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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-11963
DAILEY PETROLEUM SERVICES CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 76-0503351
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
2507 NORTH FRAZIER 77303
CONROE, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
(Registrant's telephone number, including area code) (281) 350-3399
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
<TABLE>
<S> <C>
Class A Common Stock, Par value $.01 Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$34,520,000 at July 25, 1997
(APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares
outstanding of each class of registrant's common stock, as of the latest
practicable date. 4,315,000 shares of Class A Common Stock and 5,000,000 shares
of Common B Common Stock at July 25, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1997 Annual Meeting of Stockholders. (Part III)
Exhibit Index Begins on Page .
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PART I
ITEM 1. BUSINESS
GENERAL
Dailey Petroleum Services Corp. (the "Company" or "Dailey") is a leading
provider of specialty drilling services to the oil and gas industry and designs,
manufactures and rents proprietary downhole tools for oil and gas drilling and
workover applications worldwide. In June 1997, Dailey acquired Air Drilling
International, Inc. ("ADI"), a leading worldwide provider of air drilling
services for underbalanced drilling applications. The Company believes the
acquisition of ADI (the "ADI Acquisition") will enable it to cross-market its
proprietary downhole tools and directional drilling services to ADI's customers
and positions the Company to benefit from anticipated growth in demand for
underbalanced drilling services.
BUSINESS STRATEGY
The Company's strategy is to expand and diversify the range of products and
services it provides to the oil and gas industry through internal growth and
acquisitions. The Company expects to continue to effect internal growth
primarily by crossmarketing its directional drilling services with its air
drilling services and rental tool operations.
In addition, as consolidation of the oil and gas services industry
continues in response to increased demand for companies offering a broad range
of services, the Company intends to continue expanding its products and services
through strategic acquisitions. The Company continuously evaluates potential
acquisition candidates in the oil field services industry, including companies
providing directional drilling, underbalanced drilling, fishing and enhanced
recovery services, as well as companies supplying specialized downhole tools and
other equipment to the oil and gas industry. Although the Company currently has
no agreement or understanding with any specific entities, the Company is
reviewing several attractive acquisition opportunities that, if consummated,
would allow it to continue to expand the breadth and scope of the products and
services it offers as well as create additional cross-marketing opportunities
for internal growth.
THE ADI ACQUISITION
Consistent with its strategy, on June 20, 1997, Dailey acquired ADI for
$46.4 million, including the repayment of approximately $16.8 million in
indebtedness. The Company believes that the ADI Acquisition positions it in the
growing market for underbalanced drilling of oil and gas and geothermal wells.
DRILLING SERVICES
Directional Drilling Services
Directional drilling services involve assisting oil and gas operators in
the controlled drilling of a wellbore to a prescribed bottomhole location.
Directional drilling can be used to develop a field with multiple wells drilled
from the same offshore platform or, in environmentally sensitive areas, from
fewer surface facilities than conventional drilling would require. In addition,
drilling horizontally through a formation characterized by multiple vertical
fractures can result in substantial reductions in drilling costs and improved
well productivity because fewer wells are required compared to a vertical
development program. Recent developments in multilateral technology, which
allows two or more wells to be drilled from the same vertical wellbore, have
further enhanced well productivity and development efficiency.
Based on published industry sources, the number of oil and gas wells
drilled in the United States using directional and horizontal technology
increased 80% from 2,110 in 1990 to 3,808 in 1996, and as a percentage of total
oil and gas wells drilled in the United States, wells drilled using directional
and horizontal technology increased from 7% in 1990 to 16% in 1996. This growth
has been driven primarily by the substantial cost savings, improvements to
drilling efficiency and enhancements to reservoir production that such
techniques can provide to operators. In addition, recent advances in directional
drilling techniques combined with advances in the identification and location of
oil and gas reserves (such as 3-D seismic technology) have made
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many marginal or otherwise uneconomical reservoirs economically feasible to
produce. The Company expects directional and horizontal drilling to continue to
represent an increasing percentage of total wells drilled in the United States
and internationally.
Dailey began offering directional drilling services in 1984, primarily
along the Texas and Louisiana Gulf Coast, and has since steadily expanded both
its directional drilling technical capabilities and the geographic areas in
which its services are regularly offered. In fiscal 1995, Dailey began providing
its drilling services in international markets by expanding into Venezuela.
During fiscal 1995, 1996 and 1997, revenues from directional drilling services
and related products constituted 31%, 34% and 41% of total revenues,
respectively.
The directional drilling services offered by the Company consist of well
planning, on-site supervisory services to maximize drilling efficiency, MWD
services and related equipment rentals, downhole motor rentals and post-well
analysis. The skill, experience and reputation of a service company's
directional drillers are the primary competitive factors in the directional
drilling services market. Because of this, the competition among directional
drilling service companies to employ the most reputable, qualified and
experienced directional drilling personnel is intense. In addition, the scope of
services offered as well as price are important competitive factors. The Company
believes that the quality and experience of its directional drillers provide it
with a competitive advantage and also believes that it is able to recruit and
retain highly-qualified directional drillers because it has a reputation in the
industry for stability and quality, offers competitive compensation and provides
a reliable, experienced support staff. As of June 30, 1997, the Company employed
33 directional drillers, 4 of whom were located in Venezuela.
The guidance instruments used by directional drillers typically consist of
either wireline steering tools or more advanced MWD units. As compared to
traditional well logging equipment, MWD units provide a directional driller with
more extensive and advanced information to guide the drillstring, including
inclination, azimuth, tool face and temperature plus magnetic or gravity tool
face updates in steering or rotary drilling modes. MWD units also can provide
gamma ray logging information. Reliable MWD units currently are available for
third-party purchase worldwide from only a few independent suppliers. The
Company began purchasing MWD units from its current supplier and offering such
systems and services to its customers in fiscal 1994. The Company's MWD units
compete favorably with respect to reliability and performance with MWD units
developed in-house by more fully-integrated service companies and other reliable
MWD units currently available for third-party purchase. Directional drilling
typically is conducted using a downhole drilling motor attached to the drill bit
and powered by the circulation of drilling fluids from the surface. The Company
manufactures and uses its own downhole motor.
Air Drilling Services
As a result of the ADI Acquisition, the Company is a worldwide leader in
providing air drilling services to the oil and gas and geothermal industries.
Air drilling, which is used in underbalanced drilling applications, involves
maintaining the pressure in a well at less than that of the surrounding
formation using air, nitrogen, mist, foam or light-weight drilling fluids as the
circulation medium instead of mud. The Company provides air drilling equipment
packages consisting of compressors, boosters, mist pumps and related equipment
along with specially trained personnel to operate the equipment. Underbalanced
drilling techniques can lead to substantial increases in rates of penetration
and drill bit life resulting in substantially less time and costs for a drilling
program, and also substantially reduce the risks of formation damage.
The use of underbalanced drilling techniques in Canada has experienced
rapid growth over the past few years and is increasing in other countries,
including the United States. According to a study sanctioned by the U.S.
Department of Energy, approximately 10% of all wells drilled in the United
States in 1995 were thought to be drilled underbalanced and this proportion was
expected to increase to approximately 30% in 2005. Horizontal and directional
wells frequently are drilled using underbalanced drilling technology to reduce
the risk of formation damage and improve the flow of hydrocarbons in low
pressure or depleted reservoirs. In addition, the Company believes that the
geothermal industry will be a major source of growth in demand for underbalanced
drilling services, especially in South America, Central America and the Pacific
Rim. The use of underbalanced drilling in geothermal wells often avoids the
problem of losing drilling fluids in porous
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geothermal formations or, in certain cases, causing the formation to be plugged.
As of July 25, 1997, the Company was under contract for twelve geothermal jobs.
A typical package of equipment used in an air drilling job consists of two
compressors, a booster and a mist pump. Compressors are used to force air into
the borehole. Depending on the pressure and air volume requirements, additional
compressors may be needed. Boosters are used to increase the pressure of air
exiting a compressor and can increase the air pressure up to five-fold. Mist
pumps are used to mix and distribute water, soaps and other fluids in
underbalanced drilling applications.
DOWNHOLE TOOLS
Dailey currently offers an array of technologically-advanced downhole
tools, which it selectively markets in every major oil and gas exploration and
production region in the world. Dailey began renting downhole tools in 1945 and
introduced the first drilling jar to the oil and gas industry in 1965. The
Company is currently the leading supplier of drilling jars to the rental tool
market worldwide. In addition to drilling jars, the Company rents other
proprietary downhole tools including hydraulic fishing jars, coiled tubing jars,
drilling shock absorbers, drilling thrusters and drilling slingers.
The Company's line of drilling jars and related products include mechanical
and hydraulic drilling jars and jar slingers. A drilling jar is an impact tool
that is placed in the lower section of a drillstring as part of the bottomhole
assembly. Activated from the surface, the drilling jar delivers a sharp,
powerful impact to free the drillstring should it become lodged in the hole. The
potential risks of the drillstring becoming stuck in the hole include
interruption of the drilling process, loss of drillstring components and loss of
the well. Drilling jars must be capable of reliably delivering frequent and
consistent impacts to the drillstring, sometimes over a period of many days. As
a result, reliability and consistent performance and service by qualified
personnel are key criteria in a customer's selection of drilling jars.
Drilling jars and jar slingers generally are used in drilling applications
where there is significant risk of, or cost associated with, the bottomhole
assembly of the drillstring becoming stuck in the well bore. As the risk or
potential cost of a stuck drillstring increases, the likelihood that the
operator of the well will employ a drilling jar typically increases. Drilling
applications where drilling jars are used regularly include high-cost wells,
wells drilled using directional or horizontal techniques, deeper wells, and
wells penetrating unstable geologic formations that increase the risk of well
bore collapse. Drilling jars generally are considered essential components in
most directional drilling bottomhole assemblies. The Company believes that the
proprietary designs of its drilling jars deliver superior performance over
competing jars for longer periods of time in their intended operating
environments and are compatible with virtually any drilling condition a customer
may encounter.
The Company's line of downhole tools also includes a line of fishing tools,
including hydraulic fishing jars and coiled tubing jars. During the year ended
April 30, 1996, the Company introduced its double-acting, hydraulic coiled
tubing jar, which was designed and developed through the Company's research and
development program. The Company believes that this jar was the first
double-acting, hydraulic coiled tubing jar introduced for commercial operation
in the oil and gas industry.
In conjunction with its rental services, the Company also sells certain of
its downhole tools, primarily to state-owned oil companies. The Company derives
revenues from the sale of mechanical drilling jars that no longer have patent
protection and also from other tools when they are lost-in-hole by the operator.
For the three fiscal years ended April 30, 1995, 1996 and 1997, revenues from
the Company's downhole tool rentals and sales constituted 63%, 57% and 59%,
respectively, of the Company's total revenues during such periods.
PIPELINE TESTING SERVICES
The Company is one of the largest fully-integrated pipeline testing
companies in Canada. The Company believes it is the only company operating in
Canada capable of providing pneumatic pipeline testing services, and is the
leading provider of hydrostatic testing services to major Canadian pipeline
construction companies that lack the capability to perform such testing
in-house. The Company believes that the planned addition of
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new pipeline capacity in Canada over the next few years, as well as increased
environmental concerns relating to existing pipelines, should result in
increased demand for the Company's pipeline testing services.
MARKETING AND DISTRIBUTION
Drilling Services
Marketing for the Company's directional drilling and air drilling services
is conducted entirely through the Company's direct sales force. The Company's
directional drillers and air drilling operators, at least one of whom is always
present during a directional drilling or air drilling project, are usually
billed to customers at a per-day rate. The Company's MWD units and related
products and the Company's air drilling compressors, boosters, mist pumps and
related products are usually billed to customers at a daily or hourly rental
rate. The Company occasionally will contract its services on a per-well basis.
The Company considers its directional drilling and air drilling services to be
an integral part of its distribution efforts for its downhole tools. The Company
expects to continue to effect internal growth primarily by cross marketing its
directional drilling services with its air drilling services and rental tool
operations.
Downhole Tools
The Company markets its downhole tools primarily to major oil companies,
independent oil and gas exploration companies, drilling contractors and drilling
services consultants. In international markets, state-owned oil and gas
companies also are a significant customer group. Domestic marketing of the
Company's downhole tools is conducted by the Company's direct sales force.
International marketing of the Company's downhole tools is conducted primarily
through the Company's direct sales force or through independent international
agents and also through cooperative marketing arrangements with local companies.
In order to protect the proprietary nature of its tools, the Company has made a
strategic decision not to sell its fishing tools to fishing service companies,
rather, the Company rents or consigns on a long-term basis its fishing tools to
fishing service companies or directly to well operators. Although the Company
believes its marketing strategy has allowed it to earn higher margins on its
fishing tools while at the same time reducing the ultimate cost to the customer,
the Company believes that this strategy has limited its ability to increase
market share since fishing service companies generally prefer to purchase their
fishing tools rather than rent from third parties.
Dailey traditionally has marketed its array of proprietary downhole tools
directly to the end-user through its direct sales force and agents, rather than
rely on third-party distribution of its products and subcontracting of its
services. The Company believes this strategy results in higher profit margins.
Additionally, this direct interaction with the end-user assists the Company in
identifying demand for new and improved products and better enables it to design
and develop such products in a timely manner.
INTERNATIONAL OPERATIONS
Dailey's international operations accounted for approximately 39%, 42% and
39% of total revenues for fiscal 1995, 1996 and 1997, respectively. As of June
30, 1997, the Company had operations in approximately 29 foreign countries. See
Note 14 of notes to consolidated financial statements of Dailey contained
elsewhere in this Form 10-K for additional information regarding foreign and
domestic revenues.
As of June 30, 1997, the Company utilized 15 international agents
responsible for international marketing of its downhole tools in certain of its
markets. International agents also perform maintenance of the Company's downhole
tools in their custody at their own facilities. International marketing and
distribution is organized into four major regions: Europe/West Africa, the
Middle East, Southeast Asia and Latin America. Each region is further divided
into multiple and sometimes overlapping territories, generally based on
political boundaries. Regional supervisors are assigned by the Company to
oversee international operations, particularly with respect to proper
maintenance and redressing of tools and to provide sales support and technical
assistance to customers.
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The Company's international operations are subject to special
considerations inherent in doing business outside the United States, including
political instability, war, civil disturbances and governmental activities which
may limit or disrupt markets, restrict the movement of funds or result in the
deprivation of contract rights or the taking of property without fair
compensation. Government-owned petroleum companies located in some of the
countries in which Dailey operates have adopted, or are subject to, policies
that mandate that preference be given to companies that are majority-owned by
local nationals. In addition, the Company conducts a portion of its
international operations in currencies other than the United States dollar and
as such, is subject to certain risks associated with exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
MANUFACTURING AND MAINTENANCE
The manufacturing processes generally required to produce the Company's
downhole tools are machining, fabrication, assembly of components manufactured
by the Company or outside suppliers, and quality control testing. The Company
attempts to outsource those manufacturing processes that can be performed more
efficiently and cost effectively by outside third parties. The Company believes
that its manufacturing capabilities and arrangements are sufficient in order to
meet the demand and timing needs of the Company's customers for the next 12
months. Machining of larger components and spare parts, including the most
complex components, is done by Dailey at its manufacturing plant in Conroe,
Texas. The manufacturing processes performed in-house by the Company require a
ready supply of high-quality, special alloy steel and other raw materials. The
Company purchases its raw materials from various vendors, none of which supplied
a majority of Dailey's supply of such materials during fiscal 1997. Consistent
with the recent upturn in the demand for steel and other raw materials used in
the oil and gas industry, the Company has experienced longer lead times for
delivery of raw materials, primarily steel, which requires the Company to
predict further in advance its needs for such materials. Although the Company
typically places orders for its steel at least three months in advance and
usually stores with a third party a reserve supply of steel adequate to cover
the Company's demand for steel for at least one month, any prolonged disruption
in steel supply could affect the Company's ability to meet production schedules
and commitments, which could have a material adverse effect on the Company's
financial condition and results of operations.
Maintenance of Dailey's downhole tools is conducted in the United States at
six of Dailey's facilities, each of which is specially equipped for that
purpose. In the United Kingdom, Colombia and Venezuela, maintenance is conducted
by Company personnel, and elsewhere by the Company's international agents who
are subject to periodic quality control inspection and supervision by Company
personnel.
INTELLECTUAL PROPERTY
The Company believes that the proprietary aspects of many of its downhole
tools provide it with certain competitive advantages. In particular, the Company
believes that the trademarks and servicemarks protecting the Dailey name in
domestic and international markets are of primary importance. The Company relies
on a combination of patents, trade secrets, trademarks and servicemarks and
copyrights to protect its proprietary technologies and intellectual properties.
The Company has five servicemarks that are registered in the United States.
Patents protect features of the Dailey Hydraulic Jar, Dailey Fishing Jar, DNT
Jar, R.A.M. Shock Absorber and Dailey Drilling Motor as well as other of the
Company's products. The United States patents for the Company's products expire
in years ranging from 1999 to 2011. Although the Company does not consider its
business to be wholly dependent on any single patent or trademark, the
unexpected loss of patent protection for the Dailey Hydraulic Jar or Dailey
Hydraulic Fishing Jar could have a material adverse effect on the Company.
OPERATING RISKS AND INSURANCE
The operations of the Company's customers are subject to hazards inherent
in the oil and gas industry, such as blowouts, explosions, craterings, fires and
oil spills, that can cause personal injury or loss of life, damage to or
destruction of property, equipment, the environment and marine life, and
suspension of operations. Claims for loss of oil and gas production and damage
to formations can occur in the workover
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process. Additionally, the Company often is required to indemnify major
customers pursuant to master service agreements. If a serious accident were to
occur where the Company's downhole tools are used or its directional drilling
services are being provided, the Company could be named as a defendant in
lawsuits asserting potentially large claims.
As protection against operating hazards, the Company maintains insurance
coverage that it believes to be customary in the industry against these hazards
and, whenever possible, obtains agreements from customers providing for
indemnification against liability. The Company maintains general liability
insurance to cover its buildings, equipment and other property as well as
worker's compensation, maritime employer, auto, crime and political risk
insurance. The Company also is insured under an umbrella liability policy. Most
of the Company's policies provide for coverage on a per-occurrence basis, rather
than a claim basis. The Company's policies generally exclude coverage for losses
and liabilities relating to environmental damage or pollution, breach of
contract or fraud or deceptive practices. The Company does not maintain
professional liability insurance.
Historically the Company's insurance coverage has greatly exceeded the
amount of its claims and management believes that the Company's insurance
coverage is adequate for its present operations. However, a successful liability
claim for which the Company is underinsured or uninsured could have a material
adverse effect on the Company.
COMPETITION
All of the Company's products and services are offered in
highly-competitive markets in which many of the Company's competitors are
divisions or subsidiaries of larger, better capitalized corporations. In
directional drilling services, the Company believes that the principal
competitive factor is the availability of qualified, experienced directional
drilling personnel, particularly personnel with whom the customer has had
satisfactory experience and, to a lesser extent, breadth of products and
services offered, price and technology. The Company believes that the leading
competitors in the directional drilling services industry are fully-integrated
service companies such as Anadrill/Schlumberger, Baker-INTEQ, Halliburton Energy
Services and Sperry-Sun. The Company also competes with numerous smaller,
independent companies that offer only directional drilling services or a
relatively limited line of additional tools compared to fully-integrated
competitors.
The principal competitive factors affecting the Company's downhole tools
are reliability and performance, availability of appropriate tools, technical
support and price. The Company competes with manufacturers and owners of
downhole tools. The dominant competitors in downhole drilling tools are Houston
Engineers, a subsidiary of Wilson Industries, Inc., Weir-Houston, Baker Hughes,
Inc., Bowen Tools, a division of IRI International Corporation, Weatherford
Enterra, Inc. and Griffith Tool Company, a subsidiary of Dreco Energy Services
Limited. The three leading competitors with respect to fishing tools are
Anadrill/Schlumberger, Bowen Tools and Houston Engineers. Although the Company
is a relatively small competitor among all manufacturers and owners of drilling
and fishing tools, the Company believes that it is the worldwide leader in
premium drilling jars supplied to the rental tool market. The Company has
experienced some loss of drilling jar market share in certain international
markets over the past several years due to increasing price competition.
ADI's products and services are offered in highly competitive markets where
competitors are often better funded. The Company believes that the barriers to
entry into the air drilling services market are minimal and that the primary
competitive factors in this market are name recognition, expertise and pricing.
Management expects competition and customer price pressures to continue for
the foreseeable future with respect to its downhole tools and its directional
drilling and air drilling services.
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EMPLOYEES
At July 25, 1997, the Company had 416 employees, approximately 67% of whom
were located in the United States. The Company has never experienced a work
stoppage and considers its employee relations to be excellent. The Company has
no collective bargaining agreements.
REGULATION
Various federal, state and local laws and regulations covering the release
of materials into the environment, or otherwise relating to the protection of
the public health and the environment, affect the Company's and its customers'
domestic operations, expenses and costs. The trend in environmental regulation
has been to place more restrictions and limitations on activities that may
impact the environment, such as emissions of pollutants, generation and disposal
of wastes, and use and handling of chemical substances. Increasingly strict
environmental restrictions and limitations, as well as the obligation to
remediate existing contamination, have resulted in increased operating costs for
the Company and other similar businesses throughout the United States. The costs
of compliance with environmental laws and regulations may continue to increase,
both for the Company and its customers. In this regard, the Resource
Conservation and Recovery Act ("RCRA"), a federal statute governing the disposal
of solid and hazardous wastes, includes a statutory exemption that allows oil
and gas exploration and production wastes to be classified as nonhazardous
waste. A similar exemption is contained in many of the state counterparts to
RCRA. If oil and gas exploration and production wastes were required to be
managed and disposed of as hazardous waste, either as a result of a change in
RCRA or the imposition of more stringent state regulations, domestic oil and gas
producers, including many of the Company's customers, could be required to incur
substantial obligations with respect to such wastes. Because of the potential
impact on the Company's customers, any regulatory changes that impose additional
restrictions or requirements on the disposal of oil and gas wastes could
adversely affect demand for the Company's products and services. In addition,
the Company is subject to laws and regulations concerning occupational health
and safety. The Company's international operations also are subject to
international laws respecting environmental and worker safety matters in the
countries in which they operate. The Company believes that it is in substantial
compliance with the requirements of environmental and occupational health and
safety laws and regulations, but inasmuch as such laws and regulations are
frequently changed, the Company is unable to predict the ultimate impact of such
laws and regulations on the Company's business. Any violation of such laws could
subject the Company to fines, penalties or other liabilities.
Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1997 were not material. Based on the Company's
experience to date, the Company currently does not anticipate any material
adverse effect on its results of operations or financial condition 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.
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PROPERTIES
The following table summarizes the Company's significant owned and leased
properties as of June 30, 1997:
<TABLE>
<CAPTION>
LOCATION OF FACILITY PROPERTY INTEREST USES
-------------------- ----------------- ----
<S> <C> <C>
Conroe, Texas.................. Leased(1) Corporate Offices, Sales
Manufacturing, Maintenance, R&D
Aberdeen, Scotland............. Leased Sales, Maintenance
Anchorage, Alaska.............. Owned Sales, Maintenance
Anaco, Venezuela............... Leased Sales, Maintenance
Bakersfield, California........ Leased Sales
Bogota, Colombia............... Leased Sales, Maintenance
Cabimas, Venezuela............. Leased Directional Drilling Office,
Sales, Maintenance
Corpus Christi, Texas.......... Owned Sales, Maintenance
Houma, Louisiana............... Owned Sales, Maintenance
Houston, Texas................. Owned Directional Drilling Office,
Sales, Maintenance
Lafayette, Louisiana........... Owned Directional Drilling Office,
Sales, Maintenance
Englewood, Colorado............ Leased ADI Corporate Offices
Casper, Wyoming................ Leased(2) ADI Office
Nisku, Alberta, Canada......... Leased(2) ADI Office
</TABLE>
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(1) Leased from an affiliate of the Company's majority stockholder.
(2) Leased from an affiliate of an officer of the Company. See "Certain
Relationships and Related Transactions."
LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any pending legal proceedings, other than ordinary routine litigation incidental
to its business, including litigation relating to the Company's intellectual
property. Each of such matters is believed to be either covered by insurance or
not material in amount. The Company knows of no pending or threatened legal
proceedings, or judgments entered against, any director or officer of the
Company in his capacity as such.
ITEM 2. PROPERTIES
See Item 1 for information with respect to properties.
ITEM 3. LEGAL PROCEEDINGS
See Item 1 for information with respect to legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended April 30, 1997.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock, constituting the only class of common
equity of the Company currently outstanding that is freely tradeable, is quoted
on the Nasdaq National Market under the symbol "DALY". The table below provides
price information for the Common Stock for the period beginning August 14, 1996,
the first day of trading of the Class A Common Stock following the Company's
initial public offering of the Class A Common Stock, and April 30, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
August 14, 1996 through October 31, 1996.................... $10.75 $ 8.00
Three months ended January 31, 1997......................... $11.00 $ 9.00
Three months ended April 30, 1997........................... $10.50 $ 5.38
</TABLE>
At July 25, 1997, the closing price for the Company's Class A Common Stock
was $8.50. At July 25, 1997, the Company's Common Stock was held of record by
approximately 97 persons, and, in management's estimation, beneficially owned by
approximately 350 persons.
During the two most recent fiscal years, the Company has not paid a cash
dividend on its Common Stock, and it is not anticipated that any cash dividend
will be paid on the Common Stock for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for each of the periods indicated. The selected financial data
for each of the five years in the period ended April 30, 1997, are derived from
the Company's audited consolidated financial statements. The information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere herein.
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Rental Income................... $ 28,746 $ 32,393 $ 36,691 $ 42,987 $ 49,497
Sales of products and
services..................... 8,742 11,422 12,172 15,952 16,954
---------- ---------- ---------- ---------- ----------
Total revenues.................. 37,488 43,815 48,863 58,939 66,451
Cost of rentals and services:
Cost of rentals................. 25,078 27,384 29,685 33,019 37,655
Cost of products and services... 4,003 5,124 6,889 7,927 8,890
---------- ---------- ---------- ---------- ----------
Total cost of rentals and
services..................... 29,081 32,508 36,574 40,946 46,545
Selling, general and
administrative expenses......... 6,783 7,085 9,607 12,083 11,893
Non-cash compensation
expense(1)...................... -- -- -- -- 2,807
Research and development
expenses........................ 1,262 736 775 728 850
---------- ---------- ---------- ---------- ----------
Operating Income.................. 362 3,486 1,907 5,182 4,356
Interest expense, net............. 285 513 1,001 863 193
Other (income) expense, net....... (435) (225) 190 39 169
Foreign exchange (gain) loss...... 228 122 (90) 239 19
---------- ---------- ---------- ---------- ----------
Income before income taxes........ 284 3,076 806 4,041 3,975
Income tax expense................ 898 1,075 838 1,427 1,511
---------- ---------- ---------- ---------- ----------
Net income (loss)................. $ (614) $ 2,001 $ (32) $ 2,614 $ 2,464
========== ========== ========== ========== ==========
Earnings (loss) per share......... $ (.11) $ .37 $ (.01) $ .30
Pro forma earnings per share...... $ .40
Average common and common
equivalent shares
outstanding(2).................. 5,360,000 5,360,000 5,360,000 6,610,000 8,094,880
OTHER DATA:
Depreciation and amortization..... $ 4,114 $ 4,323 $ 5,428 $ 5,726 $ 6,593
CONSOLIDATED BALANCE SHEET DATA:
Total assets...................... $ 45,523 $ 53,621 $ 54,408 $ 55,878 $ 82,359
Working capital................... 2,588 10,542 6,405 7,477 21,938
Long-term debt, less current
portion......................... 2,814 9,743 8,604 6,866 5,155
Long-term debt payable to
affiliate, less current
portion......................... 2,061 2,420 1,760 1,100 --
Stockholders' equity.............. 31,058 33,059 33,027 35,641 63,327
</TABLE>
- ---------------
(1) Non-cash compensation expense relates to accelerated vesting of restricted
stock that was granted to certain executive officers of the Company during
the year ended April 30, 1997.
(2) The average number of shares outstanding at April 30, 1993 through 1996 have
been adjusted to give pro forma effect to a reorganization and the issuance
of an aggregate of 360,000 restricted shares of Class A Common Stock to
Messrs. Farr, Sutton and Tighe contemporaneously with the IPO. See "Notes to
Consolidated Financial Statements."
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995), such as certain statements included in this Annual Report
on Form 10-K. Words such as "anticipate", "expect", "estimate", "project" and
similar expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management orally or in written
material such as in press releases, portions of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
contained in this Form 10-K, and portions of the Company's other filings with
the Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward-looking statements
are subject to certain risks, uncertainties and assumptions and readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.
Among the factors that may have a direct bearing on the Company's results
of operations and the oilfield service industry in which it operates are:
substantial leverage following the ADI Acquisition and, if consummated, the
Notes Offering (as hereinafter defined); changes in the price of oil and natural
gas; the impact of competitive products and pricing; the presence of competitors
with greater financial resources; product demand and acceptance risks, including
product obsolescence risks with respect to its downhole tools; risks associated
with the ADI Acquisition, including failure to successfully manage the Company's
growth and integrate the operations of ADI; typical operating risks inherent in
the oilfield service industry, including risks of environmental liability;
delays in receiving raw materials utilized in the manufacture and assembly of
the Company's downhole tools and other difficulties in the manufacture, assembly
or delivery of the Company's downhole tools; worldwide political stability and
economic growth and other risks associated with international operations,
including foreign exchange risk; and the Company's successful execution of
internal operating plans as well as regulatory uncertainties and legal
proceedings.
RECENT DEVELOPMENTS
ADI Acquisition. The Company's operations and future results will be
significantly impacted by the ADI Acquisition, which was consummated on June 20,
1997. Dailey acquired ADI for $46.4 million, including the repayment of
approximately $16.8 million in indebtedness (the "ADI Debt"). As a result of the
ADI Acquisition, the Company became a leading worldwide provider of air drilling
services for underbalanced drilling applications.
The Company expects to experience significant revenue growth as a result of
the ADI Acquisition. The ADI Acquisition also will significantly expand the
Company's presence internationally, primarily in Canada, where the Company
previously did not derive a significant amount of revenues.
The ADI Acquisition was accounted for under the purchase method of
accounting. As a result, the assets and liabilities of ADI were recorded at
their estimated fair market values as of the date of the ADI Acquisition. The
Company recorded goodwill of approximately $22.0 million relating to the excess
of the fair market value of ADI's assets over the purchase price paid for ADI,
which will be amortized over 20 years and result in approximately $900,000 in
amortization expense during the year ended April 30, 1998, and approximately
$1.1 million per year thereafter. Since the goodwill associated with the ADI
Acquisition will not be amortized for tax purposes, the Company expects its
effective tax rate shown on its financial statements to increase significantly
as a result of the ADI Acquisition.
The ADI Acquisition has significantly increased the Company's debt levels.
The Company borrowed approximately $45.5 million under the Credit Facility (as
herein defined) to finance the acquisition as well as to repay the ADI Debt,
existing Dailey bank debt and accrued interest thereon. The substantial increase
in debt levels will result in a significantly higher level of interest expense
and increased percentage of cash flows
12
<PAGE> 13
being used for debt service and may limit the Company's ability to obtain
additional debt financing for future acquisitions and capital expenditures.
June 1997 Management Reorganization. Following the ADI Acquisition in June
1997, the Company implemented a cost reduction program to flatten its corporate
management structure and streamline the Company's operations (the "Management
Reorganization"). As a result of such program, the Company expects to incur a
$2.8 million restructuring charge during the first quarter of the fiscal year
ended April 30, 1998 associated primarily with staff reductions, severance
settlements and various reorganization costs. The Company expects the Management
Reorganization to result in annual savings of approximately $1.8 million,
although there can be no assurance in this regard.
1996 Initial Public Offering. The Company's operations during 1997 reflect
the effects of the Company's initial public offering (the "1996 IPO"). Dailey's
net proceeds of $27.6 million from such offering were utilized to repay debt to
affiliates of Dailey, to acquire certain business assets and to increase
Dailey's inventory of downhole tools. Utilization of these additional tools
increased Dailey's revenues for the year ended April 30, 1997, primarily during
the third and fourth quarters, and are expected to impact future periods as such
tools are utilized in the Company's business.
Credit Facility. On June 20, 1997, the Company's Amended and Restated
Credit Agreement dated December 31, 1995, as amended on June 5, 1996 (the "Prior
Credit Agreement"), that provided for a long term loan (the "Term Loan") and a
revolving line of credit (the "Revolving Credit Line"), was amended by the Third
Amended and Restated Credit Facility (the "Credit Facility") to increase the
outstanding principal balance of the Term Loan to $41.5 million and the maximum
amount available for borrowings under the Revolving Credit Line to $15.0
million.
Notes Offering. The Company currently is pursuing a private placement of
$100 million of ten-year senior notes (the "Notes Offering") that it anticipates
consummating in the second quarter of the year ending 1998. However, there can
be no assurance that the Notes Offering will be consummated.
RESULTS OF OPERATIONS
Dailey derives rental income from its fleet of downhole tools, and to a
lesser extent, from downhole tools owned by third parties. Dailey typically
charges its customers a daily rate for downhole tools, except for its downhole
drilling motors, which are rented at an hourly rate. In international markets,
Dailey also often charges its customers a refurbishment charge, which is
included in rental income.
Revenues from sales of products and services consist of directional
drilling services, lost-in-hole charges and sales of its mechanical drilling
jars. Revenues from services of Dailey's directional drillers and MWD
technicians are generally billed on a per person/per day basis for the time on
assignment at the customer's drill site. Although Dailey considers rentals of
its downhole drilling motors and MWD equipment to be a significant part of its
directional drilling services, revenues from such rentals are currently recorded
as rental income for financial statement purposes. Dailey's lost-in-hole
revenues consist of replacement charges that Dailey's customers pay each time a
Dailey downhole tool is lost-in-hole. Dailey sells mechanical drilling jars in a
limited number of international markets, primarily to state-owned oil and gas
companies.
The operating costs associated with Dailey's rentals consist primarily of
expenses associated with depreciation, transportation, maintenance and repair
and related direct overhead. The costs associated with Dailey's sales of
products and services consist primarily of the undepreciated portion of the
capitalized cost of its downhole tools sold or lost-in-hole and the salaries and
related costs associated with Dailey's directional drillers and MWD technicians.
With respect to allowances for bad debts, Dailey's policy is to
specifically identify at-risk receivables and reserve for any balances which, in
the opinion of management, are probable or reasonably possible of not being
collected. Dailey's bad debt allowance primarily consists of reserves for
receivables from customers that are in bankruptcy, receivables from sales to
agents (based on billings to their customers) that the agent has identified as
potentially uncollectible and receivables from extremely slow-paying domestic
customers. The allowance also contains a reserve for slower-paying, higher-risk
international customers, which have become
13
<PAGE> 14
an increasingly larger percentage of Dailey's customer base in recent years.
Similarly, Dailey identifies inventory that, due to changes in demand for
certain specialized downhole tools, is not expected to generate revenue in the
immediate future and establishes a reserve for that inventory.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Rental Income. Rental income for the year ended April 30, 1997, was $49.5
million, an increase of 15% from $43.0 million for the year ended April 30,
1996. This increase was due primarily to increased demand for directional
drilling services and related products in Latin America, the Gulf of Mexico and
the U.S. Gulf Coast region, which resulted in a $5.8 million increase in rentals
from MWD equipment, downhole motors and other directional drilling tools. In
addition, domestic rental income from drilling and fishing jars and slingers
increased $1.3 million which was partially offset by decreased foreign rental
income from drilling and fishing jars and slingers of $892,000.
Sales of Products and Services. Sales of products and services for the year
ended April 30, 1997, were $17.0 million, an increase of 6% from $16.0 million
for the year ended April 30, 1996. This increase was due primarily to increased
demand for directional drilling services and related products in Latin America,
the Gulf of Mexico and the U.S. Gulf Coast region, which resulted in a $1.4
million increase in directional services revenue. In addition, revenues from
license fees related to a proprietary directional drilling method increased by
$300,000. This was partially offset by decreased sales of tools and parts of
$684,000.
Cost of Rentals. Cost of rentals for the year ended April 30, 1997, was
$37.7 million, an increase of 14% from $33.0 million for the year ended April
30, 1996. This increase was due primarily to the variable costs associated with
an increase in rental activity, such as tool repair costs and third-party tool
charges. As a percentage of rental income, cost of rentals decreased from 77% in
fiscal 1996 to 76% in fiscal 1997, which reflects the fixed nature of the cost
base.
Cost of Products and Services. Cost of products and services for the year
ended April 30, 1997, was $8.9 million, an increase of 12% from $7.9 million for
the year ended April 30, 1996. The increase was due primarily to higher
personnel costs associated with an increase in directional drilling services in
the Gulf of Mexico, the U.S. Gulf Coast region and Venezuela. The gross profit
margin on sales of products and services for fiscal 1997 was 48% compared to 50%
for fiscal 1996. This decrease in gross profit margin was due to a decrease in
higher margin export sales of mechanical jars.
Selling, General and Administrative Expenses. For the year ended April 30,
1997, selling, general and administrative expenses, including a $2.8 million
non-cash compensation expense, were $14.7 million, an increase of 22% from the
$12.1 million for the year ended April 30, 1996. The non-cash compensation
expense was the result of non-cash stock awards granted to certain officers
pursuant to the 1996 Key Employee Stock Plan. Exclusive of these non-cash
changes, selling, general and administrative expenses were $11.9 million, a 2%
decrease from fiscal 1996.
Research and Development Expenses. Research and development expenses for
the year ended April 30, 1997, were $850,000, compared to $728,000 for the year
ended April 30, 1996, which reflects a relatively constant level of research and
development activity.
Interest Income. Interest income for the year ended April 30, 1997, was
$640,000, an increase of $536,000 from the year ended April 30, 1996. This was
the result of interest earned on short-term investments utilizing net proceeds
from the 1996 IPO.
Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1997 was $671,000, a decrease of 15% from $785,000 for
the year ended April 30, 1996. This decrease was primarily the result of
scheduled payments of principal and interest on bank debt.
Interest Expense -- Affiliate. Interest expense to affiliate for the year
ended April 30, 1997, was $162,000, a 11% decrease from $182,000 for the year
ended April 30, 1996. This decrease was primarily the result of the repayment of
a term loan to an affiliate with proceeds from the 1996 IPO, partially offset by
14
<PAGE> 15
interest paid on a promissory note to an affiliate that was issued in connection
with a dividend on June 27, 1996 and repaid with proceeds from the 1996 IPO.
Foreign Exchange (Gain) Loss. Foreign exchange loss for the year ended
April 30, 1997 was $19,000 compared to a loss of $239,000 for the year ended
April 30, 1996. This decrease was due primarily to favorable fluctuations in the
British pound exchange rate relative to the U.S. dollar.
Income Tax Expense. Income tax expense for the year ended April 30, 1997,
was $1.5 million, an increase of 6% from $1.4 million for the year ended April
30, 1996. This increase was primarily the result of an increase in the effective
tax rate to 38% for fiscal 1997 from 35% for fiscal 1996 due to the full
utilization of state net operating loss carryforwards in fiscal 1996.
YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995
Rental Income. Rental income for the year ended April 30, 1996, was $43.0
million, an increase of 17% from $36.7 million for the year ended April 30,
1995. This increase was due primarily to increased demand for Dailey's
directional drilling services and related products in Venezuela, the Gulf of
Mexico and the U.S. Gulf Coast region, which resulted in a $4.2 million increase
in rentals from MWD equipment, downhole motors and other directional drilling
tools. During fiscal 1996, Dailey purchased MWD equipment for use in Venezuela.
Dailey also experienced increased demand for its directional drilling services
in the Gulf of Mexico and the U.S. Gulf Coast region due to escalating gas
prices and a corresponding increase in drilling activity. In addition, rental
income from Dailey's drilling jars and slingers increased $1.4 million due
primarily to increased demand in Latin America and to a slight increase in
pricing worldwide. Also in fiscal 1996, Dailey increased its distribution of
fishing jars in the U.S. Gulf Coast region and expanded distribution of fishing
jars into the North Sea, which resulted in an increase in rental income of $1.0
million.
Sales of Products and Services. Sales of products and services for the year
ended April 30, 1996, were $16.0 million, an increase of 31% from $12.2 million
for the year ended April 30, 1995. This increase was due primarily to an
increase in export sales of mechanical drilling jars of approximately $1.6
million and to an increase in lost-in-hole revenues of $1.2 million. The
increase in lost-in-hole revenues was consistent with increased rental activity
during the year. The increase also was attributable to increased demand for
Dailey's directional drilling services in the Gulf of Mexico, the U.S. Gulf
Coast region and Venezuela.
Cost of Rentals. Cost of rentals for the year ended April 30, 1996, was
$33.0 million, an increase of 11% from $29.7 million for the year ended April
30, 1995. This increase was due primarily to the variable costs associated with
an increase in rental activity, such as tool repair costs, agent commissions and
third-party tool charges. The increase also was attributed to an increase in
import duties and fees of $709,000 associated with the importation of downhole
tools to Venezuela. Dailey expenses import duties and fees as incurred instead
of capitalizing them as part of the cost of the tool. As a percentage of rental
income, cost of rentals decreased from 81% in fiscal 1995 to 77% in fiscal 1996,
which reflects the fixed nature of Dailey's cost base.
Cost of Products and Services. Cost of products and services for the year
ended April 30, 1996, was $7.9 million, an increase of 15% from $6.9 million for
the year ended April 30, 1995. This increase was due primarily to higher
personnel costs associated with an increase in directional drilling services in
the Gulf of Mexico, the U.S. Gulf Coast region and Venezuela. The increase also
was attributable to the write-off of the net book value of products lost-in-hole
and the cost of drilling jars sold during the year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $12.1 million for the year ended April 30, 1996, an
increase of 26% from $9.6 million for the year ended April 30, 1995. This
increase was due primarily to an increase in personnel costs associated with
bonuses and raises paid during the year as well as additional personnel, an
increase in travel and business development costs associated with higher levels
of international business and an increase in legal expenses associated with
litigation involving Dailey's enforcement of its intellectual property.
Research and Development Expenses. Research and development expenses for
the year ended April 30, 1996, were $728,000, a decrease of 6% from $775,000 for
the year ended April 30, 1995, as the level of Dailey's research and development
activity remained relatively constant between the two years.
15
<PAGE> 16
Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1996, was $785,000, a decrease of 7% from $841,000 for
the year ended April 30, 1995. The decrease was due primarily to the repayment
throughout fiscal 1996 of an aggregate of $1.3 million in principal on Dailey's
bank debt, which was partially offset by advances in the second half of fiscal
1996 of $1.3 million against the revolving line of credit associated with
Dailey's bank debt.
Interest Expense -- Affiliate. Interest expense to affiliate for the year
ended April 30, 1996, was $182,000, a decrease of 17% from $220,000 for the year
ended April 30, 1995. The decrease was due to the repayment of $660,000 of
principal during the year.
Foreign Exchange (Gain) Loss. Foreign exchange losses of $239,000 in fiscal
1996 compared to gains of $90,000 for the year ended April 30, 1995, were due
primarily to unfavorable exchange fluctuations during fiscal 1996 with the
British pound and the Dutch guilder.
Other (Income) Expense, net. Other expense for the year ended April 30,
1996, was $39,000 compared to $190,000 for the year ended April 30, 1995. This
decrease was due primarily to the write-off of $60,000 of unusable fixed assets
in fiscal 1995.
Income Tax Expense. Provision for income taxes for the year ended April 30,
1996, was $1.4 million compared to $838,000 for the year ended April 30, 1995.
The increase was due primarily to an increase in income in countries in which
Dailey was subject to income or withholding taxes, which resulted in the
effective tax rate decreasing from 104% to 35% from fiscal 1995 to fiscal 1996.
In fiscal 1996, Dailey recorded a deferred tax asset related to net operating
loss carryforwards, which resulted in a decrease in the effective tax rate. This
decrease was predominantly offset by a gain for tax purposes related to the
dissolution of a real estate partnership, which resulted in an increase in the
effective tax rate.
INFLATION AND FOREIGN EXCHANGE
Inflation has not had a significant impact on Dailey's comparative results
of operations. For the year ended April 30, 1997, transactions conducted in
United States dollars accounted for approximately 74% of the Company's total
revenues. The Company believes that the percentage of its total revenues
relating to transactions conducted in foreign currencies will increase due to
continued expansion of the Company's international operations and the ADI
Acquisition. The Company currently does not engage in hedging transactions to
protect itself against foreign currency fluctuations, but rather seeks to
protect itself from fluctuations in foreign currencies by accelerating
conversion of such currencies into United States dollars and by continual
evaluation of the Company's level of operations in such markets.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. The Company had cash and cash equivalents of $15.2 million
at April 30, 1997, and working capital of $21.9 million on such date. During the
past several years, working capital requirements have been funded through cash
generated from operations, credit facilities and asset sales. Cash provided by
operating activities was $11.7 million for the year ended April 30, 1997. Other
sources of cash in 1997 included net proceeds from the 1996 IPO of $27.6
million, $2.0 million from revenue-producing tools lost-in-hole and $400,000
from advances under a revolving line of credit. Principal uses of cash were to
fund $18.2 million for capital expenditures, $6.8 million for the payment of
promissory notes to affiliates and $3.4 million for the repayment of other
indebtedness.
Capital Expenditures. Capital expenditures of approximately $18.2 million
were made during the year ended April 30, 1997. Of this amount, $15.9 million
was for downhole tools, primarily MWD and other directional equipment, hydraulic
drilling jars, hydraulic fishing jars and related inventory. The Company
currently anticipates that capital expenditures during the year ended April 30,
1998 utilizing internally generated cash flow from operations and availability
under the Revolving Credit Line will be approximately $18.0 million, which will
relate primarily to additional investment in downhole tools as well as equipment
utilized in the Company's air drilling drilling operations. The Company
currently anticipates an additional $6.0 million of capital expenditures during
the year ended April 30, 1998 in the event that the Notes Offering
16
<PAGE> 17
is completed. Such additional capital expenditures would relate to additional
investment in downhole tools and in equipment utilized in its air drilling
operations. If the Notes Offering is consummated, the Company would use proceeds
from the Notes Offering to fund $18 million of its anticipated capital
expenditures. In addition, as part of its business strategy, the Company is
continuing to analyze several potential acquisitions of complementary businesses
and assets. The Company expects to fund any future acquisitions utilizing a
portion of its availability under the Credit Facility as well as proceeds from
the Note Offering, if consummated, however, depending upon the size of any
acquisition, the Company may need additional financing to fund such
acquisitions.
Credit Facility. At April 30, 1997, bank debt of $6.8 million was
outstanding under the Prior Credit Agreement. At April 30, 1997, there were no
outstanding advances made pursuant to the Revolving Credit Line. At June 23,
1997, the outstanding principal balance under the Term Loan was $41.5 million
and the outstanding principal balance of advances under the Revolving Credit
Line was $4.0 million. The average interest rate on the revolving advances was
8.0%. Principal payments on the Term Loan are $350,000 payable quarterly through
July 1998, with increasing payments thereafter until maturity on June 30, 2002,
at which time the obligation of the bank to make advances on the Revolving
Credit Line also terminates. Interest on the Term Loan and Revolving Credit Line
is variable and will fluctuate at a variable margin over the bank's prime rate
or at a LIBOR-based rate. Both interest rates are calculated and can fluctuate
based on leverage ratios. Borrowings under the Revolving Credit Line are limited
to the lesser of $15.0 million or a loan formula based upon the level of
eligible accounts receivable. Letters of credit can be issued on the undrawn
amount not to exceed $5 million. The outstanding undrawn amount at any time on
all letters of credit issued pursuant to the Revolving Credit Line reduces the
ability to borrow funds pursuant to the Revolving Credit Line. There are
currently no outstanding letters of credit. The Credit Facility is
collateralized by substantially all property, equipment, inventory, intellectual
property and receivables of the Company. The Credit Facility contains certain
restrictive covenants and customary events of default and conditions to the
bank's obligation to make advances.
Future Acquisitions. As consolidation of the oilfield services industry
continues in response to increased demand for companies offering a broad range
of services, the Company intends to continue expanding its products and services
through strategic acquisitions. The Company continuously evaluates potential
acquisition candidates in the oilfield services industry, including companies
providing directional drilling, underbalanced drilling, fishing and enhanced
recovery services, as well as companies supplying specialized downhole tools and
other equipment to the oil and gas industry. In connection with any future
acquisitions, the Company may be required to incur substantial indebtedness to
finance such acquisitions and may also issue equity securities or convertible
securities. Although the Company currently has no agreement or understanding
with any specific entities, the Company is reviewing several attractive
acquisition opportunities that, if consummated, would allow it to continue to
expand the breadth and scope of the products and services it offers as well as
create additional crossmarketing opportunities for internal growth.
Income Taxes. At April 30, 1997, the Company had foreign tax carryforwards
of approximately $1.7 million. These carryforwards are available to offset
future income of the Company, but will begin to expire in the fiscal year ending
April 30, 2000. The Company had net deferred tax assets at April 30, 1997 of
$2.6 million.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes new standards for computing and presenting earnings per
share requiring the presentation of "basic" and "diluted" earnings per share as
compared to "primary" and "fully diluted" earnings per share. The Company is
required to adopt SFAS No. 128 in the first quarter of calendar 1998. Earlier
adoption is not permitted and restatement of all prior period earnings per share
data is required. The Company believes that the "diluted" disclosure required
under SFAS No. 128 will not differ materially from historical "primary" earnings
per share amounts for the 1996 and 1997 periods presented.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Company meeting the requirements of Regulation
S-X (except Section 210.3-05 and Article 11 thereof) are included herein on
pages F-1 through F-18 hereof.
Other financial statements and schedules required under Regulation S-X, if
any, are filed pursuant to Item 14, Exhibits, Financial Statement Schedules, and
Reports on Form 8-K, of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III, Items 10 through 13, inclusive, of
Form 10-K is hereby incorporated by reference from the Company's Definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders, which shall be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year to which this Annual Report on Form 10-K relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements are filed as part of
this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index....................................................... F-1
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at April 30, 1997 and 1996...... F-3
Consolidated Statements of Operations for the Years Ended
April 30, 1997, 1996, and 1995............................ F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended April 30, 1997, 1996, and 1995................ F-5
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1997, 1996, and 1995............................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
The following consolidated financial statement schedule is included in Item
14(d):
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(b) The following Exhibits are filed as part of this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
------- --------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation (incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)).
3.2 -- Restated Bylaws of the Company (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
4.1 -- Form of Class A Common Stock Certificate (incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)).
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
------- --------------------
<C> <S>
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and Restated Bylaws of the
Company defining the rights of the holders of Class A
Common Stock.
10.1 -- Relationship Agreement by and between the Company and
Lawrence Industries, Inc. (incorporated by reference from
the Company's Registration Statement on Form S-1 (File
No. 333-04593)).
10.2 -- Office Lease Agreement by and between the Company as
lessee and Lawrence International, Inc. as lessor
(incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-04593)).
10.3 -- Registration Rights Agreement by and between the Company
and Lawrence Industries, Inc. (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
+10.4 -- Dailey Petroleum Services Corp. 1996 Key Employee Stock
Plan (incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-04593)).
+10.5 -- Dailey Petroleum Services Corp. 1996 Non-Employee
Director Stock Option Plan (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
10.6 -- Tax Allocation Agreement by and between the Company and
Lawrence Industries, Inc. (incorporated by reference from
the Company's Registration Statement on Form S-1 (File
No. 333-04593)).
10.7 -- Form of Indemnification Agreement between the Company and
its directors. (incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-04593)).
10.8 -- Form of Indemnification Agreement between the Company and
its directors. (incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-04593)).
10.9 -- Stock Purchase and Sale Agreement dated May 8, 1997 (the
"Stock Purchase Agreement"), by and among the Company,
ADI, the Shareholders of ADI, and the Preferred
Shareholders of Air Drilling Services, Inc. (incorporated
by reference from the Company's Current Report on Form
8-K dated June 20, 1997).
10.10 -- First Amendment to Stock Purchase Agreement dated May 30,
1997, by and among the Company, ADI, the Shareholders of
ADI, and the Preferred Shareholders of Air Drilling
Services, Inc. (incorporated by reference from the
Company's Current Report on Form 8-K dated June 20,
1997).
10.11 -- Escrow Agreement dated June 20, 1997, by and among the
Company, the Shareholders and Warrantholders of ADI (the
"Shareholders"), and U.S. Trust Company of Texas, N.A.
(the "Escrow Agent") (incorporated by reference from the
Company's Current Report on Form 8-K dated June 20,
1997).
10.12 -- Third Amended and Restated Loan Agreement dated June 20,
1997 (the "Loan Agreement"), by and between the Company,
the financial institutions from time to time a party
thereto, and Wells Fargo Bank (Texas), National
Association, as Agent. (incorporated by reference from
the Company's Current Report on Form 8-K dated June 20,
1997).
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
------- --------------------
<C> <S>
10.13 -- Third Amended and Restated Commercial Security Agreement
dated June 20, 1997, between Wells Fargo Bank (Texas),
National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and the Company.
(incorporated by reference from the Company's Current
Report on Form 8-K dated June 20, 1997).
10.14 -- Form of Guaranty Agreement dated June 20, 1997 between
Wells Fargo Bank (Texas), National Association, as Agent,
the Banks from time to time a party to the Loan Agreement
and each of the following subsidiaries of the Company:
Dailey International, Inc., Dailey Petroleum Sales Corp.,
International Petroleum Sales Corp., Columbia Petroleum
Services Corp., Dailey Worldwide Oil Tools, Corp., Dailey
Environmental Remediation and Technologies, Inc., Air
Drilling International, Inc., Air Drilling Services,
Inc., Canadian Air Drilling Services Ltd., and Specialty
Testing and Consultants Ltd. (incorporated by reference
from the Company's Current Report on Form 8-K dated June
20, 1997).
10.15 -- Form of Security Pledge Agreement dated June 20, 1997,
between Wells Fargo Bank (Texas), National Association,
as Agent, the Banks from time to time a party to the Loan
Agreement and each of the following: the Company; Air
Drilling International, Inc., and Air Drilling Services,
Inc. (incorporated by reference from the Company's
Current Report on Form 8-K dated June 20, 1997).
10.16 -- Form of Subsidiary Commercial Security Agreement dated
June 20, 1997, between Wells Fargo Bank (Texas) National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey International, Inc.,
Dailey Petroleum Sales Corp., International Petroleum
Sales Corp., Columbia Petroleum Services Corp., Dailey
Worldwide Oil Tools, Corp., Dailey Environmental
Remediation and Technologies, Inc., Air Drilling
International, Inc., Air Drilling Services, Inc.,
Canadian Air Drilling Services Ltd., and Specialty
Testing and Consultants Ltd. (incorporated by reference
from the Company's Current Report on Form 8-K dated June
20, 1997).
*10.17 -- Grant of Lease dated May 18, 1995, as amended on June 15,
1996, between Canadian Air Drilling Services, Ltd. and
Malhotra Enterprises, Ltd. for real property located at
Nisku Industrial Park, AB.
*10.18 -- Industrial Lease Agreement dated 3 July 1996 between Air
Drilling Services, Inc. and Melodi Lane Investments, LLC
for property located at 2122 Melodi Lane, Casper,
Wyoming, as amended on June 20, 1997.
*10.19 -- Master Equipment Lease Agreement dated July 3, 1996,
between Melodi Lane Investments, L.L.C., as lessor, and
Air Drilling Services, Inc. as lessee.
*10.20 -- Obligation of Air Drilling Services, Inc., Canadian Air
Drilling Services Ltd., and Specialty Testing &
Consulting Ltd., under a certain Agreement dated February
1, 1993, to share equally in the payment of a certain
Promissory Note dated December 6, 1993 and issued by
Chaman Malhotra and Aruna Malhotra to Southern Pacific
Thrift and Loan Assn.
+*10.21 -- Employment Agreement between the Company and James F.
Farr dated November 27, 1996.
+*10.22 -- Employment Agreement between the Company and William D.
Sutton dated November 27, 1996.
+*10.23 -- Employment Agreement between the Company and David T.
Tighe dated November 27, 1996.
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE OR DESCRIPTION
------- --------------------
<C> <S>
+*10.24 -- Employment Agreement between the Company and Chaman
Malhotra dated June 20, 1997.
+*10.25 -- Employment Agreement between the Company and Tommy Ramsey
dated June 20, 1997.
+*10.26 -- Employment Agreement between the Company and J.D.
Lawrence dated November 27, 1996.
10.27 -- $250,000 Promissory Note dated January 16, 1997, from
James F. Farr in favor of the Company (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the three months ended January 31, 1997).
10.28 -- Security Agreement dated January 16, 1997, between the
Company and James F. Farr (incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the three
months ended January 31, 1997).
+*10.29 -- Stock Option Agreement between the Company and Al Kite
dated April 23, 1997.
+*10.30 -- Stock Option Agreement between the Company and Bernard
Duroc-Danner dated April 23, 1997.
10.31 -- Form of Management Employment Agreement with John E.
Blacklaws (incorp-
orated by reference from the Company's Registration
Statement on Form S-1 (file No. 333-0593)
+*10.32 -- First Amendment to Employment Agreement with John E.
Blacklaws dated February 17, 1997.
+*10.33 -- Executive Employment Agreement dated July 18, 1997 with
Dwight Goolsbay.
+*10.34 -- Executive Employment Agreement dated July 18, 1997 with
Martin Lyons.
+*10.35 -- Management Employment Agreement dated July 18, 1997 with
Clet Brame.
+*10.36 -- Executive Employment Agreement dated July 18, 1997.
+*10.37 -- Equipment Lease Agreement dated November 1, 1996, as
amended, between Melhdra Enterprises and Specialty
Testing & Consulting, Ltd.
*21.1 -- List of Subsidiaries of the Company.
*23.1 -- Consent of Ernst & Young LLP.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
+ Management Contract
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Annual Report certain instruments defining the rights of
holders of long-term debt of the Company and its subsidiaries because the total
amount of securities authorized under any of such instruments does not exceed
10% of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of any such agreement to the
Commission upon request.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
----------------------------------
James F. Farr
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<C> <S> <C>
/s/ J. D. LAWRENCE Chairman of the Board July 29, 1997
- -----------------------------------------------------
J. D. Lawrence
/s/ JAMES F. FARR President, Chief Executive Officer July 29, 1997
- ----------------------------------------------------- and Director
James F. Farr
/s/ WILLIAM D. SUTTON Senior Vice President, General July 29, 1997
- ----------------------------------------------------- Counsel, Corporate Secretary and
William D. Sutton Director
/s/ DAVID T. TIGHE Vice President -- Finance and July 29, 1997
- ----------------------------------------------------- Director (Chief Accounting
David T. Tighe Officer)
/s/ BERNARD DUROC-DANNER Director July 24, 1997
- -----------------------------------------------------
Bernard Duroc-Danner
Director July , 1997
- -----------------------------------------------------
Al Kite
</TABLE>
22
<PAGE> 23
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Dailey Petroleum Services Corp.
We have audited the accompanying consolidated balance sheets of Dailey
Petroleum Services Corp. as of April 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended April 30, 1997. Our audits also
include the consolidated financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dailey Petroleum Services Corp. at April 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
herein.
ERNST & YOUNG LLP
Houston, Texas
June 27, 1997
F-2
<PAGE> 25
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $15,200 $ 1,967
Accounts receivable, net.................................. 18,606 16,306
Accounts receivable from officers and affiliates.......... -- 436
Prepaid expenses.......................................... 346 422
Deferred income taxes..................................... 597 389
Other current assets...................................... 907 153
------- -------
Total current assets.............................. 35,656 19,673
Revenue-producing tools and inventory, net.................. 37,488 29,208
Property and equipment, net................................. 5,622 5,326
Deferred income taxes....................................... 1,959 1,384
Accounts receivable from officer............................ 250 --
Intangibles and other assets................................ 1,384 287
------- -------
Total assets...................................... $82,359 $55,878
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 8,324 $ 6,749
Accounts payable to affiliate............................. 442 --
Income taxes payable...................................... 3,241 1,749
Short-term debt........................................... -- 1,300
Current portion of long-term debt......................... 1,711 1,738
Current portion of indebtedness to affiliate.............. -- 660
------- -------
Total current liabilities......................... 13,718 12,196
Long-term debt.............................................. 5,155 6,866
Long-term indebtedness to affiliate......................... -- 1,100
Other noncurrent liabilities................................ 159 75
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued................................ -- --
Common stock, Class A, $0.01 par value; 20,000,000 shares
authorized; 4,315,000 and 0 issued and outstanding at
April 30, 1997 and 1996, respectively; Class B, $0.01
par value; 10,000,000 shares authorized, 5,000,000
shares issued and outstanding at April 30, 1997 and
1996................................................... 93 50
Treasury stock (24,000 shares)............................ (234) --
Paid-in capital........................................... 39,972 4,559
Retained earnings......................................... 23,496 31,032
------- -------
Total stockholders' equity........................ 63,327 35,641
------- -------
Total liabilities and stockholders' equity........ $82,359 $55,878
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 26
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental income........................................... $ 49,497 $ 42,987 $ 36,691
Sales of products and services.......................... 16,954 15,952 12,172
--------- --------- ---------
66,451 58,939 48,863
Costs and expenses:
Cost of rentals......................................... 37,655 33,019 29,685
Cost of products and services........................... 8,890 7,927 6,889
Selling, general and administrative..................... 11,893 12,083 9,607
Non-cash compensation................................... 2,807 -- --
Research and development................................ 850 728 775
--------- --------- ---------
62,095 53,757 46,956
--------- --------- ---------
Operating income.......................................... 4,356 5,182 1,907
Other (income) expense:
Interest income......................................... (640) (104) (60)
Interest expense -- nonaffiliates....................... 671 785 841
Interest expense -- affiliate........................... 162 182 220
Foreign exchange (gain) loss............................ 19 239 (90)
Other, net.............................................. 169 39 190
--------- --------- ---------
Income before income taxes................................ 3,975 4,041 806
Provision for income taxes................................ 1,511 1,427 838
--------- --------- ---------
Net income (loss)......................................... $ 2,464 $ 2,614 $ (32)
========= ========= =========
Earnings (loss) per share................................. $ .30 $ (.01)
========= =========
Pro forma earnings per share.............................. $ .40
=========
Weighted average shares outstanding....................... 8,094,880 5,360,000
Pro forma weighted average shares outstanding............. 6,610,000
</TABLE>
See accompanying notes.
F-4
<PAGE> 27
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
PREFERRED COMMON COMMON TREASURY PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------- ------- -------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1994 as
restated (Note 1)...... $-- $-- $50 $ -- $ 4,559 $ 28,450 $ 33,059
Net loss............... -- -- -- -- -- (32) (32)
--- --- --- ----- ------- -------- --------
Balance at April 30,
1995................... -- -- 50 -- 4,559 28,418 33,027
Net income............. -- -- -- -- -- 2,614 2,614
--- --- --- ----- ------- -------- --------
Balance at April 30,
1996................... -- -- 50 -- 4,559 31,032 35,641
Net income............. -- -- -- -- -- 2,464 2,464
Dividend (Note 1)...... -- -- -- -- -- (10,000) (10,000)
Net proceeds from sale
of stock............ -- 39 -- -- 27,610 -- 27,649
Capital contribution... -- -- -- -- 5,000 -- 5,000
Purchases of treasury
stock............... -- -- -- (234) -- -- (234)
Provision for stock
awards.............. -- 4 -- -- 2,803 -- 2,807
--- --- --- ----- ------- -------- --------
Balance at April 30,
1997................... $-- $43 $50 $(234) $39,972 $ 23,496 $ 63,327
=== === === ===== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 28
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................... $ 2,464 $ 2,614 $ (32)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 6,593 5,726 5,428
Deferred income taxes.................................... (783) (816) (487)
Provision for doubtful accounts receivable............... 305 256 321
(Gain) loss on sale and disposition of property and
equipment............................................. 159 6 (9)
Provision for stock awards............................... 2,807 -- --
Changes in operating assets and liabilities:
Accounts receivable -- trade.......................... (2,605) (2,498) (663)
Accounts receivable from/payable to officers and
affiliates.......................................... 628 (538) (711)
Prepaid expenses and other............................ (972) 347 (3)
Accounts payable and accrued liabilities.............. 1,575 (932) 2,458
Income taxes payable.................................. 1,492 741 (319)
-------- -------- --------
Net cash provided by operating activities.................. 11,663 4,906 5,983
INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory......... (21,825) (12,173) (13,396)
Inventory transferred to cost of rentals................... 5,913 5,521 4,739
Revenue-producing tools lost in hole, abandoned, and
sold..................................................... 1,983 2,551 2,073
Additions to property and equipment........................ (660) (883) (1,619)
Proceeds from sale of property and equipment............... 126 916 473
Acquisition................................................ (1,584) -- --
-------- -------- --------
Net cash used in investing activities...................... (16,047) (4,068) (7,730)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt......................... 400 1,300 --
Payments on outstanding debt............................... (5,198) (1,967) (1,074)
Payment of promissory note................................. (5,000) -- --
Purchase of treasury stock................................. (234) -- --
Net proceeds from sale of common stock..................... 27,649 -- --
-------- -------- --------
Net cash provided by (used in) financing activities........ 17,617 (667) (1,074)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 13,233 171 (2,821)
Cash and cash equivalents at beginning of year............. 1,967 1,796 4,617
-------- -------- --------
Cash and cash equivalents at end of year................... $ 15,200 $ 1,967 $ 1,796
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 29
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
1. ORGANIZATION AND PUBLIC OFFERING
The accompanying consolidated financial statements reflect the operations
of Dailey Petroleum Services Corp., a Delaware corporation, which was merged
with Dailey Corporation (which changed its name to Dailey Petroleum Services
Corp.) in June 1996. New Dailey Petroleum Services Corp. and its predecessor,
Dailey Petroleum Services Corp., are hereinafter referred to as the "Company" or
"Dailey."
The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool company,
Dailey began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, and most recently, Venezuela, Louisiana and the Austin Chalk formation
in Texas. The Company operates in one business segment.
Prior to June 1996, Dailey was a wholly owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). In June 1996, in preparation for the initial
public offering of Class A Common Stock of Dailey, Lawrence reorganized its
ownership of the Company into a holding company structure through a forward
triangular merger of Dailey Petroleum Services Corp., into a newly-formed,
wholly-owned indirect subsidiary of Lawrence, Dailey Corporation (the
"Reorganization"). Following the Reorganization, Dailey Corporation changed its
name to Dailey Petroleum Services Corp. The effect of the forward triangular
merger has been reflected retroactively in the accompanying financial
statements. In August 1996, the Company completed its initial public offering of
3,910,000 shares of Class A Common Stock (the "IPO").
Dailey's Restated Certificate of Incorporation provides for three classes
of stock: Class A Common Stock, $.01 par (20,000,000 shares authorized,
4,315,000 issued and outstanding) ("Class A Common Stock"), Class B Common
Stock, $.01 par (10,000,000 shares authorized, 5,000,000 shares issued and
outstanding) ("Class B Common Stock"), and Preferred Stock, $.01 par (5,000,000
shares authorized, none issued or outstanding). The Board of Directors is
empowered to authorize the issuance of Preferred Stock in one or more series and
to fix the rights, powers, preferences and limitations of each series. A holder
of Class B Common Stock may convert its Class B Common Stock into Class A Common
Stock at any time at the ratio of one share of Class A Common Stock for each
share of Class B Common Stock. In the event of liquidation, holders of Class A
Common Stock and Class B Common Stock share with each other on a ratable basis
as a single class in the net assets of the Company available for distribution.
In addition, shares of Class B Common Stock convert automatically into a like
number of shares of Class A Common Stock upon the sale or transfer of such
shares to a person or entity that is not a member of the Lawrence Group (as
defined in the Company's Restated Certificate of Incorporation).
In connection with the IPO, the Company issued 3,910,000 shares of Class A
Common Stock. Net proceeds from the sale of the stock were $27.6 million. The
Company used $5.0 million of the proceeds from the IPO to repay the outstanding
balance of a $10.0 million promissory note, which was incurred in connection
with a dividend declared on June 27, 1996 (the "Dividend"). Prior to
commencement of the IPO, the Company's sole stockholder contributed to the
capital of the Company $5.0 million of the outstanding principal of such note.
The statements of operations for the 1996 fiscal period include pro forma per
share data which gives effect to the number of shares from which proceeds would
have been used to pay the Dividend (an additional 1,250,000 shares assuming a
per share offering price of $8.00, thus earnings per share for the year ended
April 30, 1996, were based on 6,610,000 shares of Common Stock outstanding).
Historical earnings per share excluding the pro forma effect of the dividend was
$0.49 per share for the year ended April 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.
F-7
<PAGE> 30
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has historically had significant transactions with Lawrence and
its affiliates which are reflected in the accompanying financial statements on
the basis established between the Company and Lawrence. See Notes 6, 7, and 10.
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.
Cash and Cash Equivalents
The Company considers all investments with a maturity of three months or
less when purchased to be cash and cash equivalents.
Accounts Receivable
Accounts receivable are net of allowances for doubtful accounts of
$1,476,000 in 1997 and $1,325,000 in 1996.
Revenue-Producing Tools and Inventory
Revenue-producing tools and inventory are stated at cost utilizing the
first-in, first-out method. Revenue-producing tools are depreciated on the
straight-line method over their estimated useful lives of 5 to 7 years. Tools
lost in hole and billed to customers and tools abandoned are included in sales
of products and services and the related write-off of the tools' net book values
are included in costs of products and services in the accompanying consolidated
statements of operations.
Tools manufactured and assembled are transferred to revenue-producing tools
as completed at the total cost of components, subassemblies, expendable parts,
direct labor and indirect costs of each tool. For U.S. locations and
international distribution centers, components, subassemblies and expendable
parts are capitalized as inventory and expensed as tools are repaired and
maintained. Components, subassemblies and expendable parts are expensed when
shipped to all international locations other than distribution centers.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
primarily on the straight-line method over the estimated useful lives of 5 to 30
years for buildings and improvements, 3 to 10 years for machinery and equipment,
4 to 10 years for furniture and fixtures and 3 to 7 years for other property and
equipment.
Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements are capitalized and depreciated. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
removed from the related accounts and any gain or loss is recognized in
operations.
Intangible Assets
Patents, goodwill and other intangibles are amortized over 13 to 40 years
and had a net book value of $1,384,000 and $287,000 at April 30, 1997 and 1996,
respectively. In March 1997, Dailey acquired certain business assets for $1.6
million including approximately $750,000 of goodwill.
F-8
<PAGE> 31
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
The carrying value of long-lived assets, principally revenue-producing
tools, goodwill and property and equipment, is reviewed for potential impairment
when events or changes in circumstance indicate that the carrying amount of such
assets may not be recoverable. The determination of recoverability is made based
upon the estimated undiscounted future net cash flows of the related asset.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the "intrinsic value based method" of accounting
for its stock option plans. This method does not result in the recognition of
compensation expense at the time employee stock options are granted, if the
exercise price of the option equals or exceeds the fair market value of the
stock at the date of grant. (See Note 12).
Income Taxes
The accompanying consolidated financial statements reflect deferred income
taxes on the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect. An impairment evaluation, with reserves recorded as
necessary for any tax benefit not expected to be realized, is required of
deferred tax assets. A current tax expense or benefit is recognized for
estimated taxes payable or refundable for the current year.
The Company was included in the consolidated U.S. federal income tax return
of Lawrence for taxable periods ending on the closing of the IPO. The Company
and Lawrence are jointly and severally liable with respect to taxes related to
periods prior to the IPO. The Company and its subsidiaries currently file
separate income tax returns. The accompanying consolidated financial statements
reflect the income tax provisions of the Company on a separate return basis for
all years with no U.S. federal tax operating loss, tax credit, or foreign credit
carryforwards generated prior to May 1, 1988 allocated to the Company by
Lawrence.
Pursuant to the Tax Allocation Agreement entered into by the Company and
Lawrence, the Company paid to Lawrence an amount equal to the federal income tax
computed on the Company's (and its subsidiaries) taxable income less any tax
credits generated by the Company or its subsidiaries. The Tax Allocation
Agreement applies to the Company for all years in which the Company (or any
predecessor) is or was included in the Lawrence consolidated federal income tax
return. To the extent a state or other taxing jurisdiction requires or permits a
consolidated, combined or unitary tax return to be filed by Lawrence and its
affiliates and such return includes the Company, the principles expressed with
respect to the consolidated federal tax allocation will apply.
Foreign Currency Translation
The U.S. dollar is the functional currency for all operations. Accordingly,
foreign currency translation gains and losses are recognized in the consolidated
statements of operations.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is effective for financial statements issued
for periods ending after December 15, 1997. At such time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
method of calculating fully diluted earnings per share will remain
F-9
<PAGE> 32
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unchanged. The impact of Statement 128 is expected to result in an increase in
primary earnings per share for the year ended April 30, 1997 of $.01 and no
change for the year ended April 30, 1996.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the current year presentation.
3. REVENUE-PRODUCING TOOLS AND INVENTORY
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue-producing tools..................................... $ 56,622 $ 48,024
Accumulated depreciation.................................... (32,503) (29,740)
-------- --------
24,119 18,284
Inventory:
Components, subassemblies and expendable parts............ 11,293 9,096
Rental tools and expendable parts under production........ 1,261 1,058
Raw materials............................................. 815 770
-------- --------
13,369 10,924
-------- --------
Revenue-Producing Tools and Inventory.................. $ 37,488 $ 29,208
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,072 $ 1,271
Buildings and improvements.................................. 5,758 5,985
Machinery and equipment..................................... 13,579 15,377
Furniture and fixtures...................................... 1,278 1,579
Other....................................................... 1,191 593
-------- --------
22,878 24,805
Accumulated depreciation.................................... (17,256) (19,479)
-------- --------
Property and Equipment................................. $ 5,622 $ 5,326
======== ========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable...................................... $ 3,647 $ 2,601
Accrued salaries and vacation............................... 1,961 1,778
Agent commissions payable................................... 706 774
Accrued expenses and other.................................. 2,010 1,596
-------- --------
Accounts Payable and Accrued Liabilities............... $ 8,324 $ 6,749
======== ========
</TABLE>
F-10
<PAGE> 33
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED PARTY TRANSACTIONS
The accompanying consolidated statements of operations include annual
rental charges from Lawrence for a corporate office facility and a manufacturing
and service center facility. See Note 10.
The affiliate balances, other than the amounts included in long-term debt,
are non-interest bearing and have no fixed repayment terms.
The Company provided Lawrence and certain of its affiliates with various
administrative and management services including cash management, accounting,
tax, data processing, human resources and legal services in 1997, 1996 and 1995.
During 1996 and 1995, the Company also utilized from time to time aircraft owned
by a Lawrence subsidiary. Prior to 1997, the Company did not charge Lawrence for
these administrative and management services or reimbursed Lawrence for use of
the aircraft because the effect of not recording the fair values of these
services rendered less services received was not significant. In 1997, the
Company charged Lawrence a net of $68,000 as fair value for these services.
The Company participates in the "Lawrence Companies Retirement Plan", a
defined contribution pension plan, covering all Dailey employees. Contributions
are determined as 50% of the employee's contribution up to 2% of the employee's
total compensation. Amounts charged to pension costs and contributed to the plan
in 1997, 1996 and 1995 totaled $203,000, $178,000 and $152,000, respectively.
7. BORROWING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to a bank, monthly interest payments at a fixed
rate of 7.9% (See below); monthly principal payments of
$138,889 through December 1999, with increasing principal
payments through the maturity date of December 2000....... $6,778 $8,444
Note payable to affiliates, monthly principal payments of
$55,000 plus interest at 8.0%............................. -- 1,760
Other....................................................... 88 160
------ ------
6,866 10,364
Less current portion of long-term debt...................... 1,711 2,398
------ ------
Total long-term debt.............................. $5,155 $7,966
====== ======
</TABLE>
The note payable to a bank includes, among other things, provisions
relative to maintenance of working capital balances, limitations on additional
borrowing, debt coverage requirements and restrictions on payment of dividends.
The note payable to a bank is collateralized by a majority of the Company's
assets and a portion of other notes payable is collateralized by equipment
purchased.
In conjunction with the $10.0 million note payable to a bank and to limit
interest rate exposure, the Company entered into an interest rate swap, which
converted the floating interest rate to a fixed rate of 7.9% maturing in
December 2000.
Interest paid during the years ended April 30, 1997, 1996 and 1995 amounted
to $858,000, $956,000 and $1,128,000, respectively.
In December 1995, the Company entered into a $3.0 million revolving credit
facility with a bank on December 15, 1995 amended as of June 5, 1996 which
provided interest at the prime rate with an option to convert to a LIBOR-based
rate plus 2.0%. In December 1996, this revolving credit facility was extended
through December 1997. At April 30, 1997, the Company had no outstanding
borrowings. The obligations of
F-11
<PAGE> 34
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company to the bank are collateralized by substantially all of the Company's
property, equipment, inventory, intellectual property and receivables. The
credit facility contains certain restrictive covenants and customary events of
default and conditions to the bank's obligation to make advances to the Company.
On June 20, 1997, the note payable to a bank was amended to increase the
outstanding principal balance of the term loan to $41.5 million and the
outstanding principal balance of advances made pursuant to the revolving line of
credit to $4.0 million. Principal payments on the term loan are $350,000
quarterly through July 1998, with increasing payments thereafter until maturity
on June 30, 2002, at which time the obligation of the bank to make revolving
credit advances also terminates. Interest on the term loan and revolving credit
advances is variable and will fluctuate at a variable margin over the bank's
prime rate or at a LIBOR-based rate. Both interest rates can fluctuate based on
leverage ratios. On June 23, 1997, the date of funding, the average interest
rate on revolving advances was 8.0%. Borrowings under the revolving credit
facility are limited to the lesser of $15.0 million or a loan formula based upon
the receivable level of eligible accounts receivable. The note payable to the
bank contains certain restrictive covenants and customary events of default and
conditions to the bank's obligation to make advances.
8. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. operations...................................... $3,858 $4,072 $1,443
Foreign operations................................... 117 (31) (637)
------ ------ ------
Income (loss) before income taxes................. $3,975 $4,041 $ 806
====== ====== ======
Income tax provision:
U.S. current......................................... $ 679 $ 941 $ 737
Foreign current...................................... 1,358 1,302 588
U.S. deferred........................................ (783) (816) (487)
State and local current.............................. 257 -- --
------ ------ ------
Income tax provision.............................. $1,511 $1,427 $ 838
====== ====== ======
</TABLE>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Revenue-producing tools and property and equipment........ $ 683 $ 662
------ ------
Total deferred tax liabilities.................... 683 662
Deferred tax assets:
Stock award -- salary expense............................. 399 --
Net operating loss carryforward........................... -- 1,547
Provision for doubtful accounts receivable................ 544 504
Uniform capitalization costs.............................. 1,272 1,053
Vacation and workers' compensation accruals............... 418 389
Foreign tax credit carryforward........................... 1,661 --
------ ------
Total deferred tax assets......................... 4,294 3,493
Valuation allowance for deferred tax assets................. (1,055) (1,058)
------ ------
3,239 2,435
------ ------
Net deferred tax assets..................................... $2,556 $1,773
====== ======
</TABLE>
F-12
<PAGE> 35
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the United States statutory rate and the Company's
effective income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
United States statutory rate.............................. 34.0% 34.0% 34.0%
Increases (reductions) in tax rate resulting from:
Meals and entertainment................................. 2.7 2.2 10.7
State taxes............................................. 4.2 -- --
Dissolution of partnership.............................. -- 20.0 --
Benefit of net operating loss carryforward.............. -- (23.2) --
Foreign losses.......................................... 3.1 2.6 41.4
Other................................................... (6.0) (.3) 17.9
--- ----- -----
Effective income tax rate............................ 38.0% 35.3% 104.0%
=== ===== =====
</TABLE>
For income tax reporting at April 30, 1997 the Company has foreign tax
credit carryforwards of approximately $1,661,000, which will begin to expire in
the fiscal year ending April 30, 2000. The valuation allowance relates to
deferred tax assets established for the net operating loss, provision for
doubtful accounts receivable and foreign tax credit carryforward. No other
valuation allowances were considered necessary. The change in the valuation
allowance is due to the utilization of prior year net operating loss
carryforward and the establishment of an allowance for foreign tax credit
carryforwards. Based on the earnings history, it is expected that future taxable
income will be more than sufficient to utilize the remaining deductible
temporary differences.
No provision is made for U.S. income and foreign withholding taxes
applicable to undistributed earnings of foreign subsidiaries that are
indefinitely reinvested in foreign operations.
Income taxes paid during 1997, 1996 and 1995 were $608,000, $538,000 and
$917,000, respectively.
9. ROYALTIES
In 1986, the Company purchased the design, patents and rights to certain
hydraulic tools and entered into a royalty agreement with the seller which
expires in 1999 and 2003 as to the covered hydraulic drilling and fishing jars,
respectively. Royalty agreements were executed between the Company and the
royalty owner in 1993 and 1994 on newly issued methods and apparatus patents
related to a double-acting drilling accelerator and improvements to hydraulic
drilling jars. In March 1994, the royalty agreements were amended to cap
royalties at 5.0% of annual net rental revenues derived from the hydraulic
drilling and fishing jars and double-acting drilling accelerators through
December 1999, with the royalty percentage decreasing to 4.0% from January 2000
to expiration of the applicable patents. Upon expiration of the patents, no
royalties will be required. The amended agreement also revised the 1.0% royalty
paid on net lost-in-hole revenue for the original hydraulic drilling jar patent
to the 2.0% provided in subsequent royalty agreements. For the years ended April
30, 1997, 1996 and 1995, the accompanying consolidated statements of operations
include royalty expense of $879,000, $843,000 and $826,000, respectively,
excluding the $250,000 related to the amended royalty agreement. The owner of
the royalty was an officer of the Company until October 1994.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space, transportation equipment and other
property under noncancelable operating leases with third parties and a corporate
office facility and manufacturing and service center facility
F-13
<PAGE> 36
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with Lawrence. See Note 6. Future minimum lease commitments under noncancelable
operating leases at April 30, 1997 are as follows:
<TABLE>
<CAPTION>
THIRD PARTY LAWRENCE TOTAL
----------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1998................................................ $ 649 $ 915 $1,564
1999................................................ 302 951 1,253
2000................................................ 236 969 1,205
2001................................................ 221 989 1,210
2002................................................ 221 -- 221
Thereafter.......................................... 520 -- 520
------ ------ ------
$2,149 $3,824 $5,973
====== ====== ======
</TABLE>
Rental expense under operating leases with third parties, inclusive of
month-to-month rentals, totaled $2,184,000, $2,436,000 and $1,700,000 in 1997,
1996 and 1995, respectively, and with Lawrence totaled $915,000, $1,306,000 and
$1,244,000 in 1997, 1996 and 1995, respectively and are included in selling
general and administrative expenses and cost of rentals.
The Company is the defendant in various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the consolidated financial statements of the Company. The Company is also
the plaintiff in certain actions defending its patents and proprietary designs.
11. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company is subject to credit risk and other risks inherent in
international operations. Generally, in excess of 50% of the Company's
receivables are due from oil and gas exploration companies and drilling
contractors operating in countries other than the United States and from the
Company's international agents. United States receivables are generally due from
major oil and gas exploration and drilling contractors throughout the oil field
areas of the United States. The Company routinely monitors its cash and
receivable positions with customers and international agents.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long- and short-term debt and interest rate swap: The carrying amount of
the Company's borrowings under its short-term revolving note payable
approximates fair value. The fair values of the Company's long-term debt and
interest rate swap are estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts of the Company's long-term debt approximated
the fair values at April 30, 1997 and 1996.
F-14
<PAGE> 37
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTIONS AND AWARDS
Prior to the IPO, the Company established its 1996 Key Employee Stock Plan
(the "1996 Plan") and its 1996 Non-Employee Director Stock Option Plan (the
"1996 Director Plan"). The 1996 Plan and the 1996 Director Plan (the "Plans")
have 900,000 shares authorized for the granting of options or restricted stock
to management personnel and 100,000 shares authorized for the granting of
options to directors, respectively.
The Company applied Accounting Principals Board Opinion 25 ("APB25") and
related interpretations in accounting for these plans. Accordingly, no
compensation cost has been recognized in 1997 for either plan. Based on
information available at the grant date, the Company estimated a four year
expected life for all options granted during the year, volatility of .53 and
risk free interest rates ranging from 6.03% to 6.70%. The Company does not
presently anticipate issuing dividends in the future. Had compensation cost for
the Company's two stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method available under SFAS 123, the Company's net income and earnings per share
for 1997 would have been reduced to the pro forma amounts listed below. There
were no options issued in 1996 or 1995.
<TABLE>
<CAPTION>
1997
------
<S> <C> <C>
Net Income As reported $2,464
Pro forma $1,114
Earnings per share As reported $ .30
Pro forma $ .14
</TABLE>
Stock options under the Plans are for Class A Common Stock and have
exercise prices equal to fair market values at dates of grant. Options issued
under the 1996 Plan may not be exercised within six months of, nor after ten
years from, the date of grant. Options issued under the 1996 Director Plan may
not be exercised within one year of, nor after ten years from, the date of
grant. The average remaining contractual life of options outstanding is
approximately ten years. Option activity for the year ended April 30, 1997 was
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
----------------- ----------------
<S> <C> <C>
Outstanding at April 30, 1996........................ 0 $ 0
Granted
1996 Plan -- at fair values from $8.00 to
$10.75........................................ 513,328 8.36
1996 Director Plan -- at fair value of $8.88.... 20,000 8.88
Other -- at fair value of $6.50................. 20,000 6.50
Forfeiture
1996 Plan -- at fair value of $8.00............. (19,199) 8.00
------- ------
Outstanding at April 30, 1977........................ 534,129 $8.32
======= ======
</TABLE>
Of the 553,328 options granted, 20,000 were not granted under the Plans and
have an exercisable life between one and five years from the date of grant. Of
the 534,129 options outstanding at April 30, 1997, 374,124 were exercisable.
Immediately following the IPO, restricted stock awards totaling 360,000 of
Class A Common Stock were granted to key officers. In October 1996, a restricted
stock award of 45,000 Class A Common Stock was granted to an executive officer.
Awards do not require any payment by the executive officers and were to vest
over a three year period. Subsequently, the Board approved accelerated vesting
of the 405,000 shares of restricted stock awards which resulted in the Company
recognizing $2.8 million in non-cash compensation expense during 1997.
Restricted stock activity for the year ended April 30, 1997 was as follows:
F-15
<PAGE> 38
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED SHARES
-----------------
<S> <C>
Outstanding at April 30, 1996............................... $ 0
Granted at fair values of $8.00 and $9.00................. 405,000
Forfeiture................................................ 0
Vested.................................................... (349,803)
---------
Outstanding at April 30, 1977............................... $ 55,197
=========
</TABLE>
The costs associated with these awards are treated the same under APB25 and
SFAS123 and are expensed in the period granted. These expenses are not reflected
in the pro forma information above as they are included in the reported
balances.
13. SUBSEQUENT EVENTS
On June 20, 1997, the Company consummated the acquisition (the "ADI
Acquisition") of Air Drilling International, Inc. ("ADI"). Dailey acquired ADI
for $46.4 million, including the repayment of approximately $16.8 million in
indebtedness. As a result of the ADI Acquisition, the Company became a leading
worldwide provider of air drilling services for underbalanced drilling
applications.
In June 1997, following the ADI Acquisition, the Company implemented a cost
reduction program to flatten its corporate management structure and streamline
the Company's operations (the "Management Reorganization"). As a result of such
program, the Company expects to incur a $2.8 million restructuring charge during
the first quarter of the year ended April 30, 1998 associated primarily with
staff reductions and severance settlements and various reorganization costs. The
Company expects the Management Reorganization to result in annual savings of
approximately $1.8 million. The Company is contemplating the private placement
of $100 million of senior unsecured notes during the year ended April 30, 1998.
It is anticipated the funds will be used to extinguish existing bank financing,
to finance potential acquisitions, and to expand the fleet of revenue producing
tools.
14. INDUSTRY SEGMENT AND DOMESTIC AND INTERNATIONAL OPERATIONS
The Company operates in one business segment, providing directional
drilling services and technologically-advanced downhole tools for oil and gas
drilling and workover applications.
Export revenues to unaffiliated customers included in domestic sales were
$977,000, $1,833,000 and $274,000 in 1997, 1996 and 1995, respectively.
Revenues by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $40,223 $34,370 $29,607
Europe................................................ 7,297 7,349 7,090
West Africa........................................... 2,559 2,059 1,446
Latin America......................................... 11,670 11,032 6,024
Middle East........................................... 1,036 563 511
Southeast Asia........................................ 3,666 3,566 4,185
------- ------- -------
Total....................................... $66,451 $58,939 $48,863
======= ======= =======
</TABLE>
F-16
<PAGE> 39
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating income by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $ 8,833 $ 8,025 $ 3,639
Europe................................................ 2,665 2,424 2,512
West Africa........................................... 1,292 860 286
Latin America......................................... 855 1,434 812
Middle East........................................... 222 413 (15)
Southeast Asia........................................ 1,176 916 1,645
Corporate(A).......................................... (10,687) (8,890) (6,972)
------- ------- -------
Total....................................... $ 4,356 $ 5,182 $ 1,907
======= ======= =======
</TABLE>
- ---------------
(A) Corporate operating losses include general and administrative costs such as
accounting, systems, data processing, legal and other costs which support
all operations of the Company.
Identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Domestic.................................................... $39,000 $30,931
Europe...................................................... 7,992 7,617
West Africa................................................. 1,539 1,631
Latin America............................................... 9,465 7,972
Middle East................................................. 668 242
Southeast Asia.............................................. 3,157 3,620
Corporate................................................... 20,538 3,865
------- -------
Total............................................. $82,359 $55,878
======= =======
</TABLE>
F-17
<PAGE> 40
DAILEY PETROLEUM SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY INFORMATION
Selected unaudited quarterly data are as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
--------- ------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AND COMMON STOCK PRICE)
<S> <C> <C> <C> <C>
FISCAL 1997
Operating revenues..................... $16,758 $17,155 $17,483(b) $15,057(b)
Operating income....................... 1,801 2,060 1,160(a) (665)(a)
Net income (loss)...................... 962 1,318 785(a) (601)(a)
Per share:
Net income (loss).................... 0.15 0.15 0.08 (.06)
Dividends............................ 0.00 0.00 0.00 0.00
Common stock price:
High................................. n/a 10.75 11.00 10.50
Low.................................. n/a 8.00 9.00 5.38
FISCAL 1996
Operating revenues..................... $15,479 $14,100 $14,602 $14,758
Operating income....................... 1,840 1,337 745 1,260
Net income............................. 997 640 376 601
Per share (pro forma):
Net income (loss).................... 0.15 0.10 0.06 0.09
Dividends............................ 0.00 0.00 0.00 0.00
Common stock price:
High................................. n/a n/a n/a n/a
Low.................................. n/a n/a n/a n/a
</TABLE>
- ---------------
(a) Reflects the impact of noncash compensation expense during the period of
$894,000 pretax and $572,000 after tax in the third quarter and $1.9 million
pretax and $1.3 million after tax in the fourth quarter.
(b) Reflects the utilization of additional downhole tools manufactured and
acquired with proceeds from the IPO.
Note: All financial data and per share data for quarters prior to August 14,
1996 (the effective date of the IPO) represents pro forma information as
the Company was a wholly owned subsidiary of Lawrence. As a result, no
common stock prices were available for the respective periods.
F-18
<PAGE> 41
DAILEY PETROLEUM SERVICES CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------------
AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C>
Fiscal year ended April 30, 1995 Allowance for Bad Debt $1,310,000 $321,000 0 $(275,000) $1,356,000
========== ======== == ========= ==========
Inventory Reserve $ 952,000 0 0 $ (60,000) $ 892,000
========== ======== == ========= ==========
Fiscal year ended April 30, 1996 Allowance for Bad Debt $1,356,000 $256,000 0 $(287,000) $1,325,000
========== ======== == ========= ==========
Inventory Reserve $ 892,000 0 0 $ (88,000) $ 804,000
========== ======== == ========= ==========
Fiscal year ended April 30, 1997 Allowance for Bad Debt $1,325,000 $305,000 0 $(154,000) $1,476,000
========== ======== == ========= ==========
Inventory Reserve $ 804,000 0 0 $(242,000) $ 562,000
========== ======== == ========= ==========
</TABLE>
S-1
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation (incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)).
3.2 -- Restated Bylaws of the Company (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
4.1 -- Form of Class A Common Stock Certificate (incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-04593)).
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and Restated Bylaws of the
Company defining the rights of the holders of Class A
Common Stock.
10.1 -- Relationship Agreement by and between the Company and
Lawrence Industries, Inc. (incorporated by reference from
the Company's Registration Statement on Form S-1 (File
No. 333-04593)).
10.2 -- Office Lease Agreement by and between the Company as
lessee and Lawrence International, Inc. as lessor
(incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-04593)).
10.3 -- Registration Rights Agreement by and between the Company
and Lawrence Industries, Inc. (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
+10.4 -- Dailey Petroleum Services Corp. 1996 Key Employee Stock
Plan (incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-04593)).
+10.5 -- Dailey Petroleum Services Corp. 1996 Non-Employee
Director Stock Option Plan (incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-04593)).
10.6 -- Tax Allocation Agreement by and between the Company and
Lawrence Industries, Inc. (incorporated by reference from
the Company's Registration Statement on Form S-1 (File
No. 333-04593)).
10.7 -- Form of Indemnification Agreement between the Company and
its directors. (incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-04593)).
10.8 -- Form of Indemnification Agreement between the Company and
its directors. (incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-04593)).
10.9 -- Stock Purchase and Sale Agreement dated May 8, 1997 (the
"Stock Purchase Agreement"), by and among the Company,
ADI, the Shareholders of ADI, and the Preferred
Shareholders of Air Drilling Services, Inc. (incorporated
by reference from the Company's Current Report on Form
8-K dated June 20, 1997).
10.10 -- First Amendment to Stock Purchase Agreement dated May 30,
1997, by and among the Company, ADI, the Shareholders of
ADI, and the Preferred Shareholders of Air Drilling
Services, Inc. (incorporated by reference from the
Company's Current Report on Form 8-K dated June 20,
1997).
10.11 -- Escrow Agreement dated June 20, 1997, by and among the
Company, the Shareholders and Warrantholders of ADI (the
"Shareholders"), and U.S. Trust Company of Texas, N.A.
(the "Escrow Agent") (incorporated by reference from the
Company's Current Report on Form 8-K dated June 20,
1997).
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Third Amended and Restated Loan Agreement dated June 20,
1997 (the "Loan Agreement"), by and between the Company,
the financial institutions from time to time a party
thereto, and Wells Fargo Bank (Texas), National
Association, as Agent. (incorporated by reference from
the Company's Current Report on Form 8-K dated June 20,
1997).
10.13 -- Third Amended and Restated Commercial Security Agreement
dated June 20, 1997, between Wells Fargo Bank (Texas),
National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and the Company.
(incorporated by reference from the Company's Current
Report on Form 8-K dated June 20, 1997).
10.14 -- Form of Guaranty Agreement dated June 20, 1997 between
Wells Fargo Bank (Texas), National Association, as Agent,
the Banks from time to time a party to the Loan Agreement
and each of the following subsidiaries of the Company:
Dailey International, Inc., Dailey Petroleum Sales Corp.,
International Petroleum Sales Corp., Columbia Petroleum
Services Corp., Dailey Worldwide Oil Tools, Corp., Dailey
Environmental Remediation and Technologies, Inc., Air
Drilling International, Inc., Air Drilling Services,
Inc., Canadian Air Drilling Services Ltd., and Specialty
Testing and Consultants Ltd. (incorporated by reference
from the Company's Current Report on Form 8-K dated June
20, 1997).
10.15 -- Form of Security Pledge Agreement dated June 20, 1997,
between Wells Fargo Bank (Texas), National Association,
as Agent, the Banks from time to time a party to the Loan
Agreement and each of the following: the Company; Air
Drilling International, Inc., and Air Drilling Services,
Inc. (incorporated by reference from the Company's
Current Report on Form 8-K dated June 20, 1997).
10.16 -- Form of Subsidiary Commercial Security Agreement dated
June 20, 1997, between Wells Fargo Bank (Texas) National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey International, Inc.,
Dailey Petroleum Sales Corp., International Petroleum
Sales Corp., Columbia Petroleum Services Corp., Dailey
Worldwide Oil Tools, Corp., Dailey Environmental
Remediation and Technologies, Inc., Air Drilling
International, Inc., Air Drilling Services, Inc.,
Canadian Air Drilling Services Ltd., and Specialty
Testing and Consultants Ltd. (incorporated by reference
from the Company's Current Report on Form 8-K dated June
20, 1997).
*10.17 -- Grant of Lease dated May 18, 1995, as amended on June 15,
1996, between Canadian Air Drilling Services, Ltd. and
Malhotra Enterprises, Ltd. for real property located at
Nisku Industrial Park, AB.
*10.18 -- Industrial Lease Agreement dated 3 July 1996 between Air
Drilling Services, Inc. and Melodi Lane Investments, LLC
for property located at 2122 Melodi Lane, Casper,
Wyoming, as amended on June 20, 1997.
*10.19 -- Master Equipment Lease Agreement dated July 3, 1996,
between Melodi Lane Investments, L.L.C., as lessor, and
Air Drilling Services, Inc. as lessee.
*10.20 -- Obligation of Air Drilling Services, Inc., Canadian Air
Drilling Services Ltd., and Specialty Testing &
Consulting Ltd., under a certain Agreement dated February
1, 1993, to share equally in the payment of a certain
Promissory Note dated December 6, 1993 and issued by
Chaman Malhotra and Aruna Malhotra to Southern Pacific
Thrift and Loan Assn.
+*10.21 -- Employment Agreement between the Company and James F.
Farr dated November 27, 1996.
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+*10.22 -- Employment Agreement between the Company and William D.
Sutton dated November 27, 1996.
+*10.23 -- Employment Agreement between the Company and David T.
Tighe dated November 27, 1996.
+*10.24 -- Employment Agreement between the Company and Chaman
Malhotra dated June 20, 1997.
+*10.25 -- Employment Agreement between the Company and Tommy Ramsey
dated June 20, 1997.
+*10.26 -- Employment Agreement between the Company and J.D.
Lawrence dated November 27, 1996.
10.27 -- $250,000 Promissory Note dated January 16, 1997, from
James F. Farr in favor of the Company (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the three months ended January 31, 1997).
10.28 -- Security Agreement dated January 16, 1997, between the
Company and James F. Farr (incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the three
months ended January 31, 1997).
+*10.29 -- Stock Option Agreement between the Company and Al Kite
dated April 23, 1997.
+*10.30 -- Stock Option Agreement between the Company and Bernard
Duroc-Danner dated April 23, 1997.
10.31 -- Form of Management Employment Agreement with John E.
Blacklaws (incorp-
orated by reference from the Company's Registration
Statement on Form S-1 (file No. 333-0593)
+*10.32 -- First Amendment to Employment Agreement with John E.
Blacklaws dated February 17, 1997.
+*10.33 -- Executive Employment Agreement dated July 18, 1997 with
Dwight Goolsbay.
+*10.34 -- Executive Employment Agreement dated July 18, 1997 with
Martin Lyons.
+*10.35 -- Management Employment Agreement dated July 18, 1997 with
Clet Brame.
+*10.36 -- Executive Employment Agreement dated July 18, 1997.
+*10.37 -- Equipment Lease Agreement dated November 1, 1996, as
amended, between Melhdra Enterprises and Specialty
Testing & Consulting, Ltd.
*21.1 -- List of Subsidiaries of the Company.
*23.1 -- Consent of Ernst & Young LLP.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
+ Management Contract
<PAGE> 1
EXHIBIT 10:17
LEASE AGREEMENT DATED MAY 18, 1995
MALHOTRA ENTERPRISES LTD.
TO
CANADIAN AIR DRILLING SERVICES LTD.
NISKU, ALBERTA
<PAGE> 2
LEASE made as of this 18th day of MAY, A.D. 1995.
BETWEEN:
MALHOTRA ENTERPRISES LTD., a company incorporated under the laws
of the Province of Alberta, with head office at the City of
Calgary, in the Province of Alberta,
(hereinafter called "the Landlord"),
OF THE FIRST PART
- and -
CANADIAN AIR DRILLING SERVICES LTD., a company incorporated
under the laws of the Province of Alberta, with head office at
the City of Calgary, in the Province of Alberta,
(hereinafter called "the Tenant"),
OF THE SECOND PART
GRANT OF LEASE
1.00 Malhotra Enterprises Ltd. being registered as owner, subject however
to such encumbrances, lien and interests as are notified by memorandum on the
existing Certificate of Title therefor of the lands municipally located at
1703 - 8th Street, Nisku, in the Province of Alberta and legally described as:
PLAN 752 0436, BLOCK SIX (6)
LOT NINE (9) CONTAINING FIVE AND TWENTY
HUNDREDTH (5.20) ACRES, MORE OR LESS.
(N.E. 24-50-25 W 4th Mer.)
EXCEPTING THEREOUT ALL MINES AND MINERALS.
and being the owner of a building erected on the said lands (hereinafter called
"the building") DOES HEREBY LEASE TO CANADIAN AIR DRILLING SERVICES
<PAGE> 3
-2-
LTD. that portion of the floor of the building having an area of approximately
Nine Thousand Five Hundred (9,500) square feet (hereinafter called "the demised
premises") TO BE HELD BY it, the tenant, as tenant, for the space of FIVE (5)
years and FOUR (4) months commencing on the 1st day of May, A.D. 1995,
(hereinafter called "the term") at the monthly rental and subject to the
covenants and power implied and hereinafter set forth which the Landlord and
the Tenant each agree with the other to observe and perform as the same may be
applicable to each of them respectively.
1.01 RENT: The Tenant hereby covenants with the Landlord that it will during
the aforesaid term, pay rent on the demised premises as follows:
(a) Rental of SEVENTY THOUSAND, EIGHT HUNDRED AND EIGHTY-EIGHT DOLLARS and
THIRTY-TWO CENTS ($70,888.32) per annum, payable monthly in advance in
equal payments of FIVE THOUSAND, NINE HUNDRED AND SEVEN DOLLARS and
THIRTY-SIX CENTS ($5,907.36) on the first (1st) day of each month during
the term.
It is understood that the aforesaid rent shall be paid in lawful money
of Canada, and the installments shall be paid in advance and without
deductions, at the office of the Landlord in the City of Calgary or at such
other place as the Landlord may from time to time hereafter designate in
writing.
<PAGE> 4
-3-
TENANT'S COVENANTS
2.00 THE TENANT, for itself and its assigns, for the term hereby created,
covenants with the Landlord as follows:
2.01 PAY RENT: To pay the rent hereby reserved promptly at the times and in
the manner herein mentioned without notice of demand and without any abatement,
deduction, defalcation or setoff whatsoever. The Tenant shall also pay without
notice from the Landlord, except as may be provided in the Lease, and without
abatement, deduction, defalcation or setoff, all other payments which the
Tenant in any of the provisions of this Lease assumes or agrees to pay.
2.02 REAL PROPERTY TAXES: To pay to the Landlord in each year of the term
as additional rent as they become due, all taxes (including local improvement
rates), rates, duties and assessments that may be levied, rated, charges or
assessed against the entire lands and the building erected thereon and, without
limiting the generality of the foregoing, every other tax, charge, rate,
assessment or payment which may become a charge or encumbrance upon or be
levied or collected upon or in respect of the entire lands and building erected
thereon or any part thereof, whether charged by any municipal, parliamentary or
other authority excepting only that proportion of the said taxes received by
the Landlord from any other tenant of the said lands and building.
<PAGE> 5
-4-
2.03 UTILITIES: To pay as they become due all charges for public services
and utilities, including water, gas sewer, electrical power, steam or hot water
used upon or in respect of the entire lands and building erected thereon and
for fittings, machines, apparatus, meters or other things leased in respect
thereof and for all work or services performed by any corporation or commission
in connection with such utilities.
2.04 OPERATING COSTS: To pay as they become due all operating costs as
hereinafter defined.
If the Tenant shall neglect or refuse to pay all operating and utility
costs when due the Landlord shall be entitled to recover the same by all
remedies available to it for the recovery of rent in arrears.
For the purpose of this clause "operating costs" mean any and all
expenses incurred by the Landlord in connection with the insurance protection,
management, operation, maintenance, cleaning and repair of the building,
structures and improvements constructed or erected upon the said lands and the
said lands.
2.05 BUSINESS TAX: To pay all taxes with respect to all business carried on
in the demised premises, and any special franchise or other tax with relation
to such business as and when such taxes become due and payable together with
any taxes levied on tenant's fixtures and improvements made in or to the
demised premises by or for the Tenant and all taxes in the nature of
<PAGE> 6
-5-
business taxes and any taxes levied on machinery or equipment of the tenant
assessed by any governmental authority upon the demised premises whether levied
against the landlord or the tenant.
2.06 RENT TO BE NET: It is the intent of this Lease that the said rental
herein provided to be paid shall be net to the Landlord and clear of all taxes
(except the Landlord's income taxes), costs and charges arising out of or
relating to the entire lands and building and the Tenant covenants with the
Landlord accordingly.
2.07 TIDINESS: To maintain and keep at its own expense the glass and
exterior doors and the interior of the demised premises in as good order and
condition as they would be kept by a reasonably careful owner.
Not to allow paper, refuse, garbage or other loose or objectionable
material to be or accumulate on the demised premises. To keep the sidewalk
directly in front of the demised premises free and clear of dirt, dust, ice,
snow and obstructions of all kinds.
2.08 REPAIR BY TENANT OF DEMISED PREMISES: To repair and keep the demised
premises in good order, condition and decoration, excepting damage by fire,
lightning, tempest, impact of aircraft, acts of God, the Queen's
<PAGE> 7
- 6 -
enemies, riots, insurrections, structural defects or weaknesses and explosion
and repairs required to be made by the Landlord herein. The Tenant shall be
responsible for the cost of repairing all Tenant's improvements and fixtures
together with all partitioning and/or improvements erected by or on behalf of
the Tenant. The Tenant covenants to maintain any partitioning within or
defining the demised premises in a good and proper state of repair.
2.09 REPAIR BY LANDLORD: Upon the failure of the Tenant to undertake any
repairs or to do anything which is required of it by this Lease, the Landlord
may carry out such repairs or do such things and the Landlord shall be entitled
to recover on demand from the Tenant the cost thereof.
2.10 DAMAGE TO BUILDING: That if the building including the demised
premises, the elevators, boilers, engines, pipes and other apparatus (or any of
them) used for the purpose of heating or air-conditioning the building or
operating the elevators, or, if the water pipes, drainage pipes, electric
lighting, windows or other equipment of the building get out of repair or
become damaged or destroyed through the negligence, carelessness or misuse by
the Tenant, its servants or employees or through it or them in any way stopping
up or injuring the heating apparatus, elevators, water pipes, drainage pipes or
other equipment or any part of the building, the expense of the necessary
repairs, replacements or alterations shall be borne by the Tenant who shall pay
the same to the Landlord forthwith on demand.
<PAGE> 8
- 7 -
2.11 ASSIGNMENT: That the Tenant will not pledge or assign this Lease or
underlet or part with possession of the demised premises or any part thereof,
directly or indirectly without the prior written consent of the Landlord,
provided that such consent shall not be unreasonably or arbitrarily withheld.
No assignment, or pledge or this Lease or sub-Lease of the demised premises or
any part thereof, shall in any manner relieve the Tenant from its
responsibilities under all of the terms, covenants and conditions of this
Lease. Any violation of any provision of this Lease, whether by act or
omission, by any assignee or sub-Tenant shall be deemed a violation of such
provision by the Tenant.
2.12 USE OF PREMISES: The Tenant shall use and occupy the demised premises
for oilfield service business purposes only and shall comply in respect of such
use with the requirements of Federal, Provincial and Municipal laws and
regulations. If a Government licence or permit shall be required for the
proper and lawful conduct of the Tenant's business and if the failure to secure
such licence or permit would affect the Landlord, the Tenant, prior to
occupying the demised premises, shall procure the same for inspection by the
Landlord. The Tenant shall, at all times, comply with the terms and conditions
of any such licence or permit.
2.13 NOT PREJUDICE INSURANCE: That the Tenant will not do or omit or permit
to be done or omitted upon the demised premises anything which shall
<PAGE> 9
- 8 -
cause the rate of insurance upon the building to be increased and that, if the
rate of insurance on the building shall be increased by reason of the use made
of the demised premises or by the reason of anything done or omitted or
permitted to be done or omitted by the Tenant or by anyone permitted by the
Tenant to be upon the demised premises the Tenant will pay to the Landlord on
demand the amount of such increase. The Tenant will comply in every respect
with the rules and regulations, if any, of the Canadian underwriters
Association, or any successor or substitute body, and with the requirements
communicated to the Tenant of the Landlord's insurance company or companies
having policies insuring the building or the use thereof.
2.14 PREMISES CONFORM TO LAW: To comply with all provisions of law
including without limitation Federal and Provincial legislative enactments,
building and other civic by-laws and any and all other governmental and
municipal regulations which relate to the partitioning, equipment, operation
and use of the demised premises, and to the making of any repairs,
replacements, alterations, additions, changes, substitutions or improvements of
or to the demised premises, and comply with all police, fire and sanitary
regulations or directives imposed or made by any Federal, Provincial or
Municipal authorities or by fire insurance underwriters, and observe and obey
all governmental and municipal regulations and other requirements governing the
conduct of all business conducted in the demised premises.
2.15 USE CONFORM TO LAW: The Tenant shall, at its expense, comply with
<PAGE> 10
- 9 -
all laws, orders, ordinances and regulations of Federal, Provincial and
Municipal authorities and with any direction made pursuant to law or by any
public officer or officers.
2.16 NO NUISANCE: Not to do or suffer any waste or damage, disfiguration or
injury to the demised premises or the fixtures and equipment thereof; and not
to use or permit to be used any part of the demised premises for any dangerous,
noxious or offensive trade, business or occurrence and not to cause or maintain
or permit of occurrence or maintenance of any nuisance in, at or on the demised
premises, or the creation or emission of any noxious fumes thereon or therefrom.
2.17 FLOOR LOAD: The Tenant shall not place or permit to be placed a load
upon any portion of any floor of the demises premises which exceeds the floor
load which the area of such floor being loaded was designed to carry having
regard to the loading of adjacent areas. The Landlord reserves the right to
prescribe the weight and position of all safes and heavy installations which
the Tenant wishes to place in the demised premises so as to properly distribute
the weight thereof and the Tenant agrees to such reservation.
2.18 ESCAPE OF WATER: The Tenant shall be responsible for any loss or
damage whatsoever caused in the building owing to the leakage or escape of any
<PAGE> 11
-10-
water, gas or other substance from any pipes, machinery or equipment installed
by the Tenant and used for the purposes of servicing the demised premises or
any machinery or equipment installed or put therein by the Tenant.
2.19 INDEMNIFY LANDLORD: To indemnify and save harmless the Landlord
against and from any and all claims by or on behalf of any person or persons,
firm or firms, and corporation or corporations arising from the conduct of any
work by or through any act of negligence of the Tenant or any assignee,
sub-Tenant, agent, contractor, servant, employee or licencee of the Tenant, and
against and from all costs, fees, expenses and liabilities incurred as a result
of any such claim or action or proceeding brought thereon.
2.20 RELEASE OF LANDLORD: That the Landlord shall not be responsible for
injury to or the death of any person in or about the demised premises or the
building or any damage to any merchandise, goods, chattels, machinery,
equipment, fixtures or Tenant's improvements located within the building with
the express or implied consent of the Tenant or in respect of the Tenant's
business. The Landlord shall not be responsible for insuring any fixtures,
partitions, floor coverings or other Tenant's improvements whether constructed,
installed or located by the Tenant in any part of the demised premises, and the
Tenant shall insure its own stock, furniture and equipment and shall be solely
responsible for the loss of or damage to property of others kept or stored or
located in the demised premises during the term hereof.
<PAGE> 12
-11-
2.21 NOTIFY LANDLORD: To immediately notify Landlord or its representative
in the building of any accidents or defects in the building, including without
limitation, the demised premises, the water pipes, plumbing and heating
apparatus, ventilation and air-conditioning equipment and electrical wiring and
fixtures and as well of any matter or condition which may cause injury or
damage to the building or any person or property therein located.
2.22 NOT PERMIT LIENS: The Tenant shall promptly pay as and when the same
fall due all accounts for labour or material done or supplied for all
improvements, installations, partitions and fixtures or work done by or for the
Tenant on the demised premises and will not cause, suffer or permit any
encumbrance, lien or charge to arise or exist or be claimed upon the demised
premises in respect thereof, provided that any such lien shall be permitted if
and so long as it does not embarrass or prejudice the Landlord and if the Tenant
has agreed to indemnify and save harmless the Landlord in respect of the same
having given the Landlord reasonable security to insure the due payment of the
same, and the Tenant proceeds with all due diligence to take whatever steps are
properly open to it to cause the validity of such claim to be determined and
any registration of such claim against the title to the said lands to be
extinguished or the lien to be paid if found valid.
2.23 LIGHT BULBS: The Tenant agrees to pay the cost including installation
of all electric light bulbs and fluorescent tubes used to replace
<PAGE> 13
- 12 -
those installed on the demised premises at the commencement of the term, and
the cost and maintenance and repair of the fluorescent fixtures thereon.
2.24 MORTGAGE SUBORDINATION: The Tenant agrees that this Lease is and shall
be subject and subordinate to any mortgage or charged which may now or hereafter
be placed against the said lands, or against the building, and the Tenant
agrees to promptly execute and deliver to the Landlord at its request all
postponements, deeds and documents, as shall be necessary to give effect to
this covenant.
2.25 TENANT'S LIABILITY INSURANCE: The Tenant agrees to take out and keep in
force during the term hereof general public liability insurance on an
occurrence basis with respect to the business carried on, in or from the
demised premises and the use and occupancy thereof by the Tenant in the sum of
not less than FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS inclusive, which
insurance shall included the Landlord as a named insured and shall protect the
Landlord in respect of claims by the Tenant as if the Landlord were separately
insured. The Tenant shall furnish to the Landlord, if and whenever requested
by the Landlord, certificates or other satisfactory evidence as to such
insurance.
2.26 SIGNS: The Tenant shall not cause or permit any sign, picture,
advertisement, notice, lettering, flag, decoration or direction to be painted,
<PAGE> 14
- 13 -
displayed, inscribed, placed, affixed or maintained in or on any windows or
doors of the building nor anywhere else on or in the building, without the
prior written consent of the Landlord.
2.27 WAIVER RE DISTRESS: The Tenant waives and renounces the benefit of any
present or future statute taking away the limiting the Landlord's right of
distress, and covenants and agrees that notwithstanding any such statute none
of the goods and chattels of the Tenant on the demised premises at any time
during the term shall be exempt from levy by distress for rent in arrears.
2.28 APPLICATION OF DISTRESS: The Tenant covenants and agrees that all of
its furniture, trade fixtures, partitions, installations, equipment and other
movables on the demised premises or wherever situated shall be liable to
distress and sale in the usual manner for any arrears of rent owing with
respect to the demised premises and that none of the aforesaid good and chattels
upon the demised premises shall be exempt from distress, and for the purposes
of making such distress the Landlord by itself, its agents and bailiffs may
break open any door or window and enter upon the demised premises at any time
after rental shall accrue due.
2.29 RIGHT OF ENTRY: The Tenant further covenants and agrees that, on the
Landlord becoming entitled to cancel this Lease under any of the provisions
thereof, the Landlord in addition to all other rights, shall have
<PAGE> 15
-14-
the right to re-enter the demised premises or any portion or portions thereof
as agent of the Tenant, either by force or otherwise, without being liable for
any prosecution therefor and to re-let the demised premises or any portion or
portions thereof as agent of the Tenant, to take possession of any furniture or
other property on the demised premises and to sell the same at public or
private sale without notice and to apply the proceeds of such sale and any rent
derived from re-letting the demised premises upon account of the rent due or
accruing due under this Lease, and the Tenant shall be liable to the Landlord
for any deficiency, if any.
2.30 NON-WAIVER BY LANDLORD: That failure of the Landlord to insist upon
strict performance of any of the covenants or conditions of this Lease or to
exercise any right or option herein contained shall not be construed as a
waiver or relinquishment of any such covenant, condition, right or option, but
the same shall remain in full force and effect.
2.31 ADDITIONAL RENTAL: All sums paid or expenses incurred hereunder by the
Landlord, which ought to have been paid or incurred by the Tenant, or for which
the Landlord hereunder is entitled to reimbursement from the Tenant, and any
interest owing to the Landlord hereunder may be recovered by the Landlord as
additional rental by any and all remedies available to it for the recovery of
rent in arrears, and shall be deemed to be rent in arrears.
2.32 INTEREST ON ARREARS: All rent in arrears and all sums paid or
<PAGE> 16
-15-
expenses incurred by the Landlord which ought to have been paid or incurred by
the Tenant, or for which the Landlord is entitled hereunder to reimbursement
from the Tenant and which under the preceding sub-paragraph of this Lease shall
be deemed to be rent in arrears, shall bear interest from the date the same
became due and payable by the Tenant to the Landlord or are spent or incurred
by the Landlord, as the case may be, until the date of payment or repayment to
the Landlord; PROVIDED, that in each case, the Landlord shall give written
notice to the Tenant of such sum due and payable, and the Tenant shall have
SEVEN (7) days after receipt of such written notice from the Landlord to pay
such arrears and, if such amounts are paid during such period, the aforesaid
interest shall not be chargeable. Such interest will be charged at a rate of
twelve (12%) percent per annum.
2.33 ACCESS TO LANDLORD: The Landlord may, at any time and without
liability to the Tenant, enter the demised premises to examine the same, or for
any purpose which it may deem advisable for the operation and/or maintenance of
the building or its equipment. During the last Six (6) months of the term of
this Lease, the Tenant shall allow such person or persons as may be desirous of
leasing the premises to visit the same on business days, between the hours of
9:00 o'clock in the morning and 5:00 o'clock in the evening, provided
reasonable notice is given to the Tenant.
2.34 ALTERATIONS BY LANDLORD: The Landlord shall have the right at any time
during the term hereof to repair, remodel, alter, improve or add to the
<PAGE> 17
-16-
whole or any part of the building (or to change the location of the entrance or
entrances of the building, or to change, alter, remodel, or improve or add to
the common areas, drains, pipes and heating apparatus or any other part of the
building) except the demised premises without compensation or responsibility to
the Tenant. For such purposes, the Landlord may, if necessary, enter, pass
through, work upon and attach scaffolds or other temporary structures to the
demised premises. The Landlord agrees to carry out such work as quickly as
possible causing as little disturbance as possible.
2.35 EXCAVATION: In the event that an excavation should be made for
building or other purposes upon land adjacent to the building, or should be
authorized to be made, the Tenant shall, if necessary, afford to the person or
persons causing or authorized to cause such excavation, licence to enter upon
the demised premises for the purpose of doing such work as shall reasonably
be necessary to protect or preserve the wall or walls of the building, or the
building from injury or damage and to support them by proper foundations,
pinning and/or underpinning.
2.36 YIELD UP: At the expiration or sooner termination of this Lease the
Tenant will peaceably surrender and give up the demised premises without notice
from the Landlord, any right or notice to quit or vacate being hereby expressly
waived by the Tenant, any law, usage or custom to the contrary notwithstanding.
<PAGE> 18
-17-
LANDLORD'S COVENANTS
3.00 THE LANDLORD covenants with the Tenant as follows:
3.01 QUIET POSSESSION: That the Tenant paying the rent hereby reserved at
the times and in the manner aforesaid and observing and performing each and
every one of the covenants, conditions, restrictions and stipulations by the
Tenant to be observed or performed under this Lease shall and may peaceably and
quietly possess and enjoy the demised premises during the said term without
interruption from or by the Landlord, by any persons lawfully claiming by,
through or under it.
3.02 PAY TAXES: To pay all rates, charges and assessments and taxes where
with the demised premises may be rated, charged, assessed and taxed during the
term of this Lease other than such obligations which the Tenant herein has
expressly agreed to pay.
3.03 HEAT: To furnish adequate heating to the demised premises at all
times and during the normal heating season as established by custom and
practice for similar buildings in the City of Edmonton.
3.04 REPAIR OF APPARATUS: In case the apparatus or any part thereof used in
the heating of the demised premises becomes inoperable, damaged, malfunctioning
or destroyed, the Landlord shall have a reasonable time within
<PAGE> 19
-18-
which to repair the damage or replace or repair the apparatus and the Landlord
shall not in any event be liable to the Tenant, its officers or employees for
any indirect or consequential damage or damages for personal discomfort or
illness arising by reason of the interruption of such services or any of them.
3.05 REPAIR STRUCTURE: To repair and maintain the structure of the
building, the exterior walls, roof, pipes, plumbing, electrical wires installed
by the Landlord and other installations of a structural nature. In the event
that any such repairs shall be required to be made by the Landlord by reason of
the negligence of the Tenant, its agents or employees, the Landlord shall be
entitled to recover the cost thereof from the Tenant and if the Tenant shall
fail to pay the same on demand the Landlord may recover the amounts so due by
all remedies available to it for the recovery of rent it arrears.
3.06 ALTERATIONS BY TENANT: The Tenant may with the prior written consent
of the Landlord from time to time improve, alter or change the fixtures and/or
Tenant's improvements in the demised premises, provided that:
(a) The Tenant shall have supplied the Landlord with plans and
specifications for such improvements, alterations or
changes, and;
(b) The Tenant shall cause all work done in connection with any
improvement, alteration or change to be done promptly and
in a good and workmanlike manner and in accordance with the
plans and
<PAGE> 20
-19-
specifications therefor which have been approved by the Landlord, and;
(c) That any or all work to be done and material to be supplied in
connection with such improvements, alterations or changes shall unless
otherwise agreed by the Landlord be done or supplied only by contractors
or sub-contractors and workmen engaged by the Tenant but first
approved by the Landlord, and the Landlord shall have the right to
grant such approval conditionally or to withdraw the same at any time.
MUTUAL COVENANTS
4.00 AND it is hereby mutually agreed between the Landlord and the Tenant as
follows:
4.01 TENANT'S IMPROVEMENTS: The Tenant covenants and agrees that it will
not install or construct any partitions, fixtures, floor coverings, light
fixtures, heavy equipment, safes or machinery upon the demised premises nor
undertake or permit any removal, change, alteration or addition therein or
thereto nor affix or attach any article thereto without the Landlord's consent
in writing being first had and obtained. On termination of the within Lease,
the Tenant shall be entitled to remove any office machines and equipment and
furniture installed by it, making good any damage occasioned to the demised
premises by reason of such installation or removal.
<PAGE> 21
-20-
Any removal of equipment, fixture, partitions and the like which is
undertaken pursuant to this clause and the restoration of the demised premises
to good order and condition shall be completed prior to the expiry of the term.
The Tenant shall not remove any trade fixtures, goods or chattels of
any kind from the demised premises until all rent and other monies due by the
Tenant to the Landlord are paid.
All improvements to the demised premises installed or constructed by
the Tenant except trade fixtures will be and become the property of the
Landlord when constructed or installed and the Tenant will be solely
responsible for insuring, repairing and maintaining the same.
4.02 DESTRUCTION OR DAMAGE. If during the term hereof the premises shall
be damaged by fire, lightning, tempest, impact of aircraft, acts of God or the
Queen's enemies, riots, insurrections, explosions or other casualty, the
following provisions shall have effect:
(a) If the demised premises are rendered partially unfit for occupancy by
the Tenant and remain so for at lease TEN (10) days, then the rent
hereby reserved shall abate from the date of the damage in part only
in the proportion that the part of the demised premises so rendered
unfit is of the whole of the demised premises until the premises have
been repaired or restored;
<PAGE> 22
-21-
(b) If the demised premises are rendered wholly unfit for occupancy by the
Tenant and remain so for at least TEN (10) days, then the rent hereby
reserved shall be suspended from the date of the damage until the demised
premises have been repaired or restored;
(c) Notwithstanding the provisions of sub-clause (a) hereof, if the demised
premises shall be incapable of being repaired or restored with reasonable
diligence within ONE HUNDRED AND TWENTY (120) days of the happening of the
damage, then either the Landlord or the Tenant may at its option terminate
this Lease by notice in writing to the other given within FIFTEEN (15) days
of the date of the damage, and if such notice is given this Lease shall
cease and become null and void from the date of the damage and the Tenant
shall immediately surrender the demises premises and all of its interest
therein to the Landlord and the rent shall be apportioned and shall be
payable by the Tenant only to the date of such damage and the Landlord may
re-enter and repossess the demised premises discharged of this Lease, but
if within the said period of FIFTEEN (15) days neither the Tenant nor the
Landlord shall give notice terminating this Lease as aforesaid, or if
within the said period the Landlord and Tenant shall agree not to give such
notice, then upon the expiration of the said period of FIFTEEN (15) days or
upon the Landlord and Tenant agreeing as aforesaid, whichever shall be the
sooner, the Landlord shall with reasonable promptitude repair and restore
the demised premises.
<PAGE> 23
-22-
(d) If the demised premises are capable with reasonable diligence of
being repaired or restored within ONE HUNDRED AND TWENTY (120) days of
the happening of such damage, then the Landlord shall restore or repair
the demises premises with all speed within the aforesaid ONE HUNDRED
AND TWENTY (120) days.
It is expressly understood and agreed that the obligation of the
Landlord to rebuild and restore the demised premises shall not extend to or be
deemed to include the rebuilding and restoration of any alterations,
partitions, equipment or installments made by the Tenant on the demised
premises.
4.04 DEFAULT: That, in the event that default is made in payment of rent or
any part thereof and such default continues for SEVEN (7) days after the due
date for the payment of the same or in case of non-performance or
non-observance on the part of the Tenant of any covenant, condition,
restriction or stipulation herein contained, express or implied, which ought to
be observed or performed by the Tenant and which has not been expressly waived
in writing by the Landlord, the Landlord may at its option in addition to
exercising any other remedy available to it in law cancel this Lease by written
notice to the Tenant and, in any one or more of such cases, all rights and
interest hereby created or then existing in favour of the Tenant or derived
under this Lease, shall thereupon cease and determine and the Landlord
<PAGE> 24
- 23 -
may re-enter into and upon the demised premises and to have again, repossess
and enjoy the same as of its former estate, anything herein to the contrary
notwithstanding; PROVIDED HOWEVER, that in case of such cancellation and
re-entry, the Tenant shall continue to be liable to pay and the Landlord shall
have the same remedy for recovery of any rent then due or accruing due as if
this Lease had not been cancelled, but remained in full force and effect, and
further than any right of action of the Landlord against the Tenant in respect
of any antecedent breach of the said covenants, conditions, restrictions, and
stipulations shall not thereby be prejudiced.
4.04 BANKRUPTCY OR SEIZURE: In the event that the demised premises shall
without the prior written consent of the Landlord remain vacant or not used for
the period of FIFTEEN (15) days or the demises premises shall not be occupied
by the Tenant within FIFTEEN (15) days of the commencement date or shall be
used by any person other than the Tenant or for any purpose than that for which
the same were let or in case the term or any of the goods and chattels of the
Tenant shall be, at any time seized in execution or attachment by any creditor
of the Tenant or the Tenant shall make any assignment for the benefit of
creditors or any bulk sale or become bankrupt or insolvent or take the benefit
of any Act nor or hereafter in force for bankrupt or insolvent debtors or any
order shall be made for the winding up of the Tenant then, in any such case,
this Lease shall, at the option of the landlord, cease and determine and the
term shall immediately become forfeited and void and the
<PAGE> 25
then current month's rent and the next ensuing THREE (3) months' rent shall
immediately become due and payable and the Landlord may re-enter and take
possession of the demised premises as though the Tenant or other occupant or
occupants of the demised premises was or were holding over after the expiration
of the terms without any right whatsoever.
4.05 FORCE MAJEURE: Save and except for the obligations of the Tenant as
set forth in this Lease to pay rent, additional rent, increased rent,
operational costs, or other monies to the Landlord, if either Party shall fail
to meet its obligations hereunder within the time prescribed, and such failure
shall be caused or materially contributed to by force majeure (and for the
purposes of this Agreement, force majeure shall mean any acts of God, strikes,
lockouts, or other industrial disturbances, acts of the Queen's enemies,
sabotage, war, blockades, insurrections, riots, epidemics, lightning,
earthquakes, floods, storms, fires, washouts, nuclear and radiation activity or
fallout, arrests and restrains of rules and people, civil disturbances,
explosions, breakage of or accident to machinery or stoppage thereof for
necessary maintenance or repairs, inability to obtain labour, materials or
equipment, any legislative, administrative or judicial action which has been
resisted in good faith by all reasonable legal means, any act, omission or
event whether of the kind herein enumerated or otherwise not within the control
of such Party, and which by the exercise of due diligence such Party could not
have prevented, but lack of funds on the part of such Party shall be
<PAGE> 26
- 25 -
deemed not to be force majeure), such failure shall be deemed not to be a
breach of the obligations of such Party hereunder but such Party shall use
reasonable diligence to put itself in a position to carry out its obligations
hereunder.
4.06 REPRESENTATIONS: The Tenant hereby acknowledges that the demised
premises are taken without representation of any kind on the part of the
Landlord or its agent other than as set forth herein. No representative or
agent of the Landlord or Tenant is or shall be authorized or permitted to make
any representation with reference thereto, or to vary or modify this Agreement
in any way, and this Lease contains all the agreements and conditions made
between the Parties hereto, and any addition to or alteration of or changes in
this Lease, or other agreements hereafter made or conditions created to be
binding, must be made in writing and signed by both Parties in a manner
identical to the manner of execution of this Lease, or otherwise as authorized
in an instrument executed in a manner identical to the manner of execution of
this Lease.
4.07 RESERVATION TO LANDLORD: All outside walls of the demised premises and
any space in the demised premises used for stairways and passageways to other
adjoining premises, shafts, stacks, pipes, conducts, ducts or other building
facilities, the heating, electrical, plumbing, air-conditioning and other
building systems, and the use thereof, as well as access thereto through
<PAGE> 27
-26-
the demised premises for the purpose of use, operation, maintenance, and repair
are expressly reserved to the Landlord.
4.08 SALE OF DEMISED PREMISES: Provided and it is expressly agreed that if
the Tenant duly and regularly pays the aforesaid rent and performs all and
every of the covenants, provisos and agreements herein contained on the part of
the Tenant to be paid and performed and if during the Lease term the Landlord
shall receive a bona fide offer to purchase the demised premises which offer is
acceptable to the Landlord, the Landlord agrees that the Tenant shall have and
is hereby granted an option to purchase the demises premises upon the same
terms and provisions. The Landlord agrees immediately after receipt of such
offer to give the Tenant notice in writing of the terms and provisions thereof,
and the Tenant may exercise its option to purchase the demised premises at any
time within SEVEN (7) days after such notice is received by the Tenant. If the
Tenant shall elect to exercise such option it shall do so by giving notice in
writing to the Landlord within such SEVEN (7) day period and a contract of sale
shall be executed by the Parties upon the same terms and conditions as the bona
fide offer to purchase received by the Landlord.
4.09 NOTICES: Any notice herein provided or permitted to be given by the
Tenant to the Landlord shall be sufficiently given if delivered or if mailed,
by registered mail, postage prepaid, in writing and addressed to the Landlord
at Suite 140 - 635 - 6th Avenue S. W., Calgary, Alberta, T2P 0T5.
<PAGE> 28
-27-
Any notice herein provided or permitted to be given by the Landlord to
the Tenant shall be sufficiently given if delivered or if mailed, by registered
mail, postage prepaid, in writing and addressed to the Tenant at the demised
premises.
Notice mailed as aforesaid shall be conclusively deemed to have been
received on the third business day following the day on which such notice is
mailed. Notice delivered as aforesaid shall be conclusively deemed to have been
delivered if delivered in the same manner in which service of process is
required to be made under the Rules of the Supreme Court of the Province of
Alberta. Either Party may at any time give notice in writing in the manner
hereinbefore provided to the other of any change of address of the Party giving
such notice, the address therein specified shall be deemed to be the address
of such Party for the giving of notice hereunder. The word "notice" in this
clause shall be deemed to include any request, statement of other writing in
this Lease provided or permitted to be given by the Landlord to the Tenant or
by the Tenant to the Landlord.
4.10 LANDLORD NOT UNREASONABLY INTERFERE: Except as expressly provided
otherwise in this Lease, there shall be no allowance to the Tenant by way of
diminution of rent or otherwise and no liability on the part of the Landlord by
reason or inconvenience, annoyance or injury to business arising from the
happening of the event which gives rise to the need for any repairs,
<PAGE> 29
-28-
alterations, additions, or improvements or from the making of any repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances, and equipment
thereof. The Landlord agrees to use its best efforts to do any work done by it
in such a manner as not to unreasonably interfere with or impair the Tenant's
use of the demised premises.
4.11 HEADINGS: The Parties hereto agree that the headings herein form no
part of this Lease and shall be deemed to have been inserted for convenience of
reference only.
4.12 INTERPRETATION: The terms "Landlord" and "Tenant" and the pronouns
relating thereto, where used herein shall, where the context makes it
appropriate, include heirs, executors, administrators, successors and assigns
of the Parties hereto, and shall include the masculine, feminine and plural
where the context of the Party or Parties hereto so require and, where there is
more than one (1) Tenant, all covenants shall be deemed joint and several.
4.13 GOVERNING LAW: This Lease and any Rules and Regulations adopted
hereunder and the use and occupation of the demised premises by the Tenant
under this Lease shall all be governed by the laws of the Province of Alberta.
Should any provision of this Lease and/or its conditions be illegal or not
enforceable under the laws of the Province of Alberta, it or they shall be
<PAGE> 30
-29-
severable and this Lease and its conditions shall remain in full force and be
binding upon the Parties as though such unenforceable provision or provisions
had never been included.
4.14 OVER-HOLDING: Upon the expiration or other termination of the term of
this Lease, the Tenant shall quit and surrender the demised premises in good
order and condition, ordinary wear and tear excepted, and shall remove all its
property therefrom, except as otherwise provided in this Lease. If the Tenant
shall continue to occupy the demised premises after the expiration of the term
without any further written agreement, or in the absence of such an agreement,
without objection by the Landlord, the Tenant shall be a monthly tenant at the
rate and on the terms herein contained, except as to length of tenancy.
4.15 TIME OF THE ESSENCE: Time is of the essence of this Lease.
4.16 ENUREMENT: This Lease and terms and provisions hereof shall enure to
the benefit of and be binding upon the Parties hereto and their respective
permitted successors and assigns.
<PAGE> 31
5.00 ACCEPTANCE: The Tenant hereby accepts this Lease of the above-described
lands and premises to held by it as Tenant, and subject to the conditions,
restrictions and covenants above set forth.
IN WITNESS WHEREOF the Parties hereto have executed this Lease as of the
day and year first above written.
MALHOTRA ENTERPRISES LTD.
Per: /s/ [ILLEGIBLE]
-----------------------------------
PRESIDENT
Per:
-----------------------------------
CANADIAN AIR DRILLING SERVICES LTD.
Per: /s/ [ILLEGIBLE]
-----------------------------------
PRESIDENT
Per:
-----------------------------------
<PAGE> 32
MALHOTRA ENTERPRISES LTD.
Suite 710 - 633 - 6th Avenue S. W.
Calgary, Alberta T2P 2Y5
Canadian Air Drilling Services Ltd.
1703 - 8th Street
Nisku, Alberta
T9E 7S8
Dear Sirs:
Re: Agreement to Amend Lease and to Pay
Increased Rent - dated June 15th, 1996
Premises -- 1703 - 8th Street, NISKU, Alta.
TAKE NOTICE THAT all additions and alterations agreed to be made
pursuant to the captioned Agreement have now been completed; and
FURTHER TAKE NOTICE THAT the "Completion Date" has now been established
as October 1st, 1996; and
FURTHER TAKE NOTICE THAT commencing October 1st, 1996 and for the
balance of the term, the monthly rental shall be in the amount of EIGHT
THOUSAND FOUR HUNDRED AND SEVENTY DOLLARS and THIRTY-SIX CENTS ($8,470.36).
DATED at the City of Calgary, in the Province of Alberta this 30th day
of SEPTEMBER 1996.
MALHOTRA ENTERPRISES LTD.
Per: /s/ CHAMAN MALHOTRA
-------------------------------
Notice of the foregoing is hereby acknowledged and accepted as of this
30th day of SEPTEMBER 1996.
/s/ TOMMY RAMSEY
-----------------------------------
CANADIAN AIR DRILLING SERVICES LTD.
<PAGE> 33
AGREEMENT TO AMEND LEASE AND TO PAY INCREASED
RENT BY REASON OF ALTERATIONS TO DEMISED PREMISES
THIS INDENTURE, made as of the 15th day of June, 1996.
BETWEEN:
CANADIAN AIR DRILLING SERVICES LTD.,
a body corporate, having an office in the
Town of Nisku, in the Province of Alberta
(hereinafter referred to as the "Tenant")
OF THE FIRST PART
- and -
MALHOTRA ENTERPRISES LTD., a body
corporate, having an office in the
City of Calgary, in the Province of
Alberta
(hereinafter referred to as the "Landlord")
OF THE SECOND PART
WHEREAS, by Indenture of Lease (hereinafter referred to as the "Lease")
dated as of the 18th day of May, A.D. 1995, made between the Landlord, of the
one part, and the Tenant, of the other part, the demised premises described
therein were leased to the Tenant for the term of Five (5) years Four (4)
months at the yearly rent of SEVENTY THOUSAND, EIGHT HUNDRED AND EIGHTY-EIGHT
DOLLARS and THIRTY-TWO CENTS ($70,888.32), payable monthly in advance in equal
payments of FIVE THOUSAND, NINE HUNDRED and SEVEN DOLLARS and THIRTY-SIX CENTS
($5,907.36) each on the first (1st) day of each month during the term thereof;
AND, WHEREAS, the Tenant has requested the Landlord to make certain
additions and alterations to the buildings on the demised premises;
<PAGE> 34
- 2 -
AND, WHEREAS, the Landlord has agreed to make the aforesaid additions
and alterations all on the terms and conditions hereafter provided for;
NOW THEREFORE THIS AGREEMENT WITNESSETH that, in consideration of the
mutual agreements and covenants herein contained, the adequacy of which each of
the Parties hereto admits, the Parties covenant and agree as follows:
ADDITIONS AND ALTERATIONS:
The Landlord hereby covenants with the Tenant to make the several
additions and alterations specified in Schedule "A" attached hereto and forming
part hereof (hereinafter referred to as the "additions and alterations"), which
additions and alterations are in conformity with the plans and specifications
already approved by the Landlord and Tenant, and which are estimated to be
completed on or before the 30th day of SEPTEMBER, 1996 IT BEING UNDERSTOOD AND
AGREED that the date of completion shall be the 1st day of the month following
the month notice is served on the Tenant by the Landlord certifying completion
of the additions and alterations (hereinafter called the "Completion Date").
AMENDMENTS TO THE LEASE:
(a) Amendment to Amount of Rent:
In consideration of the making of the additions and alterations the
Tenant hereby covenants with the Landlord to pay to it from and after the
Completion Date, during the residue of the term and
<PAGE> 35
- 3 -
extended term of the Lease (as hereafter extended) the yearly rent
of ONE HUNDRED THOUSAND EIGHT HUNDRED AND EIGHT-EIGHT DOLLARS AND
THIRTY-TWO CENTS ($100,888.32) (hereinafter called the "New Rent")
in equal payments of EIGHT THOUSAND AND FOUR HUNDRED AND SEVENTY
DOLLARS AND THIRTY-SIX CENTS ($8,470.36) each, upon the days
appointed for payment of rent by the Lease, such payments to
commence on the Completion Date.
(b) Amendment to Extend Term:
In consideration of the foregoing the Parties agree that upon
determination of the Completion Date, the Term of the Lease will be extended to
December 31st, 2005 (herein called the "extended term").
(c) Definition of "demised premises":
The term "demised premises" as used in the Lease shall as of the
Completion Date be deemed to include the additions and alterations.
TERMS OF LEASE TO APPLY:
Upon determination of the Completion Date the covenants and stipulations in
the Lease, as amended hereby and stipulations in the Lease, as amended hereby
and applicable to the demised premises, shall continue to be applicable to and
enforceable in respect of the demised premises as altered and shall extend and
apply to all additions and alterations made thereto and the Tenant hereby
declares that the
<PAGE> 36
- 4 -
during the extended term, stand charged with the payment to the Landlord
of the New Rent at the times and in the manner appointed for payment
thereof.
LEASE ENFORCEABLE AS AMENDED:
The Lease, as amended hereby, shall be enforceable respectively
between the Parties hereto in the same manner and to the extent originally
intended prior to the herein provided amendments thereof.
NOTICES:
All notices and other communications given in connection with this
Agreement shall be in writing and may be given by delivering them or mailing
them by registered mail or sending them by facsimile or other similar forms of
communication to the Parties at the following addresses:
LANDLORD: MALHOTRA ENTERPRISES LTD.
Suite 140
635 - 6th Avenue S. W.
Calgary, Alberta
T2P OT5
TENANT: Canadian Air Drilling Services Ltd.
1703 - 8th Street
Nisku, Alberta
T9E 2S8
Any notice, direction or instrument shall:
<PAGE> 37
- 5 -
(i) if delivered, be deemed to have been given or made at time of
delivery;
(ii) if mailed by registered mail and properly addressed, be deemed
to have been given or made on the 4th day following the day on
which it was mailed;
(iii) if sent by facsimile or other similar form of communication, be
deemed to have been given or made on the first Business Day
following the day on which it was sent.
Any Party may give written notice of change of address in the same
manner described in this section, in which event, subsequent notices and other
communications shall be given to the Party at the changed address.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the
day and year first above written.
CANADIAN AIR DRILLING SERVICES LTD.
Per: /s/ [ILLEGIBLE]
------------------------------
President
MALHOTRA ENTERPRISES LTD.
Per: /s/ [ILLEGIBLE]
-----------------------------
Treasurer
<PAGE> 1
EXHIBIT 10.18
INDUSTRIAL LEASE
THIS INDUSTRIAL LEASE, made and entered into this 3 day of July, 1996,
is by and between MELODI LANE INVESTMENTS, LLC, a Wyoming limited liability
company ("Landlord"), and AIR DRILLING SERVICES, INC., a Wyoming corporation
("Tenant").
For and in consideration of the covenants and agreements herein
contained, Landlord and Tenant hereby agree as follows:
BASIC LEASE PROVISIONS
1. In addition to those terms defined elsewhere in this lease,
the following terms shall have the following meaning when used in this lease:
(a) PREMISES: The land located in Natrona County,
Wyoming and more fully described on Exhibit A and the Building, building
walkways, driveways, parking areas and greenbelts, if any, located on such
land.
(b) BUILDING: That portion of the Premises identified on
the site plan attached hereto as Exhibit B.
(c) EQUIPMENT: All equipment and machinery owned by
Landlord, located at the Premises and utilized in the operation of the
warehousing plant located at the Premises.
(d) LEASED PROPERTY: The Premises, Building and the
Equipment.
(e) TERM: Five years, beginning on July 1, 1996 (the
"Commencement Date"), and ending on June 30, 2001 (the "Expiration Date"),
unless sooner terminated as herein provided.
(f) PERMITTED USE: Operation of a plant and warehouse.
(g) BASE RENT: $4,250.00
(h) TENANT'S ADDRESS: 2122 Melodi Lane
Casper, Wyoming, 82601
(i) LANDLORD'S ADDRESS: Two Midtown Plaza, Suite 1990
1360 Peachtree Street, N.E.
Atlanta, GA 30309
<PAGE> 2
In the event of any conflict between this Section 1 and the balance of
this lease (including exhibits and riders), the latter shall control.
DEMISE OF PREMISES; TERM
2. Subject to and upon the terms, provisions and conditions
hereinafter set forth. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, for the Term, the Premises.
USE
3. Tenant shall use and occupy the Premises for the Permitted Use
and for no other purpose. Without limiting the generality of the foregoing,
the Premises shall not be used for any activity or in any manner which is
unlawful, immoral or disreputable. Tenant shall use the Premises in a careful,
safe and proper manner. Tenant shall not commit waste nor suffer or permit
waste to be permitted in, on or about the Premises. Tenant shall conduct its
business and control its employees, agents, invitees and visitors in such
manner as not to create any nuisance.
RENT
4. Tenant shall pay Landlord monthly, as rent for the Premises,
the Base Rent, in advance, on the Commencement Date and on the first day of
each succeeding calendar month during the Term. Base Rent due hereunder shall
be apportioned for any fraction of a calendar month at the beginning and end of
the Term. Tenant shall pay those charges on account of Taxes, Insurance Costs
and Operating Expenses determined as set forth in Section 5, and such other
sums as are required by the terms of this lease to be paid by Tenant. Any such
charges or sums shall be deemed to be additional rent and Landlord shall have
all rights of Landlord against Tenant for default in payment thereof as in the
case of arrears of Base Rent. All Base Rent and additional rent shall be paid
without notice (except as provided in Section 5 with respect to Taxes,
Insurance and Operating Expenses charges), demand, setoff or deduction, in
lawful money of the United States of America, at Landlord's Address or at such
other place or to such other person as Landlord may from time to time designate
in writing. Base Rent and additional rent are sometimes referred to in this
lease collectively as "Rent."
REAL ESTATE TAXES, INSURANCE COSTS AND
OPERATING EXPENSES
5. (a) Real Estate Taxes
(i) Payments by Tenant. Tenant shall pay all
Taxes on the Leased Property during the Term beginning with Taxes for the tax
year during which the Term commences.
<PAGE> 3
(ii) Definition of "Taxes". As used herein, the
term "Taxes" shall mean real property taxes and assessments, general and
special, and any levy or tax (other than franchise, inheritance, personal
income or estate taxes) imposed on the Premises by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Landlord in the Premises. The term "real property tax" shall also include
any tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charges hereinabove included within
the definition of "Taxes" or (ii) which is imposed by a governmental agency.
(b) Insurance Costs. Tenant shall pay the cost of the
premiums for the policy of all-risk insurance covering the Leased Property
required by Section 16. Such costs are hereinafter referred to as the
"Insurance Costs."
(c) Operating Expenses.
(i) Tenant shall pay all Operating Expenses
related to the Leased Property. As used herein, "Operating Expenses" shall
mean any and all costs, charges, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay because of or in
connection with the operation, maintenance and repair of the Leased Property,
excluding Taxes and Insurance Costs, including, but not limited to, the cost or
charges for the following items: the cost of maintenance, repair and
replacement of the Leased Property and building systems including any heating,
air conditioning, plumbing, mechanical, electrical or other Systems serving
both the Premises and other occupied spaces; lighting, walkways, driveways,
parking areas and greenbelts, if any; landscaping services, security services
(if any), window cleaning, building supplies, equipment and tools (or rental
charges therefor if the same are rented), service agreements on equipment, the
cost of compliance with any fire safety or other governmental rule or
regulation imposed upon Landlord with respect to the Premises; and costs of
making any capital improvements to tee Premises after the Commencement Date
required to conform to changes after such date in all applicable laws,
ordinances and rules, regulations and orders of any governmental authority
having jurisdiction over the Premises.
(d) Tenant shall pay before delinquency any and all taxes
(including personal property taxes), assessments, license taxes, fees and other
charges levied, assessed or imposed and which become payable during the Lease
Term upon Tenant's operations at, occupancy of or conduct of business at the
Premises or upon the Equipment or Tenant's leasehold improvements, equipment,
furniture, appliances, trade fixtures and any other personal property of any
kind installed or located at the Premises.
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QUIET ENJOYMENT
6. Landlord covenants and agrees with Tenant that upon Tenant
paying the Base Rent and additional rent hereunder and observing and performing
all the terms, covenants and conditions of this lease on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Premises
subject, nevertheless, to the terms and conditions of this lease.
ACCEPTANCE CF PREMISES
7. Landlord shall have no obligation whatsoever to alter,
improve, remodel, redecorate or renovate the Premises for occupancy by Tenant
or to alter, improve, replace or renovate the Equipment. Taking possession of
the Premises by Tenant shall conclusively establish against Tenant that the
Premises, the Equipment and the Building were in good and satisfactory order,
condition and repair when possession was taken.
BUILDING UTILITIES AND SERVICES
8. (a) Tenant shall be solely responsible for obtaining all
utility and other service needed by Tenant and Landlord shall not furnish any
services to Tenant. The Tenant at its sole expense, shall have the right
during the Term hereof to construct, install and maintain all necessary tap
lines and facilities and to connect same to water supply and sewage lines.
(b) Tenant shall pay when due for all utilities and
services, including all water, sewer, electric current, heat and telephone,
supplied to the Premises, together with any taxes thereon.
(c) Landlord shall not be liable to Tenant or any other
person, for direct or consequential damage, or otherwise, for any suspension,
curtailment or interruption of any utility or service to the Premises,
including, but not limited to, heating, air conditioning, electric current,
natural gas, water, sewerage or other utility or service. Landlord reserves
the right temporarily to discontinue such services, or any of them, at such
times as may be necessary by reason of accident, unavailability of employees,
repairs, alterations or improvements, strikes, lockouts, riots, acts of God,
governmental preemption in connection with a national or local emergency, any
rule, order or regulation of any governmental agency, conditions of supply and
demand, Landlord's compliance with any governmental energy conservation or
environmental protection program or any other happening beyond the control of
Landlord. Landlord shall not be liable for damages to person or property or
for injury to, or interruption of, business for any discontinuance permitted
under this Section 8, nor shall such discontinuance in any way be construed as
an eviction of tenant or cause an abatement of rent or operate to release tenant
from any of Tenant's obligations hereunder. Landlord shall restore all services
as soon as possible after any such discontinuance.
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(d) Landlord, at Tenant's sole cost and expense, shall
grant in recordable form such easements over and in the Leased Property to any
public utility company, semi-public utility company or appropriate municipal
authority for installing and maintaining utilities solely to the Leased
Property as Tenant may reasonably request.
ACCESS TO PREMISES
9. Landlord, its agents and employees shall have the right to
enter the Premises at all reasonable times (and at all times in case of
emergency) to examine the Leased Property, to show the Leased Property to
interested parties such as prospective mortgagees, tenants or purchasers, to
post notices of nonliability regarding claims of persons furnishing labor or
materials, in cases of emergency, to install, maintain, use, repair and replace
utility lines, pipes, ducts, conduits, wires and the like in and through the
Premises, and to make and perform such cleaning, maintenance, repairs,
alterations, improvements, additions and adjustments to the Premises or to any
other portion of the Building or to Building equipment and systems as Landlord
may deem necessary or desirable, and may for such purposes bring and keep upon
the Premises all necessary materials, supplies and equipment, and may erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, without the same constituting an
eviction of Tenant in whole or in part or entitling Tenant to any abatement of
Rent or damages, by reason of loss or interruption of business, or otherwise,
nor shall the same affect Tenant's obligations under this lease in any manner
whatsoever. If Tenant shall not be present to open the Premises for any such
entry, Landlord may gain entry by use of a master key or card, and in an
emergency by any means (including breaking any doors or windows), without
rendering Landlord, its agents or employees liable therefor. In exercising its
rights under this Section 9, Landlord shall use its best efforts to minimize
interference with Tenant's use and enjoyment of the Premises.
ALTERATIONS BY TENANT
10. Tenant shall not make alterations, installments, additions or
improvements in or to the Leased Property including, without limitation, any
roof penetrations or exterior modifications, without Landlord's prior written
consent, which shall not be unreasonably withheld. Tenant understands and
agrees that Landlord's consent will be conditioned upon, among other things,
Landlord's approval of plans, specifications, contractors, insurance and hours
of construction and Landlord's receipt of satisfactory mechanics' lien waivers
duly executed by Tenant's contractors and suppliers. Tenant shall, if required
by Landlord, obtain at Tenant's expense a completion and lien indemnity bond
for such work, in form and substance satisfactory to Landlord. All
alterations, etc., including all paneling, partitions and the like, shall,
unless otherwise agreed in writing at the time Landlord's consent is obtained
or unless Landlord requests removal thereof as provided in Section 20, become
the property of Landlord, and shall remain upon, and be surrendered with the
leased property, as a part thereof, at the end of the Term.
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<PAGE> 6
MAINTENANCE AND REPAIRS
11. (a) Tenant, at its own expense, shall maintain in good
order and condition the roof, foundation and structural soundness of the
exterior walls of the Building, the walkways, driveways, parking areas and
greenbelts, if any, of the Building, and any heating, air conditioning,
plumbing, mechanical, electrical or other systems serving the Leased Property.
Landlord shall have no obligation whatsoever for any maintenance or repairs.
Tenant shall not be entitled to any allowance, abatement, compensation or
damages from Landlord, for diminution of rental value or for loss or
interruption of business, or otherwise, arising from Landlord, Tenant or others
making any repairs, restorations, replacements, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof. If Tenant fails to do so,
Landlord may, at its option, do so and Tenant shall pay Landlord promptly upon
billing, for all costs incurred plus 15% thereof for overhead.
(b) Tenant, at its own expense, shall also maintain the
Leased Property and every part thereof in good order and condition including,
without limitation, all windows (interior and exterior), window frames, window
coverings, plate glass and glazing, truck doors, all systems exclusively
serving the Premises, including, without limitation, plumbing systems (such as
water and drain lines, sinks, toilets, faucets, drains, showers and water
fountains), electrical systems (such as panels, conduits, outlets, lighting
fixtures, lamps, bulbs, tubes and ballasts), and heating and air conditioning
systems (such as compressors, fans, air handlers, ducts, mixing boxes,
thermostats, timeclocks, boilers, heaters, supply and return grills), and all
interior improvements within the Leased Property including, without limitation,
walls and partitions, wall coverings, floors, carpet, floor coverings,
ceilings, doors (both interior and exterior), including closing mechanisms,
latches, locks, skylights (if any), automatic fire extinguishing systems, and
all other interior improvements of any nature whatsoever, performing and making
all maintenance, repairs, replacements and restorations (whether ordinary or
extraordinary) as and when necessary to maintain such good order and condition,
including painting, repainting and cleaning and replacement of areas or items
that become worn, including, without limitation, wall, floor and window
coverings. If Tenant fails to do so, Landlord may, at its option, do so, and
Tenant shall pay Landlord, promptly upon billing, for all costs incurred.
MECHANICS' LIENS
12. Tenant shall pay or cause to be paid all costs and charges for
work done by it or caused to be done by it in or to the Leased Property and for
all materials furnished for or in connection with such work. Tenant hereby
indemnifies and agrees to hold Landlord, and the Leased Property free, clear
and harmless of and from all mechanics' liens and claims for liens, and all
other liabilities, liens, claims and demands on account of such work. If any
such lien shall at any time be filed against the Premises, the Equipment, or
the Building, Tenant shall cause such lien to be discharged of record within 20
days after the filing of such lien, whether by payment, posting of a statutory
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<PAGE> 7
surety bond with the appropriate court or otherwise. If a final judgment
establishing the validity or existence of a lien for any amount is entered,
Tenant shall pay and satisfy the same at once. If Tenant shall fail to pay any
charge for which a mechanics' lien has been filed, and such lien shall not have
been discharged of record as described above, Landlord shall have, in addition
to all other remedies provided herein and by law, the right, but not the
obligation, to pay such charge and related costs and interest, or obtain a
statutory surety bond, and the amount so paid, together with Landlord's
expenses and reasonable attorneys' fees incurred in connection therewith, shall
be immediately due from Tenant to Landlord, with interest. Nothing contained
in this lease shall be deemed the consent or agreement of Landlord to subject
Landlord's interest in the Premises, the Equipment, or the Building to
liability under any mechanics' or other lien law. At least 20 days prior to
the commencement of any work (including, but not limited to, any maintenance,
repairs, alterations, additions, improvements or installations) in or to the
Leased Property, by or for Tenant, Tenant shall give Landlord written notice of
the proposed work and the names and addresses of the persons supplying labor
and materials for the proposed work.
FIRE OR OTHER CASUALTY
13. If the Premises or the Building are damaged by fire or other
casualty Landlord shall, unless this lease is terminated as provided below,
proceed with reasonable diligence to repair the damage. There shall be no
abatement of rent, whether or not such damage renders all or part of the
Premises untenantable. In no event shall Landlord be required to make any
repairs to or replacements of the Equipment or of any of Tenant's furniture,
furnishings, fixtures, equipment and other personal property. Landlord may, at
its option, terminate this lease, by written notice to Tenant given within 60
days after any fire or other casualty, if the damage to the Premises or the
Building (whether or not the Premises are affected) shall be so great that: (i)
repairs of such damage cannot, in Landlord's determination, be made within 90
days after the occurrence of such damage, without the payment of overtime or
other premiums, or (ii) Landlord decides to demolish the Building, or if
insurance proceeds equal to 95% or more of the cost of repair or reconstruction
are not available to Landlord. In such event, Tenant shall surrender the
Premises to Landlord and pay all Rent due through the date of termination.
EMINENT DOMAIN
14. (a) If all or any part of the Premises shall be taken by
any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this lease shall terminate as to the portion of the
Premises so taken or conveyed on the date when title vests in the condemning
authority, and Landlord shall be entitled to any and all payment, income, rent,
award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired term of this
lease. Notwithstanding the foregoing sentence, any compensation specifically
and
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<PAGE> 8
separately awarded Tenant for loss of business, Tenant's personal property,
moving cost or loss of goodwill shall be and remain the property of Tenant.
(b) If (i) any action or proceeding is commenced for such
taking of the Premises or any part thereof, or if Landlord is advised in
writing by any entity or body having the right or power of condemnation of its
intention to condemn the Premises or any portion thereof, or (ii) any of the
foregoing events occur with respect to the taking of any space in the Building
other than the Premises, or if any such space is so taken or is conveyed in
lieu of such taking, and Landlord shall decide to demolish or rebuild the
Building, then, in any of such events Landlord shall have the right to
terminate this lease by giving Tenant written notice thereof within 60 days
after Landlord's receipt of such written advice, or commencement of such action
or proceeding, or taking or conveyance, which termination shall be effective as
of the first to occur of the last day of the calendar month next following the
month in which such notice is given or the date on which title to the Premises
or other part of the Building shall vest in the condemning authority.
(c) In the event of a partial taking or conveyance of the
Premises, if the portion of the Premises taken or conveyed is so substantial
that Tenant can no longer reasonably conduct its business, Tenant shall have
the privilege of terminating this lease within 30 days after the date of such
taking or conveyance, upon written notice to Landlord, and upon the giving of
such notice this lease shall terminate on the last day of the calendar month
next following the month in which such notice is given, upon payment by Tenant
of the Rent from the date of such taking or conveyance to the date of
termination. If a portion of the Premises is taken or conveyed in lieu thereof
and neither Landlord nor Tenant terminates this lease as provided above, this
lease shall continue in full force and effect as to the part of the Premises
not taken or conveyed, and Base Rent shall abate proportionately, from the date
of such taking or conveyance, in the ratio that the area of the Premises taken
or conveyed bears to the total area of the Premises prior to such taking or
conveyance.
ASSIGNMENT AND SUBLETTING
15. (a) Except as otherwise provided in this Lease, Tenant
shall not voluntarily, by operation of law or otherwise, assign, encumber or
otherwise transfer this lease or any interest herein or sublet all or any part
of the Premises or the Equipment, or suffer or permit the Premises or any part
thereof or the Equipment to be occupied or used by others (any and all of which
hereinafter shall be referred to as a "Transfer"), without the prior written
consent of Landlord in each instance. Landlord may withhold such consent in
its sole and absolute discretion. Any Transfer without Landlord's prior
written consent shall constitute a default hereunder and shall be void and
shall confer no rights upon any third person. Without limiting the generality
of the foregoing, if Tenant is not a natural person, any change in the parties
in control of Tenant on the date hereof, whether by sale of stock or other
ownership interests, or otherwise, and any merger, dissolution, consolidation
or other reorganization of Tenant, shall be deemed a Transfer.
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<PAGE> 9
(b) Tenant shall make a written request to Landlord for
consent to each Transfer Tenant desires to make and shall submit in writing to
Landlord (and Landlord shall be under no obligation to consider such request
until it receives): (i) the name of the proposed assignee, subtenant or other
transferee; (ii) a copy of the proposed assignment, sublease or other transfer
documents (which shall include a copy of this lease as an exhibit thereto,
together with the transferee's acknowledgment that it has received and read a
copy of this lease); (iii) a description of the nature of any proposed
assignee's, subtenant's or other transferee's business to be conducted in the
Premises; and (iv) such financial and other information concerning the proposed
assignee, subtenant or other transferee as Landlord may reasonably request.
(c) Every assignment of this lease to which Landlord
consents shall be by an instrument in writing pursuant to which the assignee
expressly agrees for the benefit of Landlord to assume, perform and observe all
of Tenant's obligations under this lease. Tenant shall reimburse Landlord for
Landlord's expenses and attorney's fees incurred in connection with the review
and documentation of any Transfer for which Landlord's consent is requested,
whether or not Landlord's consent is granted.
(d) If any Transfer shall occur, with or without
Landlord's prior consent, Landlord may, after default by Tenant, collect rent
from the assignee, subtenant or other transferee, and apply the net amount
collected to the Rent herein reserved. No collection by Landlord of any sum
directly from any assignee, subtenant or other Transferee shall be deemed a
waiver of this Section 15 or the acceptance of the assignee, subtenant or other
transferee as the tenant hereof, or a release of Tenant from continuing
liability to perform this lease. The consent by Landlord to a Transfer shall
not relieve Tenant from primary liability hereunder (which shall be joint and
several with any assignees, subtenants and other transferees) or from the
obligation to obtain the express consent in writing of Landlord to any further
Transfer. In no event shall Landlord's enforcement of any provision of this
lease against any transferee be deemed a waiver of Landlord's right to enforce
any provision of this lease against Tenant or any other person.
INSURANCE
16. (a) At all times during the Term, Tenant shall carry, at
Tenant's expense, with insurance companies and on forms satisfactory to
Landlord: (i) Comprehensive general liability insurance with a combined single
limit for bodily injury and property damages of not less than $500,000.00 or
such higher limit as Landlord shall reasonably require from time to time,
including contractual liability insurance covering the insuring provisions of
this lease and the performance by Tenant of the indemnity agreements set forth
in this lease; and (ii) "All risk" insurance (including sprinkler leakage, if
applicable) covering the Building in an amount equal to full replacement value
and the Equipment and all leasehold improvements, equipment, fixtures,
inventory, appliances, furniture, furnishings and personal property from time
to time installed or placed in, on or upon the Premises by or for Tenant, in an
amount not
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<PAGE> 10
less than the full replacement cost without deduction for depreciation; and
(iii) worker's compensation insurance and any other employee benefit insurance
sufficient to comply with all laws; (iv) business interruption insurance in
such amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to fire and all other perils commonly insured against by prudent
tenants of manufacturing facilities for a period of interruption of not less
than 12 months. Any policy proceeds from the insurance described in clause
(ii) above shall be used for the repair or replacement of the property damaged
or destroyed unless this lease is terminated pursuant to Section 13. The
policies providing the insurance described in clauses (i) and (ii) above shall
name Landlord and such others as Landlord specifies from time to time as
additional insureds as their interests may appear. Certificates of insurance
evidencing all insurance required by this lease or, at Landlord's request,
certified copies of the policies, shall be delivered to Landlord prior to
Tenant's occupancy of the Premises and thereafter at least 15 days prior to the
expiration of each such policy. Such insurance shall provide that Landlord and
any other additional insured, although named as an insured, shall nevertheless
be entitled to recover under such policies for any loss occasioned to it, its
agents and employees notwithstanding the acts or omissions of Tenant. All such
policies shall provide that they may not be terminated or amended except after
30 days' written notice thereof to Landlord and all other additional insureds.
All such insurance shall be written as primary policies, not contributing with
and not in excess of coverage that Landlord may carry.
(b) Tenant shall cause its respective insurers to issue
appropriate waiver of subrogation rights endorsements to all policies of
insurance carried in connection with the Building or the Premises or the
contents thereof or the Equipment. Tenant agrees to cause all occupants of the
Premises claiming under or through Tenant to execute and deliver to Landlord a
waiver of claims as stated above and to obtain waiver of subrogation rights
endorsements as stated above.
INDEMNITY
17. Tenant shall neither hold nor attempt to hold Landlord, its
employees or agents liable for and Tenant shall indemnify and hold harmless
Landlord, its employees and agents from and against any and all demands,
claims, causes of action, fines, penalties, damages, liabilities, judgments,
and expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with or arising from: (i) any acts, omissions or
negligence of Tenant, its agents, employees, contractors, subtenants, invitees
or visitors or any violation or non-performance of any law, ordinance or
governmental requirement of any kind or of any provision of this lease by any
of such persons; or (ii) any injury or damage to the person, property or
business of Tenant, its agents, employees, contractors, invitees, visitors or
any other person entering upon the Premises or the Building under express or
implied invitation of Tenant, where the injury or damage is caused by any
reason other than solely by the negligence of Landlord.
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COMPLIANCE WITH LAWS
AND INSURANCE REQUIREMENTS
18. Tenant shall not use or occupy, or permit any portion of the
Premises or the Equipment to be used or occupied, in violation of any law,
ordinance, order, rule, regulation, certificate of occupancy, or other
governmental requirement or for any activity or in any manner deemed to be
hazardous on account of fire or other hazards, or that would in any way
violate, suspend, void, or increase the rate of fire, liability or any other
insurance of any kind at any time carried by Landlord. Any increase in the
cost of such insurance attributable to Tenant's activities, property or
improvements in the Premises or Tenant's failure to perform and observe its
obligations under this lease shall be payable by Tenant to Landlord, from time
to time, on demand. Tenant, at its own expense, shall promptly comply with all
laws, ordinances, orders, rules, regulations and other governmental
requirements now or hereafter in effect relating to the use, condition or
occupancy of the Premises, and all applicable protective covenants and all
rules, orders, regulations and requirements of the board of fire underwriters,
or any other similar body, having jurisdiction over the Building. The judgment
of any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any such law, ordinance, order, rule, regulation or other requirement,
shall be conclusive of that fact as between Landlord and Tenant. This Section
18 shall not be interpreted as requiring Tenant to make structural changes or
improvements, except to the extent such changes or improvements are required as
a result of Tenant's use of the Premises or the condition or configuration of
the Premises caused or requested by Tenant or any improvements in or to the
Premises made by or at the request of Tenant. Tenant shall, at its own
expense, comply with any and all requirements pertaining to the Premises or the
Equipment, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises or the Equipment.
PARKING
19. Landlord shall not be required to provide parking facilities
for Tenant in the event, and to the extent, provision, operation or use of
parking facilities is limited, prevented or prohibited by any governmental
authority exercising jurisdiction, or by reason of damage, destruction, repair,
alteration or any cause beyond Landlord's control. Any such failure or
inability of Landlord to provide parking facilities for Tenant and any
unavailability of parking spaces shall not subject Landlord to any liability to
Tenant whatsoever, nor shall the same entitle Tenant to any elimination or
abatement of any rent or be construed or deemed to be an eviction of Tenant or
operate to release Tenant from any of Tenant's obligations under this lease.
END OF TERM
20. Before the expiration or other termination of the Term, Tenant
shall promptly and peaceably quit and surrender to Landlord the Equipment, in
good order
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<PAGE> 12
and working condition, ordinary wear and tear since the date of the last
required repair excepted, and the Premises, broom-clean, in good order and
condition, ordinary wear and tear since the date of the last required repair
excepted, with all interior walls repaired and replaced, if damaged; all floors
cleaned; all carpets cleaned and shampooed; all broken, marred or nonconforming
acoustical ceiling tiles replaced; all windows washed; the air conditioning and
heating systems in good operating condition and repair; and the plumbing and
electrical systems and lighting in good order and repair, including replacement
of any burned out or broken light bulbs or ballasts. If Tenant is not then in
default hereunder, Tenant may remove from the Premises any trade fixtures and
movable equipment (but not including the Equipment) and furniture placed
therein by Tenant. Whether or not Tenant is in default hereunder, Tenant
shall, at Tenant's expense, remove from the Premises before the expiration of
the Term (or promptly following any sooner termination of the Term) such
alterations, additions, improvements, trade fixtures, equipment and furniture
as Landlord shall require and restore the Premises to their condition prior to
the installation of such item(s). All trade fixtures, equipment, furniture,
inventory and effects not so removed shall conclusively be deemed to have been
abandoned and may be appropriated, sold, stored, destroyed, or otherwise
disposed of by Landlord without notice to Tenant or any other person and
without obligation to pay or account therefor; and Tenant shall pay Landlord
all expenses incurred in connection with such property, including, but not
limited to, the cost of removing such property and repairing any damage to the
Building or Premises caused by removal of such property. Tenant's obligation
to observe and perform the provisions of this Section 20 shall survive the
expiration or other termination of this lease.
HOLDOVER
21. If Tenant or anyone claiming under Tenant shall remain or
continue to be in possession of the Premises or any part thereof after the end
of the Term without the express written consent of Landlord, Tenant shall be
deemed to be illegally retaining possession and shall pay Landlord monthly for
the entire holdover period, as liquidated damages for loss of use of the
Premises, an amount equal to 200% of the monthly Base Rent payable immediately
prior to the end of the Term, plus all Taxes, Insurance and Operating Expenses.
No such holding over and no acceptance by Landlord of payments of liquidated
damages as provided in this Section 21 shall be construed to extend this lease
or to constitute Tenant a tenant of the Premises on any basis whatsoever. In
the event of any unauthorized holding over, Tenant shall also indemnify
Landlord against all loss or liability resulting from such holding over,
including, without limitation, any claims by any succeeding tenant founded on
such delay. Any holding over with the express written consent of Landlord
shall thereafter constitute this lease a tenancy from month-to-month on all of
the terms and conditions of this lease reasonably applicable to a
month-to-month tenancy, except that, unless otherwise agreed in writing by
Landlord and Tenant, the monthly Base Rent for the Premises shall be an amount
equal to 125% of the monthly Base Rent payable immediately prior to end of the
Term.
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SUBORDINATION AND ATTORNMENT
22. This lease is and shall be subject and subordinate to all
mortgages, deeds of trust or other encumbrances, and any and all renewals,
extensions, modifications, consolidations and replacements thereof, now or
hereafter affecting all or any portion of the Building (except to the extent
any such instrument shall expressly provide that this lease is superior
thereto); provided, however, such subordination shall not be effective unless
and until the mortgagee, trustee or beneficiary shall execute and deliver to
Tenant a non-disturbance agreement pursuant to which such mortgagee, trustee or
beneficiary agrees that Tenant's possession of the Premises and rights and
privileges under this lease shall not be disturbed on account of any
foreclosure or conveyance in lien of foreclosure, if Tenant is not in default
under this lease and so long as Tenant shall pay all Rent and observe and
perform all of the provisions set forth in this lease. This clause shall be
self-operative and no further instrument of subordination shall be required in
order to effectuate it. Nevertheless, Tenant shall execute and deliver
promptly any certificate or other assurance in confirmation of such
subordination requested by any mortgagee, beneficiary under a deed of trust or
by Landlord. Tenant hereby irrevocably appoints Landlord, its successors and
assigns as Tenant's attorney-in-fact to execute and deliver any such
certificates and other assurances for and on behalf of Tenant, if Tenant fails
to do so as provided above. In the event any proceedings are brought for the
foreclosure of any mortgage, deed of trust or other encumbrance to which this
lease is subject and subordinate, Tenant shall, upon request of the party
succeeding to the interest of Landlord as a result of such proceedings,
automatically attorn to and become the tenant of such successor in interest
without change in the terms of this lease. Tenant shall on request by and
without cost to Landlord or such successor in interest, execute and deliver any
instruments confirming such attornment. The lien of any mortgages shall not
cover any trade fixtures or other personal property paid for and installed in
the Leased Property by Tenant (or any persons claiming under Tenant) without
any contribution or reimbursement therefor by Landlord.
STATEMENT OF PERFORMANCE
23. Landlord or Tenant shall, from time to time, within 10 days
after the one party's request therefor, execute, acknowledge and deliver to
such party a statement in recordable form certifying that this lease is in full
force and effect, that this lease is unmodified, or if modified, stating any
such modifications, that there are no defenses or offsets to the lease by the
other party, or stating such defenses or offsets as are claimed by the other
party, that the other party is not in default hereunder or specifying any
defaults by the other party that such party alleges, and specifying the date to
which Rent has been paid, and specifying any further information about this
lease or the Premises that such party may reasonably request. Such party's
failure to deliver such certificate within such time shall be a material
default of such party and shall be conclusive upon such party that this lease
is in full force and effect without modification except as may be represented
by the other party, that there are no uncured defaults in the other party's
performance and that no more than one month's Rent has been paid in advance.
Both
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parties agree that such certificates may be relied upon by prospective
purchasers, mortgagees or lessors of the Building.
RULES AND REGULATIONS
24. The rules and regulations set forth in Exhibit C attached
hereto are hereby made a part of this lease. Landlord may from time to time
amend, modify, delete or add new and additional reasonable rules and
regulations for the use, safety, cleanliness and care of the Premises and the
Building and the comfort, quiet and convenience of occupants of the Building.
Such new or modified rules and regulations shall be effective upon notice to
Tenant from Landlord thereof. Tenant and its employees, agents, licensees and
visitors shall at all times observe faithfully, and comply strictly with, the
rules and regulations set forth in Exhibit C or as hereinafter modified by
Landlord. No provision of this lease shall be construed to impose upon
Landlord any duty or obligation to enforce the rules and regulations or terms,
covenants or conditions in any other lease, against any other tenant or person.
DEFAULT
25. The occurrence or existence of any one or more of the
following events or circumstances shall constitute a material default hereunder
by Tenant:
(a) Tenant shall fail to pay when due any Base Rent or
additional rent payable hereunder (except that the first two times such failure
occurs during each calendar year, Tenant shall not be in default unless it
fails to pay such sum within 5 days after notice of failure to pay is given by
Landlord);
(b) Tenant shall vacate or abandon the Premises;
(c) Tenant shall fail to perform or observe any other
provision of this lease to be performed or observed by Tenant and such failure
continues for 20 days after written notice thereof by Landlord to Tenant (or
for such period, if any, as may be reasonably required to cure such default if
it is of such nature that it cannot be cured within such 20-day period,
provided that Tenant commences to remedy such default within such 20-day period
and proceeds with reasonable diligence thereafter to cure such default);
(d) This lease or the Leased Property or any part thereof
shall be taken upon execution or by other process of law directed against
Tenant, or shall be taken upon or subject to any attachment at the instance of
any creditor of or claimant against Tenant, and such attachment shall not be
discharged or disposed of within 60 days after the levy thereof;
(e) Tenant shall (i) admit in writing its inability to
pay its debts generally as they become due, (ii) make an assignment of all or a
substantial part of its
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property for the benefit of creditors, (iii) apply for or consent to or
acquiesce in the appointment of a receiver, trustee or liquidator of Tenant or
of all or a substantial part of Tenant's property or of the Premises or the
Equipment or of Tenant's interest in this lease; or (iv) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization under
any bankruptcy or insolvency law or an arrangement with creditors, or take
advantage of any insolvency law or file an answer admitting the material
allegations of a petition filed against Tenant in any bankruptcy,
reorganization or insolvency proceedings; or
(f) The entry of a court order, judgment or decree
without the application, approval or consent of Tenant, approving a petition
seeking reorganization of Tenant under any bankruptcy or insolvency law or
appointing a receiver, trustee or liquidator of Tenant or of all or a
substantial part of Tenant's property or of the Premises or the Equipment or of
Tenant's interest in this lease, or adjudicating Tenant a bankrupt or
insolvent, and such order, judgment or decree shall not be vacated, set aside
or dismissed within 60 days from the date of entry.
REMEDIES
26. If Tenant shall default under this lease as set forth in
Section 26, Landlord shall have the following rights and remedies, in addition
to all other remedies at law or equity and none of the following, whether or
not exercised by Landlord, shall preclude the exercise of any other right or
remedy whether herein set forth or existing at law or equity:
(a) Landlord shall have the right to terminate this lease
by giving Tenant written notice at any time. No act by or on behalf of
Landlord, such as entry of the Premises by Landlord to perform maintenance and
repairs and efforts to relet the Premises, other than giving Tenant written
notice of termination, shall terminate this lease. If Landlord gives such
notice, this lease and the term hereof as well as the right, title and interest
of Tenant under this lease shall wholly cease and expire in the same manner and
with the same force and effect (except as to Tenant's liability) on the date
specified in such notice as if such date were the expiration date of the term
of this lease without the necessity of reentry or any other act on Landlord's
part. Upon any termination of this lease Tenant shall quit and surrender to
Landlord the Premises as set forth in Section 20. If this lease is terminated,
Tenant shall be and remain liable to Landlord for damages as hereinafter
provided and Landlord shall be entitled to recover forthwith from Tenant as
damages and amount equal to the total of: (i) all Base Rent and other sums
accrued and unpaid at the time of termination of the lease, plus interest
thereon at the rate provided in Section 26(c), and (ii) the amount of Base Rent
and all other sums that would have been payable hereunder if the lease had not
been terminated, less the net proceeds, if any, of any reletting of the
Premises, after deducting all Landlord's expenses in connection with such
reletting, including, but without limitation, all repossession costs, brokerage
commissions, tenant inducements, legal expenses, reasonable attorneys' fees,
alteration, remodeling and repair costs, expenses of
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employees, and expenses of preparation for such reletting, which damages Tenant
shall pay to Landlord on the days on which the Base Rent and other sums would
have been payable if the lease had not terminated, or, alternatively, at
Landlord's option, an amount equal to the present value (discounted at the rate
of 5% per annum) of the balance of the Base Rent and other sums payable for the
remainder of the stated term of this lease after the termination date less the
present value (discounted at the same rate) of the reasonable rental value of
the Premises for such period, plus all of Landlord's expenses incurred in
repossessing the Premises and reletting (or attempting to relet) the Premises,
including, but without limitation, the expenses enumerated above, and all other
amounts necessary to compensate Landlord fully for all damage caused by
Tenant's default. No provision(s) of this lease shall limit or prejudice the
right of Landlord to prove for and obtain as liquidated damages by reason of
any termination of this lease, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater, equal to, or less than the amount referred to above.
(b) Landlord may, without demand or notice, reenter and
take possession of the Premises or any part thereof, and repossess the same as
of Landlord's former estate and expel Tenant and those claiming through or
under Tenant, and remove the effects of any and all such persons (forcibly, if
necessary) without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of rent or preceding breach of covenants.
If Landlord elects to reenter as provided in this Section 26(b), or if Landlord
takes possession pursuant to legal proceedings or pursuant to any notice
provided for by law, Landlord may, from time to time, without terminating this
lease, relet the Premises or any part thereof for such term or terms and at
such rental or rentals, and upon such other conditions as Landlord may in its
absolute discretion deem advisable, with the right to make alterations and
repairs to the Premises. No such reentry, repossession or reletting of the
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this lease unless a written notice of termination is given to Tenant
by Landlord. No such reentry, repossession or reletting of the Premises shall
relieve Tenant of its liability and obligation under this lease, all of which
shall survive such reentry, repossession or reletting. Upon the occurrence of
such reentry or repossession, Landlord shall be entitled to the amount of the
monthly Base Rent, and all other sums, which would be payable hereunder if such
reentry or repossession had not occurred, less the net proceeds, if any, of any
reletting of the Premises after deducting all of Landlord's expenses in
connection with such reletting, including, but without limitation, the expenses
enumerated in (a) above. Tenant shall pay such amounts to Landlord on the days
on which the Base Rent and other sums due hereunder would have been payable
hereunder if possession had not been retaken. In no event shall Tenant be
entitled to receive the excess, if any, of net rent collected by Landlord as a
result of such reletting over the sums payable by Tenant to Landlord hereunder.
If this lease is terminated as a result of Landlord's actions in retaking
possession of the Premises or otherwise, Landlord shall be entitled to recover
damages from Tenant as provided in Section 26(a).
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(c) Landlord shall have the right to recover from Tenant
the rents and damages provided for above by suit or suits brought from time to
time without Landlord being required to wait until the expiration of the Term,
or if this lease is terminated, the date on which such expiration would have
occurred. If Tenant shall default in making any payment required to be made by
Tenant (other than payments of Base Rent) or shall default in performing any
other obligations of Tenant under this lease, Landlord may (provided that it has
given Tenant the notice, if any, required by Section 26), but shall not be
obligated to, make such payment or, on behalf of Tenant, expend such sum as may
be necessary to perform such obligation. All sums so expended by Landlord with
interest thereon shall be repaid by Tenant to Landlord on demand. No such
payment or expenditure by Landlord shall be deemed a waiver of Tenant's default
nor shall it affect any other remedy of Landlord by reason of such default.
Whenever Tenant shall be required to make payment to Landlord of any sum with
interest, interest shall be payable from the date such sum is due until paid, at
an interest rate equal to the annual interest rate announced publicly from time
to time by the Chemical Bank of New York City (or its successor) as its prime
rate or its base corporate borrowing rate if the same is at any time not called
the prime rate (the "Prime Rate") plus five percent per annum or at the maximum
rate permitted by law, whichever is lower. As used in this lease, the terms
"reenter," "reentry," "take possession," "repossess" and "repossession" are not
restricted to their technical legal meaning.
(d) Landlord and Tenant understand that, notwithstanding
certain provisions to the contrary contained herein, a trustee or debtor in
possession under the Bankruptcy Code of the United States may have certain
rights to assume or assign this lease. Landlord and Tenant further understand
that in any event Landlord is entitled under the Bankruptcy Code to adequate
assurances of future performance of terms and provisions of this lease. For
purposes of any such assumption or assignment, the parties hereto agree that
the term "adequate assurance" shall include at least the following:
(i) In order to assure Landlord that the proposed
assignee will have the resources with which to pay the Rent, any proposed
assignee must have demonstrated to Landlord's satisfaction a net worth (as
defined in accordance with generally accepted accounting principles
consistently applied) at least as great as the net worth of Tenant on the date
of this lease increased by five percent for each year from the effective date
of the lease through the date of the proposed assignment. The financial
condition and resources of Tenant were a material inducement to Landlord in
entering into this lease.
(ii) Any proposed assignee must have been engaged
in the Permitted Use for at least five years prior to any such proposed
assignment.
(iii) In entering into this lease, Landlord
considered extensively the Permitted Use and determined that such Permitted Use
would substantially benefit Landlord's manufacturing operations in the Building
and that were it not for Tenant's agreement to make only the Permitted Use of
the Premises, Landlord
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would not have entered into this lease. Landlord's overall operation will be
substantially impaired if the trustee in bankruptcy or any assignee of this
lease makes any use of the Premises other than the Permitted Use.
SIGNS
27. Tenant shall not install, place, inscribe, paint or otherwise
attach any sign, advertisement, poster, placard, lettering, notice, marquee or
awning (collectively, "Signs" and individually, a "Sign") on any part of the
outside of the Premises (including the outside walls and the roof) or on any
windows of the Premises or on any part of the inside of the Premises which is
visible from outside of the Premises or on any part of the Building, without
the prior written consent of Landlord in each instance which shall not be
unreasonably withheld or delayed. Any permitted Sign shall comply with the
requirements of any governmental or quasi-governmental authority having
jurisdiction over the Building and Tenant shall be solely responsible for such
compliance. All permitted Signs shall be printed, painted, affixed, attached
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall, at its own expense, maintain in first-class condition all
permitted Signs and, at the expiration or termination of this lease, remove all
such permitted Signs and repair any damage caused by such removal in such a
manner as to restore all aspects of the appearance of the Premises to the
condition prior to the placement of such Signs. Landlord shall have the right to
remove all non-permitted Signs without notice to Tenant and at the expense of
Tenant. Tenant's obligations under this Section 27 shall survive the
expiration or termination of this lease.
LANDLORD'S INABILITY TO PERFORM
28. This lease and Tenant's obligations hereunder shall not be
affected or excused because of Landlord's delay or failure to perform or comply
with any of Landlord's obligations hereunder for reasons beyond the reasonable
control of Landlord, including, without limitation, strikes or other labor
difficulties, inability to obtain necessary governmental permits and approvals
(including building permits and certificates of occupancy), unavailability of
materials, war, riot, civil insurrection or governmental preemption in
connection with a national emergency. Further, Landlord shall not be deemed to
be in default in the performance of any of its obligations unless and until it
has failed to perform such obligations within 30 days after written notice from
Tenant specifying Landlord's failure to perform; but if the nature of Landlord's
obligation is such that more than 30 days are required for its performance, then
Landlord shall not be deemed to be in default if it shall commence such
performance within such 30-day period and thereafter diligently prosecutes same
to completion. Tenant shall give each mortgagee or beneficiary under a deed of
trust or other encumbrance affecting the Building, by certified or registered
mail, a copy of any notice of default served upon Landlord, provided that Tenant
has been notified in writing of the address of such mortgagee or beneficiary or
has previously executed an estoppel certificate or subordination agreement in
favor of such mortgagee or beneficiary. Landlord shall not be in default until
written notice has been given by Tenant to Landlord and to the
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persons referred to in the preceding sentence. Tenant further agrees that if
Landlord fails to cure such default within the time provided above, then all of
such mortgagees and beneficiaries shall have an additional 30 days within which
to cure such default or if such default cannot be cured within that time, then
in such additional time as may be necessary if, within such 30 days, any such
mortgagee or beneficiary has commenced and is diligently pursuing the remedies
necessary to cure such default (including, but not limited to, prosecution of
foreclosure proceedings, if necessary to effect such cure), during which time
Tenant shall not exercise any right available to it on account of such default.
However, no such mortgagee or beneficiary shall be obligated to perform any of
Landlord's obligations hereunder.
ABANDONMENT
29. Tenant shall continuously operate its business in the Premises
and shall not vacate or abandon the Premises at any time during the Term; if
Tenant shall cease business operations, abandon, vacate or surrender the
Premises, or be dispossessed by the process of law, or otherwise, any personal
property belonging to Tenant and left on the Premises shall be deemed to be
abandoned, at the option of Landlord, except such property as may be mortgaged
to Landlord.
ENVIRONMENTAL MATTERS
30. (a) Tenant shall and shall cause its agents, employees,
contractors and invitees to use the Premises and the Equipment and conduct any
operations on the Premises in compliance with all applicable federal, state and
local environmental statutes, regulations, ordinances and any permits,
approvals or judicial or administrative orders issued thereunder. For purposes
of this lease, "Hazardous Substances" shall mean any and all hazardous or toxic
substances, hazardous constituents, contaminants, wastes, pollutants or
petroleum (including, without limitation, crude oil or any fraction thereof),
including, without limitation, hazardous or toxic substances, pollutants and/or
contaminants as such terms are defined in CERCLA or RCRA; asbestos or material
containing asbestos; and PCBs, PCB articles, PCB containers, PCB article
containers, PCB equipment, PCB transformers or PCB-contaminated electrical
equipment (as such terms are defined in Part 761 of Title 40, Code of Federal
Regulations). Tenant covenants that:
(i) No Hazardous Substances shall be generated,
treated, stored or disposed of, or otherwise deposited in or located on the
Premises;
(ii) no activity shall be undertaken on the
Premises which would cause:
(1) The Premises to become a hazardous
waste treatment, storage or disposal facility within the meaning of, or
otherwise cause the
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Premises to be in violation of the Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. Section 69 et seq., or any similar state law or local
ordinance;
(2) A release or threatened release from
any source on the Premises of Hazardous Substances from the Premises within the
meaning of, or otherwise cause the Premises to be in violation of, the
Comprehensive Environmental Response Compensation and Liability Act, as amended
("CERCLA"), 42 U.S.C. Section 9601 et seq., or any similar state law car local
ordinary or any other environmental law;
(3) The discharge of pollutants or
effluents into any water source or system, or the discharge into the air of any
emissions, which would require a permit under the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq., or the Clean Air Act, 42 U.S.C.
Section 7401 et seq., or any similar state law or local ordinance;
(iii) There shall be no substances or conditions in
or on the Premises which may support a claim or cause of action under RCRA,
CERCLA, any other federal, state or local environmental statutes, regulations,
ordinances or other environmental regulatory requirements or under any common
law claim relating to environmental matters, or could result in recovery by any
governmental or private party of remedial or removal costs, natural resources
damages, property damages, damages in personal injuries or other costs,
expenses or damages, or could result in injunctive relief arising from any
alleged injury or threat of injury to health, safety or the environment; and
(iv) There shall be no underground storage tanks
or release or threatened releases from such tanks; located on the Premises.
(b) If it is discovered that any Hazardous Substances
have been deposited, released, discharged or otherwise caused to exist, on or
from the Premises, in violation of the provisions of this Section 30, but
excluding conditions existing prior to the Commencement Date, then Tenant
agrees promptly to remove, clean up or take such other remedial action with
regard to such substances as may be required by applicable law or regulations.
Any such remedial action shall be the sole responsibility of Tenant and shall
be conducted solely at Tenant's expense. If Tenant fails to commence or
diligently pursue such remedial action in Landlord's sole judgment, then, after
written notice to Tenant, Landlord may declare an event of default under this
lease and exercise any and all remedies hereunder, and/or cause the taking of
such remedial action as may be required solely at Tenant's expense. Tenant
grants to Landlord, its agents and employees access to the Premises and the
license to carry out such remedial action.
(c) Tenant shall give Landlord prompt notice of any of
the following occurrences arising with regard to the Premises or Tenant's
activities thereon:
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(i) Any spill, release, threatened release or
other occurrence that would constitute a violation of the provisions of Section
30(a);
(ii) The notification of any of the events set
forth in Section 30(c)(i) to any federal, state or local governmental agency or
authority;
(iii) Any notices, claims or allegations of
environmental violations or contamination received from any federal, state or
local governmental agency or authority or the filing or commencement of any
judicial or administrative proceeding by any such agency; or
(iv) The filing or threatened filing of any
judicial or administrative proceeding by any private party alleging injury or
threat of injury to property, health, safety or the environment.
(d) Tenant hereby agrees to indemnity, defend and hold
harmless Landlord and its agents, affiliates, officers, directors and employees
(all of such entities and persons being referred to herein individually as an
"Indemnified Person" and collectively as the "Indemnified Parties") from and
against any and all liabilities, claims, demands, actions and causes of action
whatsoever (including, without limitation, attorneys' fees and expenses, and
costs and expenses reasonably incurred in investigating, preparing or defending
against any litigation or claim, action, suit, proceeding or demand of any kind
or character) to which any Indemnified Person may be subject arising out of or
relating to any alleged contamination of the Premises arising from any
violation of Tenant's obligations under this Section 30. Those costs, damages,
liabilities, losses, claims, expenses (including, without limitation,
attorneys' fees and disbursements) for which the Indemnified Parties are
indemnified hereunder shall be reimbursable as incurred without any requirement
of waiting for the ultimate outcome of any litigation, claim or other
proceeding, and Tenant shall pay such costs, damages, liabilities, losses,
claims and expenses (including, without limitation, attorneys' fees and
disbursements) as incurred by Landlord or other Indemnified Persons within 15
days after notice itemizing the amounts incurred to the date of such notice.
(e) The obligations of Tenant set forth in this Section
30 shall survive the expiration or earlier termination of this lease or the
exercise by Landlord of any of its remedies hereunder.
ATTORNEY'S FEES
31. (a) In the event that Landlord should bring suit to
obtain possession of the Leased Property, for the recovery of any sum due under
this lease, or because of the breach of any provision of this lease, or for any
other relief against Tenant hereunder, then all costs and expense, including
reasonable attorneys' fees, incurred by the successful party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the
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commencement of such action and shall be enforceable whether or not the action
is prosecuted to judgment.
(b) Should Landlord be named as a defendant in any suit
brought against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such
suit, including its reasonable attorneys' fees.
PAYMENTS AFTER TERMINATION
32. No payments of money by Tenant to Landlord after the
termination of this lease, in any manner, or after the giving of any notice
(other than a demand for payment of money) by Landlord to Tenant, shall
reinstate, continue or extend the term of this lease or make ineffective any
notice given to Tenant prior to the payment of such money. After the service
of notice or the commencement of a suit or after final judgment granting
Landlord possession of the Premises, Landlord may receive and collect any sums
of rent due or any other sums due under the terms of this lease, and the
payment of such sums of money, whether as rent or otherwise, shall not make
ineffective any notice, or in any manner affect any pending suit or any
judgment theretofore obtained.
NO IMPLIED SURRENDER OR WAIVER
33. The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition contained in this lease or
in the rules and regulations set forth in Exhibit C or hereafter adopted shall
not be deemed to be a waiver of such term, covenant or condition or of any
subsequent failure to perform or observe the same or any other term, covenant
or condition therein contained, and no custom or practice which may develop
between the parties hereto during the Term shall be deemed a waiver of, or in
any way affect, the right of either party to insist upon performance and
observance by the other party in strict accordance with the terms hereof. No
waiver shall be effective unless in writing signed by the waiving party. The
receipt by Landlord of rent with knowledge of the breach of any covenant of
this lease shall not be deemed a waiver of such breach. The failure of
Landlord to enforce any of the rules and regulations set forth in Exhibit C or
hereafter adopted against Tenant or any other tenant in the Building shall not
be deemed a waiver of any or all of such rules and regulations. No act or
thing done by Landlord or Landlord's agent during the Term shall be deemed an
acceptance of a surrender of the Leased Property, and no agreement to accept
such surrender shall be valid unless in writing signed by Landlord. No
employees of Landlord or of Landlord's agents shall have any power to accept
the keys of the Premises prior to the termination of this lease. The delivery
of keys to any employee of Landlord, or of Landlord's agents, shall not operate
as a termination of this lease or a surrender of the Premises or the Equipment.
No payment by Tenant, or receipt by Landlord, of a lesser amount than the rent
due hereunder, shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or
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statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy available to Landlord. Time is of the essence
of this lease and of each and all of its provisions.
NO REPRESENTATIONS BY LANDLORD; ENTIRE AGREEMENT
34. Landlord and Landlord's agents have made no representations,
warranties, agreements or promises with respect to the Premises, the Equipment
or the Building except such, if any, as are expressed herein. The entire
contract of the parties is contained herein, and there are no promises,
agreements, representations, warranties, conditions or understandings, either
oral or written, between them, other than as are herein set forth; all prior or
contemporaneous promises, agreements, representations, warranties, conditions
or understandings between or among the parties and their agents or
representatives relative to the leasing of the Leased Property being merged in
or revoked by this lease.
TENANT'S AUTHORITY
35. If Tenant is a corporation (or a partnership), each individual
executing this lease on behalf of such corporation (or partnership) represents
and warrants that he is duly authorized to execute and deliver this lease on
behalf of such corporation (or partnership) in accordance with the By-laws of
such corporation (or the partnership agreement of such partnership) and that
this lease is binding upon such corporation (or partnership) in accordance with
its terms. If Tenant is a corporation, Tenant shall deliver to Landlord a
certified copy of the resolution of the Board of Directors of such corporation
authorizing or ratifying the execution of this lease.
NOTICE AND BILLS
36. Any bill, statement, notice or demand which Landlord may
desire or be required to give to tenant shall be in writing and shall be deemed
sufficiently given or rendered if delivered personally to tenant or any of its
employees or agents, at the premises, or sent by certified or registered United
States mail, postage prepaid, addressed to Tenant at Tenant's Address, or,
after commencement of the Term, at the Premises, and any such notice or demand
shall be deemed to have been given at the time when it is personally delivered
or mailed. Any notice or demand by Tenant to Landlord shall be in writing and
must be served by certified or registered United States mail, postage prepaid,
addressed to Landlord at Landlord's Address. Either party shall have the right
to change its address for notice by giving notice as provided above.
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DEFINITION OF LANDLORD
37. The term "Landlord" as used in this lease, so far as covenants
or obligations on the part of Landlord are concerned, shall be limited to mean
and include only the owner or owners at the time in question of the Building.
In the event that the interest of the Landlord herein named (or any transferee)
in the Building is transferred, whether by sale, lease or sublease,
foreclosure, or otherwise, the named Landlord (or the then grantor) shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder, and it shall be deemed and construed without further
agreement between the parties or their successors in interest, or between the
parties and any such transferee that such transferee has assumed and agreed to
carry out any and all covenants and obligations of the named Landlord (or the
then grantor) and is the Landlord hereunder.
LIMITATION OF LIABILITY
38. Notwithstanding anything to the contrary expressly or
impliedly contained in this lease, there shall be absolutely no personal
liability of any person, firm, partnership, association, or other entity who or
which constitutes Landlord, under or with respect to any of the terms,
covenants, conditions or provisions of this lease, or of any violation hereof,
and Tenant shall look solely to the interest of Landlord in the Building for
the satisfaction of each and every claim and remedy of Tenant in the event of
any default or violation whatever by Landlord hereunder; such exculpation of
personal liability is absolute and without any exception or modification
whatever, now or hereafter.
MOVING EXPENSES
39. Landlord shall reimburse Tenant for up to $30,000.00 of
Tenant's actual moving expenses less Landlord's transaction, including
attorneys' fees, for acquisition of the Leased Property, including all related
loan fees and costs.
MEMORANDUM OF LEASE
40. The Landlord and the Tenant shall, simultaneously with the
execution hereof, enter into a short term memorandum of this lease, suitable
for recording under the laws of the State of Wyoming and reasonably
satisfactory to the parties hereto, in which reference to this lease and the
primary provisions hereof shall be made.
MORTGAGES OF TENANT'S INTEREST
41. (a) Notwithstanding any provision of this lease to the
contrary, Tenant and its successors and assigns shall have the unrestricted
right to mortgage and pledge this lease to Lyon Credit Corporation, whose
address is Soundview Plaza, 1266 East Main Street, Stamford, Connecticut, 06902
("Leasehold Mortgagee") subject, however, to the limitations of this Section.
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<PAGE> 25
(b) If Tenant, or Tenant's successors or assigns, shall
mortgage this lease in compliance with the provisions of this Section, then so
long as any such mortgage shall remain unsatisfied of record, the following
provisions shall apply:
(i) Landlord, upon serving Tenant any notice of
default pursuant to the provisions of Section 25 hereof, or any other notice
under the provisions of or with respect to this lease, shall also serve a copy
of such notice upon the Leasehold Mortgagee, at the address provided for in
Section 41(a) hereof, and no notice by Landlord to Tenant hereunder shall be
deemed to have been duly given unless and until a copy thereof has been so
served upon the Leasehold Mortgagee.
(ii) Any Leasehold Mortgagee, in case Tenant shall
be in default hereunder, shall, within the grace period provided in this lease
and otherwise as herein provided, have the right to remedy the default, or
cause the same to be remedied, and Landlord shall accept the performance by or
at the instance of the Leasehold Mortgagee as if the same had been made by
Tenant.
(iii) For the purposes of this Section, no Event of
Default shall be deemed to exist under Section 25 of this lease in respect to
the payment of money, performance of work required to be performed, or of acts
to be done, or of conditions to be remedied, if steps shall, in good faith,
have been commenced by the Leasehold Mortgagee within the time permitted in
Section 25 hereof to cure such Event of Default and shall be prosecuted to
completion with diligence and continuity as provided in Section 25 hereof.
(iv) Notwithstanding anything to the contrary
contained in this lease, upon the occurrence of an Event of Default, Landlord
shall take no action to effect a termination of this lease without first giving
to the Leasehold Mortgagee written notice thereof and thirty (30) days within
which either (A) to obtain possession of the Leased Property (including
possession by a receiver) or (B) to institute, prosecute and complete
foreclosure proceedings or otherwise acquire Tenant's interest under this
lease, and upon the Leasehold Mortgagee's acquisition of Tenant's interest in
this lease, the Leasehold Mortgagee shall be required to promptly cure all
Events of Default then reasonably susceptible of being cured. Notwithstanding
the foregoing, (1) the Leasehold Mortgagee shall not be obligated to continue
possession or to continue foreclosure proceedings after all Events of Default
shall have been cured; (2) nothing contained herein shall preclude Landlord,
subject to the provisions of this Section 41, from exercising any rights or
remedies under this lease with respect to any other Events of Default by Tenant
during the pendency of foreclosure proceedings and (3) the Leasehold Mortgagee
shall agree with Landlord in writing to comply during the period of forbearance
with the terms, conditions and covenants of this lease as are reasonably
susceptible of being complied with by the Leasehold Mortgagee. A Leasehold
Mortgagee, its designee, or other purchaser in foreclosure proceedings may
become the legal owner and holder of this lease through foreclosure proceedings
or by assignment of this lease in lieu of foreclosure or otherwise.
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<PAGE> 26
(v) In the event of the termination of this lease
prior to the expiration of the Term, except by eminent domain as provided in
Section 14 hereof, Landlord shall serve upon Leasehold Mortgagee written notice
that this lease has been terminated together with a statement of any and all
sums which would at that time be due under this lease but for termination, and
of all other Events of Default, if any, under this lease then known to
Landlord. The Leasehold Mortgagee shall thereupon have the option to obtain a
new lease within thirty (30) days of such notice.
The new lease shall be entered into at the
reasonable cost of the Leasehold Mortgagee, shall be effective as of the date
of termination of this lease, and shall be for the remainder of the term of
this lease and at the rent and upon all the agreements, terms, covenants and
conditions hereof, including any applicable rights of renewal, first refusal
and purchase. The new lease shall require the Leasehold Mortgagee to perform
any unfulfilled obligation of the Tenant under this lease which can be cured by
the payment of money or which are otherwise reasonably able to be performed.
Upon the execution of a new lease, the Leasehold Mortgagee shall pay the
reasonable expenses, including attorneys' fees, incurred by Landlord in
connection with the recovery of possession of the Leased Property and the
preparation, execution and delivery of the new lease.
(vi) Any notice or other communication which
Landlord shall desire or is required to give to or serve upon the Leasehold
Mortgagee shall be in writing and shall be served in accordance with Section 36
hereof, addressed to the Leasehold Mortgagee at the address set forth in
Section 41(a), or to the Leasehold Mortgagee pursuant to notice in writing
given to Landlord. Any notice or other communication which the Leasehold
Mortgagee shall desire or is required to give to or serve upon Landlord shall be
deemed to have been duly given or served if sent in accordance with Section 36
hereof.
(vii) No agreement between Landlord and Tenant
modifying, canceling or surrendering this lease shall be effective without the
prior written consent of the Leasehold Mortgagee.
(viii) No merger of the interests of Landlord and
Tenant herein shall result in a merger of this lease in the fee interest.
(ix) Notwithstanding any provision of this lease
to the contrary, Landlord agrees that in the event that a Leasehold Mortgagee
acquires the Tenant's interest in this lease, whether by foreclosure,
assignment or otherwise, Landlord agrees not to unreasonably withhold or delay
its consent to the further assignment or subletting of this lease or the
Premises by such Leasehold Mortgagee. Nothing contained in this subsection
41(b)(ix) shall reduce or abrogate such Leasehold Mortgagee's obligations to
comply with Section 15(b)-(d) of this lease.
MISCELLANEOUS
42. (a) If any provision of this lease shall prove to be
illegal, invalid or unenforceable, the remainder of this lease shall not be
affected thereby, and in lieu of
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<PAGE> 27
each provision of this lease that is illegal, invalid or unenforceable, there
shall be added as part of this lease a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
(b) Except as herein otherwise provided, no amendment,
alteration, modification of or addition to this lease shall be valid or binding
unless expressed in writing and signed by the party or parties to be bound
thereby;
(c) The covenants, conditions and agreements contained in
this lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
subject to Section 15, their assigns. If there is more than one entity or
person which or who are the Tenant under this lease, the obligations imposed
upon Tenant under this lease shall be joint and several.
(d) Landlord and Tenant hereby mutually waive trial by
jury in any action, proceeding or counterclaim brought by either of them
against the other on any matters whatsoever arising out of or in any way
connected with this lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Leased Property, or any claim of injury or damage.
(e) Tenant covenants and agrees that no diminution or
shutting off of light, air or view by any structure which may be hereafter
erected (whether or not by Landlord) shall in any way affect this lease,
entitle Tenant to any abatement of rent hereunder or result in any liability of
Landlord to Tenant.
(f) Landlord shall have the right to name the Building
and, from time to time, to change the name, number or designation of the
Building. Tenant shall not, without the prior written consent of Landlord, use
the name of the Building, if any, for any purpose other than as the address of
the business conducted by Tenant in the Premises. Landlord shall have the
right, from time to time and at any time, to make alterations and additions in
and to the Building including building equipment and systems, and to change
the size, use, arrangement, location or nature of any walkways, driveway,
parking areas and greenbelts, provided that no such changes shall deprive
Tenant of a reasonable means of access to the Premises or deprive Tenant of the
substantial use and enjoyment of the Premises. No such changes shall entitle
Tenant to any abatement of rent or damages and such action shall not constitute
an actual or constructive eviction of Tenant.
(g) The language in all parts of this lease shall be in
all cases construed according to its fair meaning, and not strictly for or
against Landlord or Tenant. The caption of each Section is added as a matter
of convenience only and shall be considered of no effect in the construction of
any provision(s) of this lease.
(h) Tenant shall not record this lease or any portion or
memorandum hereof or any reference hereto. However, if requested by Landlord,
Tenant shall, within 10 days after request, execute a short form memorandum of
lease, in recordable form, which may, at Landlord's option, be placed of
record.
-27-
<PAGE> 28
(i) This lease shall be construed as though the covenants
herein between Landlord and Tenant are independent, and not dependent, and
Tenant shall not be entitled to any setoff of the Rent owing hereunder against
Landlord, if Landlord fails to perform its obligations set forth herein;
provided, however, the foregoing shall in no way impair the right of Tenant to
commence a separate action against Landlord for any violation by Landlord of
the provisions hereof so long as notice is first given to Landlord and any
holder of a mortgage or deed of trust covering the Building or any portion
thereof and an opportunity granted to Landlord and such holder to correct such
violation as provided in Section 28.
(j) The voluntary or other surrender of this lease by
Tenant or the cancellation of this lease by mutual agreement of Tenant and
Landlord or the termination of this lease on account of Tenant's default shall
not work a merger, and shall, at Landlord's option, terminate all or any
subleases and subtenancies or operate as an assignment to Landlord of all or
any subleases or subtenancies. Landlord's option hereunder shall be exercised
by notice to Tenant and all known sublessees or subtenants in the Premises or
any part thereof.
(k) This lease shall in all respects be governed by and
interpreted in accordance with the laws of the state in which the Premises are
located.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this lease as of the date first set forth above.
LANDLORD: TENANT;
MELODI LANE INVESTMENTS, LLC, AIR DRILLING SERVICES, INC.,
a Wyoming limited liability company a Wyoming corporation
By: /s/ ROBERT W. ESPY III By: /s/ CHAMAN MALHOTRA
------------------------------ -----------------------------------
Member Its: President
-----------------------------------
ATTEST: /s/ ROBERT W. ESPY III
--------------------------------
Its: Secretary
-----------------------------------
(Corporate Seal)
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<PAGE> 29
EXHIBIT C
RULES AND REGULATIONS
The rules and regulations set forth in this Exhibit shall be and
hereby are made a part of the lease to which they are attached. Whenever the
term "Tenant" is used in these rules and regulations, it shall be deemed to
include Tenant, its employees or agents and any other persons permitted by
Tenant to occupy or enter the Premises. The following rules and regulations may
from time to time be modified by Landlord in the manner set forth in Section 24
of the lease.
1. OBSTRUCTION. The sidewalks, entries, passages, corridors,
halls, lobbies, stairways and other parts of the Building available for use by
Tenant in common with others shall be controlled by Landlord and shall not be
obstructed by Tenant or used for any purpose other than ingress or egress to
and from the Premises. Tenant shall not place any item in any of such location,
whether or not any such item constitutes an obstruction without the prior
written consent of Landlord. Landlord shall have the right to remove any
obstruction or any such item without notice to Tenant and at the expense of
Tenant.
2. TENANT'S CONTRACTORS. Tenant shall refer all contractors,
contractor's representatives and installation technicians, rendering any
service on or to the Premises to Landlord for approval and supervision before
performance of any contractual service. This rule shall apply to all work
performed in the Building including installation of telephones, telegraph
equipment electrical devices and attachments and installations of any nature
affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any
other physical portion of the Building.
3. NO LODGING PERMITTED. Tenant shall not at any time occupy or
allow the occupancy of any part of the Building as sleeping or lodging
quarters.
4. LOST OR STOLEN ITEMS. Landlord is and will not be
responsible for lost or stolen personal property, equipment, money or jewelry
from the Premises or public rooms regardless of whether such loss occurs when
the area is locked against entry or not.
5. HEAVY ARTICLES. Tenant shall not place a load upon the floor
of the Premises exceeding the floor load per square foot area which such floor
was designed to carry and which is allowed by law or which may, in the
reasonable opinion of Landlord, constitute a hazard to or may damage the
Building. Tenant shall pay the fees of Landlord's structural engineer if
structural engineering advice is necessary in planning the positioning of heavy
loads. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient to absorb and
prevent vibration, noise and annoyance.
C-1
<PAGE> 30
6. PASSKEY. Landlord may at all times keep a pass key or access
card to the Premises, and Landlord, its employees, agents and contractors shall
be allowed admittance to the Premises as provided in the lease. Landlord will
not permit entrance to the Premises by Tenant's employees, agents, contractors,
invitees or guests, by use of the pass key or access card maintained by
Landlord without written authorization of Tenant.
7. LOCKS AND KEYS FOR PREMISES. No additional lock or locks
shall be placed by Tenant on any door in the Building and no existing lock
shall be changed unless written consent of Landlord shall first have been
obtained. Two keys or access cards to the Premises and to the toilet rooms if
locked by Landlord will be furnished by Landlord, and Tenant shall not have any
duplicate key or card made. Additional keys or cards will be furnished at
Tenant's expense. At the termination of this tenancy Tenant shall promptly
return to Landlord all keys and access cards to the Premises and toilet rooms.
Tenant shall deposit with Landlord a reasonable sum determined by Landlord to
insure return of such keys and cards. The deposit will be refunded when the
keys and cards are returned.
8. USE OF WATER FIXTURES. Water closets and other water fixtures
shall not be used for any purpose other than that for which they are intended,
and any damage resulting to such fixtures from misuse on the part of Tenant
shall be paid for by Tenant. No person shall waste water by tying back or
wedging the faucets or in any other manner.
9. NO ANIMALS. No animals (except "seeing-eye" dogs accompanied
by their owners) shall be brought into or kept in or about the premises or in
the halls, corridors and other parts of the Building.
10. BICYCLES. Bicycles or other vehicles shall not be permitted
anywhere inside or on the sidewalks outside of the Building, except in those
areas designated by Landlord for bicycle parking, if any.
11. TRASH. Tenant shall not allow anything to be placed on the
outside of the Building, nor shall anything be thrown by Tenant out of the
windows or doors, or down the corridors or ventilating ducts or shafts of the
Building. All trash shall be placed in receptacles provided by Tenant on the
Premises or in receptacles, if any, provided by Landlord for the Building.
12. WINDOWS AND DOORS. Tenant shall not install, inscribe, paint
or otherwise place or affix any sign, lettering, poster or advertising medium
upon or adjacent to the exterior or interior of the windows and doors of the
Premises. Tenant shall not place anything or allow anything to be placed near
the glass of any window or door that may appear unsightly from outside the
Premises.
C-2
<PAGE> 31
13. PARKING. Tenant shall not park or permit to be parked: (a)
recreation vehicles, including boats, within the Building; (b) any trucks or
other vehicles adjacent to loading areas so as to interfere in any way with the
use of such areas; (c) any inoperative vehicles or equipment, within the
Building; (d) any vehicles or equipment in any common area of the Building not
designated by Landlord for parking of vehicles; and (e) any vehicles in any
space in violation of any special designation of such space, such as: RESERVED,
HANDICAPPED or VISITORS ONLY.
14. HAZARDOUS OPERATIONS AND ITEMS. Tenant shall not install or
operate any steam or gas engine or boiler, or conduct any mechanical operations
in the Premises without Landlord's prior written consent, which consent may be
withheld in Landlord's absolute discretion. The use of oil, gas or flammable
liquids for heating, lighting or any other purpose is expressly prohibited.
Tenant shall not bring or permit to be brought or kept in or on the Premises
any flammable, combustible, hazardous or explosive fluid, material, chemical or
substance.
15. SOLICITATION: FOOD AND BEVERAGES. Landlord reserves the right
to restrict, control or prohibit canvassing, soliciting and peddling within the
Building. Tenant shall not engage in or permit any canvassing, soliciting,
peddling, parading, picketing or demonstrating or distributing of any circular,
booklet, handbill, placard, leaflet or other material in any part of the
Building, including, but not limited to, any corridors, halls and lobbies, and
any sidewalks outside of the Building. Tenant shall not grant any concessions,
licenses or permission for the sale or taking of orders for food or services or
merchandise in the Premises, nor install or permit the installation or use of
any machine or equipment for dispensing goods or foods or beverages in the
Building, nor permit the preparation, serving, distribution or delivery of food
or beverages in the Premises without the approval of Landlord and in
compliance with arrangements prescribed by Landlord. Only persons approved by
Landlord shall be permitted to serve, distribute, or deliver food and beverages
within the Building, or to use the elevators or public areas of the Building
for that purpose.
16. STORAGE. If any portion of the Premises is used for storage
of files, supplies, equipment or any other material, and such area is visible
from outside of the Premises, Tenant shall screen such area from public view by
use of appropriate window coverings satisfactory to Landlord.
17. CAPTIONS. The caption for each of these rules and regulations
is added as a matter of convenience only and shall be considered of no effect
in the construction of any provision or provisions of these rules and
regulations.
18. RIGHT TO CHANGE RULES. Landlord shall have the right from
time to time to amend, modify or rescind the Rules and Regulations or to add
reasonable new and additional Rules and Regulations for the use, safety,
cleanliness and care of the Premises and the Building and the comfort, quiet
and convenience of occupants of the Building.
C-3
<PAGE> 32
FIRST AMENDMENT TO INDUSTRIAL LEASE BETWEEN
MELODI LANE INVESTMENTS, LLC
AND AIR DRILLING SERVICES, INC.
THIS FIRST AMENDMENT, made this 20th day of June, 1997, by and between
Melodi Lane Investments, LLC, first party (hereinafter called "Landlord") and
Air Drilling Services, Inc., second party (hereinafter called "Tenant").
WITNESSETH:
WHEREAS, a lease agreement was executed on July 3, 1996 between Melodi
Lane Investments, LLC, as Landlord, and Air Drilling Services, Inc., as Tenant
(the "Lease"), and
WHEREAS, Landlord and Tenant wish to amend said lease,
NOW THEREFORE, for and in consideration of the premises, and the sum of
$1.00 in hand paid, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties hereto do agree as follows:
1. Section 1(e) of the Lease shall be amended to read as follows:
"(e) TERM. Ten years, beginning on July 1, 1996 (the
"Commencement Date"), and ending on June 30, 2006 (the "Expiration
Date"), unless sooner terminated as herein provided."
2. Section 1(g) shall be deleted and the following substituted in
lieu thereof:
"(g) BASE RENT: $4,250.00 for the period through June 30,
2001, and adjusted thereafter as provided in Section 4 hereof."
3. The following paragraph shall be added to Section 4:
"For the period July 1, 2001 through June 30, 2006, the Base
Rent shall be the greater of (i) $4,250.00 or (ii) an amount determined
by using the Appraised Value as determined pursuant to paragraph 43
hereof, amortized as a loan over ten (10) years with the rate of
interest based upon the "Prime Rate" plus one percent (1%) to obtain a
monthly payment. The term "Prime Rate" shall mean the Prime Rate as
published in The Wall Street Journal in its most recent issue prior to
July 1, 2001"
4. The following Section 43 shall be added to the Lease:
"OPTION TO PURCHASE.
43. On or before April 1, 2001, the Landlord shall obtain
an appraisal of the fair market value of the Property (the "Appraised Value")
from a reasonably qualified and experienced appraiser of the type of property
similar to the Leased Property, and shall possess either ten (10) years
experience in such appraisals or be designated as an MAI appraiser under the
standards of the American Institute of Real Estate Appraisers. Landlord shall
notify the Tenant of the Appraised Value on or before April 1, 2001.
Tenant shall have the option to purchase the Leased
Premises for the Appraised Value upon notice to the Landlord on or before May
31, 2001. Such option must be exercised by written notice thereof to Landlord,
and within thirty (30) days of such notice,
<PAGE> 33
Landlord shall convey good and marketable title to Tenant upon Tenant's tender
of the purchase price to Landlord. Adjustments for taxes, utilities and other
items customarily pro-rated shall be made at the time of such conveyance."
5. Any and all other provisions of the lease agreement not
inconsistent with this amendment shall remain unchanged and the lease agreement
shall otherwise remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
First Amendment to Lease as of the date first set forth above.
LANDLORD:
MELODI LANE INVESTMENTS, LLC,
a Wyoming limited liability company
By: /s/ ROBERT W. ESPY III
--------------------------------
Robert W. Espy III, Member
TENANT:
AIR DRILLING SERVICES, INC.,
a Wyoming corporation
By: /s/ CHAMAN L. MALHOTRA
---------------------------------
Chaman L. Malhotra, President
Attest:
[CORPORATE SEAL]
/s/ ROBERT W. ESPY III
-------------------------------------
Robert W. Espy III, Secretary
<PAGE> 1
EXHIBIT 10.19
MASTER EQUIPMENT LEASE AGREEMENT
THIS AGREEMENT, dated July 3, 1996, is made between MELODI LANE
INVESTMENTS, LLC, a Wyoming limited liability company, having its address at
Two Midtown Plaza, Suite 1990, 1360 Peachtree Street, N.E., Atlanta, Georgia,
30309 (together with any permitted assignee of any of the Equipment, the
"Lessor"), and AIR DRILLING SERVICES, INC., a Wyoming corporation having its
principal place of business at 13111 East Briarwood, Englewood, Colorado (the
"Lessee").
SECTION 1. DEFINITIONS.
"Acceptance Date" means the date on which Lessee executes a
Certificate of Acceptance with respect to any Items of Equipment to be leased
by Lessee pursuant to this Agreement.
"Agreement" means this Equipment Lease Agreement.
"Agreement Date" means the date as of which this Agreement is dated.
"Authorized Signatories" means such officers of Lessee as may be duly
authorized and designated in writing by Lessee to execute documents, agreements
and instruments on behalf of Lessee.
"Certificates of Acceptance" means those certain Certificates of
Acceptance to be executed by Lessee on the Agreement Date and thereafter,
substantially in the form attached hereto as Exhibit A.
"Equipment" means and includes the aggregate of all Items of Equipment
described on the Equipment Schedules.
"Equipment Lease Applications" means those certain Equipment Lease
Applications, to be made by Lessee and, in its sole discretion, accepted by
Lessor, from time to time with respect to certain Items of Equipment,
substantially in the form of Exhibit C attached hereto and made a part hereof.
"Equipment Schedules" means those certain Equipment Schedules,
numbered 1 through 3, which are attached to this Agreement, and any Equipment
Schedules subsequently attached to this Agreement with the mutual consent of
Lessor and Lessee, and includes any Certificate of Acceptance or other
attachment to any such Equipment Schedule; and "Equipment Schedule" means any
one of the foregoing Equipment Schedules.
"Event of Default" means any of the events specified in Section 20,
provided that any requirement for notice or lapse of time, or both, has been
satisfied.
<PAGE> 2
"Event of Loss" means, with respect to any of the Equipment, any loss
or damage of any type or degree whatsoever, including without limitation, any
destruction, theft or governmental taking, however caused or occasioned,
whether partial or complete, and whether or not covered by insurance.
"Indemnified Parties" means the Lessor and any assignee of Lessor,
including but not limited to any Person to whom Lessor grants a security
interest in any Lease; and "Indemnified Party" means any one of the Indemnified
Parties.
"Items of Equipment" means and includes all of the items of equipment
described on any Equipment Schedule.
"Lease" means any individual Lease of any Items of Equipment created
pursuant to the terms of this Agreement and the particular Equipment Schedule
pertaining to such Items of Equipment.
"Lease Documents" means, without limitation, this Agreement, the
Equipment Lease Applications, the Equipment Schedules, the Certificates of
Acceptance, and any other document, instrument or agreement executed in
connection herewith or therewith or contemplated hereby or thereby.
"Litigating Party" means that party to this Agreement who resorts to
litigation to enforce any Manufacturer's warranty; and the "Nonlitigating
Party" means the other party to this Agreement.
"Loss" shall have the meaning ascribed to it in Section 16 hereof.
"Manufacturer" means, with respect to any Items of Equipment, the
manufacturer or distributor which sold such Items of Equipment to Lessor to be
leased to Lessee pursuant to this Agreement.
"Materially Adverse Effect" means any materially adverse effect upon
the business, assets, liabilities, financial condition, results of operations
or business prospects of Lessee or upon the ability of Lessee to perform its
obligations under this Agreement or any Lease Document.
"Modifications" means any modifications or alterations to the physical
condition of any Items of Equipment.
"Net Proceeds" means (i) the proceeds received by Lessor from a sale
of any Items of Equipment repossessed under Section 20 hereof, or the aggregate
rent paid to Lessor pursuant to a new lease of such Items of Equipment
discounted at the Discount Rate, whichever is greater, less (ii) all costs and
expenses (including attorneys' fees and disbursements) incurred by Lessor as a
result of Lessee's-default and Lessor's exercise of its remedies with respect
thereto.
2
<PAGE> 3
"Overdue Rate" means, at any time, an interest rate equal to the
greater of (i) 12% percent per annum or (ii) 3% percent above the Prime Rate.
"Person" means any individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Prime Rate" means the rate of interest adopted by First Interstate
Bank of Denver, N.A. as its "prime rate".
"Rent" means the obligation of Lessee to pay Basic Rent, Supplemental
Rent and all other amounts due under the Lease Documents.
"Return Condition" means the condition in which the Equipment shall be
returned to Lessor by Lessee pursuant to Section 9(b) hereof.
"Supplemental Rent" means all amounts other than Basic Rent which are
due and payable or which become due and payable by Lessee to Lessor pursuant to
the terms of this Agreement or any Lease Document.
"Term" means, with respect to any Lease, the period between and
including the Acceptance Date and the Expiration Date, unless otherwise
provided herein or in any of the Lease Documents.
The terms "Overdue Rate," "First Basic Rent Date," "Last Basic Rent
Date," "Expiration Date," and "Casualty Value," when used with respect to the
leasing of any Items of Equipment, shall have the meanings set forth in the
applicable Equipment Schedule or Certificate of Acceptance attached to such
Equipment Schedule for such Items of Equipment.
SECTION 2. AGREEMENT FOR LEASE OF EQUIPMENT.
Subject to, and upon all of the terms and conditions contained in this
Agreement and in the Equipment Schedules attached hereto, Lessor hereby agrees
to lease to Lessee and Lessee hereby agrees to lease from Lessor all of the
Equipment which is delivered to and accepted by Lessee in the manner described
in Section 4 below. Each Equipment Schedule, with the attached Certificate of
Acceptance and all other documents attached thereto, when fully executed by
Lessor and Lessee as provided therein, shall constitute a separate Lease of the
Items of Equipment described on such Equipment Schedule. The terms and
provisions of this Agreement shall be incorporated by reference in each
Equipment Schedule, and such terms and provisions are intended to govern and be
applied to the rights and obligations of Lessor and Lessee regarding each of
the Items of Equipment and the Lease pertaining thereto.
3
<PAGE> 4
SECTION 3. CONDITIONS PRECEDENT.
The obligation of Lessor to sign this Agreement and to lease any Items
of Equipment to Lessee is subject to the fulfillment of each of the following
conditions:
(a) the delivery by Lessee to Lessor on or prior to the Agreement
Date of each of the following documents in form and substance satisfactory to
Lessor:
(i) certified resolutions of Lessee's Board of Directors,
authorizing the lease of all of the Equipment and Lessee's execution, delivery
and performance of this Agreement, the other Lease Documents, and all other
related documents, which resolutions shall be in form and substance
satisfactory to Lessor;
(ii) an incumbency certificate for the Authorized
Signatories of Lessee, in form and substance satisfactory to Lessor;
(iii) certificates or other evidence of the insurance
coverage required under Section 12 hereof pertaining to the relevant Items of
Equipment;
(iv) such landlord's or mortgagee's waivers as may be
required by Lessor pursuant to Section 8 hereof, in form and substance
satisfactory to Lessor; and
(v) such other documents as Lessor may request,
including, without limitation, Uniform Commercial Code Financing Statements,
certified by an appropriate governmental official or an Authorized Signatory of
Lessee if so requested.
(b) written certification by an Authorized Signatory of Lessee
that, as of each applicable Acceptance Date:
(i) no event which is, or with notice or lapse of time or
both would become, an Event of Default hereunder has occurred and is
continuing; and
(ii) there has been no Materially Adverse Effect since the
date of the last financial statements of Lessee submitted to Lessor prior to
the applicable Acceptance Date.
SECTION 4. ACCEPTANCE OF EQUIPMENT.
Immediately upon delivery to Lessee of any Items of Equipment, Lessee
shall (i) inspect such Items of Equipment, and (ii) execute and deliver to
Lessor the Certificate of Acceptance attached to the Equipment Schedule for
such Items of Equipment. Lessee's execution of such Certificate of Acceptance
shall constitute (i) Lessee's unconditional acceptance of such Items of
Equipment for lease from Lessor on the Acceptance Date specified in such
Certificate of Acceptance, and (ii) Lessee's acknowledgment and certification
that such Items of Equipment have been delivered to and inspected by Lessee,
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have been installed to Lessee's satisfaction, are in good working order, repair
and condition.
SECTION 5. TERM OF LEASE.
The Lease Term for any Items of Equipment shall commence on the
Acceptance Date for such Items of Equipment, provided that each of the
conditions precedent set forth in Section 3 hereof has been fulfilled to
Lessor's satisfaction as of that date. The Lease Term for any Items of
Equipment shall expire on the Expiration Date specified in the relevant
Certificate of Acceptance, unless sooner terminated or unless extended pursuant
to the provisions of the Lease for such Items of Equipment.
SECTION 6. RENTAL CHARGES.
Lessee shall pay to Lessor as rent for any Items of Equipment during
the Lease term therefor the following amounts (collectively, the "Rent"):
(a) On the Acceptance Date, an amount equal to the Interim Rent;
(b) Commencing on the First Basic Rent Date and on each Basic Rent
Date thereafter to and including the Last Basic Rent Date, an amount equal to
the Basic Rent;
(c) As Supplemental Rent, on or before the date required by the
terms hereof (or upon Lessor's demand if no such date is specified herein), any
other amount which Lessee is obligated to pay hereunder with respect to such
Items of Equipment including indemnity payments and payments of Casualty Value;
and
(d) If Lessee shall fail to pay when due all or any portion of any
payment of Rent, to the extent permitted by law such unpaid amount shall bear
interest for each day from the date it became so due until paid in full,
payable on demand, at the Overdue Rate.
SECTION 7. NET LEASE.
Each Lease created hereunder for any Items of Equipment shall be a net
lease and Lessee acknowledges that Lessee's obligations thereunder, including,
without limitation, its obligation to pay all Rent, shall be absolute and
unconditional and, except as provided in Section 13 hereof, Lessee shall not be
entitled to any abatement, reduction, defense, counterclaim, set-off or
recoupment, including, without limitation, abatements, deductions or set-offs
due or alleged to be due by reason of any past, present or future claim of
Lessee under any Lease, or any other agreement, contract or undertaking,
against Lessor, any assignee of Lessor, or any vendor or Manufacturer of
Equipment. Except as otherwise expressly provided herein, such Leases shall not
terminate, nor the obligations of Lessee or Lessor thereunder be otherwise
affected, for any reason whatsoever, including, without limitation, (i) any
defect in the Equipment or any part or Items of Equipment thereof or Lessor's
title thereto, or any damage or destruction to, loss of or interference with
the
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possession or use of any Items of Equipment from any cause whatsoever; (ii) any
liens, encumbrances or rights of others with respect to all or any part of the
Equipment; (iii) the invalidity or unenforceability or lack of due
authorization of this Agreement or any Lease; (iv) any insolvency of or any
bankruptcy, reorganization or similar proceeding against Lessee or Lessor; or
(v) any other cause similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding. It is the intention of the parties
hereto that all Rent and other amounts payable by Lessee hereunder shall
continue to be payable in all events in the same manner and times herein
provided, unless the obligation to pay them shall be terminated pursuant to the
express provisions of this Agreement. To the extent permitted by applicable
law, Lessee hereby waives any and all rights which it may now have or which at
any time hereafter may be conferred upon it, by statute or otherwise, to
cancel, quit or surrender this Agreement, any Lease or any of the Equipment,
except in accordance with the express provisions hereof. Each payment of Rent
made by Lessee hereunder shall be final, and Lessee shall not seek to recover
all or any part of such payment from Lessor or any assignee of Lessor for any
reason whatsoever.
SECTION 8. OWNERSHIP OF EQUIPMENT.
The Equipment shall at all times remain the property of Lessor and any
Items of Equipment may be removed from Lessee's premises or any other location
by Lessor or its representatives at any time after termination of the Lease
with respect thereto. Lessee shall, at its sole cost and expense, affix tags,
decals or plates to each of the Items of Equipment indicating ownership by
Lessor or Lessor's assignee, which type of tag, decal or plate and location may
be specified by Lessor, and Lessee shall not permit their removal or
concealment. In addition, Lessee shall, at its sole cost and expense, cause all
Items of Equipment to display the serial numbers specified in the Equipment
Schedules. Lessee agrees, at its sole cost and expense, to execute and deliver
such Uniform Commercial Code financing statements and other instruments,
including, without limitation, landlord's or mortgagee's waivers, as may be
necessary to protect the right, title and interest of Lessor and any assignee
of Lessor in and to this Agreement or the Equipment or any Items of Equipment
thereof. Lessee shall, at its own expense, protect and defend Lessor's title in
the Equipment and any Items of Equipment thereof against all claims and liens
of Lessee's creditors or any other person or entity whatsoever and shall at all
times keep all Items of Equipment free and clear of all claims, liens and
encumbrances except those running in favor of Lessor. Lessee shall not claim
any income tax deduction for depreciation with respect to the Equipment, nor,
unless specifically provided to the contrary in the relevant Equipment
Schedule(s), any investment tax credit with respect thereto.
SECTION 9. POSSESSION.
(a) Lessor warrants to Lessee that Lessee shall be entitled, as
against all persons claiming by, through or under Lessor, to possess each of
the Items of Equipment, subject to the terms of the individual Lease for such
Items of Equipment and the terms of this Agreement, so long as Lessee is not in
default hereunder or under such Lease.
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(b) Upon the expiration or earlier termination of each such Lease,
Lessee shall, at its sole cost and expense and subject to the terms of this
Agreement, return the Items of Equipment leased thereunder to Lessor at the
place within the continental United States designated by Lessor in as good
condition and operating order as when delivered to Lessee, reasonable wear and
tear excepted.
SECTION 10. MAINTENANCE.
(a) Lessee at all times shall keep, repair, maintain and preserve
the Equipment in good order and operating condition.
(b) All repair, maintenance and service charges related to the
Equipment shall be borne by Lessee.
SECTION 11. LOCATION AND USE OF EQUIPMENT.
(a) During the term of each Lease for Items of Equipment, such
Items shall be located at the address indicated in the relevant Certificate of
Acceptance, or such other location as may be approved by the Lessor from time
to time. Items of Equipment may be removed from such address only with the
prior written consent of Lessor and any assignee of Lessor, and with the prior
execution and filing by Lessor, any assignee of Lessor and Lessee, of such
Uniform Commercial Code financing statements and other filings in such new
locations as are necessary to preserve the right, title and interest of Lessor
and any assignee of Lessor in the Items of Equipment.
(b) Lessee covenants and warrants that during the period that any
Equipment is leased to Lessee hereunder, such Equipment will be used and
operated at all times in compliance with the laws of the jurisdiction(s) in
which it is located, and in compliance with all actions, rules, regulations and
orders of any commission, board or other legislative, administrative, or
judicial body or officer having power to regulate or supervise the use or
operation of the Equipment. Lessee shall not install or use the Equipment or
any items thereof in such manner or in such circumstances that such Equipment
or any items thereof are deemed to be an accession to other personal property
or are deemed to be real property or a fixture thereon.
SECTION 12. INSURANCE.
During the period that any Equipment is leased to Lessee hereunder,
Lessee will, at all times and at its sole expense, carry and maintain, or cause
to be carried and maintained, the following insurance, satisfactory to Lessor
in form, substance and insurance carrier: (a) insurance for loss of or damage
to the Equipment caused by fire, lightning, rust, tornado and windstorms,
explosion, smoke and smudge, aircraft and motor vehicle damage, strikes, riots
and civil commotion, burglary and theft, vandalism and malicious mischief, and
other casualty events customarily insured against with respect to similar
equipment, in an amount not less
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than the Casualty Value of the Equipment; and (b) public liability insurance
covering the Equipment, in such amounts and against such risks as is customary
with respect to similar equipment. Such policies will provide that (i) the
policies may not be invalidated against Lessor or any assignee of Lessor by
reason of any violation of a condition or breach of warranty of the policies or
the application therefor by Lessee, (ii) the policies may be cancelled or
materially altered or reduced in coverage by the insurer only after thirty
(30) days' prior written notice to Lessor and any assignee of Lessor, and (iii)
the insurer will give written notice to Lessor and any assignee of Lessor in
the event of nonpayment of premium by Lessee when due. On the Agreement Date,
and thereafter not less than thirty (30) days prior to their expiration, Lessee
shall deliver to Lessor or its assignees, as appropriate, originals of all
insurance policies covering the Equipment as required by this Section;
provided, however, that Lessor or any assignee of Lessor, as appropriate may,
in its sole discretion, agree to accept copies of the policies, certificates of
insurance, or other satisfactory evidence in lieu of original policies. Such
policies may be blanket policies covering other equipment not subject to the
Leases created hereunder and under the Equipment Schedules, provided that any
such blanket policy or certificate of insurance issued with respect thereto
shall specifically describe the Equipment as being included therein and covered
thereby to the full extent of the coverages and amounts required hereunder. If
Lessee shall fail to obtain or maintain the insurance required under this
Section, Lessor or any assignee of Lessor may obtain such insurance and Lessee
shall reimburse Lessor or any such assignee of Lessor, as the case may be, upon
demand, for the cost thereof as Supplemental Rent hereunder. With respect to
those insurance policies required by Section 12(a) above, Lessor and any
assignee of Lessor shall be named as the sole loss payees, as their interest
may appear; all insurance proceeds payable thereunder shall be payable and paid
solely to Lessor and to any assignee of Lessor, as their interests may appear.
With respect to those insurance policies referred to in Section 12(b), Lessor
and any assignee of Lessor shall be named as additional insureds.
SECTION 13. RISK OF LOSS; EVENT OF LOSS.
(a) Lessee hereby assumes and shall bear the entire risk of all
Events of Loss. No Event of Loss shall relieve Lessee of any of its obligations
under this Lease including, without limitation, its obligation to pay Rent.
Lessee shall immediately notify Lessor of any Event of Loss involving the
Equipment or any Items of Equipment or part thereof.
(b) If an Event of Loss occurs with respect to any Items of
Equipment, Lessee, at the option and direction of Lessor, shall: (i) repair or
restore the Items of Equipment to good repair, condition and working order; or
(ii) replace the Items of Equipment with identical equipment in good repair,
condition and working order, title to which shall be transferred to Lessor free
and clear of all liens, claims and encumbrances whatsoever; or (iii) pay Lessor
in cash the Casualty Value for any such Items of Equipment as set forth in the
relevant Certificate of Acceptance.
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(c) If Lessor has directed Lessee to repair, restore or replace
any Item of Equipment pursuant to clause 13(b)(i) or 13(b)(ii) above and Lessee
has done so in accordance with the terms thereof, then, if Lessee is not in
default hereunder, Lessor shall pay to Lessee any insurance proceeds received
by it in connection with the Event of Loss affecting such Item of Equipment. In
the event of an election by Lessor pursuant to clause 13(b) (iii) above, and
upon payment by Lessee of the Casualty Value and any accrued and unpaid Rent
and all other amounts due under the Lease for such Items of Equipment, Lessee's
obligation to pay Rent with respect to such Items of Equipment shall terminate,
and Lessee shall become entitled to possession and ownership of such Items of
Equipment, or parts or components thereof, AS IS, WHERE IS, and without any
warranty by Lessor, express or implied, and all insurance proceeds from such
Event of Loss with respect thereto shall be paid to Lessee.
SECTION 14. ENFORCEMENT OF WARRANTY.
(a) Upon receipt of written request from Lessee, and so long as
this Agreement and the relevant Leases for Items of Equipment shall remain in
force, Lessor shall take all reasonable action requested by Lessee to enforce
any Manufacturer's warranty, express or implied, issued on or applicable to any
Items of Equipment, which is enforceable only by Lessor in its own name, or
only in conjunction with Lessor in its own name, provided, however, that Lessor
shall not be obligated to resort to litigation to enforce any such warranty
unless Lessee shall pay all expenses in connection therewith.
(b) Similarly, if any such warranty for any Items of Equipment
shall be enforceable only by Lessee in its own name, or only in conjunction
with Lessee in its own name, Lessee hereby agrees, upon receipt of written
request from Lessor and so long as this Agreement and the relevant Leases for
Items of Equipment shall remain in force, to take all reasonable action
requested by Lessor to enforce any such warranty, provided, however, that
Lessee shall not be obligated to resort to litigation to enforce any such
warranty unless Lessor shall pay all expenses in connection therewith.
(c) Lessor hereby assigns to Lessee any warranty rights which
Lessor may have against the Manufacturer with respect to any Items of
Equipment, to the extent such warranty rights are assignable. With respect to
such warranty rights as are not assignable, Lessor hereby appoints Lessee as
its agent and attorney-in-fact for the purpose of enforcing such warranty
rights at Lessee's expense for so long as no Event of Default hereunder shall
have occurred and be continuing.
(d) In the event that either Lessor or Lessee resorts to
litigation to enforce any warranty, it is agreed that the Litigating Party
shall have the right to take such action as it deems appropriate to settle,
compromise or otherwise dispose of any claim under any such warranty, provided
that the Nonlitigating Party shall not be bound by any rulings, judgments,
decisions, agreements, compromises and settlements made or handed down with
respect thereto or entered into by the Litigating Party unless the
Nonlitigating Party shall have agreed in writing to be bound thereby.
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SECTION 15. DISCLAIMER OF WARRANTIES.
Lessor leases the Equipment to Lessee AS IS, WHERE IS, in whatever
condition it may be, without any agreement, warranty or representation, express
or implied, as to any matter whatsoever respecting the Equipment. Without
limiting the generality of the foregoing, Lessor expressly disclaims any
implied warranty of merchantability, fitness or adequacy for any particular
purpose or use, quality, productiveness or capacity.
SECTION 16. INDEMNIFICATION.
(a) Lessor shall not be liable to Lessee for, and Lessee shall
indemnity and hold the Indemnified Parties harmless on an after-tax basis from
and against any obligation, liability (including liability for negligence),
claim, demand, action, suit, judgment, cost, loss, damage or expense (including
litigation expenses and attorneys' fees) of any kind or nature imposed on,
incurred by or asserted against Lessor, caused, directly or indirectly, by or
relating to: (i) the inadequacy of any Items of Equipment for any purpose, (ii)
any deficiency or defect (patent or latent) in any Items of Equipment, (iii)
the use, operation or performance of any Items of Equipment, (iv) any
interruption or loss of service, use or performance of any Items of Equipment,
(v) any patent, trademark or copyright infringement relating to any Items of
Equipment, or (vi) any loss of business or other consequential damages whether
or not resulting from any of the foregoing. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, LESSOR SHALL NOT BE LIABLE FOR INJURIES TO PERSONS OR DAMAGE TO
THE EQUIPMENT OR ANY OTHER PROPERTY UNDER ANY THEORY OF STRICT LIABILITY, AND
LESSEE SHALL INDEMNIFY AND SAVE LESSOR AND EACH OTHER INDEMNIFIED PARTY
HARMLESS FROM ANY SUCH LIABILITY AND ALL COSTS AND EXPENSES IN DEFENDING
AGAINST SUCH LIABILITY. All of Lessor's rights under this Section 16 shall
survive the termination of the Leases created hereunder.
Lessee shall give each Indemnified Party prompt written notice of any
occurrence, event or condition known to Lessee as a consequence of which any
Indemnified Party may be entitled to indemnification hereunder. Lessee shall
forthwith upon demand by any such Indemnified Party reimburse such Indemnified
Party for amounts expended by it in connection with any of the foregoing or pay
such amounts directly. Lessee shall be subrogated to the rights of each
Indemnified Party to the extent Lessee has reimbursed such Indemnified Party or
paid directly expenses arising under this Section 16. If any action, suit or
proceeding is brought against any Indemnified Party in connection with any
claim indemnified against hereunder, such Indemnified Party will, promptly
after receipt of notice of the commencement of such action, suit or proceeding,
notify Lessee thereof in writing, enclosing a copy of all papers served upon
such Indemnified Party; provided, however, failure to give such notice or to
enclose such papers shall not relieve Lessee from any liability hereunder.
Lessee may, and upon such Indemnified Party's request will, at Lessee's
expense, resist and defend such action, suit or proceeding, or cause the same
to be resisted or defended by counsel selected by Lessee and reasonably
satisfactory to such Indemnified
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Party. In the event of any failure by Lessee to so defend or resist, Lessee
shall pay all costs and expenses (including, without limitation, attorneys'
fees and expenses) incurred by such Indemnified Party in connection with such
action, suit or proceeding. The provisions of this Section, and the obligations
of Lessee under this Section, shall apply from the date of the execution of
this Agreement notwithstanding that the Term may not have commenced with
respect to any individual Lease of any Items of Equipment, and shall survive
and continue in full force and effect notwithstanding the expiration or earlier
termination of this Agreement or the Leases or any of them.
(b) Lessee shall pay, indemnity and hold Lessor and each other
Indemnified Party harmless on an after-tax basis from and against all taxes,
fees and other charges, however designated, which are levied or imposed by any
governmental authority upon any Items of Equipment or upon the sale, purchase,
ownership, lease, use, possession or disposition thereof or upon Rent payable
under the Lease therefor, including but not limited to sales and use taxes,
personal property taxes, privilege and excise taxes, franchise taxes, ad
valorem and value added taxes, leasing taxes, stamp taxes, gross receipts and
gross income taxes and license and registration fees, excluding however (except
as shall be necessary to hold any Indemnified Party harmless on an after-tax
basis from and against any amount or event otherwise indemnified hereunder),
taxes levied against Lessor upon or measured by Lessor's net income, net worth
or capital stock. To the event permitted by applicable law, Lessee shall
prepare (in such manner as will show Lessor's ownership of the Items of
Equipment) and timely file all tax returns required by law in connection with
taxes payable or indemnified by Lessee hereunder. With respect to any such tax
return required by law to be filed by Lessor, Lessee shall notify Lessor of
such requirement and furnish Lessor with all forms and information necessary
for the preparation and timely filing of such return.
(c) Except as may be otherwise indicated on any Equipment
Schedule, Lessor has agreed to lease the Items of Equipment to Lessee in part
upon the assumption that Lessor (which for purposes of this Section 16(c) shall
include any assignee of Lessor other than any Person to whom Lessor grants
solely a security interest in any Lease) will be entitled for federal income
tax purposes to cost recovery deductions with respect to the Items of Equipment
as provided for "five year property" by Section 168 of the Internal Revenue
Code of 1986, as amended, equal to Lessor's basis in such Items of Equipment
multiplied by the following percentages for the following taxable years of
Lessor, beginning with the taxable year in which Lessor acquires ownership of
such Items of Equipment: 20% percent for Year 1, 20% for Year 2, 20% for Year
3, 20% for Year 4, and 20% for Year 5. If, as the direct result of (i) any act
or omission of Lessee, including any act or omission permitted, but excluding
any act or omission required, by the Lease, or (ii) any breach by Lessee of any
representation, warranty or covenant contained in the Lease, Lessor shall lose,
shall not have or shall lose the right to claim, or shall suffer a disallowance
or recapture of or delay in claiming all or any portion of such cost recovery
deductions in computing Lessor's federal income tax liability (any such event
being referred to herein as a "Loss"), then Lessee shall pay to Lessor such
amount as will, after reduction by all federal, state and local taxes payable
by Lessor in respect of the receipt of such amount, be equal to the sum of (x)
the
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present value (employing the Prime Rate) of the net increase in the federal
income tax liability of Lessor (after giving affect to any federal income tax
savings available to Lessor as a result of such Loss or the circumstances
giving rise thereto) attributable to such Loss, and (y) the amount of all
interest, penalties and additions to tax payable by Lessor in connection with
such Loss. In the event that a federal income tax benefit that was taken into
account in computing the indemnity payable to Lessor pursuant to the preceding
sentence shall for any reason be or become unavailable to Lessor or be
recaptured, then such unavailability or recapture shall be treated as a Loss.
SECTION 17. MODIFICATION OF EQUIPMENT.
(a) If subsequent to the Acceptance Date of the relevant Lease,
Lessee desires to make, or cause to be made, any Modifications to any Items of
Equipment then subject to the Lease, Lessee, with the prior written consent of
Lessor, which consent shall not be unreasonably withheld, may purchase and
install any Modifications at Lessee's own expense, and any such Modifications
shall be deemed to be part of the Items of Equipment leased under the relevant
Lease; and Lessee shall be responsible for all related transportation and
installation charges and maintenance charges for such Modifications.
(b) If, during the term of the relevant Lease for any Items of
Equipment, any Modifications which have been purchased by Lessee interfere with
the normal and satisfactory operation or maintenance of the Items of Equipment,
or any part thereof, Lessee shall, upon notice from Lessor to that effect,
promptly remove such Modifications and restore the Items of Equipment to their
original condition, reasonable wear and tear excepted. Upon termination of the
Lease of such Items of Equipment, unless Lessor directs otherwise in writing,
or unless retention of any Modifications purchased by Lessee is necessary to
maintain any Items of Equipment in Return Condition, Lessee shall remove any
such Modifications from such Items of Equipment and restore such Items of
Equipment to Return Condition.
(c) All Modifications with respect to any Items of Equipment which
cannot be readily removed without causing material damage to such Items of
Equipment, or which are not removed in accordance with the terms hereof, shall
become and remain the property of Lessor.
(d) In the event that the making of any Modifications require the
removal or physical replacement of any existing component of any Items of
Equipment leased under the relevant Lease, Lessee shall properly store any such
replaced component at the same location where the Items of Equipment are
located and, at the expiration or earlier termination of the Lease term, shall
return such replaced component to Lessor, or its designee, in Return Condition.
In the event that any such replaced component being stored by Lessee is lost,
stolen or damaged to the extent that it cannot be returned in Return Condition,
Lessee shall pay to Lessor an amount equal to the Casualty Value for such
replaced component.
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(e) Anything in this Section 17 to the contrary notwithstanding,
Lessee shall make no nonseverable improvement to any Items of Equipment within
the meaning of Revenue Procedure 75-21 as amended by Revenue Procedure 79- 48
and by Revenue Procedure 81-71 which, if made, would not satisfy the conditions
imposed by Section 4(4).03 of Revenue Procedure 75-21 as so amended.
SECTION 18. TRANSPORTATION EXPENSES.
All transportation and installation expenses incurred in connection
with the delivery of the Equipment to Lessee shall be paid by Lessee. Necessary
packing equipment for the return of Items of Equipment to Lessor at the end of
the applicable Lease term, and such labor as may be necessary for the Equipment
when in the possession of Lessee, shall be furnished by Lessee at its expense.
Transportation expenses incurred in connection with redelivery of the Equipment
to Lessor shall be paid by Lessee.
SECTION 19. INSPECTION AND REPORTS.
(a) Upon request, Lessee shall permit Lessor or persons designated
by Lessor to inspect the Equipment.
(b) Lessee shall immediately notify Lessor of any accident or
damage arising out of the alleged or apparent improper manufacture,
installation, functioning or operation of the Equipment, or any other cause
whatsoever, the time, place and nature of the accident or damage, the names and
addresses of parties involved, persons injured, witnesses and owners of other
property damaged, and such other relevant information as may be known or can
readily be ascertained by Lessee, and shall promptly advise Lessor of all
correspondence, papers, notices and documents received by Lessee in connection
with any claim or demand related to such improper manufacturing, installation,
operation or functioning of the Equipment or charging Lessor with liability
with inspect thereto.
SECTION 20. EVENTS OF DEFAULT AND LESSOR'S REMEDIES.
(a) Any of the following events shall constitute an Event of
Default under any Lease created hereunder: (i) Lessee shall fail to pay any
Basic Rent or other amount due under any such Lease within ten (10) days of the
applicable due date; (ii) Lessee shall attempt to remove, sell, transfer,
encumber, part with possession of, assign or sublet (except as expressly
permitted by the provisions hereon) the Items of Equipment leased under such
Lease or any part thereof; (iii) any representation. or warranty made by Lessee
in this Agreement or in any document or certificate furnished to Lessor in
connection herewith, shall prove to have been incorrect in any material respect
when made; (iv) Lessee shall fail to perform or observe any other of its
covenants or obligations under the Lease for a continuous period of thirty (30)
days after receipt by Lessee of written notice thereof from Lessor; (v) Lessee
shall cease doing business as a going concern; (vi) a petition shall be filed
by or against Lessee under the Federal Bankruptcy Code or an amendment thereto
(including a petition
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for reorganization or arrangement), and, if filed against Lessee, such petition
shall not have been discharged within sixty (60) days after such filing; (vii)
a receiver shall be appointed for Lessee or its property; or (viii) Lessee
shall become insolvent, make an assignment for the benefit of creditors, or
offer a composition of any of its indebtedness.
(b) Upon the occurrence of any Event of Default under such Lease,
as specified in subsection (a) of this Section 20, and at any time thereafter
so long as the same shall be continuing, Lessor or any assignee of Lessor with
respect to such Lease, at its sole option, may (i) declare immediately due and
payable by Lessee, as liquidated damages for loss of a bargain and not as a
penalty, an amount equal to the sum of (A) all unpaid Rent due under such Lease
up to the date of payment by Lessee under this clause (i), and (B) the Casualty
Value of the Items of Equipment leased under such Lease as of the Basic Rent
Date immediately preceding the date on which Lessor or its assignee declares an
Event of Default to exist; (ii) terminate the Lease, without prejudice to any;
other remedies of Lessor hereunder; (iii) whether or not the Lease has been
terminated pursuant to subsection (il) above, take possession of the Items of
Equipment subject to such Lease during Lessee's normal business hours, wherever
the Items of Equipment may be located, without demand, notice, court order or
other process of law, and Lessee hereby waives any right it may have to notice
and hearing before repossession. Lessee hereby further waives any and all
damages occasioned by such entry or taking of possession. Any taking of
possession pursuant to this subsection (b)(iii) shall not in itself constitute
termination of the Lease and shall not, in any event, relieve Lessee of its
obligations under the lease.
Lessee shall reimburse Lessor for all reasonable expenses (including
attorneys' fees) incurred by Lessor in enforcing its rights under this Section
20. Any unpaid Rent and any unpaid Casualty Value payable as liquidated damages
pursuant to clause (i) of this subsection 20(b) shall bear interest at the
Overdue Rate until paid in full.
Upon taking possession of any Items of Equipment after an Event of
Default, Lessor may, at its sole option and without notice to Lessee, lease the
repossessed Items of Equipment to any third party on such terms and conditions
as Lessor may determine, or sell such Items of Equipment at public auction or
at private sale, free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to such sale or lease, except to the extent
specified in this subsection 20(b). In the event that Lessor leases or sells
any repossessed Items of Equipment, the Net Proceeds of such lease or sale
shall first be credited to any amounts due and owing by Lessee under clause (i)
above, and second, shall be used to reimburse Lessee for any payment already
made by Lessee on account of amounts owed under clause (i) above Any surplus
shall be retained by Lessor to the extent permitted by Section 2(c) of the
Waiver and Amendment No. 3 between Lessor and Lessee et al. dated July 2, 1996.
Lessee shall remain liable for any deficiency resulting from an excess of
amounts due and owing by Lessee over Net Proceeds. No right or remedy conferred
upon or reserved to Lessor hereunder shall be exclusive of any other right or
remedy, and each shall be cumulative and in addition to all other remedies
available at law or in equity. The failure of Lessor to exercise the rights
granted hereunder upon the occurrence of any Event of Default shall not
constitute a waiver of any further or subsequent Event of Default.
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<PAGE> 15
SECTION 21. SUBLEASES AND ASSIGNMENTS.
(a) Lessee may, at its sole cost and expense, sublease any Items
of Equipment, or assign its rights or obligations under the Lease for such
Items of Equipment, to Lyon Credit Corporation as security for its obligations
to that lender, and to Lessee's subsidiaries and affiliates for use in its
operations outside the continental United States.
(b) Lessor may, at any time and from time to time, without notice
to, or the consent of, Lessee: (i) assign, sell or transfer, in whole or in
part, Lessor's rights under any Leases created hereunder with respect to any
Items of Equipment, and any or all of Lessor's rights thereunder, including,
without limitation, the right to receive any or all Rent payable under such
Leases, in each case to First Interstate Bank of Denver, N.A.; (ii) sell,
transfer or assign legal title to and ownership of the Equipment or any Items
of Equipment thereof to any Person; and (iii) mortgage or grant a security
interest in any Leases or in the Equipment or any Items of Equipment thereof,
to any Person; provided, however, that any such assignment, sale, transfer,
mortgage or grant of security interest shall be subject to Lessee's rights
under any such Leases so long as no Event of Default has occurred and is
continuing thereunder. Subsequent to any such assignment by Lessor, Lessor
shall give Lessee written notice of such assignment, identifying therein the
name and address of the assignee. Any such assignee of Lessor shall have all of
the right, title and interest of Lessor as relate solely to the Items of
Equipment and Lease or Leases assigned sold, or transferred to such assignee,
and any assignee, other than an assignee to whom Lessor has only granted a
security interest, shall become for all purposes of this Agreement and the
relevant Lease, beginning on the date of such assignment, the Lessor of such
Items of Equipment. Lessee hereby consents to such assignments, and agrees to
acknowledge in writing any such assignment within five (5) days after receipt
of written notice thereof from Lessor, and in the case of any such assignment,
to take steps to confirm the status of any such assignee hereunder and under
the relevant Lease, including without limitation, providing to such assignee,
at Lessee's sole cost and expense, any document (including Uniform Commercial
Code financing statements or continuation or assignment statements) reasonably
requested by such assignee to evidence or protect such assignee's title or
other interest in the relevant Items of Equipment.
(c) So long as Lessor's rights hereunder are assigned to any
assignee, Lessee may not assert against any such assignee any defense,
counterclaim, recoupment or set-off Lessee
15
<PAGE> 16
may have against Lessor. Lessee agrees that it will not seek to cancel or
terminate this Agreement or any of the Leases created hereunder (except as
expressly permitted herein) or otherwise avoid its obligations hereunder or
thereunder as against such assignee, and further agrees that it will pay to
such assignee all Rent due under such Leases and assigned to such assignee,
without regard to any such defense, counterclaim, recoupment or set-off, and
will not seek to recover any part of the same from such assignee.
SECTION 22. LESSEE'S AND LESSOR'S WARRANTIES.
(a) Lessee hereby warrants and represents to Lessor, its
successors and assigns as follows: (i) Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the State of Wyoming,
and is qualified to do business in, and is in good standing in, each state or
other jurisdiction in which the nature of its business makes such
qualifications necessary (including each state or other jurisdiction in which
the Equipment or any part thereof will be located); (ii) Lessee has the
corporate power and due authority to execute and to perform its obligations
under this Agreement, the Lease Documents and any related documents and
certificates and to lease the Equipment under the Leases; (iii) the leasing of
the Equipment from Lessor, the execution and delivery of this Agreement, the
Lease Documents and any other related instruments, documents and agreements,
and the compliance by Lessee with the terms thereof do not conflict with and
will not result in a violation or breach of Lessee's Certificate or Articles of
Incorporation, its Bylaws, or any indenture, contract or agreement by which
Lessee is bound, or any statute, judgment, decree, rule or regulation binding
upon Lessee; (iv) no consent or approval of any trustee or holder of any
indebtedness or obligation of Lessee, or of any governmental authority, is
necessary (or, if required, such consent or approval has been obtained;) for
Lessee's execution or performance of this Agreement or any of the Lease
Documents; (v) this Agreement and the other Lease Documents, when executed by
Authorized Signatories, will constitute legal, valid and binding obligations of
Lessee, enforceable against Lessee in accordance with their terms, subject to
enforcement limitations imposed by rules of equity, bankruptcy or similar laws;
(vi) no further action, including any filing or recording of any document is
necessary or advisable in order to establish and perfect Lessor's title to and
interest in, the Equipment as against Lessee or third parties, or any of them,
in any applicable jurisdiction; (vii) no mortgage, deed of trust, deed to
secure debt or other lien which now covers or affects, or which may hereafter
cover or affect, any property or interest therein of Lessee, now attaches or
hereafter will attach to the Equipment or any Items of Equipment, or in any
manner affects or will affect adversely Lessor's right, title and interest
therein; (viii) there is no litigation or other proceeding now pending or, to
the best of Lessee's knowledge threatened, against or affecting Lessee in any
court or before any regulatory commission, board or other administrative
governmental agency which would directly or indirectly adversely affect or
impair the title of Lessor to the Equipment, or which, if decided adversely to
Lessee, would have a Materially Adverse Effect; (ix) all balance sheets,
statements of profit and loss and other financial data that have been delivered
to Lessor with respect to Lessee (A) are complete and correct in all material
respects, (B) accurately present the financial condition of Lessee on the
dates, and the results of its operations for the periods for which they have
16
<PAGE> 17
been furnished, (C) have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods covered
thereby, and (D) disclose all known liabilities, direct and contingent, as of
their respective dates; add (x) there has been no change in the condition of
Lessee, financial or otherwise, since the date of the most recent financial
statements delivered to Lessor with respect to Lessee other than changes in the
ordinary course of business, none of which changes, either separately or in
aggregate, have had or may have a Materially Adverse Effect.
(b) Lessor hereby warrants and represents to Lessee, its
successors and assigns, that: (i) Lessor is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Wyoming, and is qualified to do business in, and is in good standing in the
State of Wyoming; (ii) Lessor has the power and authority to execute and
perform its obligations under this Agreement and the other Lease Documents;
(iii) the leasing of the Equipment from Lessor, the execution and delivery of
this Agreement and the other Lease Documents, and the compliance by Lessor with
the terms thereof, do not conflict with and will not result in a violation or
breach of Lessor's Certificate of Organization, its Operating Agreement or
conflict with any indenture, contract or agreement by which Lessor is bound, or
with any statute, judgment, decree, rule or regulation binding upon Lessor;
(iv) no consent or approval of any trustee or holder of any indebtedness or
other obligation of Lessor, or of any governmental authority, is necessary (or,
if required, such consent or approval has been obtained) for Lessor's execution
or performance of this Agreement and the other Lease Documents; and (v) this
Agreement and the other Lease Documents, when executed by the duly authorized
members of Lessor, will constitute legal, valid and binding obligations of
Lessor, enforceable against Lessor in accordance with their terms, subject to
enforcement limitations imposed by rules of equity, bankruptcy or similar laws.
SECTION 23. LESSOR'S RIGHT TO PERFORM FOR LESSEE.
If Lessee (i) fails to make any payment required to be made by it
hereunder or (ii) fails to perform or comply with any of its covenants or
agreements contained herein, then Lessor may itself, after notice to Lessee,
make any such payment or perform or comply with any such agreement, and the
amount of any such payment and the amount of the expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
covenant or agreement, as the case may be, shall, together with interest
thereon accruing from the date of demand by Lessor at the Overdue Rate, be
deemed Supplemental Rent due Lessor hereunder; provided, however, that no such
payment, performance or compliance by Lessor shall be deemed to cure any Event
of Default hereunder.
SECTION 24. FURTHER ASSURANCES.
Lessee will promptly and duly execute and deliver to Lessor, and any
assignee of Lessor, such other documents, and perform such further acts,
including, without limitation, providing such amendments to this Agreement or
any Lease created hereunder as may be
17
<PAGE> 18
reasonably required by Lessor or by any assignee of Lessor from time to time in
order to carry out more effectively the intent and purposes of this Agreement
or any Lease created hereunder.
SECTION 25. NOTICES.
All notices provided for or required under the terms and provisions
hereof shall be in writing, and any such notice shall be deemed given when
personally delivered or when deposited in the United States mail, with proper
postage prepaid, for first class certified mail, addressed (i) if to Lessor or
Lessee, at their respective addresses as set forth herein or at such other
address as either of them shall, from time to time, designate in writing to the
other, and (ii) if to any assignee of Lessor, to the address of such assignee
as such assignee shall designate in writing to Lessor and Lessee.
SECTION 26. SEVERABILITY OF PROVISIONS.
In the event any one or more of the provisions contained herein shall
for any reason be held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof.
SECTION 27. BENEFIT.
This Agreement shall be binding upon and shall inure to the benefit of
the parties, their respective heirs, legal representatives, successors and
permitted assigns.
SECTION 28. HEADINGS.
The paragraph headings hereof have been inserted for convenience only
and shall not affect the meaning or interpretation of any of the provisions of
this Agreement.
SECTION 29. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Wyoming.
SECTION 30. AMENDMENTS.
This Agreement and each other Lease Document collectively constitute
the entire agreement between Lessor and Lessee with respect to the leasing of
the Equipment and may be amended or modified only by a writing signed by the
parties hereto or their respective successors and assigns.
SECTION 31. PURCHASE OPTION.
Lessee shall have the right, at any time during the Term hereof, to
purchase the Equipment as of the first day of any month for a purchase price
equal to the amount for that month shown on the Schedule attached as Exhibit B
hereto.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed the day and year first above written.
LESSOR:
MELODI LANE INVESTMENTS, LLC
By: /s/ ROBERT W. ESPY III
------------------------------------
Title: Member
---------------------------------
LESSEE:
AIR DRILLING SERVICES, INC.
By: /s/ CHAMAN MALHOTRA
-----------------------------------
Title: President
---------------------------------
[CORPORATE SEAL]
ATTEST: /s/ ROBERT W. ESPY III
--------------------------------
Title: Secretary
---------------------------------
19
<PAGE> 20
EQUIPMENT SCHEDULE
Equipment Schedule No. 1, dated July 3, 1996, to Master Equipment
Lease Agreement, dated July 3, 1996.
This Equipment Schedule hereby incorporates by reference, as though
set forth in its entirety, the provisions and definitions of the Master
Equipment Lease Agreement, dated July 3, 1996, between MELODI LANE INVESTMENTS,
LLC, a Wyoming limited liability company ("Lessor") and AIR DRILLING SERVICES,
INC., a Wyoming corporation ("Lessee").
1. Equipment.
MANUFACTURER: Joy
Quantity Type Description
1 WB12 Booster
2. Definitions.
The Basic Rent for all Items of Equipment on this Schedule shall be
$2,466.67 per month and shall be payable on the first day of each calendar
month (to and including the Last Basic Rent Date identified on the relevant
Certificate of Acceptance), or, when the first day of the month falls on a
nonbusiness day, the first business day thereafter (each such date referred to
as a "Basic Rent Date"). The definitions on the relevant Certificate of
Acceptance are applicable to this Schedule.
CERTIFICATE OF ACCEPTANCE
Attached to and made a part of Equipment Schedule No. 1, dated July 3,
1996 to Master Equipment Lease Agreement (the "Equipment Lease") dated July 3,
1996, between MELODI LANE INVESTMENTS, LLC, a Wyoming limited liability
company ("Lessee") and AIR DRILLING SERVICES, INC., a Wyoming corporation
("Lessor").
CONDITION OF EQUIPMENT.
The Lessee certifies that all Items of Equipment described below have
been delivered to the location indicated below, properly installed, tested and
inspected by the Lessee, found to be in good order, and accepted as Items of
Equipment under the Equipment Lease, all on the date indicated.
20
<PAGE> 21
First basic rent date: July 1, 1996 Manufacturer: Joy
Last basic rent date: June 1, 2001 Location of Equipment: Casper
Expiration date: June 30, 2001 Acceptance date: July 3
Overdue rate:________________________
Items of Equipment: Booster
Model Serial Casualty
Features Number Value
Joy Booster, #B93
Model #WB-12 A40O47/12VA55688 $165,000.00
The Lessee hereby represents and warrants to Lessor that (i) no Event
of Default or event which, with the giving of notice or the lapse of time, or
both, would become such an Event of Default under the Equipment Lease has
occurred and is continuing, and (ii) the Lessee has obtained and there are in
full force and effect, all insurance policies with respect to the Equipment
required to be obtained under terms of the Equipment Lease.
All capitalized terms used herein without definition shall be used as
defined in the Equipment Lease.
LESSEE: AIR DRILLING SERVICES, INC.
By: /s/ ROBERT W. ESPY III
-----------------------------------
Title: V. President
--------------------------------
[CORPORATE SEAL] ATTEST: /s/ H. ROSS ARNOLD
--------------------------------
Title: Chairman
--------------------------------
21
<PAGE> 22
EQUIPMENT SCHEDULE
Equipment Schedule No. 2, dated July 3, to Master Equipment
Lease Agreement, dated July 3, 1996.
This Equipment Schedule hereby incorporates by reference, as though
set forth in its entirety, the provisions and definitions of the Master
Equipment Lease Agreement, dated July 3, 1996, between MELODI LANE INVESTMENTS,
LLC, a Wyoming limited liability company ("Lessor") and AIR DRILLING SERVICES,
INC., a Wyoming corporation ("Lessee").
1. Equipment.
MANUFACTURER: Joy
Quantity Type Description
1 WB12 Booster
2. Definitions.
The Basic Rent for all Items of Equipment on this Schedule shall be
$2,466.67 per month and shall be payable on the first day of each calendar
month (to and including the Last Basic Rent Date identified on the relevant
Certificate of Acceptance), or, when the first day of the month falls on a
nonbusiness day, the first business day thereafter (each such date referred to
as a "Basic Rent Date"). The definitions on the relevant Certificate of
Acceptance are applicable to this Schedule.
CERTIFICATE OF ACCEPTANCE
Attached to and made a part of Equipment Schedule No. 2, dated July 3,
to Master Equipment Lease Agreement (the "Equipment Lease") dated July 3,
between MELODI LANE INVESTMENTS, LLC, a Wyoming limited liability company
("Lessee") and AIR DRILLING SERVICES, INC., a Wyoming corporation ("Lessor").
CONDITION OF EQUIPMENT.
The Lessee certifies that all Items of Equipment described below have
been delivered to the location indicated below, properly installed, tested and
inspected by the Lessee, found to be in good order, and accepted as Items of
Equipment under the Equipment Lease, all on the date indicated.
22
<PAGE> 23
First basic rent date: - July 1, 1996 Manufacturer: Joy
Last basic rent date: June 1, 2001 Location of Equipment: Casper
Expiration date: June 30, 2001 Acceptance date: July 3
Overdue rate:________________________
Items of Equipment: Booster
Model Serial Casualty
Features Number Value
Joy Booster, #B94
Model #WB-12 A40048/12VA71033 $165,000.00
The Lessee hereby represents and warrants to Lessor that (i) no Event
of Default or event which, with the giving of notice or the lapse of time, or
both, would become such an Event of Default under the Equipment Lease has
occurred and is continuing, and (ii) the Lessee has obtained and there are in
full force and effect, all insurance policies with respect to the Equipment
required to be obtained under terms of the Equipment Lease.
All capitalized terms used here in without definition shall be used as
defined in the Equipment Lease.
LESSEE: AIR DRILLING SERVICES, INC.
By: /s/ ROBERT W. ESPY III
-----------------------------------
Title: Vice President
--------------------------------
[CORPORATE SEAL] ATTEST: /s/ H. ROSS ARNOLD
-------------------------------
Title: Chairman
-------------------------------
23
<PAGE> 24
EQUIPMENT SCHEDULE
Equipment Schedule No. 3, dated July 3, to Master Equipment
Lease Agreement, dated July 3, 1996.
This Equipment Schedule hereby incorporates by reference, as though
set forth in its entirety, the provisions and definitions of the Master
Equipment Lease Agreement, dated July 3, 1996, between MELODI LANE INVESTMENTS,
LLC, a Wyoming limited liability company ("Lessor") and AIR DRILLING SERVICES,
INC., a Wyoming corporation ("Lessee").
1. Equipment.
MANUFACTURER: Joy
Quantity Type Description
1 WB12 Booster
2. Definitions.
The Basic Rent for all Items of Equipment on this Schedule shall be
$2,466.67 per month and shall be payable on the first day of each calendar month
(to and including the Last Basic Rent Date identified on the relevant
Certificate of Acceptance), or, when the first day of the month falls on a
nonbusiness day, the first business day thereafter (each such date referred to
as a "Basic Rent Date"). The definitions on the relevant Certificate of
Acceptance are applicable to this Schedule.
CERTIFICATE OF ACCEPTANCE
Attached to and made a part of Equipment Schedule No. 3, dated July 3,
to Master Equipment Lease Agreement (the "Equipment Lease") dated July 3,
between MELODI LANE INVESTMENTS, LLC, a Wyoming limited liability company
("Lessee") and AIR DRILLING SERVICES, INC., a Wyoming corporation ("Lessor").
CONDITION OF EQUIPMENT.
The Lessee certifies that all Items of Equipment described below have
been delivered to the location indicated below, properly installed, tested and
inspected by the Lessee, found to be in good order, and accepted as Items of
Equipment under the Equipment Lease, all on the date indicated.
24
<PAGE> 25
First basic rent date: - July 1, 1996 Manufacturer: Joy
Last basic rent date: June 1, 2001 Location of Equipment: Casper
Expiration date: June 30, 2001 Acceptance date: July 3
Overdue rate:________________________
Items of Equipment: Booster
Model Serial Casualty
Features Number Value
Joy Booster, #B95
Model #WB-12 A40049/12VA68528 $165,000.00
The Lessee hereby represents and warrants to Lessor that (i) no Event
of Default or event which, with the giving of notice or the lapse of time, or
both, would become such an Event of Default under the Equipment Lease has
occurred and is continuing, and (ii) the Lessee has obtained and there are in
full force and effect, all insurance policies with respect to the Equipment
required to be obtained under terms of the Equipment Lease.
All capitalized terms used here in without definition shall be used as
defined in the Equipment Lease.
LESSEE: AIR DRILLING SERVICES, INC.
By: /s/ ROBERT W. ESPY III
-----------------------------------
Title: Vice President
--------------------------------
[CORPORATE SEAL] ATTEST: H. ROSS ARNOLD
-------------------------------
Title: Chairman
---------------------------------
25
<PAGE> 26
EXHIBIT B
AIR DRILLING SERVICES, INC.
SCHEDULE OF REPURCHASE OPTION
MASTER LEASE AGREEMENT - EQUIPMENT
<TABLE>
<CAPTION>
DATE OPTION PRICE
---- ------------
<S> <C>
Up to Aug-1-96 $350,000.00
-------------------------------------
Up to Sep-1-96 $345,389.96
-------------------------------------
Up to Oct-1-96 $340,744.38
-------------------------------------
Up to Nov-1-96 $336,062.99
-------------------------------------
Up to Dec-1-96 $331,345.52
-------------------------------------
-------------------------------------
Up to Jan-1-97 $326,591.68
-------------------------------------
Up to Feb-1-97 $321,801.20
-------------------------------------
Up to Mar-1-97 $316.973.79
-------------------------------------
Up to Apr-1-97 $312,109.17
-------------------------------------
Up to May-1-97 $307,207.05
-------------------------------------
Up to Jun-1-97 $302,267.14
-------------------------------------
Up to Jul-1-97 $297,289.16
-------------------------------------
Up to Aug-1-97 $292,272.80
-------------------------------------
Up to Sep-1-97 $287,217.78
-------------------------------------
Up to Oct-1-97 $282,123.79
-------------------------------------
Up to Nov-1-97 $276,990.53
-------------------------------------
Up to Dec-1-97 $271,817.71
-------------------------------------
-------------------------------------
Up to Jan-1-98 $266,605.01
-------------------------------------
Up to Feb-1-98 $261,352.13
-------------------------------------
Up to Mar-1-98 $256,058.76
-------------------------------------
Up to Apr-1-98 $250,724.59
-------------------------------------
Up to May-1-98 $245,349.30
-------------------------------------
Up to Jun-1-98 $239,932.57
-------------------------------------
Up to Jul-1-98 $234,474.09
-------------------------------------
Up to Aug-1-98 $228,973.53
-------------------------------------
Up to Sep-1-98 $223,430.57
-------------------------------------
Up to Oct-1-98 $217,844.89
-------------------------------------
Up to Nov-1-98 $212,216.15
-------------------------------------
Up to Dec-1-98 $206,544.02
-------------------------------------
-------------------------------------
Up to Jan-1-99 $200,828.17
-------------------------------------
Up to Feb-1-99 $195,068.26
-------------------------------------
Up to Mar-1-99 $189,263.95
-------------------------------------
Up to Apr-1-99 $183,414.90
-------------------------------------
Up to May-1-99 $177,520.76
-------------------------------------
Up to Jun-1-99 $171,581.19
-------------------------------------
Up to Jul-1-99 $165,595.84
-------------------------------------
Up to Aug-1-99 $159,564.35
-------------------------------------
Up to Sep-1-99 $153,486.37
-------------------------------------
Up to Oct-1-99 $147,361.53
-------------------------------------
Up to Nov-1-99 $141,189.48
-------------------------------------
Up to Dec-1-99 $134,969.86
-------------------------------------
-------------------------------------
Up to Jan-1-00 $128,702.29
-------------------------------------
Up to Feb-1-00 $122,386.41
-------------------------------------
Up to Mar-1-00 $116,021.85
-------------------------------------
Up to Apr-1-00 $109,608.23
-------------------------------------
Up to May-1-00 $103,145.17
-------------------------------------
Up to Jun-1-00 $96,632.29
-------------------------------------
Up to Jul-1-00 $90,069.20
-------------------------------------
Up to Aug-1-00 $83,455.52
-------------------------------------
Up to Sep-1-00 $76,790.86
-------------------------------------
Up to Oct-1-00 $70,074.83
-------------------------------------
Up to Nov-1-00 $63,307.03
-------------------------------------
Up to Dec-1-00 $56,487.06
-------------------------------------
-------------------------------------
Up to Jan-1-01 $49,614.52
-------------------------------------
Up to Feb-1-01 $42,689.01
-------------------------------------
Up to Mar-1-01 $35,710.11
-------------------------------------
Up to Apr-1-01 $28,677.42
-------------------------------------
Up to May-1-01 $21,590.52
-------------------------------------
Up to Jun-1-01 $14,448.99
-------------------------------------
Up to Jul-1-01 $7,252.41
-------------------------------------
Up to Aug-1-01 $0.00
-------------------------------------
</TABLE>
Page 1
<PAGE> 27
MEMORANDUM OF LEASE
Robert W. Espy, III and Chaman Malhotra hereby certify the following
information regarding the two leases:
1. A master equipment lease agreement dated June 23, 1996 between
Melodi Lane Investments, LLC and Air Drilling Services, Inc. has the following
material provisions:
A. Property: 3 Joy WBI2 Boosters
B. Term of the Lease: July 1, 1996 to June 30, 2001
2. An industrial lease dated July 3, 1996 between Melodi Lane
Investments, LLC as Landlord and Air Drilling Services, Inc., as Tenant has the
following material:
A. Property: Real Estate located at 2122 Melodi Lane, Casper,
Wyoming 82601 as more particularly described on the attached
exhibit.
B. Term of the lease: July 1, 1996 to June 30, 2001
/s/ ROBERT W. ESPY, III
---------------------------------------
Robert W. Espy, III
Member, Melodi Lane Investments, LLC
/s/ CHAMAN MALHOTRA
---------------------------------------
Chaman Malhotra
President, Air Drilling Services, Inc.
THE STATE OF COLORADO )
COUNTY OF ARAPAHOE )ss.
The foregoing instrument was acknowledged before me by Robert W. Espy
III, Member of Melodi Lane Investments, LLC and by Chaman Malhotra, President
of Air Drilling Services Inc. this 1st day of July, 1996.
Witness my hand and official seal.
/s/ TWYLA K. SCHWIEGER
[NOTARY SEAL] ---------------------------------------
Notary Public: Twyla K. Schwieger
13111 E. Briarwood Ave., Suite 360
Englewood, Colorado 80112
My commission expires: December 7, 1999.
<PAGE> 1
EXHIBIT 10.20
AGREEMENT
This Agreement made February 1, 1993, by and between Chaman Malhotra
and Aruna Malhotra of Englewood, Colorado, Agents, Air Drilling Services, Inc.
of Englewood, Colorado, U.S.A.; Specialty Testing and Consulting Ltd.,
Edmonton, Alberta, Canada, and Canadian Air Drilling Services, Ltd. of Calgary,
Alberta, Canada, hereinafter called the Tenants in Common.
Recitals
The Tenants in Common have contributed to a common fund to acquire
title to the premises known as: 195 E. Desert Falls Drive, Palm Desert,
California, U.S.A. ("the Premises"), shown on the attached Exhibit A.
Each of the Tenants in Common has an equal and undivided one-third
interest in the Premises.
The Tenants in Common agree, and Chaman Malhotra and Aruna Malhotra are
therefore appointed as Agents, to hold title in their name for the benefit of
the Tenants in Common. Although title will be held in the name of the Agents,
each of the Tenants in Common has all the rights under this Agreement.
The parties have agreed to limitations on the right and power to
transfer their undivided interests and also to provide for anticipated future
contributions to such common fund for the purpose of improving the premises as
provided herein.
Now, therefore, the parties agree as follows:
1. Transfer restriction. Each of the Tenants in Common will not
dispose, transfer, devise, convey, lease, mortgage, or otherwise encumber his
undivided interest in the Premises, without the written consent of the other
Tenants in Common.
(a) In the event that any Tenant in Common wishes to sell its
share, then its undivided interest shall be offered for sale to the other
Tenants in Common at the computed value. In the event that the undivided
interest of the Seller is not purchased by the other Tenants in Common, then the
undivided interest shall be free of all restrictions.
2. Partition. Each of the Tenants in Common irrevocably waives any and
all rights that it may have to maintain any action for partition with respect
to its undivided interest in the Premises or to compel any sale thereof under
the California Statutes or any other Laws now existing or subsequently enacted.
3. Improvement of premises. Any improvement, sale, or mortgaging of the
Premises may be made only of the entire premises and then only upon the written
consent of all Tenants in Common. Each of the Tenants in Common shall from time
to time advance or cause to be advanced, on a pro rata basis, moneys to a
common fund as such moneys shall from time to time be required to pay for the
maintenance and operation of the Premises, including interest and principal on
mortgage liens, and for the cost of any Improvement. Should any Tenant in
Common for any reason fall or refuse to advance or cause to be advanced its pro
rata share of moneys required, then and in that event, the other Tenants in
Common, as the case may be, shall have the right to acquire the interest of the
delinquent Tenant in Common at "computed value" as provided in subparagraph (b)
of paragraph 1. In the computation for this purpose the value of any real
estate and interest in real estate, including mortgages and leasehold
improvements, shall be the book value as shown on the regular books of account
without any adjustment for any agreed or appraised value.
4. Termination. This agreement shall terminate on the sale of the
Premises and the distribution to the Tenants in Common of the net proceeds of
the sale, or at such other times as the parties may agree in writing.
<PAGE> 2
5. Definitions of terms. The following terms shall have the
meanings and definitions as set forth below:
(a) "Related individual" or "related individuals" shall mean
brothers, sisters, spouses, lineal descendants, spouses of lineal descendants,
trustees for the benefit of any such persons, and corporations owned or
controlled by any of the foregoing.
(b) "Proportionate share" shall mean that portion of the
undivided interest in the Premises offered for sale which the undivided
interests owned by a Tenant in Common and its "related individuals" bears to all
of the undivided interest in the Premises, other than that offered for sale.
(c) "Computed value" shall mean the value of the undivided
interests in the Premises as computed by the regularly retained accountants of
the Tenants in Common. Such computation shall be binding and conclusive upon
the parties. The computation shall be made in accordance with generally accepted
accounting practices consistently applied and the following shall be observed:
(1) The computation shall be made as at the last day
of the month preceding the month in which the event occurred conferring the
right to purchase.
(2) No allowance of any kind shall be made for
goodwill or any similar intangible asset.
(3) All accounts payable shall be taken face amount,
less deductible discounts, and all accounts receivable shall be taken at face
amount, less discounts to the payors and a reasonable reserve for bad debts.
(4) All unpaid and accrued federal, state, city and
or other local taxes and assessments, including, but not limited to sales,
excise, franchise, income, capital stock, real estate, sewer and water taxes,
shall be deducted as liabilities.
(5) All of the assets shall be valued as shown on
the regular books of account, except that real estate and interest in real
estate, including mortgages and leasehold improvements, shall be computed at a
value to be agreed upon by the participants.
(6) In the event that the participants do not or
cannot, for any reason, agree upon a value for real estate and interest in real
estate, including mortgages and leasehold improvements, then and in that event,
the following procedure shall be adopted for the determination of the "computed
value" of those assets and for the payment therefore: The parties shall first
determine if they have at any time within the preceding six months executed any
agreement in writing or certificate in writing fixing the value as among
themselves for the particular assets, or for any portion thereof. If there is
such a writing, then as to the covered assets, the value fixed in the
controlling agreement shall be controlling for the purpose of fixing "computed
value" with respect thereto. As to the assets for which a "computed value" is
thus determined, payment shall be made within 30 days after the determination of
"computed value", and that payment shall be made within such period
notwithstanding the fact that an appraisal may be required in order to fix the
"computed value" of other assets.
(7) As to any real estate and interest in real
estate, including mortgages and leasehold improvements, for which there is no
controlling agreement of "computed value", an appraisal shall be made as
promptly as feasible in the following manner: Each of the three Tenants in
Common shall designate one appraiser. The three appraisers shall fix a value
for the real estate and interest in real estate. The decision of the majority
of real estate appraisers so selected shall be conclusive and binding upon the
parties. All fees and expenses of all the appraisals shall be shared equally by
the seller and purchaser.
(8) The parties acknowledge that the prompt
determination of "computed value" is of great importance to all concerned. Any
action required by them, or any of them, with respect to the determination of
"computed value" will be taken with the utmost dispatch and diligence.
<PAGE> 3
6. Effect on Transferee. Whenever any party to this agreement or
any "related individual" or any other person acquires any interest in the
Premises, the interest acquired shall be subject to all of the terms of this
agreement with the same force and effect as if the party, "related individual",
or person had owned the interest at the time of the execution of this agreement
and had in fact signed this agreement at that time.
7. Binding Effect. This agreement contains the entire
understanding between the parties and may not be changed or modified orally.
Except as otherwise provided in this agreement, this agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
parties.
8. Internal Revenue Code Election. This agreement is not intended
to create and shall not be construed to create a relationship of partnership or
an association for the profit between or among the parties hereto. Therefore
each party hereby effected elects to be excluded from the application of all
other provision of subchapter "K" chapter one subtitle "A", of the Internal
Revenue Code as permitted and authorized by Section 761 of the Code and the
regulations thereunder.
In witness whereof the parties have cause these presents to be duly
signed and sealed the day and year first above written.
/s/ CHAMAN MALHOTRA
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Chaman Malhotra
/s/ ARUNA MALHOTRA
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Aruna Malhotra
Air Drilling Services, Inc.
/s/ MARK GERNER
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By: Mark Gerner
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Its: Executive Vice President
Specialty Testing and Consulting Ltd.
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By:
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Canadian Air Drilling
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By:
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<PAGE> 1
EXHIBIT 10.21
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and James F. Farr ("EXECUTIVE") on this 27th day of November,
1996, but to be effective on the 27th day of November, 1996 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to
be employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated June 25, 1996 which they desire to amend and fully restate upon
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 1999 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "Renewal Date") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "Renewal Term")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be
in the capacity of President and Chief Executive Officer. In such capacity,
Executive shall perform the duties for which he currently is responsible as an
executive officer of Company. Executive shall perform his
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duties hereunder in accordance with any lawful instructions, rules, regulations
or policies made or adopted by Company's Board of Directors, including those
applicable to Company's Executives generally, provided that Executive shall not
have his duties, authority, areas of responsibility, offices, immediate or
support staff reduced or eliminated during the Employment Period. During the
Employment Period, Executive shall devote his full time, and best efforts and
skills to the business and interests of Company, do his utmost to further
enhance and develop Company's best interests and welfare, and endeavor to
improve his ability and knowledge of Company's business, particularly as it
relates to his duties hereunder, in an effort to increase the value of his
services for the mutual benefit of the parties hereto. During the Employment
Period, it shall not be a violation of this Agreement for Executive to (a)
serve on corporate, civic, or charitable boards or committees (except for
Boards or committees of a Competing Business (as defined in Section 4.1)), (b)
deliver lectures, fulfill teaching or speaking engagements, (c) manage personal
investments, so long as such activities do not materially interfere with
performance of Executive's responsibilities under this Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the principal executive offices of Company at One Lawrence Centre,
2507 North Frazier, Conroe, Texas 77305, or at such other place where
Company's principal executive offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or
entity controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Twenty-Three Thousand Three Hundred and Thirty-Three
Dollars ($23,333) per month (the "BASE SALARY"), which shall be prorated for
any partial employment period and payable in the manner and on the timetable in
which Company's payroll is customarily handled, or at such more frequent
intervals as Company and Executive may hereafter agree to from time to time.
No overtime compensation shall be payable to Executive. Company's Board of
Directors shall review Executive's performance at least annually and shall make
any adjustments to Executive's compensation that it deems, in its sole
discretion, appropriate, provided that at no time during the Employment Period
shall Executive's compensation be adjusted to an amount below the Base Salary.
Company shall be entitled to withhold from all amounts of
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compensation payable under this Article 2 such amounts on account of payroll
taxes and similar matters as are required by any applicable law, rule, or
regulation of any appropriate governmental authority. Such compensation shall
continue to be paid during any period of physical or mental incapacity unless
and until Executive's employment is terminated as herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for
Executive's performance of his obligations under Article 3 and Article 4 of
this Agreement, Company has previously, granted to Executive 120,000 restricted
shares of Company's Common Stock, and an option to purchase 71,712 shares of
Company's Common Stock, subject to the terms and conditions of Company's 1996
Key Employee Stock Plan, and the terms of the specific agreements relating to
the grants of restricted stock and stock options. Executive hereby
acknowledges and agrees that Company's grant to Executive of such Common Stock
and options, together with other compensation payable to Executive hereunder,
is reasonable and adequate independent consideration for Executive's
performance of his obligations under Articles 3 and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and
stock grant and option described above, Company shall provide Executive with
the following during the Employment Period:
(a) Bonuses, when and based upon or subject to such
terms and conditions as Company's Board of Directors, in its sole and
absolute discretion, may determine provided, however, that an annual
bonus plan shall be prepared which will make a bonus of thirty three
and one third percent (33 1/3%) of Base Salary payable if all bonus
plan criteria are met;
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement
in effect from time to time;
(d) Access to and use of Company's health club facility
in accordance with the policies and procedures governing such
facility;
(e) At the option of Executive each year either (1) use
of a current model Company vehicle comparable to a fully equipped
Cadillac, plus reimbursement of the full cost of repairs, maintenance,
gasoline, oil and cleaning, or (2) an automobile allowance of
$1,700.00 per month;
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(f) Use of a Company paid full membership in a local area
country club of the Executive's choice, and
(g) Reimbursement of the reasonable costs of tuition,
books and travel incurred for Executive's continuing education in
general business or continuing professional education. For each
fiscal year during the Employment Period the reimbursement shall not
exceed ten percent of Executive's annual base compensation as set
forth in Section 2.1.
2.4 VACATION. During the Employment Period, Executive shall
accrue paid vacation time in such amounts and at such times as determined by
Company's Board of Directors, in its sole discretion; provided, however, that
the minimum amount of paid vacation to which Executive shall be entitled shall
be no less than that to which he is entitled as an Executive of Company
immediately prior to the effective date of this Agreement. If such vacation
time is not taken by Executive during the term of this Agreement, Executive
may, at his option, receive a lump sum payment of cash value of the vacation
pay in lieu thereof, or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
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1. Work product resulting from or related to work or
projects performed or to be performed for Company or for clients of
Company, including but not limited to data bases, draft and other
non-public written documents, the interim and final lines of inquiry,
hypotheses, research and conclusions related thereto and the methods,
processes, procedures, analyses, techniques and audits used in
connection therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming,
program patches and system designs;
3. Information relating to Company's proprietary rights
prior to any public disclosure thereof, including but not limited to
the nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details
of research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal
cost information, internal service and operational manuals, and the
manner and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques and methods of obtaining business,
forecasts and forecast assumptions and volumes, and future plans and
potential strategies of Company which have been or are being
discussed;
6. Names of customers and their representatives,
contracts and their contents and parties, customer services, and the
type, quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or
potential customer, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company
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which Executive could reasonably have been expected to acquire in similar work
with another company. The phrase "PUBLICLY KNOWN" shall mean readily
accessible to the public in a written publication and, shall not include
information which is only available by a substantial searching of the published
literature or information the substance of which must be pieced together from a
number of different publications and sources. The burden of proving that
information or skills and experience are not Confidential Information shall be
on the party asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential
Information to any person or entity, either inside or outside of
Company, other than as necessary in carrying out duties on behalf of
Company, without obtaining Company's prior written consent (unless
such disclosure is compelled pursuant to court order or subpoena, and
at which time Executive gives notice of such proceedings to Company),
and Executive will take all reasonable precautions to prevent
inadvertent disclosure of such Confidential Information. This
prohibition against Executive's disclosure of Confidential Information
includes, but is not limited to, disclosing the fact that any
similarity exists between the Confidential Information and information
independently developed by another person or entity, and Executive
understands that such similarity does not excuse Executive from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer
Confidential Information other than as necessary in carrying out his
duties on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to prevent
inadvertent use, copying or transfer of such Confidential Information.
This prohibition against Executive's use, copying, or transfer of
Confidential Information includes, but is not limited to, selling,
licensing or otherwise exploiting, directly or indirectly, any
products or services (including data bases, written documents and
software in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
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3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will
hold for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except
in the ordinary course of his employment hereunder during the Employment
Period, Executive shall not during the Employment Period and for a period of
one (1) year thereafter within any geographic area in which Company conducts
business during the Employment Period (all references to Company shall include
its Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own,
manage, operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, or render services or advice to, any Competing
Business (as defined below) provided, however, that the Executive may
invest in the securities of any enterprise with the power to vote up
to 5% of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such securities
are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of
1934;
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(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
either (1) hire, attempt to hire, contact or solicit with respect to
hiring any Executive of Company, (2) induce or otherwise counsel,
advise or encourage any Executive of Company to leave the employment
of Company, or (3) induce any distributor, representative or agent of
Company to terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Executive in Section 4.1 are essential elements of this Agreement and that, but
for the agreement of the Executive to comply with such covenants, Company would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable
trade secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after
its termination, will be engaged in its highly competitive business in
which many firms, including Company, compete;
(d) A substantial portion of Company's business is
conducted outside the United States;
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(e) Company, pursuant to acquiring certain patents,
technology and associated trade secrets and know-how, will further
develop its worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm
if Executive terminates his employment and enters directly or
indirectly, into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Company;
(i) The enforcement of this Agreement in general, and of
this Article 4 in particular, will not work an undue or unfair
hardship on Executive or otherwise be oppressive to him, it being
specifically acknowledged and agreed by Executive that he has
activities and other business interests and opportunities which will
provide him adequate means of support if the provisions of this
Article 4 are enforced after termination of his employment with
Company; and
(j) the enforcement of this Agreement in general, and of
this Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect.
Executive further agrees that if a court of competent jurisdiction determines
that any provision of this Article 4 is invalid or against public policy, the
remaining provisions of this Article 4 and the remainder of this Agreement
shall not be affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of
Executive set forth in this Article 4 are of a continuing nature and shall
survive the expiration, termination or cancellation of the remainder of this
Agreement regardless of the reason for such therefor and shall survive the
termination, if any, of the Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base
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Salary, and (b) twelve (12) monthly installments equal to his monthly Base
Salary, as defined in Section 2.1, ("NonCompetition Payments"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall
be applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any
period in which Executive is in breach of the obligations set forth in
Articles 3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this
Agreement, at any time during the Employment Period, including,
without limitation, the Initial Term, this Agreement and Executive's
employment hereunder shall terminate upon his death, and Company shall
have the right, in its sole and absolute discretion, to terminate this
Agreement and Executive's employment hereunder at any time by giving
him written notice of such termination (1) for "Cause" (as defined
below), or (2) if Executive shall suffer a Disability (as defined
below). In the event of Executive's death during the Employment
Period, the Company shall (i) pay to Executive's estate an amount
equal to one years Base Salary, (ii) pay to Executive's estate a pro
rata portion of any bonus which would have been payable but for
Executive's death; (iii) vest Executive fully in any Company stock
grant and stock options held by Executive at his death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken
by the Executive and intended to result in substantial
personal enrichment of the Executive at the expense of the
Company;
2. Repeated violations by the Executive of
Executive's obligations under this Agreement or under written
policies of the Company which are demonstrably willful on the
Executive's part, and for which Executive has received more
than one written warning that specifies each area of
Executive's violations;
3. Executive's conviction or pleas of nolo
contendere or equivalent pleas of a felony in a court of
competent jurisdiction;
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4. Executive's use of illegal drugs as
evidenced by a drug test authorized by Company; or
5. Executive's conviction or the entry of a plea
of nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude.
(c) "DISABILITY" shall mean any mental or physical
illness, impairment or condition which renders the Executive incapable
of performing any material portion of his duties for a continuous
period of six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall:
(1) pay to Executive an amount equal to the greater of (i) his total
Base Salary for the remainder of the Employment Period, or (ii) one
month of Base Salary for each full year of service completed with
Company as of the date of termination, (2) cause Executive to be
fully vested in any stock options and stock grants held by Executive,
and (3) pay Executive an amount equal to Executive's most recent
annual bonus. Company shall at its option, make such payments either
in one lump sum on the effective date of termination or over the
remainder of the Employment Period as if the Agreement had not been
terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1 and such termination occurs
within one year of the occurrence of a Change in Control, then Company
shall: (1) pay to Executive an amount equal to the greater of (A)
his total Base Salary for the remainder of the Employment period; (B)
two times the greater of his annualized Base Salary in effect upon
the occurrence of the Change in Control or his annualized Base Salary
in effect on the date of notice termination is received; or (C) one
month of Base Salary for each full year of service completed with the
Company as of the date of termination, (2) pay to Executive an
amount equal to two (2) times his most recent annual bonus, and (3)
cause Executive to be fully vested in any stock options or stock
grants
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held by Executive. Company shall make such payments in one lump sum
on the effective date of termination. A "Change in Control" shall be
deemed to have occurred at any time after the date of this Agreement
that (i) any person (other than those persons who own more than 10% of
the combined voting power of the Company's outstanding voting
securities on the date hereof) becomes the beneficial owner, directly
or indirectly, of 30% or more of the combined voting power of the
Company's then outstanding voting securities, or (ii) individuals who
at the beginning of any period of two consecutive fiscal years
constitute the Company's Board of Directors cease for any reason to
constitute a majority of such Board of Directors at any time during
such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER
CHANGE IN CONTROL." If Executive terminates this Agreement for Good
Cause (defined below) and such termination occurs within one year of
the occurrence of a Change in Control, then Company shall: (1) pay
to Executive an amount equal to the greater of (A) his total Base
Salary for the remainder of the Employment Period; (B) two times the
greater of his annualized Base Salary in effect upon the occurrence of
the Change in Control or his annualized Base Salary in effect on the
date of notice termination is received; or (C) one month of Base
Salary for each full year of service completed with the Company as of
the date of termination, (2) pay to Executive an amount equal to two
(2) times his most recent annual bonus, and (3) cause Executive to be
fully vested in any stock options or stock grants held by Executive.
"GOOD CAUSE" shall mean the occurrence of any of the following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office
with Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a
senior officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any
failure to reelect or to reappoint the Executive to, the
office stated in Section 1.2;
(iv) Company's direction that the Executive
discontinue service (or not seek reelection or reappointment)
as a director, officer or member of any corporation or
association of which the Executive is a director, officer, or
member at the date of this Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of
a Change in Control or the failure of Company
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to pay such salary to the Executive at the time and in the
manner specified in this Agreement;
(vi) other than with respect to the annual
performance bonus specified in Article 2 or, as made with the
Executive's prior written consent, the discontinuance (without
comparable replacement) or material reduction by Company of
the Executive's participation in any bonus or other employee
benefit arrangement (including, without limitation, any
profit-sharing, thrift, life insurance, medical, dental,
hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the
terms of this Agreement, as in effect on the date hereof or as
may be improved from time to time hereafter;
(vii) the moving by Company of the Executive's
principal office space, related facilities, or support
personnel, from Company's principal operating offices, or
Company's requiring the Executive to perform a majority of his
duties outside Company's principal operating offices for a
period of more than 30 consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located
at the time of the signing of this Agreement;
(ix) in the event Company requires the Executive
to reside at a location more than 25 miles from Company's
principal executive offices, except for occasional travel in
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a
relocation of Company's principal executive offices, the
failure of Company to (A) pay or reimburse the Executive on
an after-tax basis for all reasonable moving expenses incurred
by the Executive in connection with such relocation or (B)
indemnify the Executive on an after-tax basis against any
loss realized by the Executive on the sale his principal
residence in connection with such relocation;
(xi) the failure of Company to continue to provide
the Executive with office space, related facilities and
support personnel (including, without limitation,
administrative and secretarial assistance) that are
commensurate with the Executive's responsibilities to and
position with Company, and no less than those prior to this
Agreement;
(xii) the failure by Company to promptly reimburse
the Executive for the reasonable business expenses incurred by
the Executive in the performance of his duties for Company, in
accordance with this Agreement.
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(d) Subject to the provisions of Section 4.6, 5.1 or 5.3,
upon termination of this Agreement and Executive's employment
hereunder by either Company or Executive, Executive shall have no
right to receive any compensation or benefits for any period
subsequent to the effective date of such termination, or for any
period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits, including the Company's 1996 Key Employee
Stock Plan.
(e) Company's right of termination shall be in addition
to and shall not affect Company's rights and remedies under Articles 3
and 4, and Section 6.1 of this Agreement, and Company's rights and
remedies shall survive termination of Executive's employment
hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to
the contrary notwithstanding, Executive shall immediately resign from any
offices held with Company or its Affiliates upon written request by the
Company. Any resignation made pursuant to a written request by Company under
this Section 5.4 shall not affect Executive's rights under this Agreement for
any compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of
Executives employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment
relationship with Company and its Affiliates is to be governed solely
by reference to the laws of the State of Texas, regardless of any
services rendered in a jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights
under the laws of any country other than the United States of America
for any Extra Territorial Rights as heretofore defined; and
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(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extra Territorial Rights.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Articles 3
and 4 without the necessity of proving inadequacy of legal remedies or
irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified
or superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach
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<PAGE> 16
of any other term, provision, covenant, representation, or warranty.
6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions,
covenants, representations, warranties, and conditions of this Agreement shall
bind, be enforceable by, and inure to the benefit of, the parties hereto, but
this Agreement and the rights and obligations hereunder shall not be assignable
or delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or
Sections shall be to Articles or Sections of this Agreement unless otherwise
specified. The headings and captions used in this Agreement are solely for
convenient reference and shall not affect the meaning or interpretation of any
article, section or paragraph herein, or this Agreement. The terms "hereof,"
"herein" or "hereunder" shall refer to this Agreement as a whole and not to any
particular Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been
executed and is performable in Montgomery County, Texas. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the internal law, and not the law of conflicts, of the State of
Texas. Each party hereto hereby acknowledges and agrees that it has had the
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that
of the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the
rule of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement. The invalidity of any provision of this Agreement shall not affect
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity of a portion of any provision of this
Agreement affect the balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective
fees and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Key Employee Stock Plan as contemplated by Section
2.2 of this Agreement.
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6.10 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ J.D. LAWRENCE
--------------------------------
Name: J.D. Lawrence
Title: Chairman
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ JAMES F. FARR
-----------------------------------
Name: James F. Farr
Address: 62 Lakeridge Court
The Woodlands, Texas 77381
[INTENTIONALLY LEFT BLANK]
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COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
J. D. Lawrence, Chairman of Dailey Petroleum Services Corp., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
----------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
--------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
18
<PAGE> 1
EXHIBIT 10.22
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into by
and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and William D. Sutton ("EXECUTIVE") on this 27th day of
November, 1996, effective on the 27th day of November, 1996 ("Effective
Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated June 25, 1996 which they desire to amend and fully restate upon
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including April 30, 1999 (the "INITIAL TERM"),
unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date (a
"Renewal Date") the term of this Agreement shall automatically renew and extend
for a period of three years from the Renewal Date (a "Renewal Term") unless
written notice of nonrenewal is delivered from one party to the other at least
sixty days prior to the Renewal Date. The Agreement shall remain in force
during the Initial Term and any Renewal Term until terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in the
capacity of Senior Vice President, General Counsel and Secretary. In such
capacity, Executive shall perform the duties for which he currently is
responsible as an executive officer of Company. Executive shall
<PAGE> 2
perform his duties hereunder in accordance with any lawful instructions, rules,
regulations or policies made or adopted by Company's Board of Directors,
including those applicable to Company's Executives generally, provided that
Executive shall not have his duties, authority, areas of responsibility,
offices, immediate or support staff reduced or eliminated during the Employment
Period. During the Employment Period, Executive shall devote his full time, and
best efforts and skills to the business and interests of Company, do his utmost
to further enhance and develop Company's best interests and welfare, and
endeavor to improve his ability and knowledge of Company's business,
particularly as it relates to his duties hereunder, in an effort to increase
the value of his services for the mutual benefit of the parties hereto. During
the Employment Period, it shall not be a violation of this Agreement for
Executive to (a) serve on corporate, civic, or charitable boards or committees
(except for Boards or committees of a Competing Business (as defined in Section
4.1)), (b) deliver lectures, fulfill teaching or speaking engagements, (c)
manage personal investments, so long as such activities do not materially
interfere with performance of Executive's responsibilities under this
Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties hereunder at
the principal executive offices of Company at One Lawrence Centre, 2507 North
Frazier, Conroe, Texas 77305, , or at such other place where Company's
principal executive offices subsequently may be located. Executive acknowledges
subject to Section 5.3(c) hereof, and agrees that Company may require Executive
to travel and render services in different locations from time to time incident
to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or entity
controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the services,
terms, conditions, covenants and agreements contained in this Agreement,
Company shall pay to Executive at the times, in the amounts and in the manner
herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the services to
be performed by Executive hereunder during the Employment Period, Executive
shall be entitled to receive as base compensation from Company a salary of not
less than Nineteen Thousand and 00/100 Dollars ($19,000.00) per month (the
"BASE SALARY"), which shall be prorated for any partial employment period and
payable in the manner and on the timetable in which Company's payroll is
customarily handled, or at such more frequent intervals as Company and
Executive may hereafter agree to from time to time. No overtime compensation
shall be payable to Executive. Company's Board of Directors shall review
Executive's performance at least annually and shall make any adjustments to
Executive's compensation that it deems, in its sole discretion, appropriate,
provided that at no time during the Employment Period shall Executive's
compensation be adjusted to an amount below the Base Salary. Company shall be
entitled to withhold from all amounts of compensation payable
2
<PAGE> 3
under this Article 2 such amounts on account of payroll taxes and similar
matters as are required by any applicable law, rule, or regulation of any
appropriate governmental authority. Such compensation shall continue to be paid
during any period of physical or mental incapacity unless and until Executive's
employment is terminated as herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for Executive's
performance of his obligations under Article 3 and Article 4 of this Agreement,
Company has previously, granted to Executive 120,000 restricted shares of
Company's Common Stock, and an option to purchase 71,712 1996 Key Employee
Stock Plan, and the terms of the specific agreements relating to the grants of
restricted stock and stock options. Executive hereby acknowledges and agrees
that Company's grant to Executive of such Common Stock and options, together
with other compensation payable to Executive hereunder, is reasonable and
adequate independent consideration for Executive's performance of his
obligations under Articles 3 and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and stock grant
and option described above, Company shall provide Executive with the following
during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms and
conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine provided, however, that an annual bonus plan
shall be prepared which will make a bonus of thirty-three and one-third
percent (331/3%) of base compensation payable if all bonus plan criteria
are met;
(b) Participation in any present or future disability, medical,
health, dental, insurance, pension, profit-sharing, thrift, retirement,
investment, and stock appreciation plans, and any other benefit, bonus or
compensation plans on the same terms generally available to all of
Company's Executives generally or its executive officers in particular;
(c) Payment or reimbursement, as the case may be, of reasonable
business expenses (within limits that may be established by Company's
Board of Directors) incurred in connection with the performance of his
duties hereunder, such expense payment or reimbursement being subject to,
and made in accordance with Company's policies and procedures of Executive
expense payment or reimbursement in effect from time to time;
(d) Access to and use of Company's health club facility in accordance
with the policies and procedures governing such facility;
(e) At the option of Executive each year either (1) use of a current
model Company vehicle comparable to a fully equipped Cadillac, plus
reimbursement of the full cost of repairs, maintenance, gasoline, oil and
cleaning, or (2) an automobile allowance of $1,700.00 per month;
3
<PAGE> 4
(f) Use of a Company paid full membership in a local area country
club of the Executive's choice, and
(g) Reimbursement of the reasonable costs of tuition, books and
travel incurred for Executive's continuing education in general business
or continuing professional education. For each fiscal year during the
Employment Period the reimbursement shall not exceed ten percent of
Executive's annual base compensation as set forth in Section 2.1.
2.4 VACATION. During the Employment Period, Executive shall accrue paid
vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during the term of this Agreement, Executive may, at his option,
receive a lump sum payment of cash value of the vacation pay in lieu thereof,
or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this Article
3, all references to Company shall mean and include its Affiliates (as defined
in Section 1.4) Executive hereby acknowledges, understands and agrees that
whether developed by Executive or others employed by or in any way associated
with Executive or Company, all Confidential Information, as defined in Section
3.2, is the exclusive and confidential property of Company and shall be at all
times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall mean information, whether or not originated by Executive, which is used
in Company's business and (a) is proprietary to, about or created by Company;
(b) gives Company some competitive business advantage or the opportunity of
obtaining such advantage, or the disclosure of which could be detrimental to
the interests of Company; (c) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by Company, or
from all the relevant circumstances considered confidential by Company, or from
all the relevant circumstances should reasonably be assumed by Executive to be
confidential and proprietary to Company; or (d) is not generally known by
non-Company personnel. Such Confidential Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing or designated as
confidential):
4
<PAGE> 5
1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures, analyses, techniques and audits used in connection therewith;
2. Computer software of any type or form in any stage of actual or
anticipated research and development, including but not limited to
programs and program modules, routines and subroutines, processes,
algorithms, design concepts, design specifications (design notes,
annotations, documentation, flowcharts, coding sheets, and the like),
source codes, object codes and load modules, programming, program patches
and system designs;
3. Information relating to Company's proprietary rights prior to any
public disclosure thereof, including but not limited to the nature of the
proprietary rights, production data, technical and engineering data, test
data and test results, the status and details of research and development
of products and services, and information regarding acquiring, protecting,
enforcing and licensing proprietary rights (including, without limitation,
patents, copyrights and trade secrets);
4. Internal Company personnel and financial information, vendor names
and other vendor information (including vendor characteristics, services
and agreements), purchasing and internal cost information, internal
service and operational manuals, and the manner and methods of conducting
Company's business;
5. Marketing and development plans, price and cost data, price and
fee amounts, pricing and billing policies, quoting procedures, marketing
techniques and methods of obtaining business, forecasts and forecast
assumptions and volumes, and future plans and potential strategies of
Company which have been or are being discussed;
6. Names of customers and their representatives, contracts and their
contents and parties, customer services, and the type, quantity,
specifications and contents of products and services purchased, leased,
licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with, agents of
Company, including, without limitation, the terms and conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall not include information publicly known other than as a result of a
disclosure by Executive in breach of Section 3.1, and the general skills and
experience gained during Executive's work with Company
5
<PAGE> 6
which Executive could reasonably have been expected to acquire in similar work
with another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible
to the public in a written publication and, shall not include information which
is only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's acquisition or
anticipated acquisition of Confidential Information, Executive will occupy a
position of trust and confidence with respect to Company's affairs and
business. In view of the foregoing and of the consideration to be provided to
Executive, Executive agrees that it is reasonable and necessary that Executive
make the following covenants:
(a) At any time during or after the termination of the Employment
Period, Executive will not disclose Confidential Information to any person
or entity, either inside or outside of Company, other than as necessary in
carrying out duties on behalf of Company, without obtaining Company's
prior written consent (unless such disclosure is compelled pursuant to
court order or subpoena, and at which time Executive gives notice of such
proceedings to Company), and Executive will take all reasonable
precautions to prevent inadvertent disclosure of such Confidential
Information. This prohibition against Executive's disclosure of
Confidential Information includes, but is not limited to, disclosing the
fact that any similarity exists between the Confidential Information and
information independently developed by another person or entity, and
Executive understands that such similarity does not excuse Executive from
abiding by his covenants or other obligations under this Agreement.
(b) At any time during or after the termination of the Employment
Period, Executive will not use, copy or transfer Confidential Information
other than as necessary in carrying out his duties on behalf of Company,
without first obtaining Company's prior written consent, and will take all
reasonable precautions to prevent inadvertent use, copying or transfer of
such Confidential Information. This prohibition against Executive's use,
copying, or transfer of Confidential Information includes, but is not
limited to, selling, licensing or otherwise exploiting, directly or
indirectly, any products or services (including data bases, written
documents and software in any form) which embody or are derived from
Confidential Information, or exercising judgment in performing analyses
based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to Company
all originals and copies of materials containing Confidential Information in
the Executive's possession, custody, or control upon request or upon
termination of the Executive's employment with Company. Executive agrees to
attend a termination interview with the General Counsel to confirm turnover of
such materials and to discuss any questions the undersigned may have about his
continuing obligations under this Agreement.
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3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will hold
for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except in the
ordinary course of his employment hereunder during the Employment Period,
Executive shall not during the Employment Period and for a period of one (1)
year thereafter within any geographic area in which Company conducts business
during the Employment Period (all references to Company shall include its
Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation or
control of, be employed by, associated or in any manner connected with, or
render services or advice to, any Competing Business (as defined below)
provided, however, that the Executive may invest in the securities of any
enterprise with the power to vote up to 5% of the capital stock of such
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
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(b) Directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer, advisor
(whether paid or unpaid), stockholder, partner or in any other individual
or representative capacity whatsoever, either for his own benefit or for
the benefit of any other person or entity, solicit, divert or take away,
any customers or clients of Company; or
(c) Directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, Executive, Company, advisor
(whether paid or unpaid), stockholder, partner or in any other individual
or representative capacity whatsoever, either for his own benefit or for
the benefit of any other person or entity, either (1) hire, attempt to
hire, contact or solicit with respect to hiring any Executive of Company,
(2) induce or otherwise counsel, advise or encourage any Executive of
Company to leave the employment of Company, or (3) induce any distributor,
representative or agent of Company to terminate or modify its relationship
with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Executive
in Section 4.1 are essential elements of this Agreement and that, but for the
agreement of the Executive to comply with such covenants, Company would not
have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend substantial
time, money and effort in developing (1) its business in which the
designs, plans, manuals and specifications are valuable trade secrets, and
(2) a valuable list of customers and agents, and information about their
technical problems and needs, purchasing habits, idiosyncracies and
internal purchasing procedures;
(b) Executive will, in the course of his Employment, be personally
entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business in which
many firms, including Company, compete;
(d) A substantial portion of Company's business is conducted outside
the United States;
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(e) Company, pursuant to acquiring certain patents, technology and
associated trade secrets and know-how, will further develop its worldwide
business;
(f) Executive could, after having access to Company's financial
records, contracts, patents, technology and associated trade secrets and
know-how and, after receiving further training by and experience with
Company, and after reviewing Company's trade secrets, become a competitor;
(g) Company will suffer great loss and irreparable harm if Executive
terminates his employment and enters directly or indirectly, into
competition with Company;
(h) The temporal and other restrictions contained in this Article 4
are in all respects reasonable and necessary to protect the business
goodwill, trade secrets, prospects and other business interests of
Company;
(i) The enforcement of this Agreement in general, and of this Article
4 in particular, will not work an undue or unfair hardship on Executive or
otherwise be oppressive to him, it being specifically acknowledged and
agreed by Executive that he has activities and other business interests
and opportunities which will provide him adequate means of support if the
provisions of this Article 4 are enforced after termination of his
employment with Company; and
(j) The enforcement of this Agreement in general, and of this Article
4 in particular, will neither deprive the public of needed goods or
services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of competent
jurisdiction determines that the length of time or any other restriction, or
portion thereof, set forth in this Article 4 is overly restrictive and
unenforceable, the court shall reduce or modify such restrictions to those
which it deems reasonable and enforceable under the circumstances, and as so
reduced or modified, the parties hereto agree that the restrictions of this
Article 4 shall remain in full force and effect. Executive further agrees that
if a court of competent jurisdiction determines that any provision of this
Article 4 is invalid or against public policy, the remaining provisions of this
Article 4 and the remainder of this Agreement shall not be affected thereby,
and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Executive set
forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's employment
with Company for any reason pursuant to this Agreement, Company shall pay to
Executive , in addition to amounts otherwise payable herein, (a) a single lump
sum payment equal to six (6) months of Base
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Salary, and (b) twelve (12) monthly installments equal to his monthly Base
Salary, as defined in Section 2.1, ("NonCompetition Payments"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall be
applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any period
in which Executive is in breach of the obligations set forth in Articles 3
and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, including, without limitation, the
Initial Term, this Agreement and Executive's employment hereunder shall
terminate upon his death, and Company shall have the right, in its sole
and absolute discretion, to terminate this Agreement and Executive's
employment hereunder at any time by giving him written notice of such
termination (1) for "Cause" (as defined below), or (2) if Executive shall
suffer a Disability (as defined below). In the event of Executive's death
during the Employment Period, the Company shall (i) pay to Executive's
estate an amount equal to one years Base Salary, (ii) pay to Executive's
estate a pro rata portion of any bonus which would have been payable but
for Executive's death; (iii) vest Executive fully in any Company stock
grant and stock options held by Executive at his death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the
Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part, and
for which Executive has received more than one written warning that
specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo contendere or
equivalent pleas of a felony in a court of competent jurisdiction;
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4. Executive's use of illegal drugs as evidenced by a drug test
authorized by Company; or
5. Executive's conviction or the entry of a plea of nolo
contendere or equivalent plea in a court of competent jurisdiction of
any crime or offense involving moral turpitude.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which renders the Executive incapable of
performing any material portion of his duties for a continuous period of
six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company terminates
this Agreement for any reason other than pursuant to the terms of Section
5.1 and such termination is not within one year of a Change in Control (as
defined in 5.3(b) below), then Company shall: (1) pay to Executive an
amount equal to the greater of (i) his total Base Salary for the remainder
of the Employment Period, or (ii) one month of Base Salary for each full
year of service completed with Company as of the date of termination, (2)
cause Executive to be fully vested in any stock options and stock grants
held by Executive, and (3) pay Executive an amount equal to Executive's
most recent annual bonus. Company shall at its option, make such payments
either in one lump sum on the effective date of termination or over the
remainder of the Employment Period as if the Agreement had not been
terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN CONTROL."
If Company terminates this Agreement for any reason other than pursuant to
the terms of Section 5.1 and such termination occurs within one year of
the occurrence of a Change in Control, then Company shall: (1) pay to
Executive an amount equal to the greater of (A) his total Base Salary for
the remainder of the Employment period; (B) two times the greater of his
annualized Base Salary in effect upon the occurrence of the Change in
Control or his annualized Base Salary in effect on the date of notice
termination is received; or (C) one month of Base Salary for each full
year of service completed with the Company as of the date of termination,
(2) pay to Executive an amount equal to two (2) times his most recent
annual bonus, and (3) cause Executive to be fully vested in any stock
options or stock grants
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held by Executive. Company shall make such payments in one lump sum on the
effective date of termination. A "Change in Control" shall be deemed to
have occurred at any time after the date of this Agreement that (i) any
person (other than those persons who own more than 10% of the combined
voting power of the Company's outstanding voting securities on the date
hereof) becomes the beneficial owner, directly or indirectly, of 30% or
more of the combined voting power of the Company's then outstanding voting
securities, or (ii) individuals who at the beginning of any period of two
consecutive fiscal years constitute the Company's Board of Directors cease
for any reason to constitute a majority of such Board of Directors at any
time during such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER CHANGE IN
CONTROL." If Executive terminates this Agreement for Good Cause (defined
below) and such termination occurs within one year of the occurrence of a
Change in Control, then Company shall: (1) pay to Executive an amount
equal to the greater of (A) his total Base Salary for the remainder of the
Employment Period; (B) two times the greater of his annualized Base Salary
in effect upon the occurrence of the Change in Control or his annualized
Base Salary in effect on the date of notice termination is received; or
(C) one month of Base Salary for each full year of service completed with
the Company as of the date of termination, (2) pay to Executive an amount
equal to two (2) times his most recent annual bonus, and (3) cause
Executive to be fully vested in any stock options or stock grants held by
Executive. "GOOD CAUSE" shall mean the occurrence of any of the following
events:
(i) the assignment by Company to the Executive of duties that
are materially inconsistent with the Executive's office with Company
at the time of such assignment, or the removal by Company from the
Executive of a material portion of those duties usually appertaining
to the Executive's office with Company at the time of such removal;
(ii) a material change by Company, without the Executive's prior
written consent, in the Executive's responsibilities to Company, as
such responsibilities are ordinarily and customarily required from
time to time of a senior officer of a corporation engaged in
Company's business;
(iii) any removal of the Executive from, or any failure to
reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue service
(or not seek reelection or reappointment) as a director, officer or
member of any corporation or association of which the Executive is a
director, officer, or member at the date of this Agreement;
(v) a reduction by Company in the amount of the Executive's
salary in effect at the time of the occurrence of a Change in Control
or the failure of Company
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to pay such salary to the Executive at the time and in the
manner specified in this Agreement;
(vi) other than with respect to the annual performance bonus
specified in Article 2 or, as made with the Executive's prior written
consent, the discontinuance (without comparable replacement) or
material reduction by Company of the Executive's participation in any
bonus or other employee benefit arrangement (including, without
limitation, any profit-sharing, thrift, life insurance, medical,
dental, hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the terms
of this Agreement, as in effect on the date hereof or as may be
improved from time to time hereafter;
(vii) the moving by Company of the Executive's principal office
space, related facilities, or support personnel, from Company's
principal operating offices, or Company's requiring the Executive to
perform a majority of his duties outside Company's principal
operating offices for a period of more than 30 consecutive days;
(viii) the relocation, without the Executive's prior written
consent, of Company's principal executive offices to a location
outside the county in which such offices are located at the time of
the signing of this Agreement;
(ix) in the event Company requires the Executive to reside at a
location more than 25 miles from Company's principal executive
offices, except for occasional travel in connection with Company
business to an extent and in a manner which is substantially
consistent with the Executive's current business travel obligations;
(x) in the event the Executive consents to a relocation of
Company's principal executive offices, the failure of Company to (A)
pay or reimburse the Executive on an after-tax basis for all
reasonable moving expenses incurred by the Executive in connection
with such relocation or (B) indemnify the Executive on an after-tax
basis against any loss realized by the Executive on the sale his
principal residence in connection with such relocation;
(xi) the failure of Company to continue to provide the Executive
with office space, related facilities and support personnel
(including, without limitation, administrative and secretarial
assistance) that are commensurate with the Executive's
responsibilities to and position with Company, and no less than those
prior to this Agreement;
(xii) the failure by Company to promptly reimburse the Executive
for the reasonable business expenses incurred by the Executive in the
performance of his duties for Company, in accordance with this
Agreement.
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(d) Subject to the provisions of Section 4.6, 5.1 or 5.3, upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive any
compensation or benefits for any period subsequent to the effective date
of such termination, or for any period prior to such date which have not
been earned or vested as of such date except as may be provided for in any
employee benefit plan relating to such benefits, including the Company's
1996 Key Employee Stock Plan.
(e) Company's right of termination shall be in addition to and shall
not affect Company's rights and remedies under Articles 3 and 4, and
Section 6.1 of this Agreement, and Company's rights and remedies shall
survive termination of Executive's employment hereunder.
(f) For purposes of this Agreement, Executive's years of service
shall include service with the Company, service with any predecessor
entity in which all or part of Company's business was conducted, and
service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to the
contrary notwithstanding, Executive shall immediately resign from any offices
held with Company or its Affiliates upon written request by the Company. Any
resignation made pursuant to a written request by Company under this Section
5.4 shall not affect Executive's rights under this Agreement for any
compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of Executives
employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment relationship with
Company and its Affiliates is to be governed solely by reference to the
laws of the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights under the laws
of any country other than the United States of America for any Extra
Territorial Rights as heretofore defined; and
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(d) Executive expressly acknowledges and agrees that the payments and
benefits under this Agreement have been bargained for in lieu of any Extra
Territorial Rights.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the Confidential
Information, Executive acknowledges, understands and agrees that Company will
suffer immediate and irreparable harm if Executive fails to comply with any of
his obligations under Articles 3 or 4 of this Agreement, and that monetary
damages will be inadequate to compensate Company for such breach. Accordingly,
Executive agrees that Company shall, in addition to any other remedies
available to it at law or in equity, be entitled to temporary, preliminary, and
permanent injunctive relief to enforce the terms of Articles 3 and 4 without
the necessity of proving inadequacy of legal remedies or irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of Company
hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
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6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this Agreement,
each parenthetically or quoted capitalized term in the introduction, recitals
and other Sections of this Agreement shall have the meaning so ascribed to it.
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. References to Articles or Sections shall be to
Articles or Sections of this Agreement unless otherwise specified. The headings
and captions used in this Agreement are solely for convenient reference and
shall not affect the meaning or interpretation of any article, section or
paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed and
is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective fees and
expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or otherwise,
express or implied, have been made by any party hereto with respect to the
subject matter hereof that are not set forth expressly in this Agreement. This
Agreement supersedes and cancels any prior agreement, arrangement or
understanding entered into between Company and Executive relating to the
subject matter hereof, except any agreement entered into pursuant to Company's
1996 Key Employee Stock Plan as contemplated by Section 2.2 of this Agreement.
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6.10 COUNTERPARTS. The parties may execute this Agreement in any number of
counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
-----------------------------
Name: James F. Farr
Title: President
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ WILLIAM D. SUTTON
--------------------------------
Name: William D. Sutton
Address: 115 Wind Ridge Circle
The Woodlands, Texas 77381
[INTENTIONALLY LEFT BLANK]
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COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President, of Dailey Petroleum Services Corp., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
----------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CORSS
-------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
18
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EXHIBIT 10.23
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and David T. Tighe ("EXECUTIVE") on this 27th day of November,
1996, but to be effective on the 27th day of November, 1996 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated June 25, 1996 which they desire to amend and fully restate upon
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 1999 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "Renewal Date") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "Renewal Term")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in
the capacity of Senior Vice President - Finance and Treasurer. In such
capacity, Executive shall perform the duties for which he currently is
responsible as an executive officer of Company. Executive shall perform
<PAGE> 2
his duties hereunder in accordance with any lawful instructions, rules,
regulations or policies made or adopted by Company's Board of Directors,
including those applicable to Company's Executives generally, provided that
Executive shall not have his duties, authority, areas of responsibility,
offices, immediate or support staff reduced or eliminated during the Employment
Period. During the Employment Period, Executive shall devote his full time,
and best efforts and skills to the business and interests of Company, do his
utmost to further enhance and develop Company's best interests and welfare, and
endeavor to improve his ability and knowledge of Company's business,
particularly as it relates to his duties hereunder, in an effort to increase
the value of his services for the mutual benefit of the parties hereto. During
the Employment Period, it shall not be a violation of this Agreement for
Executive to (a) serve on corporate, civic, or charitable boards or committees
(except for Boards or committees of a Competing Business (as defined in Section
4.1)), (b) deliver lectures, fulfill teaching or speaking engagements, (c)
manage personal investments, so long as such activities do not materially
interfere with performance of Executive's responsibilities under this
Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the principal executive offices of Company at One Lawrence Centre,
2507 North Frazier, Conroe, Texas 77305, or at such other place where Company's
principal executive offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or
entity controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Fifteen Thousand Dollars ($15,000) per month (the "BASE
SALARY"), which shall be prorated for any partial employment period and payable
in the manner and on the timetable in which Company's payroll is customarily
handled, or at such more frequent intervals as Company and Executive may
hereafter agree to from time to time. No overtime compensation shall be
payable to Executive. Company's Board of Directors shall review Executive's
performance at least annually and shall make any adjustments to Executive's
compensation that it deems, in its sole discretion, appropriate, provided that
at no time during the Employment Period shall Executive's compensation be
adjusted to an amount below the Base Salary. Company shall be entitled to
withhold from all amounts of compensation payable under this Article 2 such
amounts on account of payroll taxes and similar matters as are required by any
applicable law, rule, or
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regulation of any appropriate governmental authority. Such compensation shall
continue to be paid during any period of physical or mental incapacity unless
and until Executive's employment is terminated as herein provided.
2.2 STOCK GRANT AND OPTION. As additional consideration for
Executive's performance of his obligations under Article 3 and Article 4 of
this Agreement, Company has previously, granted to Executive 120,000 restricted
shares of Company's Common Stock, and an option to purchase 71,712 shares of
Company's Common Stock, subject to the terms and conditions of Company's 1996
Key Employee Stock Plan, and the terms of the specific agreements relating to
the grants of restricted stock and stock options. Executive hereby
acknowledges and agrees that Company's grant to Executive of such Common Stock
and options, together with other compensation payable to Executive hereunder,
is reasonable and adequate independent consideration for Executive's
performance of his obligations under Articles 3 and 4 of this Agreement.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and stock
grant and option described above, Company shall provide Executive with the
following during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms
and conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine provided, however, that an annual bonus plan
shall be prepared which will make a bonus of thirty-three and one-third
percent (33 1/3%) of base compensation payable if all bonus plan
criteria are met;
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement in
effect from time to time;
(d) Access to and use of Company's health club facility in
accordance with the policies and procedures governing such facility;
(e) At the option of Executive each year either (1) use of a
current model Company vehicle comparable to a fully equipped Cadillac,
plus reimbursement of the full cost of repairs, maintenance, gasoline,
oil and cleaning, or (2) an automobile allowance of $1,700.00 per month;
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(f) Use of a Company paid full membership in a local area
country club of the Executive's choice, and
(g) Reimbursement of the reasonable costs of tuition, books
and travel incurred for Executive's continuing education in general
business or continuing professional education. For each fiscal year
during the Employment Period the reimbursement shall not exceed ten
percent of Executive's annual base compensation as set forth in Section
2.1.
2.4 VACATION. During the Employment Period, Executive shall accrue
paid vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during the term of this Agreement, Executive may, at his option,
receive a lump sum payment of cash value of the vacation pay in lieu thereof,
or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
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1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures, analyses, techniques and audits used in connection
therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming, program
patches and system designs;
3. Information relating to Company's proprietary rights prior
to any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details of
research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal cost
information, internal service and operational manuals, and the manner
and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and potential
strategies of Company which have been or are being discussed;
6. Names of customers and their representatives, contracts
and their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company
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which Executive could reasonably have been expected to acquire in similar work
with another company. The phrase "PUBLICLY KNOWN" shall mean readily
accessible to the public in a written publication and, shall not include
information which is only available by a substantial searching of the published
literature or information the substance of which must be pieced together from a
number of different publications and sources. The burden of proving that
information or skills and experience are not Confidential Information shall be
on the party asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential Information
to any person or entity, either inside or outside of Company, other than
as necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such disclosure is
compelled pursuant to court order or subpoena, and at which time
Executive gives notice of such proceedings to Company), and Executive
will take all reasonable precautions to prevent inadvertent disclosure
of such Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not limited to,
disclosing the fact that any similarity exists between the Confidential
Information and information independently developed by another person or
entity, and Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on behalf
of Company, without first obtaining Company's prior written consent, and
will take all reasonable precautions to prevent inadvertent use, copying
or transfer of such Confidential Information. This prohibition against
Executive's use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or otherwise
exploiting, directly or indirectly, any products or services (including
data bases, written documents and software in any form) which embody or
are derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
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3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will
hold for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except in
the ordinary course of his employment hereunder during the Employment Period,
Executive shall not during the Employment Period and for a period of one (1)
year thereafter within any geographic area in which Company conducts business
during the Employment Period (all references to Company shall include its
Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation
or control of, be employed by, associated or in any manner connected
with, or render services or advice to, any Competing Business (as
defined below) provided, however, that the Executive may invest in the
securities of any enterprise with the power to vote up to 5% of the
capital stock of such enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
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(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity, either
(1) hire, attempt to hire, contact or solicit with respect to hiring any
Executive of Company, (2) induce or otherwise counsel, advise or
encourage any Executive of Company to leave the employment of Company,
or (3) induce any distributor, representative or agent of Company to
terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Executive in Section 4.1 are essential elements of this Agreement and that, but
for the agreement of the Executive to comply with such covenants, Company would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable trade
secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing habits,
idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business in which
many firms, including Company, compete;
(d) A substantial portion of Company's business is conducted
outside the United States;
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(e) Company, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further develop its
worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm if
Executive terminates his employment and enters directly or indirectly,
into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business interests
of Company;
(i) The enforcement of this Agreement in general, and of this
Article 4 in particular, will not work an undue or unfair hardship on
Executive or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Executive that he has activities and other
business interests and opportunities which will provide him adequate
means of support if the provisions of this Article 4 are enforced after
termination of his employment with Company; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect.
Executive further agrees that if a court of competent jurisdiction determines
that any provision of this Article 4 is invalid or against public policy, the
remaining provisions of this Article 4 and the remainder of this Agreement
shall not be affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Executive
set forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base
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Salary, and (b) twelve (12) monthly installments equal to his monthly Base
Salary, as defined in Section 2.1, ("NonCompetition Payments"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall be
applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any period
in which Executive is in breach of the obligations set forth in Articles
3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at
any time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Executive's employment hereunder
shall terminate upon his death, and Company shall have the right, in its
sole and absolute discretion, to terminate this Agreement and
Executive's employment hereunder at any time by giving him written
notice of such termination (1) for "Cause" (as defined below), or (2)
if Executive shall suffer a Disability (as defined below). In the event
of Executive's death during the Employment Period, the Company shall (i)
pay to Executive's estate an amount equal to one years Base Salary, (ii)
pay to Executive's estate a pro rata portion of any bonus which would
have been payable but for Executive's death; (iii) vest Executive fully
in any Company stock grant and stock options held by Executive at his
death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal
enrichment of the Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part,
and for which Executive has received more than one written
warning that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo contendere
or equivalent pleas of a felony in a court of competent
jurisdiction;
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4. Executive's use of illegal drugs as evidenced by a
drug test authorized by Company; or
5. Executive's conviction or the entry of a plea of
nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral turpitude.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which renders the Executive incapable of
performing any material portion of his duties for a continuous period of
six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Executive may
terminate this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall: (1)
pay to Executive an amount equal to the greater of (i) his total Base
Salary for the remainder of the Employment Period, or (ii) one month of
Base Salary for each full year of service completed with Company as of
the date of termination, (2) cause Executive to be fully vested in any
stock options and stock grants held by Executive, and (3) pay Executive
an amount equal to Executive's most recent annual bonus. Company shall
at its option, make such payments either in one lump sum on the
effective date of termination or over the remainder of the Employment
Period as if the Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1 and such termination occurs
within one year of the occurrence of a Change in Control, then Company
shall: (1) pay to Executive an amount equal to the greater of (A)
his total Base Salary for the remainder of the Employment period; (B)
two times the greater of his annualized Base Salary in effect upon the
occurrence of the Change in Control or his annualized Base Salary in
effect on the date of notice termination is received; or (C) one month
of Base Salary for each full year of service completed with the Company
as of the date of termination, (2) pay to Executive an amount equal
to two (2) times his most recent annual bonus, and (3) cause Executive
to be fully vested in any stock options or stock grants
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held by Executive. Company shall make such payments in one lump sum on
the effective date of termination. A "Change in Control" shall be
deemed to have occurred at any time after the date of this Agreement
that (i) any person (other than those persons who own more than 10% of
the combined voting power of the Company's outstanding voting securities
on the date hereof) becomes the beneficial owner, directly or
indirectly, of 30% or more of the combined voting power of the Company's
then outstanding voting securities, or (ii) individuals who at the
beginning of any period of two consecutive fiscal years constitute the
Company's Board of Directors cease for any reason to constitute a
majority of such Board of Directors at any time during such two-year
period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER CHANGE IN
CONTROL." If Executive terminates this Agreement for Good Cause
(defined below) and such termination occurs within one year of the
occurrence of a Change in Control, then Company shall: (1) pay to
Executive an amount equal to the greater of (A) his total Base Salary
for the remainder of the Employment Period; (B) two times the greater of
his annualized Base Salary in effect upon the occurrence of the Change
in Control or his annualized Base Salary in effect on the date of
notice termination is received; or (C) one month of Base Salary for each
full year of service completed with the Company as of the date of
termination, (2) pay to Executive an amount equal to two (2) times his
most recent annual bonus, and (3) cause Executive to be fully vested in
any stock options or stock grants held by Executive. "GOOD CAUSE" shall
mean the occurrence of any of the following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office with
Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a senior
officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any failure
to reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or association of which the
Executive is a director, officer, or member at the date of this
Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of a
Change in Control or the failure of Company
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to pay such salary to the Executive at the time and in the manner
specified in this Agreement;
(vi) other than with respect to the annual performance
bonus specified in Article 2 or, as made with the Executive's
prior written consent, the discontinuance (without comparable
replacement) or material reduction by Company of the Executive's
participation in any bonus or other employee benefit arrangement
(including, without limitation, any profit-sharing, thrift, life
insurance, medical, dental, hospitalization, stock option or
retirement plan or arrangement) in which the Executive is a
participant under the terms of this Agreement, as in effect on
the date hereof or as may be improved from time to time
hereafter;
(vii) the moving by Company of the Executive's principal
office space, related facilities, or support personnel, from
Company's principal operating offices, or Company's requiring the
Executive to perform a majority of his duties outside Company's
principal operating offices for a period of more than 30
consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located at
the time of the signing of this Agreement;
(ix) in the event Company requires the Executive to
reside at a location more than 25 miles from Company's principal
executive offices, except for occasional travel in connection
with Company business to an extent and in a manner which is
substantially consistent with the Executive's current business
travel obligations;
(x) in the event the Executive consents to a relocation
of Company's principal executive offices, the failure of Company
to (A) pay or reimburse the Executive on an after-tax basis for
all reasonable moving expenses incurred by the Executive in
connection with such relocation or (B) indemnify the Executive on
an after-tax basis against any loss realized by the Executive on
the sale his principal residence in connection with such
relocation;
(xi) the failure of Company to continue to provide the
Executive with office space, related facilities and support
personnel (including, without limitation, administrative and
secretarial assistance) that are commensurate with the
Executive's responsibilities to and position with Company, and no
less than those prior to this Agreement;
(xii) the failure by Company to promptly reimburse the
Executive for the reasonable business expenses incurred by the
Executive in the performance of his duties for Company, in
accordance with this Agreement.
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(d) Subject to the provisions of Section 4.6, 5.1 or 5.3, upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive
any compensation or benefits for any period subsequent to the effective
date of such termination, or for any period prior to such date which
have not been earned or vested as of such date except as may be provided
for in any employee benefit plan relating to such benefits, including
the Company's 1996 Key Employee Stock Plan.
(e) Company's right of termination shall be in addition to and
shall not affect Company's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and Company's rights and remedies
shall survive termination of Executive's employment hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to the
contrary notwithstanding, Executive shall immediately resign from any offices
held with Company or its Affiliates upon written request by the Company. Any
resignation made pursuant to a written request by Company under this Section
5.4 shall not affect Executive's rights under this Agreement for any
compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of Executives
employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment relationship
with Company and its Affiliates is to be governed solely by reference to
the laws of the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights under
the laws of any country other than the United States of America for any
Extra Territorial Rights as heretofore defined; and
14
<PAGE> 15
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extra Territorial Rights.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Articles 3
and 4 without the necessity of proving inadequacy of legal remedies or
irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
15
<PAGE> 16
6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or
Sections shall be to Articles or Sections of this Agreement unless otherwise
specified. The headings and captions used in this Agreement are solely for
convenient reference and shall not affect the meaning or interpretation of any
article, section or paragraph herein, or this Agreement. The terms "hereof,"
"herein" or "hereunder" shall refer to this Agreement as a whole and not to any
particular Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed
and is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Key Employee Stock Plan as contemplated by Section
2.2 of this Agreement.
16
<PAGE> 17
6.10 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
----------------------------------
Name: James F. Farr
Title: President
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ DAVID T. TIGHE
--------------------------------------
Name: David T. Tighe
Address: 35 North Highland Court
The Woodlands, Texas 77381
[INTENTIONALLY LEFT BLANK]
17
<PAGE> 18
COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
JAMES F. FARR, PRESIDENT of Dailey Petroleum Services Corp., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
-----------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
-----------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
18
<PAGE> 1
EXHIBIT 10.24
MANAGEMENT EMPLOYMENT AGREEMENT
THIS MANAGEMENT EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered
into by and between Air Drilling Services, Inc., a Wyoming corporation
("EMPLOYER"), and Chaman Malhotra ("EMPLOYEE") on this 20 day of June, 1997,
but to be effective on the 20th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Employer desires to employ Employee and Employee desires to
be employed by Employer upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Employer hereby employs Employee and Employee hereby accepts
employment with Employer for a term beginning on the Effective Date as set
forth above through and including June 19, 2000 (the "INITIAL TERM"), unless
this Agreement and Employee's employment hereunder are sooner terminated
pursuant to Article 5. Upon expiration of the Initial Term, this Agreement
shall remain in full force and effect in a series of automatic renewals in
increments of one consecutive year (each such year term a "RENEWAL TERM") until
this Agreement and Employee's employment hereunder are terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Employee's employment hereunder shall be in
the capacity of President of Air Drilling Services, Inc. In such capacity,
Employee shall perform the duties for which he currently is responsible as an
employee of Employer and/or any duties set forth in any job description
provided by Employer. In addition, Employee shall perform other duties as may
from time to time be prescribed by Employer's Board of Directors or more senior
management and which are reasonably related or incidental to the capacity in
which Employee serves Employer. Employee shall perform his duties hereunder in
accordance with any lawful instructions, rules, regulations or policies made or
adopted by Employer's Board of Directors or more senior management, including
those applicable to Employer's employees generally. During the Employment
Period, Employee shall devote his full time, and best efforts and skills to the
business and interests of Employer during Employer's normal working hours, do
his utmost to further enhance and develop Employer's best interests and
welfare, and endeavor to improve his ability and knowledge of Employer's
business, particularly as it relates to his duties hereunder, in an effort to
increase the value of his services for the mutual benefit of the parties
hereto. At all times during the term of this Agreement, Employee shall project
a positive and professional image on behalf of Employer.
Malhotra Employment Agreement
June 20, 1997
Page 1
<PAGE> 2
1.3 ACCOUNTING AND FIDELITY BOND. Employee shall truthfully and
accurately make, maintain and preserve all records and reports that Employer
may from time to time request or require. Employee shall fully account for all
money, records, goods, wares and merchandise or other property belonging to
Employer or its "AFFILIATES" (as that term is defined in Rule 405 under the
Securities Act of 1933, as amended) of which he may have custody and will pay
over and deliver the same promptly whenever and however he may be directed to
do so. Employee also shall make available to Employer any and all information
of which he has knowledge that is relevant to Employer's business, and will
make all suggestions and recommendations which he feels will be of benefit to
Employer. Employee shall, upon Employer's written request, furnish all
information and take any other steps necessary to enable Employer to obtain a
fidelity bond conditioned on the rendering of a true account by Employee of all
moneys, goods or other property which may come into the custody, charge or
possession of Employee during the Employment Period. The surety company
issuing the bond and the amount of the bond must be acceptable to Employer in
its sole discretion. Employer shall pay all premiums on any such bond.
1.4 EMPLOYEE DISHONESTY. If at any time Employee becomes aware or
believes that any other employee of the Employer is or appears to be (i)
removing or using the property or funds of Employer or its Affiliates for the
benefit of anyone other than Employer or its Affiliates, or (ii) providing
Confidential Information (as defined in Section 3.2) to any person not
authorized by Employer to receive such Confidential Information (any such
employee described in (i) or (ii) being referred to as a "DISHONEST EMPLOYEE"),
Employee shall immediately communicate his knowledge or belief as to such
matters to Employer's Board of Directors. Employee acknowledges and agrees
that he shall be conclusively presumed to be in complicity with such Dishonest
Employee if Employee does not so disclose his knowledge or belief as to such
matters to Employer's Board of Directors.
1.5 FIDUCIARY DUTIES OF EMPLOYEE. The obligations of Employee
expressed in this Agreement shall be in addition to any obligations imposed
upon Employee as an employee or officer of Employer or its Affiliates by
Employer's Policies and Procedures, as amended, the law of the State of Texas
applicable to employees, the General Corporation Law of the State of Wyoming
applicable to corporate officers, or federal law which limit the activities of
an employee or corporate officer to those which will not threaten, impair or
usurp the goodwill, trade secrets, intellectual property, business
opportunities, and business relations of his employer.
1.6 PLACE OF PERFORMANCE. Employee shall perform his duties
hereunder at Employer's offices in Englewood, Colorado or at such other place
where Employer's offices subsequently may be located, or at any other place as
may be directed by Employer in order to enable Employee to discharge his duties
hereunder; provided however, that Employee shall have no obligation to relocate
to any location which is more than one hundred (100) miles from Employer's
offices in Englewood, Colorado. Notwithstanding the foregoing, if Employer
requires Employee's relocation, Employer will allow Employee the choice to
accept relocation or take a payoff of the remaining amount due under this
Agreement. Employee acknowledges and agrees that Employer may require Employee
to travel and render services in different locations from time to time incident
to the performance of his duties hereunder.
Malhotra Employment Agreement
June 20, 1997
Page 2
<PAGE> 3
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Employee of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Employer shall pay to Employee at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Employee hereunder during the Employment Period,
Employee shall be entitled to receive as base compensation from Employer a
salary of not less than Two Hundred Sixty-Five Thousand Six Hundred Fifty
Dollars ($265,650.00) per year (the "BASE SALARY"), which shall be prorated for
any partial employment period and payable in the manner and on the timetable in
which Employer's payroll is customarily handled, or at such more frequent
intervals as Employer and Employee may hereafter agree to from time to time.
No overtime compensation shall be payable under this Agreement. Employer's
Board of Directors shall review Employee's performance at least annually and
shall make any adjustments to Employee's compensation which it deems, in its
sole discretion, appropriate, provided that at no time during the Employment
Period shall Employee's compensation be adjusted to an amount below the Base
Salary. Employer shall be entitled to withhold from all amounts of
compensation payable under this Article 2 such amounts on account of payroll
taxes and similar matters as are required by any applicable law, rule, or
regulation of any appropriate governmental authority. Such compensation shall
continue to be paid during any period of physical or mental incapacity unless
and until Employee's employment is terminated as herein provided.
2.2 BONUSES AND BENEFITS. In addition to the Base Salary described
above, Employer shall provide Employee with the following during the Employment
Period:
(a) bonuses, when and based upon or subject to such terms and
conditions as Employer's Board of Directors, in its sole and
absolute discretion, may determine; provided, however, a bonus
plan , as mutually agreed upon by the parties, shall be
prepared which will make a bonus of thirty-three and one third
percent (33 1/3%) of base compensation payable at the
completion of the first year of this Agreement if all bonus
plan criteria are met;
(b) participation in any present or future disability, medical,
health, dental, insurance, pension, profit- sharing, thrift,
retirement, investment, and stock appreciation plans, and any
other benefit, bonus or compensation plans on the same terms
generally available to all of Employer's employees generally
or its operating officers in particular;
(c) payment or reimbursement, as the case may be, of reasonable
business expenses (within limits that may be established by
Employer's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with
Employer's policies
Malhotra Employment Agreement
June 20, 1997
Page 3
<PAGE> 4
and procedures on employee expense payment or reimbursement in
effect from time to time;
(d) use of the Employer leased 1995 Mercedes Benz, S 500
automobile plus reimbursement of the full cost of repairs,
maintenance, gasoline, oil and cleaning;
(e) Employer shall pay for Employee's memberships at the Valley
Country Club, the Greenwood Athletic Club, the Desert Falls
Country Club, and the Denver Petroleum Club;
(f) to the extent that Employer maintains a condominium in Palm
Springs, California for customer entertainment, Employee shall
be entitled to use said condominium for such purpose if said
condominium is available; and
(g) as separate consideration to Employee for entering into the
covenants and restrictions set forth in Articles 3 and 4,
Employer agrees to pay Employee, on the Effective Date, a
signing bonus in the amount of Ten Thousand Dollars
($10,000.00). Employee acknowledges the adequacy of the
consideration received.
2.3 VACATION. During the Employment Period, Employee shall accrue
paid vacation time in such amounts and at such times as determined by
Employer's Board of Directors, in its sole discretion; provided, however, that
the minimum amount of paid vacation to which Employee shall be entitled shall
be no less than that to which he is entitled as an employee of Employer
immediately prior to the effective date of this Agreement. If such vacation
time is not taken by Employee during the term of this Agreement, there will be
compensation payable in lieu thereof. Notwithstanding the foregoing, in no
event shall Employee be entitled to less than five (5) weeks of paid vacation.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EMPLOYEE. For purposes of this
Article 3, all references to Employer shall mean and include its Affiliates (as
defined in Section 1.3). Employee hereby acknowledges, understands and agrees
that whether developed by Employee or others employed by or in any way
associated with Employee or Employer, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Employer and
shall be at all times regarded, treated and protected as such in accordance
with this Agreement. Employee acknowledges that all such Confidential
Information is in the nature of a trade secret. Failure to mark any writing
confidential shall not affect the confidential nature of such writing or the
information contained therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Employee,
which is used in Employer's business and (1) is proprietary to, about or
created by Employer; (2) gives Employer some competitive business advantage or
the opportunity of obtaining such advantage, or the disclosure of which could
be
Malhotra Employment Agreement
June 20, 1997
Page 4
<PAGE> 5
detrimental to the interests of Employer; (3) is designated as Confidential
Information by Employer, known by the Employee to be considered confidential by
Employer, or from all the relevant circumstances considered confidential by
Employer, or from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to Employer; or (4) is not
generally known by non-Employer personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
(a) Work product resulting from or related to work or projects
performed or to be performed for Employer or for clients of
Employer, including but not limited to data bases, draft and
other non-public written documents, the interim and final
lines of inquiry, hypotheses, research and conclusions related
thereto and the methods, processes, procedures, analyses,
techniques and audits used in connection therewith;
(b) Computer software of any type or form in any stage of actual
or anticipated research and development, including but not
limited to programs and program modules, routines and
subroutines, processes, algorithms, design concepts, design
specifications (design notes, annotations, documentation,
flowcharts, coding sheets, and the like), source codes, object
codes and load modules, programming, program patches and
system designs;
(c) Information relating to Employer's proprietary rights prior to
any public disclosure thereof, including but not limited to
the nature of the proprietary rights, production data,
technical and engineering data, test data and test results,
the status and details of research and development of products
and services, and information regarding acquiring, protecting,
enforcing and licensing proprietary rights (including, without
limitation, patents, copyrights and trade secrets);
(d) Internal Employer personnel and financial information, vendor
names and other vendor information (including vendor
characteristics, services and agreements), purchasing and
internal cost information, internal service and operational
manuals, and the manner and methods of conducting Employer's
business;
(e) Marketing and development plans, price and cost data, price
and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques and methods of obtaining
business, forecasts and forecast assumptions and volumes, and
future plans and potential strategies of Employer which have
been or are being discussed;
(f) Names of customers and their representatives, contracts and
their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of
Employer;
Malhotra Employment Agreement
June 20, 1997
Page 5
<PAGE> 6
(g) Information provided to Employer by any actual or potential
customer, government agency, or other third party (including
businesses, consultants and other entities and individuals);
and
(h) Contracts with, or developed by Employer for use with, agents
of Employer, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Employee in breach of Section 3.1, and the general
skills and experience gained during Employee's work with Employer which
Employee could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EMPLOYEE. As a consequence of Employee's
acquisition or anticipated acquisition of Confidential Information, Employee
will occupy a position of trust and confidence with respect to Employer's
affairs and business. In view of the foregoing and of the consideration to be
provided to Employee, Employee agrees that it is reasonable and necessary that
Employee make the following covenants:
(a) At any time during or after the termination of the Employment
Period, Employee will not disclose Confidential Information to
any person or entity, either inside or outside of Employer,
other than as necessary in carrying out duties on behalf of
Employer, without obtaining Employer's prior written consent
(unless such disclosure is compelled pursuant to court order
or subpoena, and at which time Employee gives notice of such
proceedings to Employer), and Employee will take all
reasonable precautions to prevent inadvertent disclosure of
such Confidential Information. This prohibition against
Employee's disclosure of Confidential Information includes,
but is not limited to, disclosing the fact that any similarity
exists between the Confidential Information and information
independently developed by another person or entity, and
Employee understands that such similarity does not excuse
Employee from abiding by his covenants or other obligations
under this Agreement.
(b) At any time during or after the termination of the Employment
Period, Employee will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties
on behalf of Employer, without first obtaining Employer's
prior written consent, and will take all reasonable
precautions to prevent inadvertent use, copying or transfer of
such Confidential Information. This prohibition against
Employee's use, copying, or transfer of Confidential
Information includes, but is not limited to, selling,
licensing or otherwise exploiting, directly or indirectly, any
products or services (including data bases, written documents
and software in any form) which
Malhotra Employment Agreement
June 20, 1997
Page 6
<PAGE> 7
embody or are derived from Confidential Information, or
exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Employee shall turn over to
Employer all originals and copies of materials containing Confidential
Information in the Employee's possession, custody, or control upon request or
upon termination of the Employee's employment with Employer. Employee agrees
to attend a termination interview with the Executive Compensation Committee of
Employer's Board of Directors to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Employee (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by Employer and
which may be directly or indirectly useful in, or related to, the business of
Employer (including, without limitation, research and development activities of
Employer), or which are made using any equipment, facilities, Confidential
Information, materials, labor, money, time or other resources of Employer,
shall be promptly disclosed by Employee to Employer's Board of Directors, shall
be deemed Confidential Information for purposes of this Agreement, and shall be
Employer's exclusive property. Employee shall, upon Employer's request,
execute any documents and perform all such acts and things which are necessary
or advisable in the opinion of Employer to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Employer with respect to Inventions that are to be Employer's exclusive
property under this Section 3.6, or to transfer to and vest in Employer full
and exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Employer. In addition, Employee shall, at
Employer's expense, assist Employer in any proper manner in enforcing any
Inventions which are to be or become Employer's exclusive property hereunder
against infringement by others. Employee shall keep confidential and will hold
for Employer's sole use and benefit any Invention that is to be Employer's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EMPLOYEE ACTIVITIES. Employee agrees that except in
the ordinary course of his employment hereunder during the Employment Period,
Employee shall not during the Employment Period and for a period of two (2)
years thereafter (all references to Employer shall mean and include its
Affiliates as defined in Section 1.3):
(a) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any
manner connected with, or render services or advice to, any
Competing Business (as defined below) provided, however, that
the Employee may
Malhotra Employment Agreement
June 20, 1997
Page 7
<PAGE> 8
invest in the securities of any enterprise (but without
otherwise participating in the activities of such enterprise)
if such securities are listed on any national or regional
securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934;
(b) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, solicit,
divert or take away, any customers or clients of Employer; or
(c) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, either (i)
hire, attempt to hire, contact or solicit with respect to
hiring any employee of Employer, (ii) induce or otherwise
counsel, advise or encourage any employee of Employer to leave
the employment of Employer, or (iii) induce any distributor,
representative or agent of Employer to terminate or modify its
relationship with Employer.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Employer or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood
and agreed by and between the parties hereto that the covenants made by
Employee in Section 4.1 are an essential part of the Employer's consideration
for entering into this Agreement and that, but for the agreement of the
Employee to comply with such covenants, Employer would not have entered into
this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Employee hereby
specifically acknowledges and agrees that:
(a) Employer has expended and will continue to expend substantial
time, money and effort in developing (i) its business in which
the designs, plans, manuals and specifications are valuable
trade secrets, and (ii) a valuable list of customers and
agents, and information about their technical problems and
needs, purchasing habits, idiosyncracies and internal
purchasing procedures;
(b) Employee will, in the course of his Employment, be personally
entrusted with and exposed to the trade secrets of Employer;
Malhotra Employment Agreement
June 20, 1997
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<PAGE> 9
(c) Employer, during the term of this Agreement and after its
termination, will be engaged in its highly competitive
business in which many firms, including Employer, compete;
(d) A substantial portion of Employer's business is conducted
outside the United States;
(e) Employer, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further
develop its worldwide business;
(f) Employee could, after having access to Employer's financial
records, contracts, patents, technology and associated trade
secrets and know-how, perform his obligations under this
Agreement, and after receiving further training by and
experience with Employer, and after reviewing Employer's trade
secrets, become a competitor;
(g) Employer will suffer great loss and irreparable harm if
Employee terminates his employment and enters directly or
indirectly, into competition with Employer;
(h) the temporal and other restrictions contained in this Article
4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Employer;
(i) the enforcement of this Agreement in general, and of this
Article 4 in particular, will not work an undue or unfair
hardship on Employee or otherwise be oppressive to him, it
being specifically acknowledged and agreed by Employee that he
has activities and other business interests and opportunities
which will provide him adequate means of support if the
provisions of this Article 4 are enforced after termination of
his employment with Employer; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of
needed goods or services nor otherwise be injurious to the
public.
4.4 JUDICIAL MODIFICATION. Employee agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court may reduce or modify such restrictions
to those which it deems reasonable and enforceable under the circumstances, and
as so reduced or modified, the parties hereto agree that the restrictions of
this Article 4 shall remain in full force and effect. Employee further agrees
that if a court of competent jurisdiction determines that any provision of this
Article 4 is invalid or against public policy, the remaining provisions of this
Article 4 and the remainder of this Agreement shall not be affected thereby,
and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Employee
set forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of
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June 20, 1997
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<PAGE> 10
the remainder of this Agreement regardless of the reason for such therefor and
shall survive the termination, if any, of the Employee's employment.
ARTICLE 5
TERMINATION
5.1 EMPLOYER TERMINATION
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, including, without
limitation, the Initial Term, this Agreement and Employee's
employment hereunder shall terminate upon his death, and
Employer shall have the right, in its sole and absolute
discretion, to terminate this Agreement and Employee's
employment hereunder at any time by giving him written notice
of such termination (i) for "Cause" (as defined below), (ii)
if Employee shall fail to qualify for the fidelity bond
described in Section 1.3 within sixty (60) days from the date
of the Employer's written request thereunder, or (iii) if
Employee shall suffer a Disability (as defined below).
(b) "CAUSE" shall mean any of the following events:
(1) Employee's conviction or the entry of a plea of
guilty or nolo contendere or equivalent plea in a
court of competent jurisdiction of any crime or
offense involving moral turpitude or any felony;
(2) Employee's commission of an act of fraud upon
Employer or any of its Affiliates;
(3) Employee's willful misappropriation of funds or
property of Employer or any of its Affiliates;
(4) Employee's knowing engagement, without prior approval
by resolution of Employer's Board of Directors, in
any direct conflict of interest with Employer or any
of its Affiliates, in any activity which would
constitute a breach of Employee's representations,
covenants, agreements and obligations under Articles
3 and 4 of this Agreement, or which would otherwise
result in substantial injury to Employer's business
or financial condition;
(5) Employee's refusal to perform his duties under
Article 1 of this Agreement; or
(6) Employee's habitual use of alcohol or drugs which, in
the reasonable opinion of Employer, substantially
impairs the performance of Employee's duties.
Malhotra Employment Agreement
June 20, 1997
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(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which, in the sole opinion of
Employer: (i) is of a nature that cannot reasonably be
controlled by Employee, (ii) significantly inhibits or impedes
Employee's ability to perform the services required under this
Agreement, and (iii) is likely to be either long-lasting in
duration or recurring from time to time.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 5.3(a), Employer may at any time, for any reason, with or without
Cause, terminate this Agreement and Employee's employment hereunder. After
expiration of the Initial Term, Employee may terminate this Agreement and his
employment hereunder without regard to any reason for such termination. Each
of Employer's and Employee's option to terminate this Agreement pursuant to
this Section 5.2 shall be exercised by delivery of a written notice to Employee
or Employer, as applicable, specifying the effective date of such termination
which in no event shall be sooner than expiration of thirty (30) calendar days
following delivery of such written notice.
5.3 EFFECT OF TERMINATION.
(a) If Employer terminates this Agreement for any reason other
than pursuant to the terms of Section 5.1, then Employer shall
pay to Employee an amount equal to the greater of (a) his
total Base Salary for the remainder of the Employment Period,
or (b) which shall be the greater of (i)three months of his
Base Salary or (ii) one month of Base Salary for each full
year of service completed with Employer as of the date of
termination. Employer may, in its sole and absolute
discretion, make such payment in the manner and on the
timetable specified in Section 2.1, or in one lump sum on the
effective date of termination.
(b) Subject to the provisions of Section 5.3(a), upon termination
of this Agreement and Employee's employment hereunder by
either Employer or Employee, Employee shall have no right to
receive any compensation or benefits for any period subsequent
to the effective date of such termination, or for any period
prior to such date which have not been earned or vested as of
such date.
(c) Employer's right of termination shall be in addition to and
shall not affect Employee's rights and remedies under Articles
3 and 4, and Section 6.1 of this Agreement, and such rights
and remedies shall survive termination of Employee's
employment hereunder.
5.4 YEARS OF SERVICE. For purposes of this Article Five, any
reference to Employee's year(s) of service shall include (i) service with the
Employer, (ii) service with any Affiliate of Employer, and (iii) service with
any predecessor entity of Employer whether by merger, acquisition or operation
of law.
Malhotra Employment Agreement
June 20, 1997
Page 11
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ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Employee acknowledges, understands and agrees that
Employer will suffer immediate and irreparable harm if Employee fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Employer for such breach.
Accordingly, Employee agrees that Employer shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Articles 3
and 4 without the necessity of proving inadequacy of legal remedies or
irreparable harm.
6.2 INDEMNIFICATION. Employer shall indemnify Employee in the same
manner and to the same extent that Employer is obligated to indemnify its
directors pursuant to Employer's Certificate of Incorporation and Bylaws, as
each may be amended or restated from time to time.
6.3 ACTION BY AND CONSENT OF EMPLOYER. All rights and remedies of
Employer hereunder shall be exercised by the Employer solely by and through
management authorized by Employer's Board of Directors.
6.4 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Employer at the address indicated beneath its signature on the execution page
of this Agreement, and also to Employee at his home address indicated beneath
his signature on the execution page of this Agreement, or at such other address
and number as a party shall have previously designated by written notice given
to the other party in the manner hereinabove set forth. Notices shall be
deemed given when received, if sent by facsimile means (confirmation of such
receipt by confirmed facsimile transmission being deemed receipt of
communications sent by facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service, or sent by
certified or registered mail, return receipt requested.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Employer
shall be effective only if executed and delivered by a duly authorized
executive officer of Employer other than Employee. The failure of any party at
any time or times to require performance of any provisions hereof, shall in no
manner effect the right to enforce the same. No waiver by any party of any
condition or provision, or the breach of any term, provision, representation,
or warranty contained in this Agreement in one or more instances shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other term, provision, covenant, representation, or warranty.
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June 20, 1997
Page 12
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6.6 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Employer's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Employer shall not relieve it of any of its obligations hereunder.
6.7 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or
Sections shall be to Articles or Sections of this Agreement unless otherwise
specified. The headings and captions used in this Agreement are solely for
convenient reference and shall not affect the meaning or interpretation of any
article, section or paragraph herein, or this Agreement. The terms "hereof,"
"herein" or "hereunder" shall refer to this Agreement as a whole and not to any
particular Section.
6.8 GOVERNING LAW AND SEVERABILITY. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas, except to
the extent that the General Corporation Law of the State of Wyoming or federal
law is explicitly made applicable by Section 1.5. Each party hereto hereby
acknowledges and agrees that it has had the opportunity to consult with its own
legal counsel in connection with the negotiation of this Agreement, and that it
has bargaining power equal to that of the other party hereto in connection with
the negotiation, execution and delivery of this Agreement. Accordingly, the
parties hereto agree that the rule of contract construction that an agreement
shall be construed against the drafter shall have no application in the
construction or interpretation of this Agreement. The invalidity of any
provision of this Agreement shall not affect any other provision of this
Agreement, which shall remain in full force and effect, nor shall the
invalidity of a portion of any provision of this Agreement affect the balance
of such provision.
6.9 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement, except for any indemnification
obligations of Employer pursuant to Section 6.2.
6.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Employer and Employee
relating to the subject matter hereof.
6.11 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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June 20, 1997
Page 13
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
EMPLOYER:
AIR DRILLING SERVICES, INC.
By: /s/ JAMES F. FARR
-------------------------------------
Name: James F. Farr
-------------------------------------
Title: Director
-------------------------------------
Address: P.O. Box 1863
-----------------------------------
Conroe, Texas 77305
-----------------------------------
-----------------------------------
EMPLOYEE:
/s/ CHAMAN MALHOTRA
-------------------------------------------
Chaman Malhotra:
Address: 7025 S. Andes Circle
-----------------------------------
Aurora, CO, 80016
-----------------------------------
{THIS SPACE INTENTIONALLY LEFT BLANK}
Malhotra Employment Agreement
June 20, 1997
Page 14
<PAGE> 15
EMPLOYER ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President, of Air Drilling Services, Inc., a Wyoming
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 20th day of June, 1997.
Darice Angel
----------------------------------
Notary Public in and for
[SEAL] The State of Texas
My Commission Expires: 11-25-97
EMPLOYEE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
Before me, the undersigned authority, on this date personally appeared
Chaman Malhotra, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 20th day of June, 1997.
Darice Angel
----------------------------------
Notary Public in and for
[SEAL] The State of Texas
My Commission Expires: 11-25-97
Malhotra Employment Agreement
June 20, 1997
Page 15
<PAGE> 1
EXHIBIT 10.25
MANAGEMENT EMPLOYMENT AGREEMENT
THIS MANAGEMENT EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Canadian Air Drilling Services Ltd., an Alberta corporation
("EMPLOYER"), and Tommy D. Ramsay ("EMPLOYEE") on this 20th day of June, 1997,
but to be effective on the 20th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Employer hereby employs Employee and Employee hereby accepts
employment with Employer for a term beginning on the Effective Date as set
forth above through and including June 19, 2000 (the "INITIAL TERM"), unless
this Agreement and Employee's employment hereunder are sooner terminated
pursuant to Article 5. Upon expiration of the Initial Term, this Agreement
shall remain in full force and effect in a series of automatic renewals in
increments of one consecutive year (each such year term a "RENEWAL TERM") until
this Agreement and Employee's employment hereunder are terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Employee's employment hereunder shall be in the
capacity of President of Canadian Air Drilling Services, Inc. and Specialty
Testing and Consulting, Ltd. In such capacity, Employee shall perform the
duties for which he currently is responsible as an employee of Employer and/or
any duties set forth in any job description provided by Employer. In addition,
Employee shall perform other duties as may from time to time be prescribed by
Employer's Board of Directors or more senior management and which are
reasonably related or incidental to the capacity in which Employee serves
Employer. Employee shall perform his duties hereunder in accordance with any
lawful instructions, rules, regulations or policies made or adopted by
Employer's Board of Directors or more senior management, including those
applicable to Employer's employees generally. During the Employment Period,
Employee shall devote his full time, and best efforts and skills to the
business and interests of Employer during Employer's normal working hours, do
his utmost to further enhance and develop Employer's best interests and
welfare, and endeavor to improve his ability and knowledge of Employer's
business, particularly as it relates to his duties
Ramsay Employment Agreement
June 20, 1997
Page 1
<PAGE> 2
hereunder, in an effort to increase the value of his services for the mutual
benefit of the parties hereto. At all times during the term of this Agreement,
Employee shall project a positive and professional image on behalf of Employer.
1.3 ACCOUNTING AND FIDELITY BOND. Employee shall truthfully and
accurately make, maintain and preserve all records and reports that Employer
may from time to time request or require. Employee shall fully account for all
money, records, goods, wares and merchandise or other property belonging to
Employer or its "AFFILIATES" (as that term is defined in Rule 405 under the
Securities Act of 1933, as amended) of which he may have custody and will pay
over and deliver the same promptly whenever and however he may be directed to
do so. Employee also shall make available to Employer any and all information
of which he has knowledge that is relevant to Employer's business, and will
make all suggestions and recommendations which he feels will be of benefit to
Employer. Employee shall, upon Employer's written request, furnish all
information and take any other steps necessary to enable Employer to obtain a
fidelity bond conditioned on the rendering of a true account by Employee of all
moneys, goods or other property which may come into the custody, charge or
possession of Employee during the Employment Period. The surety company
issuing the bond and the amount of the bond must be acceptable to Employer in
its sole discretion. Employer shall pay all premiums on any such bond.
1.4 EMPLOYEE DISHONESTY. If at any time Employee becomes aware or
believes that any other employee of the Employer is or appears to be (i)
removing or using the property or funds of Employer or its Affiliates for the
benefit of anyone other than Employer or its Affiliates, or (ii) providing
Confidential Information (as defined in Section 3.2) to any person not
authorized by Employer to receive such Confidential Information (any such
employee described in (i) or (ii) being referred to as a "DISHONEST EMPLOYEE"),
Employee shall immediately communicate his knowledge or belief as to such
matters to Employer's Board of Directors. Employee acknowledges and agrees
that he shall be conclusively presumed to be in complicity with such Dishonest
Employee if Employee does not so disclose his knowledge or belief as to such
matters to Employer's Board of Directors.
1.5 FIDUCIARY DUTIES OF EMPLOYEE. The obligations of Employee
expressed in this Agreement shall be in addition to any obligations imposed
upon Employee as an employee or officer of Employer or its Affiliates by
Company's Policies and Procedures, as amended, the law of the Province of
Alberta applicable to employees, the General Corporation Law of the Province of
Alberta applicable to corporate officers, or federal law which limit the
activities of an employee or corporate officer to those which will not
threaten, impair or usurp the goodwill, trade secrets, intellectual property,
business opportunities, and business relations of his employer.
1.6 PLACE OF PERFORMANCE. Employee shall perform his duties hereunder
at Employer's Edmonton, Alberta office or at such other place where Employer's
offices subsequently may be located, or at any other place as may be directed
by Employer in order to enable Employee to discharge his duties hereunder.
Employee acknowledges and agrees that Employer may require
Ramsay Employment Agreement
June 20, 1997
Page 2
<PAGE> 3
Employee to travel and render services in different locations from time to time
incident to the performance of his duties hereunder.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Employee of the services,
terms, conditions, covenants and agreements contained in this Agreement,
Employer shall pay to Employee at the times, in the amounts and in the manner
herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the services
to be performed by Employee hereunder during the Employment Period, Employee
shall be entitled to receive as base compensation from Employer a salary of not
less than Two Hundred Twenty -Six Thousand Seven Hundred Dollars Canadian
($226,700.00 CDN) per year (the "BASE SALARY"), which shall be prorated for any
partial employment period and payable in the manner and on the timetable in
which Employer's payroll is customarily handled, or at such more frequent
intervals as Employer and Employee may hereafter agree to from time to time.
No overtime compensation shall be payable under this Agreement. Employer's
Board of Directors shall review Employee's performance at least annually and
shall make any adjustments to Employee's compensation which it deems, in its
sole discretion, appropriate, provided that at no time during the Employment
Period shall Employee's compensation be adjusted to an amount below the Base
Salary. Employer shall be entitled to withhold from all amounts of
compensation payable under this Article 2 such amounts on account of payroll
taxes and similar matters as are required by any applicable law, rule, or
regulation of any appropriate governmental authority. Such compensation shall
continue to be paid during any period of physical or mental incapacity unless
and until Employee's employment is terminated as herein provided.
2.2 BONUSES AND BENEFITS. In addition to the Base Salary described
above, Employer shall provide Employee with the following during the Employment
Period:
(a) bonuses, when and based upon or subject to such terms and
conditions as Employer's Board of Directors, in its sole and
absolute discretion, may determine; provided, however, a bonus
plan , as mutually agreed upon by the parties, shall be prepared
which will make a bonus of thirty-three and one third percent (33
1/3%) of base compensation payable at the completion of the first
year of this Agreement if all bonus plan criteria are met;
(b) participation in any present or future disability, medical,
health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any
other benefit, bonus or compensation plans on the same terms
generally available to all of Employer's employees generally or
its operating officers in
Ramsay Employment Agreement
June 20, 1997
Page 3
<PAGE> 4
particular; and
(c) payment or reimbursement, as the case may be, of reasonable
business expenses (within limits that may be established by
Employer's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with
Employer's policies and procedures on employee expense payment or
reimbursement in effect from time to time.
(d) a monthly car allowance of One Thousand Two Hundred Dollars
Canadian ($1,200.00 CDN);
(e) Employer shall pay for Employee's membership at the Derrick Golf
Club, the Edmonton Petroleum club and the Desert Falls County
Club;
(f) to the extent that Employer maintains a condominium in Palm
Springs, California for customer entertainment, Employee shall be
entitled to use said condominium for such purpose if said
condominium is available; and
(g) as separate consideration to Employee for entering into the
covenants and restrictions set forth in Article 4, Employer
agrees to pay Employee, on the Effective Date, a signing bonus in
the amount of Ten Thousand Dollars U.S. ($10,000.00 U.S.).
Employee acknowledges the adequacy of the consideration received.
2.3 VACATION. During the Employment Period, Employee shall accrue paid
vacation time in such amounts and at such times as determined by Employer's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Employee shall be entitled shall be no less
than that to which he is entitled as an employee of Employer immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Employee during the term of this Agreement, there will be compensation payable
in lieu thereof. Notwithstanding the foregoing, in no event shall Employee be
entitled to less than five (5) weeks of paid vacation.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EMPLOYEE. For purposes of this
Article 3, all references to Employer shall mean and include its Affiliates (as
defined in Section 1.3). Employee hereby acknowledges, understands and agrees
that whether developed by Employee or others employed by or in any way
associated with Employee or Employer, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Employer and
shall be at all times regarded, treated and protected as such in accordance
with this Agreement. Employee acknowledges that all such Confidential
Information is in the nature of a trade secret. Failure to mark any writing
Ramsay Employment Agreement
June 20, 1997
Page 4
<PAGE> 5
confidential shall not affect the confidential nature of such writing or the
information contained therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall mean information, whether or not originated by Employee, which is used in
Employer's business and (1) is proprietary to, about or created by Employer;
(2) gives Employer some competitive business advantage or the opportunity of
obtaining such advantage, or the disclosure of which could be detrimental to
the interests of Employer; (3) is designated as Confidential Information by
Employer, known by the Employee to be considered confidential by Employer, or
from all the relevant circumstances considered confidential by Employer, or
from all the relevant circumstances should reasonably be assumed by Employee to
be confidential and proprietary to Employer; or (4) is not generally known by
non-Employer personnel. Such Confidential Information includes, but is not
limited to, the following types of information and other information of a
similar nature (whether or not reduced to writing or designated as
confidential):
(a) Work product resulting from or related to work or projects
performed or to be performed for Employer or for clients of
Employer, including but not limited to data bases, draft and
other non-public written documents, the interim and final lines
of inquiry, hypotheses, research and conclusions related thereto
and the methods, processes, procedures, analyses, techniques and
audits used in connection therewith;
(b) Computer software of any type or form in any stage of actual or
anticipated research and development, including but not limited
to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications
(design notes, annotations, documentation, flowcharts, coding
sheets, and the like), source codes, object codes and load
modules, programming, program patches and system designs;
(c) Information relating to Employer's proprietary rights prior to
any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and
details of research and development of products and services, and
information regarding acquiring, protecting, enforcing and
licensing proprietary rights (including, without limitation,
patents, copyrights and trade secrets);
(d) Internal Employer personnel and financial information, vendor
names and other vendor information (including vendor
characteristics, services and agreements), purchasing and
internal cost information, internal service and operational
manuals, and the manner and methods of conducting Employer's
business;
(e) Marketing and development plans, price and cost data, price and
fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of
Ramsay Employment Agreement
June 20, 1997
Page 5
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obtaining business, forecasts and forecast assumptions and
volumes, and future plans and potential strategies of Employer
which have been or are being discussed;
(f) Names of customers and their representatives, contracts and their
contents and parties, customer services, and the type, quantity,
specifications and contents of products and services purchased,
leased, licensed or received by customers of Employer;
(g) Information provided to Employer by any actual or potential
customer, government agency, or other third party (including
businesses, consultants and other entities and individuals); and
(h) Contracts with, or developed by Employer for use with, agents of
Employer, including, without limitation, the terms and conditions
thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Employee in breach of Section 3.1, and the general
skills and experience gained during Employee's work with Employer which
Employee could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EMPLOYEE. As a consequence of Employee's acquisition
or anticipated acquisition of Confidential Information, Employee will occupy a
position of trust and confidence with respect to Employer's affairs and
business. In view of the foregoing and of the consideration to be provided to
Employee, Employee agrees that it is reasonable and necessary that Employee
make the following covenants:
(a) At any time during or after the termination of the Employment
Period, Employee will not disclose Confidential Information to
any person or entity, either inside or outside of Employer, other
than as necessary in carrying out duties on behalf of Employer,
without obtaining Employer's prior written consent (unless such
disclosure is compelled pursuant to court order or subpoena, and
at which time Employee gives notice of such proceedings to
Employer), and Employee will take all reasonable precautions to
prevent inadvertent disclosure of such Confidential Information.
This prohibition against Employee's disclosure of Confidential
Information includes, but is not limited to, disclosing the fact
that any similarity exists between the Confidential Information
and information independently developed by another person or
entity, and Employee understands that such similarity does not
excuse Employee
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June 20, 1997
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<PAGE> 7
from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the Employment
Period, Employee will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on
behalf of Employer, without first obtaining Employer's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such Confidential
Information. This prohibition against Employee's use, copying,
or transfer of Confidential Information includes, but is not
limited to, selling, licensing or otherwise exploiting, directly
or indirectly, any products or services (including data bases,
written documents and software in any form) which embody or are
derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential
Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Employee shall turn over to
Employer all originals and copies of materials containing Confidential
Information in the Employee's possession, custody, or control upon request or
upon termination of the Employee's employment with Employer. Employee agrees
to attend a termination interview with the Executive Compensation Committee of
Employer's Board of Directors to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Employee (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by Employer and
which may be directly or indirectly useful in, or related to, the business of
Employer (including, without limitation, research and development activities of
Employer), or which are made using any equipment, facilities, Confidential
Information, materials, labor, money, time or other resources of Employer,
shall be promptly disclosed by Employee to Employer's Board of Directors, shall
be deemed Confidential Information for purposes of this Agreement, and shall be
Employer's exclusive property. Employee shall, upon Employer's request,
execute any documents and perform all such acts and things which are necessary
or advisable in the opinion of Employer to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Employer with respect to Inventions that are to be Employer's exclusive
property under this Section 3.6, or to transfer to and vest in Employer full
and exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Employer. In addition, Employee shall, at
Employer's expense, assist Employer in any proper manner in enforcing any
Inventions which are to be or become Employer's exclusive property hereunder
against infringement by others. Employee shall keep confidential and will hold
for Employer's sole use and benefit any Invention that is to be Employer's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
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June 20, 1997
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<PAGE> 8
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EMPLOYEE ACTIVITIES. Employee agrees that except in the
ordinary course of his employment hereunder during the Employment Period,
Employee shall not during the Employment Period and for a period of two (2)
years thereafter (all references to Employer shall mean and include its
Affiliates as defined in Section 1.3):
(a) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any
manner connected with, or render services or advice to, any
Competing Business (as defined below) provided, however, that the
Employee may invest in the securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(b) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer,
advisor (whether paid or unpaid), stockholder, partner or in any
other individual or representative capacity whatsoever, either
for his own benefit or for the benefit of any other person or
entity, solicit, divert or take away, any customers or clients of
Employer; or
(c) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer,
advisor (whether paid or unpaid), stockholder, partner or in any
other individual or representative capacity whatsoever, either
for his own benefit or for the benefit of any other person or
entity, either (i) hire, attempt to hire, contact or solicit with
respect to hiring any employee of Employer, (ii) induce or
otherwise counsel, advise or encourage any employee of Employer
to leave the employment of Employer, or (iii) induce any
distributor, representative or agent of Employer to terminate or
modify its relationship with Employer.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Employer or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Employee in
Section 4.1 are an essential part
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June 20, 1997
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<PAGE> 9
of the Employer's consideration for entering into this Agreement and that, but
for the agreement of the Employee to comply with such covenants, Employer would
not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Employee hereby
specifically acknowledges and agrees that:
(a) Employer has expended and will continue to expend substantial
time, money and effort in developing (i) its business in which
the designs, plans, manuals and specifications are valuable trade
secrets, and (ii) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Employee will, in the course of his Employment, be personally
entrusted with and exposed to the trade secrets of Employer;
(c) Employer, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business
in which many firms, including Employer, compete;
(d) A substantial portion of Employer's business is conducted outside
the United States;
(e) Employer, pursuant to acquiring certain patents, technology and
associated trade secrets and know-how, will further develop its
worldwide business;
(f) Employee could, after having access to Employer's financial
records, contracts, patents, technology and associated trade
secrets and know-how, perform his obligations under this
Agreement, and after receiving further training by and experience
with Employer, and after reviewing Employer's trade secrets,
become a competitor;
(g) Employer will suffer great loss and irreparable harm if Employee
terminates his employment and enters directly or indirectly, into
competition with Employer;
(h) the temporal and other restrictions contained in this Article 4
are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Employer;
(i) the enforcement of this Agreement in general, and of this Article
4 in particular, will not work an undue or unfair hardship on
Employee or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Employee that he has activities and
other business interests and opportunities which will provide him
adequate means of support if the provisions of this Article 4 are
enforced after
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June 20, 1997
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<PAGE> 10
termination of his employment with Employer; and
(j) the enforcement of this Agreement in general, and of this Article
4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Employee agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court may reduce or modify such restrictions
to those which it deems reasonable and enforceable under the circumstances, and
as so reduced or modified, the parties hereto agree that the restrictions of
this Article 4 shall remain in full force and effect. Employee further agrees
that if a court of competent jurisdiction determines that any provision of this
Article 4 is invalid or against public policy, the remaining provisions of this
Article 4 and the remainder of this Agreement shall not be affected thereby,
and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Employee
set forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Employee's employment.
ARTICLE 5
TERMINATION
5.1 EMPLOYER TERMINATION
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Employee's employment
hereunder shall terminate upon his death, and Employer shall have
the right, in its sole and absolute discretion, to terminate this
Agreement and Employee's employment hereunder at any time by
giving him written notice of such termination (i) for "Cause" (as
defined below), (ii) if Employee shall fail to qualify for the
fidelity bond described in Section 1.3 within sixty (60) days
from the date of the Employer's written request thereunder, or
(iii) if Employee shall suffer a Disability (as defined below).
(b) "CAUSE" shall mean any of the following events:
(1) Employee's conviction or the entry of a plea of guilty or
nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude or any felony;
(2) Employee's commission of an act of fraud upon Employer or
any of its
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June 20, 1997
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<PAGE> 11
Affiliates;
(3) Employee's willful misappropriation of funds or property
of Employer or any of its Affiliates;
(4) Employee's knowing engagement, without prior approval by
resolution of Employer's Board of Directors, in any direct
conflict of interest with Employer or any of its
Affiliates, in any activity which would constitute a
breach of Employee's representations, covenants,
agreements and obligations under Articles 3 and 4 of this
Agreement, or which would otherwise result in substantial
injury to Employer's business or financial condition;
(5) Employee's refusal to perform his duties under Article 1
of this Agreement; or
(6) Employee's habitual use of alcohol or drugs which, in the
reasonable opinion of Employer, substantially impairs the
performance of Employee's duties.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which, in the sole opinion of Employer:
(i) is of a nature that cannot reasonably be controlled by
Employee, (ii) significantly inhibits or impedes Employee's
ability to perform the services required under this Agreement,
and (iii) is likely to be either long-lasting in duration or
recurring from time to time.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3(a), Employer may at any time, for any reason, with or without Cause,
terminate this Agreement and Employee's employment hereunder. After expiration
of the Initial Term, Employee may terminate this Agreement and his employment
hereunder without regard to any reason for such termination. Each of
Employer's and Employee's option to terminate this Agreement pursuant to this
Section 5.2 shall be exercised by delivery of a written notice to Employee or
Employer, as applicable, specifying the effective date of such termination
which in no event shall be sooner than expiration of thirty (30) calendar days
following delivery of such written notice.
5.3 EFFECT OF TERMINATION.
(a) If Employer terminates this Agreement for any reason other than
pursuant to the terms of Section 5.1, then Employer shall pay to
Employee an amount equal to the greater of (a) his total Base
Salary for the remainder of the Employment Period, or (b) which
shall be the greater of (i)three months of his Base Salary or
(ii) one month of Base Salary for each full year of service
completed with Employer as of the date of termination. Employer
may, in its sole and absolute discretion, make such payment in
the manner and on the timetable specified in Section 2.1, or in
one lump
Ramsay Employment Agreement
June 20, 1997
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<PAGE> 12
sum on the effective date of termination.
(b) Subject to the provisions of Section 5.3(a), upon termination of
this Agreement and Employee's employment hereunder by either
Employer or Employee, Employee shall have no right to receive any
compensation or benefits for any period subsequent to the
effective date of such termination, or for any period prior to
such date which have not been earned or vested as of such date.
(c) Employer's right of termination shall be in addition to and shall
not affect Employee's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and such rights and remedies
shall survive termination of Employee's employment hereunder.
5.4 YEARS OF SERVICE. For purposes of this Article Five, any reference
to Employee's year(s) of service shall include (i) service with the Employer,
(ii) service with any Affiliate of Employer, and (iii) service with any
predecessor entity of Employer whether by merger, acquisition or operation of
law.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Employee acknowledges, understands and agrees that
Employer will suffer immediate and irreparable harm if Employee fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Employer for such breach.
Accordingly, Employee agrees that Employer shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Articles 3
and 4 without the necessity of proving inadequacy of legal remedies or
irreparable harm.
6.2 INDEMNIFICATION. Employer shall indemnify Employee in the same
manner and to the same extent that Employer is obligated to indemnify its
directors pursuant to Employer's Certificate of Incorporation and Bylaws, as
each may be amended or restated from time to time.
6.3 ACTION BY AND CONSENT OF EMPLOYER. All rights and remedies of
Employer hereunder shall be exercised by the Employer solely by and through
management authorized by Employer's Board of Directors.
6.4 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Employer at the address
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June 20, 1997
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<PAGE> 13
indicated beneath its signature on the execution page of this Agreement, and
also to Employee at his home address indicated beneath his signature on the
execution page of this Agreement, or at such other address and number as a
party shall have previously designated by written notice given to the other
party in the manner hereinabove set forth. Notices shall be deemed given when
received, if sent by facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by facsimile
means); and when delivered and receipted for (or upon the date of attempted
delivery where delivery is refused), if hand-delivered, sent by express courier
or delivery service, or sent by certified or registered mail, return receipt
requested.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Employer
shall be effective only if executed and delivered by a duly authorized
executive officer of Employer other than Employee. The failure of any party at
any time or times to require performance of any provisions hereof, shall in no
manner effect the right to enforce the same. No waiver by any party of any
condition or provision, or the breach of any term, provision, representation,
or warranty contained in this Agreement in one or more instances shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other term, provision, covenant, representation, or warranty.
6.6 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Employer's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Employer shall not relieve it of any of its obligations hereunder.
6.7 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or
Sections shall be to Articles or Sections of this Agreement unless otherwise
specified. The headings and captions used in this Agreement are solely for
convenient reference and shall not affect the meaning or interpretation of any
article, section or paragraph herein, or this Agreement. The terms "hereof,"
"herein" or "hereunder" shall refer to this Agreement as a whole and not to any
particular Section.
6.8 GOVERNING LAW AND SEVERABILITY. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the Province of Alberta. Each
party hereto hereby acknowledges and agrees that it has had the
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June 20, 1997
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<PAGE> 14
opportunity to consult with its own legal counsel in connection with the
negotiation of this Agreement, and that it has bargaining power equal to that
of the other party hereto in connection with the negotiation, execution and
delivery of this Agreement. Accordingly, the parties hereto agree that the
rule of contract construction that an agreement shall be construed against the
drafter shall have no application in the construction or interpretation of this
Agreement. The invalidity of any provision of this Agreement shall not affect
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity of a portion of any provision of this
Agreement affect the balance of such provision.
6.9 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement, except for any indemnification
obligations of Employer pursuant to Section 6.2.
6.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Employer and Employee
relating to the subject matter hereof.
6.11 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
EMPLOYER:
CANADIAN AIR DRILLING SERVICES LTD.
By: /s/ JAMES F. FARR
------------------------------
Name: JAMES F. FARR
------------------------------
Title: DIRECTOR
------------------------------
Address: P.O. BOX 1863
-----------------------
CONROE, TEXAS
-----------------------
77305
-----------------------
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June 20, 1997
Page 14
<PAGE> 15
EMPLOYEE:
/s/ TOMMY D. RAMSAY
-------------------------------------
Tommy D. Ramsay
Address: 117 Roche Crescent
Edmonton, Alberta T6R 1C8
EMPLOYER ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
Before me, the undersigned authority, on this date personally appeared
James F. Farr , Director, of Canadian Air Drilling Services Ltd., an Alberta
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 20th day of June, 1997.
/s/ DARICE ANGEL
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 11-25-97
{THIS SPACE INTENTIONALLY LEFT BLANK}
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June 20, 1997
Page 15
<PAGE> 16
EMPLOYEE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF HARRIS )
Before me, the undersigned authority, on this date personally appeared
Tommy D. Ramsay, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 20th day of June, 1997.
/s/ DARICE ANGEL
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 11-25-97
Ramsay Employment Agreement
June 20, 1997
Page 16
<PAGE> 1
EXHIBIT 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and J. D. Lawrence ("EXECUTIVE") on this 27th day of November,
1996, but to be effective on the 27th day of November, 1996 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed by Company in the same capacity in which Executive currently serves;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including December 31, 1999 (the "INITIAL
TERM"), unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date
(a "Renewal Date") the term of this Agreement shall automatically renew and
extend for a period of three years from the Renewal Date (a "Renewal Term")
unless written notice of nonrenewal is delivered from one party to the other at
least sixty days prior to the Renewal Date. The Agreement shall remain in
force during the Initial Term and any Renewal Term until terminated in
accordance with Article 5. The Initial Term together with each Renewal Term
shall hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in
the capacity of Chairman of the Board. In such capacity, Executive shall
perform the duties for which he currently is responsible as an executive
officer of Company but shall not be required to devote all of his time and
attention to the affairs of Company. During the Employment Period, Executive
shall enhance and develop Company's best interests and welfare. During the
Employment Period, it shall not be a violation of this Agreement for Executive
to (a) serve on corporate, civic, or charitable boards or committees (except
for Boards or committees of a Competing Business (as defined in Section 4.1)),
(b) deliver lectures, fulfill teaching or speaking engagements, (c) manage
personal investments, so
<PAGE> 2
long as such activities do not materially interfere with performance of
Executive's responsibilities under this Agreement, or travel to represent
Company at various industry or Company functions.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties at such
locations as Executive and Company may agree.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person
controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Eight Thousand Three Hundred and Thirty-Three and
33/100 Dollars ($8,333.33) per month (the "BASE SALARY"), which shall be
prorated for any partial employment period and payable in the manner and on the
timetable in which Company's payroll is customarily handled, or at such more
frequent intervals as Company and Executive may hereafter agree to from time to
time. No overtime compensation shall be payable to Executive. Company's Board
of Directors shall review Executive's performance at least annually and shall
make any adjustments to Executive's compensation that it deems, in its sole
discretion, appropriate, provided that at no time during the Employment Period
shall Executive's compensation be adjusted to an amount below the Base Salary.
Company shall be entitled to withhold from all amounts of compensation payable
under this Article 2 such amounts on account of payroll taxes and similar
matters as are required by any applicable law, rule, or regulation of any
appropriate governmental authority. Such compensation shall continue to be
paid during any period of physical or mental incapacity unless and until
Executive's employment is terminated as herein provided.
2.2 STOCK GRANT AND OPTION. The Company may in its sole discretion,
grant options to Executive in accordance with Company's 1996 Key Employee Stock
Plan.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary and stock
grant and option described above, Company shall provide Executive with the
following during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms
and conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine;
2
<PAGE> 3
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement in
effect from time to time;
(d) Access to and use of Company's health club facility in
accordance with the policies and procedures governing such facility;
(e) At the option of Executive each year either (1) use of a
current model Company vehicle comparable to a fully equipped Cadillac,
plus reimbursement of the full cost of repairs, maintenance, gasoline,
oil and cleaning, or (2) an automobile allowance of $2,500 per month;
(f) Use of a Company paid full memberships in local area
country clubs of the Executive's choice, provided that the aggregate
expenses of such memberships do not exceed $1,500 per month; and
(g) Reimbursement of the reasonable costs of tuition, books
and travel incurred for Executive's continuing education in general
business or continuing professional education. For each fiscal year
during the Employment Period the reimbursement shall not exceed ten
percent of Executive's annual base compensation as set forth in Section
2.1.
(h) Personal use by Executive and Executive's immediate family
of any aircraft owned or leased by Company, provided that any personal
use of Company aircraft shall be subject to the following, (i) all use
shall be governed by the Company's policies governing flight operations
and safety rules, (ii) all personal use shall be subject to business
purpose flight scheduling, and in the event of scheduling conflict the
Company's flights for official business shall supersede any personal
use, (iii) for any calendar year during the Employment Period the total
number of flight hours taken by Executive and Executive's immediate
family shall not exceed 120 hours. Nothing herein shall be construed to
obligate Company to own or lease any aircraft during the term of this
Agreement.
2.4 VACATION. During the Employment Period, Executive shall accrue
paid vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during
3
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the term of this Agreement, Executive may, at his option, receive a lump sum
payment of cash value of the vacation pay in lieu thereof, or carry the
vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures, analyses, techniques and audits used in connection
therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming, program
patches and system designs;
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3. Information relating to Company's proprietary rights prior
to any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details of
research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal cost
information, internal service and operational manuals, and the manner
and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and potential
strategies of Company which have been or are being discussed;
6. Names of customers and their representatives, contracts
and their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
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(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential Information
to any person or entity, either inside or outside of Company, other than
as necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such disclosure is
compelled pursuant to court order or subpoena, and at which time
Executive gives notice of such proceedings to Company), and Executive
will take all reasonable precautions to prevent inadvertent disclosure
of such Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not limited to,
disclosing the fact that any similarity exists between the Confidential
Information and information independently developed by another person or
entity, and Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on behalf
of Company, without first obtaining Company's prior written consent, and
will take all reasonable precautions to prevent inadvertent use, copying
or transfer of such Confidential Information. This prohibition against
Executive's use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or otherwise
exploiting, directly or indirectly, any products or services (including
data bases, written documents and software in any form) which embody or
are derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to the President, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded
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protection of right to intellectual property for, Company with respect to
Inventions that are to be Company's exclusive property under this Section 3.6,
or to transfer to and vest in Company full and exclusive right, title and
interest in and to such Inventions; provided, however, that the expense of
securing any such protection of right to Inventions shall be borne by Company.
In addition, Executive shall, at Company's expense, assist Company in any
proper manner in enforcing any Inventions which are to be or become Company's
exclusive property hereunder against infringement by others. Executive shall
keep confidential and will hold for Company's sole use and benefit any
Invention that is to be Company's exclusive property under this Section 3.6 for
which full recorded protection of right has not been or cannot be obtained.
ARTICLE 4
TERMINATION
4.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at
any time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Executive's employment hereunder
shall terminate upon his death, and Company shall have the right, in its
sole and absolute discretion, to terminate this Agreement and
Executive's employment hereunder at any time by giving him written
notice of such termination (1) for "Cause" (as defined below), or (2)
if Executive shall suffer a Disability (as defined below).
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the
and intended to result in substantial personal enrichment of the
Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement which are demonstrably willful
on the Executive's part, and for which Executive has received
more than one written warning that specifies each area of
Executive's violations, or
3. The conviction of the Executive of a felony.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which incapacitates the Executive for a
continuous period of three (3) months.
4.2 TERMINATION BY EITHER PARTY. Subject to the provisions of
Section 4.3(a), Company may at any time, for any reason, with or without Cause,
terminate this Agreement and Executive's employment hereunder. Each of
Company's and Executive's option to terminate this Agreement
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pursuant to this Section 4.2 shall be exercised by delivery of a written notice
to Executive or Company, as applicable, specifying the effective date of such
termination which in no event shall be sooner than expiration of thirty (30)
calendar days following delivery of such written notice.
4.3 EFFECT OF TERMINATION.
(a) If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 4.1 and such termination is not
within [1] year of a Change in Control (as defined in 4.3(b) below),
then Company shall pay to Executive an amount equal to the greater of
(1) his total Base Salary for the remainder of the Employment Period, or
(2) which shall be the greater of (a) three months of his Base Salary or
(b) one month of Base Salary for each full year of service completed
with Company as of the date of termination. Company shall, make such
payment in one lump sum on the effective date of termination.
(b) If Company terminates this Agreement for any reason other
than pursuant to the terms of Section 4.1 and such termination occurs
within [1] year of the occurrence of a Change in Control, then Company
shall pay to Executive an amount equal to the greater of (1) his total
Base Salary for the remainder of the Employment period; (2) two times
the greater of (a) his annualized Base Salary in effect upon the
occurrence of the Change in Control or (b) his annualized Base Salary in
effect on the date of notice termination is received; or (3) one month
of Base Salary for each full year of service completed with the Company
as of the date of termination. A "Change in Control" shall be deemed to
have occurred at any time after the date of this Agreement that (i) any
person (other than those persons who own more than 10% of the combined
voting power of the Company's outstanding voting securities on the date
hereof) becomes the beneficial owner, directly or indirectly, of 30% or
more of the combined voting power of the Company's then outstanding
voting securities, or (ii) individuals who at the beginning of any
period of two consecutive years constitute the Company's Board of
Directors cease for any reason to constitute a majority of such Board of
Directors at any time during such two-year period.
(c) If Executive terminates this Agreement for Good Cause
(defined below) and such termination occurs within one year of the
occurrence of a Change in Control, then Company shall pay to Executive
an amount equal to the greater of (1) his total Base Salary for the
remainder of the Employment Period; (2) two times the greater of (a) his
annualized Base Salary in effect upon the occurrence of the Change in
Control or (b) his annualized Base Salary in effect on the date of
notice termination is received; or (3) one month of Base Salary for each
full year of service completed with the Company as of the date of
termination. "Good Cause" shall mean the occurrence of any of the
following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office with
Company at the time
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of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a senior
officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any failure
to reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or association of which the
Executive is a director, officer, or member at the date of this
Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of a
Change in Control or the failure of Company to pay such salary to
the Executive at the time and in the manner specified in this
Agreement;
(vi) other than with respect to the annual performance
bonus specified in Article 2 or, as made with the Executive's
prior written consent, the discontinuance (without comparable
replacement) or material reduction by Company of the Executive's
participation in any bonus or other employee benefit arrangement
(including, without limitation, any profit-sharing, thrift, life
insurance, medical, dental, hospitalization, stock option or
retirement plan or arrangement) in which the Executive is a
participant under the terms of this Agreement, as in effect on
the date hereof or as may be improved from time to time
hereafter;
(vii) the moving by Company of the Executive's principal
office space, related facilities, or support personnel, from
Company's principal operating offices, or Company's requiring the
Executive to perform a majority of his duties outside Company's
principal operating offices for a period of more than 30
consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal operating offices to a
location outside the county in which such offices are located at
the time of the signing of this Agreement;
(ix) in the event Company requires the Executive to
reside at a location more than 25 miles from Company's principal
operating offices, except for occasional travel in connection
with Company business to an extent and in a manner which is
substantially consistent with the Executive's current business
travel obligations;
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(x) in the event the Executive consents to a relocation
of Company's principal operating offices, the failure of Company
to (A) pay or reimburse the Executive on an after-tax basis for
all reasonable moving expenses incurred by the Executive in
connection with such relocation or (B) indemnify the Executive on
an after-tax basis against any loss realized by the Executive on
the sale his principal residence in connection with such
relocation;
(xi) the failure of Company to continue to provide the
Executive with office space, related facilities and support
personnel (including, without limitation, administrative and
secretarial assistance) that are commensurate with the
Executive's responsibilities to and position with Company.
(xii) the failure by Company to promptly reimburse the
Executive for the reasonable business expenses incurred by the
Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.3(a) or (b), upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive
any compensation or benefits for any period subsequent to the effective
date of such termination, or for any period prior to such date which
have not been earned or vested as of such date except as may be provided
for in any employee benefit plan relating to such benefits, including
the Company's 1996 Key Employee Stock Plan.
(e) Company's right of termination shall be in addition to and
shall not affect Executive's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and such rights and remedies shall
survive termination of Executive's employment hereunder.
ARTICLE 5
MISCELLANEOUS
5.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Article 3 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Article 3
without the necessity of proving inadequacy of legal remedies or irreparable
harm.
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5.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by Company's Board
of Directors.
5.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
5.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
5.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
5.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or
Sections shall be to Articles or Sections of this Agreement unless otherwise
specified. The headings and captions used in this Agreement are solely for
convenient reference and shall not affect the meaning or interpretation of
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any article, section or paragraph herein, or this Agreement. The terms
"hereof," "herein" or "hereunder" shall refer to this Agreement as a whole and
not to any particular Section.
5.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed
and is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
5.8 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
5.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof, except any agreement entered into
pursuant to Company's 1996 Incentive Option Plan as contemplated by Section 2.2
of this Agreement.
5.10 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
5.11 RESOLUTION OF DISPUTES.
(a) NEGOTIATION. Except as otherwise provided in this
Agreement, the parties shall attempt in good faith to resolve any
dispute out of our relating to this Agreement promptly by negotiations
between Executive and the representative of Company's Board of Directors
who has authority to settle the controversy (herein the "SETTLEMENT
REPRESENTATIVE"). Any party may give the other disputing party written
notice of any dispute not resolved in the normal course of business.
Within five days after the effective date of that notice, Executive and
the Settlement Representative shall agree upon a mutually acceptable
time and place to meet and shall meet at that time and place, and
thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. The first
of those meetings shall take place within 30 days of the
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effective date of the disputing party's notice. If the matter has not
been resolved within 60 days of the disputing party's notice, or if the
parties fail to agree on a time and place for the initial meeting within
five days of that notice, any party may initiate mediation of the
controversy or claim as provided hereinafter. If a negotiator intends
to be accompanied at a meeting by an attorney, the other negotiators
shall be given at least three business days' notice of that intention
and may also be accompanied by an attorney. All negotiations pursuant
to this Section 5.11 shall be treated as compromise and settlement
negotiations for the purposes of federal and state rules of evidence and
procedure.
(b) ARBITRATION. Any dispute arising out of, relating to or
in any way touching upon this Agreement or the breach, termination or
validity hereof, that has not been resolved by non-binding procedures as
provided in Section 5.11(a) within 60 days of the initiation of the
negotiation shall be resolved by binding the arbitration in accordance
with the following provisions of this Section 5.11, provided, however,
that either party may seek injunctive relief or other equitable relief
to preserve the status quo pending arbitration.
(i) Either party to this Agreement may submit any
dispute which is subject to arbitration under this Section 5.11
by giving notice by such other party, each party shall appoint
one arbitrator, and within ten business days thereafter the two
arbitrators so appointed shall select a third arbitrator. If
either party shall fail to make such appointment within such ten-
business day period, the other party may request the American
Arbitration Association to appoint the second arbitrator. If the
two appointed arbitrators shall fail to select a third arbitrator
within said ten-business day period, the parties hereto shall
mutually select the third arbitrator. If the parties are unable
to agree upon such selection within ten business days, then
either party may, upon at least five business days' prior written
notice to the other party, request the American Arbitration
Association to appoint the third arbitrator. The American
Arbitration Association may thereupon appoint the third
arbitrator. All arbitrators shall be impartial and unrelated,
directly or indirectly, so far as employment of services is
concerned to either of the parties or any of their respective
Affiliates. The arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, as then in effect, except as otherwise provided in
this Section 5.11. The arbitration shall take place in Conroe,
Montgomery County, Texas or such other location as the parties
may agree.
(ii) The three arbitrators shall investigate the facts
and shall hold hearings at which the parties hereto may present
evidence and arguments, be represented by counsel and conduct
cross examination. The three arbitrators shall render a written
decision on the matter presented to them by majority vote as soon
as practicable after the appointment of the third arbitrator and
in any event both parties shall request the arbitrators to render
such decision not more than 60 days after such appointment. The
decision of the arbitrators, which may include equitable relief,
shall be final and binding on the parties hereto, and judgment
upon the decision may be entered in any
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court having jurisdiction thereof. If the three arbitrators
shall fail to render a decision within 120 days after such
appointment, either party may institute such action or proceeding
in such court as shall be appropriate in the circumstances and
upon the institution of such action, the arbitration proceeding
shall be terminated and shall be of no further force and effect.
The prevailing party awarded reasonable attorneys' fees, expert
and nonexpert witness costs and expenses, and other costs and
expenses incurred in connection with the arbitration, and the
fees and costs of the arbitrators shall be borne by the
nonprevailing party unless, in either case, the arbitrators for
good cause determine otherwise. In resolving any dispute, the
arbitrators shall apply the provisions of this agreement, without
varying therefrom in any respect. The arbitrators shall not have
the power to add to, modify or change any of the provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
------------------------------------
Name: JAMES F. FARR
----------------------------------
Title: PRESIDENT
---------------------------------
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ J.D. LAWRENCE
---------------------------------------
Name: J. D. Lawrence
Address: #58 Country Hill
Conroe, Texas 77304
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COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President of Dailey Petroleum Services Corp., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
--------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
J. D. Lawrence, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 27th day of November, 1996.
/s/ VIRGINIA J. CROSS
--------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
15
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EXHIBIT 10.29
DAILEY PETROLEUM SERVICES CORP.
1996 NON-EMPLOYEE DIRECTOR STOCK PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Dailey Petroleum Services Corp. (the "Company") hereby grants to Al
Kite (the "Optionee") the option to purchase 10,000 shares of the Company's
Class A Common Stock, $.01 par value (the "Common Stock"), at a price of $6.50
for each share of Common Stock (the "Option"). This Option shall be granted
upon the terms and conditions substantially similar to those contained in the
Dailey Petroleum Services Corp. 1996 Non-Employee Director Stock Option Plan
(the "Plan").
This Option shall be for a term commencing the date hereof and ending
on April 22, 2002, unless this Option is terminated earlier by reason of the
Optionee's termination of employment, as provided under the terms and
conditions of the Plan.
This Option shall become exercisable in full on the first anniversary
of the date hereof.
This Option is a non-qualified stock option which is not intended to be
governed by Section 422 of the Internal Revenue Code of 1986, as amended.
The Optionee, upon acceptance of this Option, accepts and agrees to be
bound by all the terms and conditions of this Agreement. Notwithstanding that
this Option is not granted pursuant to the Plan, the Optionee further agrees to
be bound by all the terms and conditions of the Plan applicable to non-qualified
stock options granted under the Plan.
Granted effective as of the 23rd day of April, 1997.
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
-------------------------------------
James F. Farr
President and Chief Executive Officer
Accepted this 16th day of May, 1997.
/s/ A.E. KITE
- ---------------------------------
Al Kite
<PAGE> 1
EXHIBIT 10.30
DAILEY PETROLEUM SERVICES CORP.
1996 NON-EMPLOYEE DIRECTOR STOCK PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Dailey Petroleum Services Corp. (the "Company") hereby grants to
Bernard J. Duroc-Danner (the "Optionee") the option to purchase 10,000 shares
of the Company's Class A Common Stock, $0.01 par value (the "Common Stock"), at
a price of $6.50 for each share of Common Stock (the "Option"). This Option
shall be granted upon the terms and conditions substantially similar to those
contained in the Dailey Petroleum Services Corp. 1996 Non-Employee Director
Stock Option Plan (the "Plan").
This Options shall be for a term commencing the date hereof and ending
on April 22, 2002, unless this Option is terminated earlier by reason of the
Optionee's termination of employment, as provided under the terms and
conditions of the Plan.
This Option shall become exercisable in full on the first anniversary
of the date hereof.
This Option is a non-qualified stock option which is not intended to be
governed by Section 422 of the Internal Revenue Code of 1986, as amended.
The Optionee, upon acceptance of this Option, accepts and agrees to be
bound by all the terms and conditions of this Agreement. Notwithstanding that
this Option is not granted pursuant to the Plan, the Optionee further agrees to
be bound by all the terms and conditions of the Plan applicable to non-qualified
stock options granted under the Plan.
Granted effective as of the 23rd day of April, 1997.
DAILEY PETROLEUM SERVICES CORP.
By: JAMES F. FARR
----------------------------
James F. Farr
Accepted this 16th day of May, 1997.
/s/ BERNARD J. DUROC-DANNER
----------------------------
Bernard J. Duroc-Danner
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EXHIBIT 10.32
FIRST AMENDMENT TO THE
EMPLOYMENT AGREEMENT
BETWEEN
DAILEY PETROLEUM SERVICES CORP.
AND JOHN E. BLACKLAWS
AGREEMENT entered into this 17th day of February, 1997, by and between
Dailey Petroleum Services Corp., a Delaware Corporation ("Employer"), and John
E. Blacklaws ("Employee").
WHEREAS, Employer and Employee are parties to that certain employment
agreement dated June 25, 1996, ("Agreement").
WHEREAS, the parties desire to amend the terms of the Agreement to the
set forth herein;
NOW THEREFORE, Employer and Employee, in consideration of the premises
and mutual agreements herein contained, do hereby agree as follows;
1. PRINCIPAL DUTIES. Employee's employment hereunder shall be in the
capacity of President-Manufacturing Services Division. In such
capacity, Employee shall perform the duties which he is currently
responsible as an Employee of Employer. In addition, Employee shall
perform other duties as may from time to time be prescribed by
Employer's Board of Directors or senior management and which are
reasonably related or incidental to the capacity in which Employee
serves Employer. Employee shall perform his duties hereunder in
accordance with any lawful instructions, rules, regulations or
policies made or adopted by Employer's Board of Directors, including
those applicable to Employer's employees generally. During the
Employment Period, Employee shall devote his full time, and best
efforts and skills to the business and interests of Employer during
Employer's normal working hours, do his utmost to further enhance
and develop Employer's best interests and welfare, and endeavor to
improve his ability and knowledge of Employer's business,
particularly as it relates to his duties hereunder, in an effort to
increase the value of his services for the mutual benefit of the
parties hereto. At all times during the term of this Agreement,
Employee shall project a positive and professional image on behalf
of Employer.
2. Employee and Employer agree, ratify and confirm that the Agreement,
as amended hereby, remains in full force and effect, and
constitutes a valid, binding and enforceable agreement in all
respects.
3. This First Amendment shall be effective the date first above
written. To the extent that the terms of this First Amendment
conflict with terms of the Agreement, the terms of the First
Amendment shall control.
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IN WITNESS HEREOF, the parties have executed this Agreement through
their duly authorized officers as of the date set forth on the first page
hereof.
EMPLOYER:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES J. PERCLE
------------------------------
Name: James J. Percle
Title: Chief Operating Officer
Address: One Lawrence Center
P.O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EMPLOYEE:
/s/ JOHN E. BLACKLAWS
-------------------------------
Name: John E. Blacklaws
Address:
12000 Sawmill Number 1013
-------------------------------
The Woodlands, TX 77380
-------------------------------
EMPLOYER ACKNOWLEDGEMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James J. Percle, Chief Operating Officer, of Dailey Petroleum Services Corp., a
Delaware corporation, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, in the capacity stated, and
as the act and deed of said corporation.
Given under my hand and seal this 17th day of February, 1997.
- ------------------------ /s/ VIOLET M. DAY
[SEAL] -----------------------------------
VIOLET M. DAY Notary Public in and for
MY COMMISSION EXPIRES The State of Texas
OCTOBER 12, 1999
- ------------------------ My Commission Expires: 10/12/99
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EMPLOYEE ACKNOWLEDGEMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
John E. Blacklaws, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 17th day of February, 1997.
- ------------------------ /s/ VIOLET M. DAY
[SEAL] -----------------------------------
VIOLET M. DAY Notary Public in and for
MY COMMISSION EXPIRES The State of Texas
OCTOBER 12, 1999
- ------------------------ My Commission Expires: 10/12/99
<PAGE> 1
EXHIBIT 10.33
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and Dwight Goolsbay ("EXECUTIVE") on this 18 day of July, 1997,
but to be effective on the 24th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated June 25, 1997, as amended on February 20, 1997, which they
desire to amend and fully restate upon the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including June 23, 1999 (the "INITIAL TERM"),
unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date (a
"Renewal Date") the term of this Agreement shall automatically renew and extend
for a period of three years from the Renewal Date (a "Renewal Term") unless
written notice of nonrenewal is delivered from one party to the other at least
sixty days prior to the Renewal Date. The Agreement shall remain in force
during the Initial Term and any Renewal Term until terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in the
capacity of Vice President, Eastern Hemisphere. In such capacity, Executive
shall perform the duties for which he
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currently is responsible as an executive officer of Company. Executive shall
perform his duties hereunder in accordance with any lawful instructions, rules,
regulations or policies made or adopted by Company's Board of Directors,
including those applicable to Company's Executives generally, provided that
Executive shall not have his duties, authority, areas of responsibility,
offices, immediate or support staff reduced or eliminated during the Employment
Period. During the Employment Period, Executive shall devote his full time, and
best efforts and skills to the business and interests of Company, do his utmost
to further enhance and develop Company's best interests and welfare, and
endeavor to improve his ability and knowledge of Company's business,
particularly as it relates to his duties hereunder, in an effort to increase
the value of his services for the mutual benefit of the parties hereto. During
the Employment Period, it shall not be a violation of this Agreement for
Executive to (a) serve on corporate, civic, or charitable boards or committees
(except for Boards or committees of a Competing Business (as defined in Section
4.1)), (b) deliver lectures, fulfill teaching or speaking engagements, (c)
manage personal investments, so long as such activities do not materially
interfere with performance of Executive's responsibilities under this
Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties hereunder
at the London Regional office, or at such other place where Company's principal
executive offices subsequently may be located, provided, however that Employee
shall have no obligation to permanently relocate to any location which is more
than fifty (50) miles from the city of London, England. Executive acknowledges
subject to Section 5.3(c) hereof, and agrees that Company may require Executive
to travel and render services in different locations from time to time incident
to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or entity
controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the services
to be performed by Executive hereunder during the Employment Period, Executive
shall be entitled to receive as base compensation from Company a salary of not
less than One Hundred Thirty-Five Thousand Dollars ($135,000) per year (the
"BASE SALARY"), which shall be prorated for any partial employment period and
payable in the manner and on the timetable in which Company's payroll is
customarily handled, or at such more frequent intervals as Company and
Executive may hereafter agree to from time to time. No overtime compensation
shall be payable to Executive. Company's Board of Directors shall review
Executive's performance at least annually and shall make any adjustments to
Executive's compensation that it deems, in its sole discretion, appropriate,
provided that at no time during the Employment Period shall Executive's
compensation be adjusted to an amount below the Base Salary.
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Company shall be entitled to withhold from all amounts of compensation payable
under this Article 2 such amounts on account of payroll taxes and similar
matters as are required by any applicable law, rule, or regulation of any
appropriate governmental authority. Such compensation shall continue to be paid
during any period of physical or mental incapacity unless and until Executive's
employment is terminated as herein provided.
2.1(a) See Foreign Compensation Calculation - London, attached hereto as
Attachment "A" and incorporated herein for all purposes.
2.2 EXPATRIATE BENEFITS. While residing in the United Kingdom, Employee
shall be entitled to those benefits provided pursuant to the Company's
Expatriate Personnel Policy, as amended from time to time, provided, however
that at no time during the Employment Period shall Executive's expatriate
benefits be adjusted to an amount below Attachment "A", Foreign Compensation
Calculation - London dated July 15, 1997.
2.3 BONUSES AND BENEFITS. In addition to the Base Salary, Expatriate
Benefits, and stock grant and option described above, Company shall provide
Executive with the following during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms and
conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine;
(b) Participation in any present or future disability, medical,
health, dental, insurance, pension, profit-sharing, thrift, retirement,
investment, and stock appreciation plans, and any other benefit, bonus
or compensation plans on the same terms generally available to all of
Company's Executives generally or its executive officers in particular;
(c) Payment or reimbursement, as the case may be, of reasonable
business expenses (within limits that may be established by Company's
Board of Directors) incurred in connection with the performance of his
duties hereunder, such expense payment or reimbursement being subject
to, and made in accordance with Company's policies and procedures of
Executive expense payment or reimbursement in effect from time to time;
(d) Access to and use of Company's health club facility in
accordance with the policies and procedures governing such facility;
(e) Use of a Company paid full membership in a local area country
club and/or health club of the Executive's choice;
(f) Reimbursement of the reasonable costs of tuition, books and
travel incurred for Executive's continuing education in general business
or continuing professional education. For each fiscal year during the
Employment Period the reimbursement shall not exceed ten percent of
Executive's annual base compensation as set forth in Section 2.1; and
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(g) a company paid vehicle (plus fuel, insurance and maintenance)
of the Employee's choice equivalent to a vehicle which could be
purchased at a major car dealership in the United States at a retail
price of up to $50,000.
2.4 VACATION. During the Employment Period, Executive shall accrue paid
vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during the term of this Agreement, Executive may, at his option,
receive a lump sum payment of cash value of the vacation pay in lieu thereof,
or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this Article
3, all references to Company shall mean and include its Affiliates (as defined
in Section 1.4) Executive hereby acknowledges, understands and agrees that
whether developed by Executive or others employed by or in any way associated
with Executive or Company, all Confidential Information, as defined in Section
3.2, is the exclusive and confidential property of Company and shall be at all
times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall mean information, whether or not originated by Executive, which is used
in Company's business and (a) is proprietary to, about or created by Company;
(b) gives Company some competitive business advantage or the opportunity of
obtaining such advantage, or the disclosure of which could be detrimental to
the interests of Company; (c) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by Company, or
from all the relevant circumstances considered confidential by Company, or from
all the relevant circumstances should reasonably be assumed by Executive to be
confidential and proprietary to Company; or (d) is not generally known by non-
Company personnel. Such Confidential Information includes, but is not limited
to, the following types of information and other information of a similar
nature (whether or not reduced to writing or designated as confidential):
1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures,
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analyses, techniques and audits used in connection therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming, program
patches and system designs;
3. Information relating to Company's proprietary rights prior
to any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details of
research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal cost
information, internal service and operational manuals, and the manner
and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and potential
strategies of Company which have been or are being discussed;
6. Names of customers and their representatives, contracts
and their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall not include information publicly known other than as a result of a
disclosure by Executive in breach of Section 3.1, and the general skills and
experience gained during Executive's work with Company which Executive could
reasonably have been expected to acquire in similar work with another company.
The phrase "PUBLICLY KNOWN" shall mean readily accessible to the public in a
written publication and, shall not include information which is only available
by a substantial searching of the published literature or information the
substance of which must be pieced together from a number of
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different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's acquisition
or anticipated acquisition of Confidential Information, Executive will occupy a
position of trust and confidence with respect to Company's affairs and
business. In view of the foregoing and of the consideration to be provided to
Executive, Executive agrees that it is reasonable and necessary that Executive
make the following covenants:
(a) At any time during or after the termination of the Employment
Period, Executive will not disclose Confidential Information to any
person or entity, either inside or outside of Company, other than as
necessary in carrying out duties on behalf of Company, without obtaining
Company's prior written consent (unless such disclosure is compelled
pursuant to court order or subpoena, and at which time Executive gives
notice of such proceedings to Company), and Executive will take all
reasonable precautions to prevent inadvertent disclosure of such
Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not limited to,
disclosing the fact that any similarity exists between the Confidential
Information and information independently developed by another person or
entity, and Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the Employment
Period, Executive will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on behalf
of Company, without first obtaining Company's prior written consent, and
will take all reasonable precautions to prevent inadvertent use, copying
or transfer of such Confidential Information. This prohibition against
Executive's use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or otherwise
exploiting, directly or indirectly, any products or services (including
data bases, written documents and software in any form) which embody or
are derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed,
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conceived or resulting from work performed by Executive (alone or in
conjunction with others, during regular hours of work or otherwise) while he is
employed by Company and which may be directly or indirectly useful in, or
related to, the business of Company (including, without limitation, research
and development activities of Company), or which are made using any equipment,
facilities, Confidential Information, materials, labor, money, time or other
resources of Company, shall be promptly disclosed by Executive to his
supervisor, shall be deemed Confidential Information for purposes of this
Agreement, and shall be Company's exclusive property. Executive shall, upon
Company's request, execute any documents and perform all such acts and things
which are necessary or advisable in the opinion of Company to cause issuance of
patents to, or otherwise obtain recorded protection of right to intellectual
property for, Company with respect to Inventions that are to be Company's
exclusive property under this Section 3.6, or to transfer to and vest in
Company full and exclusive right, title and interest in and to such Inventions;
provided, however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property hereunder
against infringement by others. Executive shall keep confidential and will hold
for Company's sole use and benefit any Invention that is to be Company's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except in the
ordinary course of his employment hereunder during the Employment Period,
Executive shall not during the Employment Period and for a period of one (1)
year thereafter within any geographic area in which Company conducts business
during the Employment Period (all references to Company shall include its
Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation
or control of, be employed by, associated or in any manner connected
with, or render services or advice to, any Competing Business (as
defined below) provided, however, that the Executive may invest in the
securities of any enterprise with the power to vote up to 5% of the
capital stock of such enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either
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for his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity, either
(1) hire, attempt to hire, contact or solicit with respect to hiring any
Executive of Company, (2) induce or otherwise counsel, advise or
encourage any Executive of Company to leave the employment of Company,
or (3) induce any distributor, representative or agent of Company to
terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Executive
in Section 4.1 are essential elements of this Agreement and that, but for the
agreement of the Executive to comply with such covenants, Company would not
have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend substantial
time, money and effort in developing (1) its business in which the
designs, plans, manuals and specifications are valuable trade secrets,
and (2) a valuable list of customers and agents, and information about
their technical problems and needs, purchasing habits, idiosyncracies
and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business in which
many firms, including Company, compete;
(d) A substantial portion of Company's business is conducted
outside the United States;
(e) Company, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further develop its
worldwide business;
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(f) Executive could, after having access to Company's financial
records, contracts, patents, technology and associated trade secrets and
know-how and, after receiving further training by and experience with
Company, and after reviewing Company's trade secrets, become a
competitor;
(g) Company will suffer great loss and irreparable harm if
Executive terminates his employment and enters directly or indirectly,
into competition with Company;
(h) The temporal and other restrictions contained in this Article
4 are in all respects reasonable and necessary to protect the business
goodwill, trade secrets, prospects and other business interests of
Company;
(i) The enforcement of this Agreement in general, and of this
Article 4 in particular, will not work an undue or unfair hardship on
Executive or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Executive that he has activities and other
business interests and opportunities which will provide him adequate
means of support if the provisions of this Article 4 are enforced after
termination of his employment with Company; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of competent
jurisdiction determines that the length of time or any other restriction, or
portion thereof, set forth in this Article 4 is overly restrictive and
unenforceable, the court shall reduce or modify such restrictions to those
which it deems reasonable and enforceable under the circumstances, and as so
reduced or modified, the parties hereto agree that the restrictions of this
Article 4 shall remain in full force and effect. Executive further agrees that
if a court of competent jurisdiction determines that any provision of this
Article 4 is invalid or against public policy, the remaining provisions of this
Article 4 and the remainder of this Agreement shall not be affected thereby,
and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Executive set
forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NonCompetition Payments"), provided that:
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(i) any payments made to Executive pursuant to Section 5.3 shall not be
applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any period in
which Executive is in breach of the obligations set forth in Articles 3
and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, including, without limitation, the
Initial Term, this Agreement and Executive's employment hereunder shall
terminate upon his death, and Company shall have the right, in its sole
and absolute discretion, to terminate this Agreement and Executive's
employment hereunder at any time by giving him written notice of such
termination (1) for "Cause" (as defined below), or (2) if Executive
shall suffer a Disability (as defined below). In the event of
Executive's death during the Employment Period, the Company shall (i)
pay to Executive's estate an amount equal to one years Base Salary, (ii)
pay to Executive's estate a pro rata portion of any bonus which would
have been payable but for Executive's death; (iii) vest Executive fully
in any Company stock grant and stock options held by Executive at his
death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal
enrichment of the Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part,
and for which Executive has received more than one written
warning that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo contendere or
equivalent pleas of a felony in a court of competent
jurisdiction;
4. Executive's use of illegal drugs as evidenced by a drug
test authorized by Company; or
5. Executive's conviction or the entry of a plea of nolo
contendere or
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equivalent plea in a court of competent jurisdiction of any crime
or offense involving moral turpitude.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which renders the Executive incapable of
performing any material portion of his duties for a continuous period of
six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3, Company may at any time, for any reason, with or without Cause, terminate
this Agreement and Executive's employment hereunder. Executive may terminate
this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice, provided that the notice requirement can be waived if
Employer pays Employee his Base Compensation for the 30 day notice period.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company terminates
this Agreement for any reason other than pursuant to the terms of
Section 5.1 and such termination is not within one year of a Change in
Control (as defined in 5.3(b) below), then Company shall: (1) pay to
Executive an amount equal to the greater of (i) his total Base Salary
for the remainder of the Employment Period plus twelve months Expatriate
Benefits, or (ii) twelve months of his Base Salary plus twelve months
Expatriate Benefits, (2) cause Executive to be fully vested in any stock
options and stock grants held by Executive, and (3) pay Executive an
amount equal to Executive's most recent annual bonus. Company shall at
its option, make such payments either in one lump sum on the effective
date of termination or over the remainder of the Employment Period as if
the Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other than
pursuant to the terms of Section 5.1 and such termination occurs within
one year of the occurrence of a Change in Control, then Company shall:
(1) pay to Executive an amount equal to the greater of (A) his total
Base Salary for the remainder of the Employment period; (B) two times
the greater of his annualized Base Salary in effect upon the occurrence
of the Change in Control or his annualized Base Salary in effect on the
date of notice termination is received; or (C) one month of Base Salary
for each full year of service completed with the Company as of the date
of termination, (2) pay to Executive an amount equal to two (2) times
his most recent annual bonus, and (3) cause Executive to be fully vested
in any stock options or stock grants held by Executive. Company shall
make such payments in one lump sum on the effective date of termination.
A "Change in Control" shall be deemed to have occurred at any time after
the date of this Agreement that (i) any person (other than those persons
who own more than 10% of the combined voting power of the Company's
outstanding voting securities on the date
11
<PAGE> 12
hereof) becomes the beneficial owner, directly or indirectly, of 30% or
more of the combined voting power of the Company's then outstanding
voting securities, or (ii) individuals who at the beginning of any
period of two consecutive fiscal years constitute the Company's Board of
Directors cease for any reason to constitute a majority of such Board of
Directors at any time during such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER CHANGE IN
CONTROL." If Executive terminates this Agreement for Good Cause (defined
below) and such termination occurs within one year of the occurrence of
a Change in Control, then Company shall: (1) pay to Executive an amount
equal to the greater of (A) his total Base Salary for the remainder of
the Employment Period; (B) two times the greater of his annualized Base
Salary in effect upon the occurrence of the Change in Control or his
annualized Base Salary in effect on the date of notice termination is
received; or (C) one month of Base Salary for each full year of service
completed with the Company as of the date of termination, (2) pay to
Executive an amount equal to two (2) times his most recent annual bonus,
and (3) cause Executive to be fully vested in any stock options or stock
grants held by Executive. "GOOD CAUSE" shall mean the occurrence of any
of the following events:
(i) the assignment by Company to the Executive of duties
that are materially inconsistent with the Executive's office with
Company at the time of such assignment, or the removal by Company
from the Executive of a material portion of those duties usually
appertaining to the Executive's office with Company at the time
of such removal;
(ii) a material change by Company, without the Executive's
prior written consent, in the Executive's responsibilities to
Company, as such responsibilities are ordinarily and customarily
required from time to time of a senior officer of a corporation
engaged in Company's business;
(iii) any removal of the Executive from, or any failure to
reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or association of which the
Executive is a director, officer, or member at the date of this
Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of a
Change in Control or the failure of Company to pay such salary to
the Executive at the time and in the manner specified in this
Agreement;
(vi) other than with respect to the annual performance
bonus specified in
12
<PAGE> 13
Article 2 or, as made with the Executive's prior written consent,
the discontinuance (without comparable replacement) or material
reduction by Company of the Executive's participation in any
bonus or other employee benefit arrangement (including, without
limitation, any profit-sharing, thrift, life insurance, medical,
dental, hospitalization, stock option or retirement plan or
arrangement) in which the Executive is a participant under the
terms of this Agreement, as in effect on the date hereof or as
may be improved from time to time hereafter;
(vii) the moving by Company of the Executive's principal
office space, related facilities, or support personnel, from
Company's principal operating offices, or Company's requiring the
Executive to perform a majority of his duties outside Company's
principal operating offices for a period of more than 30
consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's London Regional office to a
location outside the county in which such offices are located at
the time of the signing of this Agreement;
(ix) in the event Company requires the Executive to reside
at a location more than 50 miles from Company's London Regional
offices in London, England, except for occasional travel in
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a relocation of
Company's London Regional office, the failure of Company to (A)
pay or reimburse the Executive on an after-tax basis for all
reasonable moving expenses incurred by the Executive in
connection with such relocation or (B) indemnify the Executive on
an after-tax basis against any loss realized by the Executive on
the sale his principal residence in connection with such
relocation;
(xi) the failure of Company to continue to provide the
Executive with office space, related facilities and support
personnel (including, without limitation, administrative and
secretarial assistance) that are commensurate with the
Executive's responsibilities to and position with Company, and no
less than those prior to this Agreement;
(xii) the failure by Company to promptly reimburse the
Executive for the reasonable business expenses incurred by the
Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3, upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive
any compensation or benefits or continue to have any
13
<PAGE> 14
further rights or privileges under this Agreement (including without
limitation any automobile allowance, use of Company facilities or
property, etc.) for any period subsequent to the effective date of such
termination, or for any period prior to such date which have not been
earned or vested as of such date except as may be provided for in any
employee benefit plan relating to such benefits.
(e) Company's right of termination shall be in addition to and
shall not affect Company's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and Company's rights and remedies
shall survive termination of Executive's employment hereunder.
(f) For purposes of this Agreement, Executive's years of service
shall include service with the Company, service with any predecessor
entity in which all or part of Company's business was conducted, and
service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to the
contrary notwithstanding, Executive shall immediately resign from any offices
held with Company or its Affiliates upon written request by the Company. Any
resignation made pursuant to a written request by Company under this Section
5.4 shall not affect Executive's rights under this Agreement for any
compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of Executives
employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment relationship with
Company and its Affiliates is to be governed solely by reference to the
laws of the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights under the
laws of any country other than the United States of America for any
Extra Territorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the payments
and benefits under this Agreement have been bargained for in lieu of any
Extra Territorial Rights.
14
<PAGE> 15
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the Confidential
Information, Executive acknowledges, understands and agrees that Company will
suffer immediate and irreparable harm if Executive fails to comply with any of
his obligations under Articles 3 or 4 of this Agreement, and that monetary
damages will be inadequate to compensate Company for such breach. Accordingly,
Executive agrees that Company shall, in addition to any other remedies
available to it at law or in equity, be entitled to temporary, preliminary, and
permanent injunctive relief to enforce the terms of Articles 3 and 4 without
the necessity of proving inadequacy of legal remedies or irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of Company
hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit
15
<PAGE> 16
of, the parties hereto, but this Agreement and the rights and obligations
hereunder shall not be assignable or delegable by any party; provided, however,
that this Agreement and all of Company's rights and obligations hereunder may
be assigned or delegated by it, in whole, but not in part, to, and shall be
binding upon and inure to the benefit of, any of its successors or assigns, but
such assignment or delegation by Company shall not relieve it of any of its
obligations hereunder.
6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or Sections
shall be to Articles or Sections of this Agreement unless otherwise specified.
The headings and captions used in this Agreement are solely for convenient
reference and shall not affect the meaning or interpretation of any article,
section or paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed and
is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective fees and
expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof.
6.10 COUNTERPARTS. The parties may execute this Agreement in any number
of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
------------------------------------
Name: James F. Farr
Title: President and CEO
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ DWIGHT GOOLSBAY
---------------------------------------------
Dwight Goolsbay
Address: 14400 Ella Blvd. #240
---------------------------------
Houston, TX 77014
---------------------------------
---------------------------------
---------------------------------
[INTENTIONALLY LEFT BLANK]
17
<PAGE> 18
COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President and Chief Executive Officer of Dailey Petroleum
Services Corp., a Delaware corporation, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in the
capacity stated, and as the act and deed of said corporation.
Given under my hand and seal this 18 day of July, 1997.
[SEAL] /s/ VIRGINIA J. CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
Dwight Goolsbay, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 18 day of July, 1997.
[SEAL] /s/ VIRGINIA J. CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
18
<PAGE> 19
FOREIGN COMPENSATION CALCULATION - LONDON
EMPLOYEE-DWIGHT GOOLSBARY #1999
Married with -0- CHILDREN
<TABLE>
<S> <C> <C>
Annual Base Salary $135,000.00
Biweekly Gross $ 5,192.32
Less: Hypo-Tax ($ 2,050.68) Based on S-0 + $50
------------
Adjusted Bi-Weekley Gross $3,141.63
---------
FSP--20% Base Salary $ 1,038.46
Area Allowance--TABLE $ 259.62
Goods & Services Allowance--
TABLE $ 794.81
-----------
Total Bi-Weekly Foreign
Allowance $2,092.89
Company Car-leased
---------
TOTAL BI-WEEKLEY GROSS: $5,926.83
=========
Housing Deduction (all
EX-Pats) ($ 184.62)
401(k) Employee
Contribution (15%) ($ 1,196.63)
Medical/Dental Premiums $ 0.00
-----------
Taxes:
Social Security (OASDI) ($ 494.61)
Social Security (MEDICARE) ($ 115.67)
-----------
TOTAL DEDUCTIONS & TAXES ($1,991.53)
=========
NET TAKE HOME PAY AFTER
TAXES $3,935.30
=========
</TABLE>
Did not include GTL in any of the calculations.
<PAGE> 1
EXHIBIT 10.34
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and Martin Lyons ("EXECUTIVE") on this 18th day of July, 1997, but
to be effective on the 24th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Employment Agreement
dated June 25, 1996, as amended on February 17, 1997, which they desire to
amend and fully restate upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including June 23, 1999 (the "INITIAL TERM"),
unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date (a
"Renewal Date") the term of this Agreement shall automatically renew and extend
for a period of three years from the Renewal Date (a "Renewal Term") unless
written notice of nonrenewal is delivered from one party to the other at least
sixty days prior to the Renewal Date. The Agreement shall remain in force
during the Initial Term and any Renewal Term until terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in
the capacity of Vice President North American Operations. In such capacity,
Executive shall perform the duties for which he currently is responsible as an
executive officer of Company. Executive shall perform his duties hereunder in
accordance with any lawful instructions, rules, regulations or policies made or
adopted
Lyons Executive Employment Agreement
Page 1
<PAGE> 2
by Company's Board of Directors, including those applicable to Company's
Executives generally, provided that Executive shall not have his duties,
authority, areas of responsibility, offices, immediate or support staff reduced
or eliminated during the Employment Period. During the Employment Period,
Executive shall devote his full time, and best efforts and skills to the
business and interests of Company, do his utmost to further enhance and develop
Company's best interests and welfare, and endeavor to improve his ability and
knowledge of Company's business, particularly as it relates to his duties
hereunder, in an effort to increase the value of his services for the mutual
benefit of the parties hereto. During the Employment Period, it shall not be a
violation of this Agreement for Executive to (a) serve on corporate, civic, or
charitable boards or committees (except for Boards or committees of a Competing
Business (as defined in Section 4.1)), (b) deliver lectures, fulfill teaching
or speaking engagements, (c) manage personal investments, so long as such
activities do not materially interfere with performance of Executive's
responsibilities under this Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the offices of Company in North Houston, Texas, or at such other
place where Company's offices subsequently may be located. Executive
acknowledges subject to Section 5.3(c) hereof, and agrees that Company may
require Executive to travel and render services in different locations from
time to time incident to the performance of his duties hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or entity
controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Twelve Thousand Nine Hundred Seventeen Thousand Dollars
($12,917) per month (the "BASE SALARY"), which shall be prorated for any
partial employment period and payable in the manner and on the timetable in
which Company's payroll is customarily handled, or at such more frequent
intervals as Company and Executive may hereafter agree to from time to time. No
overtime compensation shall be payable to Executive. Company's Board of
Directors shall review Executive's performance at least annually and shall make
any adjustments to Executive's compensation that it deems, in its sole
discretion, appropriate, provided that at no time during the Employment Period
shall Executive's compensation be adjusted to an amount below the Base Salary.
Company shall be entitled to withhold from all amounts of compensation payable
under this Article 2 such amounts on account of payroll taxes and similar
matters as are required by any applicable law, rule, or regulation of any
appropriate governmental
Lyons Executive Employment Agreement
Page 2
<PAGE> 3
authority. Such compensation shall continue to be paid during any period of
physical or mental incapacity unless and until Executive's employment is
terminated as herein provided.
2.2 BONUSES AND BENEFITS. In addition to the Base Salary and stock
grant and option described above, Company shall provide Executive with the
following during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms and
conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine;
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement in
effect from time to time;
(d) Access to and use of Company's health club facility in
accordance with the policies and procedures governing such facility;
(e) an automobile allowance of One Thousand Five Hundred
Dollars ($1,500) per month and the use of a PHH card for oil, gasoline,
repairs and maintenance;
(f) Use of a Company paid full membership in a local shooting
range of the Executive's choice,
(g) Reimbursement of the reasonable costs of tuition, books
and travel incurred for Executive's continuing education in general
business or continuing professional education. For each fiscal year
during the Employment Period the reimbursement shall not exceed ten
percent of Executive's annual base compensation as set forth in Section
2.1;
(h) payment for preparation of tax returns by a Certified
Public Accountant of Executive's choice.
2.3 VACATION. During the Employment Period, Executive shall accrue
paid vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during
Lyons Executive Employment Agreement
Page 3
<PAGE> 4
the term of this Agreement, Executive may, at his option, receive a lump sum
payment of cash value of the vacation pay in lieu thereof, or carry the
vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures, analyses, techniques and audits used in connection
therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming, program
patches and system designs;
Lyons Executive Employment Agreement
Page 4
<PAGE> 5
3. Information relating to Company's proprietary rights prior
to any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details of
research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal cost
information, internal service and operational manuals, and the manner
and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and potential
strategies of Company which have been or are being discussed;
6. Names of customers and their representatives, contracts
and their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
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(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential Information
to any person or entity, either inside or outside of Company, other than
as necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such disclosure is
compelled pursuant to court order or subpoena, and at which time
Executive gives notice of such proceedings to Company), and Executive
will take all reasonable precautions to prevent inadvertent disclosure
of such Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not limited to,
disclosing the fact that any similarity exists between the Confidential
Information and information independently developed by another person or
entity, and Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on behalf
of Company, without first obtaining Company's prior written consent, and
will take all reasonable precautions to prevent inadvertent use, copying
or transfer of such Confidential Information. This prohibition against
Executive's use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or otherwise
exploiting, directly or indirectly, any products or services (including
data bases, written documents and software in any form) which embody or
are derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded
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protection of right to intellectual property for, Company with respect to
Inventions that are to be Company's exclusive property under this Section 3.6,
or to transfer to and vest in Company full and exclusive right, title and
interest in and to such Inventions; provided, however, that the expense of
securing any such protection of right to Inventions shall be borne by Company.
In addition, Executive shall, at Company's expense, assist Company in any
proper manner in enforcing any Inventions which are to be or become Company's
exclusive property hereunder against infringement by others. Executive shall
keep confidential and will hold for Company's sole use and benefit any
Invention that is to be Company's exclusive property under this Section 3.6 for
which full recorded protection of right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except in
the ordinary course of his employment hereunder during the Employment Period,
Executive shall not during the Employment Period and for a period of one (1)
year thereafter within any geographic area in which Company conducts business
during the Employment Period (all references to Company shall include its
Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation
or control of, be employed by, associated or in any manner connected
with, or render services or advice to, any Competing Business (as
defined below) provided, however, that the Executive may invest in the
securities of any enterprise with the power to vote up to 5% of the
capital stock of such enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c). Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity, either
(1) hire, attempt to hire, contact or solicit with respect to hiring any
Executive of Company, (2) induce or otherwise counsel, advise or
encourage any Executive of Company to leave the employment
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of Company, or (3) induce any distributor, representative or agent of
Company to terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Executive
in Section 4.1 are essential elements of this Agreement and that, but for the
agreement of the Executive to comply with such covenants, Company would not
have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are valuable trade
secrets, and (2) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing habits,
idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business in which
many firms, including Company, compete;
(d) A substantial portion of Company's business is conducted
outside the United States;
(e) Company, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further develop its
worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm if
Executive terminates his employment and enters directly or indirectly,
into competition with Company;
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(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business interests
of Company;
(i) The enforcement of this Agreement in general, and of this
Article 4 in particular, will not work an undue or unfair hardship on
Executive or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Executive that he has activities and other
business interests and opportunities which will provide him adequate
means of support if the provisions of this Article 4 are enforced after
termination of his employment with Company; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect. Executive
further agrees that if a court of competent jurisdiction determines that any
provision of this Article 4 is invalid or against public policy, the remaining
provisions of this Article 4 and the remainder of this Agreement shall not be
affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Executive
set forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Executive's employment.
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NonCompetition Payments"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall be
applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any period
in which Executive is in breach of the obligations set forth in Articles
3 and 4 of this Agreement.
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ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at
any time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Executive's employment hereunder
shall terminate upon his death, and Company shall have the right, in its
sole and absolute discretion, to terminate this Agreement and
Executive's employment hereunder at any time by giving him written
notice of such termination (1) for "Cause" (as defined below), or (2) if
Executive shall suffer a Disability (as defined below). In the event of
Executive's death during the Employment Period, the Company shall (i)
pay to Executive's estate an amount equal to one years Base Salary, (ii)
pay to Executive's estate a pro rata portion of any bonus which would
have been payable but for Executive's death; (iii) vest Executive fully
in any Company stock grant and stock options held by Executive at his
death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal
enrichment of the Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part,
and for which Executive has received more than one written
warning that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo contendere
or equivalent pleas of a felony in a court of competent
jurisdiction;
4. Executive's use of illegal drugs as evidenced by a
drug test authorized by Company; or
5. Executive's conviction or the entry of a plea of
nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral turpitude.
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which renders the Executive incapable of
performing any material portion of his duties for a continuous period of
twelve (12) months.
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5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3, Company may at any time, for any reason, with or without Cause, terminate
this Agreement and Executive's employment hereunder. Executive may terminate
this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice, provided that the notice requirement can be waived if
Company pays Employee his Base Compensation for the 30 day notice period.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall: (1)
pay to Executive an amount equal to the greater of (i) his total Base
Salary for the remainder of the Employment Period, or (ii) one month of
Base Salary for each full year of service completed with Company as of
the date of termination, (2) cause Executive to be fully vested in any
stock options and stock grants held by Executive, and (3) pay Executive
an amount equal to Executive's most recent annual bonus. Company shall
at its option, make such payments either in one lump sum on the
effective date of termination or over the remainder of the Employment
Period as if the Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other than
pursuant to the terms of Section 5.1 and such termination occurs within
one year of the occurrence of a Change in Control, then Company shall:
(1) pay to Executive an amount equal to the greater of (A) his total
Base Salary for the remainder of the Employment period; (B) two times
the greater of his annualized Base Salary in effect upon the occurrence
of the Change in Control or his annualized Base Salary in effect on the
date of notice termination is received; or (C) one month of Base Salary
for each full year of service completed with the Company as of the date
of termination, (2) pay to Executive an amount equal to two (2) times
his most recent annual bonus, and (3) cause Executive to be fully vested
in any stock options or stock grants held by Executive. Company shall
make such payments in one lump sum on the effective date of termination.
A "Change in Control" shall be deemed to have occurred at any time after
the date of this Agreement that (i) any person (other than those persons
who own more than 10% of the combined voting power of the Company's
outstanding voting securities on the date hereof) becomes the beneficial
owner, directly or indirectly, of 30% or more of the combined voting
power of the Company's then outstanding voting securities, or (ii)
individuals who at the beginning of any period of two consecutive fiscal
years constitute the Company's Board of Directors cease for any reason
to constitute a majority of such Board of Directors at any time during
such two-year period.
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(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER CHANGE IN
CONTROL." If Executive terminates this Agreement for Good Cause (defined
below) and such termination occurs within one year of the occurrence of
a Change in Control, then Company shall: (1) pay to Executive an amount
equal to the greater of (A) his total Base Salary for the remainder of
the Employment Period; (B) two times the greater of his annualized Base
Salary in effect upon the occurrence of the Change in Control or his
annualized Base Salary in effect on the date of notice termination is
received; or (C) one month of Base Salary for each full year of service
completed with the Company as of the date of termination, (2) pay to
Executive an amount equal to two (2) times his most recent annual bonus,
and (3) cause Executive to be fully vested in any stock options or stock
grants held by Executive. "GOOD CAUSE" shall mean the occurrence of any
of the following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office with
Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a senior
officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any failure
to reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or association of which the
Executive is a director, officer, or member at the date of this
Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of a
Change in Control or the failure of Company to pay such salary to
the Executive at the time and in the manner specified in this
Agreement;
(vi) other than with respect to the annual performance
bonus specified in Article 2 or, as made with the Executive's
prior written consent, the discontinuance (without comparable
replacement) or material reduction by Company of the Executive's
participation in any bonus or other employee benefit arrangement
(including, without limitation, any profit-sharing, thrift, life
insurance, medical, dental, hospitalization, stock option or
retirement plan or arrangement) in which the
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Executive is a participant under the terms of this Agreement, as
in effect on the date hereof or as may be improved from time to
time hereafter;
(vii) the moving by Company of the Executive's principal
office space, related facilities, or support personnel, from
Company's principal operating offices, or Company's requiring the
Executive to perform a majority of his duties outside Company's
principal operating offices for a period of more than 30
consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located at
the time of the signing of this Agreement;
(ix) in the event Company requires the Executive to
reside at a location more than 25 miles from Company's principal
executive offices, except for occasional travel in connection
with Company business to an extent and in a manner which is
substantially consistent with the Executive's current business
travel obligations;
(x) in the event the Executive consents to a relocation
of Company's principal executive offices, the failure of Company
to (A) pay or reimburse the Executive on an after-tax basis for
all reasonable moving expenses incurred by the Executive in
connection with such relocation or (B) indemnify the Executive on
an after-tax basis against any loss realized by the Executive on
the sale his principal residence in connection with such
relocation;
(xi) the failure of Company to continue to provide the
Executive with office space, related facilities and support
personnel (including, without limitation, administrative and
secretarial assistance) that are commensurate with the
Executive's responsibilities to and position with Company, and no
less than those prior to this Agreement;
(xii) the failure by Company to promptly reimburse the
Executive for the reasonable business expenses incurred by the
Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3, upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive
any compensation or benefits or continue to have any further rights or
privileges under this Agreement (including without limitation any
automobile allowance, use of Company facilities or property, etc.) for
any period subsequent to the effective date of such termination, or for
any period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits.
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(e) Company's right of termination shall be in addition to and
shall not affect Company's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and Company's rights and remedies
shall survive termination of Executive's employment hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to the
contrary notwithstanding, Executive shall immediately resign from any offices
held with Company or its Affiliates upon written request by the Company. Any
resignation made pursuant to a written request by Company under this Section
5.4 shall not affect Executive's rights under this Agreement for any
compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of Executives
employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment relationship
with Company and its Affiliates is to be governed solely by reference to
the laws of the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights under
the laws of any country other than the United States of America for any
Extra Territorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extra Territorial Rights.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable
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harm if Executive fails to comply with any of his obligations under Articles 3
or 4 of this Agreement, and that monetary damages will be inadequate to
compensate Company for such breach. Accordingly, Executive agrees that Company
shall, in addition to any other remedies available to it at law or in equity,
be entitled to temporary, preliminary, and permanent injunctive relief to
enforce the terms of Articles 3 and 4 without the necessity of proving
inadequacy of legal remedies or irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
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6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or Sections
shall be to Articles or Sections of this Agreement unless otherwise specified.
The headings and captions used in this Agreement are solely for convenient
reference and shall not affect the meaning or interpretation of any article,
section or paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed
and is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof.
6.10 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
------------------------------------
Name: James F. Farr
Title: President and CEO
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ MARTIN LYONS
---------------------------------------------
Martin Lyons
Address: 10510 Dude Rd.
-----------------------------------
Houston, TX 77084
-----------------------------------
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[INTENTIONALLY LEFT BLANK]
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COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President and Chief Executive Officer of Dailey Petroleum
Services Corp., a Delaware corporation, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in the
capacity stated, and as the act and deed of said corporation.
Given under my hand and seal this 18th day of July, 1997.
[SEAL] /s/ VIRGINIA J. CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
Martin Lyons, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 18th day of July, 1997.
[SEAL] /s/ VIRGINIA J. CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
Lyons Executive Employment Agreement
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EXHIBIT 10.35
MANAGEMENT EMPLOYMENT AGREEMENT
THIS MANAGEMENT EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("EMPLOYER"), and Chet Brame ("EMPLOYEE") on this 20th day of June, 1997, but
to be effective on the 20th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by Employer upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Employer hereby employs Employee and Employee hereby accepts
employment with Employer for a term beginning on the Effective Date as set
forth above through and including December 31, 1998, (the "INITIAL TERM"),
unless this Agreement and Employee's employment hereunder are sooner terminated
pursuant to Article 5. Upon expiration of the Initial Term, this Agreement
shall remain in full force and effect in a series of automatic renewals in
increments of one consecutive year (each such year term a "RENEWAL TERM") until
this Agreement and Employee's employment hereunder are terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Employee's employment hereunder shall be in the
capacity of Vice President - Business Development. Employee may be assigned to
service in a similar capacity for any subsidiary of Employer as part of his
duties hereunder. In such capacity, Employee shall perform the duties for which
he currently is responsible as an employee of Employer and/or any duties set
forth in any job description provided by Employer and agreed upon by Employee.
In addition, Employee shall perform other duties as may from time to time be
prescribed by Employer's Board of Directors or more senior management and which
are reasonably related or incidental to the capacity in which Employee serves
Employer. Employee shall perform his duties hereunder in accordance with any
lawful instructions, rules, regulations or policies made or adopted by
Employer's Board of Directors or more senior management, including those
applicable to Employer's employees generally. During the Employment Period,
Employee shall devote his full time, and best efforts and skills to the
business and interests of Employer during Employer's normal working hours, do
his utmost to further enhance and develop Employer's best interests and
welfare, and endeavor to improve his ability and knowledge of Employer's
business, particularly as it relates to his duties hereunder, in an effort to
increase the
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June 20, 1997
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value of his services for the mutual benefit of the parties hereto. At all
times during the term of this Agreement, Employee shall project a positive and
professional image on behalf of Employer.
1.3 ACCOUNTING AND FIDELITY BOND. Employee shall truthfully and
accurately make, maintain and preserve all records and reports that Employer
may from time to time request or require. Employee shall fully account for all
money, records, goods, wares and merchandise or other property belonging to
Employer or its "AFFILIATES" (as that term is defined in Rule 405 under the
Securities Act of 1933, as amended) of which he may have custody and will pay
over and deliver the same promptly whenever and however he may be directed to
do so. Employee also shall make available to Employer any and all information
of which he has knowledge that is relevant to Employer's business, and will
make all suggestions and recommendations which he feels will be of benefit to
Employer. Employee shall, upon Employer's written request, furnish all
information and take any other steps necessary to enable Employer to obtain a
fidelity bond conditioned on the rendering of a true account by Employee of all
moneys, goods or other property which may come into the custody, charge or
possession of Employee during the Employment Period. The surety company issuing
the bond and the amount of the bond must be acceptable to Employer in its sole
discretion. Employer shall pay all premiums on any such bond.
1.4 EMPLOYEE DISHONESTY. If at any time Employee becomes aware or
believes that any other employee of the Employer is or appears to be (i)
removing or using the property or funds of Employer or its Affiliates for the
benefit of anyone other than Employer or its Affiliates, or (ii) providing
Confidential Information (as defined in Section 3.2) to any person not
authorized by Employer to receive such Confidential Information (any such
employee described in (i) or (ii) being referred to as a "DISHONEST EMPLOYEE"),
Employee shall immediately communicate his knowledge or belief as to such
matters to Employer's Board of Directors. Employee acknowledges and agrees that
he shall be conclusively presumed to be in complicity with such Dishonest
Employee if Employee does not so disclose his knowledge or belief as to such
matters to Employer's Board of Directors.
1.5 FIDUCIARY DUTIES OF EMPLOYEE. The obligations of Employee expressed
in this Agreement shall be in addition to any obligations imposed upon Employee
as an employee or officer of Employer or its Affiliates by Employer's Policies
and Procedures, as amended, the law of the State of Texas applicable to
employees, the General Corporation Law of the State of Delaware applicable to
corporate officers, or federal law which limit the activities of an employee or
corporate officer to those which will not threaten, impair or usurp the
goodwill, trade secrets, intellectual property, business opportunities, and
business relations of his employer.
1.6 PLACE OF PERFORMANCE. Employee shall perform his duties hereunder at
Employer's subsidiary's Englewood, Colorado offices or at such other place
where Employer's offices subsequently may be located, or at any other place as
may be directed by Employer in order to enable Employee to discharge his duties
hereunder. Employee acknowledges and agrees that Employer may require Employee
to travel and render services in different locations from time to time incident
to the performance of his duties hereunder.
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June 20, 1997
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ARTICLE 2
COMPENSATION
For and in consideration of the performance by Employee of the services,
terms, conditions, covenants and agreements contained in this Agreement,
Employer shall pay to Employee at the times, in the amounts and in the manner
herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the services
to be performed by Employee hereunder during the Employment Period, Employee
shall be entitled to receive as base compensation from Employer a salary of not
less than One Hundred Thirty Thousand Dollars ($130,000.00) per annum (the
"BASE SALARY"), which shall be prorated for any partial employment period and
payable in the manner and on the timetable in which Employer's payroll is
customarily handled, or at such more frequent intervals as Employer and
Employee may hereafter agree to from time to time. No overtime compensation
shall be payable under this Agreement. Employer's Board of Directors shall
review Employee's performance at least annually and shall make any adjustments
to Employee's compensation which it deems, in its sole discretion, appropriate,
provided that at no time during the Employment Period shall Employee's
compensation be adjusted to an amount below the Base Salary. Employer shall be
entitled to withhold from all amounts of compensation payable under this
Article 2 such amounts on account of payroll taxes and similar matters as are
required by any applicable law, rule, or regulation of any appropriate
governmental authority. Such compensation shall continue to be paid during any
period of physical or mental incapacity unless and until Employee's employment
is terminated as herein provided.
2.2 STOCK OPTIONS. As additional consideration for Employee's
performance of his obligations under Article 3 and Article 4 of this Agreement,
Employer grants to Employee, subject to the conditions set forth below, options
to purchase 12,000 shares of Employer's Class A Common Stock. This grant shall
be subject to the terms of the specific agreement relating to the grant of the
stock options. The foregoing stock option grant shall be subject to shareholder
approval of a stock purchase plan authorizing the grant of said options. If
shareholder approval of a stock purchase plan authorizing the grant of said
options is not obtained by December 31, 1997, the foregoing grant of options to
purchase 12,000 shares of Employer's Class A Common Stock shall be null and
void.
2.3 RELOCATION EXPENSES. In connection with Employee's relocation to the
Denver, Colorado area, Employer agrees to pay Employee relocation expenses in
accordance with Employer's relocation policy. Notwithstanding the foregoing,
Employee shall be entitled to reasonable relocation expenses as set forth in
subparagraphs (a) through (g) below:
(a) Advance Relocation Visits. Employer shall pay for the following
costs associated with advance relocation visits to secure a new
residence: round trip coach class airfare tickets for Employee and
Employee's immediate family, and hotel, food and car rental expenses.
(b) Return Trips Home. If Employee precedes his family to the new work
location, reasonable expenses incurred to visit home will be reimbursed.
Employer will pay for coach class round trip airfare once every one (1)
week up to a maximum of six (6) trips.
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(c) Temporary Living Expenses. Employer shall pay Employee temporary
living expenses for a period not to exceed three (3) months.
(d) Real Estate Closing Costs Associated with Sale of Residence.
Employee will have full responsibility for independently selling his
residence. Reasonable closing costs incurred in connection with the sale
of Employee's residence will be reimbursed, when verified by either a
copy of the closing statement or verifiable receipts.
(e) Real Estate Closing Costs Associated with Purchase of a New
Residence. Employee shall be reimbursed reasonable closing costs
incurred in connection with Employee's purchase of a new residence, when
supported by either a copy of the closing statement verifiable receipts
(f) Cost of Moving Family. When Employee and his immediate family
proceed to their new location, Employer shall pay the cost of coach
class airfare for Employee and Employee's immediate family, and the
actual costs of meals and lodging for Employee and Employee's immediate
family, for the allowable travel days, when supported by proper
receipts.
(g) Cost of Moving Household Goods. Employer shall pay for Employee's
moving expenses for household goods when either supported by proper
receipts or billed directly. Such expenses include, packing and
unpacking of household goods, ground transportation of household goods,
and normal removal, preparation and installation of appliances.
(h) Relocation Fee. Employer shall pay to Employee one (1) month of base
salary, less applicable taxes, to cover miscellaneous expenses incurred
during relocation.
(i) Later Relocation. Should Employer require Employee's subsequent
relocation from the Denver, Colorado area to a new work area or if this
Agreement is terminated for any reason other than cause, Employer agrees
to pay Employee's loss, if any, in selling the Denver, Colorado area
residence; provided, however, any such amount paid under this
subparagraph (i) shall be limited to the actual difference between the
purchase price and sale price of the Denver, Colorado area residence and
cost of moving Employee's family and household good to the Houston area
or other domestic location of Employee's choice.
2.2 BONUSES AND BENEFITS. In addition to the Base Salary, stock options,
and relocation expenses described above, Employer shall provide Employee with
the following during the Employment Period:
(a) bonuses, when and based upon or subject to such terms and
conditions as Employer's Board of Directors, in its sole and
absolute discretion, may determine, provided, however, that an
annual bonus plan of fifteen percent (15 %) of base compensation
payable if all bonus plan criteria are met;
(b) participation in any present or future disability, medical,
health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans,
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June 20, 1997
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and any other benefit, bonus or compensation plans on the same
terms generally available to all of Employer's employees
generally or its operating officers in particular;
(c) payment or reimbursement, as the case may be, of reasonable
business expenses (within limits that may be established by
Employer's Board of Directors) incurred in connection with the
performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with
Employer's policies and procedures on employee expense payment or
reimbursement in effect from time to time;
(d) a monthly car allowance of One Thousand Two Hundred Dollars
($1,200);
(e) use of an Employer paid full membership in a local area country
club of Employee's choice including monthly dues and any business
related fees or expenses; and
(f) a signing bonus of Ten Thousand Dollars ($10,000), payable upon
execution of this Agreement.
2.3 VACATION. During the Employment Period, Employee shall accrue paid
vacation time in such amounts and at such times as determined by Employer's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Employee shall be entitled shall be no less
than that to which he is entitled as an employee of Employer immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Employee during the term of this Agreement, there will be compensation payable
in lieu thereof. Notwithstanding the foregoing, in no event shall Employee be
entitled to less than four (4) weeks of paid vacation.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EMPLOYEE. For purposes of this Article
3, all references to Employer shall mean and include its Affiliates (as defined
in Section 1.3). Employee hereby acknowledges, understands and agrees that
whether developed by Employee or others employed by or in any way associated
with Employee or Employer, all Confidential Information, as defined in Section
3.2, is the exclusive and confidential property of Employer and shall be at all
times regarded, treated and protected as such in accordance with this
Agreement. Employee acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall mean information, whether or not originated by Employee, which is used in
Employer's business and (1) is proprietary to, about or created by Employer;
(2) gives Employer some competitive business advantage or the opportunity of
obtaining such advantage, or the disclosure of which could be
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June 20, 1997
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detrimental to the interests of Employer; (3) is designated as Confidential
Information by Employer, known by the Employee to be considered confidential by
Employer, or from all the relevant circumstances considered confidential by
Employer, or from all the relevant circumstances should reasonably be assumed
by Employee to be confidential and proprietary to Employer; or (4) is not
generally known by non-Employer personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
(a) Work product resulting from or related to work or projects
performed or to be performed for Employer or for clients of
Employer, including but not limited to data bases, draft and
other non-public written documents, the interim and final lines
of inquiry, hypotheses, research and conclusions related thereto
and the methods, processes, procedures, analyses, techniques and
audits used in connection therewith;
(b) Computer software of any type or form in any stage of actual or
anticipated research and development, including but not limited
to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications
(design notes, annotations, documentation, flowcharts, coding
sheets, and the like), source codes, object codes and load
modules, programming, program patches and system designs;
(c) Information relating to Employer's proprietary rights prior to
any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and
details of research and development of products and services, and
information regarding acquiring, protecting, enforcing and
licensing proprietary rights (including, without limitation,
patents, copyrights and trade secrets);
(d) Internal Employer personnel and financial information, vendor
names and other vendor information (including vendor
characteristics, services and agreements), purchasing and
internal cost information, internal service and operational
manuals, and the manner and methods of conducting Employer's
business;
(e) Marketing and development plans, price and cost data, price and
fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts
and forecast assumptions and volumes, and future plans and
potential strategies of Employer which have been or are being
discussed;
(f) Names of customers and their representatives, contracts and their
contents and parties, customer services, and the type, quantity,
specifications and contents of products and services purchased,
leased, licensed or received by customers of Employer;
(g) Information provided to Employer by any actual or potential
customer, government
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June 20, 1997
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agency, or other third party (including businesses, consultants
and other entities and individuals); and
(h) Contracts with, or developed by Employer for use with, agents of
Employer, including, without limitation, the terms and conditions
thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION"
shall not include information publicly known other than as a result of a
disclosure by Employee in breach of Section 3.1, and the general skills and
experience gained during Employee's work with Employer which Employee could
reasonably have been expected to acquire in similar work with another company.
The phrase "PUBLICLY KNOWN" shall mean readily accessible to the public in a
written publication, shall not include information which is only available by a
substantial searching of the published literature or information the substance
of which must be pieced together from a number of different publications and
sources. The burden of proving that information or skills and experience are
not Confidential Information shall be on the party asserting such exclusion.
3.4 COVENANTS OF EMPLOYEE. As a consequence of Employee's acquisition or
anticipated acquisition of Confidential Information, Employee will occupy a
position of trust and confidence with respect to Employer's affairs and
business. In view of the foregoing and of the consideration to be provided to
Employee, Employee agrees that it is reasonable and necessary that Employee
make the following covenants:
(a) At any time during or after the termination of the Employment
Period, Employee will not disclose Confidential Information to
any person or entity, either inside or outside of Employer, other
than as necessary in carrying out duties on behalf of Employer,
without obtaining Employer's prior written consent (unless such
disclosure is compelled pursuant to court order or subpoena, and
at which time Employee gives notice of such proceedings to
Employer), and Employee will take all reasonable precautions to
prevent inadvertent disclosure of such Confidential Information.
This prohibition against Employee's disclosure of Confidential
Information includes, but is not limited to, disclosing the fact
that any similarity exists between the Confidential Information
and information independently developed by another person or
entity, and Employee understands that such similarity does not
excuse Employee from abiding by his covenants or other
obligations under this Agreement.
(b) At any time during or after the termination of the Employment
Period, Employee will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on
behalf of Employer, without first obtaining Employer's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such Confidential
Information. This prohibition against Employee's use, copying, or
transfer of Confidential Information includes, but is not limited
to, selling, licensing or otherwise exploiting, directly or
indirectly, any products or services
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June 20, 1997
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(including data bases, written documents and software in any
form) which embody or are derived from Confidential Information,
or exercising judgment in performing analyses based upon
knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Employee shall turn over to
Employer all originals and copies of materials containing Confidential
Information in the Employee's possession, custody, or control upon request or
upon termination of the Employee's employment with Employer. Employee agrees to
attend a termination interview with the Executive Compensation Committee of
Employer's Board of Directors to confirm turnover of such materials and to
discuss any questions the undersigned may have about his continuing obligations
under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Employee (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by Employer and
which may be directly or indirectly useful in, or related to, the business of
Employer (including, without limitation, research and development activities of
Employer), or which are made using any equipment, facilities, Confidential
Information, materials, labor, money, time or other resources of Employer,
shall be promptly disclosed by Employee to Employer's Board of Directors, shall
be deemed Confidential Information for purposes of this Agreement, and shall be
Employer's exclusive property. Employee shall, upon Employer's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Employer to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Employer with respect to Inventions that are to be Employer's exclusive
property under this Section 3.6, or to transfer to and vest in Employer full
and exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Employer. In addition, Employee shall, at
Employer's expense, assist Employer in any proper manner in enforcing any
Inventions which are to be or become Employer's exclusive property hereunder
against infringement by others. Employee shall keep confidential and will hold
for Employer's sole use and benefit any Invention that is to be Employer's
exclusive property under this Section 3.6 for which full recorded protection of
right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EMPLOYEE ACTIVITIES. Employee agrees that except in the
ordinary course of his employment hereunder during the Employment Period,
Employee shall not during the Employment Period and for a period of two (2)
years thereafter (all references to Employer shall mean and include its
Affiliates as defined in Section 1.3):
(a) directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any
manner connected with, or render services or advice to, any
Competing
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Business (as defined below) provided, however, that the Employee
may invest in the securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(b) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer,
advisor (whether paid or unpaid), stockholder, partner or in any
other individual or representative capacity whatsoever, either
for his own benefit or for the benefit of any other person or
entity, solicit, divert or take away, any customers or clients of
Employer; or
(c) directly or indirectly, either as principal, agent, independent
contractor, consultant, director, officer, employee, employer,
advisor (whether paid or unpaid), stockholder, partner or in any
other individual or representative capacity whatsoever, either
for his own benefit or for the benefit of any other person or
entity, either (i) hire, attempt to hire, contact or solicit with
respect to hiring any employee of Employer, (ii) induce or
otherwise counsel, advise or encourage any employee of Employer
to leave the employment of Employer, or (iii) induce any
distributor, representative or agent of Employer to terminate or
modify its relationship with Employer.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Employer or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Employee in
Section 4.1 are an essential part of the Employer's consideration for entering
into this Agreement and that, but for the agreement of the Employee to comply
with such covenants, Employer would not have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Employee hereby
specifically acknowledges and agrees that:
(a) Employer has expended and will continue to expend substantial
time, money and effort in developing (i) its business in which
the designs, plans, manuals and specifications are valuable trade
secrets, and (ii) a valuable list of customers and agents, and
information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Employee will, in the course of his Employment, be personally
entrusted with and exposed to the trade secrets of Employer;
(c) Employer, during the term of this Agreement and after its
termination, will be
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engaged in its highly competitive business in which many firms,
including Employer, compete;
(d) A substantial portion of Employer's business is conducted outside
the United States;
(e) Employer, pursuant to acquiring certain patents, technology and
associated trade secrets and know-how, will further develop its
worldwide business;
(f) Employee could, after having access to Employer's financial
records, contracts, patents, technology and associated trade
secrets and know-how, perform his obligations under this
Agreement, and after receiving further training by and experience
with Employer, and after reviewing Employer's trade secrets,
become a competitor;
(g) Employer will suffer great loss and irreparable harm if Employee
terminates his employment and enters directly or indirectly, into
competition with Employer;
(h) the temporal and other restrictions contained in this Article 4
are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business
interests of Employer;
(i) the enforcement of this Agreement in general, and of this Article
4 in particular, will not work an undue or unfair hardship on
Employee or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Employee that he has activities and
other business interests and opportunities which will provide him
adequate means of support if the provisions of this Article 4 are
enforced after termination of his employment with Employer; and
(j) the enforcement of this Agreement in general, and of this Article
4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Employee agrees that if a court of competent
jurisdiction determines that the length of time or any other restriction, or
portion thereof, set forth in this Article 4 is overly restrictive and
unenforceable, the court may reduce or modify such restrictions to those which
it deems reasonable and enforceable under the circumstances, and as so reduced
or modified, the parties hereto agree that the restrictions of this Article 4
shall remain in full force and effect. Employee further agrees that if a court
of competent jurisdiction determines that any provision of this Article 4 is
invalid or against public policy, the remaining provisions of this Article 4
and the remainder of this Agreement shall not be affected thereby, and shall
remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Employee set
forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the
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remainder of this Agreement regardless of the reason for such therefor and
shall survive the termination, if any, of the Employee's employment.
ARTICLE 5
TERMINATION
5.1 EMPLOYER TERMINATION
(a) Notwithstanding any other provision of this Agreement, at any
time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Employee's employment
hereunder shall terminate upon his death, and Employer shall have
the right, in its sole and absolute discretion, to terminate this
Agreement and Employee's employment hereunder at any time by
giving him written notice of such termination (i) for "Cause" (as
defined below), (ii) if Employee shall fail to qualify for the
fidelity bond described in Section 1.3 within sixty (60) days
from the date of the Employer's written request thereunder, or
(iii) if Employee shall suffer a Disability (as defined below).
(b) "CAUSE" shall mean any of the following events:
(1) Employee's conviction or the entry of a plea of guilty or
nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral
turpitude or any felony;
(2) Employee's commission of an act of fraud upon Employer or
any of its Affiliates;
(3) Employee's willful misappropriation of funds or property
of Employer or any of its Affiliates;
(4) Employee's knowing engagement, without prior approval by
resolution of Employer's Board of Directors, in any direct
conflict of interest with Employer or any of its
Affiliates, in any activity which would constitute a
breach of Employee's representations, covenants,
agreements and obligations under Articles 3 and 4 of this
Agreement, or which would otherwise result in substantial
injury to Employer's business or financial condition;
(5) Employee's refusal to perform his duties under Article 1
of this Agreement; or
(6) Employee's habitual use of alcohol or drugs which, in the
reasonable opinion of Employer, substantially impairs the
performance of Employee's duties.
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(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which, in the sole opinion of Employer:
(i) is of a nature that cannot reasonably be controlled by
Employee, (ii) significantly inhibits or impedes Employee's
ability to perform the services required under this Agreement,
and (iii) is likely to be either long-lasting in duration or
recurring from time to time.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3(a), Employer may at any time, for any reason, with or without Cause,
terminate this Agreement and Employee's employment hereunder. After expiration
of the Initial Term, Employee may terminate this Agreement and his employment
hereunder without regard to any reason for such termination. Each of Employer's
and Employee's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Employee or Employer, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice.
5.3 EFFECT OF TERMINATION.
(a) If Employer terminates this Agreement for any reason other than
pursuant to the terms of Section 5.1, then Employer shall pay to
Employee an amount equal to the greater of (a) his total Base
Salary for the remainder of the Employment Period, or (b) which
shall be the greater of (i) three months of his Base Salary or
(ii) one month of Base Salary for each full year of service
completed with Employer as of the date of termination. Employer
may, in its sole and absolute discretion, make such payment in
the manner and on the timetable specified in Section 2.1, or in
one lump sum on the effective date of termination.
(b) Subject to the provisions of Section 5.3(a), upon termination of
this Agreement and Employee's employment hereunder by either
Employer or Employee, Employee shall have no right to receive any
compensation or benefits for any period subsequent to the
effective date of such termination, or for any period prior to
such date which have not been earned or vested as of such date.
(c) Employer's right of termination shall be in addition to and shall
not affect Employee's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and such rights and remedies
shall survive termination of Employee's employment hereunder.
5.4 YEARS OF SERVICE. For purposes of this Article Five, any reference
to Employee's year(s) of service shall include (i) service with the Employer,
(ii) service with any Affiliate of Employer, and (iii) service with any
predecessor entity of Employer whether by merger, acquisition or operation of
law.
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June 20, 1997
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ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the Confidential
Information, Employee acknowledges, understands and agrees that Employer will
suffer immediate and irreparable harm if Employee fails to comply with any of
his obligations under Articles 3 or 4 of this Agreement, and that monetary
damages will be inadequate to compensate Employer for such breach. Accordingly,
Employee agrees that Employer shall, in addition to any other remedies
available to it at law or in equity, be entitled to temporary, preliminary, and
permanent injunctive relief to enforce the terms of Articles 3 and 4 without
the necessity of proving inadequacy of legal remedies or irreparable harm.
6.2 INDEMNIFICATION. Employer shall indemnify Employee in the same
manner and to the same extent that Employer is obligated to indemnify its
directors pursuant to Employer's Certificate of Incorporation and Bylaws, as
each may be amended or restated from time to time.
6.3 ACTION BY AND CONSENT OF EMPLOYER. All rights and remedies of
Employer hereunder shall be exercised by the Employer solely by and through
management authorized by Employer's Board of Directors.
6.4 NOTICES. Any notice, instruction, authorization, request or demand
required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Employer at the address indicated beneath its signature on the execution page
of this Agreement, and also to Employee at his home address indicated beneath
his signature on the execution page of this Agreement, or at such other address
and number as a party shall have previously designated by written notice given
to the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.5 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Employer shall
be effective only if executed and delivered by a duly authorized executive
officer of Employer other than Employee. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
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June 20, 1997
Page 13
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6.6 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Employer's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Employer shall not relieve it of any of its obligations hereunder.
6.7 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or Sections
shall be to Articles or Sections of this Agreement unless otherwise specified.
The headings and captions used in this Agreement are solely for convenient
reference and shall not affect the meaning or interpretation of any article,
section or paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
Section.
6.8 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed and
is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas, except to
the extent that the General Corporation Law of the State of Delaware or federal
law is explicitly made applicable by Section 1.5. Each party hereto hereby
acknowledges and agrees that it has had the opportunity to consult with its own
legal counsel in connection with the negotiation of this Agreement, and that it
has bargaining power equal to that of the other party hereto in connection with
the negotiation, execution and delivery of this Agreement. Accordingly, the
parties hereto agree that the rule of contract construction that an agreement
shall be construed against the drafter shall have no application in the
construction or interpretation of this Agreement. The invalidity of any
provision of this Agreement shall not affect any other provision of this
Agreement, which shall remain in full force and effect, nor shall the
invalidity of a portion of any provision of this Agreement affect the balance
of such provision.
6.9 EXPENSES. Each party hereto shall pay all of its respective fees and
expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement, except for any indemnification
obligations of Employer pursuant to Section 6.2.
6.10 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Employer and Employee
relating to the subject matter hereof.
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June 20, 1997
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6.11 COUNTERPARTS. The parties may execute this Agreement in any number
of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
EMPLOYER:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
-------------------------------------
Name: James F. Farr
-------------------------------------
Title: President
-------------------------------------
Address: One Lawrence Center
P.O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EMPLOYEE:
/s/ Chet Brame
---------------------------------------------
Chet Brame:
Address: 101 S. Timber Top
----------------------------------
The Woodlands, TX 77380
----------------------------------
----------------------------------
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June 20, 1997
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EMPLOYER ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President, of Dailey Petroleum Services Corp., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity stated, and as
the act and deed of said corporation.
Given under my hand and seal this 20th day of June, 1997.
[SEAL] /s/ DAVID ANGEL
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 11-25-97
EMPLOYEE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
Chet Brame, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 20th day of June, 1997.
[SEAL] /s/ DAVID ANGEL
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 11-25-97
Brame Employment Agreement
June 20, 1997
Page 16
<PAGE> 1
EXHIBIT 10.36
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into
by and between Dailey Petroleum Services Corp., a Delaware corporation
("COMPANY"), and Michael A. Torres ("EXECUTIVE") on this 18th day of July,
1997, but to be effective on the 24th day of June, 1997 ("Effective Date").
W I T N E S S E T H :
WHEREAS, Company desires to employ Executive and Executive desires to be
employed upon the terms and conditions set forth herein;
WHEREAS, Company and Executive are parties to an Executive Employment
Agreement dated March 1, 1997 which they desire to amend and fully restate upon
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
TERM AND NATURE OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. Subject to the terms and conditions of this
Agreement, Company hereby employs Executive and Executive hereby accepts
employment with Company for a term beginning on the date on the Effective Date
as set forth above through and including June 23, 1999 (the "INITIAL TERM"),
unless this Agreement and Executive's employment hereunder are sooner
terminated pursuant to Article 5. On each anniversary of the Effective Date (a
"Renewal Date") the term of this Agreement shall automatically renew and extend
for a period of three years from the Renewal Date (a "Renewal Term") unless
written notice of nonrenewal is delivered from one party to the other at least
sixty days prior to the Renewal Date. The Agreement shall remain in force
during the Initial Term and any Renewal Term until terminated in accordance
with Article 5. The Initial Term together with each Renewal Term shall
hereinafter be referred to collectively as the "EMPLOYMENT PERIOD."
1.2 PRINCIPAL DUTIES. Executive's employment hereunder shall be in
the capacity of Vice President South American Operations. In such capacity,
Executive shall perform the duties for which he currently is responsible as an
executive officer of Company. Executive shall perform his duties hereunder in
accordance with any lawful instructions, rules, regulations or policies made or
adopted by Company's Board of Directors, including those applicable to
Company's Executives generally, provided that Executive shall not have his
duties, authority, areas of responsibility, offices, immediate or support staff
reduced or eliminated during the Employment Period. During the Employment
Period, Executive shall devote his full time, and best efforts and skills to
the business and interests of Company, do his utmost to further enhance and
develop Company's best interests and welfare, and endeavor to improve his
ability and knowledge of Company's business, particularly as it relates to his
duties hereunder, in an effort to increase the value of his services for the
mutual benefit of the parties hereto. During the Employment Period, it shall
not be a violation of this Agreement for Executive to (a) serve on corporate,
civic, or charitable boards or committees (except for Boards or committees of a
Competing Business (as defined in Section 4.1)), (b) deliver lectures, fulfill
teaching or
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speaking engagements, (c) manage personal investments, so long as such
activities do not materially interfere with performance of Executive's
responsibilities under this Agreement.
1.3 PLACE OF PERFORMANCE. Executive shall perform his duties
hereunder at the offices of Company in the New Orleans, Louisiana metropolitan
area, or at such other place where Company's offices subsequently may be
located. Executive acknowledges subject to Section 5.3(c) hereof, and agrees
that Company may require Executive to travel and render services in different
locations from time to time incident to the performance of his duties
hereunder.
1.4 AFFILIATES. The term "AFFILIATES" shall mean any person or entity
controlled by or under common control with Company.
ARTICLE 2
COMPENSATION
For and in consideration of the performance by Executive of the
services, terms, conditions, covenants and agreements contained in this
Agreement, Company shall pay to Executive at the times, in the amounts and in
the manner herein provided, the following:
2.1 BASE COMPENSATION. As the principal consideration for the
services to be performed by Executive hereunder during the Employment Period,
Executive shall be entitled to receive as base compensation from Company a
salary of not less than Ten Thousand Four Hundred Sixteen and 67/100 Dollars
($10,416.67) per month (the "BASE SALARY"), which shall be prorated for any
partial employment period and payable in the manner and on the timetable in
which Company's payroll is customarily handled, or at such more frequent
intervals as Company and Executive may hereafter agree to from time to time. No
overtime compensation shall be payable to Executive. Company's Board of
Directors shall review Executive's performance at least annually and shall make
any adjustments to Executive's compensation that it deems, in its sole
discretion, appropriate, provided that at no time during the Employment Period
shall Executive's compensation be adjusted to an amount below the Base Salary.
Company shall be entitled to withhold from all amounts of compensation payable
under this Article 2 such amounts on account of payroll taxes and similar
matters as are required by any applicable law, rule, or regulation of any
appropriate governmental authority. Such compensation shall continue to be paid
during any period of physical or mental incapacity unless and until Executive's
employment is terminated as herein provided.
2.2 BONUSES AND BENEFITS. In addition to the Base Salary and stock
grant and option described above, Company shall provide Executive with the
following during the Employment Period:
(a) Bonuses, when and based upon or subject to such terms and
conditions as Company's Board of Directors, in its sole and absolute
discretion, may determine;
(b) Participation in any present or future disability,
medical, health, dental, insurance, pension, profit-sharing, thrift,
retirement, investment, and stock appreciation plans, and any other
benefit, bonus or compensation plans on the same terms generally
available to all of Company's Executives generally or its executive
officers in particular;
(c) Payment or reimbursement, as the case may be, of
reasonable business expenses (within limits that may be established by
Company's Board of Directors) incurred in connection with
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the performance of his duties hereunder, such expense payment or
reimbursement being subject to, and made in accordance with Company's
policies and procedures of Executive expense payment or reimbursement in
effect from time to time;
(d) Access to and use of Company's health club facility in
accordance with the policies and procedures governing such facility;
(e) An automobile allowance of One Thousand Five Hundred
Dollars ($1,500) per month and the use of a PHH card for oil, gasoline
and maintenance;
(f) Use of a Company paid full membership in a local area
country club of the Executive's choice; and
(g) Reimbursement of the reasonable costs of tuition, books,
tapes and travel incurred for Executive's continuing education in
general business or continuing professional education. For each fiscal
year during the Employment Period the reimbursement shall not exceed ten
percent of Executive's annual base compensation as set forth in Section
2.1.
2.3 VACATION. During the Employment Period, Executive shall accrue
paid vacation time in such amounts and at such times as determined by Company's
Board of Directors, in its sole discretion; provided, however, that the minimum
amount of paid vacation to which Executive shall be entitled shall be no less
than that to which he is entitled as an Executive of Company immediately prior
to the effective date of this Agreement. If such vacation time is not taken by
Executive during the term of this Agreement, Executive may, at his option,
receive a lump sum payment of cash value of the vacation pay in lieu thereof,
or carry the vacation time forward.
ARTICLE 3
CONFIDENTIAL INFORMATION; PROPERTY RIGHTS
3.1 NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of this
Article 3, all references to Company shall mean and include its Affiliates (as
defined in Section 1.4) Executive hereby acknowledges, understands and agrees
that whether developed by Executive or others employed by or in any way
associated with Executive or Company, all Confidential Information, as defined
in Section 3.2, is the exclusive and confidential property of Company and shall
be at all times regarded, treated and protected as such in accordance with this
Agreement. Executive acknowledges that all such Confidential Information is in
the nature of a trade secret. Failure to mark any writing confidential shall
not affect the confidential nature of such writing or the information contained
therein.
3.2 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall mean information, whether or not originated by Executive,
which is used in Company's business and (a) is proprietary to, about or created
by Company; (b) gives Company some competitive business advantage or the
opportunity of obtaining such advantage, or the disclosure of which could be
detrimental to the interests of Company; (c) is designated as Confidential
Information by Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential by
Company, or from all the relevant circumstances should reasonably be assumed by
Executive to be confidential and proprietary to Company; or (d) is not
generally known by non-Company personnel. Such Confidential Information
includes, but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
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1. Work product resulting from or related to work or projects
performed or to be performed for Company or for clients of Company,
including but not limited to data bases, draft and other non-public
written documents, the interim and final lines of inquiry, hypotheses,
research and conclusions related thereto and the methods, processes,
procedures, analyses, techniques and audits used in connection
therewith;
2. Computer software of any type or form in any stage of
actual or anticipated research and development, including but not
limited to programs and program modules, routines and subroutines,
processes, algorithms, design concepts, design specifications (design
notes, annotations, documentation, flowcharts, coding sheets, and the
like), source codes, object codes and load modules, programming, program
patches and system designs;
3. Information relating to Company's proprietary rights prior
to any public disclosure thereof, including but not limited to the
nature of the proprietary rights, production data, technical and
engineering data, test data and test results, the status and details of
research and development of products and services, and information
regarding acquiring, protecting, enforcing and licensing proprietary
rights (including, without limitation, patents, copyrights and trade
secrets);
4. Internal Company personnel and financial information,
vendor names and other vendor information (including vendor
characteristics, services and agreements), purchasing and internal cost
information, internal service and operational manuals, and the manner
and methods of conducting Company's business;
5. Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting procedures,
marketing techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and potential
strategies of Company which have been or are being discussed;
6. Names of customers and their representatives, contracts
and their contents and parties, customer services, and the type,
quantity, specifications and contents of products and services
purchased, leased, licensed or received by customers of Company;
7. Information provided to Company by any actual or potential
customer, government agency, or other third party (including businesses,
consultants and other entities and individuals); and
8. Contracts with, or developed by Company for use with,
agents of Company, including, without limitation, the terms and
conditions thereof.
3.3 EXCLUSIONS FROM CONFIDENTIAL INFORMATION. "CONFIDENTIAL
INFORMATION" shall not include information publicly known other than as a
result of a disclosure by Executive in breach of Section 3.1, and the general
skills and experience gained during Executive's work with Company which
Executive could reasonably have been expected to acquire in similar work with
another company. The phrase "PUBLICLY KNOWN" shall mean readily accessible to
the public in a written publication and, shall not include information which is
only available by a substantial searching of the published literature or
information the substance of which must be pieced together from a number of
different publications and sources. The burden of proving that information or
skills and experience are not Confidential Information shall be on the party
asserting such exclusion.
Torres Executive Employment Agreement
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3.4 COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information, Executive
will occupy a position of trust and confidence with respect to Company's
affairs and business. In view of the foregoing and of the consideration to be
provided to Executive, Executive agrees that it is reasonable and necessary
that Executive make the following covenants:
(a) At any time during or after the termination of the
Employment Period, Executive will not disclose Confidential Information
to any person or entity, either inside or outside of Company, other than
as necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such disclosure is
compelled pursuant to court order or subpoena, and at which time
Executive gives notice of such proceedings to Company), and Executive
will take all reasonable precautions to prevent inadvertent disclosure
of such Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not limited to,
disclosing the fact that any similarity exists between the Confidential
Information and information independently developed by another person or
entity, and Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations under this
Agreement.
(b) At any time during or after the termination of the
Employment Period, Executive will not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties on behalf
of Company, without first obtaining Company's prior written consent, and
will take all reasonable precautions to prevent inadvertent use, copying
or transfer of such Confidential Information. This prohibition against
Executive's use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or otherwise
exploiting, directly or indirectly, any products or services (including
data bases, written documents and software in any form) which embody or
are derived from Confidential Information, or exercising judgment in
performing analyses based upon knowledge of Confidential Information.
3.5 RETURN OF CONFIDENTIAL MATERIAL. Executive shall turn over to
Company all originals and copies of materials containing Confidential
Information in the Executive's possession, custody, or control upon request or
upon termination of the Executive's employment with Company. Executive agrees
to attend a termination interview with the General Counsel to confirm turnover
of such materials and to discuss any questions the undersigned may have about
his continuing obligations under this Agreement.
3.6 INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable works, trademarks, service marks, ideas, processes,
formulae, methods, designs, techniques or trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction with
others, during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related to, the
business of Company (including, without limitation, research and development
activities of Company), or which are made using any equipment, facilities,
Confidential Information, materials, labor, money, time or other resources of
Company, shall be promptly disclosed by Executive to his supervisor, shall be
deemed Confidential Information for purposes of this Agreement, and shall be
Company's exclusive property. Executive shall, upon Company's request, execute
any documents and perform all such acts and things which are necessary or
advisable in the opinion of Company to cause issuance of patents to, or
otherwise obtain recorded protection of right to intellectual property for,
Company with respect to Inventions that are to be Company's exclusive property
under this Section 3.6, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions; provided,
however, that the expense of securing any such protection of right to
Inventions shall be borne by Company. In addition, Executive shall, at
Company's expense, assist Company in any proper manner in enforcing any
Inventions which are to be or become Company's exclusive property
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hereunder against infringement by others. Executive shall keep confidential and
will hold for Company's sole use and benefit any Invention that is to be
Company's exclusive property under this Section 3.6 for which full recorded
protection of right has not been or cannot be obtained.
ARTICLE 4
COVENANT NOT TO COMPETE; NON-INTERFERENCE
4.1 PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that except in
the ordinary course of his employment hereunder during the Employment Period,
Executive shall not during the Employment Period and for a period of one (1)
year thereafter within any geographic area in which Company conducts business
during the Employment Period (all references to Company shall include its
Affiliates as defined in Section 1.4):
(a) Directly or indirectly, engage or invest in, own, manage,
operate, control or participate in the ownership, management, operation
or control of, be employed by, associated or in any manner connected
with, or render services or advice to, any Competing Business (as
defined below) provided, however, that the Executive may invest in the
securities of any enterprise with the power to vote up to 5% of the
capital stock of such enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(b) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity,
solicit, divert or take away, any customers or clients of Company; or
(c) Directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, Executive,
Company, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
his own benefit or for the benefit of any other person or entity, either
(1) hire, attempt to hire, contact or solicit with respect to hiring any
Executive of Company, (2) induce or otherwise counsel, advise or
encourage any Executive of Company to leave the employment of Company,
or (3) induce any distributor, representative or agent of Company to
terminate or modify its relationship with Company.
"COMPETING BUSINESS" shall mean any individual, business, firm, company,
partnership joint venture, organization, or other entity whose products or
services compete, in whole or in part, at any time during the Employment Period
with the products or services of Company or its Affiliates in any domestic or
international market area.
4.2 ESSENTIAL NATURE OF ARTICLE 4. It is acknowledged, understood and
agreed by and between the parties hereto that the covenants made by Executive
in Section 4.1 are essential elements of this Agreement and that, but for the
agreement of the Executive to comply with such covenants, Company would not
have entered into this Agreement.
4.3 NECESSITY AND REASONABLENESS OF ARTICLE 4. Executive hereby
specifically acknowledges and agrees that:
(a) Company has expended and will continue to expend
substantial time, money and effort in developing (1) its business in
which the designs, plans, manuals and specifications are
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valuable trade secrets, and (2) a valuable list of customers and agents,
and information about their technical problems and needs, purchasing
habits, idiosyncracies and internal purchasing procedures;
(b) Executive will, in the course of his Employment, be
personally entrusted with and exposed to the trade secrets of Company;
(c) Company, during the term of this Agreement and after its
termination, will be engaged in its highly competitive business in which
many firms, including Company, compete;
(d) A substantial portion of Company's business is conducted
outside the United States;
(e) Company, pursuant to acquiring certain patents, technology
and associated trade secrets and know-how, will further develop its
worldwide business;
(f) Executive could, after having access to Company's
financial records, contracts, patents, technology and associated trade
secrets and know-how and, after receiving further training by and
experience with Company, and after reviewing Company's trade secrets,
become a competitor;
(g) Company will suffer great loss and irreparable harm if
Executive terminates his employment and enters directly or indirectly,
into competition with Company;
(h) The temporal and other restrictions contained in this
Article 4 are in all respects reasonable and necessary to protect the
business goodwill, trade secrets, prospects and other business interests
of Company;
(i) The enforcement of this Agreement in general, and of this
Article 4 in particular, will not work an undue or unfair hardship on
Executive or otherwise be oppressive to him, it being specifically
acknowledged and agreed by Executive that he has activities and other
business interests and opportunities which will provide him adequate
means of support if the provisions of this Article 4 are enforced after
termination of his employment with Company; and
(j) the enforcement of this Agreement in general, and of this
Article 4 in particular, will neither deprive the public of needed goods
or services nor otherwise be injurious to the public.
4.4 JUDICIAL MODIFICATION. Executive agrees that if a court of
competent jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Article 4 is overly
restrictive and unenforceable, the court shall reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto agree that the
restrictions of this Article 4 shall remain in full force and effect. Executive
further agrees that if a court of competent jurisdiction determines that any
provision of this Article 4 is invalid or against public policy, the remaining
provisions of this Article 4 and the remainder of this Agreement shall not be
affected thereby, and shall remain in full force and effect.
4.5 SURVIVAL OF COVENANTS. The covenants and agreements of Executive
set forth in this Article 4 are of a continuing nature and shall survive the
expiration, termination or cancellation of the remainder of this Agreement
regardless of the reason for such therefor and shall survive the termination,
if any, of the Executive's employment.
Torres Executive Employment Agreement
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<PAGE> 8
4.6 NONCOMPETITION PAYMENTS. Upon termination of Executive's
employment with Company for any reason pursuant to this Agreement, Company
shall pay to Executive , in addition to amounts otherwise payable herein, (a) a
single lump sum payment equal to six (6) months of Base Salary, and (b) twelve
(12) monthly installments equal to his monthly Base Salary, as defined in
Section 2.1, ("NonCompetition Payments"), provided that:
(i) any payments made to Executive pursuant to Section 5.3 shall be
applied against and reduce the NonCompetition Payments payable to
Executive under this Section 4.6; and
(ii) there shall be no NonCompetition Payments payable for any period
in which Executive is in breach of the obligations set forth in Articles
3 and 4 of this Agreement.
ARTICLE 5
TERMINATION
5.1 COMPANY TERMINATION
(a) Notwithstanding any other provision of this Agreement, at
any time during the Employment Period, including, without limitation,
the Initial Term, this Agreement and Executive's employment hereunder
shall terminate upon his death, and Company shall have the right, in its
sole and absolute discretion, to terminate this Agreement and
Executive's employment hereunder at any time by giving him written
notice of such termination (1) for "Cause" (as defined below), or (2) if
Executive shall suffer a Disability (as defined below). In the event of
Executive's death during the Employment Period, the Company shall (i)
pay to Executive's estate an amount equal to one years Base Salary, (ii)
pay to Executive's estate a pro rata portion of any bonus which would
have been payable but for Executive's death; (iii) vest Executive fully
in any Company stock grant and stock options held by Executive at his
death.
(b) "CAUSE" shall mean any of the following events:
1. An act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal
enrichment of the Executive at the expense of the Company;
2. Repeated violations by the Executive of Executive's
obligations under this Agreement or under written policies of the
Company which are demonstrably willful on the Executive's part,
and for which Executive has received more than one written
warning that specifies each area of Executive's violations;
3. Executive's conviction or pleas of nolo contendere
or equivalent pleas of a felony in a court of competent
jurisdiction;
4. Executive's use of illegal drugs as evidenced by a
drug test authorized by Company; or
5. Executive's conviction or the entry of a plea of
nolo contendere or equivalent plea in a court of competent
jurisdiction of any crime or offense involving moral turpitude.
Torres Executive Employment Agreement
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<PAGE> 9
(c) "DISABILITY" shall mean any mental or physical illness,
impairment or condition which renders the Executive incapable of
performing any material portion of his duties for a continuous period of
six (6) months.
5.2 TERMINATION BY EITHER PARTY. Subject to the provisions of Section
5.3, Company may at any time, for any reason, with or without Cause, terminate
this Agreement and Executive's employment hereunder. Executive may terminate
this Agreement at any time and for any reason. Each of Company's and
Executive's option to terminate this Agreement pursuant to this Section 5.2
shall be exercised by delivery of a written notice to Executive or Company, as
applicable, specifying the effective date of such termination which in no event
shall be sooner than expiration of thirty (30) calendar days following delivery
of such written notice, provided that the notice requirement can be waived if
Company pays Employee his Base Compensation for the 30 day notice period.
5.3 EFFECT OF TERMINATION.
(a) "TERMINATION BY COMPANY WITHOUT CAUSE." If Company
terminates this Agreement for any reason other than pursuant to the
terms of Section 5.1 and such termination is not within one year of a
Change in Control (as defined in 5.3(b) below), then Company shall: (1)
pay to Executive an amount equal to the greater of (i) his total Base
Salary for the remainder of the Employment Period, or (ii) one month of
Base Salary for each full year of service completed with Company as of
the date of termination, (2) cause Executive to be fully vested in any
stock options and stock grants held by Executive, and (3) pay Executive
an amount equal to Executive's most recent annual bonus. Company shall
at its option, make such payments either in one lump sum on the
effective date of termination or over the remainder of the Employment
Period as if the Agreement had not been terminated.
(b) "TERMINATION BY COMPANY WITHOUT CAUSE AFTER CHANGE IN
CONTROL." If Company terminates this Agreement for any reason other than
pursuant to the terms of Section 5.1 and such termination occurs within
one year of the occurrence of a Change in Control, then Company shall:
(1) pay to Executive an amount equal to the greater of (A) his total
Base Salary for the remainder of the Employment period; (B) two times
the greater of his annualized Base Salary in effect upon the occurrence
of the Change in Control or his annualized Base Salary in effect on the
date of notice termination is received; or (C) one month of Base Salary
for each full year of service completed with the Company as of the date
of termination, (2) pay to Executive an amount equal to two (2) times
his most recent annual bonus, and (3) cause Executive to be fully vested
in any stock options or stock grants held by Executive. Company shall
make such payments in one lump sum on the effective date of termination.
A "Change in Control" shall be deemed to have occurred at any time after
the date of this Agreement that (i) any person (other than those persons
who own more than 10% of the combined voting power of the Company's
outstanding voting securities on the date hereof) becomes the beneficial
owner, directly or indirectly, of 30% or more of the combined voting
power of the Company's then outstanding voting securities, or (ii)
individuals who at the beginning of any period of two consecutive fiscal
years constitute the Company's Board of Directors cease for any reason
to constitute a majority of such Board of Directors at any time during
such two-year period.
(c) "TERMINATION BY EXECUTIVE WITH GOOD CAUSE AFTER CHANGE IN
CONTROL." If Executive terminates this Agreement for Good Cause (defined
below) and such termination occurs within one year of the occurrence of
a Change in Control, then Company shall: (1) pay to Executive
Torres Executive Employment Agreement
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<PAGE> 10
an amount equal to the greater of (A) his total Base Salary for the
remainder of the Employment Period; (B) two times the greater of his
annualized Base Salary in effect upon the occurrence of the Change in
Control or his annualized Base Salary in effect on the date of notice
termination is received; or (C) one month of Base Salary for each full
year of service completed with the Company as of the date of
termination, (2) pay to Executive an amount equal to two (2) times his
most recent annual bonus, and (3) cause Executive to be fully vested in
any stock options or stock grants held by Executive. "GOOD CAUSE" shall
mean the occurrence of any of the following events:
(i) the assignment by Company to the Executive of
duties that are materially inconsistent with the Executive's
office with Company at the time of such assignment, or the
removal by Company from the Executive of a material portion of
those duties usually appertaining to the Executive's office with
Company at the time of such removal;
(ii) a material change by Company, without the
Executive's prior written consent, in the Executive's
responsibilities to Company, as such responsibilities are
ordinarily and customarily required from time to time of a senior
officer of a corporation engaged in Company's business;
(iii) any removal of the Executive from, or any failure
to reelect or to reappoint the Executive to, the office stated in
Section 1.2;
(iv) Company's direction that the Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or association of which the
Executive is a director, officer, or member at the date of this
Agreement;
(v) a reduction by Company in the amount of the
Executive's salary in effect at the time of the occurrence of a
Change in Control or the failure of Company to pay such salary to
the Executive at the time and in the manner specified in this
Agreement;
(vi) other than with respect to the annual performance
bonus specified in Article 2 or, as made with the Executive's
prior written consent, the discontinuance (without comparable
replacement) or material reduction by Company of the Executive's
participation in any bonus or other employee benefit arrangement
(including, without limitation, any profit-sharing, thrift, life
insurance, medical, dental, hospitalization, stock option or
retirement plan or arrangement) in which the Executive is a
participant under the terms of this Agreement, as in effect on
the date hereof or as may be improved from time to time
hereafter;
(vii) the moving by Company of the Executive's principal
office space, related facilities, or support personnel, from
Company's principal operating offices, or Company's requiring the
Executive to perform a majority of his duties outside Company's
principal operating offices for a period of more than 30
consecutive days;
(viii) the relocation, without the Executive's prior
written consent, of Company's principal executive offices to a
location outside the county in which such offices are located at
the time of the signing of this Agreement;
(ix) in the event Company requires the Executive to
reside at a location more than 25 miles from Company's principal
executive offices, except for occasional travel in
Torres Executive Employment Agreement
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<PAGE> 11
connection with Company business to an extent and in a manner
which is substantially consistent with the Executive's current
business travel obligations;
(x) in the event the Executive consents to a relocation
of Company's principal executive offices, the failure of Company
to (A) pay or reimburse the Executive on an after-tax basis for
all reasonable moving expenses incurred by the Executive in
connection with such relocation or (B) indemnify the Executive on
an after-tax basis against any loss realized by the Executive on
the sale his principal residence in connection with such
relocation;
(xi) the failure of Company to continue to provide the
Executive with office space, related facilities and support
personnel (including, without limitation, administrative and
secretarial assistance) that are commensurate with the
Executive's responsibilities to and position with Company, and no
less than those prior to this Agreement;
(xii) the failure by Company to promptly reimburse the
Executive for the reasonable business expenses incurred by the
Executive in the performance of his duties for Company, in
accordance with this Agreement.
(d) Subject to the provisions of Section 4.6, 5.1 or 5.3, upon
termination of this Agreement and Executive's employment hereunder by
either Company or Executive, Executive shall have no right to receive
any compensation or benefits or continue to have any further rights or
privileges under this Agreement (including without limitation any
automobile allowance, use of Company facilities or property, etc.) for
any period subsequent to the effective date of such termination, or for
any period prior to such date which have not been earned or vested as of
such date except as may be provided for in any employee benefit plan
relating to such benefits.
(e) Company's right of termination shall be in addition to and
shall not affect Company's rights and remedies under Articles 3 and 4,
and Section 6.1 of this Agreement, and Company's rights and remedies
shall survive termination of Executive's employment hereunder.
(f) For purposes of this Agreement, Executive's years of
service shall include service with the Company, service with any
predecessor entity in which all or part of Company's business was
conducted, and service with any Affiliate, as defined in Section 1.4.
5.4 RESIGNATION FROM OFFICES. Any provision of this Agreement to the
contrary notwithstanding, Executive shall immediately resign from any offices
held with Company or its Affiliates upon written request by the Company. Any
resignation made pursuant to a written request by Company under this Section
5.4 shall not affect Executive's rights under this Agreement for any
compensation or payment.
5.5 RELEASE OF FOREIGN RIGHTS. If, during the course of Executives
employment with Company or its Affiliates, Executive may acquire any
compensation, retirement, severance or other similar rights or benefits under
the laws of a country other than the United States of America,
("Extraterritorial Rights") then the compensation and benefits of this
Agreement shall supersede and replace such Extra Territorial Rights to the
extent permitted by law. Furthermore, to the extent the Extra Territorial
Rights may not be superseded under the applicable law, any payments or benefits
under applicable law, any payments or benefits under this Agreement shall be
reduced on a dollar for dollar basis for any amounts paid Executive for any
Extra Territorial Rights. By entering into this Agreement Executive expressly
acknowledges:
Torres Executive Employment Agreement
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<PAGE> 12
(a) Executive's domicile is the United States of America;
(b) Executive acknowledges that the employment relationship
with Company and its Affiliates is to be governed solely by reference to
the laws of the State of Texas, regardless of any services rendered in a
jurisdiction outside the State of Texas;
(c) Executive expressly waives and releases any rights under
the laws of any country other than the United States of America for any
Extra Territorial Rights as heretofore defined; and
(d) Executive expressly acknowledges and agrees that the
payments and benefits under this Agreement have been bargained for in
lieu of any Extra Territorial Rights.
ARTICLE 6
MISCELLANEOUS
6.1 INJUNCTIVE RELIEF. Because of the unique nature of the
Confidential Information, Executive acknowledges, understands and agrees that
Company will suffer immediate and irreparable harm if Executive fails to comply
with any of his obligations under Articles 3 or 4 of this Agreement, and that
monetary damages will be inadequate to compensate Company for such breach.
Accordingly, Executive agrees that Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to temporary,
preliminary, and permanent injunctive relief to enforce the terms of Articles 3
and 4 without the necessity of proving inadequacy of legal remedies or
irreparable harm.
6.2 ACTION BY AND CONSENT OF COMPANY. All rights and remedies of
Company hereunder shall be exercised by the Company solely by the Compensation
Committee of the Company's Board of Directors.
6.3 NOTICES. Any notice, instruction, authorization, request or
demand required hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the principal offices of
Company at the address indicated beneath its signature on the execution page of
this Agreement, and also to Executive at his home address indicated beneath his
signature on the execution page of this Agreement, or at such other address and
number as a party shall have previously designated by written notice given to
the other party in the manner hereinabove set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of such receipt
by confirmed facsimile transmission being deemed receipt of communications sent
by facsimile means); and when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
6.4 AMENDMENT AND WAIVER. This Agreement may be amended, modified or
superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, covenants, representations, warranties, or
conditions hereof shall be made only by a written instrument executed and
delivered by the party waiving compliance. Any waiver granted by Company shall
be effective only if executed and delivered by a duly authorized executive
officer of Company other than Executive. The failure of any party at any time
or times to require performance of any provisions hereof, shall in no manner
effect the right to enforce the same. No waiver by any party of any condition
or provision, or the breach of any term, provision, representation, or warranty
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or the breach of any other term, provision,
covenant, representation, or warranty.
Torres Executive Employment Agreement
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<PAGE> 13
6.5 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall bind, be
enforceable by, and inure to the benefit of, the parties hereto, but this
Agreement and the rights and obligations hereunder shall not be assignable or
delegable by any party; provided, however, that this Agreement and all of
Company's rights and obligations hereunder may be assigned or delegated by it,
in whole, but not in part, to, and shall be binding upon and inure to the
benefit of, any of its successors or assigns, but such assignment or delegation
by Company shall not relieve it of any of its obligations hereunder.
6.6 DEFINITIONS, GENDER AND CERTAIN REFERENCES. As used in this
Agreement, each parenthetically or quoted capitalized term in the introduction,
recitals and other Sections of this Agreement shall have the meaning so
ascribed to it. 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. References to Articles or Sections
shall be to Articles or Sections of this Agreement unless otherwise specified.
The headings and captions used in this Agreement are solely for convenient
reference and shall not affect the meaning or interpretation of any article,
section or paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
Section.
6.7 GOVERNING LAW AND SEVERABILITY. This Agreement has been executed
and is performable in Montgomery County, Texas. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas. Each party
hereto hereby acknowledges and agrees that it has had the opportunity to
consult with its own legal counsel in connection with the negotiation of this
Agreement, and that it has bargaining power equal to that of the other party
hereto in connection with the negotiation, execution and delivery of this
Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the drafter shall
have no application in the construction or interpretation of this Agreement.
The invalidity of any provision of this Agreement shall not affect any other
provision of this Agreement, which shall remain in full force and effect, nor
shall the invalidity of a portion of any provision of this Agreement affect the
balance of such provision.
6.8 EXPENSES. Each party hereto shall pay all of its respective fees
and expenses of attorneys, accountants and other persons employed by it in
connection with the resolution of any dispute between the parties hereto
arising out of or relating to this Agreement.
6.9 ENTIRE AGREEMENT. No agreements or representations, oral or
otherwise, express or implied, have been made by any party hereto with respect
to the subject matter hereof that are not set forth expressly in this
Agreement. This Agreement supersedes and cancels any prior agreement,
arrangement or understanding entered into between Company and Executive
relating to the subject matter hereof.
6.10 COUNTERPARTS. The parties may execute this Agreement in any
number of counterparts, each of which is an original, but all of which together
constitute one and the same instrument.
Torres Executive Employment Agreement
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
COMPANY:
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
------------------------------------
Name: James F. Farr
Title: President and CEO
Address: One Lawrence Center
P. O. Box 1863
2507 North Frazier
Conroe, Texas 77305
EXECUTIVE:
/s/ Michael A. Torres
---------------------------------------------
Michael A. Torres
Address:
------------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Torres Executive Employment Agreement
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<PAGE> 15
COMPANY ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
James F. Farr, President and Chief Executive Officer of Dailey Petroleum
Services Corp., a Delaware corporation, known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in the
capacity stated, and as the act and deed of said corporation.
Given under my hand and seal this 18th day of July, 1997.
[SEAL] /s/ VIRGINIA J CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
EXECUTIVE ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF MONTGOMERY )
Before me, the undersigned authority, on this date personally appeared
Michael A. Torres, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal this 18th day of July, 1997.
[SEAL] /s/ VIRGINIA J CROSS
-------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: 5-21-2000
Torres Executive Employment Agreement
Page 15
<PAGE> 1
EXHIBIT 10.37
EQUIPMENT LEASE AGREEMENT
AND OPTION TO PURCHASE
-------------------------
THIS AGREEMENT made at Calgary, Alberta as of this 1st day of NOVEMBER, 1996.
BETWEEN:
MALHORTA ENTERPRISES LTD.,
710 Ford Tower
633 -6th Avenue S.W.
Calgary, Alberta T2P 2Y5
(hereinafter called the "Company")
- and -
SPECIALTY TESTING & CONSULTING LTD.,
1703 - 8th Street
Nisku, Alberta T9E 7S8
(hereinafter called the "Lessee")
THIS AGREEMENT WITNESSES that in consideration of the premises and the
covenants and conditions hereinafter contained the Parties hereto covenant and
agree each with the other as follows:
1. The company does hereby lease unto the Lessee the equipment described
below (hereinafter called the "EQUIPMENT"), all of which the Lessee
hereby acknowledges to have received in good condition and working order
for a term of Twelve (12) months commencing form the date hereof and
expiring on October 31st, 1997.
<PAGE> 2
-2-
"EQUIPMENT":
EQUIPMENT SPECIFICATIONS AND IDENTIFICATION
TWO (2) 4900CHA-M4B1S-SPEC PPC Heat-Les Dryers
(Special Unit #3 - 962571 and Special Unit #4 - 9062639)
complete with following components:
- FOUR (4) PCC348004G97 6" 300# RF CS MSG
- EIGHT (8) POC1200SU CARTRIDGE
- EIGHT (8) PCC1200AF CARTRIDGE
- TWO (2) 1245344 GP-500 AUTODRAIN 300 PSIG 1/2" 115 VAC
RENT:
2. (a) The Fair Market Value of the EQUIPMENT is TWO HUNDRED AND
FORTY-FIVE THOUSAND SIX HUNDRED AND ELEVEN ($245,611.00) DOLLARS;
(b) The Lessee covenants and agrees to pay to the Company during the
term of this Lease, monthly and in advance, as rental for the use of
the EQUIPMENT the sum of TWENTY-ONE THOUSAND EIGHT HUNDRED AND
TWENTY-TWO DOLLARS and TWENTY CENTS ($21,822.20), which monthly
rental is due and payable on the 1st day of each consecutive month
for Twelve (12) months commencing on the 1st day of NOVEMBER, 1996
and concluding on the 1st day of OCTOBER, 1997 (the "Term"). IT
BEING
<PAGE> 3
-3-
UNDERSTOOD and agreed that time of payment is of the essence of this
Agreement. At the end of the Term the Lessee agrees that it will have
paid to the Company the total sum of (12 X $21,822.20) = $261,866.40. IT
IS UNDERSTOOD and agreed that G.S.T. will be added to all payments
hereunder by the Lessee.
OPTION TO PURCHASE AND TITLE:
3. Provided that the Lessee is not in default of any of the terms of this
Agreement, the Lessee during the period October 1st, 1997 to October
31st, 1997, may elect at its option, in writing, addressed to the
Company at its address hereinbefore provided, to purchase the EQUIPMENT
by then paying to the Company the sum of TWENTY-THOUSAND ($20,000.00)
DOLLARS (said amount hereinafter referred to as the "Payout Amount"). IT
BEING UNDERSTOOD AND AGREED the Lessee may, at any time during the Term
of this Lease, elect at its option to purchase the EQUIPMENT by paying
to the Company the aggregate sum of the number of months in the
unexpired portion of the Term (and for which rental has not been paid)
times Twenty-one Thousand Eight Hundred and Twenty-two Dollars and
Twenty Cents ($21,822.20) plus the sum of Twenty Thousand ($20,000.00)
Dollars (such aggregate sum hereinafter referred to as "Payout Amount
#2).
4. Title to the ownership of the EQUIPMENT shall remain in the Company
until full payment of the Payout Amount or Payment Amount #2 (which
ever is applicable) as hereinbefore provided has been made to the
<PAGE> 4
-4-
Company and all obligations hereunder, or otherwise, are met.
INSURANCE:
5. The Lessee will insure the EQUIPMENT at its expense with an insurance
company satisfactory to the Company. The insurance shall be evidenced by
an insurance policy, the original or a certified copy of which shall be
delivered by the Lessee to the Company within forty-five (45) days,
naming the Company as the insured with the permission to rent the
EQUIPMENT and shall be for the following coverages and for not less than
the following amounts ("the Insurance Policy"):
Public Liability, Property Damage for one million inclusive
limits and Comprehensive, including fire and theft with
deductibles acceptable to the Company for actual cash value.
6. Should any claim arise outside the provisions and protection afforded by
the Insurance Policy, then the Lessee shall be responsible therefor and
in the event of any payment being made by the Company for loss sustained
by it, the, in such case, the Lessee hereby covenants and agrees to
forthwith reimburse the Company for any such loss howsoever arising.
7. The Lessee agrees that it will increase any or all of the insurance
coverage obtained by it, as set forth herein, if instructed to do so by
the Company and the term "Insurance Policy" used herein shall
<PAGE> 5
- 5 -
include any amended or replacement policies of insurance from time to
time obtained with respect to the EQUIPMENT.
USE AND OPERATION OF EQUIPMENT:
8. The Lessee may use and operate the EQUIPMENT in the Provinces of
British Columbia, Alberta and Saskatchewan or outside the said
Provinces with the Consent of the Company, all in accordance with
the business of the Lessee.
9. The Lessee or its nominees shall at all times operate the EQUIPMENT
in accordance with due diligence and care.
10. The Lessee shall not make any material alterations to the EQUIPMENT
without the prior written consent of the Company. All equipment,
accessories, parts and replacements which are attached to or
incorporated into the EQUIPMENT shall become the property of the
Company.
11. The Lessee covenants and agrees with the Company not to operate or
permit the use or operation of the EQUIPMENT except in accordance
with the requirements of the Insurance Policy, which requirements
the Lessee acknowledges to be fully acquainted with and the Lessee
will not do or permit any act which would imperil or void the
Insurance Policy.
MAINTENANCE:
<PAGE> 6
-6-
12. The Lessee covenants and agrees that during the Term it will at
its own cost and expense:
(a) completely service and repair the EQUIPMENT to the extent and
with the frequency reasonably required and maintain the
EQUIPMENT in good condition and working order and replace such
parts thereof as may be necessary;
(b) provide safe and proper storage facilities for the EQUIPMENT.
INSPECTION:
13. The Company may at any time require the EQUIPMENT to be produced
for inspection at its place of business or that of its
representative, and in the event of the Lessee failing to
produce the EQUIPMENT as required, the Company shall be entitled
to terminate this Agreement and to exercise all remedies given
hereunder including seizing and repossessing the EQUIPMENT.
14. The Lessee shall allow the EQUIPMENT to remain on the Company's
premises for whatever time is reasonably necessary to complete
repairs or service and shall not be entitled to any reductions
of rentals therefore.
INDEMNITY:
15. The Lessee hereby assumes liability for, and hereby agrees to
indemnify, protect, save and keep harmless the Company and its
agents
<PAGE> 7
-7-
and servants, officers and directors, from and against any and
all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements,
including legal expenses, of whatsoever kind and nature, imposed
or assumed by, incurred by or asserted against the Lessee in any
way relating to or arising out of the manufacture, order,
acceptance or rejection, purchase, ownership, delivery, lease,
possession, use, condition, sale return or other disposition of
the EQUIPMENT including, without limitation, any claim relating
to any latent and other defects whether or not discoverable by
Lessee and any claim in tort for strict liability. This Clause
shall be effective and in full force and effect from the date of
the execution of this Agreement, even though the Term may not
have yet commenced. The indemnities contained in this Clause
shall continue in full force and effect notwithstanding the
expiration or other termination of this Agreement and shall be
payable on demand.
COVENANTS OF THE LESSEE:
16. The Lessee irrevocably constitutes and appoints the Company its
Attorney with full and exclusive power to settle in its absolute
discretion any claim of any nature whatsoever which may arise
through the use or possession of the EQUIPMENT by the Lessee or
its nominees and the Lessee specifically agrees that no such
settlement shall
<PAGE> 8
-8-
effect or waive any obligation imposed or assumed by it under this
Agreement.
17. The Lessee further covenants and agrees:
(a) To advise the Company forthwith of any damage to or loss of the
EQUIPMENT and accept and carry out all instructions given by the Company
in respect thereto;
(b) the Lessee shall forthwith report any accident involving the EQUIPMENT
to the Company and provide the Company with all information and
documents regarding such accident which are in the power or possession
of the Lessee;
(c) Not to suffer or permit any charge or lien whether possessory or
otherwise to exist against the EQUIPMENT;
(d) To comply with all laws, statutes, bylaws and other legal enactments
government the use and operation of the EQUIPMENT and to do all things
necessary to ensure that the EQUIPMENT will be operated and used in
accordance with the aforesaid;
(e) To indemnify and save harmless the Company of and from any and all loss
or damage to the EQUIPMENT resulting from larceny or conversion of the
EQUIPMENT by any of the Lessee's employees or agents and to pay
promptly to the Company the amount of such loss or damage on demand;
(f) To use the EQUIPMENT in a careful prudent manner and not for any
unlawful purpose;
<PAGE> 9
- 9 -
(g) Not to deface the EQUIPMENT in any manner nor remove any
equipment attached to or placed on the EQUIPMENT by the Company
and to be solely responsible for any costs incurred by the
Company for removing any marks or signs placed on or applied to
the EQUIPMENT by the Lessee including the cost of repainting the
entire EQUIPMENT if the Company deems such repainting to be
reasonably necessary.
18. It is further expressly understood and agreed that:
(a) The EQUIPMENT is and shall at all times be and remain the sole
property of the Company and the Lessee shall have no right,
title or interest therein or thereto except as expressly set
forth herein;
(b) The Lessee acquires the right hereunder to operate the EQUIPMENT
for its own use and benefit so long as the terms and conditions
herein contained are fully complied with and all payments are
made promptly on the due dates hereof;
(c) The Lessee assumes all risk of, and shall pay for, any loss or
damage to the EQUIPMENT;
(d) The Lessee is not the agent of the Company at any time for any
purpose;
(e) The Company may assign this Agreement and all rights hereunder
of the Company without the Lessee's consent;
(f) The Lessee may not assign any interest of the Lessee under this
Agreement nor sublease the EQUIPMENT without the Company's
consent in writing;
<PAGE> 10
-10-
(g) The obligation of the Lessee to pay rent hereunder shall not in any way
be affected by any defect or failure in the performance of the
EQUIPMENT.
DEFAULT:
19. Time is of the essence of this Agreement. In the event of the Lessee
defaulting in the making of any payments due herein, whether rental or
otherwise on the due date thereof, or in the event of the Lessee failing
to comply with any of the terms, covenants and conditions herein
contained, or should the Insurance Policy be cancelled other than at the
direct request of the Company, or should the Lessee become insolvent or
should any proceedings with respect to the Lessee be taken in bankruptcy
(whether voluntary or otherwise), or by way of receivership or a winding
up, or should the Company in its absolute discretion deem itself
insecure or should it deem the EQUIPMENT to be in danger of misuse,
neglect, seizure or confiscation, the Lessee agrees that the Company
shall following Seven (7) days notice in writing of such default
(provided such default has not then been rectified) have the right to
immediately retake and repossess the EQUIPMENT to the Company. The
retaking and repossession of the EQUIPMENT may be either with or without
process of law and the Lessee hereby waives all claims for damages in
respect of such seizure or
<PAGE> 11
- 11 -
repossession. The Lessee hereby authorizes and empowers the Company
or its nominees to enter on any of the Lessee's lands or premises or
any other place where the EQUIPMENT may be found for the purpose of
taking possession of it and on the happening of such event, the
Lessee hereby appoints the Company as its true and lawful Attorney
to execute such documents as may be necessary to regain possession
of the EQUIPMENT. The Lessee shall pay the costs of such repossession
including transportation and storage charges. In the event of such
seizure or repossession, this Agreement shall terminate and be of no
further force and effect and the Company shall be entitled to
immediate possession of the EQUIPMENT but the Lessee shall still
remain liable and shall pay to the Company forthwith any rentals
and other payments or charges due hereunder, together with the cost
of and incidental to such seizure and repossession including legal
costs incurred by the Company on a Solicitor and client basis as
well as any other obligations undertaken by the Lessee.
LIMITATIONS OF LIABILITY:
20. The Company shall not be liable for any loss, damage, claim, demand,
liability, cost of expense of any nature or kind sustained by the
Lessee, directly or indirectly resulting from any inadequacy for any
purpose, or any defect or mechanical failure of the EQUIPMENT or from
loss or interruption of use, or any loss of business profits, or any
consequential or other damage of any nature.
<PAGE> 12
- 12 -
INTEREST:
21. The Lessee shall, without notice, pay interest at the rate of
twelve (12%) percent per annum on any overdue installments of
rent and upon notice from the Company, at the same rate on any
other amounts required to be paid by the Lessee hereunder.
MISCELLANEOUS:
22. The failure of the Company, in any one or more instances, to
insist upon the performance of any of the terms, covenants or
conditions of this Agreement, or to exercise any right or
privilege conferred by this Agreement, or to waive by the
Company any breach of the terms, covenants or conditions of
this Agreement, shall not be construed as thereafter waiving
any such terms, covenants, conditions, rights or privileges but
this Agreement shall continue and remain in full force and
effect as if not such forbearance waiver had occurred.
23. Any notice that may be or is required to be given may be given
by mailing the same in a prepaid envelope at any post office in
Canada addressed to the Party to whom it is to be given at the
respective addresses as set forth herein or at such other
addresses as such Parties shall advise from time to time in
writing and such notice shall be deemed to have been received on
the third day after such mailing. The Lessee shall immediately
notify the Company of any change of address.
<PAGE> 13
-13-
24. The Lessee hereby acknowledges that this Agreement constitutes
the whole agreement between the Parties and no representations
or warranties have been made to it except as herein contained.
25. Whenever the singular or the masculine or the body corporate is
used throughout this Agreement the same shall be deemed to
include the plural or the feminine or the body politic or
corporate also the respective heirs, executors, administrators,
successors and permitted assigns of the Parties hereto and each
of them where the context or the Parties thereto so require.
26. This Agreement and everything herein contained shall enure to
the benefit of and be binding upon the Parties hereto, their
respective heirs, executors, administrators, successors and
permitted assigns.
27. The undersigned hereby acknowledges that it is aware and has
been advised of the provisions of The Personal Property
Securities Act of the Province of Alberta and fully understands
the meaning of, the rights, benefits and protection given to it
by the said Act and that pursuant to the provisions of this
Agreement it has agreed to waive any benefits it may have
pursuant to the said Act or any replacement legislation.
28. The Company makes no representation and excludes any warranties
of any kind, nature or description, express or implied, or
arising by any law with respect to the EQUIPMENT including,
without limiting the generality of the foregoing, the condition
of the EQUIPMENT, its
<PAGE> 14
-14-
compliance with any applicable laws, and its merchantability or
its fitness for any particular purpose.
29. This Agreement shall be construed in accordance with the laws of
Alberta and the Parties agree to attorn to the jurisdiction of
the Courts of Alberta in respect of all matters pertaining to
this Agreement.
30. The Company shall not be required to carry out any of the terms
of this Agreement if prevented from doing so by any act of God,
the Queen's enemies, civil insurrection, riot, strike or other
causes beyond its control and shall not be responsible for any
resulting loss or damages sustained by the Lessee. If by reason
of legislation whether Municipal, Provincial or Dominion, the
Company is required to perform obligations and covenants in a
manner and to an extent in variance with those herein set forth,
then and in such event the Company shall be deemed to have
complied with such obligations and covenants if it complies with
such legislation.
IN WITNESS WHEREOF the Parties have duly executed this Agreement
the day and year first above written.
MALHOTRA ENTERPRISES, LTD.
Per: [ILLEGIBLE]
------------------------------
SPECIALTY TESTING & CONSULTING LTD.
Per: [ILLEGIBLE]
------------------------------
<PAGE> 1
EXHIBIT 21.1
DAILEY PETROLEUM SERVICES CORP.
AND SUBSIDIARIES
<TABLE>
<S> <C>
Dailey International, Inc. Delaware
Dailey International Sales Corp. Delaware
Columbia Petroleum Services Corp. Delaware
International Petroleum Services Corp. Delaware
Dailey Environmental Remediations Texas
(formerly Dailey Acquisitions)
Dailey Worldwide Services Corp. (formerly Energy Caribbean Services) Texas
Worldwide Oil Tool Rentals Ltd. - Cayman Cayman
International Oil Tool Rentals Ltd. Cayman
Dailey de Venezuela, S.A. - Venezuela Venezuela
GL/95 Servicos, C.A. Venezuela
Dailey Limited Cayman
J.D. Investments Bonaire N.V. The Netherlands
J.D.I. Tool Works B.V. The Netherlands
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Air Drilling International, Inc. Delaware
Air Drilling Services, Inc. - Wyoming Wyoming
Canadian Air Drilling Services Ltd. Alberta
3-D Drilling Tools & Services International Ltd.
Specialty Testing & Consulting LTD. Alberta
Air Drilling Services de Venezuela Venezuela
Air Drilling Services France - France France
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-10747) pertaining to the 1996 Key Employee Stock Plan and the
1996 Non-Employee Director Stock Plan of Dailey Petroleum Services Corp. of our
report dated June 27, 1997, with respect to the consolidated financial
statements and schedule of Dailey Petroleum Services Corp. included in the
Annual Report (Form 10-K) for the year ended April 30, 1997.
/s/ Ernst & Young LLP
Houston, Texas
July 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1997
<CASH> 15,200
<SECURITIES> 0
<RECEIVABLES> 20,082
<ALLOWANCES> 1,476
<INVENTORY> 0
<CURRENT-ASSETS> 35,656
<PP&E> 22,878
<DEPRECIATION> (17,256)
<TOTAL-ASSETS> 82,359
<CURRENT-LIABILITIES> 13,718
<BONDS> 0
0
0
<COMMON> 93
<OTHER-SE> 63,234
<TOTAL-LIABILITY-AND-EQUITY> 82,359
<SALES> 16,954
<TOTAL-REVENUES> 66,451
<CGS> 0
<TOTAL-COSTS> 62,095
<OTHER-EXPENSES> 188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 833
<INCOME-PRETAX> 3,975
<INCOME-TAX> 1,511
<INCOME-CONTINUING> 2,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,464
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
