herein.
12. Entire Agreement. This Agreement constitutes the entire employment
agreement between Employee and the Company regarding the terms and conditions of
his employment. This Agreement supersedes all prior negotiations,
representations or agreements between Employee and the Company, whether written
or oral, concerning Employee's employment by the Company.
13. No Representations. Employee acknowledges that he is not relying,
and has not relied, on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Agreement.
7
<PAGE>
14. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
15. Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date written above.
COBB DIRECTIONAL DRILLING
COMPANY, L.L.C.
By: /s/ Archie A. Cobb, III
-----------------------------------
-----------------------------------
Archie A. Cobb, III
8
<PAGE>
EXHIBIT 11
DRILEX CORPORATION
COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Period from
March 30, 1994
Year Ended (inception) to
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Net income...................................... $ 1,784 $ 2,009
==========
Interest expense on Convertible Promissory Note,
net of tax..................................... 35
----------
As adjusted for fully diluted computation....... $ 1,819
==========
Weighted average common shares outstanding...... 4,067,183 3,196,757
Incremental effect of shares issued during the
twelve months prior to the filing date of the
Registration Statement......................... 215,420 278,083
Incremental shares attributable to outstanding
stock options and warrants..................... 128,357 31,901
---------- ----------
Weighted average common and common equivalent
shares outstanding............................. 4,410,960 3,506,741
==========
Incremental shares attributable to conversion
of Convertible Promissory Note................. 90,490
----------
As adjusted for fully diluted computation....... 4,501,450
==========
Net income per common and common equivalent
share:
Primary..................................... $ .40 $ .57
========== ==========
Fully diluted............................... $ .40
==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF DRILEX CORPORATION
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF VOTING OF VOTING
SECURITIES SECURITIES
OWNED BY OWNED BY
DRILEX IMMEDIATE
CORPORATION PARENT
----------- ----------
<S> <C> <C>
Drilex Systems, Inc. (Texas)............................. 100%
Drilex Systems, S.A. (Venezuela)....................... 100%
Drilex Systems Canada, Inc. (Canada)................... 70%
Drilex U.K. Limited (United Kingdom)................... 100%
Drilex Overseas Limited (Bahamas).................... 100%
Drilex Systems Limited (United Kingdom).............. 100%
Cobb Directional Drilling Company, L.L.C. (Delaware)..... 99%*
Sharewell, Inc. (Delaware)............................... 100%
Sharewell (Far East), Ltd. (Hong Kong)................. 66%
Sharewell Horizontal Systems, Ltd. (United Kingdom).... 100%
Sharewell Canada, Inc. (Canada)........................ 100%
</TABLE>
*Drilex Systems, Inc. owns the remaining 1% equity interest in Cobb Directional
Drilling, L.L.C.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this registration statement on Form S-1 of Drilex
Corporation ("the Company") of our reports dated April 26, 1996 with respect
to the (i) consolidated financial statements of the Company as of December 31,
1995 and 1994 and for the year ended December 31, 1995 and the period from
March 30, 1994 (inception) to December 31, 1994, and the related financial
statement schedule, (ii) consolidated statements of operations and cash flows
of Drilex Systems, Inc. and subsidiaries for the three-month period ended
March 30, 1994 and the year ended December 31, 1993, (iii) consolidated
statements of income and cash flows of Ensco Technology Company and subsidiary
for the nine-month period ended September 30, 1995 and the year ended December
31, 1994, and of our report dated June 23, 1995 with respect to the
consolidated statements of operations and cash flows of Sharewell, Inc. and
subsidiaries for each of the two years in the period ended March 31, 1995.
We also consent to the reference to us under the heading "Experts" in this
registration statement.
Deloitte & Touche LLP
Houston, Texas
May 9, 1996
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 819
<SECURITIES> 0
<RECEIVABLES> 21,927
<ALLOWANCES> 933
<INVENTORY> 8,259
<CURRENT-ASSETS> 31,983
<PP&E> 32,289
<DEPRECIATION> 4,732
<TOTAL-ASSETS> 77,754
<CURRENT-LIABILITIES> 18,618
<BONDS> 32,467
0
0
<COMMON> 44
<OTHER-SE> 23,638
<TOTAL-LIABILITY-AND-EQUITY> 77,754
<SALES> 13,760
<TOTAL-REVENUES> 57,526
<CGS> 6,650
<TOTAL-COSTS> 34,606
<OTHER-EXPENSES> 17,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,935
<INCOME-PRETAX> 3,045
<INCOME-TAX> 1,097
<INCOME-CONTINUING> 1,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,784
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
