<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended October 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 001-11963
---------------------------------------------------------
Dailey International Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0503351
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2507 North Frazier, Conroe, Texas 77305
- --------------------------------------------------------------------------------
(Address of Principal Executive Officers) (Zip Code)
281/350/3399
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Dailey Petroleum Services Corp.
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
Number of shares outstanding of issuer's Class A Common Stock as of December 9,
1997 was 4,253,598.
<PAGE> 2
DAILEY INTERNATIONAL INC.
FORM 10-Q FOR THE QUARTER ENDED OCTOBER 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - October 31, 1997 and April 30, 1997 1
Consolidated statements of operations - Three months and six months ended
October 31, 1997 and 1996 2
Consolidated statements of cash flows - Six months ended October 31, 1997 and 1996 3
Notes to consolidated financial statements - October 31, 1997 4 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 16
PART II. OTHER INFORMATION 17 - 18
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 19
</TABLE>
i
<PAGE> 3
DAILEY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ....................... $ 59,611 $ 15,200
Accounts receivable, net ........................ 36,877 18,606
Other current assets ............................ 3,455 1,850
--------- ---------
Total current assets ............................ 99,943 35,656
Revenue-producing tools and inventory, net ............... 69,961 37,488
Property and equipment, net .............................. 6,417 5,622
Deferred income taxes .................................... -- 1,959
Accounts receivable from officer ......................... 250 250
Goodwill, net ............................................ 21,736 825
Intangibles and other assets ............................. 5,775 559
--------- ---------
Total assets .................................... $ 204,082 $ 82,359
========= =========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities ........ $ 19,121 $ 8,324
Accounts payable to affiliates .................. 697 442
Income taxes payable ............................ 3,067 3,241
Current portion of long-term debt ............... 76 1,711
--------- ---------
Total current liabilities ....................... 22,961 13,718
Long-term debt ........................................... 114,217 5,155
Deferred income taxes .................................... 832 --
Other noncurrent liabilities ............................. 997 159
Commitments and contingencies
Stockholders' equity:
Common stock .................................... 95 93
Treasury stock (144,000 shares) ................. (1,047) (234)
Paid-in capital ................................. 41,213 39,972
Retained earnings ............................... 24,814 23,496
--------- ---------
Total stockholders' equity ...................... 65,075 63,327
--------- ---------
Total liabilities and stockholders' equity ...... $ 204,082 $ 82,359
========= =========
</TABLE>
See accompanying notes.
1
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DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ......................... $ 15,660 $ 13,056 $ 31,262 $ 25,175
Sales of products and services ........ 6,904 4,099 11,427 8,736
Underbalanced drilling services ....... 9,010 -- 11,904 --
----------- ----------- ----------- -----------
31,574 17,155 54,593 33,911
COSTS AND EXPENSES:
Cost of rentals ....................... 11,173 9,540 21,819 18,884
Cost of products and services ......... 3,894 2,263 6,901 4,799
Cost of underbalanced drilling services 5,695 -- 7,536 --
Selling, general and administrative ... 6,006 3,068 10,224 5,968
Reorganization costs .................. -- -- 2,453 --
Non-cash compensation ................. 61 -- 539 --
Research and development .............. 42 224 162 399
----------- ----------- ----------- -----------
26,871 15,095 49,634 30,050
----------- ----------- ----------- -----------
Operating income ............................ 4,703 2,060 4,959 3,861
Other (income) expense:
Interest income ....................... (692) (195) (814) (207)
Interest expense-nonaffiliates ........ 2,802 178 3,225 380
Interest expense-affiliate ............ -- 61 -- 172
Other, net ............................ 51 (60) 195 (106)
----------- ----------- ----------- -----------
Income before income taxes .................. 2,542 2,076 2,353 3,622
Income tax provision ........................ 1,118 758 1,035 1,342
----------- ----------- ----------- -----------
Net income .................................. $ 1,424 $ 1,318 $ 1,318 $ 2,280
=========== =========== =========== ===========
Earnings per share .......................... $ 0.15 $ 0.15 $ 0.14 $ 0.32
=========== =========== =========== ===========
Weighted average shares outstanding ......... 9,451,656 9,023,065 9,331,627 7,191,532
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
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DAILEY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 1,318 $ 2,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................................... 5,534 3,055
Deferred income taxes ............................................... 34 325
Provision for doubtful accounts receivable .......................... 268 153
(Gain)/loss on sale and disposition of property and equipment ....... 10 (17)
Provision for stock awards .......................................... 539 --
Changes in operating assets and liabilities:
Accounts receivable - trade ......................................... (11,474) (5,546)
Accounts payable to affiliates ...................................... 255 611
Prepaid expenses and other .......................................... (1,482) (1,455)
Accounts payable and accrued liabilities ............................ 6,457 5,435
Income taxes payable ................................................ (614) 515
--------- ---------
Net cash provided by operating activities ................................ 845 5,356
INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory ....................... (14,102) (10,724)
Inventory transferred to cost of rentals ................................. 3,707 2,894
Revenue-producing tools lost in hole, abandoned, and sold ................ 1,520 1,175
Additions to property and equipment ...................................... (4,405) (966)
Proceeds from sale of property and equipment ............................. 607 100
Acquisition, net of cash acquired ........................................ (46,226) --
--------- ---------
Net cash used in investing activities .................................... (58,899) (7,521)
FINANCING ACTIVITIES:
Proceeds from the issuance of debt ....................................... 159,597 400
Payments on outstanding debt ............................................. (52,893) (4,339)
Cost of initial public offering .......................................... -- (3,496)
Payment of promissory note ............................................... -- (5,000)
Proceeds from sale of common stock ....................................... -- 31,330
Purchase of treasury stock ............................................... (813) --
Exercise of stock options ................................................ 704 --
Financing costs of Senior Notes........................................... (4,130) --
--------- ---------
Net cash provided by financing activities ................................ 102,465 18,895
Increase in cash and cash equivalents .................................... 44,411 16,730
Cash and cash equivalents at beginning of period ......................... 15,200 1,967
--------- ---------
Cash and cash equivalents at end of period ............................... $ 59,611 $ 18,697
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 6
DAILEY INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include
the accounts of Dailey International Inc. and its subsidiaries and predecessors
("Dailey" or the "Company"), and have been prepared in accordance with United
States generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended October 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal period. For further information,
reference is made to the consolidated financial statements and footnotes thereto
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on July 29, 1997. Certain reclassifications have been made to the
April 30, 1997 and October 31, 1996 financial information to conform to the
current period presentation.
2. ORGANIZATION AND PUBLIC OFFERING
The accompanying consolidated financial statements reflect the
operations of Dailey International Inc. (formerly Dailey Petroleum Services
Corp.), a Delaware corporation. In June 1996, Dailey Petroleum Services Corp.
was merged with Dailey Corporation which was named Dailey Petroleum Services
Corp. On October 7, 1997, the Company changed its name to Dailey International
Inc. In July 1997, the Company's Board of Directors changed the Company's fiscal
year to December 31, effective December 31, 1997.
The Company is a leading provider of specialty drilling services to the
oil and gas industry 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. In June 1997, the
Company acquired Air Drilling International, Inc. ("ADI" and "ADI Acquisition")
and, as a result, became a leading provider worldwide of air drilling services
for underbalanced drilling applications. 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
4
<PAGE> 7
through a forward triangular merger of Dailey Petroleum Services Corp., into a
newly-formed, wholly-owned indirect subsidiary of Lawrence, Dailey Corporation
(the "Reorganization"), which is now Dailey International Inc. 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 "1996 IPO").
Dailey's Restated Certificate of Incorporation provides for three
classes of stock: Class A Common Stock, $.01 par (20,000,000 shares authorized,
4,627,598 issued and 4,483,598 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 1996 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 1996 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 1996 IPO, the Company's sole
stockholder contributed to the capital of the Company $5.0 million of the
principal of such note.
3. ADI ACQUISITION
On June 20, 1997, the Company purchased the stock of ADI (a provider of
air drilling services for underbalanced drilling applications) for $46.4
million, including the repayment of approximately $16.8 million of ADI
indebtedness, financed with bank debt of $45.5 million and proceeds from the
1996 IPO. 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 $22.3 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 $1.1 million
in amortization expense per year. 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 purchase price allocation was based on
preliminary estimates and may be revised at a later date.
The pro forma unaudited results of operations for the three and six
months ended October 31,
5
<PAGE> 8
1997 and 1996, assuming consummation of the purchase of ADI as of May 1, 1996
utilizing interim financing of $45.5 million under the Company's bank credit
facility and reflecting extinguishment of debt of Dailey and ADI (except for
capitalized leases), are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, SIX MONTHS ENDED OCTOBER 31,
1997 1996 1997 1996
-------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues ...................................... $ 31,574 $ 22,694 $ 58,808 $ 44,599
Net income (loss)................................ 1,424 811 (295) 1,406
Net income (loss) per common share............... 0.15 0.09 (0.03) 0.20
</TABLE>
The pro forma information for the three and six months ended October
31, 1997 and 1996, includes adjustments for additional depreciation and
amortization expense associated with the purchase price allocation using a 20
year life for goodwill and an average life of eight years for fixed assets,
increased interest expense for the additional borrowings under the credit
facility as if they were incurred at the beginning of the period and related
adjustments for income taxes. The pro forma information is not necessarily
indicative of the results of operations had the acquisition been affected on the
assumed dates or the results of operations for any future period.
4. REVENUE-PRODUCING TOOLS AND INVENTORY
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
-------- --------
(In Thousands)
<S> <C> <C>
Revenue-producing tools ........................................... $ 85,799 $ 56,622
Accumulated depreciation .......................................... (35,664) (32,503)
-------- --------
50,135 24,119
Inventory:
Components, subassemblies and expendable parts ................ 17,052 11,293
Rental tools and expendable parts under production ............ 1,771 1,261
Raw materials ................................................. 1,003 815
-------- --------
19,826 13,369
-------- --------
Revenue-Producing Tools and Inventory ................... $ 69,961 $ 37,488
======== ========
</TABLE>
5. STOCK OPTIONS AND AWARDS
Prior the 1996 IPO, the Company established its 1996 Key Employee Stock
Plan (the "1996 Plan") and its 1996 Non-Employee Director Stock Option (the
"1996 Director Plan"). Pursuant to the 1996 Plan, the Board of Directors of the
Company are authorized to issue up to 900,000 shares of the Company's Class A
Common Stock. On October 7, 1997, the Board of Directors approved the 1997
Long-Term Incentive Plan (the "1997 Plan"). Pursuant to the 1997 Plan, the Board
of Directors of the Company are authorized to issue up to 720,000 shares of the
Company's Class A Common Stock.
Option activity for the six months ended October 31, 1997 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
----------------- --------------
<S> <C> <C>
Outstanding at April 30, 1997 534,129 $ 8.32
Granted
1996 Director Plan at fair value of $13.25 20,000 13.25
1997 Plan at fair value of $6.30 to $13.25 150,000 6.84
Exercised
1996 Plan (82,598) 8.84
======= =======
Outstanding at October 31, 1997 621,531 $ 8.08
======= =======
</TABLE>
The options granted have an exercisable life between one and three years from
the date of grant.
Restricted stock activity for the six months ended October 31, 1997 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED SHARES
---------------------------
<S> <C>
Outstanding at April 30, 1997 55,197
Granted
1997 Plan at fair value of $12.75 230,000
Vested
1996 Plan (55,197)
1997 Plan (4,792)
=======
Outstanding at October 31, 1997 225,208
=======
</TABLE>
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<PAGE> 9
The 230,000 shares granted pursuant to the 1997 Plan will vest over a four year
period. The shares vested during the six months ended October 31, 1997 resulted
in $539,000 of non-cash compensation expense.
6. BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1997 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes................................ $ 114,116 $ ---
Note payable to a bank...................... --- 6,778
Other notes payable......................... 177 88
------------ ----------
114,293 6,866
Less current portion of long-term debt...... 76 1,711
------------ ----------
Total long-term debt............... $ 114,217 $ 5,155
============ ==========
</TABLE>
On August 19, 1997, the Company issued $115.0 million of 9.75% Senior
Notes due 2007 at a discount of 0.785%, and a portion of the proceeds was used
to repay the note payable to a bank.
7. REORGANIZATION
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, the Company incurred
a $2.5 million restructuring charge during June 1997 associated primarily with
staff reductions, severance settlements and various reorganization costs.
8. SUBSEQUENT EVENTS
On December 11, 1997, the Company signed an agreement to acquire
substantially all of the assets of Directional Wireline Services, Inc. ("DWS"),
DAMCO Tong Services, Inc. and DAMCO Services, Inc. (collectively, "DAMCO", and
with DWS, the "Companies"), which are headquartered in Houma, Louisiana. The
Companies provide specialized drilling, workover, completion and production
services to the Gulf of Mexico and Nigerian markets. The aggregate purchase
price for the Companies is $61 million and the acquisition is expected to be
accounted for utilizing the purchase method of accounting.
7
<PAGE> 10
DAILEY INTERNATIONAL INC.
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) and that involve risk and uncertainty. Words such
as "anticipate", "expect", "estimate", "project" and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements may include, but are not limited to, future capital expenditure
plans, anticipated results from current and future operations, earnings,
margins, acquisitions, market trends in the oilfield services industry,
including demand for the Company's drilling services and downhole tools,
competition and various business trends. Forward-looking statements may be made
by management orally or in writing including, but not limited to, the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section and other sections of the Company's filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Such forward-looking statements are subject to certain risks,
uncertainties and assumptions, including without limitation those identified
below. Should one or more of these risks or uncertainties materialize, or should
any of the underlying assumptions prove incorrect, actual results of current and
future operations may vary materially from those anticipated, estimated or
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates.
Among the factors that have a direct bearing on the Company's results
of operations and the oilfield service industry in which it operates are changes
in the price of oil and natural gas; the impact of competitive products and
pricing; product demand and acceptance risks, including product obsolescence
risks, the presence of competitors with greater financial resources; operating
risks inherent in the oilfield service industry, including risks of
environmental liability; risks associated with the ADI Acquisition and the
pending acquisition of DAMCO Services, Inc. ("DSI"), DAMCO Tong Services, Inc.
("DTSI" and with DSI, "DAMCO") and Directional Wireline Services, Inc. ("DWS"
and with DAMCO, the "Companies"), including failure to successfully manage the
Company's growth and integrate the operations of ADI, substantial leverage
following the ADI Acquisition and the private placement of the Senior Notes;
reliance on independent international agents for the distribution of certain of
its downhole tools; the inability of the Company to realize anticipated cost
savings from the Management Reorganization; 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; world-wide political stability and economic growth and other
risks associated with international operations, including foreign exchange risk,
the Company's successful execution of internal operating plans as well as
regulatory uncertainties and legal proceedings.
8
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RECENT DEVELOPMENTS
Pending DAMCO and DWS Acquisition. On December 11, 1997, the Company
signed an agreement to acquire substantially all of the assets of DAMCO and DWS,
both of which are headquartered in Houma, Louisiana. The Company believes the
acquisitions add new and complementary services to Dailey's existing operations
and will result in significant revenue growth. DWS and DAMCO provide specialized
drilling, workover, completion and production services to the Gulf of Mexico and
Nigerian markets. DWS and DAMCO operate independently, with DWS providing
downhole electric wireline and tubing conveyed perforating ("TCP") services and
DAMCO providing tubular testing and handling services. The acquisition is
subject to customary closing conditions.
The aggregate purchase price for the Companies is $61 million, which
Dailey intends to finance with proceeds from the Senior Notes offering that
closed in August 1997, and its existing bank line of credit. DWS and DAMCO had
consolidated EBITDA (defined as earnings before interest, taxes, depreciation
and amortization) of approximately $8.25 million for the nine months ended
September 30, 1997. The acquisition of the Companies is expected to be accounted
for utilizing the purchase method of accounting. Goodwill recorded in connection
with the acquisition will be amortized over 20 years and is expected to result
in a significant increase in the Company's amortization expense.
ADI Acquisition. The Company's operations and future results have been
and will be significantly impacted by the acquisition of Air Drilling
International, Inc. ("ADI", the "ADI Acquisition") 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 has experienced significant revenue growth as a result of
the ADI Acquisition. The ADI Acquisition has significantly expanded 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 $22.3 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 $1.1 million
in amortization expense during the year. 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 purchase price allocation was based on
preliminary estimates and may be revised at a later date.
Senior Note Offering and Credit Facility. In order to finance the ADI
Acquisition, the Company amended its Amended and Restated Credit Agreement that
provided for a term loan (the
9
<PAGE> 12
"Term Loan") and a revolving line of credit (the "Revolving Credit Line") 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. On August 19, 1997, the Company issued, pursuant to a private
placement, $115 million of senior notes (the "Senior Notes") at a discount of
0.785% (the "Note Offering"). The net proceeds from the Note Offering were
approximately $109.6 million, a portion of which was utilized to repay the
outstanding balance under the Term Loan and the Revolving Credit Line. The Note
Offering significantly increased the Company's debt levels above those existing
in prior periods and has resulted and will result in a significantly higher
level of interest expense and increased percentage of cash flow being used for
debt service, which may limit the Company's ability to obtain additional debt
financing for future acquisitions and capital expenditures. The Company expects
to utilize remaining net proceeds from the Note Offering to finance a
significant portion of the purchase price for the pending acquisitions of DAMCO
and DWS.
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, the Company incurred a $2.5 million
restructuring charge during June 1997, associated primarily with staff
reductions, severance settlements and various reorganization costs. The Company
does not expect to incur any additional restructuring charges relating to the
Management Reorganization.
1996 Initial Public Offering. The Company's operations during the three
and six months ended October 31, 1997 reflect the effects of the Company's
initial public offering (the "1996 IPO"). Dailey's net proceeds of $27.6 million
from the 1996 IPO 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
three and six months ended October 31, 1997 compared to the same three and six
months last year, and are expected to impact future periods as such tools
continue to be utilized in the Company's business.
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
10
<PAGE> 13
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 Company derives revenues from rentals of air drilling equipment
used for underbalanced drilling applications including compressors, boosters,
mist pumps and related equipment, which are typically rented at an hourly or
daily rate. The Company also derives revenues by providing specially trained
personnel to operate its air drilling equipment, who are typically billed on a
per person/per day basis.
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.
Operating costs associated with the Company's revenues derived from
underbalanced drilling services consist primarily of expenses associated with
depreciation, transportation, maintenance and repair and related direct
overhead, and the salaries and related costs of the Company's air drilling
technicians.
Three Months Ended October 31, 1997 Compared to the Three Months Ended October
31, 1996
Rental Income. Rental income for the three months ended October 31,
1997 was $15.7 million, an increase of 20% from $13.1 million for the same three
months last year. This increase in revenue was due to the introduction of
additional directional drilling equipment acquired with proceeds from the 1996
IPO and increased demand for these products and services primarily in the United
States Gulf Coast region and the Gulf of Mexico which resulted in a $ 1.3
million increase in rentals. In addition, revenue from the rental of drilling
jars and related products increased $638,000 in the United States primarily due
to a 21% increase in the average domestic rig count during the period compared
to the same period last year and $756,000 internationally, primarily in
Indonesia, Australia and Saudi Arabia, as the result of increased drilling
activity.
Sales of Products and Services. Sales of products and services for the
three months ended October 31, 1997 were $6.9 million, an increase of 68% from
$4.1 million for the same three months last year. This increase in revenue was
primarily the result of $1.2 million of ADI revenue being included in operating
results, an increase in tools lost-in-hole of $931,000 and increased revenue
from directional services of $501,000 primarily in the United States Gulf Coast
Region, the Gulf of Mexico and Venezuela.
Underbalanced Drilling Services Revenue. Underbalanced drilling
services revenue for the three months ended October 31, 1997 was $9.0 million
resulting from ADI revenue being included in operating results for the first
time.
Cost of Rentals. Cost of rentals for the three months ended October 31,
1997 was $11.2 million, an increase of 17% from $9.5 million for the same three
months last year. This increase in
11
<PAGE> 14
cost was due primarily to increased variable costs, primarily tool repair costs
and third party tool charges, associated with increased rental activity in
regions where the Company had an existing operating and administrative
infrastructure. As a result, margins increased from 27% for the three months
ended October 31, 1996 to 29% for the three months ended October 31, 1997 due to
the fixed nature of the Company's cost base.
Cost of Products and Services. Cost of products and services for the
three months ended October 31, 1997 was $3.9 million, which was a $1.6 million
increase from the same three months last year. This increase includes $577,000
of ADI costs that were included in operating results for the first time. The
margin on sales of products and services for the three months ended October 31,
1997 was 44% compared to 45% for the same three months last year. This decrease
in the margin was primarily due to decreased higher margin export sales of
mechanical jars combined with increased revenues from lower margin directional
drilling services.
Cost of Underbalanced Drilling Services. Cost of underbalanced drilling
services for the three months ended October 31, 1997 was $5.7 million resulting
from ADI costs that were included in operating results for the first time in
June 1997.
Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended October 31, 1997 were $6.0
million, a 96% increase from $3.1 million for the same three months last year.
This increase was primarily the result of increased compensation expense related
to salary increases and incentive compensation programs, amortization of costs
related to the acquisition of ADI and the inclusion of ADI expenses in operating
results for the first time of $2.2 million. Cost savings from the Management
Reorganization partially offset this increase.
Non-cash Compensation. Non-cash compensation for the three months ended
October 31, 1997 was $61,000 which related to restricted stock that had been
granted to certain executive officers of the Company on October 7, 1997 in
connection with the 1997 Long-Term Incentive Plan (the "1997 Plan").
Interest Income. Interest income for the three months ended October 31,
1997 was $692,000 compared to $195,000 for the same three months last year. This
increase in interest income was the result of interest earned on temporary,
short term investments utilizing funds from the Senior Notes.
Interest Expense - Non-affiliate. Interest expense for the three months
ended October 31, 1997 was $2.8 million compared to $178,000 for the same three
months last year. This increase was due to the issuance of the Senior Notes.
Income Tax Provision. The provision for income taxes for the three
months ended October 31, 1997 was $1.1 million, an increase from $758,000 for
the same three months last year. The increase in tax expense was due to an
increase in income before income taxes of $466,000 and a change in the effective
tax rate from 37% to 44% due to increased state income taxes and the
non-deductibility of goodwill from the ADI Acquisition.
12
<PAGE> 15
Six Months Ended October 31, 1997 Compared to the Six Months Ended October 31,
1996
Rental Income. Rental income for the six months ended October 31, 1997
was $31.3 million, an increase of 24% from $25.2 million for the same six months
last year. This increase in revenue was due to the introduction of additional
directional drilling equipment acquired with proceeds from the 1996 IPO and
increased demand for these products and services primarily in the United States
Gulf Coast region and the Gulf of Mexico which resulted in a $3.0 million
increase in rentals. In addition, revenue from the rental of drilling jars and
related products increased $1.5 million in the United States primarily due to a
24% increase in the average domestic rig count during the period compared to the
same period last year and $1.7 million internationally, primarily in Indonesia,
Australia and Saudi Arabia, as the result of increased drilling activity.
Sales of Products and Services. Sales of products and services for the
six months ended October 31, 1997 were $11.4 million, an increase of 31% from
$8.7 million for the same six months last year. This increase in revenue was
primarily the result of $1.3 million of ADI revenue being included in operating
results since June 20, 1997, an increase in tools lost-in-hole of $742,000 and
increased revenue from directional services of $1.1 million primarily in the
United States Gulf Coast Region, the Gulf of Mexico and Venezuela. This increase
in revenue was partially offset by a decrease in sales of mechanical jars of
$541,000.
Underbalanced Drilling Services Revenue. Underbalanced drilling
services revenue for the six months ended October 31, 1997 was $11.9 million
resulting from ADI revenue being included in operating results for the first
time.
Cost of Rentals. Cost of rentals for the six months ended October 31,
1997 was $21.8 million, an increase of 16% from $18.9 million for the same six
months last year. This increase in cost was due primarily to increased variable
costs, primarily tool repair costs and commissions, associated with increased
rental activity in regions where the Company had an existing operating and
administrative infrastructure. As a result, margins increased from 25% for the
six months ended October 31, 1996 to 30% for the six months ended October 31,
1997 due to the primarily fixed nature of the Company's cost base.
Cost of Products and Services. Cost of products and services for the
six months ended October 31, 1997 was $6.9 million, which was a $2.1 million
increase from the same six months last year, including a $633,000 increase due
to ADI being included in operating results for the first time. The margin on
sales of products and services for the six months ended October 31, 1997 was 40%
compared to 45% for the same six months last year. This decrease in the margin
was primarily due to decreased higher margin export sales of mechanical jars
combined with increased revenues from lower margin directional drilling
services.
Cost of Underbalanced Drilling Services. Cost of underbalanced drilling
services for the six months ended October 31, 1997 was $7.5 million resulting
from ADI being included in operating results for the first time.
13
<PAGE> 16
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended October 31, 1997 were $10.2 million, a 71%
increase from $6.0 million for the same six months last year. This increase was
primarily the result of increased compensation expense related to salary
increases and incentive compensation programs, costs related to Dailey's
acquisition program, amortization of costs related to the acquisition of ADI and
the inclusion of ADI in operating results for the first time. Cost savings from
the Mangement Reorganization partially offset this increase.
Reorganization Costs. Reorganization costs for the six months ended
October 31, 1997 were $2.5 million. In June 1997, a cost-reduction program was
implemented to flatten the corporate management structure and streamline
operations. The reorganization costs primarily consist of the cost of staff
reductions, severance settlements and various restructuring costs.
Non-cash Compensation. Non-cash compensation for the six months ended
October 31, 1997 was $539,000 which related to restricted stock that had been
granted to certain executive officers of the Company in connection with the 1996
IPO and the 1997 Plan.
Interest Income. Interest income for the six months ended October 31,
1997 was $814,000 compared to $207,000 for the same six months last year. This
increase in interest income was the result of interest earned on temporary,
short term investments utilizing funds from the Senior Notes.
Interest Expense - Non-affiliate. Interest expense for the six months
ended October 31, 1997 was $3.2 million compared to $380,000 for the same six
months last year. This increase was due to the issuance of the Senior Notes.
Income Tax Provision. The provision for income taxes for the six months
ended October 31, 1997 was $1.0 million, a decrease from $1.3 million of expense
for the same six months last year. The decrease in tax expense was due to a
decrease in income before income taxes of $1.3 million partially offset by a
change in the effective tax rate from 37% to 44% due to increased state income
taxes and the non-deductibility of goodwill from the ADI Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. Cash provided by operating activities was $845,000
during the six months ended October 31, 1997. Additional sources of cash
included net proceeds from the issuance of debt of $159.6 million, $1.5 million
from revenue-producing tools lost-in-hole, abandoned and sold, $704,000 from
stock options exercised and $607,000 proceeds from the sale of property and
equipment. Principal uses of cash for the six months were to fund acquisitions
(net of cash acquired) of $46.2 million, repay bank debt of $52.9 million,
purchase treasury stock of $813,000, financing costs of Senior Notes of $4.1
million and fund capital expenditures of $14.8 million. During the past several
years, working capital requirements have been funded through cash generated from
operations, credit facilities and asset sales.
Senior Notes. On August 19, 1997, the Company issued Senior Notes to
qualified
14
<PAGE> 17
institutional buyers and accredited investors in a private placement. The Senior
Notes were issued at a discount of 0.785%. The net proceeds from the issuance of
the Senior Notes of approximately $109.6 million were used to repay the $45.5
million outstanding under the Term Loan and Revolving Credit Line. A portion of
the proceeds were utilized to fund planned capital expenditures. The Company
expects to utilize the remaining proceeds to finance a substantial portion of
the proposed acquisition of DWS and DAMCO. The Senior Notes bear interest at
9.75%, payable semi-annually on February 15 and August 15 of each year,
commencing February 15, 1998. The Senior Notes mature August 15, 2007 but are
redeemable at the option of the Company on or after August 15, 2002. The Senior
Notes are unconditionally guaranteed on a senior unsecured basis by each of the
Company's domestic subsidiaries. The Senior Notes contain affirmative and
negative covenants customary in such private placements, including limitations
on dividends, distributions and other restricted payments and limitations on
additional indebtedness unless certain pro forma coverage ratios are met.
Revolving Credit Line. The Company currently does not have any
outstanding borrowings under its Revolving Credit Line. 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. The Revolving
Credit Line is collateralized by substantially all of the Company's and its
subsidiaries' assets. It contains restrictive covenants and events of defaults
customary in loan transactions of that type. The Company expects to borrow
approximately $4.5 million under the Revolving Credit Line to finance a portion
of the proposed acquisitions of DWS and DAMCO.
Capital Expenditures. Capital expenditures of approximately $14.8
million were made during the six months ended October 31, 1997. Of this amount,
$10.4 million was for downhole tools, primarily MWD and other directional
equipment, hydraulic drilling jars, hydraulic fishing jars and related
inventory. Capital expenditures for revenue producing tools during the next six
months are expected to be approximately $6.0 million. The Company believes it
has available resources through internally generated cash flow and availability
under the Revolving Credit Line to fund operations for at least the next 12
months. In addition, as part of its business strategy, the Company is continuing
to analyze potential acquisitions of complementary businesses and assets. The
Company expects to fund any future acquisitions utilizing a portion of its
availability under the Revolving Credit Line; however, depending upon the size
of any future acquisition, the Company may need additional financing to fund
such acquisitions.
Income Taxes. At October 31, 1997, the Company had foreign tax
carryforwards of approximately $1.9 million. These carryforwards are available
to offset future income of the Company, but will begin to expire in 1999.
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
15
<PAGE> 18
Company is required to adopt SFAS No. 128 for the period ending December 31,
1997. 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.
16
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
On August 19, 1997, the Company issued $115 million of
Senior Notes pursuant to a private placement pursuant to
Section 4(2) of the Securities Act by Jefferies & Company,
Inc., as initial purchaser to qualified institutional buyers
and accredited investors. The Senior Notes contain customary
affirmative and negative covenants, including limitations on
restrictive payments, including dividends and distributions
to the Company's stockholders. The Senior Notes were sold at
a discount of 0.785% with a discount to the initial purchaser
of 4%.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the stockholders of the
Company held on October 7, 1997, the Company's stockholders
voted in favor of (i) the election of two Class I directors
to the Company's board of directors for a three-year term to
expire at the 2000 meeting of stockholders, (ii) approval of
the Dailey Petroleum Services Corp. 1997 Long-Term Incentive
Plan (the "Plan") (iii) approval of the amendment to the
company's restated certificate of incorporation changing the
name of the Company to Dailey International Inc., and (iv)
ratification of Ernst & Young LLP as the Company's auditors
for the fiscal year ended December 31, 1997. The number of
votes for and withheld with respect to the election of
directors, and the number of votes for an against the number
of abstentions for and broker non-votes with respect to the
other three proposals is as follows:
<TABLE>
<CAPTION>
Withheld/ Broker Non-
Proposal For Against Abstain Votes
<S> <C> <C> <C> <C>
Class I Directors
William D. Sutton............ 37,855,169 316,431 --- ---
David T. Tighe............... 37,855,419 316,181 --- ---
Long-Term Incentive Plan............ 35,810,096 1,668,683 48,500 ---
Name Change......................... 38,170,804 396 400 ---
Approval of Auditors............... 38,171,100 500 --- ---
</TABLE>
17
<PAGE> 20
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
<S> <C>
**2.1 Asset Purchase Agreement dated effective November 30, 1997, among
Dailey International Inc., Directional Wireline Services, Inc., DAMCO Tong
Services, Inc. and DAMCO Services, Inc. and the Shareholders of Directional
wireline Services, Inc., DAMCO Tong Services, Inc. and DAMCO Services,
Inc. Pursuant to Item 601(b)(2) of Regulation S-K, schedules and similar
attachments to the Asset Purchase Agreement have not been filed with this
exhibit. The disclosure schedules and exhibits contain information relating
to the representations and warranties continued in the Asset Purchase
Agreement as well as forms of an escrow agreement, opinion and
employment agreement. The Company agrees to furnish supplementally any
omitted schedule to the Securities and Exchange Commission upon request.
*4.1 Indenture dated August 19, 1997, by and between the Company, the
Subsidiary Guarantors and the U.S. Trust Company of Texas, N.A. relating
to the Company's 9.75% Senior Notes Due 2007.
*4.2 Form of Note for the Company's Senior Notes Due 2007 (included in Exhibit
A to Exhibit 4.1).
*10.1 Registration Rights Agreement dated August 19, 1997 relating to the Senior
Notes.
**27.1 Financial Data Schedule.
* Filed with the Company's quarterly report on Form 10-Q for the three months
ended July 31, 1997.
** Filed herewith.
</TABLE>
(b) Reports on Form 8-K
None.
18
<PAGE> 21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dailey International Inc.
(Registrant)
Date: December 15, 1997 /s/ David T. Tighe
-------------------------
David T. Tighe
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant
19
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
<S> <C>
**2.1 Asset Purchase Agreement dated effective November 30, 1997, among
Dailey International Inc., Directional Wireline Services, Inc., DAMCO Tong
Services, Inc. and DAMCO Services, Inc. and the Shareholders of Directional
wireline Services, Inc., DAMCO Tong Services, Inc. and DAMCO Services,
Inc. Pursuant to Item 601(b)(2) of Regulation S-K, schedules and similar
attachments to the Asset Purchase Agreement have not been filed with this
exhibit. The disclosure schedules and exhibits contain information relating
to the representations and warranties continued in the Asset Purchase
Agreement as well as forms of an escrow agreement, opinion and
employment agreement. The Company agrees to furnish supplementally any
omitted schedules to the Securities and Exchange Commission upon request.
*4.1 Indenture dated August 19, 1997, by and between the Company, the
Subsidiary Guarantors and the U.S. Trust Company of Texas, N.A. relating
to the Company's 9.75% Senior Notes Due 2007.
*4.2 Form of Note for the Company's Senior Notes Due 2007 (included in Exhibit
A to Exhibit 4.1).
*10.1 Registration Rights Agreement dated August 19, 1997 relating to the Senior
Notes.
**27.1 Financial Data Schedule.
* Filed with the Company's quarterly report on Form 10-Q for the three months
ended July 31, 1997.
** Filed herewith.
</TABLE>
<PAGE> 1
ASSET PURCHASE AGREEMENT
among
DAILEY INTERNATIONAL INC.
DIRECTIONAL WIRELINE SERVICES, INC.,
DAMCO SERVICES, INC. AND
DAMCO TONG SERVICES, INC.
and
THE SHAREHOLDERS OF
DIRECTIONAL WIRELINE SERVICES, INC.,
DAMCO SERVICES, INC. AND
DAMCO TONG SERVICES, INC.
DATED EFFECTIVE AS OF: November 30, 1997
0570127 (Damco Purchase Agreement: Execution Copy)
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
1.1 Definitions.............................................. 1
1.2 Agreement to Purchase and Sell........................... 8
1.3 Purchase Price........................................... 12
1.4 Assumption of Liabilities................................ 13
1.5 Instruments of Transfer; Further Assurances.............. 15
1.6 Value Assigned to the Assets............................. 15
1.7 Closing.................................................. 15
1.8 Closing Balance Sheet.................................... 17
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
2.1 Organization and Good Standing........................... 19
2.2 Capitalization of Subsidiary............................. 20
2.3 Authority; No Conflict................................... 21
2.4 Financial Statements..................................... 22
2.5 Inventory................................................ 23
2.6 Receivables.............................................. 23
2.7 Tangible Property........................................ 23
2.8 Books and Records........................................ 24
2.9 Real Property............................................ 24
2.10 Company Products and Inventory........................... 25
2.11 Taxes.................................................... 25
2.12 Employee Benefits........................................ 28
2.13 Compliance with Certain Legal Requirements; Governmental
Authorizations........................................... 32
2.14 Litigation............................................... 32
2.15 Absence of Certain Changes or Effects.................... 33
2.16 Contracts; Leases; Absence of Certain Practices.......... 33
2.17 Insurance................................................ 36
2.18 Environmental Matters.................................... 37
2.19 Brokers or Finders....................................... 38
2.20 Labor Matters............................................ 39
2.21 Intellectual Property.................................... 39
2.22 Effect of Transaction.................................... 40
2.23 No Material Omissions.................................... 40
2.24 Suppliers................................................ 40
i
<PAGE> 3
Page No.
2.25 Customers................................................ 40
2.26 Performance Bonds; Letters of Credit..................... 40
2.27 Solvency................................................. 40
2.28 Authority................................................ 41
2.29 No Conflict With Laws.................................... 41
2.30 No Brokers............................................... 41
2.31 Foreign Person........................................... 42
2.32 No Assets................................................ 42
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization and Good Standing........................... 42
3.2 Authority; No Conflict................................... 42
3.3 Certain Proceedings...................................... 43
3.4 Brokers or Finders....................................... 43
3.5 Financial Capacity....................................... 43
ARTICLE IV
COVENANTS OF THE SELLERS
4.1 Access................................................... 43
4.2 Operation of the Business................................ 43
4.3 Conduct of Business of the Companies..................... 44
4.4 Third Party Consents; FTC Notification................... 46
4.5 Best Efforts............................................. 46
4.6 Change of Companies' Name................................ 46
4.7 Vacate Real Property..................................... 47
4.8 Title Policy and Surveys................................. 47
4.9 No Negotiation........................................... 47
4.10 Phase I Environmental Studies............................ 48
ARTICLE V
OTHER COVENANTS
5.1 Further Actions.......................................... 48
5.2 Transfer Taxes........................................... 49
5.3 Public Announcements..................................... 50
5.4 Non-competition.......................................... 50
5.5 Purchase Price Allocation................................ 52
ii
<PAGE> 4
Page No.
5.6 Limitation on Assignments................................ 52
5.7 Stockholder Approval; Voting; Restriction on Disposition. 53
ARTICLE VI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER TO CLOSE
6.1 Accuracy of Representations.............................. 54
6.2 Performance.............................................. 54
6.3 No Proceedings........................................... 54
6.4 No Prohibition........................................... 54
6.5 No Material Adverse Change............................... 55
6.6 Employment Agreements.................................... 55
6.7 Closing Documents........................................ 55
6.8 Non-Foreign Person Affidavit............................. 55
6.9 FTC Notification......................................... 55
6.10 Other Agreements......................................... 55
6.11 Consent Required Contracts............................... 55
6.12 Title Policy............................................. 55
6.13 Environmental Review Report.............................. 55
6.14 Audited Financial Statements............................. 56
ARTICLE VII
CONDITIONS PRECEDENT TO THE
SELLERS' OBLIGATION TO CLOSE
7.1 Accuracy of representations.............................. 56
7.2 Performance.............................................. 56
7.3 No Prohibition........................................... 56
7.4 Closing Documents........................................ 56
7.5 Other Agreements......................................... 56
7.6 FTC Notification......................................... 57
7.7 Purchase Price........................................... 57
7.8 No Proceedings........................................... 57
ARTICLE VIII
TERMINATION
8.1 Termination Events....................................... 57
8.2 Effect of Termination.................................... 58
iii
<PAGE> 5
ARTICLE IX
INDEMNIFICATION; REMEDIES
9.1 Survival................................................. 58
9.2 Indemnification and Reimbursement by the Sellers......... 59
9.3 Indemnification and Reimbursement by Buyer............... 60
9.4 ......................................................... 61
9.5 Procedure for Indemnification; Deferred Consideration
Set-Off.................................................. 61
9.6 Escrow................................................... 63
9.7 Appointment of Representatives........................... 63
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses................................................. 64
10.2 Notices.................................................. 64
10.3 Jurisdiction; Service of Process......................... 65
10.4 Further Assurances....................................... 65
10.5 Waiver................................................... 65
10.6 Entire Agreement and Modification........................ 65
10.7 Assignments, Successors, and No Third Party Rights....... 66
10.8 Severability............................................. 66
10.9 Section Headings; Construction........................... 66
10.10 Governing Law............................................ 66
10.11 Counterparts............................................. 66
10.12 Construction............................................. 66
iv
<PAGE> 6
EXHIBITS
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Intentionally Omitted
Exhibit C -- Intentionally Omitted
Exhibit D -- Intentionally Omitted
Exhibit E -- Form of Employment Agreement
Exhibit F -- Form of Opinion of Louisiana Counsel
v
<PAGE> 7
SCHEDULES
Schedule 1.2(b)(i) -- Owned Property
Schedule 1.2(b)(ii) -- Fixtures and Improvements
Schedule 1.2(b)(iii) -- Realty Rights
Schedule 1.2(b)(iv) -- Vehicles
Schedule 1.2(b)(v) -- Equipment
Schedule 1.2(b)(vi) -- Permits
Schedule 1.2(b)(vii) -- Intangible Assets
Schedule 1.2(b)(ix) -- Scheduled Contracts
Schedule 1.2(c) -- Excluded Assets
Schedule 1.2(d) -- Scheduled Leases
Schedule 2.1(a) -- Jurisdictions where Qualified to do
Business
Schedule 2.1(b) -- Partnership, Joint Venture and
Acquisition Agreements
Schedule 2.2(a) -- Capitalization of Subsidiary
Schedule 2.3(b) -- Conflicts, Breaches, Defaults, etc.
Schedule 2.4(a) -- Financial Statements
Schedule 2.4(b) -- Non-GAAP Financial Items
Schedule 2.5 -- Title to Inventory
Schedule 2.7 -- Tangible Property
Schedule 2.10 -- Company Products
Schedule 2.11(a) -- Taxes and Tax Returns Not Timely Paid
or Filed
Schedule 2.11(d) -- Other Tax Matters
vi
<PAGE> 8
Schedule 2.11(e) -- Jurisdictions Where Tax Returns are
Filed
Schedule 2.12(a) -- Employee Benefits
Schedule 2.12(f) -- Post-Employment Obligations
Schedule 2.12(g) -- Effect of Transaction
Schedule 2.13(a) -- Exceptions to Compliance with Legal
Requirements
Schedule 2.13(b) -- Permits Requiring Consents
Schedule 2.14 -- Litigation
Schedule 2.15 -- Changes or Effects since December 31,
1996
Schedule 2.16(a) -- Validity of Scheduled Contracts
Schedule 2.16(c) -- Closing Date Retired Debt
Schedule 2.17 -- Insurance
Schedule 2.18 -- Environmental Matters
Schedule 2.20 -- Labor Matters
Schedule 2.21(a) -- Interference with Intellectual Property
Schedule 2.22 -- Effect of Transaction
Schedule 2.24 -- Supplier Matters
Schedule 2.25 -- Customer Matters
Schedule 3.2 -- Buyer's Authority, No Conflict
Schedule 5.6 -- Consent Required Contracts
Schedule 6.6 -- Persons Delivering Employment and Non-
Competition Agreements
Schedule 10.2 -- Addresses for Stockholder Notices
vii
<PAGE> 9
ASSET PURCHASE AGREEMENT, dated effective as of November 30, 1997 (this
"Agreement"), by and among DAILEY INTERNATIONAL INC., a Delaware corporation
(the "Buyer"), Directional Wireline Services, Inc., a Louisiana corporation
("DWS"), DAMCO Services, Inc., a Louisiana corporation ("DSI"), and DAMCO Tong
Services, Inc., a Louisiana corporation ("DTSI" and together with DWS and DSI,
the "Companies" and each a "Company") and the shareholders of the Companies
signatory hereto (the "Stockholders", and together with the Companies, the
"Sellers").
W I T N E S S E T H
WHEREAS, the Companies desire to sell to Buyer their respective businesses
as a going concern and along therewith the assets of the Companies that are used
or useful in connection therewith (collectively, the "Business"), and Buyer
desires to purchase the Business, upon the terms and conditions hereinafter set
forth; and
WHEREAS, in connection with the transactions contemplated hereby (the
"Contemplated Transactions"), Buyer desires to protect the goodwill of the
Business to be purchased pursuant hereto by requiring each of the Sellers to
enter into the non-competition provisions hereof that are ancillary to this
Agreement;
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements contained herein and other
good, valuable and sufficient consideration, the receipt and sufficiency of
which are hereby acknowledged, each of the parties hereto, intending to be
legally bound, hereby agrees as follows:
ARTICLE I
1.1 Definitions. Unless otherwise stated in this Agreement, the following
terms shall have the following meanings (the following definitions to be equally
applicable to both the singular and plural forms of any of the terms herein
defined):
"Accounts" shall have the meaning set forth in Section 1.2(b)(xi).
"Additional WC Amount" shall have the meaning set forth in Section 1.8(d).
"Affiliate": Any Person that, directly or indirectly, controls, or is
controlled by or under common control with, another Person. For the purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with", as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
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"Arbitration Act" shall have the meaning set forth in Section 9.5(b).
"Asset" shall have the meaning set forth in Section 1.2.
"Assumed Obligations": The duties, obligations, debts and liabilities of
the Companies assumed by Buyer under Section 1.4.
"Assumption Agreement" shall have the meaning set forth in Section 1.5.
"Balance Sheet" shall have the meaning set forth in Section 2.4(a).
"Benefit Plan": Each plan, program, policy, payroll practice, contract,
agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Sections 3(37) or 4001 (a)(3) of ERISA.
"Borrowing" shall have the meaning set forth in Section 5.1(c).
"Buyer Indemnitee" shall have the meaning set forth in Section 9.2(a).
"Cash Consideration" shall have the meaning set forth in Section 1.3.
"CERCLA": The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq.
"Claim" shall have the meaning set forth in Section 9.5(b).
"Closing" shall have the meaning set forth in Section 1.7(a)
"Closing Balance Sheet" shall have the meaning set forth in Section
1.8(a).
"Closing Date" shall have the meaning set forth in Section 1.7(a).
"Closing Date Retired Debt" shall have the meaning set forth in Section
5.1(c).
"Code": The Internal Revenue Code of 1986, as amended, and any
regulations promulgated or proposed thereunder.
"Company Auditors" shall have the meaning set forth in Section 5.1(d).
"Company Benefit Plan": Each Benefit Plan (other than an Employee
Agreement which is now or previously has been sponsored, maintained contributed
to, or required to be contributed to, or with respect to which any withdrawal
liability (within the meaning of Section 4201 of ERISA) has been incurred, by
the Companies, the
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Subsidiary or any ERISA Affiliates for the benefit of any Employee (as defined
below), and pursuant to which the Companies, the Subsidiary or any ERISA
Affiliates have or may have any liability, contingent or otherwise.
"Company Product" shall have the meaning set forth in Section 2.10.
"Company Property" shall have the meaning set forth in Section 2.9.
"Consent Required Contract" shall have the meaning set forth in Section
5.6.
"Contemplated Transactions" has the meaning set forth in the preamble to
this Agreement.
"Contract" shall have the meaning set forth in Section 2.16(a).
"Customer Data": All of the Companies' and the Subsidiary's customer
lists, sales records and other customer data (including credit data) relating
to the Business.
"Damages" shall have the meaning set forth in Section 9.2(c).
"Debt Reduction Amount" shall have the meaning set forth in Section
1.8(d).
"Deeds": The special warranty deeds, in form and substance satisfactory
to Buyer, by which the Companies shall transfer title to the Owned Properties
to Buyer.
"Department": The U.S. Department of Labor.
"EBITDA": shall mean earnings before interest, taxes, depreciation and
amortization, excluding all revenues and other income relating to transactions
between any Company and any Affiliate of the Companies.
"Employee": Each current, former, or retired employee, officer,
consultant, independent contractor, agent or director of the Companies or the
Subsidiary.
"Employee Agreement": Each management, employment, severance, consulting,
non-compete, confidentiality, or similar agreement or contract between the
Companies or the Subsidiary and any Employee pursuant to which the Companies or
the Subsidiary has or may have any liability, contingent or otherwise.
"Environmental Conditions": Any (a) course of conduct or operating
practice that existed or commenced prior to the Closing Date with respect to
matters governed by or regulated under Environmental Laws and (b) pollution,
contamination, damage or injury caused by, related to, or arising from or in
connection with the generation, use, handling, treatment, storage, disposal,
discharge, emission or release of Hazardous Substances prior to the Closing
Date.
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"Environmental Laws": All federal, state, local or municipal laws, rules,
regulations, statutes, ordinances or orders, and any judicial interpretations
thereof, relating to (a) the prevention or control of pollution or protection of
the environment, (b) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal, discharge, release, emission or transportation or
(c) exposure to Hazardous Substances. "Environmental Laws" shall include, but
not be limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.ss. 9601 et seq. ("CERCLA"), the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Toxic
Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq., the Clean Air Act,
42 U.S.C. ss.ss. 7401 et seq., the Clean Water Act (Federal Water Pollution
Control Act), 33 U.S.C. ss.ss. 1251 et seq., the Safe Drinking Water Act, 42
U.S.C. ss.ss. 300f et seq., the Occupational Safety and Health Act 29 U.S.C.
ss.ss. 641, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
ss.ss. 1801, et seq.
"Environmental Liabilities": Any and all Damages (including any remedial,
removal, response, abatement, clean-up, investigative and/or monitoring costs
and associated legal costs) incurred or imposed (a) pursuant to any agreement,
order, notice of responsibility, directive (including directives embodied in
Environmental Laws), injunctions, judgments or similar documents (including
settlements) arising out of, in connection with, or under Environmental Laws,
(b) pursuant to any claim by a Governmental Body or any other person for
personal injury, property damage, damage to natural resources, remediation, or
payment or reimbursement of response costs incurred or expended by such
Governmental Body or other person pursuant to common law or statute and related
to the use or release of Hazardous Substances, or (c) as a result of
Environmental Conditions.
"Environmental Permits": Any permit, license, approval, registration,
identification number or other authorization required by any applicable
Environmental Law.
"Equipment" shall have the meaning set forth in Section 1.2(b)(v).
"ERISA": The Employee Retirement Income Security Act of 1974, as amended,
and any regulations promulgated or proposed thereunder.
"ERISA Affiliate": Each business or entity which is a member of a
"controlled group of corporations," under "common control" or an "affiliated
service group" with the Companies within the meaning of Sections 414(b), (c) or
(m) of the Code, or required to be aggregated with the Companies under Section
414(o) of the Code, or is under "common control" with the Companies (within the
meaning of Section 4001(a)(14) of ERISA.
"Escrow Agent": U.S. Trust Companies of Texas, N.A., or such other party
mutually acceptable to the Buyer and the Sellers, acting as escrow agent under
the Escrow Agreement.
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"Escrow Agreement": The Escrow Agreement in substantially the form
attached hereto as Exhibit A to be entered into on the Closing Date among Buyer,
Companies, the Representatives and the Escrow Agent, with such changes thereto
as may be reasonably requested by the Escrow Agent and agreed to by Buyer and
the Sellers.
"Escrow Amount" shall have the meaning set forth in Section 1.3.
"Excess Capital Expenditures" means the dollar amount of those capital
items specifically approved by Buyer in writing and purchased by the Companies
during the period beginning September 1, 1997 and ending on the Closing Date.
"Excess Debt Amount" shall have the meaning set forth in Section 1.8(d).
"Excluded Assets" shall have the meaning set forth in Section 1.2(c).
"Final Closing Balance Sheet" shall have the meaning set forth in Section
1.8(c).
"Financial Statements" shall have the meaning set forth in Section 2.4(a).
"Fixtures and Improvements" shall have the meaning set forth in
Section 1.2(b)(ii).
"FTC" shall have the meaning set forth in Section 4.4.
"GAAP" shall have the meaning set forth in Section 1.8(a).
"General Conveyance, Transfer and Assignment" shall have the meaning set
forth in Section 1.5.
"Goodwill" shall have the meaning set forth in Section 1.2(b)(viii).
"Governmental Body" shall have the meaning set forth in Section
2.3(b)(ii).
"Hazardous Substances": Any (a) petroleum or petroleum products, (b)
substance included within the definition of "hazardous substances" under ss.
101(14) of CERCLA and (c) any other chemical, substance or waste that is
regulated by, or may form the basis of liability under, any Environmental Laws.
"Income Taxes" shall have the meaning set forth in Section 2.11(d)(v).
"Indemnified Party" shall have the meaning set forth in Section 9.5(a).
"Indemnifying Party" shall have the meaning set forth in Section 9.5(a).
"Intangible Assets" shall have the meaning set forth in Section
1.2(b)(vii).
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"Intellectual Property": All patents (including all reissues, divisions,
continuations, and extensions thereof), patent applications, trademarks,
servicemarks, trade names, all other names, logos and slogans embodying
business, product or service goodwill and all computer software (including data
and related documentation).
"Inventories" shall have the meaning set forth in Section 1.2(b)(x).
"IRS": The Internal Revenue Service.
"Joint Firm" shall have the meaning set forth in Section 1.8(b).
"Justice Department" shall have the meaning set forth in Section 4.4.
"Known or "Knowledge": Whenever a statement regarding the existence or
absence of facts in this Agreement is qualified by a phrase such as "to such
Person's knowledge" or "known to such Person," it is intended by the parties
that the only information to be attributed to such Person is information
actually or constructively known to (a) the Person in the case of an individual
or (b) in the case of a corporation or other entity an officer or employee as a
result of his employment by such corporation or other entity. A Person has
"constructive knowledge" of those matters which the individual involved could
reasonably be expected to have as a result of undertaking an investigation of
such a scope and extent as a reasonably prudent man would undertake concerning
the particular subject matter.
"Leased Property and Leased Properties" shall have the meaning set forth
in Section 2.9.
"Legal Requirement" shall have the meaning set forth in Section
2.3(b)(ii).
"Lien": All mortgages, deeds of trust, liens, security interests, pledges,
leases, conditional sale contracts, claims, rights of first refusal, options,
charges, liabilities, obligations, agreements, privileges, liberties, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances of
any kind.
"Material Adverse Change" shall have the meaning set forth in Section
2.15.
"Material Adverse Effect": Any (a) change, development or effect
(individually or in the aggregate) in the general affairs, management, business,
results of operations, condition (financial or otherwise), assets, liabilities
or prospects (whether or not the result thereof would be covered by insurance)
that would be material and adverse to the Business, after giving effect to the
Contemplated Transactions, or (b) fact or development that would (individually
or in the aggregate), after giving effect to the Contemplated Transactions,
impair any Seller's ability or obligations to perform on a timely basis any
material obligations it has under this Agreement.
"Multiemployer Plan": Each Company Benefit Plan which is a
"multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3)
of ERISA.
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"Names" shall have the meaning set forth in Section 1.2(b)(xvii).
"Operative Documents": This Agreement and all other agreements,
instruments, documents, and certificates executed and delivered by or on
behalf of Sellers or Buyer at or before the Closing pursuant to this Agreement.
"Order" shall have the meaning set forth in Section 2.3(b)(ii).
"Owned Property and Owned Properties" shall have the meaning set forth in
Section 2.9.
"Patent Assignment" shall have the meaning set forth in Section 1.5.
"PBGC": The Pension Benefit Guaranty Corporation.
"Pension Plan": Each Company Benefit Plan (other than a Multiemployer
Plan) which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA.
"Permit": All permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of-way, franchises, privileges,
immunities, consents, waivers, grants, ordinances, licenses and other rights of
every kind and character (a) under any (1) Legal Requirement, (2) Order or (3)
contract with any Governmental Body or (b) granted by any Governmental Body.
"Permitted Liens" shall have the meaning set forth in Section 2.7(a).
"Person": An individual, partnership, joint venture, corporation, bank,
trust, unincorporated organization or a Governmental Body.
"Phase I Surveys" shall have the meaning set forth in Section 4.10.
"Purchase Price" shall have the meaning set forth in Section 1.3.
"Real Property": The Owned Property and the Fixtures and Improvements and
Realty Rights pertaining thereto.
"Realty Rights" shall have the meaning set forth in Section 1.2(b)(iii).
"Records" shall have the meaning set forth in Section 1.2(b)(xii).
"Representatives" shall have the meaning set forth in Section 9.7.
"Scheduled Contracts" shall have the meaning set forth in Section
1.2(b)(ix).
"Scheduled Leases" shall have the meaning set forth in Section 1.2(d).
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"Straddle Period" shall have the meaning set forth in Section 9.2(a)(iii).
"Subsidiary" shall mean DWS Nigeria Ltd., a Nigerian corporation.
"Supplier Data": All of Sellers' supplier lists and other supplier data
relating to the purchase of raw materials, utilities and other supplies used
in connection with the Business.
"Tangible Assets" shall have the meaning set forth in Section 2.7(a).
"Taxes" shall have the meaning set forth in Section 2.11(a)(ii)
"Tax Returns" shall have the meaning set forth in Section 2.11(a)(i).
"Third Party Claim" shall have the meaning set forth in Section 9.5(b).
"Trade Secrets" shall have the meaning set forth in Section 2.21(b).
"Vehicles" shall have the meaning set forth in Section 1.2(b)(iv).
"WC Benchmark Amount" shall have the meaning set forth in Section 1.8(d).
"WC Deficiency Amount" shall have the meaning set forth in Section 1.8(d).
"Welfare Plan": each Company Benefit Plan which is an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA.
"Working Capital" " shall have the meaning set forth in Section 1.8(d).
1.2 Agreement to Purchase and Sell.
(a) On and subject to the terms and conditions of this Agreement,
each of the Companies will, and the Stockholders will cause each of the
Companies to, sell, convey, transfer, assign and deliver to Buyer, and Buyer
will purchase from the Companies, the assets, rights, franchises and properties
described in Section 1.2(b) (all such assets, rights, franchises and properties
being herein collectively referred to as the "Assets" and individually referred
to as an "Asset") free and clear of all Liens other than Permitted Liens;
provided however, that the Assets shall not include the Excluded Assets.
(b) Subject to Section 1.2(c), the Assets shall consist of all
assets of each of the Companies on the Closing Date described in the following
clauses (i) through (xix):
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(i) Owned Property. The parcels of Owned Property relating to
the Business or the other Assets, without limitation including those
described in Schedule 1.2(b)(i).
(ii) Fixtures and Improvements. All estates, rights, titles
and interests in and to all plants, factories, warehouses, storage
facilities, laboratories, buildings, works, structures, fixtures,
landings, construction in progress, improvements, betterments,
installations and additions constructed, erected or located on or attached
or affixed to the Owned Property, including, without limitation, those on
Schedule 1.2(b)(ii) (the "Fixtures and Improvements").
(iii) Realty Rights. All estates, rights, titles and interests
in and to all tenements, hereditaments, easements, rights-of-way, rights,
licenses, patents, rights of ingress and egress, reversionary interests,
privileges and appurtenances belonging, pertaining or relating to the
Owned Property, including, without limitation, the easements,
rights-of-way and other interests described in Schedule 1.2(b)(iii), any
and all rights to the present or future use of wastewater, wastewater
capacity, drainage, water or other utility facilities relating to the
Owned Property, including without limitation, all reservations of or
commitments or letters covering any such use in the future, whether now
owned or hereafter acquired, and the entire right, title and interest of
each of the Companies, if any, in, to and under all streets, ways, alleys,
passages, strips, gores, pipes, pipelines, sewers, sewer rights, ditches,
waters, water courses, water rights and powers, air rights, railroad
sidings, minerals, mineral rights and mineral interests adjoining, upon,
above, in, under or pertaining to the Owned Property, all options and
rights to purchase or otherwise acquire real property that is adjacent to
or nearby the Owned Property, and all claims or demands whatsoever of each
of the Companies, either in law or in equity, with respect to the Owned
Property, including, without limitation, any unpaid awards to be made
relating thereto, including any unpaid awards or damages payable by reason
of damage thereto or by reason of a widening of any adjoining streets or
roads or a changing of the grade with respect to same (the "Realty
Rights").
(iv) Vehicles. All the trucks, trailers and other certificated
vehicles relating to the Business, including without limitation those
described in Schedule 1.2(b)(iv) (the "Vehicles").
(v) Equipment. Each of the Companies' furniture, equipment,
machinery, apparatus, tools, dies, appliances, vehicles, implements, spare
parts, supplies and all other tangible personal property of every kind and
description (other than the Vehicles and the Inventories) located either
on the Owned Property or elsewhere insofar as any of the foregoing relates
to the Business (the "Equipment"). The
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Equipment includes, without limitation, all of the items listed in
Schedule 1.2(b)(v).
(vi) Permits. All right, title and interest of each of the
Companies in, to and under all Permits relating to the Business or all or
any of the Assets, including, without limitation, those listed in Schedule
1.2(b)(vi).
(vii) Intangible Assets. All right, title and interest of each
of the Companies in, to and under all patents, trademarks, technology,
know-how, data, copyrights, tradenames, servicemarks, licenses, covenants
by others not to compete, rights and privileges and all other Intellectual
Property used in the conduct of the Business and the right to recover for
infringement thereon and all goodwill associated with the Business in
connection with which the marks are used (the "Intangible Assets"). The
Intangible Assets include, without limitation, all of the items listed in
Schedule 1.2(b)(vii).
(viii) Goodwill. The goodwill and going concern value of the
Business (the "Goodwill").
(ix) Scheduled Contracts. All right, title and interest of
each of the Companies in, to and under the Contracts, agreements,
arrangements and commitments, written or oral, including, without
limitation, those described in Schedule 1.2(b)(ix) (the "Scheduled
Contracts") and all rights (including rights of refund and offset),
privileges, deposits, claims, causes of action and options relating or
pertaining to the Scheduled Contracts or any thereof.
(x) Inventories. Each of the Companies' inventories located
either at the Company Property or elsewhere insofar as any of the
foregoing relates to the Business, including, without limitation, finished
goods, work-in-progress, raw materials, supply inventories, and other
inventories (the "Inventories").
(xi) Accounts. All accounts receivable of each of the
Companies and all other rights of each of the Companies to payment for
goods sold or leased or for services rendered, including without
limitation those which are not evidenced by instruments or chattel paper,
whether or not they have been earned by performance or have been
written-off or reserved against as a bad debt or doubtful account in the
Financial Statements; together with all instruments and all documents of
title representing any of the foregoing, all rights in any merchandise or
goods which any of the same represent, and all rights, title, security and
guaranties in favor of each of the Companies with respect to any of the
foregoing, including, without limitation, any right of stoppage in transit
(the "Accounts").
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(xii) Books and Records. Each of the Companies' books,
records, papers and instruments of whatever nature and wherever located
that relate to the Business or the Assets or which are required or
necessary in order for Buyer to conduct the Business from and after the
Closing Date in the manner in which it is presently being conducted,
including, without limitation, blueprints, specifications, plats, maps,
surveys, building and machinery diagrams, accounting and financial
records, maintenance and production records, personnel and labor relations
records, environmental records and reports, sales and property Tax records
and returns, sales records, the Customer Data and the Supplier Data, but
excluding income Tax records and returns and corporate minute book and
stock records (the "Records").
(xiii) Prepaid Expenses and Current Assets. All right, title
and interest of each of the Companies in and to all prepaid rentals, other
prepaid expenses, bonds, deposits and financial assurance requirements,
and other current assets relating to any of the Assets or the Business,
including, without limitation, all prepaid expenses of the nature
described in the Final Closing Balance Sheet.
(xiv) Insurance Claims All insurance claims of any of the
Companies relating to all or any part of the Assets and, to the extent
transferable, the benefit of and the right to enforce the covenants and
warranties, if any, that each of the Companies is entitled to enforce with
respect to the Assets against its predecessors in title to the Assets.
(xv) Computers. All right, title and interest of each of the
Companies in computer equipment and hardware, including, without
limitation, all central processing units, terminals, disk drives, tape
drives, electronic memory units, printers, keyboards, screens, peripherals
(and other input/output devices), modems and other communication
controllers, and any and all parts and appurtenances thereto, together
with all intellectual property used by each of the Companies in the
operation of such computer equipment and hardware, including without
limitation, all software, each of the Companies' rights under any licenses
related to such use, at any time, of such computer equipment, hardware or
software, and all leases pursuant to which each of the Companies leases
any computer equipment, hardware or software, in all cases insofar and
only insofar as any of the foregoing relates to the Business.
(xvi) Stock. All of the outstanding capital stock of the
Subsidiary.
(xvii) Names. The name "Directional Wireline Services Inc.",
"DAMCO Services, Inc." and "DAMCO Tong Services, Inc." (the "Names").
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(xviii) Other Intangibles. All right, title and interest of
each of the Companies in, to and under all rights, privileges, claims,
causes of action, and options relating or pertaining to the Business or
the foregoing Assets.
(xix) Other Property. All other or additional privileges,
rights, interests, properties and assets of each of the Companies of every
kind and description and wherever located that are used or intended for
use in connection with, or that are necessary to the continued conduct of,
the Business as presently being conducted.
(c) The Assets shall not include any of the following (collectively,
the "Excluded Assets"):
(i) Cash and Bank Accounts. The bank accounts of each of the
Companies (including all cash on deposit in such accounts and uncleared
deposits in such accounts), the petty cash of each of the Companies, all
temporary cash investments and instruments representing same (including
without limitation marketable securities), and all other cash and cash
equivalents of each of the Companies.
(ii) Scheduled Excluded Assets. Those assets set forth on
Schedule 1.2(c).
(iii) Receivables from Affiliates. All notes and accounts
receivable from Affiliates of the Companies.
(d) Each of the Companies will assign to Buyer, and Buyer will
assume, perform and discharge all of the liabilities, duties and obligations of
each of the Companies that arise after the Closing Date under all leases
identified in Schedule 1.2(d) (the "Scheduled Leases") to the extent such leases
are assignable to Buyer, and in the event any such Scheduled Leases are not
assignable, the provisions of Section 5.6 shall govern.
1.3 Purchase Price. In reliance upon the representations and warranties
and subject to the terms and conditions of this Agreement, the consideration to
be paid by Buyer for the Assets shall be (i) the payment by Buyer to the
Companies an aggregate of $55,000,000.00 (the "Cash Consideration"), subject to
adjustment as set forth in Section 1.8 below, and (ii) $6,000,000.00 (the
"Escrow Amount", and together with the Cash Consideration, the "Purchase Price")
to be placed in escrow on behalf of the Companies with the Escrow Agent,
pursuant to the Escrow Agreement.
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1.4 Assumption of Liabilities.
(a) The sole liabilities assumed by Buyer hereunder are:
(i) the obligations of the Companies to pay the principal and
accrued interest on the indebtedness reflected on the Final Closing
Balance Sheet, the long-term portion of which shall not exceed $300,000;
(ii) the rights and obligations of the Companies to perform
(i) the Scheduled Contracts specifically set forth in Schedule 1.2(b)(ix)
to the extent the Scheduled Contracts have not been performed at the
Closing Date and are not in default and (ii) the Scheduled Leases to the
extent the Scheduled Leases remain in effect and are not in default at the
Closing Date;
(iii) all trade payables and all other liabilities incurred by
the Companies in the ordinary course of the Business accrued as current
liabilities on the Final Closing Balance Sheet; and
(iv) all liabilities for COBRA and under the WARN Act for
termination of the Companies' or the Subsidiary's employees by Buyer on or
after the Closing Date.
(b) Except as otherwise provided in Section 1.4(a), Buyer does not
assume or agree to pay, perform or discharge, and shall not be responsible for,
any other liabilities or obligations of any of the Sellers, whether accrued,
absolute, contingent or otherwise, including without limitation liabilities or
obligations based on, arising out of or in connection with:
(i) Defective performance of any Scheduled Contract by any of
the Sellers or any express or implied warranty with respect to such
performance or any default by any of the Sellers under any Scheduled Lease
on or prior to the Closing Date;
(ii) Any Taxes which are attributable or relating to the
Assets, the Business or the Contemplated Transactions for any periods or
portions thereof ending on or before the Closing Date, other than as set
forth in Section 5.2 and those Taxes accrued on the Final Closing Balance
Sheet (collectively, "Tax Obligations");
(iii) Any lease obligations or indebtedness of any of the
Sellers;
(iv) Any claims by any director, officer, employee or
shareholder of any of the Sellers relating to the Contemplated
Transactions, this Agreement or its performance or consummation, or any
claims by any of them relating to or arising out of (i) their employment
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(including without limitation any modification or termination thereof) by
any of the Sellers, (ii) any employment contract or (iii) any pension or
other benefit liabilities of any of the Sellers;
(v) Any claims or conditions arising under or relating to
Environmental Laws or other Legal Requirements attributable or relating to
the Assets (including, without limitation, the operation thereof) or the
Business prior to the Closing;
(vi) Any unlicensed or other unauthorized use by any of the
Sellers of any patented or unpatented invention, trade secret, copyright,
trademark or other intellectual property right;
(vii) Any dividend or other distribution declared or otherwise
payable by any of the Sellers;
(viii) Any note, account payable or other obligation to any
Seller or any Affiliate thereof.
(ix) Any obligation or liability, including indemnification,
relating to the ownership, operation or maintenance of the Assets prior to
Closing to the extent such obligation or liability is not accrued as a
current liability on the Final Closing Balance Sheet;
(x) Any liability or obligation of the Sellers or any of their
Affiliates under any note, bond or other instrument secured by the Assets;
(xi) Any liability or obligation of the Sellers or any of
their Affiliates in respect of any express or implied representation,
warranty, agreement or guaranty made (or claimed to have been made) by the
Sellers or any of their Affiliates or imposed or asserted to be imposed by
operation of law (except obligations or liabilities imposed on Buyer by
operation of law after the Closing);
(xii) Any statutory liens other than Permitted Liens accrued
or existing at the time of Closing on the Closing Date against the Assets;
(xiii) Except as set forth on Schedule 2.12(a) and accrued as
a current liability on the Final Closing Balance Sheet, any liability
resulting from or relating to the employment relationship between any
Seller or its Affiliates and any of their present or former employees or
the termination of any such employment relationship with any Seller or any
of its Affiliates, including, without limitation, accrued severance pay
and other similar benefits, if any, and any claim filed on or prior to the
Closing Date or which may thereafter be filed by or on behalf of any
employee or former employee of Seller or its Affiliates relating to the
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employment or termination of employment of any such employee by any Seller
or its Affiliates, including, but not limited to, any claim for wrongful
discharge, breach of contract, unfair labor practice, employment
discrimination, unemployment compensation or workers' compensation.
1.5 Instruments of Transfer; Further Assurances. In order to consummate
the Contemplated Transactions, at the Closing the Companies shall execute and
deliver to Buyer the Deeds covering the Owned Property, and the Companies and
Buyer shall deliver to each other (a) a completed General Conveyance, Transfer
and Assignment, in a form reasonably satisfactory to Buyer ("General Conveyance,
Transfer and Assignment"), covering all of the Assets other than the Owned
Property owned by the Companies, (b) an Assumption Agreement in a form
reasonably satisfactory to Buyer ("Assumption Agreement") and (c) an Assignment
and Transfer of Patents in a form reasonably satisfactory to Buyer (a "Patent
Assignment") covering all Assets constituting Intellectual Property. At the
Closing, and at all times thereafter as may be necessary, the Companies shall
execute and deliver to Buyer (1) such other instruments of transfer as shall be
reasonably necessary or appropriate to vest in Buyer good and indefeasible title
to the Assets and to comply with the purposes and intent of this Agreement and
(2) such other instruments as shall be reasonably necessary or appropriate to
evidence the assignment by the Companies and assumption by Buyer of the
Scheduled Contracts, the Scheduled Leases and certain other liabilities to the
extent provided in Section 1.4(a).
1.6 Value Assigned to the Assets. On or before the Closing Date, Buyer and
the Companies shall agree on the proportion of the consideration to be allocated
to each of the Assets purchased pursuant to this Agreement as shall have been
proposed by Buyer and reasonably approved by the Companies and Buyer and Sellers
agree that they shall not thereafter take any position or action inconsistent
with such allocation in the filing of any Tax returns.
1.7 Closing.
(a) Unless this Agreement is sooner terminated as provided in
Article VIII below, the closing of the Contemplated Transactions (the "Closing")
will take place at the offices of Fulbright & Jaworski L.L.P., 1301 McKinney
St., 51st Floor, Houston, Texas 77010, at 10:00 A.M. on the date that is five
business days after the date on which the conditions specified in Articles VI
and VII of this Agreement shall have been satisfied or waived or at such other
time, date or place as may be mutually agreed by the parties hereto. The date on
which the Closing occurs is herein referred to as the "Closing Date".
(b) At the Closing:
(i) The Companies shall deliver, and the Stockholders shall
cause the Companies to deliver, to Buyer the Deeds, the General
Conveyance, Transfer and Assignment covering all of the Assets to be
transferred hereunder along with possession of all of the Assets to be
delivered to Buyer, the Patent
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Assignment covering the patents, licenses and other Intellectual Property
constituting part of the Assets, title documents relating to all Vehicles
and other certificated assets constituting part of the Assets with
appropriate transfer documentation.
(ii) The Companies shall deliver to Buyer those other
documents required to be delivered to Buyer pursuant to the terms of this
Agreement, including, without limitation, the following documents:
(A) Certificates of existence and good standing and
payment of franchise taxes in the jurisdictions of incorporation
with respect to each of Companies and the Subsidiary. Certificates
of good standing as a foreign corporation and payment of franchise
taxes for each of the Companies and the Subsidiary, as applicable,
from the states and other jurisdictions in which such Company or the
Subsidiary is qualified to do business as a foreign corporation.
Each of such certificates shall be certified by the Secretary of
State or other applicable governmental party of the applicable state
or other jurisdiction and shall be dated within five business days
of the Closing Date, together with a confirming telegram or
facsimile as to the applicable Company or Subsidiary as of a date
within two (2) days of the Closing Date;
(B) A copy of the charter documents, long form, with
attachments, certified by the Secretary of State or similar
authority of the jurisdiction of incorporation, as to each of the
Companies and the Subsidiary, as of a date within fifteen (15) days
of the Closing Date;
(C) Such keys, lock and safe combinations and other
similar items as Buyer shall require to obtain full occupation and
control of the assets and properties of each of the Companies;
(D) A duly executed Escrow Agreement;
(E) A certificate dated the Closing Date of the
Companies and the Representatives as to the fulfillment of the
conditions of Sections 6.1 and 6.2 hereof;
(F) Certified copies of resolutions duly adopted by the
Boards of Directors of each of the Companies and of the Stockholders
approving this Agreement and the transactions contemplated herein
and a certificate of the Secretary of the Companies as to incumbency
and as to the constituent documents of each of the Companies;
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(G) An opinion of Duval, Funderburk, Sundbery, Lovell,
Reeves & Watkins, counsel for the Sellers in the form attached as
Exhibit F hereto, as required by Section 6.7 hereof; and
(H) Such other and further documents, instruments and
certificates not inconsistent with the provisions of the Agreement,
executed on behalf of Sellers, as Buyer shall reasonably require to
carry out and effectuate the purposes and terms of this Agreement,
and all previously undelivered items, if any, required to be
delivered on behalf of any of the Sellers on or before the Closing.
(c) At the Closing:
(i) Buyer shall pay by wire transfer:
(A) The Cash Consideration to the Sellers,
and
(B) The Escrow Funds to the Escrow Agent.
(ii) Buyer shall deliver or cause to be delivered to Sellers
those documents required to be delivered to Sellers pursuant to the terms
of this Agreement, including, without limitation, the following documents:
(A) a duly executed Escrow Agreement; and
(B) A certified copy of resolutions duly adopted by the
Board of Directors of Buyer, approving this Agreement and the
transactions contemplated herein.
(d) At the Closing, the Buyer, the Companies, the Representatives
and the Escrow Agent shall execute the Escrow Agreement.
(e) At the Closing, each of the parties shall execute, deliver and
acknowledge, or cause to be executed, delivered and acknowledged, to the other
parties such other certificates, documents and opinions required to be delivered
by such party hereunder.
1.8 Closing Balance Sheet.
(a) Within 60 business days of the Closing Date, the Buyer shall
cause the Companies to prepare a consolidated balance sheet of the Companies and
the Subsidiary as of the Closing Date (the "Closing Balance Sheet"), which
Closing Balance Sheet shall be prepared in accordance with generally accepted
accounting principles ("GAAP") and, to the extent past practices have been in
accordance with GAAP,
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consistently applied and in accordance with such past practices. Included in the
Closing Balance Sheet as an appendix shall be a calculation of any Excess
Capital Expenditures.
(b) Buyer and the Representatives shall have the right to review the
Closing Balance Sheet and all work papers and accounting procedures relating
thereto. Buyer and the Representatives shall complete their review of the
Closing Balance Sheet within thirty (30) days after the Closing Balance Sheet
has been made available to Buyer and the Representatives. If Buyer and the
Representatives are of the view that any adjustment should be made to the
Closing Balance Sheet in order for the Closing Balance Sheet to be prepared in
accordance with the requirements set forth in Section 1.8(a), Buyer or the
Representatives shall give the Representatives or Buyer, as applicable, written
notice of such adjustments. If no such notice is given within thirty (30) days
after the Closing Balance Sheet has been made available to Buyer and
Representatives, Buyer and the Representatives shall be deemed to have accepted
the Closing Balance Sheet without adjustment. If the Buyer and the
Representatives agree with any of the adjustments proposed by Buyer or the
Representatives, such adjustments shall be made to the Closing Balance Sheet. If
there are any proposed adjustments that are disputed by the Buyer or the
Representatives, then the Buyer and the Representatives shall negotiate in good
faith to resolve all disputed adjustments. If, after a period of thirty (30)
days following the date on which Buyer or the Representatives give the Buyer and
the Representatives written notice of any proposed adjustments, any such
adjustments still remain disputed, then the Representatives and the Buyer shall
jointly select the accounting firm of Arthur Andersen & Co., Houston office (the
"Joint Firm"), to resolve any remaining disputed adjustments, and the decision
of the Joint Firm shall be final and binding on the parties hereto. The fees and
disbursements of the Joint Firm shall be borne equally by the Sellers and the
Buyer. The parties hereto shall use their best efforts to cause the Joint Firm
to resolve any such remaining disputed adjustments as promptly as possible.
(c) After the Closing Balance Sheet has been prepared and any
related adjustments thereto have been calculated and agreed to pursuant to
Section 1.8(a) and Section 1.8(b), all adjustments, if any, so agreed to with
respect to the Closing Balance Sheet shall be made. The Closing Balance Sheet,
as so revised by all such adjustments, if any, is referred to hereinafter as the
"Final Closing Balance Sheet."
(d) The parties agree that if the Companies' Working Capital (as
hereinafter defined) as reflected on the Final Closing Balance Sheet is less
than $4.8 million plus the amount of consumables inventory of the Companies and
the Subsidiary reflected on the balance sheets thereof as of September 30, 1997
prepared by the Companies in accordance with GAAP and audited by Ernst & Young
LLP (the "WC Benchmark Amount"), the Buyer shall be entitled to receive from the
Companies an amount (the "WC Deficiency Amount") by which the Working Capital of
the Companies is less than the WC Benchmark Amount. In the event the Working
Capital exceeds the WC Benchmark Amount, then within five business days after
determination of the Final Closing Balance Sheet, the Companies shall be
entitled to receive from the Buyer an amount (the "Additional WC Amount") by
which the Working Capital of the Companies exceeds the WC Benchmark Amount. The
"Working Capital" of the
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Companies shall be an amount equal to the remainder obtained by subtracting the
current liabilities of the Companies that constitute Assumed Obligations from
the current assets of the Companies that constitute Assets, and for purposes of
calculating Working Capital, (i) all accruals for Taxes (including deferred
Taxes) to the extent they constitute an Assumed Obligation shall be considered
current liabilities, (ii) all receivables and other amounts due from Affiliates
of any Seller (including intercompany receivables between any of the Companies)
shall be excluded from current assets, (iii) all write-ups of consumables
inventory subsequent to September 30, 1997 included in the WC Benchmark Amount
or the Balance Sheet or write-ups of other assets subsequent to June 30, 1997
shall be excluded from current assets, (iv) all cash shall be excluded from
current assets and (v) only inventory that is considered consumables inventories
shall be included as a current asset). In addition, to the extent that the
Companies' long-term debt as reflected on the Final Closing Balance Sheet is
greater than $300,000, the Companies shall pay such excess (the "Excess Debt
Amount") to the Buyer, and to the extent the Companies' long-term debt as
reflected on the Final Closing Balance Sheet is less than $300,000, Buyer shall
pay to the Companies the amount of such difference (the "Debt Reduction
Amount"). Furthermore, to the extent that the Companies have Excess Capital
Expenditures, Buyer shall pay to the Companies the dollar amount of such Excess
Capital Expenditures as set forth on the Final Closing Balance Sheet. The net
sum of the WC Deficiency Amount, the Additional WC Amount, the Excess Debt
Amount, the Debt Reduction Amount and the Excess Capital Expenditure amount
shall be paid by the party owing such net amount by wire transfer on or before
the fifth day following determination of the Final Closing Date Balance Sheet
and the obligation to make such payment shall not be subject to the Basket
Amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
A. Subject to the limitations set forth in Sections 9.1 and 9.4, the
Companies hereby represent and warrant to Buyer as follows:
2.1 Organization and Good Standing.
(a) Each of the Companies and the Subsidiary are corporations duly
organized, validly existing, and in good standing under the laws of their
respective jurisdictions of incorporation. Each of the Companies and the
Subsidiary have full corporate power and authority and possess all governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to own, lease or otherwise hold its properties and assets and to carry on its
businesses as presently conducted, except for such franchises, licenses,
permits, authorizations and approvals the absence of which, individually or in
the aggregate, would not have a Material Adverse Effect. Each of the Companies
and the Subsidiary is duly qualified to do business as a foreign corporation and
is in good standing under the laws of all states and other jurisdictions listed
beside its name in Schedule 2.1(a), which constitute all of the jurisdictions in
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which either the ownership, leasing, operation or use of the properties or
assets owned or used by the Companies or Subsidiary, or the nature of the
activities conducted by the Companies or the Subsidiary, require such
qualification, except such jurisdictions where the failure to so qualify would
not, individually or in the aggregate, have a Material Adverse Effect. Each of
the Companies has previously made available to Buyer true and complete copies of
the certificate or articles of incorporation and bylaws or other comparable
organizational documents of the Companies and the Subsidiary as currently in
effect.
(b) Except for the Subsidiary and as set forth on Schedule 1.2(c),
neither of the Companies nor the Subsidiary holds, directly or indirectly, any
interest in any Person, firm or corporation or is a party to any partnership or
joint venture agreement or has any agreements of any nature to acquire, directly
or indirectly, any shares in the capital of, or other equity or proprietary
interest in, any Person, firm or corporation, and none of the Companies or the
Subsidiary has any agreements to acquire or lease any other business operations.
2.2 Capitalization of Subsidiary.
(a) The authorized capital stock of the Subsidiary is completely and
accurately set forth in Schedule 2.2(a). All shares of capital stock of the
Subsidiary that are issued and outstanding are beneficially owned by DWS free of
any liens, pledges, encumbrances, agreements or claims.
(b) Except as completely and accurately set forth in Schedule 2.2(a)
or as completely and accurately set forth in paragraph (a), no shares of capital
stock or other equity securities of the Subsidiary are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the
Subsidiary are duly authorized, validly issued, fully paid, and nonassessable
and not subject to preemptive rights. Except as completely and accurately set
forth in Schedule 2.2(a), there are no outstanding bonds, debentures, notes or
other indebtedness or other securities of the Subsidiary having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which shareholders of the Subsidiary may vote. Except as
completely and accurately set forth in Schedule 2.2(a) or as completely and
accurately set forth above, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
to issue or to register any shares of capital stock of the Subsidiary. Except as
completely and accurately set forth in Schedule 2.2(a), there are no outstanding
contractual obligations, commitments, understandings or arrangements of the
Subsidiary to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Subsidiary and no payments,
dividends or redemption rights in respect of any shares of capital stock of the
Subsidiary are accrued, due or payable. Except as completely and accurately set
forth in Schedule 2.2(a), there are no agreements or arrangements pursuant to
which the Subsidiary is or could be required to register shares of capital stock
or options under the Securities Act of 1933, as amended, or other agreements or
arrangements with or among any security holders of the Subsidiary with respect
to securities of the Subsidiary.
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2.3 Authority; No Conflict.
(a) Each of the Companies has all requisite corporate right, power
and authority to execute and deliver this Agreement and to perform fully its
obligations hereunder. The execution and delivery of this Agreement and the
consummation by each of the Companies of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Companies is necessary to authorize
this Agreement or to consummate the Contemplated Transactions. This Agreement
has been duly executed by each of the Companies and constitutes the legal, valid
and binding obligation of each of the Companies, enforceable against each of the
Companies in accordance with its terms, except to the extent that enforceability
may be limited by bankruptcy, insolvency or other similar laws affecting
creditors' rights generally.
(b) Except as completely and accurately set forth in Schedule
2.3(b), the execution, delivery and performance of this Agreement by each of the
Companies and the consummation of any of the Contemplated Transactions will not,
directly or indirectly (with or without notice or the lapse of time):
(i) contravene, conflict with, or result in a violation or
breach of or default under any provision, term or condition of the
certificate or articles of incorporation, bylaws or other constituent
documents of any of the Companies or the Subsidiary, as the case may be;
(ii) except for the applicable requirements of the HSR Act,
contravene, conflict with, or result in a violation or breach of or
default under (with or without due notice or lapse of time, or both),
require filing with or obtaining consent from any federal, state, local,
municipal, foreign or other governmental or quasi-governmental entity or
authority (a "Governmental Body") or other person or entity under, or give
any Governmental Body or other person or entity the right to challenge any
of the Contemplated Transactions or to exercise any remedy or obtain any
relief in any such instance under, any applicable federal, state, or local
law, ordinance, principle of common law, rule, regulation or statute,
United States or foreign (a "Legal Requirement") or any award, decision,
injunction, judgment, order, ruling, subpoena, or verdict entered, issued,
made, or rendered by any court, administrative agency or Governmental Body
(an "Order") to which any of the Companies or the Subsidiary, as the case
may be, is subject;
(iii) contravene, conflict with, or result in a violation or
breach of or default under (with or without due notice or lapse of time,
or both) any of the terms, conditions or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, modify, cancel
or terminate, any permit that is held by any of the Companies or the
Subsidiary or that otherwise relates to the business and operations of any
of the Companies or the Subsidiary;
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(iv) contravene, conflict with, or result in a violation or
breach of or default under (with or without due notice or lapse of time,
or both) any provision of, or give any person or entity the right to
declare a default or exercise any remedy under, or to accelerate the
maturity or performance of or require any consent under, or to cancel or
terminate, any agreement or contract, written or oral, to which any of the
Companies or the Subsidiary is a party; or
(v) result in the imposition or creation of any Lien upon or
with respect to any of the Assets.
(c) Except as set forth on Schedules 2.16(a) or 5.6, the Scheduled
Contracts and Scheduled Leases to be assigned to Buyer under this Agreement are
freely assignable, and no consent form, or notice to, a third party to such
assignment, or in connection with the Contemplated Transactions, is required,
and those whose stated duration extends beyond the Closing Date will, at such
time, be in full force and effect and unimpaired by any acts or omissions of the
Sellers or their agents or employees, and such Scheduled Contracts and Scheduled
Leases will not be modified without Buyer's prior written consent.
2.4 Financial Statements.
(a) Schedule 2.4(a) completely and accurately sets forth the (i)
unaudited balance sheets of each of the Companies and the Subsidiary as of
December 31, 1994, 1995 and 1996, respectively, and the unaudited statements of
operations and cash flows of each of the Companies and the Subsidiary for the
years ended December 31, 1994, 1995 and 1996, respectively, and (ii) the
unaudited balance sheet of the Companies and the Subsidiary as of June 30, 1997
and September 30, 1997, and the unaudited statements of operations and cash
flows of each of the Companies and the Subsidiary for the six-month period ended
June 30, 1997 and nine-month period ended September 30, 1997 (except for the
balance sheets and income statements as of and for the nine months ended
September 30, 1997, respectively, which shall not be included in the definition
of "Financial Statements", all the financial statements referred to in clauses
(i) and (ii) of this paragraph (a), together with the applicable notes, shall be
referred to collectively as the "Financial Statements"). The unaudited balance
sheets of each of the Companies and the Subsidiary as of June 30, 1997 are
herein collectively referred to as the "Balance Sheet".
(b) Except as disclosed on Schedule 2.4(b), each of the Financial
Statements has been prepared in conformity with GAAP in all material respects
and consistent with the Companies' past practices and on that basis fairly
presents (subject, in the case of the unaudited statements, to the absence of
footnotes and to normal, recurring year-end adjustments, which are not, and will
not be, individually or in the aggregate, material to the financial condition or
results of operations of the Companies and the Subsidiary taken as a whole) the
financial condition and results of operations of the applicable Company as of
the respective dates thereof and for the respective periods indicated. Schedule
2.4(b) specifically identifies all write-ups of Inventories or any other Assets
and all accruals reasonably necessary in order for the Balance Sheet
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to be presented in accordance with GAAP. Each of the Financial Statements is
complete, correct and in accordance with the books of account and records of the
Companies and the Subsidiary. Except as disclosed on Schedule 2.4(b), there are
no revenues, expenses or liabilities relating to transactions between any of the
Companies that would be required to be eliminated on any of the Financial
Statements had the Financial Statements of the Companies been consolidated
together.
2.5 Inventory. Except as set forth on Schedule 2.5, the Companies and the
Subsidiary have collectively good and marketable title to all of the
Inventories. Upon each of the Companies' execution and delivery of the General
Conveyance and Assignment, Buyer and the Subsidiary will own good and marketable
title to the Inventory, free and clear of all Liens except for Permitted Liens.
Substantially all of the Inventories, Vehicles and Equipment of the Companies
and the Subsidiary taken as a whole, whether reflected on the Balance Sheet or
subsequently acquired, are of a quality and quantity usable consistent in all
material respects with past practice in the ordinary course of business. Except
as completely and accurately set forth in Schedule 2.5, since the date of the
Balance Sheet, there have not been any write-downs of the value of, or
establishment of any reserves against, any Inventory except for write-downs and
reserves in the ordinary course of business consistent with past practice that
are not material. For purposes of this subsection only, "material" shall mean
write-downs and reserves that, individually or in the aggregate, exceed
$25,000.00.
2.6 Receivables. All Accounts of the Companies and the Subsidiary, taken
as a whole, whether reflected on the Balance Sheet or subsequently created, (i)
have arisen in the ordinary course of their businesses as applicable, and (ii)
represent valid obligations due the Companies or the Subsidiary as applicable,
enforceable in accordance with their terms except (as to collectibility) for
limitations resulting from applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and by laws
or judicial decision limiting the rights of specific performance or by general
equity principles, subject, in the aggregate, to the Companies' and the
Subsidiary's, as applicable, historical cyclical loss experience in relation to
sales and accounts receivable, and normal risks of collection and have arisen
from bona fide transactions in the ordinary course of business.
2.7 Tangible Property.
(a) Except for Fixtures and Improvements, Vehicles and Equipment
(collectively, the "Tangible Assets") not of a material amount, Schedules
1.2(b)(ii), 1,2(b)(iv), and 1.2(b)(v) set forth all Fixtures and Improvements,
Vehicles and Equipment, respectively. The Companies and/or the Subsidiary
collectively have good and marketable title to all Tangible Assets, in each case
free and clear of all Liens of any kind except (i) such as are completely and
accurately set forth in Schedule 2.7, (ii) mechanics', carriers', workman's,
repairmen's or other similar Encumbrances arising or incurred in the ordinary
course of business, liens arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the
ordinary course of business and liens for Taxes and other governmental charges
that are not due and payable or that may thereafter be paid
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without penalty, and (iii) other imperfections of title or Liens that do not,
individually or in the aggregate, impair the continued use and operation of the
assets to which they relate in the Business, as presently conducted (the Liens
described in clauses (i), (ii) and (iii) above are hereinafter referred to
collectively as "Permitted Liens"). For purposes of this subsection only, "not
of a material amount" shall mean Tangible Assets that individually or in the
aggregate not exceed $25,000.00.
(b) Except as set forth in Schedule 2.7, the Tangible Assets that
are being used in, or reasonably could be expected to be used in, the Business
have been maintained in accordance with past practice and generally accepted
industry practice, are in good operating condition and repair, ordinary wear and
tear excepted, and are suitable in both quantity and quality for use in the
Business. All leased personal property of the Companies and the Subsidiary is in
the condition required of such property by the terms of the lease applicable
thereto during the term of the lease and upon the expiration thereof.
2.8 Books and Records. The books of account and other records of each of
the Companies and the Subsidiary, all of which have been made available to
Buyer, are true, complete and correct in all material respects.
2.9 Real Property. Schedule 1.2(b)(i) sets forth a true, complete and
accurate list of all real property owned by the Companies and relating to the
Business or any of the other Assets (individually, an "Owned Property" and
collectively the "Owned Properties"). Schedule 1.2(b)(iii) sets forth a true,
complete and accurate list of all real property leased by any of the Companies
and relating to the Business or any of the other Assets (individually, a "Leased
Property" and collectively the "Leased Properties"). The Companies or the
Subsidiary has (i) good and marketable fee title to all Owned Property and (ii)
good and marketable title to the leasehold estates in all Leased Property (Owned
Property, Fixtures and Improvements, Realty Rights and Leased Property being
sometimes referred to herein as "Company Property"), in each case free and clear
of all Liens, leases, assignments, subleases, easements, covenants,
rights-of-way and other restrictions of any nature whatsoever, except Permitted
Liens. The Company Properties constitute all of the real property locations
reasonably necessary to conduct the Business as it is now being conducted by the
Companies and the Subsidiary. Upon the Companies' execution and delivery of the
Deeds covering the Real Property, Buyer will own good and marketable title to
the Real Property, free and clear of all Liens except for Permitted Liens. There
is no pending or threatened condemnation or similar proceeding or assessment
affecting the Company Properties, or any part thereof, nor to the best knowledge
and belief of the Companies is any such proceeding or assessment contemplated by
any Governmental Body. The Company Properties do not violate in any material
respect any provisions of any applicable building code, fire, health or safety
regulations, or other governmental ordinances, orders or regulations. No
condition exists with respect to any Company Property which would prevent, or
require repair or modification thereof as a prerequisite to Buyer using the
Company Properties in the ordinary conduct of the Business except with respect
to ordinary wear and tear and scheduled maintenance and repair. The zoning
classification of the Company Properties is such that the Company Properties may
be
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used as currently used in the Business. There are no parties in possession of
any portion of any Company Property as lessees, tenants at sufferance or
trespassers.
2.10 Company Products and Inventory. Except as completely and accurately
set forth on Schedule 2.10, none of the Companies has any notice or knowledge of
any statements, citations or decisions by any Governmental Body specifically
stating that any product or Inventory item of the Companies or the Subsidiary,
or any third-party product distributed by the Companies, that is held for rental
(or sale to the extent such product or inventory item is held for sale in the
ordinary course of business) by the Companies or the Subsidiary to their
respective customers or otherwise utilized in the Companies' or the Subsidiary's
business (collectively, a "Company Product") is defective or unsafe or fails to
meet any standards promulgated by any such Governmental Body. Except as
completely and accurately set forth on Schedule 2.10, none of the Companies has
any notice or knowledge of any recalls ordered by any such Governmental Body
with respect to any Company Product. Except as completely and accurately set
forth on Schedule 2.10, none of the Companies has any notice or knowledge of any
(i) fact relating to any Company Product that may impose upon any of the
Companies or the Subsidiary a duty to recall any Company Product or a duty to
warn customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product that could be reasonably be
expected to have a Material Adverse Effect or (iii) liability for warranty
claims or returns with respect to any Company Product not otherwise disclosed
herein in excess of that historically experienced by any of the Companies or the
Subsidiary consistent (in amount and kind) with past practice.
2.11 Taxes
(a) Except as completely and accurately set forth on Schedule
2.11(a),
(i) each of the Companies and the Subsidiary has timely filed
or caused to be timely filed all returns, declarations, reports, forms or
other documents, information returns or statements of information ("Tax
Returns") filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with any Taxes that are
or were required to be filed by it or with respect to it, its operations,
assets and business (taking into account any valid extensions of time for
filing) pursuant to applicable Legal Requirements; and
(ii) each of the Companies and the Subsidiary has timely paid
(A) all income, gross receipts, value added, profits, severance, capital,
net worth, franchise, license, transfer, sales, use, payroll, employment,
estimated, withholding, social security, workers and unemployment
compensation, property (real or personal), gains, occupation, excise,
goods and services and all other taxes and similar assessments, customs,
duties, charges and fees (including interest, penalties and additions to
such taxes and any interest in respect of such penalties and additions)
imposed by the United States or any state or local taxing authority
thereof or therein, or by any other country or jurisdiction or
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any political subdivision thereof or therein, including any transferee
liability in respect of any of the foregoing (collectively "Taxes") that
have become due (whether or not shown on any Tax Return), and (B) any
Taxes for which a demand for payment or assessment has been received by
the Companies or the Subsidiary, except (i) in the case of either (A) or
(B) such Taxes, if any, that are fully reflected on the Final Closing
Balance Sheet by means of an accrual or reserve, (ii) in the case of (A)
such Taxes in respect of operations of the Business as are payable solely
by the Stockholders, and (iii) for which none of the Companies has any
liability in the case of (B), that are being contested in good faith
pursuant to appropriate proceedings.
(b) Each Tax Return filed by any of the Companies or the Subsidiary
was prepared in compliance with all Legal Requirements and is true, correct and
complete in all material respects, and each such Tax Return filed after the date
hereof and prior to the Closing Date shall be prepared, and all elections with
respect to such Tax Returns shall be made, to the extent permitted by law, in
compliance with all Legal Requirements and in a manner consistent with the prior
practice of the Companies and the Subsidiary, as applicable.
(c) Except as set forth on Schedule 2.11(c), the unpaid Taxes of the
Companies and the Subsidiary did not, as of the date of the Balance Sheet,
exceed the respective accruals and reserves (other than accruals and reserves
for deferred Taxes) for such Taxes set forth on the Balance Sheet. Except as set
forth on Schedule 2.11(c) the accruals for deferred federal Income Taxes on each
Balance Sheet are adequate in all material respects to cover any deferred
federal Income Tax Liability of the Companies and the Subsidiary.
(d) Except as completely and accurately set forth on Schedule
2.11(d):
(i) during the past five years, there has been no audit,
claim, assessment, or proceeding commenced against the Companies or the
Subsidiary regarding Taxes, and none of the foregoing is presently pending
or threatened;
(ii) neither the Companies nor the Subsidiary is, or has ever
been, a party to or bound by any Tax allocation or Tax sharing agreement
or arrangement and neither the Companies nor the Subsidiary has, or has
had, any current contractual obligation to indemnify any other person or
entity with respect to Taxes;
(iii) no taxing authority in a jurisdiction where the
Companies or the Subsidiary, as applicable, does not file Tax Returns has
claimed, asserted or threatened that the Companies or the Subsidiary, as
applicable, is or may be subject to taxation by such jurisdiction;
(iv) the Companies and the Subsidiary have made available to
Buyer or its representatives true, correct and complete copies of all Tax
Returns filed by each of the Companies and/or the Subsidiary for the past
three years,
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together with all revenue agent's reports and other written assertions of
deficiencies or other Liabilities for Taxes of, or with respect to, the
Companies and the Subsidiary, and all closing agreements (as described in
Code Section 7121 or any, analogous provision of state, local or foreign
laws or regulations) which are currently in effect;
(v) all Tax Returns of the Companies and the Subsidiary
relating to Taxes (x) based upon, measured by, or calculated with respect
to, net income or net receipts, proceeds or profits, or (y) based upon,
measured by, or calculated with respect to multiple bases (including, but
not limited to, corporate franchise or occupation Taxes) if such Tax may
be based upon measured by, or calculated with respect to one or more bases
described in (x) above ("Income Taxes") have been audited by the relevant
taxing authority or the time for assessing or collecting Income Tax with
respect thereto has closed;
(vi) neither the Companies nor the Subsidiary is the
beneficiary of any extension of time, or has made a pending request to
extend the time, within which to file any Tax Return;
(vii) neither the Companies nor the Subsidiary has agreed, nor
is either of them required, to include in income any adjustment pursuant
to Code Section 481(a) (or analogous provision of other foreign, United
States federal, state or local laws or regulations) by reason of a change
in accounting method or otherwise, nor has the IRS (or other Taxing
authority) proposed any such change in accounting method;
(viii) none of the assets of the Companies or the Subsidiary
(x) is property that is required to be treated as being owned by any other
person pursuant to the "safe harbor lease" provisions of Section 168(f)(8)
of the Internal Revenue Code of 1954, (y) is "tax-exempt use property"
within the meaning of Code Section 168(h), (z) or directly or indirectly
secures any debt the interest of which is tax exempt under Code Section
103(a) (or, in the case of any of (x), (y) or (z), any analogous provision
of state, local or foreign laws or regulations);
(ix) there are no Liens for Taxes other than Permitted Liens;
(x) there are no Tax rulings, requests for rulings, competent
authority relief, or closing agreements relating to the Companies or any
Subsidiary which could affect its Liability for Taxes for any period after
the Closing Date;
(xi) neither the Companies nor the Subsidiary has disposed of
any property in a transaction being accounted for under the installment
method pursuant to Code Section 453 or analogous provision of state, local
or foreign laws or regulations;
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(xii) based on applicable law as in effect on the date hereof,
there is no contract, agreement, plan or arrangement covering any persons,
individually or collectively, giving rise to a payment by the Companies or
the Subsidiary of an amount that would not be deductible by reason of Code
Section 280G;
(xiii) no excess loss account (as described in Treasury
Regulations Section 1.1502-19) exists with respect to the Subsidiary;
(xiv) none of the Companies or the Subsidiary has any deferred
gain or loss (x) arising from intercompany transactions (as described in
Treasury Regulations Section 1.1502-13), or (y) with respect to stock or
obligations of any other member of the Companies' affiliated group (as
described in Treasury Regulations Section 1.1502-13);
(xv) none of the Companies or the Subsidiary (A) has been a
member of any consolidated, combined or unitary group for Income Tax
purposes that included any member other than a member of the current
federal consolidated Income Tax group of which the Companies is the common
parent, or (B) have any Liability for Taxes of any person (other than the
Companies and the Subsidiary) under Treasury Regulations Section 1.1502-6
(or any analogous provision of state, local or foreign law), as a
transferee or successor by contract, or otherwise;
(e) Schedule 2.11(e) contains a true, complete and accurate list of
countries, states, territories and jurisdictions (whether foreign or domestic)
in which the Companies and/or the Subsidiary have filed income, franchise, sales
and use Tax Returns for taxable periods ending after December 31, 1992.
(f) Each of the Companies is and has always been an S corporation,
as defined in Section 1361(a) of the Code, and will continue to be an S
corporation for all taxable periods which include the Closing Date.
2.12 Employee Benefits.
(a) Schedule. Schedule 2.12(a) contains a true, complete and
accurate list of each Company Benefit Plan and each Employee Agreement
maintained or contributed to at any time since January 1, 1992. No Company nor
any of its ERISA Affiliates has any plan or commitment, whether legally binding
or not, to establish any new Company Benefit Plan, to enter into any Employee
Agreement or to modify or to terminate any Company Benefit Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Benefit Plan or Employee Agreement to the requirements of any applicable law, in
each case as previously disclosed to Buyer, or as required by this Agreement),
nor has any intention to do any of the foregoing been communicated to Employees.
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(b) Documents. Each of the Companies has provided, or has caused to
be provided, to Buyer (i) current, accurate and complete copies of all documents
embodying or related to each Company Benefit Plan and each Employee Agreement,
including all amendments thereto, written interpretations thereof and trust or
funding agreements with respect thereto; (ii) the three most recent annual
actuarial valuations, if any, prepared for each Company Benefit Plan; (iii) the
three most recent annual reports (Series 5500 and all schedules thereto), if
any, required under ERISA in connection with each Company Benefit Plan or
related trust, as well as the three most recent Form 990's and 1041's, if
applicable; (iv) a statement of alternative form of compliance pursuant to
Department of Labor Regulation ss.2520.104-23, if any, filed for each Company
Benefit Plan which is an "employee pension benefit plan" as defined in Section
3(2) of ERISA for a select group of management or highly compensated employees;
(v) the most recent determination letter received from the IRS for each Company
Benefit Plan and related trust which is intended to satisfy the requirements of
Section 401(a) of the Code and all rulings or determinations requested since the
most recent determination letter; (vi) if the Company Benefit Plan is funded,
the most recent annual and periodic accounting of Company Benefit Plan assets;
(vii) the most recent summary plan description together with all material
modifications, if any, required under ERISA with respect to each Company Benefit
Plan; (viii) all material communications to any Employee or Employees relating
to each Company Benefit Plan; (ix) all correspondence from the IRS, the
Department of Labor and/or the PBGC since January 1, 1992, regarding each
Company Benefit Plan.
(c) Compliance. With respect to each Company Benefit Plan (i) the
Companies, the Subsidiary and each ERISA Affiliate have performed all
obligations required to be performed by them under each Company Benefit Plan and
Employee Agreement and none of the Companies nor any of their ERISA Affiliates
is in default under or in violation of, any Company Benefit Plan, (ii) each
Company Benefit Plan has been established and maintained in accordance with its
terms and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, including without
limiting the foregoing, the timely filing of all required reports, documents and
notices, where applicable, with the IRS and the Department; (iii) each Company
Benefit Plan intended to qualify under Section 401 of the Code is, and since its
inception has been, so qualified and a determination letter has been issued by
the IRS to the effect that each such Company Benefit Plan is so qualified and
that each trust forming a part of any such Company Benefit Plan is exempt from
tax pursuant to Section 501(a) of the Code and no circumstances exist which
would adversely affect this qualification or exemption; (iv) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Benefit Plan unless exempt under
Section 4975 of the Code or Section 408 ERISA, as applicable; (v) no action or
failure to act and no transaction or holding of any asset by, or with respect
to, any Company Benefit Plan has or may subject any of the Companies or any of
their ERISA Affiliates or any of their fiduciaries to any tax, penalty or other
liability, whether by way of indemnity or otherwise; (vi) there are no actions,
proceedings, arbitrations, suits or claims pending, or to the knowledge of any
of the Companies or any of their ERISA Affiliates, threatened or anticipated
(other than routine claims for benefits) against any of the
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Companies or any of their ERISA Affiliates or any of their administrators,
trustees or other fiduciaries of any Company Benefit Plan with respect to any
Company Benefit Plan or Employee Agreement, or against any Company Benefit Plan
or against the assets of any Company Benefit Plan; (vii) no event or transaction
has occurred with respect to any Company Benefit Plan that would result in the
imposition of any Tax Lien or liability under Chapter 43 of Subtitle D of the
Code, ERISA or to the PBGC; (viii) each Company Benefit Plan can be amended,
terminated or otherwise discontinued without liability to any of the Companies
or any of their ERISA Affiliates; (ix) the Companies and their ERISA Affiliates
have made all contributions or other payments required to be made as of the date
hereof with respect to each Company Benefit Plan; (x) no Company Benefit Plan is
under audit or investigation by the IRS, the Department or the PBGC, and to the
knowledge of the Companies or any ERISA Affiliate no such audit or investigation
is pending or threatened and; (xi) all group health plans maintained by the
Companies and each ERISA Affiliate have been operated in compliance with Section
4980B of the Code.
(d) Pension Plans. None of the Companies nor any ERISA Affiliate
presently sponsors, maintains, contributes to, nor is the Companies or any ERISA
Affiliate required to contribute to, nor has the Companies nor any ERISA
Affiliate ever sponsored, maintained, contributed to, or been required to
contribute to, a Pension Plan which is subject to Title IV of ERISA.
(e) Multiemployer Plans. At no time has any Company or any of its
ERISA Affiliates contributed to or been required to contributed to, or incurred
any withdrawal liability (within the meaning of Section 4201 of ERISA) with
respect to any Multiemployer Plan or Section 412 of the Code.
(f) No Post-Employment Obligations. Except as set forth on Schedule
2.12(f), none of the Companies nor any ERISA Affiliate (i) maintains or
contributes to any Company Benefit Plan which provides, or has any liability to
provide, life insurance, medical, severance or other employee welfare benefits
to any Employee upon his retirement or termination of employment, except as may
be required by Section 4980B of the Code; or (ii) has ever represented,
promised, or contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such Employee(s) would be
provided with life insurance, medical, severance or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by Section 4980B of the Code or Section 412 of the Code.
(g) Effect of Transaction. Except as set forth on Schedule 2.12(g),
the execution of, and performance of the Contemplated Transactions will not
(either alone or upon the occurrence of any additional or subsequent events) (i)
constitute an event under any Company Benefit Plan, Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee, (ii) result in the triggering or imposition of any restrictions or
limitations on the right of any of the Companies or the Buyer to amend
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or terminate any Company Benefit Plan and receive the full amount of any excess
assets remaining or resulting form such amendment or termination, subject to
applicable taxes, or (iii) result in any carryover liability to Buyer for Taxes,
penalties, interest or any other items resulting from any Benefit Plan. No
payment or benefit which will or may be made by any of the Companies, the
Buyers, the Subsidiary or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(h) 501(c)(9) Trust. No Company Benefit Plan nor Employee Agreement
is funded by a trust described in Section 501(c)(9) of the Code.
(i) Welfare Plan Funding. With respect to each Welfare Plan, all
claims incurred (including claims incurred but not reported) by employees
thereunder for which any of the Companies or the Subsidiary is, or will become,
liable are (i) insured pursuant to a contract of insurance whereby the insurance
company bears any risk of loss with respect to such claims; (ii) covered under a
contract with a health maintenance organization (an "HMO") pursuant to which the
HMO bears the liability for such claims, or (iii) will be accrued and reflected
as a current liability on the Final Closing Balance Sheet.
(j) Controlled Group Liability. None of the Companies nor the
Subsidiary has any liability, contingent or otherwise, to, or with respect to
any Benefit Plan (other than the Company Benefit Plans and Employee Agreements
that are completely and accurately listed on Schedule 2.12(j)), which is now or
previously has been sponsored, maintained, contributed to, or required to be
contributed to, by the Subsidiary or any ERISA Affiliate or former ERISA
Affiliate.
(k) Severance Payments. The Contemplated Transactions will not
accelerate the time of payment or vesting of, or increase the amount of,
compensation due, or result in a severance payment for any director, officer or
employee or former director, officer or employee (including any beneficiary) of
any of the Companies from the Buyer and the Companies agree that they shall
retain all such obligations.
(l) Nonassumption of Company Benefit Plan. The parties agree that
the Buyer does not and will not assume the sponsorship of, or the responsibility
for contributions to, or any liability in connection with, any Company Benefit
Plan or any other employee pension benefit plan, any employee welfare benefit
plan, or other employee benefit agreement or arrangement maintained by any of
the Companies or any ERISA Affiliate for their employees, former employees,
retirees, their beneficiaries or any other person. In addition and not as a
limitation of the foregoing covenant the parties agree that each of the
Companies and each ERISA Affiliate shall be liable for any continuation coverage
(including any penalties, excise taxes or interest resulting from the failure to
provide continuation coverage) required by Section 4980B of the Code due to
qualifying events that occur on or before Closing Date.
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2.13 Compliance with Certain Legal Requirements; Governmental
Authorizations.
(a) Except as completely and accurately set forth in Schedule
2.13(a), (i) each of the Companies and the Subsidiary has complied in all
material respects with each Legal Requirement that is applicable to it or to the
conduct or operation of its business or to the ownership or use of any of its
properties or assets and (ii) none of the Companies nor the Subsidiary has
received any written notice from any Governmental Body or any other person or
entity regarding any material violation of, or failure to comply with, any Legal
Requirement.
(b) Schedule 1.2(b)(vi) contains a true, complete and accurate list
of each Permit that is held by any of the Companies or the Subsidiary or that
otherwise relates to or is required in connection with the business or
operations of any of the Companies or the Subsidiary. Each Permit listed in
Schedule 1.2(b)(vi) has, to the best knowledge of each of the Companies, been
duly authorized and is valid and in full force and effect. Except as completely
and accurately set forth in Schedule 1.2(b)(vi), (i) each of the Companies and
the Subsidiary has complied in all material respects with all of the terms and
requirements of the Permit applicable to it and identified in Schedule
1.2(b)(vi), (ii) no event has occurred or circumstance exists that (A) would
constitute or result directly or indirectly in a violation of or a material
failure to comply with any term or requirement of any Permit identified in
Schedule 1.2(b)(vi), or (B) would result in the revocation, withdrawal,
suspension, cancellation, modification or termination of any Permit identified
in Schedule 1.2(b)(vi) and (iii) the Permits are sufficient and adequate in all
respects to permit the continued lawful conduct of the business and operations
of each of the Companies and the Subsidiary in the manner now conducted.
Following consummation of the transactions contemplated hereby, the Permits will
continue to be valid and subsisting, in full force and effect, and subject to
the required consents set forth on Schedule 2.13(b), enforceable by Buyer
without any consent or approval of any Governmental Body or other third party;
or, in lieu of such existing Permits, replacement or substitute Permits will be
available to or obtainable by Buyer at little or no cost in the ordinary course
without any interruption of the conduct of the Business following the Closing
Date, assuming timely application therefor and reasonable diligence in pursuant
thereof by Buyer. None of such Permits have been, or to the knowledge of each of
the Companies, are threatened to be, revoked, canceled, suspended or modified.
2.14 Litigation. Except as completely and accurately set forth in Schedule
2.14, there is (i) no suit, action or proceeding or investigation pending
against any of the Companies or the Subsidiary nor is there any judgment,
decree, injunction, rule or order of any Governmental Body or arbitrator
outstanding against any of the Companies or the Subsidiary, or (ii) to the best
knowledge of each of the Companies, no suit, action or proceeding or
investigation threatened against or affecting any of the Companies or the
Subsidiary, in each case set forth in clause (i) or (ii) that, individually or
in the aggregate, could adversely affect any of the Companies or Buyer or that
could reasonably be expected to prevent, hinder or materially delay the ability
of any of the Companies to consummate the Contemplated Transactions.
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2.15 Absence of Certain Changes or Effects. Except as completely and
accurately set forth on Schedule 2.15 and except as otherwise expressly
contemplated by this Agreement, since December 31, 1996, the Companies have
conducted the Business in the ordinary course, consistent with past practice and
there has not been (a) any material adverse change in the condition (financial
or otherwise), prospects, results of operations, business, properties, assets,
or liabilities of the Companies and the Subsidiary taken as a whole (a "Material
Adverse Change") or any event or condition which could reasonably be expected to
have such a Material Adverse Change, (b) any waiver of any valuable right of any
of the Companies or the Subsidiary, the cancellation of any valuable right of
any of the Companies or the Subsidiary, or the cancellation of any material debt
or claim held by any of the Companies or the Subsidiary, (c) any payment,
discharge or satisfaction of any claim, liability or obligation of any of the
Companies or the Subsidiary other than in the ordinary course of business, (d)
any Lien upon the assets of any of the Companies or the Subsidiary other than
Permitted Liens that arise in the ordinary course of business, (e) any sale,
assignment or transfer of any tangible or intangible assets of any of the
Companies or the Subsidiaries, except in the ordinary course of business with
respect to Inventory, (f) any loan by any of the Companies or the Subsidiary to
any officer, director, employee, consultant, or shareholder of the Companies or
the Subsidiary, (g) any increase, direct or indirect, in the compensation paid
or payable to any officer or director of any of the Companies or the Subsidiary,
or, other than in the ordinary course of business, to any other employee,
consultant or agent of any of the Companies or the Subsidiary, (h) any change in
the accounting methods, practices or policies of any of the Companies or the
Subsidiary, (i) any indebtedness incurred for borrowed money by any of the
Companies or the Subsidiary other than in the ordinary course of business, (j)
any amendment to or termination of any material agreement to which any of the
Companies or the Subsidiary is a party, (k) the making or changing of a material
Tax election, compromise of any material Tax Liability or the making of any
payment pursuant to any agreement, arrangement or contractual obligation
described in Section 2.11(d)(ii), (l) any transaction or action by the Sellers
that would cause any representation or warranty of any of the Sellers to be not
true as of the Closing Date, (m) any transaction by the Companies or the
Subsidiary except in the ordinary course of business or as otherwise
contemplated hereby, or (n) any agreement or commitment (contingent or
otherwise) by any of the Companies or the Subsidiary to do any of the foregoing.
2.16 Contracts; Leases; Absence of Certain Practices.
(a) Schedule 1.2(b)(ix) sets forth a true, complete and accurate
list of each contract, agreement, arrangement or commitment, written or oral (a
"Contract") to which any of the Companies or the Subsidiary is a party, or by or
to which the Companies or the Subsidiary or the properties, assets or operations
of the Companies or the Subsidiary may be subject, of a type described below (a
"Scheduled Contract"), and the Companies have made available to Buyer for its
review true and complete copies of each, except such agreements and contracts as
are cancelable without penalty by any of the Companies and the other parties to
such contract or agreement with 30 days prior written notice:
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(i) Employee Agreement;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant of any of the Companies or the Subsidiary not
to compete or other covenant of any of the Companies or the Subsidiary
restricting the development, manufacture, marketing or distribution of the
products and services of any of the Companies or the Subsidiary;
(iv) Contract with (A) any Stockholder or any Affiliate or
relative of any Stockholder or (B) any current or former officer, director
or employee of any of the Companies, the Subsidiary or any Affiliate of
the Companies or the Subsidiary (other than Employee Agreements);
(v) lease, sublease or similar agreement with any Person under
which any of the Companies or the Subsidiary is a lessor or sublessor of,
or makes available for use to any Person, (A) any Company Property or (B)
any portion of any premises otherwise occupied by any of the Companies or
the Subsidiary;
(vi) lease, sublease or similar agreement with any Person
under which (A) any of the Companies or the Subsidiary is lessee of, or
holds or uses, any machine, equipment, vehicle or other tangible personal
property owned by any Person, except for short-term rentals of equipment
in the ordinary course of business not exceeding a material amount
individually or in the aggregate, or (B) any of the Companies or the
Subsidiary is a lessor or sublessor of, or makes available for use by any
Person, any tangible personal property owned or leased by any of the
Companies or the Subsidiary, in any such case which has a material future
liability or receivable (for purposes of this subsection (vi) only,
"material" shall mean in excess of $25,000.00);
(vii) continuing Contract for the future purchase of materials
or products which has a material aggregate future liability to any Person
(for purposes of this subsection only, "material" shall mean in excess of
$25,000.00);
(viii) (A) continuing Contract for the future purchase of
supplies or equipment, (B) management, service, consulting or other
similar type of Contract or (C) advertising agreement or arrangement, in
any such case which has a material aggregate future liability to any
Person (for purposes of this subsection only, "material" shall mean in
excess of $10,000.00);
(ix) material license, option or other agreement relating in
whole or in part to Intellectual Property (including any license or other
agreement under which any of the Companies or the Subsidiary is licensee
or licensor of any such Intellectual Property) or to trade secrets,
confidential information or
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proprietary rights and processes of any of the Companies, the Subsidiary
or any other Person or entity;
(x) Contract or other instrument under which any of the
Companies or the Subsidiary has borrowed any money from, or issued any
note, bond, debenture or other evidence of indebtedness to, any Person or
any other note, bond, debenture or other evidence of indebtedness issued
by any of the Companies or the Subsidiary to any Person;
(xi) Contract or other instrument under which (A) any Person
has directly or indirectly guaranteed indebtedness, liabilities or
obligations of the Companies or the Subsidiary or (B) any of the Companies
or the Subsidiary has directly or indirectly guaranteed indebtedness,
liabilities or obligations of any Person;
(xii) Contract or other instrument under which any of the
Companies or the Subsidiary has directly or indirectly, made any advance,
loan, extension of credit or capital contribution to, or other investment
in, any Person;
(xiii) mortgage, pledge, security agreement, deed of trust or
other instrument granting a Lien upon any Company Property, which Lien is
completely and accurately set forth in Schedule 2.9;
(xiv) agreement or instrument providing for indemnification of
any person with respect to liabilities relating to any current or former
business of any of the Companies or the Subsidiary or any predecessor
Person;
(xv) Contract or other arrangement that involves performances
of services or delivery of goods or materials by any of the Companies or
the Subsidiary of a material amount or value other than any Contract or
other arrangement entered into in the ordinary course of business
consistent (in amount and kind) with past practice (for purposes of this
subsection only, "material" shall mean in excess of $25,000.00);
(xvi) Contract or other arrangement of any of the Companies or
the Subsidiary including, without limitation, any partnership or joint
venture agreement, any stock or asset acquisition agreement, any joint
venture agreement and any strategic marketing or alliance agreement;
(xvii) Contract or other arrangement relating to the sale or
purchase by any of the Companies or the Subsidiary of any properties,
assets or business operations, other than the sale of inventory in the
ordinary course of business, or for the grant of any option relating to
any of the foregoing;
(xviii) Contract, agreement or other arrangement identified in
Section 2.11(d)(ii); or
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(xix) other agreement, contract, lease, license, commitment or
instrument to which any of the Companies or the Subsidiary is a party or
by or to which it or any of its assets or business is bound or subject
which has a material aggregate future liability to any person (for
purposes of this subsection only, "material" shall mean in excess of
$10,000.00).
Except as completely and accurately set forth in Schedule 2.16(a),
all Scheduled Contracts will continue to be legal, valid, binding, enforceable,
and in full force and effect against all the parties thereto on identical terms
following the Closing. There is no breach, violation or default by any of the
Companies or the Subsidiary and no event which, with notice or lapse of time or
both, would (A) constitute a breach, violation or default by any of the
Companies or the Subsidiary under any such Scheduled Contract or (B) give rise
to any lien or right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration against any of any of the
Companies or the Subsidiary under, any such Scheduled Contract. To the best
knowledge of the Companies, no other party to any of such Scheduled Contracts is
in arrears in respect of the performance or satisfaction of the terms and
conditions on its part to be performed or satisfied under any of such Scheduled
Contracts, no waiver or indulgence has been granted by or to any of the parties
thereto and no party to any of such Contracts has repudiated any provision
thereof.
(b) No direct or indirect payments have been made to any person or
entity by any of the Companies, the Subsidiary or any of their Affiliates in
violation of, or that would violate, any Legal Requirement for the purposes of
inducing such person or entity to sell or purchase any products to or from any
of the Companies or the Subsidiary or any of their respective distributors,
brokers, agents or other representatives or to induce such person or entity not
to purchase or sell any items to or from any other person or entity. None of the
Companies or the Subsidiary nor any of their respective officers, directors or
employees has nor any Stockholder has, directly or indirectly, given or made or
agreed to give or make any improper or illegal commission, payment, gratuity,
gift, political contribution or similar benefit of any customer, supplier,
governmental employee or other person or entity who is or may be in a position
to assist or hinder any of the Companies or the Subsidiary or to assist any of
the Companies or the Subsidiary in connection with any actual or proposed
transaction relating to the Business or the Assets.
(c) Except as completely and accurately set forth on Schedule
2.16(c), all Closing Date Retired Debt (as defined in Section 5.1(c)) may be
repaid and extinguished, in whole or in part, without any prepayment penalty or
premium.
2.17 Insurance. Schedule 2.17 sets forth a true, complete and accurate
list of, and the Companies have made available to Buyer or its representatives
for its review true, complete and accurate copies of, all insurance policies
(including all policies or binders of fire, liability product liability,
worker's compensation, vehicular and other insurance and all surety and fidelity
bonds with respect to the Assets and the Business, and all pending applications
for any of the foregoing) currently in force and effect. Such policies, binders
and bonds are valid and binding in accordance with their terms
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and are in full force and effect. All premiums and fees due and payable under
such insurance policies binders and bonds have been paid. Except as set forth on
Schedule 2.17, none of the Companies nor the Subsidiary is in default with
respect to any provision contained in any insurance policy, binder or bond and
none of them has failed to give any notice or present any claim under any policy
or binder in due and timely fashion. Except for claims that are completely and
accurately set forth on Schedule 2.17, there are no material outstanding unpaid
claims under any instrument, policy or binder, and none of the Companies nor the
Subsidiary has received any notice of cancellation or non-renewal of any
instrument, policy or binder. Except as completely and accurately set forth on
Schedule 2.17, none of the Companies nor the Subsidiary has received any notice
from any of its insurance carriers that any insurance premiums will be increased
in the future or that any insurance coverage listed on Schedule 2.17 will not be
available in the future on substantially the same terms as now in effect.
2.18 Environmental Matters.
(a) Except as completely and accurately disclosed on Schedule 2.18:
(i) no Hazardous Substances have been used, generated,
manufactured, stored or treated, or disposed of or in any other way
released on, under or about any Company Property or transported to or from
any Company Property, except in compliance with applicable Environmental
Laws;
(ii) none of the Companies nor the Subsidiary is currently
operating or required to be operating under any compliance order,
schedule, decree or agreement, any consent decree, order or agreement,
and/or any corrective action decree, order or agreement issued or entered
into under any Environmental Law and is not subject to any reclamation or
remediation requirements under applicable Environmental Laws, or any
reporting requirements related to such order, schedule, decree, agreement
or reclamation or remediation requirements;
(iii) none of the Companies nor the Subsidiary has received
any notification that it has been named as a potentially responsible party
under, and none of the Company Property has been designated as a facility
that is subject to an existing or potential claim under, CERCLA or any
other Environmental Law, and none of the Company Property is subject to
any lien arising under Environmental Laws;
(iv) the Companies and the Subsidiary have all Environmental
Permits necessary to operate the Assets and the Business and facilities in
compliance with applicable Environmental Laws and the Companies will not
be required under existing Environmental Laws to install additional
environmental or pollution control equipment or make other capital
expenditures in order to comply, or remain in compliance, with
Environmental Laws;
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(v) there are no underground storage tanks located on or under
any Company Property and any underground storage tank previously removed
from any Company Property was removed in accordance with applicable
Environmental Laws;
(vi) there are no writs, injunctions, decrees, orders or
judgments outstanding, or lawsuits, claims, proceedings or investigations
pending or threatened against any of the Companies or the Subsidiary
relating to the ownership, lease or use of any Company Property under or
in respect of any Environmental Laws,
(vii) the Companies have provided the Buyer copies of all
environmental audits, assessments or other evaluations in its possession
or subject to its control prepared with respect to the Business or any
Company Property;
(viii) no asbestos or polychlorinated biphenyl are present on
or at any Company Property;
(ix) except for noncompliances that have been corrected and
cannot cause the Buyer or the Companies or the Subsidiary to incur any
Environmental Liability, each of the Companies and the Subsidiary has
conducted its respective business and operations in compliance with all
material limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations established under Environmental Laws;
(x) there are no obligations, undertakings or liabilities
arising out of or relating to Environmental Laws that any of the Companies
or the Subsidiary has agreed to, assumed or retained, by contract or
otherwise; and
(xi) no facts or circumstances exist that impose or could
reasonably be expected to impose Environmental Liabilities on any of the
Companies or the Subsidiary.
In specific, but not by way of limitation, Buyer shall have the right to inspect
or test, including soil and groundwater sampling, or, at its sole cost and
expense, contract with a third party to inspect and test, for purposes of
confirming the presence of all Environmental Permits and assessing compliance
with and obligations under Environmental Laws.
2.19 Brokers or Finders. None of the Companies has engaged any Person to
act on its behalf who would have any claim against Buyer or the Subsidiary
following consummation of the Contemplated Transactions for brokerage or
finder's fees or agent's commissions or other similar payments in connection
with this Agreement or the Contemplated Transactions.
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2.20 Labor Matters. Except as completely and accurately set forth on
Schedule 2.20, (i) each of the Companies and the Subsidiary are in compliance
with all applicable federal, state and local laws, rules and regulations
respecting employment, employment practices, labor terms and conditions of
employment and wages and hours, (ii) none of the Companies nor the Subsidiary is
involved in or threatened with any labor dispute, grievance or litigation
relating to labor matters involving any Employee, including, without limitation,
violation of any federal, state or local labor, safety or employment laws,
charges of unfair labor practices or discrimination complaints, (iii) none of
the Companies nor the Subsidiary is presently, nor has been within the past
twelve months, bound by or subject to (and none of the Assets is bound by or
subject to) any written or oral, express or implied, commitment or arrangement
with any labor union, no such commitment or arrangement is currently being
negotiated and no labor union has requested or, to the best knowledge of any of
the Companies has sought to represent any of the Employees, representatives or
agents of any of the Companies or the Subsidiary (iv) there is no labor strike,
dispute, slowdown or stoppage pending, or, to the best knowledge of the
Companies, threatened against or involving any of the Companies or the
Subsidiary, and (v) to the best knowledge of the Companies, no salaried key
Employee has any plans to terminate his or her employment with any of the
Companies or the Subsidiary.
2.21 Intellectual Property.
(a) Schedule 1.2(b)(vii) includes a true, complete and accurate list
of all Intellectual Property held or owned by any of the Companies or the
Subsidiary or in which any of the Companies or the Subsidiary has any interest
and is all the Intellectual Property necessary for use in the Business as
presently conducted. Except as completely and accurately set forth on Schedule
2.21, (a) one or more of the Companies or the Subsidiary owns or has the
perpetual right to use, without payment to or interference from any Person, all
Intellectual Property identified in Schedule 1.2(b)(vii), such Intellectual
Property being valid, enforceable and in good standing. None of the Companies
knows of, nor has it received any notice of any claim for infringement or
interference or other conflict with the asserted rights of others with respect
to any Intellectual Property and one or more of the Companies or the Subsidiary
own all such Intellectual Property free and clear of all Liens, except Permitted
Liens.
(b) One or more of the Companies or the Subsidiary owns or has the
right to use all inventions (whether or not patentable), all proprietary rights
and all business information (including without limitation, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs drawings, specifications,
customer/subscriber lists, supplier lists, pricing and cost information and
business and marketing plans and proposals) (collectively "Trade Secrets")
necessary for the operation of the Business as presently conducted, free and
clear of all Liens, and no Trade Secret has been challenged or misappropriated
in any way or to the best knowledge of the Companies, has any proceeding been
threatened with respect thereto and none of the subject matter
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of any such Trade Secret has been misappropriated or is alleged to have been
misappropriated from any Person.
2.22 Effect of Transaction. Except as completely and accurately set forth
in Schedule 2.22, none of the Companies has any reasonable basis to believe that
any creditor, employee, client, customer, supplier, distributor or other Person
having a material business relationship with any of the Companies or the
Subsidiary intends to change such relationship because of the Contemplated
Transactions.
2.23 No Material Omissions. To the knowledge of the Companies, there are
no facts or circumstances that are material to the Business or the Assets that
have not been disclosed to the Buyer in this Agreement or in the Exhibits or
Schedules.
2.24 Suppliers. Except as completely and accurately set forth in Schedule
2.24, no single supplier or distributor accounted for more than 5% of the
services or merchandise purchased by the Companies and the Subsidiary during the
year ended December 31, 1996, or during the six months ended June 30, 1997, and
no single supplier or distributor is expected to account for more than 5% of
such services or merchandise during the twelve-month period ending June 30,
1998. Except as completely and accurately set forth in Schedule 2.24, since the
date of the Balance Sheet there has not been (i) any material adverse change in
the business relationship of the Companies or the Subsidiary with any supplier
or distributor of services or merchandise identified in Schedule 2.24 or (ii)
any change in any material term (including credit terms) of the supply
agreements or related arrangements with any such supplier.
2.25 Customers. Except as completely and accurately set forth in Schedule
2.25, no single customer accounted for more than 5% of the combined sales of the
Companies and the Subsidiary during the year ended December 31, 1996, or during
the six months ended June 30, 1997, and no single customer is expected to
account for more than 5% of such sales during the twelve months ended June 30,
1998. Except as completely and accurately set forth in Schedule 2.25 since the
date of the Balance Sheet there has not been (i) any adverse change in the
business relationship of the Companies or the Subsidiary with any customer
identified in Schedule 2.25 or (ii) any change in any term (including credit
terms) of the sales agreements or related agreements with any such customer.
Except as set forth on Schedule 2.25, during the past two years, none of the
Companies nor the Subsidiary has received any customer complaints concerning its
products and services, nor have they had any of their products returned by a
purchaser thereof, other than complaints and returns in the ordinary course of
business.
2.26 Performance Bonds; Letters of Credit. There are no performance or
similar bonds or letters of credit currently posted by the Companies or any of
their Affiliates for the purpose of operating the Assets.
2.27 Solvency. Each Company is not now insolvent, nor will any of the
Companies be rendered insolvent by the occurrence of the Contemplated
Transactions. In addition, immediately after giving effect to the consummation
of the Contemplated
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Transactions, (i) each of the Companies will be able to pay its debts as they
become due, (ii) the property of the Companies does not and will not constitute
unreasonably small capital, and each of the Companies will not have unreasonably
small capital and will have sufficient capital with which to conduct its
business and/or to wind up its affairs and dissolve and (iii) there will be no
pending or threatened litigation or final judgments against any of the Companies
in any action for money damages that is reasonably anticipated to be rendered at
a time when, or in amounts such that any of the Companies will be unable to
satisfy any such judgments promptly in accordance with their terms (taking into
account the maximum probable amount of such judgments in any such actions and
the earliest reasonable time at which such judgments might be rendered). The
cash available to each Company, after taking into account all other anticipated
uses of the cash of each Company, will be sufficient to pay all such judgments
promptly in accordance with their terms. As used in this Section, (x)
"insolvent" means, for any Person, that the sum of the present fair saleable
value of its assets does not and/or will not exceed its debts and other probable
liabilities, and (y) the term "debts" includes any legal liability, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent,
disputed or undisputed or secured or unsecured.
B. Each Stockholder, severally but not jointly, represents and warrants to
Buyer solely with respect to such Stockholder individually and not with respect
to any other Stockholder as follows:
2.28 Authority. Such Stockholder has all requisite legal right, power,
capacity and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement has been duly executed by such Stockholder
and constitutes the legal, valid and binding obligation of such Stockholder,
enforceable against him in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
2.29 No Conflict With Laws. The execution, delivery and performance of
this Agreement by such Stockholder and the consummation of any of the
Contemplated Transactions will not, directly or indirectly (with or without
notice or the lapse of time) except for the applicable requirements of the HSR
Act, contravene, conflict with, or result in a violation or breach of or default
under (with or without due notice or lapse of time, or both), require filing
with or obtaining consent from Governmental Body or other Person or entity
under, or give any Governmental Body or other person or entity under, or give
any Governmental Body or other person or entity the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief in
any such instance under any Legal Requirement or any Order to which such
Stockholder is subject.
2.30 No Brokers. Such Stockholder has not engaged any Person to act on his
behalf who would have any claim against Buyer or the Subsidiary for brokerage or
finders' fees or agent commissions or other similar payments in connection with
this Agreement or the Contemplated Transactions.
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2.31 Foreign Person. Such Stockholder is not a foreign person within the
meaning of Code Section 1445.
2.32 No Assets. Such Stockholder does not own, directly or indirectly,
except through the Companies or the Subsidiary, any assets, rights, franchises
or properties used or useful in the Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
3.1 Organization and Good Standing. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, duly qualified as a foreign corporation and in good standing under
the laws of all states and other jurisdictions in which the transaction of its
business requires such qualification.
3.2 Authority; No Conflict.
(a) The Buyer has all requisite corporate right, power and authority
to execute and deliver this Agreement and to perform fully its obligations
hereunder. The execution and delivery of this Agreement and the consummation by
the Buyer of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and no other corporate proceedings on the part of
the Buyer are necessary to authorize this Agreement or to consummate the
Contemplated Transactions. This Agreement has been duly executed by the Buyer
and constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally.
(b) Except as completely and accurately set forth in Schedule 3.2,
neither Buyer's execution and delivery of this Agreement nor the consummation or
performance by Buyer of any of the Contemplated Transactions will give any
person the right or ability to prevent, delay, or otherwise interfere with any
of the Contemplated Transactions pursuant to:
(i) any provision of the Certificate of Incorporation or
Bylaws of Buyer;
(ii) any Legal Requirement or Order to which Buyer may be
subject; or
(iii) any contract, agreement, arrangement or commitment,
written or oral to which Buyer is a party or by which Buyer may be bound.
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3.3 Certain Proceedings. There is no pending proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, materially delaying making illegal, or otherwise interfering with,
any of the Contemplated Transactions.
3.4 Brokers or Finders. Buyer has incurred no obligation or liability,
contingent or otherwise, and has not engaged any Person to act on its behalf who
would have any claim against any Seller for brokerage or finders' fees or
agents' commissions or other similar payments in connection with this Agreement
or any of the Contemplated Transactions.
3.5 Financial Capacity. The Buyer's Balance Sheet at July 31, 1997, a true
and correct copy of which has heretofore been delivered to the Representatives,
accurately reflects its financial position on such date in all material respects
and to the best of Buyer's knowledge, there has been no events since such date
that would have a material adverse effect on such financial condition.
ARTICLE IV
COVENANTS OF THE SELLERS
4.1 Access. During the period commencing on the date of this Agreement and
continuing through the Closing Date, the Sellers shall (i) afford to Buyer and
its representatives full and complete access during normal business hours, upon
reasonable advance notice, to the personnel, properties, contracts, books and
records, and other documents and data of the Companies and the Subsidiary, (ii)
furnish Buyer and its representatives with copies of all such contracts, books
and records (including, but not limited to, Tax Returns), and other existing
documents and data as Buyer and its representatives may reasonably request, and
(iii) furnish Buyer and its representatives such additional financial,
operating, and other data and information as Buyer and its representatives may
reasonably request, all of which shall be done under the supervision of such
representatives of the Sellers and as may be designated from time to time in
writing to Buyer. In addition, between the date of this Agreement and the
Closing Date, the Sellers will allow Buyer to meet with representatives of
certain of the Companies' and the Subsidiary's customers in order to confirm
that satisfactory business relationships exist between the Companies and/or the
Subsidiary, as applicable, and such customers. No investigation or receipt of
information shall affect any representation or warranty of the Sellers contained
in this Agreement or the conditions to the obligations of Buyer specified in
this Agreement.
4.2 Operation of the Business. Between the date of this Agreement and the
Closing Date, unless otherwise agreed to in writing by Buyer, the Sellers will:
(i) except as otherwise allowed or required pursuant to the
terms of this Agreement, conduct the business and operations of each of
the Companies and the Subsidiary only in the ordinary course in a manner
consistent with past practice;
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(ii) use best efforts to preserve intact the current business
organizations of each of the Companies and the Subsidiary, keep available
the services of the current officers, employees, and agents of each of the
Companies and the Subsidiary, and maintain the relations and goodwill with
all suppliers, customers, licensers, licensees, landlords, trade
creditors, Employees, agents, and others having business relationships
with each of the Companies or the Subsidiary;
(iii) confer with Buyer concerning operational matters of a
material nature;
(iv) maintain in full force and effect the insurance described
in Section 2.17 or insurance providing at least comparable coverage;
(v) maintain all the properties and assets of the business and
operations of each of the Companies and the Subsidiary in the ordinary
course consistent with past practice;
(vi) maintain its books and records in the usual, regular and
ordinary manner, on a basis consistent with prior years;
(vii) perform and comply with its obligations under all
Contracts in the ordinary course of business consistent with past
practice;
(viii) promptly advise Buyer of any change in circumstances
which arises prior to the Closing, which would make any representation or
warranty set forth in this Agreement untrue if such state of facts had
existed on the date of execution of this Agreement.
(ix) furnish to Buyer copies of all financial statements and
certificates and reports concerning operation of the business, as and when
such financial statements, certificates and reports are delivered to any
Seller or pursuant to any Scheduled Contract; and
(x) report periodically to Buyer concerning the status and
operation of the business and operations of each of the Companies and the
Subsidiary.
4.3 Conduct of Business of the Companies. Except as contemplated by this
Agreement or with the prior written consent of Buyer, during the period from the
date hereof to the Closing, none of the Companies will, or will permit not cause
the Subsidiary to:
(i) except for increases in salary, wages and benefits of
officers (other than executive officers) or Employees of the Companies or
the Subsidiary in the ordinary course of business in accordance with past
practice, increase the compensation or benefits payable or to become
payable to any Employee, or pay any benefit not required by any existing
plan or arrangement or grant any
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severance or termination pay to (except pursuant to existing agreements or
policies), or enter into or amend any Employee Agreement or establish,
adopt, enter into, or amend or fund any payments owing under, or
accelerate the vesting of any benefits under, any Company Benefit Plan,
except in each case to the extent required by applicable law;
(ii) acquire, sell, lease or dispose of any assets (except raw
materials, in the ordinary course of business) which are material to the
Companies or the Subsidiary, or enter into any commitment to do any of the
foregoing or enter into any material commitment or transaction (except in
the ordinary course of business not exceeding a material amount
individually or in the aggregate; for purposes of this parenthetical only,
"material" shall mean in excess of $50,000.00);
(iii) (A) create, incur, assume or prepay any indebtedness for
borrowed money (including obligations in respect of capital leases) except
for short-term debt in the ordinary course of business consistent with
past practice under existing lines of credit, (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person or (C)
make any loans, advances or capital contributions to, or investments in,
or enter into any "keep well" arrangements or other agreement to maintain
the financial condition of, any other Person;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof;
(v) pay, discharge or satisfy any claims or liabilities,
except for the payment, discharge or satisfaction of liabilities in the
ordinary course of business consistent with past practice or in accordance
with their terms as in effect on the date hereof or waive, release, grant,
or transfer any rights of material value or modify in any material respect
any existing Contract, other than in the ordinary course of business
consistent with past practice;
(vi) (A) make any material Tax election, (B) settle or
compromise any material Tax Liability or (C) extend or waive any statute
of limitations in respect of Taxes;
(vii) mortgage, pledge or subject to any Encumbrance any of
its properties or assets, tangible or intangible;
(viii) take any action that would cause any of the
representations and warranties contained in Article II A. to be untrue at
the date made or any future date or would result in any of the conditions
to the consummation of the Contemplated Transactions not being fulfilled;
or
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(ix) authorize or agree in writing or otherwise to take any of
the foregoing actions.
4.4 Third Party Consents; FTC Notification. Prior to the Closing, each of
the Companies will use commercially reasonable efforts to obtain all consents
required from third parties that are party to Contracts or Scheduled Leases to
the Contemplated Transactions. To the extent required by law, each Seller shall
file or cause to be filed promptly with the Federal Trade Commission (the "FTC")
and the United States Department of Justice (the "Justice Department") all
reports or other documents required to be filed by the Sellers under the HSR
Act, concerning the transactions contemplated hereby, and to promptly comply
with or cause to be complied with any requests by the FTC or Justice Department
for additional information concerning such transactions, so that the waiting
period specified in the HSR Act shall expire as soon as practicable after the
execution and delivery of this Agreement. Each Seller shall furnish or cause to
be furnished to Buyer such information as Buyer reasonably requires for the
purposes of performing Buyer's obligations under Section 5.1(b) hereof. All
filing fees paid pursuant to the HSR Act will be paid by Buyer.
4.5 Best Efforts. Without the prior written consent of Buyer, no Seller
shall take any action that would cause or reasonably be expected to tend to
cause the conditions to the obligations of the parties under this Agreement not
to be fulfilled, including, without limitation, taking or causing to be taken,
or permitting or suffering to be taken or to exist any action, condition or
thing that could cause the representations or warranties made by any of the
Sellers herein not to be true, complete and accurate as of the Closing. Sellers
shall use commercially reasonable efforts to obtain any consents of Governmental
Bodies, suppliers, and other Persons required in order for the Companies to sell
and transfer the Business pursuant to this Agreement. If any of the foregoing
shall require the consent of any party other than a party hereto, then this
Agreement shall not constitute an agreement to assign the same, and such items
shall not be assigned to or assumed by Buyer if an actual or attempted
assignment thereof would constitute a breach or default thereunder. Sellers
shall use commercially reasonable efforts to obtain such consents to the extent
required of such other parties. If any such consent cannot be obtained, the
Sellers will cooperate in any reasonable arrangement designed to obtain for
Buyer all benefits and privileges of the applicable instrument, contract,
license, document or permit.
4.6 Change of Companies' Name. Immediately following the Closing, the
Companies shall cease to use the Names or any similar name and as soon as
practical thereafter will file with the office of the Secretary of State of the
states of their incorporation all documents necessary to change the names of the
Companies to a name reasonably satisfactory to the Buyer. Pending the
effectiveness under the applicable corporate statutes of the Companies' name
change, the Companies shall file all necessary documentation with the
appropriate governmental authorities to evidence their doing business as
entities using a name other than the Name. The Companies shall also take the
equivalent action with respect to such name in any other jurisdiction where it
has been, or is licensed to be used.
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4.7 Vacate Real Property. Each of the Sellers shall vacate all of the
Company Property on the Closing Date.
4.8 Title Policy and Surveys.
(a) Sellers shall, as soon as practicable and no later than
the fifth day prior to the Closing Date, furnish to Buyer an Owners Title Policy
Commitment (the "Commitment") issued by a title company satisfactory to Buyer
committing and binding said title company to issue to Buyer an Owners Title
Policy in an amount not to exceed $400,000, which shall show good and
indefeasible title to the Owned Property to be vested in DWS and shall contain
or be subject to no exceptions, conditions or stipulations except ad valorem
Taxes for the current year or other matters approved in writing by Buyer (the
"Title Policy"). The survey exception shall be deleted from the Title Policy.
(b) In the event there are any Liens of any nature affecting
the Owned Property or its use, the Commitment shall list and specifically
describe all instruments (including all pertinent recording data thereof)
embodying, containing or evidencing each and all of said Liens, and a true copy
of each of said instruments shall be attached to said Commitment for examination
by Buyer.
(c) Sellers shall, at their expense, obtain and furnish to
Buyer current date as-build surveys (the "Surveys") of the Owned Property (1)
showing all boundaries and the location of all existing improvements thereon,
(2) showing any and all easements, rights-of-way and encroachments, and (3)
containing a statement of the area of the Owned Property so that the exception
relating to matters which a correct survey would show may be deleted from the
title policy to be issued to Buyer.
(d) Buyer shall advise Sellers whether it accepts said Surveys
and Commitment as soon as practicable after receipt thereof.
4.9 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Article VIII, none of the Sellers will, nor will they
permit any of their respective representatives to, directly or indirectly
solicit, initiate or encourage any inquiries, offers or proposals from, discuss
or negotiate with or execute any agreement regarding or provide any information
to, any Person (other than Buyer) relating to any transaction involving the sale
of the Business or Assets or of any of the capital stock or any other equity
securities of the Companies or the Subsidiary (including by way of an initial
public offering), or any merger, consolidation, business combination,
liquidation, recapitalization, dissolution or similar transaction involving the
Companies or the Subsidiary (collectively, "Sale Proposals") or any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Contemplated
Transactions or which that or could reasonably be expected to materially dilute
the benefits to Buyer of the Contemplated Transactions. If any such inquiries or
Sale Proposals are received by, or any such information is requested from or any
such negotiations or discussions are sought to be initiated with any Seller,
then the Sellers will promptly notify Buyer of the nature,
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terms and status of the foregoing and the identity of the inquiring party and
provide Buyer with a copy of all written materials provided in connection with
such Sale Proposal. Until such time, if any, as this Agreement is terminated
pursuant to Article VIII, none of the Sellers will accept any Sale Proposal from
any Person or entity other than Buyer.
4.10 Phase I Environmental Studies. The Companies shall, at their sole
cost and expense, deliver to Buyer at least five business days prior to the
Closing, a Phase I Environmental Survey (or its equivalent) conducted by a third
party acceptable to Buyer on each of the Companies Properties identified on
Schedule 4.10 (collectively, the "Phase I Surveys").
ARTICLE V
OTHER COVENANTS
5.1 Further Actions.
(a) Upon the terms and subject to the conditions set forth in this
Agreement each of the parties agrees to use commercially reasonable efforts to
take, or cause to be taken all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Contemplated Transactions. Each of Buyer and the Sellers
will use commercially reasonable efforts to cooperate with one another (i) in
promptly determining whether any filings are required to be made or Permits are
required to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement or any put right under any
agreement) under any Legal Requirement or from any Governmental Body or third
parties, including parties to loan agreements or other debt instruments or
Contracts, in connection with the Contemplated Transactions and (ii) in promptly
making any such filings, in furnishing information required in connection
therewith and in timely seeking to obtain any such consents, approval, permits
or authorizations.
(b) To the extent required by law, Buyer shall file promptly all
reports or other documents required or requested by the FTC or Justice
Department under the HSR Act concerning the transactions contemplated hereby,
and comply promptly with any requests by the FTC or Justice Department for
additional information concerning such transactions, so that the waiting period
specified in the Act shall expire as soon as practicable after the execution and
delivery of this Agreement. Buyer shall furnish to the Sellers such information
concerning Buyer as the Sellers need to perform their obligations under Section
4.4 of this Agreement and Buyer agrees that all filing fees required to be paid
pursuant to the HSR Act will be paid by Buyer.
(c) Each of the Companies will provide, and will cause its officers
and employees to provide, all necessary cooperation in connection with the
arrangement of
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Buyer's incurrence of any indebtedness (the "Borrowing") to be consummated
contemporaneous with or at or after the Closing in respect of the Contemplated
Transactions, including without limitation, the execution and delivery of any
commitment letters, underwriting or placement agreements, pledge and security
documents, other definitive financing documents, consents, or other requested
certificates or documents, provided that such execution and delivery of
documents are contingent upon the Closing of the Contemplated Transactions. In
addition, in conjunction with the obtaining of any such financing, at the
request of Buyer, the Companies will call for prepayment or redemption of the
indebtedness of the Companies to be assumed by Buyer pursuant to Section
1.4(a)(i) (the "Closing Date Retired Debt"); provided that no such prepayment or
redemption shall actually be made until contemporaneously with or after the
Closing and provided that such call or notice is contingent upon the Closing.
Each of the Companies will cooperate with Buyer and use commercially reasonable
efforts to assist Buyer in arranging for the repayment of all Closing Date
Retired Debt and the release of any liens, financing statements and other Liens
relating thereto.
(d) Prior to the Closing, each of the Companies will use
commercially reasonable efforts to cooperate with Buyer and to assist Buyer's
outside auditors, and to cause the Companies' existing outside auditors or
accountants (the "Company Auditors") to assist Buyer's outside auditors, in the
preparation of audited financial statements as of and for the years ending
December 31, 1995 and 1996 and unaudited financial statements as of and for the
nine months ended September 30, 1997, and any other audited, unaudited, pro
forma or other financial statements that may be reasonably requested by Buyer
for filing with the Commission in connection with any filings that may be made
by Buyer under the Securities Act or the Exchange Act or pursuant to a private
placement of the securities of Buyer in connection with the Contemplated
Transactions, including in connection with any financing to be obtained by Buyer
through the private or public debt or equity markets. The fees and expenses of
any audit and other procedures conducted by Buyer's outside auditors and by the
Company Auditor pursuant to the preceding sentence shall be borne entirely by
the Buyer.
5.2 Transfer Taxes. The parties agree that inasmuch as the Assets include
substantially all the operating assets of the Companies, the sale and purchase
of the Assets, other than the Vehicles, are exempt from sales and use taxes in
the jurisdictions in which the Assets are located pursuant to the bulk sale or
occasional sale provisions in the applicable statutes in such jurisdictions, and
that all parties hereto shall treat the transfer of the Assets provided for
herein as a bulk or occasional sale for all purposes; provided, however, that to
the extent it shall be determined after the date of the Agreement that, through
no fault or misrepresentation on the part of any Seller, the sale by the
Companies and the purchase by Buyer of all or any portion of the Assets
(including the Vehicles) is subject to a sale, use or other transfer tax, then
such tax shall be paid by Buyer. The Sellers shall cooperate with Buyer in the
preparation, execution and filing of any Tax Returns that may be required in
connection with such Taxes and any related filing fees, notarial fees and other
costs.
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5.3 Public Announcements. Neither Buyer, on the one hand, nor any of the
Sellers, on the other hand, will issue any press release or public statement
with respect to the Contemplated Transactions without the other party's prior
written consent, which consent shall not be unreasonably withheld; provided,
however, that the parties may make such disclosures as are required by law after
making reasonable efforts in the circumstances to consult in advance with the
other parties.
5.4 Non-competition. For purposes of the representations, warranties and
covenants contained in Sections 5.4(a) through 5.4(i) only, the reference to
"Seller" shall not include Edrick Fontenot.
(a) Each Seller acknowledges that pursuant to this Agreement that
Buyer has purchased from the Sellers the goodwill of the Companies and the
Business and that to induce Buyer to pay the Purchase Price for the Assets
constituting the Business that the protection and maintenance of such goodwill
constitutes a legitimate interest to be protected by the Buyer by this covenant
not to compete. Therefore, each Seller agrees that for the period (the
"Noncompetition Period") commencing upon the date hereof and ending upon the
second anniversary (the "Ending Date") of a date (the "Termination Date") that
(i) in the case of a Seller who becomes an employee of Buyer or an Affiliate of
Buyer, the termination of the Seller's employment with the Buyer or an Affiliate
of Buyer and (ii) in the case of all other Sellers, the Closing Date, such
Seller shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder (other than as a stockholder
of 5% or less of a publicly traded company), corporate officer, director, or in
any other individual or representative capacity, engage or participate in any
business that is engaged in business (the "Companies Business") related to (i)
electric and directional wireline service business and tubular testing and
handling services in the oil and gas, hydrocarbon or geothermal drilling and
exploration industries, (ii) the pipeline testing industry, or (iii) providing
any other product or service currently provided by the Companies within each of
the sixty-four parishes in Louisiana and any other geographic area where the
Companies or the Buyer has engaged or engages on the Termination Date (such
entire geographic area is hereinafter referred to as the "Noncompetition Area").
Each Seller represents to the Buyer that the enforcement of the restriction
contained in this Section 5.4 would not be unduly burdensome to such Seller.
Each Seller further represents and acknowledges that such Seller has willingly
entered into this agreement not to compete and is willing and able to compete in
other geographical areas not prohibited by this Section 5.4.
(b) Each Seller agrees that in addition to the application of the
provisions set forth in Article IX, a breach or violation of this covenant not
to compete by such Seller shall entitle the Buyer, as a matter of right, to an
injunction issued by any court of competent jurisdiction, restraining any
further or continued breach or violation of this covenant. Such right to an
injunction shall be cumulative and in addition to, and not in lieu of, any other
remedies to which the Buyer may show itself justly entitled. Further, each
Seller agrees that during any period in which such Seller is in breach of this
covenant not to compete, the time period of this covenant shall be extended for
the amount of time that such Seller is in breach hereof. Buyer
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acknowledges and agrees that a breach of this covenant not to compete by a
Stockholder shall not entitle Buyer to indemnification by the other Sellers
jointly and severally pursuant to Section 9.2(a) or any rights to receive any
portion of the Escrow in excess of such breaching Stockholder's portion of the
Escrow, and that Buyer's recourse for any such breach or violation shall be
solely against the breaching Stockholder individually. The Sellers acknowledge
and agree that a breach or violation of this covenant not to compete by the
Companies shall be subject to indemnification by the Sellers jointly and
severally pursuant to Section 9.2(a)(ii), which shall not be subject to any
limitations under Section 9.4.
(c) In addition to the restrictions set forth in paragraph (a) of
this Section 5.4, each Seller agrees that for the Noncompetition Period such
Seller will not, either directly or indirectly, (i) make known to any Person,
firm or corporation that is engaged in the Companies Business the names and
addresses of any of the customers of the Companies, Buyer or their Affiliates
relating to the Companies Business, potential customers of the Companies, Buyer
or their Affiliates relating to the Companies Business upon whom the Companies
or Buyer or their Affiliates have called upon in the 12-month period immediately
preceding the Termination Date or contacts of the Companies, Buyer or their
Affiliates relating to the Companies Business or any other information
pertaining to such Persons or (ii) call on, solicit, or take away, or attempt to
call on, solicit or take away any of the customers of the Buyer or its
Affiliates relating to the Companies Business, whether for such Seller or for
any other person, firm or corporation.
(d) Each Seller agrees that for the Noncompetition Period such
Seller will not, either directly or indirectly, (i) solicit for employment or
employ, or allow any corporation or business entity controlled directly or
indirectly by or affiliated with such Seller to solicit for employment or
employ, any person that at that time is, or at any time during the 12-month
period immediately preceding the Termination Date was, an employee, consultant
or agent of the Companies Business or (ii) make known to any person, firm or
corporation that is engaged in the Companies Business, or executive recruiting
or search firms that have clients engaged in the Companies Business, the names
of any person that at that time is, or at any time during the 12-month period
immediately preceding the Termination Date was, an employee, consultant or agent
of the Buyer or its Affiliates relating to the Companies Business.
(e) The representations and covenants contained in this Section 5.4
on the part of each Seller will be construed as ancillary to and independent of
any other provision of this Agreement, and the existence of any claim or cause
of action of any Seller against the Buyer or any officer, director, or other
Seller, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Buyer of the covenants of such Seller
contained in this Section 5.4.
(f) If any Seller violates any covenant contained in this Section
5.4 and the Buyer brings legal action for injunctive or other relief, the Buyer
shall not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of any such covenant. Accordingly, the
covenants of each Seller contained in this
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Section 5.4 shall be deemed to have durations as specified above, which periods
shall be extended for the period commencing upon the date of entry by a court of
competent jurisdiction of a final judgment enforcing the covenants of each
Seller in this Section 5.4 and ending upon the second anniversary of such date.
(g) The parties to this Agreement agree that the limitations
contained in this Section 5.4 with respect to geographic area, duration, and
scope of activity are reasonable. However, if any court shall determine that the
geographic area, duration, or scope of activity of any restriction contained in
this Section 5.4 is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
(h) In the event that any of the Sellers contests the validity or
enforceability of any of the provisions of this Section 5.4, then such Seller
hereby agrees to pay in a timely and prompt manner any and all legal fees and
expenses incurred by the Buyer from time to time as a result of such contesting
party's contesting of the validity or enforceability of any provision in this
Section 5.4; provided, however, the Buyer's fees and expenses shall not be paid
by such Seller in the event no part of this Section 5.4 is ultimately deemed
enforceable by a court of law or by settlement between the parties; and provided
further, however, nothing contained in this Section 5.4 shall obligate the Buyer
to pay any legal fees or expenses incurred by any Seller in connection with any
litigation by the Buyer against such Seller to enforce the terms of this Section
5.4 against such Seller.
(i) With respect to each of Umphries, Marcantel and Soileau and the
other individuals listed on Schedule 6.6, the provisions of this Section 5.4
shall not be enforceable against such individual in the event such individual's
employment with Buyer is terminated by Buyer without "cause" (as such term is
defined under such individual's employment agreement with the Buyer); provided,
however, the provisions of this Section 5.4 will remain enforceable against such
individual in the event such individual's employment with Buyer is terminated by
Buyer without "cause" and Buyer continues to pay such individual his
then-existing salary during the Non-Competition Period.
5.5 Purchase Price Allocation. The parties hereto agree that the Purchase
Price shall be allocated among the Assets as set forth on Schedule 5.5 hereto.
The parties further agree that any indemnified payments made pursuant to Section
9 hereof shall be treated as adjustment to the Purchase Price.
5.6 Limitation on Assignments. Notwithstanding any other provision hereof,
this Agreement shall not constitute nor require an assignment to Buyer of any
Scheduled Contract, Scheduled Lease, Permit, license or other right if an
attempted assignment of the same without the consent of any party would
constitute a breach thereof or a violation of any law or any judgment, decree,
order, writ, injunction, rule or regulation of any Governmental Body unless and
until such consent shall have been obtained. In the case of any such Scheduled
Contract, Scheduled Lease, Permit, license
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or other right that cannot be effectively transferred to Buyer without such
consent (a "Consent Required Contract"), the Sellers agree that between the date
hereof and the Closing Date they will use commercially reasonable efforts to
obtain or cause to be obtained the necessary consents to the transfer of any
Consent Required Contract. Buyer agrees to cooperate with the Sellers in
obtaining such consents and to enter into such arrangement of assumption as may
be reasonably requested by each required consenting party under a Consent
Required Contract. Schedule 5.6 sets forth each Consent Required Contract. In
the event that the Sellers shall have failed prior to the Closing Date to obtain
consents to the transfer of any Consent Required Contract and Buyer shall have
waived the conditions set forth in Section 6.12, the terms of this Section 5.6
shall govern the transfer of the benefits of each such contract. Seller and
Buyer shall use their best efforts after the Closing Date to obtain any required
consent to the assignment to, and assumption by, Buyer of each Consent Required
Contract that is not transferred to Buyer at the Closing (a "Nonassigned
Contract"). With respect to the Nonassigned Contracts and any of the Assets that
are not assignable by the terms thereof or consents to the assignment thereof
cannot be obtained as provided herein, such Assets shall be held by the
Companies in trust for the Buyer and shall be performed by the Buyer in the name
of the Companies and all benefits and obligations derived thereunder shall be
for the account of the Buyer; provided, however, that where entitlement of the
Buyer to such Assets hereunder is not recognized by any third party, the Seller
shall, at the request of the Buyer, enforce in a reasonable manner, at the cost
of and for the account of the Buyer, any and all rights of the Seller against
such third party.
5.7 Stockholder Approval; Voting; Restriction on Disposition.
(a) Each Stockholder hereby irrevocably (i) waives notice of a
meeting of shareholders for purpose of approving and adopting this Agreement as
contemplated by Section 121 of the Louisiana Business Corporation Law ("LBCL"),
(ii) approves and adopts, and consents to the approval and adoption of this
Agreement, the transfer of the Business and Assets as provided for herein and
all of the Contemplated Transactions, and (iii) waives any right to dissent or
seek any appraisal rights on account of the Contemplated Transactions. The
Companies and the Stockholders shall take such additional action as may be
necessary under the LBCL to approve the Contemplated Transactions.
(b) Except as contemplated by this Agreement, prior to the earlier
of the Closing or the termination of this Agreement as provided for herein, each
of the Stockholders agrees that such Stockholder will not contract to sell,
sell, encumber or otherwise transfer or dispose of any shares of the Companies'
stock or any interest therein, or grant any option or other right in respect
thereof, or grant any voting rights with respect thereto, without the prior
written consent of Buyer.
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ARTICLE VI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER TO CLOSE
The obligations of Buyer to consummate the Contemplated Transactions is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part),
and each of the Sellers shall use commercially reasonable efforts to cause such
conditions to be fulfilled; provided, however, Buyer's election to proceed with
the closing of the Contemplated Transactions shall not be deemed a waiver of any
breach of any representation, warranty or covenant contained herein, whether or
not known to Buyer or existing on the Closing Date:
6.1 Accuracy of Representations. Each of the representations and
warranties of the Sellers set forth in this Agreement shall have been true,
complete and accurate in all material respects as of the date of this Agreement,
and shall be true, complete and accurate in all material respects as of the
Closing Date as if made on the Closing Date, disregarding all references in such
representations and warranties to "material", "materially", "Material Adverse
Change", "in all material respects" or similar exceptions, with only such
exceptions as would not individually or in the aggregate have a Material Adverse
Effect. The Sellers shall have delivered to the Buyer certificates dated the
Closing Date, and in the case of each of the Companies, signed by its officers,
and in the case of each Stockholder, signed by the Stockholder or on his behalf
by the Representatives, to the effect set forth above in this Section 6.1 as to
the representations and warranties made by the Sellers in this Agreement.
6.2 Performance. Each of the covenants and obligations that the Sellers
are required to perform or to comply with pursuant to this Agreement at or prior
to the Closing shall have been duly performed and complied with. The Sellers
shall have delivered to the Buyer certificates dated the Closing Date, and in
the case of each of the Companies, signed by its officers, and in the case of
each Stockholder, signed by the Stockholder on or his behalf by the
Representatives, to the effect set forth above in this Section 6.2 as to the
covenants and obligation that such Seller is required to perform or comply with
pursuant to this Agreement.
6.3 No Proceedings. Since the date of this Agreement, no proceeding shall
have been commenced or threatened by a third party (a) involving any challenge
to, or seeking damages or other relief in connection with any of the
Contemplated Transactions, (b) that could reasonably be expected to have the
effect of preventing, delaying or restricting, making illegal, or otherwise
interfering with, or diminishing the value to Buyer of, any of the Contemplated
Transactions, or (c) that could reasonably be expected to have the effect, if
adversely decided, of restricting or interfering with the Business or Assets
after Closing or to have a Material Adverse Effect.
6.4 No Prohibition. No Legal Requirement or Order shall be in effect (or
enacted, promulgated, passed, announced or proposed) that (a) prohibits,
restricts or
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gives rise to a cause of action with respect to any of the Contemplated
Transactions or (b) is not in effect on the date hereof, and restricts or
interferes with the Business or Assets after the Closing or could reasonably be
expected to have a Material Adverse Effect.
6.5 No Material Adverse Change. During the period from the date hereof
through the Closing Date, there shall not have occurred any event that has had
or could reasonably be expected to have a Material Adverse Effect.
6.6 Employment Agreements. Employment Agreements substantially in the form
of Exhibit E hereto shall have been duly executed and delivered by Buyer and
each of the individuals listed on Schedule 6.6 and with the salary amounts for
such individuals as listed on Schedule 6.6.
6.7 Closing Documents. Buyer shall have received from the Sellers such
closing certificates, documents and opinions as Buyer and its counsel shall have
reasonably requested including, without limitation, those certificates and
documents to be delivered pursuant to Section 1.2(b).
6.8 Non-Foreign Person Affidavit. Each Stockholder shall have delivered to
the Buyer a duly executed affidavit in the form set forth in Treasury
Regulations Section 1.1445-2(b)(2)(ii)(A) and a duly executed United States
Internal Revenue Service Form W-9.
6.9 FTC Notification. All required filings under the HSR Act, if any,
shall have been made and the required waiting period or periods thereunder shall
have expired without governmental objection thereto.
6.10 Other Agreements. The Escrow Agreement, the General Conveyance,
Transfer and Assignment, the Assumption Agreement and the Patent Assignment
shall have been executed by the Companies, the Stockholders and the
Representatives, as applicable.
6.11 Consent Required Contracts. All consents of, and notices to, third
parties that are required under the Consent Required Contracts (defined in
Section 5.6) shall have been obtained and all notices to third parties of such
assignments shall have been sent in accordance with the provisions of such
Consent Required Contracts.
6.12 Title Policy. Sellers shall have furnished to Buyer, at DWS' sole
expense, the Title Policy.
6.13 Environmental Review Report. Buyer shall have received, at the
Companies' expense, the Phase I Surveys as to the absence of any evidence of
noncompliance with any Environmental Laws that could materially affect the
Business or Assets to be acquired.
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6.14 Audited Financial Statements. Buyer shall have received consolidated
financial statements of the Companies, audited by Ernst & Young, as of and for
the nine months ended September 30, 1997, reflecting consolidated EBITDA for the
Companies for the nine months ended September 30, 1997, of at least $8,250,000.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
SELLERS' OBLIGATION TO CLOSE
The obligation of the Sellers to consummate the Contemplated Transactions
is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Companies, in whole or
in part), and Buyer shall use its best efforts to cause such conditions to be
fulfilled; provided, however, the Sellers' election to proceed with the closing
of the Contemplated Transactions shall not be deemed a waiver of any breach of
any representation, warranty or covenant contained herein, whether or not known
to the Sellers or existing on the Closing Date:
7.1 Accuracy of representations. Each of the representations and
warranties of Buyer in this Agreement shall have been true, complete and
accurate in all material respects as of the date of this Agreement and shall be
true, complete and accurate in all material respects as of the Closing Date as
if made on the Closing Date, disregarding all references in such representations
and warranties to "materially", "Material Adverse Change", "Material Adverse
Effect", "in all material respects" or similar expressions, with only such
exceptions as would not individually or in the aggregate have a material adverse
effect on Buyer. The Buyer shall have delivered to each of the Sellers a
certificate, dated the Closing Date and signed by an officer of the Buyer, to
the effect set forth above in this Section 7.1.
7.2 Performance. Each of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing, shall have been performed and complied with. The Buyer shall have
delivered to each of the Sellers a certificate, dated the Closing Date and
signed by an officer of the Buyer, to the effect set forth above in this Section
7.2.
7.3 No Prohibition. Neither the consummation nor the performance of any of
the Contemplated Transactions will, directly or indirectly, contravene, or
conflict with, or result in a violation of, or cause the Sellers to suffer any
adverse consequence under, any applicable Legal Requirement or Order which was
not in effect or outstanding, as appropriate, prior to the date of this
Agreement.
7.4 Closing Documents. Buyer shall have delivered such closing
certificates reasonably requested by the Sellers and their counsel.
7.5 Other Agreements. Buyer and the Escrow Agent shall have executed the
Escrow Agreement and Buyer shall have executed and delivered the Employment
Agreements referred to in Section 6.6.
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7.6 FTC Notification. All required filings under the Act, if any, shall
have been made and the required waiting period or periods thereunder shall have
expired without governmental objection thereto.
7.7 Purchase Price. Buyer shall have remitted to the Sellers the Cash
Consideration and to the Escrow Agent the Escrow Amount.
7.8 No Proceedings. Since the date of this Agreement, no proceeding shall
have been commenced or threatened by a third party (a) involving any challenge
to, or seeking damages or other relief in connection with any of the
Contemplated Transactions, or (b) that could reasonably be expected to have the
effect of preventing, delaying, restricting, making illegal, or otherwise
interfering with or diminishing the value to the Sellers of, any of the
Contemplated Transactions.
ARTICLE VIII
TERMINATION
8.1 Termination Events. This Agreement may, by written notice given prior
to the Closing, be terminated:
(i) by Buyer, if a breach of any of the representations,
warranties or covenants of the Sellers set forth in this Agreement has
been committed that individually or in the aggregate may reasonably be
expected to result in Damages to Buyer Indemnitees under this Agreement
exceeding $750,000 and such breach has not been (A) waived by Buyer or (B)
cured by the Sellers within ten (10) days after their receipt of written
notice thereof from Buyer;
(ii) by the Companies, if a material breach of any of the
representations, warranties, or covenants of Buyer set forth in this
Agreement has been committed by Buyer and such breach has not been (A)
waived by the Companies or (B) cured by Buyer within ten (10) days after
their receipt of written notice thereof from the Companies;
(iii) by Buyer, if any of the conditions in Article VI has not
been satisfied and if satisfaction of such condition is or becomes in the
reasonable opinion of Buyer impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has
not waived such condition on or before the Closing Date;
(iv) by the Companies, if any of the conditions in Article VII
has not been satisfied and if satisfaction of such condition is or becomes
impossible (other than through the failure of the Sellers to comply with
their obligations under this Agreement) and the Companies has not waived
such condition on or before the Closing Date;
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(v) by mutual consent of Buyer and the Companies;
(vi) by Buyer if, during the period commencing on the date
hereof and ending on the Closing Date, there shall have occurred any
material adverse change in the operations, condition (financial or other),
assets, prospects, results of operations or business of the Companies;
(vii) by any of the Sellers, if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before January 31, 1998, or such later date as the parties may agree upon
in writing; or
(viii) by the Companies if there are any nonwillful or
unintentional breaches of any representations, warranties or covenants of
the Companies under this Agreement that result in or have the potential to
result in liabilities that individually or in the aggregate may reasonably
be expected to result in Damages to Buyer Indemnitees under this Agreement
exceeding $750,000 and Buyer has not waived such breaches.
8.2 Effect of Termination. Termination of this Agreement pursuant to this
Article VIII shall terminate all obligations of the parties hereto except for
the obligations under Sections 5.3, 10.1, 10.2, and 10.3, which shall survive
such termination; provided, however, that termination pursuant to Section 8.1
(other than clause (v) thereof) shall not relieve the defaulting or breaching
party hereunder from any liability to the other party hereto resulting from the
default or breach hereunder of such defaulting or breaching party occurring
prior to the date of termination.
ARTICLE IX
INDEMNIFICATION; REMEDIES
9.1 Survival. Subject to the limitations set forth in Section 9.4, the
representations and warranties of the Companies set forth in Article II A.
(Sections 2.1 through 2.27) and in any certificate or instrument delivered by
the Companies in connection herewith shall survive the Closing and any
investigation by the parties hereto or their representatives until the close of
business on April 30, 1999, following which the Buyer shall cease to have any
right to bring any action or present any claim for a breach of such
representations and warranties; provided that there shall be no termination of
any such representation or warranty as to which a bona fide claim has been
asserted and notice of such claim has been delivered to the Representatives
prior to such termination date. The representations and warranties of the
Stockholders set forth in Article II B. (Sections 2.28 through 2.32) and of the
Buyer set forth in Article III shall survive the Closing indefinitely and any
investigation by the parties hereto or their representatives. Nothing in this
Section 9.1 or in any other provision in this Article IX shall at any time
relieve any party hereto from the performance of such
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party's agreements, covenants and undertakings set forth in this Agreement or in
any of the other Operative Documents.
9.2 Indemnification and Reimbursement by the Sellers.
(a) Subject to the limitations set forth in Sections 9.1 and 9.4,
the Sellers will jointly and severally indemnify, defend and hold harmless
Buyer, its affiliates and their respective officers, directors, shareholders,
successors and permitted transferees and assigns (each, a "Buyer Indemnitee")
from and against, and will reimburse such parties for, any Damages (as defined
in Section 9.2(b)) arising directly or indirectly from any of the following
(except for breaches of any covenant of a Stockholder contained in Section 5.4
hereof, for which the Sellers shall not be jointly liable):
(i) any breach of any representation or warranty (it being
understood that for all purposes of this Article IX, any such
representation or warranty shall be interpreted without giving effect to
the word "materially", "Material Adverse Change", "Material Adverse
Effect", "in all material respects", or "material" or other qualifications
or exceptions based on such terms) made by the Companies in this
Agreement, the Schedules or any supplements to the Schedules, the Exhibits
hereto, when executed, or certificates of the Companies delivered to the
Buyer in connection with this Agreement;
(ii) any breach by the Companies of any covenant or obligation
of the Companies in this Agreement (including, without limitation, the
obligations set forth in Sections 5.4 and 10.1), the Exhibits hereto, when
executed, or certificates of the Companies delivered to the Buyer in
connection with this Agreement;
(iii) all Taxes payable by or assessed against the Companies
or the Subsidiary with respect to any Tax period or portion of a period
ended on or before the Closing Date (a "Pre-Closing Period"), but only to
the extent that the specific Taxes payable or assessed are not reflected
as current liabilities (excluding deferred Taxes) on the Final Closing
Balance Sheet.
In the case of any ad valorem Tax that relates to a taxable
period of the Business that begins on or before the Closing Date but does
not end on or before the Closing Date (a "Straddle Period"), the portion
of such Tax attributable to the Companies for each of the Pre-Closing
Period and the period or portion thereof beginning on the day after the
Closing Date (the "Post-Closing Period") shall be the portion attributable
to the Pre-Closing Period in the amount of such Tax for the entire taxable
period multiplied by a fraction the numerator of which is the number of
days in the Pre-Closing Period and the denominator of which is the number
of days in the entire taxable period. The amount of such Tax remaining
after subtracting the portion attributable to the Pre-Closing Period (as
determined in accordance with the preceding sentence) is the amount of
such Tax attributable to the Post-Closing Period; and
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<PAGE> 68
(iv) the ownership, management or use of any of the Assets or
the conduct of the Business on or prior to the Closing Date, other than
with respect to the liabilities assumed by Buyer hereunder pursuant to
Section 1.4.
(b) each of the Stockholders, severally and not jointly, will
indemnify, defend and hold harmless each Buyer Indemnitee from and against, and
will reimburse such parties for, any Damages arising directly or indirectly from
(i) any breach of any representation or warranty made by such Stockholder in
this Agreement when executed or in certificates delivered by or on behalf of
such Stockholder to the Buyer in connection with this Agreement; and (ii) any
breach by such Stockholder of any covenant or obligation of such Stockholder in
this Agreement (including, without limitation, the obligations set forth in
Section 5.4) when executed or in certificates delivered by or on behalf of such
Stockholder to the Buyer in connection with this Agreement.
(c) As used in this Agreement, the term "Damages" shall mean any
claims, liabilities, obligations, losses, damages (including, without
limitation, any actual or punitive damages under any statutory laws, common law
causes of action, contractual obligations or otherwise, Environmental
Liabilities, and damages (i) to third parties for personal injury or property
damage or (ii) to natural resources), deficiencies, assessments, Encumbrances,
judgments or causes of action, fines, penalties, Taxes (including Taxes, if any,
arising from or related to receipt of indemnity payments by the Indemnified
Party hereunder), costs and expenses (including, without limitation, attorneys'
fees and costs and expenses incurred in investigating, preparing, defending
against or prosecuting any litigation claim, action, suit or other proceeding or
demand related to the foregoing and enforcing any indemnification Claim pursuant
to this Article IX).
9.3 Indemnification and Reimbursement by Buyer. From and after the
Closing, Buyer will indemnify, defend and hold harmless the Sellers, their
affiliates and their respective officers, directors, shareholders, successors
and permitted transferees and assigns from and against, and will reimburse such
parties for, any Damages arising directly or indirectly from any of the
following:
(i) any breach of any representation or warranty made by Buyer
in this Agreement, the Schedules or any supplements to Sellers, the
Exhibits hereto, when executed, or certificate delivered to the Sellers in
connection with this Agreement;
(ii) any breach by Buyer of any covenant or obligation of
Buyer in this Agreement, the Exhibits hereto, when executed, or
certificate delivered to the Sellers in connection with this Agreement;
and
(iii) conduct of the Business and ownership or use of the
Assets by the Buyer following the Closing, except where any such Damages
are expressly made subject to indemnification and reimbursement by the
Sellers pursuant to Section 9.2.
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<PAGE> 69
9.4 Limitations on Sellers' Indemnification Obligations. No Seller shall
have liability to Buyer for indemnification under (i) Section 9.2(a)(i) for
Damages arising out of non-willful and inadvertent inaccuracies in or breaches
of the representations and warranties of the Companies contained in Article II
A. hereof (other than inaccuracies in or breaches of Sections 2.3 and 2.19) or
(ii) Section 9.2(a)(iv) unless and until the aggregate of all such Damages
exceeds $400,000 (the "Basket Amount"), it being understood that such Damages
shall accumulate until such time or times as the aggregate of all such Damages
exceeds the Basket Amount, whereupon the Buyer shall be entitled to
indemnification hereunder for Damages arising out of such inaccuracies or
breaches to the extent that the aggregate amount thereof exceeds $200,000. The
Basket Amount shall not apply to Damages arising out of the breach of the
representations and warranties contained in Sections 2.3, 2.19, or of the
representations and warranties of each of the Stockholders contained in Article
II B., nor shall it apply to any Damages arising out of any matter subject to
indemnification pursuant to clauses (ii) or (iii) of Section 9.2(a) or any
matter subject to indemnification pursuant to Section 9.2(b). Notwithstanding
anything herein to the contrary, the total liability of the Sellers to the Buyer
Indemnitees pursuant to clauses (i) and (iv) of Section 9.2(a) shall not exceed
the outstanding balance of the Escrow held by the Escrow Agent; provided
however, this limitation shall not apply to Damages arising out of any matter
subject to indemnification pursuant to clauses (ii) or (iii) of Section 9.2(a)
or any matter subject to indemnification pursuant to Section 9.2(b).
9.5 Procedure for Indemnification; Deferred Consideration Set-Off.
(a) Notice of any claim, demand, or other event that may give rise
to a Claim (as defined below), including a Third Party Claim (as defined below)
by a party, (the "Indemnified Party") for indemnification provided for under
this Agreement shall be made by written notice to the indemnifying party (the
"Indemnifying Party"), which notice shall include in reasonable detail the
nature of such Claim (to the extent known), and in the case of a Third Party
Claim (as defined below), shall be delivered within 60 business days (for
purposes of this Agreement, "business day" shall mean any holiday except a
Saturday or Sunday or day for which commercial banks in Houston, Texas are
generally closed for business) after receipt by such Indemnified Party of
written notice of the claim, demand or other event which may give rise to such
Third Party Claim; provided, however that failure to give notification of a
claim, demand or other event shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been materially
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party, within ten business days after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to any Third
Party Claim; provided, however, that failure to provide copies of such notices
and documents (including court papers) shall not affect the indemnification
provided hereunder except to the extent the Indemnifying Party shall have been
materially prejudiced as a result of such failure. For Claims being made in
whole or in part by the Buyer under the Escrow Agreement, notice or delivery of
documents to the Representatives shall be deemed to be sufficient notice or
delivery under this Section 9.5(a).
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<PAGE> 70
(b) Any proposed claim (a "Claim") for indemnification provided for
under this Agreement including any claim for indemnification provided for under
this Agreement in respect of, arising out of or involving a claim or demand made
by any person, firm, Governmental Body or other entity (a "Third Party Claim")
shall be conclusive and binding unless, within 30 days after delivery to the
Indemnifying Party of the written notice of such Claim, the Indemnifying Party
shall deliver a written statement of specific objections thereto to the
Indemnified Party. If any differences are resolved by agreement of the
Indemnifying Party and the Indemnified Party within 45 days after the delivery
of the statement of objections to the Indemnified Party (the "Resolution
Period"), then the agreed amount of such indemnity payment shall be conclusive
and binding. If any differences are not resolved by agreement of the
Indemnifying Party and the Indemnified Party within the Resolution Period, such
differences shall be submitted (except in the event all or a portion of the
Claim is being presented for payment from the Escrow Fund in accordance with the
terms and conditions of the Escrow Agreement, in which case any arbitration will
be held in abeyance in accordance with the second paragraph of Section 6 of the
Escrow Agreement, if applicable) by the Indemnifying Party and/or the
Indemnified Party to the American Arbitration Association for the appointment
(in the absence of agreement by the parties as to such appointment) of a single
arbitrator to resolve the dispute. The decision of the arbitrator shall be set
forth in a written report delivered to the Indemnifying Party and the
Indemnified Party and shall be conclusive and binding on the Indemnifying Party
and the Indemnified Party. The dispute shall be settled by arbitration in
Houston, Texas. This arbitration provision is expressly made pursuant to and
shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14 (the
"Arbitration Act"). The parties hereto agree that pursuant to Section 9 of the
Arbitration Act that a judgment of the United States District Court for the
Southern District of Texas, or another court of competent jurisdiction shall be
entered on the award pursuant to the arbitration. The fees, costs and expenses
of the arbitrator shall be borne by the Indemnifying Party and the Indemnified
Party in inverse proportion as they may prevail on matters resolved by the
arbitrator, which proportionate allocation shall be determined by the arbitrator
at the time the determination is rendered by the arbitrator on the merits of the
matters submitted.
(c) The Buyer shall take exclusive control over all matters relating
to any Third Party Claim. Each of the Indemnified Party and the Indemnifying
Party shall have the right, at its option and its own expense, to be represented
by counsel of its choice and to participate in the defense, negotiation and/or
settlement of the Third Party Claim. Counsel employed by the Indemnified Party
or Indemnifying Party, as applicable, shall act in an advisory capacity only
with respect to the defense provided by the Companies. The Buyer shall in good
faith defend each such claim with counsel selected by the Buyer and reasonably
acceptable to the Indemnified Party and the Indemnifying Party. The Buyer shall
keep the Indemnified Party and the Indemnifying Party fully informed at all
times of the status of the Third Party Claim. The Buyer, the Indemnifying Party
and the Indemnified Party shall cooperate in order to insure the proper and
adequate defense of the Third Party Claim which assistance shall include,
without limitation, making available to the other party all pertinent
information under its control as to the claim and making appropriate personnel
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<PAGE> 71
reasonably available for any discovery or trial. The Buyer shall notify the
Indemnified Party and the Indemnifying Party prior to settling or compromising
any Third Party Claim.
(d) The Indemnifying Party shall provide indemnity payments to the
Indemnified Party, in the case the Indemnified Party is Buyer, for any
applicable Damages upon demand by the Indemnified Party first pursuant to the
Escrow Agreement; provided, however, with respect to Claims relating to the
representations, warranties and covenants contained in Sections 1.8, 4.7, 5.1,
5.4 or 10.1, the Buyer may elect to receive indemnity payments by certified or
cashier's check from the Sellers before electing to receive payments under the
Escrow Agreement. If any Seller shall at any time owe or otherwise become liable
to Buyer for any amount, in addition to Buyer's or the Companies' other rights
hereunder, at law or in equity, Buyer and the Companies shall have the right to
offset any such amount against any amount held by or owed to Buyer or the
Companies for the account of or by any of the Stockholders.
9.6 Escrow. The Buyer shall deliver the Escrow Amount to the Escrow Agent
at the Closing, which shall be held and maintained by the Escrow Agent in
accordance with the Escrow Agreement as an Escrow (the "Escrow") available to
satisfy the indemnification rights of the Buyer Indemnitees set forth in Section
9.2(a). Notwithstanding any other provision hereof or of the Escrow Agreement,
the Representatives, acting on behalf of the Sellers, shall be entitled to
receive immediately following the close of business on April 30, 1998, an amount
equal to (i) $3,000,000.00 less (ii) the sum of (A) the amount of all payments
theretofore made to any Buyer Indemnitee by the Escrow Agent for any Claims and
(B) the amount of any Damages which are the subject of outstanding Claims by the
Buyer Indemnitees. Thereafter, the Representatives shall be entitled to receive
the remaining funds in the Escrow (less the amount of any Damages which are the
subject of outstanding Claims by the Buyer Indemnitees) immediately following
the close of business on April 30, 1999.
9.7 Appointment of Representatives. Each of the Stockholders hereby
constitutes and appoints Henry R. J. Cournoyer and Francis I. Bourque, Jr. as
such Seller's duly authorized representatives and attorneys-in-fact (the
"Representatives") for all purposes of this Agreement, the Escrow Agreement and
all actions to be taken hereunder and thereunder, having jointly (and not
individually) the power and authority, without limitation, (i) to execute and
deliver, for and on behalf of such Seller, the Escrow Agreement or any other
documents, certificates, or instruments required to be executed in connection
with the Contemplated Transactions; (ii) to act for and on behalf of such Seller
with respect to any disputes arising under this Agreement and the Escrow
Agreement; (iii) to exercise any investment authority conferred upon them by the
Escrow Agreement; and (iv) to execute and deliver, for and on behalf of such
Seller, all certificates, confirmations and other documents (including those
contemplated by Article VI hereof) as shall be necessary and appropriate to
consummate the Contemplated Transactions and to fulfill any and all of such
Seller's obligations hereunder. Such power and authority of the Representatives
shall be irrevocable. In the event either of the Representatives shall die or
become disabled or for any other reason shall cease to function in the foregoing
capacity, the other Representative shall have
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<PAGE> 72
full power and authority to so function individually. Each Seller expressly
acknowledges and agrees that neither of the Representatives shall have liability
to such Seller for errors in judgment or any acts or omissions in connection
herewith, whether or not disclosed and whether or not due to his negligence,
unless caused by his willful misconduct. The Representatives shall be
indemnified from the Escrow out of the proceeds available to the Sellers
therefrom for any expenses or liabilities (including costs of investigation and
attorneys' fees) that they or either of them may incur by reason of claims made
against them or either of them in their capacity as Representatives hereunder,
whether or not due to negligence, unless such expense or liability is caused by
such Representatives' willful misconduct or such indemnification is prohibited
by applicable law. To the extent such indemnification obligation shall not be
satisfied by such Seller individually, the Representatives are authorized and
empowered to withhold from such Seller's share of the funds held in the Escrow,
upon release thereof to the Representatives, such amounts as shall be required
in order to satisfy such indemnification obligation.
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, negotiation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
all their respective counsel and representatives.
10.2 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given (a) when delivered, if delivered by hand (with written confirmation of
receipt) or sent by telecopy (with telephone confirmation of receipt), (b) three
days after deposited in the mails, if sent via certified mail, with return
receipt requested, or (c) one day after sending, if sent by a nationally
recognized overnight delivery service (receipt requested) specifying next day
delivery, in each case to the appropriate addresses set forth below (or to such
other addresses as a party may designate by notice to the other parties):
If to the Sellers, to the names and addresses as set forth on Schedule
10.2, with copies to each of the Representatives at their respective addresses
set forth on Schedule 10.2:
If to Buyer: Dailey International Inc.
One Lawrence Center
P.O. Box 1863
Conroe, Texas 77305
Attention: General Counsel
with a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attention: Robert F. Gray, Jr.
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<PAGE> 73
10.3 Jurisdiction; Service of Process. Any suit, action or other
proceeding seeking to enforce any provision of, or based upon any right arising
out of, in connection or in any way relating to, this Agreement shall be brought
only in the United States District Court for the Eastern District of Texas or,
if such court does not have subject matter jurisdiction, the District Court of
the State of Texas, County of Harris. Each party hereby irrevocably consents and
submits to the jurisdiction and venue of such courts, and irrevocably waives any
objection which it may now or hereafter he to the venue of any suit, action or
proceeding brought in such courts and any claim that such suit, action or
proceeding brought in such courts has been brought in an inconvenient forum and
lack of jurisdiction.
10.4 Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.5 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power or privilege. Without
limiting the generality of the foregoing, absent a waiver in writing as
aforesaid, the parties hereto shall not by proceeding with the Closing be deemed
to have waived any breach of any representation and warranty or covenant by the
other parties hereto even if it had knowledge of such breach prior to the
Closing.
10.6 Entire Agreement and Modification. Except as set forth in the final
sentence of this Section 10.6, this Agreement (including the Exhibits and
Schedules hereto) supersedes all prior agreements between the parties with
respect to its subject matter and constitutes a complete and exclusive statement
of the terms of the agreement between the parties with respect to its and their
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment. Notwithstanding the
foregoing, the terms and conditions and obligations of the respective parties
hereto contained in that Letter Agreement dated May 29, 1997, by and between
Buyer and DSI and the Companies shall survive the execution of this Agreement,
except to the extent the parties are required to disclose information related to
this Agreement or the Contemplated Transactions (i) in filings with the FTC or
Justice Department or (ii) pursuant to the disclosure requirements contained in
the Securities Act or Exchange Act, whether by press release, in a private
placement memorandum, or otherwise.
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10.7 Assignments, Successors, and No Third Party Rights. None of the
parties may assign any of their respective rights under this Agreement without
the prior consent of the other parties, provided, however, that no consent shall
be required of Buyer to assign its rights (but not delegate or assign its
obligations) hereunder, in whole or in part, to one or more of its affiliates or
pledge and assign its rights hereunder to the financial institutions providing
financing to the Buyer in connection with the Contemplated Transactions, as
security for the Buyer's obligations to such institutions. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors, permitted assigns, heirs,
executors, and personal representatives of the parties. Except as provided in
this Section 10.7, nothing in this Agreement, express or implied, is intended to
or shall confer on, any person other than any of the parties hereto, any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their
successors, assigns, heirs, executors, and personal representatives.
10.8 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
10.9 Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
10.10 Governing Law. This Agreement will be governed by and construed
under the internal laws of the State of Texas without regard to its principles
pertaining to conflict of laws.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
10.12 Construction. The provisions of this Agreement were negotiated by
the parties hereto and this Agreement shall be deemed to have been drafted by
all of the parties hereto. Unless expressly provided otherwise in this
Agreement, or unless the context requires otherwise (i) the singular shall mean
the plural, the plural shall mean the singular and the use of any gender shall
include all genders; and all references to any particular party defined herein
shall be deemed to refer to each and every person defined herein as such party
individually, and to all of them, collectively, jointly and severally as though
each were named wherever the applicable defined term is used; (ii) all
references to "Articles" and "Sections" shall be deemed to refer to the
provisions of this Agreement and all references to "Schedules" and "Exhibits"
shall be deemed to refer
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<PAGE> 75
to the schedules and exhibits annexed to this Agreement; (iii) all references to
time herein shall mean Central Standard Time or Central Daylight Time, as then
in effect; and (iv) all references to sections, subsections, paragraphs or other
provisions of any Legal Requirement that consists of a law, ordinance,
regulation, statute or treaty, shall be deemed to include successor, amended,
renumbered and replacement provisions thereof through the Closing Date.
SIGNATURES BEGIN ON THE NEXT PAGE
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<PAGE> 76
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DAILEY INTERNATIONAL INC.
By: ______________________________________
James F. Farr
President and Chief Executive Officer
DIRECTIONAL WIRELINE SERVICES, INC.
By: ______________________________________
Name: ________________________________
Title: _______________________________
DAMCO SERVICES, INC.
By: ______________________________________
Name: ________________________________
Title: _______________________________
DAMCO TONG SERVICES, INC.
By: ______________________________________
Name: ________________________________
Title: _______________________________
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<PAGE> 77
SHAREHOLDERS
- -------------------------------------- ---------------------------------
Henry R. J. Cournoyer Spouse
- -------------------------------------- ---------------------------------
Francis I. Bourque, Jr. Spouse
- -------------------------------------- ---------------------------------
Edrick Fontenot Spouse
- -------------------------------------- ---------------------------------
Joseph McGoey Spouse
- -------------------------------------- ---------------------------------
Randy Raymond Spouse
- -------------------------------------- ---------------------------------
Darwin Ladon Miller Spouse
- -------------------------------------- ---------------------------------
Don Umphries Spouse
- -------------------------------------- ---------------------------------
Emile Marcantel Spouse
- -------------------------------------- ---------------------------------
Charles Soileau Spouse
69
<PAGE> 78
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 59,611
<SECURITIES> 0
<RECEIVABLES> 36,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,943
<PP&E> 6,417
<DEPRECIATION> 0
<TOTAL-ASSETS> 204,082
<CURRENT-LIABILITIES> 22,961
<BONDS> 114,217
0
0
<COMMON> 95
<OTHER-SE> 64,980
<TOTAL-LIABILITY-AND-EQUITY> 204,082
<SALES> 0
<TOTAL-REVENUES> 54,593
<CGS> 0
<TOTAL-COSTS> 36,256
<OTHER-EXPENSES> 701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,225
<INCOME-PRETAX> 2,353
<INCOME-TAX> 1,035
<INCOME-CONTINUING> 1,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,318
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
</TABLE>
