<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JUNE 20, 1997
DAILEY PETROLEUM SERVICES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1389 76-0503351
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION) CLASSIFICATION CODE NUMBER)
</TABLE>
2507 NORTH FRAZIER
P.O. BOX 1863
CONROE, TEXAS 77305
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 350-3399
================================================================================
EXHIBIT INDEX BEGINS ON PAGE 6.
<PAGE> 2
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On June 20, 1997, Dailey Petroleum Services Corp., a Delaware
corporation (the "Company"), acquired all of the outstanding capital stock of
Air Drilling International, Inc., a Delaware corporation ("ADI"), and its
subsidiaries (the "ADI Acquisition"), for a total purchase price of $29.6
million and the assumption of approximately $16.8 million of indebtedness of ADI
and its subsidiaries (the "ADI Debt"). The purchase price was determined
through arms-length negotiations between the parties. Contemporaneously with
the ADI Acquisition, the Company also repaid certain of the outstanding ADI Debt
plus accrued and unpaid interest aggregating $16.9 million, as well as
outstanding indebtedness of the Company ("Existing Dailey Debt") pursuant to the
Company's then-existing credit facility.
ADI, through its subsidiaries, is a leading provider of underbalanced
drilling services to the oil and gas drilling and geothermal industries.
Through its subsidiaries, ADI provides underbalanced drilling equipment
packages including compressors, boosters, and mist pumps, as well as the
specially-trained personnel needed to operate the equipment. As part of the
ADI Acquisition, the Company signed new employment agreements retaining
Mr. Chaman Malhotra and Mr. Tommy Ramsey, two key officers of ADI and its
subsidiaries, who also sold their interests in ADI to the Company pursuant to
the Stock Purchase Agreement (defined below).
The ADI Acquisition was effected pursuant to a Stock Purchase and Sale
Agreement dated May 8, 1997 (the "Stock Purchase Agreement"), by and between the
stockholders and warrantholders of ADI and the preferred shareholders of Air
Drilling Services, Inc., a subsidiary of ADI. The ADI Acquisition and the
repayment of the ADI Debt and Existing Dailey Debt was funded utilizing the
proceeds from a new $41.5 million term loan (the "Term Loan") and advances of
approximately $7.0 million under a new $15 million line of credit (the
"Revolving Credit Line"), with Wells Fargo Bank (Texas), National Association,
as Agent, as well as existing cash of the Company of approximately $5.5 million.
The terms of both the Term Loan and Revolving Credit Line are contained in an
amendment to the Company's then-existing credit facility with Wells Fargo. The
indebtedness under the Term Loan and Revolving Credit Line is secured by
substantially all of the assets of the Company's and its domestic and Canadian
subsidiaries, as well as a pledge of all of the outstanding capital stock such
subsidiaries.
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
To be filed by amendment. It is impracticable for the Company to
provide as of the date of filing of this Form 8-K the required financial
statements and pro forma information relating to the acquisition of ADI. Any
such financial statements will be filed by amendment within 60 days from the
date this Form 8-K is due.
(b) Pro forma financial information.
To be filed by amendment. It is impracticable for the Company to
provide as of the date of this Form 8-K the required financial statements and
pro forma information relating to the acquisition of ADI. Any such financial
statements will be filed by amendment within 60 days from the date this Form 8-
K is due.
(c) Exhibits.
2.1 Stock Purchase and Sale Agreement dated May 8, 1997
(the "Stock Purchase Agreement"), by and among the
Company, ADI, the Shareholders of ADI, and the
Preferred Shareholders of Air Drilling Services, Inc.
Pursuant to Item 601(b)(2) of Regulation S-K, certain
schedules and similar attachments to the Stock
Purchase Agreement have not been filed with this
exhibit. The Schedules contain various items
relating to the representations and warranties made
by the Company and the ADI shareholders in the Stock
Purchase Agreement. The Company agrees to furnish
supplementally any omitted schedule to the Securities
and Exchange Commission upon request.
2.2 First Amendment to Stock Purchase Agreement dated May
30, 1997, by and among the Company, ADI, the
Shareholders of ADI, and the Preferred Shareholders
of Air Drilling Services, Inc.
10.1 Escrow Agreement dated June 20, 1997, by and among
the Company, the Shareholders and Warrantholders of
ADI (the "Shareholders"), and U.S. Trust Company of
Texas (the "Escrow Agent").
10.2 Third Amended and Restated Loan Agreement dated June
20, 1997 (the "Loan Agreement"), by and between the
Company, the financial institutions from time to time
a party thereto, and Wells Fargo Bank (Texas),
National Association, as Agent.
10.3 Third Amended and Restated Commercial Security
Agreement dated June 20, 1997, between Wells Fargo
Bank (Texas), National Association, as Agent, the
Banks from time to time a party to the Loan Agreement
and the Company.
-3-
<PAGE> 4
10.4 Form of Guaranty Agreement dated June 20, 1997
between Wells Fargo Bank (Texas), National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey International,
Inc.; Dailey Petroleum Sales Corp.; International
Petroleum Sales Corp., Columbia Petroleum Services
Corp., Dailey Worldwide Oil Tools, Corp., Dailey
Environmental Remediation and Technologies, Inc., Air
Drilling International, Inc., Air Drilling Services,
Inc., Canadian Air Drilling Services Ltd., Specialty
Testing and Consultants Ltd.;
10.5 Form of Security Pledge Agreement dated June 20,
1997, between Wells Fargo Bank (Texas), National
Association, as Agent, the Banks from time to time a
party to the Loan Agreement and each of the
following: the Company; Air Drilling International,
Inc., and Air Drilling Services, Inc.;
10.6 Form of Subsidiary Commercial Security Agreement dated
June 20, 1997, between Wells Fargo Bank (Texas)
National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and each of the
following subsidiaries of the Company: Dailey
International, Inc.; Dailey Petroleum Sales Corp.;
International Petroleum Sales Corp., Columbia
Petroleum Services Corp., Dailey Worldwide Oil Tools,
Corp., Dailey Environmental Remediation and
Technologies, Inc., Air Drilling International, Inc.,
Air Drilling Services, Inc., Canadian Air Drilling
Services Ltd., and Specialty Testing and Consultants
Ltd.;
-4-
<PAGE> 5
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 hereunto duly authorized.
DAILEY PETROLEUM SERVICES
CORP.
Dated: July 7, 1997 /s/ DAVID T. TIGHE
---------------------------------
David T. Tighe
Senior Vice President-Finance,
Chief Financial Officer and
Treasurer
-5-
<PAGE> 6
EXHIBIT INDEX
2.1 Stock Purchase and Sale Agreement dated May 8, 1997 (the "Stock
Purchase Agreement"), by and among the Company, ADI, the Shareholders
of ADI, and the Preferred Shareholders of Air Drilling Services, Inc.
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and
similar attachments to the Stock Purchase Agreement have not been
filed with this exhibit. The Schedules contain various items relating
to the representations and warranties made by the Company and the ADI
shareholders in the Stock Purchase Agreement. The Company agrees to
furnish supplementally any omitted schedule to the Securities and
Exchange Commission upon request.
2.2 First Amendment to Stock Purchase Agreement dated May 30, 1997, by and
among the Company, ADI, the Shareholders of ADI, and the Preferred
Shareholders of Air Drilling Services, Inc.
10.1 Escrow Agreement dated June 20, 1997, by and among the Company, the
Shareholders and Warrantholders of ADI (the "Shareholders"), and U.S.
Trust Company of Texas (the "Escrow Agent").
10.2 Third Amended and Restated Loan Agreement dated June 20, 1997 (the
"Loan Agreement"), by and between the Company, the financial
institutions from time to time a party thereto, and Wells Fargo Bank
(Texas), National Association, as Agent.
10.3 Third Amended and Restated Commercial Security Agreement dated June
20, 1997, between Wells Fargo Bank (Texas), National Association, as
Agent, the Banks from time to time a party to the Loan Agreement and
the Company.
10.4 Form of Guaranty Agreement dated June 20, 1997 between Wells Fargo
Bank (Texas), National Association, as Agent, the Banks from time to
time a party to the Loan Agreement and each of the following
subsidiaries of the Company: Dailey International, Inc.; Dailey
Petroleum Sales Corp.; International Petroleum Sales Corp., Columbia
Petroleum Services Corp., Dailey Worldwide Oil Tools, Corp., Dailey
Environmental Remediation and Technologies, Inc., Air Drilling
International, Inc., Air Drilling Services, Inc., Canadian Air
Drilling Services Ltd., and Specialty Testing and Consultants Ltd.
10.5 Form of Security Pledge Agreement dated June 20, 1997, between Wells
Fargo Bank (Texas), National Association, as Agent, the Banks from
time to time a party to the Loan Agreement and each of the following:
the Company; Air Drilling International, Inc., and Air Drilling
Services, Inc.;
10.6 Form of Subsidiary Commercial Security Agreement dated June 20, 1997,
between Wells Fargo Bank (Texas) National Association, as Agent, the
Banks from time to time a party to the Loan Agreement and each of the
following subsidiaries of the Company: Dailey International, Inc.;
Dailey Petroleum Sales Corp.; International Petroleum Sales Corp.,
Columbia Petroleum Services Corp., Dailey Worldwide Oil Tools, Corp.,
Dailey Environmental Remediation and Technologies, Inc., Air Drilling
International, Inc., Air Drilling Services, Inc., Canadian Air
Drilling Services Ltd., and Specialty Testing and Consultants Ltd.
-6-
<PAGE> 1
EXHIBIT 2.1
================================================================================
STOCK PURCHASE AND SALE AGREEMENT
among
DAILEY PETROLEUM SERVICES CORP.,
AIR DRILLING INTERNATIONAL, INC.,
THE SHAREHOLDERS OF AIR DRILLING INTERNATIONAL, INC.
and
THE PREFERRED SHAREHOLDERS OF
AIR DRILLING SERVICES, INC.
DATED: May 8, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
PURCHASE AND SALE OF SHARES;
CANCELLATION OF OPTIONS; CLOSING
1.1 Purchase and Sale of Shares; Tax Allocation. . . . . . . . . . . . . . . . . 2
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
2.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Authority; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.10 Company Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13 Compliance with Certain Legal Requirements; Governmental Authorizations . . . 22
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.15 Absence of Certain Changes or Effects . . . . . . . . . . . . . . . . . . . . 23
2.16 Contracts; Leases; Absence of Certain Practices . . . . . . . . . . . . . . . 24
2.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.19 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.20 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.21 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.22 Effect of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
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<TABLE>
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<S> <C> <C>
2.24 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.25 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.26 Authority, No Conflict, Foreign Status . . . . . . . . . . . . . . . . . . . . 32
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . 34
3.2 Authority; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.3 Certain Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.4 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.6 Governmental Filings, Consents . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IV
COVENANTS OF THE SHAREHOLDERS
AND THE COMPANY
4.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2 Operation of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . 37
4.4 Third-Party Consents; FTC Notification . . . . . . . . . . . . . . . . . . . . 39
4.5 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.6 No Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.7 Phase II Environmental Studies . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V
OTHER COVENANTS
5.1 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.2 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.3 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.5 Non-competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.6 Inability to Obtain Financing . . . . . . . . . . . . . . . . . . . . . . . . 45
5.7 Melodi Lane Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.8 FIRPTA Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
ii
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<TABLE>
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<S> <C> <C>
ARTICLE VI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER TO CLOSE
6.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.3 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.4 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.7 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.8 Non-Foreign Person Affidavit . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.9 Tax Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.10 FTC Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.11 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.12 Shareholders' Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.13 Melodi Lane Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.14 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VII
CONDITIONS PRECEDENT TO THE
COMPANY'S, AND SHAREHOLDERS'
OBLIGATION TO CLOSE
7.1 Accuracy of representations . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.3 No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.4 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.5 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.6 FTC Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.7 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.8 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.9 Melodi Lane Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.10 Arnold Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.11 Malhotra Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.12 Closing Date Retired Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
iii
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<TABLE>
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ARTICLE VIII
TERMINATION
8.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IX
INDEMNIFICATION; REMEDIES
9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.2 Indemnification and Reimbursement by the Shareholders. . . . . . . . . . . . . 51
9.3 Indemnification and Reimbursement by Buyer . . . . . . . . . . . . . . . . . . 53
9.4 Termination of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 54
9.5 Procedure for Indemnification; Deferred Consideration Set-Off . . . . . . . . 54
9.6 Limitations on Amount of Liability . . . . . . . . . . . . . . . . . . . . . . 56
9.7 General Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.3 Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . . . 57
10.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.6 Entire Agreement and Modification . . . . . . . . . . . . . . . . . . . . . . 58
10.7 Assignments, Successors, and No Third-Party Rights . . . . . . . . . . . . . . 58
10.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.9 Section Headings; Construction . . . . . . . . . . . . . . . . . . . . . . . . 59
10.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.12 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Employment Agreement
Exhibit C -- Form of Opinion of Counsel to Company and Shareholders
Exhibit D -- Form of Opinion of Counsel to Buyer
Exhibit E -- Form of Shareholders' Release
Exhibit F -- Form of Amendment to Melodi Lane Lease
v
<PAGE> 7
SCHEDULES
Schedule 1.1(a) -- Capitalization, List of
Shareholders, Flow of Funds,
Allocation of Cash Consideration,
Escrow Amount and Stock
Consideration
Schedule 1.1(b) -- Allocation of Purchase Price
Schedule 1.1(c) -- Management Debt
Schedule 2.1(a) -- Jurisdiction of Incorporation and
Jurisdictions where Qualified to do
Business
Schedule 2.1(b) -- Partnership, Joint Venture and
Acquisition Agreements
Schedule 2.3(b) -- Conflicts, Breaches, Defaults, etc.
Schedule 2.3(c) -- Required Notice or Consent
Schedule 2.4(a) -- Financial Statements
Schedule 2.4(c) -- Liabilities or Obligations in
Excess of $25,000.00
Schedule 2.5 -- Inventory
Schedule 2.7 -- Tangible Property
Schedule 2.9 -- Real Property
Schedule 2.10 -- Defects in Company Equipment
Schedule 2.11(a) -- Taxes and Tax Returns Not Timely
Paid or Filed
Schedule 2.11(d) -- Other Tax Matters
Schedule 2.11(e) -- Jurisdictions Where Tax Returns are
Filed
Schedule 2.12(b) -- Employee Benefits
vi
<PAGE> 8
Schedule 2.12(g) -- Post-Employment Obligations
Schedule 2.12(h) -- Effect of Transaction
Schedule 2.12(k) -- Company Benefit Plans and Employee
Agreements
Schedule 2.12(l) -- Severance Payments
Schedule 2.13(a) -- Exceptions to Compliance with
Legal Requirements
Schedule 2.13(b) -- Government Authorizations
Schedule 2.14 -- Litigation
Schedule 2.15 -- Changes or Effects since December
31, 1996
Schedule 2.16(a) -- List of Material Contracts
Schedule 2.16(c) -- Closing Date Retired Debt Subject
to Prepayment Penalties
Schedule 2.17 -- Insurance
Schedule 2.18 -- Environmental Matters
Schedule 2.19 -- Company Brokers or Finders Fees
Schedule 2.20 -- Labor Matters
Schedule 2.21(a) -- Intellectual Property
Schedule 2.22 -- Effect of Transaction
Schedule 2.24 -- Supplier Matters
Schedule 2.25 -- Customer Matters
Schedule 2.26(e) -- Shareholder Conflicts
Schedule 2.26(f) -- Notices and Consents
vii
<PAGE> 9
Schedule 2.26(g) -- Foreign Persons
Schedule 3.2 -- Conflicts
Schedule 3.4 -- Buyer's Brokers or Finders Fees
Schedule 3.6 -- Governmental Filings
Schedule 4.3(xi) -- Capital Expenditures
Schedule 5.1(c) -- Closing Date Retired Debt
Schedule 6.6 -- Persons Delivering Employment
Agreements
Schedule 10.2 -- Addresses for Shareholder Notices
viii
<PAGE> 10
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Definition Section
- ---------- -------
<S> <C>
Act 4.4
ADS Preamble
Agreement Preamble
Arbitration Act 9.5(b)
Arnold Guaranty 1.2(f)
Articles 10.12
Balance Sheet 2.4(a)
Banc One Preamble
Basket 9.6
Basket Amount 9.6
Benefit Plan 2.12(a)(i)
Borrowing 5.1(c)
business day 9.5(a)
Buyer Preamble
Buyer Indemnitee 9.2(a)
Capital Stock Preamble
Cash Consideration 1.1(a)
Claim 9.5(b)
CERCLA 2.18(a)(ii)
Clean Phase II Event 4.7
Closing 1.2(a)
Closing Balance Sheet 1.3(a)
Closing Date 1.2(a)
Closing Date Retired Debt 5.1(c)
Code 2.12(a)(ii)
Commission 5.1(d)
Common Stock 2.2(a)
Company Preamble
Company Auditors 5.1(d)
Company Benefit Plan 2.12(a)(iii)
Company Property 2.9
Company's Business 5.5(a)
Contemplated Transactions Preamble
Contract 2.16(a)
Covered Property 2.18(b)(i)
Damages 9.2(b)
Department 2.12(a)(iv)
Employee 2.12(a)(v)
</TABLE>
ix
<PAGE> 11
<TABLE>
<S> <C>
Employee Agreement 2.12(a)(vi)
Employment Agreement 1.2(b)(2)(f)
Encumbrance 2.3(b)(v)
Ending Date 5.5(a)
Environmental Conditions 2.18(a)(i)
Environmental Consultant 4.7
Environmental Laws 2.18(a)(ii)
Environmental Liabilities 2.18(a)(iii)
Environmental Permits 2.18(a)(iv)
ERISA 2.12(a)(vii)
ERISA Affiliate 2.12(a)(viii)
Escrow Agent 1.1(a)
Escrow Agreement 1.1(a)
Escrow Amount 1.1(a)
Escrow Funds 5.5(i)
Exchange Act 5.1(d)
Exhibits 10.12
Financial Statements 2.4(a)
FTC 4.4
GAAP 1.3(a)
Governmental Authorization 2.3(b)(iii)
Governmental Body 2.3(b)(ii)
Hazardous Substances 2.18(a)(v)
HMO 2.12(j)
Income Taxes 2.11(d)(v)
Income Tax Liability/Liability for
Taxes/Tax Liability 2.11(c)
Indemnified Party 9.5(a)
Indemnifying Party 9.5(a)
Individual Shareholder 2.26(a)
Intellectual Property 2.21(c)
IRS 2.12(a)(ix)
Joint Firm 1.3(b)
Justice Department 4.4
Lease Amendment 1.2(d)
Leased Property and Leased Properties 2.9
Legal Requirement 2.3(b)(ii)
Malhotra Blocked Investment Account 1.2(f)
Management Debt 1.1(c)
Material Adverse Change 2.15
Material Adverse Effect 2.1(a)
Material Contract 2.16(a)
Multiemployer Plan 2.12(a)(x)
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C>
Noncompetition Area 5.5(a)
Noncompetition Period 5.5(a)
Options Preamble
Optionholder 2.15
Order 2.3(b)(ii)
Owned Property and Owned Properties 2.9
PBGC 2.12(a)(xi)
Pension Plan 2.12(a)(xii)
Permitted Liens 2.7(a)
Phase II Environmental Assessment 4.7
Preferred Purchase Price 1.1(a)
Preferred Shareholders Preamble
Preferred Stock Preamble
Purchase Price 1.1(a)
Resolution Period 9.5(b)
Sales Proposals 4.6
Schedules 10.12
Sections 10.12
Securities Act 2.2(b)
Shareholders Preamble
Shareholders' Release 6.12
Shares Preamble
Straddle Period 9.2(a)(iii)(B)
Subsidiary or Subsidiaries 2.1(a)
Taxes 2.11(a)(ii)
Tax Returns 2.11(a)(i)
Termination Date 5.5(a)
Third-Party Claim 9.5(b)
Trade Secrets 2.21(b)
Transaction Documents 9.7
Unclean Event 4.7
Welfare Plan 2.12(a)(xiii)
Wind River 2.26(b)
</TABLE>
xi
<PAGE> 13
STOCK PURCHASE AND SALE AGREEMENT, dated as of May 8, 1997 (this
"Agreement"), by and among DAILEY PETROLEUM SERVICES CORP., a Delaware
corporation (the "Buyer"), AIR DRILLING INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and the shareholders of the Company and the
preferred shareholders of Air Drilling Services, Inc., a Wyoming corporation
("ADS"), listed on Schedule 1.1(a) hereto (collectively, such shareholders and
preferred shareholders, the "Shareholders").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares
(the "Shares") of capital stock of the Company (the "Capital Stock") and all
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings (collectively "Options") to purchase or acquire
shares of Capital Stock or capital stock of the Subsidiaries (as defined
herein);
WHEREAS, Banc One Capital Partners L.P. ("Banc One") and First
Commerce Capital, Inc. (together with Banc One, the "Preferred Shareholders")
own all of the issued and outstanding Series A Preferred Stock, $.01 par value
(the "Preferred Stock"), of ADS;
WHEREAS, the Shareholders desire to sell the Shares and Options to the
Buyer and Buyer desires to purchase the Shares and Options from the
Shareholders on the terms and subject to the conditions set forth herein;
WHEREAS, the Preferred Shareholders desire to sell the Preferred Stock
to Buyer and Buyer desires to purchase the Preferred Stock from the Preferred
Shareholders on the terms and subject to the conditions set forth herein;
WHEREAS, in connection with the transactions contemplated hereby (the
"Contemplated Transactions"), Buyer desires to protect the goodwill of the
Company to be purchased pursuant hereto by requiring the Shareholders 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:
<PAGE> 14
ARTICLE I
PURCHASE AND SALE OF SHARES;
CANCELLATION OF OPTIONS; CLOSING
1.1 Purchase and Sale of Shares; Tax Allocation. In reliance upon
the representations and warranties and subject to the terms and conditions of
this Agreement, each Shareholder hereby agrees to sell, assign, transfer and
deliver to Buyer, and Buyer hereby agrees to purchase from each Shareholder, at
the Closing, the Shares and Options for the Purchase Price (as hereinafter
defined) and agrees to purchase from the Preferred Shareholders, at the
Closing, the Preferred Stock for the Preferred Purchase Price (as hereinafter
defined).
(a) In reliance upon the representations and warranties
and subject to the terms and conditions of this Agreement, the consideration to
be paid by Buyer to the Shareholders, subject to adjustment as set forth
herein, shall be an aggregate amount of (i) $24,400,000 (the "Cash
Consideration"), subject to adjustment as set forth in Section 1.1(c) below, to
be paid to the Shareholders in accordance with the provisions and instructions
as set forth on Schedule 1.1(a); (ii) $3,000,000 (the "Escrow Amount" and
together with the Cash Consideration, the "Purchase Price") to be placed in
escrow on behalf of the Shareholders with Wells Fargo Bank--Texas, N.A.,
Houston branch or such other third party agreed to by the parties hereto, as
escrow agent (the "Escrow Agent"), pursuant to that certain Escrow Agreement in
the form attached hereto as Exhibit A, with such changes thereto as the Escrow
Agent shall reasonably request and be agreed to by the parties thereto (the
"Escrow Agreement"). In addition, in reliance upon the representations and
warranties and subject to the terms and conditions of this Agreement, the
consideration to be paid by Buyer to the Preferred Shareholders shall be an
aggregate amount of $1,552,500 plus accrued and unpaid dividends as of the
Closing Date (the "Preferred Purchase Price"). Notwithstanding the foregoing,
in the event a Clean Phase II Event (as defined in Section 4.7) occurs prior to
the Closing, the Cash Consideration shall be increased by $1,000,000 and the
Escrow Amount shall be decreased by $1,000,000.
(b) For federal, state and local tax purposes and for all
financial accounting and reporting purposes (except to the extent required by
generally accepted accounting principles), the parties shall allocate (and make
all reports and filings consistent with respect thereto) the Purchase Price and
the Preferred Purchase Price to the Shares, Preferred Shares, Options and the
non-competition agreements by the Shareholders as set forth on Schedule 1.1(b).
(c) In the event the amount of the Closing Date Retired
Debt (as defined in Section 5.1(c) hereof) as of the Closing Date less one-half
of all dividends on the Preferred Stock that have been paid as PIK dividends or
are accrued and unpaid as of the Closing Date less one-half of the accrued and
unpaid interest as of the Closing Date on the debt listed on Schedule 1.1(c)
(the "Management Debt") less all amounts set forth on Schedule 4.3(xi) or other
expenditures for capital expenditures approved by Buyer in writing prior to the
Closing Date is less than $18,000,000, the Cash Consideration shall be
increased by an amount equal to the difference between such amounts,
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<PAGE> 15
which difference shall be distributed to the Shareholders in accordance with
the percentages set forth on Schedule 1.1(a). Similarly, in the event the
Closing Date Retired Debt on the Closing Date less one-half of all dividends on
the Preferred Stock that have been paid as PIK dividends or are accrued and
unpaid as of the Closing Date less one-half of the accrued and unpaid interest
as of the Closing Date on the Management Debt less all amounts set forth on
Schedule 4.3(xi) or other expenditures for capital expenditures approved by
Buyer in writing prior to the Closing Date exceeds $18,000,000, the Cash
Consideration shall be reduced by an amount equal to the difference between
such amounts and shall be deducted from the amounts paid to the Shareholders in
accordance with the percentages set forth on Schedule 1.1(a).
1.2 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, 51st Floor, Houston, Texas 77010, at 10:00 A.M. on the date that
is no more than four 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) Each Shareholder shall deliver to Buyer an
original stock certificate or stock certificates duly endorsed in
blank, accompanied by a stock power or stock powers duly endorsed in
blank, representing the Shares owned by such Shareholder, and an
original warrant or option agreement or warrant or option agreements,
accompanied by a duly executed assignment agreement in a form
reasonably satisfactory to Buyer, representing the Options owned by
such shareholder, accompanied in each case by any required transfer
tax stamps, together with those documents referred to in clause (iii)
of this Section 1.2(b); and shall cause the Company to deliver to
Buyer those documents referred to in clause (ii) of this Section
1.2(b), against delivery by Buyer of the Cash Consideration to the
Shareholders, of the Escrow Amount to the Escrow Agent and of those
documents, as applicable, referred to in Sections 1.2(c)(i)(A) and
1.2(c)(ii) to the Shareholders. Each Preferred Shareholder shall
deliver to Buyer an original preferred stock certificate duly endorsed
in blank, accompanied by a stock power or stock powers duly endorsed
in blank, representing the Preferred Shares owned by such Preferred
Shareholder, accompanied in each case by any required transfer stamps,
together with those documents referred to in clause (iii) of this
Section 1.2(b), against delivery by the Buyer of the Preferred
Purchase Price.
(ii) The Company shall deliver to Buyer those
documents required to be delivered to Buyer pursuant to the terms of
this Agreement, including, without limitation, the following
documents:
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<PAGE> 16
(A) Evidence satisfactory to Buyer in
its sole discretion of the payment in full and satisfaction
and termination of all obligations of the Company with respect
to:
1. The Securities Purchase
Agreement dated December 31, 1996 (identified on
Schedule 2.3(e)) (including applicable release);
2. Pay-off Letter, Release of
Liens and Cancelled Note relating to Promissory Note
to Southern Pacific Thrift and Loan Association;
3. Pay-off Letter, Release of
Liens and Security Interests, UCC-3 termination
statements relating to Newcourt Loan and Security
Agreement;
4. Release of Security Interests
of Banc One identified on Schedule 2.9 as Collateral
Agent under the Securities Purchase Agreement dated
December 31, 1996;
5. Management Services Agreement
dated December 31, 1996, between Air Drilling
Services, Inc. and Quest Capital Corp.;
6. Subordinated Promissory Note
dated December 31, 1996, by Air Drilling
International, Inc. to Chaman Malhotra, Tommy Ramsay,
Mark Gerner and The James Brodie Pugh Revocable Trust
in the principal amount of $750,000, and applicable
pay-off letter;
7. Subordinated Promissory Note by
Air Drilling Services dated December 31, 1996, to
Chaman Malhotra in the principal amount of $712,626,
and applicable pay-off letter;
8. Subordinated Promissory Note by
Air Drilling Services to Quest Capital Corp. dated
December 31, 1996, in the original principal amount
of $663,205, and applicable pay-off letter;
9. Promissory Notes in aggregate
of $4,000,000 dated December 31, 1996, from Air
Drilling Services, Inc. to Banc One and First
Commerce, and applicable
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<PAGE> 17
pay-off letter, release of liens and UCC-3
termination statements;
10. If Buyer elects to repay the
Wells Fargo Bank, N.A., debt, a pay-off letter, UCC
termination statements, and release of liens relating
to such date.
(B) Certificates of existence and good
standing and payment of franchise taxes in the jurisdictions
of incorporation with respect to the Company and the
Subsidiaries (as defined in Section 2.1(a)). Certificates of
good standing as a foreign corporation and payment of
franchise taxes for the Company and each Subsidiary, as
applicable, from the states and other jurisdictions in which
the Company or a 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 fifteen (15) days of
the Closing Date, together with a confirming telegram or
facsimile as to the Company as of a date within two (2) days
of the Closing Date; provided however, the certificates
relating to Air Drilling Services--France and Air Drilling
Services--de Venezuela may be dated on or after December 31,
1996;
(C) 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 the Company and each Subsidiary, as of a
date within fifteen (15) days of the Closing Date; provided
however, the charter documents relating to Air Drilling
Services--France and Air Drilling Services--de Venezuela may
be dated on or after December 31, 1996;
(D) Minute books, corporate seals, stock
records, transfer ledgers, books of accounts and all other
financial, production, operating business and tax records of
the Company and the Subsidiaries;
(E) Duly signed resignations of such
officers, directors and fiduciaries of the Company as Buyer
shall have designated by written notice prior to the Closing
Date, or of all of such persons in the absence of such
designation;
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<PAGE> 18
(F) The Employment Agreements in the
form attached as Exhibit B (the "Employment Agreements") as
required by Section 6.6 hereof; and
(G) A certified copy of the Company's
and each Subsidiary's bylaws, a certified copy of resolutions
duly adopted by the Board of Directors of the Company
approving this Agreement and the transactions contemplated
herein and a certificate of the Secretary of the Company and
each Subsidiary as to incumbency and as to no changes to the
constituent documents of the Company and each Subsidiary;
(H) 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 the Company.
(I) A certificate dated the Closing Date
of the Company as to the fulfillment of the conditions of
Section 6.1 and 6.2 hereof, which certificate shall relate
only to the representations, warranties and covenants made by
the Company under this Agreement;
(iii) The Shareholders shall deliver to Buyer those
documents required to be delivered to Buyer pursuant to the terms of
this Agreement, including, without limitation, the following
documents:
(A) A duly executed Escrow Agreement;
(B) A certificate dated the Closing Date
of each Shareholder as to the fulfillment of the conditions of
Section 6.1 and 6.2 hereof, which certificate shall relate
only to the representations, warranties and covenants made by
such Shareholder under this Agreement;
(C) A certificate dated the Closing
Date of the Shareholders as to the accuracy of the information
set forth in Schedule 1.1(a);
(D) Stock certificates in negotiable
form as required by Section 1.2(b)(i) hereof, including
documentary stamps, if required, together with the Options
currently owned by them and duly executed assignments of such
Options or cancellations thereof;
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<PAGE> 19
(E) A certified copy of resolutions duly
adopted by the Board of Directors or similar governing entity
of each corporate and limited liability company shareholder,
approving this Agreement and the transactions contemplated
herein and a certificate of the Secretary of such Shareholder
as to incumbency and as to the constituent documents of such
Shareholder;
(F) An opinion of counsel or counsels
for the Company and the Shareholders, as required by Section
6.7 hereof; and
(G) The Shareholders Release (as defined
in Section 6.12(a)).
(iv) The Company agrees, at the option of Buyer,
to effect cancellation of the insurance policies referred to in
Section 2.17 hereof upon the Closing Date and authorize the rebate
and/or refund to the Company of any unexpired or unearned premiums
attributable to the Company; provided, however, that the individual
insured shall be given the right to purchase any such policy if the
Buyer elects to terminate it.
(c) At the Closing:
(i) Buyer shall pay by wire transfer:
(A) The Cash Consideration to the
Shareholders, as set forth on Schedule 1.1(a),
(B) The additional amounts required to
extinguish the Closing Date Retired Debt (as defined in
Section 5.1(c)) (other than the debt to Wells Fargo Bank,
N.A., which may be repaid at the option of the Buyer and other
than the Preferred Purchase Price which shall be paid pursuant
to (C) below);
(C) The Preferred Purchase Price to the
Preferred Shareholders as set forth on Schedule 1.1(a).
(ii) Buyer shall deliver or cause to be delivered
to Shareholders those documents required to be delivered to
Shareholders pursuant to the terms of this Agreement, including,
without limitation, the following documents:
(A) a duly executed Escrow Agreement;
(B) a certificate dated the Closing Date
as to the fulfillment of the conditions set forth in Sections
7.1 and 7.2 hereof;
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<PAGE> 20
(C) A certificate of existence and good
standing and payment of franchise taxes in the State of
Delaware, dated within fifteen (15) days of the Closing Date,
together with a confirming telegram or facsimile as of a date
within two days of the Closing Date;
(D) A certified copy of resolutions duly
adopted by the Board of Directors of Buyer, approving this
Agreement and the transactions contemplated herein; and
(E) An opinion of Fulbright & Jaworski
L.L.P., counsel for Buyer, as required by Section 7.4 hereof.
(iii) Buyer shall deliver the Escrow
Amount to the Escrow Agent.
(d) At the Closing, the Buyer, the Shareholders and the
Escrow Agent shall execute the Escrow Agreement and the Company and Melodi Lane
Investments, L.L.C., shall execute the Amendment to the Melodi Lane Lease in
the form attached hereto as Exhibit F (the "Lease Amendment").
(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.
(f) At or prior to the Closing, Wells Fargo Bank, N.A.,
shall have released the Guaranty of H. Ross Arnold III (the "Arnold Guaranty")
and the Blocked Investment Account of Chaman Malhotra ("Malhotra Blocked
Investment Account").
1.3 Closing Balance Sheet.
(a) Within 60 business days of the Closing Date, the
Buyer shall cause the Company to prepare a consolidated balance sheet of the
Company and its Subsidiaries as of the Closing Date (the "Closing Balance
Sheet"), which Closing Balance Sheet shall be prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and in
accordance with the Company's past practices.
(b) Buyer and the Shareholders shall have the right to
review the Closing Balance Sheet and all work papers and accounting procedures
relating thereto. Buyer and the Shareholders shall complete their review of
the Closing Balance Sheet within thirty (30) days after the Closing
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<PAGE> 21
Balance Sheet has been made available to Buyer and the Shareholders. If Buyer
and the Shareholders 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 1.3(a), Buyer or the
Shareholders shall give the Company and the Shareholders 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 Shareholders, Buyer and the Shareholders shall be deemed to have
accepted the Closing Balance Sheet without adjustment. If the Company, the
Buyer and the Shareholders agree with any of the adjustments proposed by Buyer
or the Shareholders, such adjustments shall be made to the Closing Balance
Sheet. If there are any proposed adjustments that are disputed by the Company,
the Buyer or the Shareholders, then the Buyer, the Company and the Shareholders
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
Shareholders give the Company such notice, the Buyer and the Shareholders
written notice of any proposed adjustments, any such adjustments still remain
disputed, then the Shareholders and the Buyer shall jointly select the
accounting firm of Arthur Andersen & Co., Dallas 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 Shareholders 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 1.3(a) and Section 1.3(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, hereinafter shall be deemed the
final Closing Balance Sheet.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, except for Banc One and First
Commerce, hereby jointly and severally represent and warrant to Buyer with
respect to Sections 2.1 through 2.25 as follows:
2.1 Organization and Good Standing.
(a) Each of the Company and its Subsidiaries (as defined
below) is a corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation, which jurisdiction is
specified in Schedule 2.1(a). Each of the Company and its Subsidiaries has
full corporate power and authority and possesses 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 business
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 on the assets, properties,
business, prospects, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect") or result in a loss, expense or liability to the Company or
its Subsidiaries exceeding $10,000, individually or in the aggregate. Each of
the Company and its
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<PAGE> 22
Subsidiaries 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 which either the ownership, leasing, operation or use of the properties or
assets owned or used by the Company or its Subsidiaries, or the nature of the
activities conducted by the Company or its Subsidiaries, require such
qualification, except such jurisdictions where the failure to so qualify would
not, individually or in the aggregate, result in a loss, expense or liability
to the Company or its Subsidiaries exceeding $10,000, individually or in the
aggregate or have a Material Adverse Effect. The Company 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
Company and its Subsidiaries as currently in effect. For purposes of this
Agreement, the term "Subsidiary" means any corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, controlled, directly or indirectly
through one or more intermediaries, or both, by the Company.
(b) Except as completely and accurately set forth on
Schedule 2.1(b), neither the Company nor any Subsidiary has any Subsidiaries 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 neither the Company nor any Subsidiary has any agreements to acquire or
lease any other business operations.
2.2 Capitalization.
(a) The authorized capital stock of the Company consists
of (i) 165,000 shares of common stock, $.01 par value per share (the "Common
Stock"), of which 100,000 shares are issued and outstanding and beneficially
owned by the persons, and in the amounts, completely and accurately set forth
in Schedule 1.1(a), free of any liens, pledges, encumbrances, agreements or
claims and (ii) no shares of Preferred Stock, and in such amounts, as
completely and accurately set forth on Schedule 1.1(a) free of any liens,
pledges, encumbrances, agreement or claims. The authorized capital stock of
each Subsidiary is completely and accurately set forth in Schedule 1.1(a).
Except for the Preferred Stock owned by the Preferred Shareholders, all shares
of capital stock of each Subsidiary that are issued and outstanding are
beneficially owned by the Company or another Subsidiary free of any liens,
pledges, encumbrances, agreements or claims.
(b) Except as completely and accurately set forth in
Schedule 1.1(b) or as completely and accurately set forth in paragraph (a), no
shares of capital stock or other equity securities of the Company or its
Subsidiaries are issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company and its Subsidiaries are duly
authorized, validly issued, fully paid, and nonassessable and not subject to
preemptive rights. Except as completely and accurately set forth in Schedule
1.1(a), there are no outstanding bonds, debentures, notes or other indebtedness
or other securities of the Company or its Subsidiaries having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which
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<PAGE> 23
shareholders of the Company or its Subsidiaries may vote. Except as completely
and accurately set forth in Schedule 1.1(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 Company or its Subsidiaries.
Except as completely and accurately set forth in Schedule 1.1(a), there are no
outstanding contractual obligations, commitments, understandings or
arrangements of the Company or its Subsidiaries to repurchase, redeem or
otherwise acquire or make any payment in respect of any shares of capital stock
of the Company or its Subsidiaries and no payments, dividends or redemption
rights in respect of any shares of capital stock of the Company or its
Subsidiaries are accrued, due or payable. Except as completely and accurately
set forth in Schedule 1.1(a), there are no agreements or arrangements pursuant
to which the Company or its Subsidiaries is or could be required to register
shares of Capital Stock or Options under the Securities Act of 1933 (the
"Securities Act"), as amended, or other agreements or arrangements with or
among any security holders of the Company or its Subsidiaries with respect to
securities of the Company or its Subsidiaries.
2.3 Authority; No Conflict.
(a) The Company 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 Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Contemplated Transactions. This Agreement has
been duly executed by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company 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
the Company 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 the Company or its Subsidiaries as the
case may be;
(ii) contravene, conflict with, or result in a
material violation or breach of or default except as would not involve
an expense loss, cost to cure or other liability to the Company or its
Subsidiaries exceeding $10,000 individually or in the aggregate 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
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<PAGE> 24
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 the Company or any
Subsidiary as the case may be, is subject;
(iii) except as would not involve an expense, loss,
cost to cure or other liability to the Company or its Subsidiaries
exceeding $10,000 individually or in the aggregate, contravene,
conflict with, or result in a material 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 material consent, license, franchise,
waiver, approval, authorization or permit issued, granted or given by
or under the authority of any Governmental Body or pursuant to any
Legal Requirement (a "Governmental Authorization") that is held by the
Company or any Subsidiary or that otherwise relates to the business
and operations of the Company or any Subsidiary;
(iv) contravene, conflict with, or result in a
material 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 material agreement or contract
involving more than $10,000 individually or in the aggregate, written
or oral, to which the Company or any Subsidiary is a party; or
(v) result in the imposition or creation of any
charge, claim, equitable interest, lien, option, pledge, security
interest, or right of first refusal, restriction, covenant, easement,
license, lease, mortgage, obligation, title defect or imperfection or
other encumbrance or right of others (each, an "Encumbrance") upon or
with respect to any of the property or assets of the Company or any
Subsidiary.
(c) Except as completely and accurately set forth in
Schedule 2.3(c), none of the Company or its Subsidiaries, as applicable, is, or
will be, required to give any notice to or obtain any consent from any person
or entity in connection with the Contemplated Transactions.
2.4 Financial Statements.
(a) Schedule 2.4(a) completely and accurately sets forth
the (i) audited consolidated balance sheets of the Company and its Subsidiaries
as of December 31, 1995 and 1996, respectively, and the audited combined
statements of operations and cash flows of the Company and its Subsidiaries for
the years ended December 31, 1994, and the audited consolidated statements of
operations and cash flows for the year ended December 31, 1995 and 1996,
respectively, together with the notes to such financial statements and (ii) the
unaudited consolidated balance sheets of the
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<PAGE> 25
Company and its Subsidiaries as of January 31, 1997, and the unaudited
consolidated statements of operations and cash flows of the Company and its
Subsidiaries for the one-month period ended January 31, 1997, together with the
notes to such financial statements (all the financial statements referred to in
clauses (i) and (ii) of this paragraph (a), together with the applicable notes,
collectively, the "Financial Statements"). The audited consolidated balance
sheets of the Company and its Subsidiaries as of December 31, 1996, together
with the notes thereto, are herein referred to as the "Balance Sheet".
(b) Each of the Financial Statements has been prepared in
conformity with GAAP in all material respects and consistent with the Company's
past practices and on that basis fairly presents in all material respects
(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 Company and its Subsidiaries taken as a whole or
do not exceed $25,000 individually or in the aggregate), as of the respective
dates thereof and for the respective periods indicated. Each of the Financial
Statements is complete, correct and in accordance with the books of account and
records of the Company and its Subsidiaries in all material respects except for
matters that do not exceed $25,000, individually or in the aggregate.
(c) Neither the Company nor any Subsidiary has any
material liabilities or obligations, except as fully reflected or fully
reserved for on the Balance Sheet, as incurred thereafter in the ordinary
course of business consistent with past practice or as completely and
accurately set forth in Schedule 2.4(c) or except for matters that do not
exceed $25,000, individually or in the aggregate. For purposes of this
subsection only, "material" liabilities and obligations are those that are in
excess of $25,000, individually or in the aggregate.
2.5 Inventory. Substantially all of the inventories of the
Company and its Subsidiaries taken as a whole, except for inventories involving
less than $25,000, individually or in the aggregate, whether reflected on the
Balance Sheet or subsequently acquired, are of a quality 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 or do not exceed $25,000, individually or in the aggregate.
For purposes of this subsection only, "material" shall mean write-downs and
reserves that, individually or in the aggregate, exceed $25,000.
2.6 Receivables. All accounts and notes receivable of the Company
and its Subsidiaries, taken as a whole, whether reflected on the Balance Sheet
or subsequently created, (i) have arisen in the ordinary course of business of
the Company or its Subsidiaries, as applicable, and (ii) represent valid
obligations due the Company or a 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
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<PAGE> 26
judicial decision limiting the rights of specific performance or by general
equity principles, subject, in the aggregate, to bad debt reserves, the
Company's or its Subsidiary's, as applicable, practices in expensing bad debts,
the Company's or its 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) The Company and/or its Subsidiaries have good and
valid title to all tangible assets reflected on the Balance Sheet or thereafter
acquired, except those sold or otherwise disposed of for fair value since the
date of the Balance Sheet in the ordinary course of business consistent with
past practice, in each case free and clear of all mortgages, liens, security
interests or Encumbrances 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 without penalty,
and (iii) other imperfections of title or Encumbrances that do not,
individually or in the aggregate, impair the continued use and operation of the
assets to which they relate in the business of the Company and its
Subsidiaries, as applicable, as presently conducted (the mortgages, liens,
security interests, Encumbrances and imperfections of title described in
clauses (i), (ii) and (iii) above are hereinafter referred to collectively as
"Permitted Liens").
(b) Except as set forth in Schedule 2.7, and except for
matters exceeding $25,000 individually or in the aggregate, all the tangible
personal property of the Company and its Subsidiaries that is being used in, or
reasonably could be expected to be used in, the Company's or any of its
Subsidiaries' businesses has been maintained in all material respects in
accordance with past practice and generally accepted industry practice, is in
good operating condition and repair, ordinary wear and tear and repairs and
maintenance in the ordinary course excepted, and is suitable for the purposes
for which it presently is being used and is of a quantity reasonably necessary
to operate the Company's and its Subsidiaries' business in the ordinary course
of business. All leased personal property of the Company and its Subsidiaries
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, except for matters not exceeding $25,000, individually or in the
aggregate.
2.8 Books and Records. The books of account, minute books, stock
record books, and other records of the Company and its Subsidiaries, all of
which have been made available to Buyer, are true, complete and correct in all
material respects, except as would not result in a loss, expense or other
liability to the Company or its Subsidiaries exceeding $10,000, individually or
in the aggregate.
2.9 Real Property. Schedule 2.9 sets forth a true, complete and
accurate list of all real property owned by the Company or its Subsidiaries
(individually, an "Owned Property" and
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collectively the "Owned Properties"). Schedule 2.9 sets forth a true, complete
and accurate list of all real property leased by the Company or its
Subsidiaries (individually, a "Leased Property" and collectively the "Leased
Properties"). The Company or a 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 (an Owned Property or Leased Property being
sometimes referred to herein as a "Company Property"), in each case free and
clear of all mortgages, liens, security interests, Encumbrances, leases,
assignments, subleases, easements, covenants, rights-of-way and other
restrictions of any nature whatsoever, except (A) such as are completely and
accurately set forth in Schedule 2.9, (B) mechanics', carriers', landlords',
workmen's, warehousemen's, repairmen's or other similar Encumbrances arising or
incurred by operation of law and in the ordinary course of business and liens
for Taxes and other governmental charges that are not delinquent or that may
thereafter be paid without penalty, (C) those consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of such property or irregularities in title thereto which, individually or
in the aggregate, do not impair the use of such property, or (D) other
Encumbrances that do not individually or in the aggregate impair the use and
operation of such property in the business of the Company and its Subsidiaries,
as applicable, as presently conducted.
2.10 Company Equipment. Except as completely and accurately set
forth on Schedule 2.10, there are no statements, citations or decisions by any
Governmental Body specifically stating that any equipment or inventory item of
the Company or a Subsidiary, or to the best knowledge of the Company or the
Shareholders any third-party product distributed by the Company, that is held
for rental (or sale to the extent such equipment or inventory item is held for
sale in the ordinary course of business) by the Company or any of its
Subsidiaries to their respective customers or otherwise utilized in the
Company's or its Subsidiaries' business 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, there have been no recalls ordered
by any such Governmental Body with respect to any such equipment or inventory
item, and to the best knowledge of the Company and the applicable Shareholders,
any such third-party products. Except as completely and accurately set forth
on Schedule 2.10, or except for matters not exceeding $25,000 in value,
individually or in the aggregate, there is no (i) fact relating to any such
equipment or inventory item, and to the best knowledge of the Company and the
applicable Shareholders, any such third-party products that may impose upon the
Company or Subsidiary a duty to recall any such equipment or inventory item of
the Company or third-party product or a duty to warn customers of a defect in
any such equipment or inventory item of the Company or third-party product,
(ii) latent or overt design, manufacturing or other defect in such equipment or
inventory item, and to the best knowledge of the Company and the applicable
Shareholders, any such third-party products that could be reasonably be
expected to have a Material Adverse Effect, or (iii) liability for warranty
claims or returns with respect to any such equipment or inventory item, and to
the best knowledge of the Company and the applicable Shareholders, any such
third-party products not otherwise disclosed herein in excess of that
historically experienced by the Company or Subsidiary consistent (in amount and
kind) with past practice.
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2.11 Taxes. The Company represents and warrants that, and the
Shareholders (other than Banc One and First Capital) to their best knowledge
represent and warrant that,
(a) Except as completely and accurately set forth on
Schedule 2.11(a),
(i) each of the Company and its Subsidiaries 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 Company and its Subsidiaries 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 any political subdivision thereof or
therein, including any transferee liability in respect of any of the
foregoing ("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 Company or any of its
Subsidiaries, except in the case of either (A) or (B) such Taxes, if
any, that are fully reflected on the Balance Sheet or other internally
prepared financial statements since the Balance Sheet Date and
included on Schedule 2.4(a), by means of an accrual or reserve and, in
addition, in the case of (B), that are being contested in good faith
pursuant to appropriate proceedings.
(b) Except for matters on Tax Returns involving less than
$25,000, individually or in the aggregate, each Tax Return filed by the Company
or any of its Subsidiaries 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 Company and its
Subsidiaries, as applicable.
(c) The unpaid Taxes of each of the Company and its
Subsidiaries 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 for amounts not
exceeding $25,000, individually or in the aggregate. Except for amounts not
exceeding $25,000, individually or in the aggregate, the accruals for deferred
federal Income Taxes on the Balance Sheet
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are adequate in all material respects to cover any deferred federal Income Tax
Liability of the Company and its Subsidiaries determined in accordance with
GAAP.
(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 Company
or any of its Subsidiaries regarding Taxes, and none of the foregoing
is presently pending or threatened;
(ii) neither the Company nor any of its
Subsidiaries is, or has ever been, a party to or bound by any Tax
allocation or Tax sharing agreement or arrangement and neither the
Company nor any of its Subsidiaries has, or has had, any current
contractual obligation to indemnify any other person or entity with
respect to Taxes;
(iii) during the past five years no taxing
authority in a jurisdiction where the Company or any of its
Subsidiaries, as applicable, does not file Tax Returns has claimed,
asserted or threatened that the Company or any of its Subsidiaries, as
applicable, is or may be subject to taxation by such jurisdiction;
(iv) each of the Company and its Subsidiaries has
made available to Buyer or its representatives true, correct and
complete copies of all Tax Returns filed by each of the Company and/or
its Subsidiaries for the past three years, together with all
revenue agent's reports and other written assertions of deficiencies or
other Liabilities for Taxes of, or with respect to, each of the
Company and its Subsidiaries, 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 each of the Company and
its Subsidiaries 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 Company nor any of its
Subsidiaries 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 Company nor any of its
Subsidiaries has agreed, nor is any 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)
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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 Company or any of
its Subsidiaries (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 1986,
(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 Company or any of its Subsidiaries which could affect its
Liability for Taxes for any period after the Closing Date;
(xi) neither the Company nor any of its
Subsidiaries 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;
(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 Company or any of its Subsidiaries 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 any
Subsidiary of the Company;
(xiv) none of the Company or any of its
Subsidiaries 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 Company's affiliated group (as described in
Treasury Regulations Section 1.1502-13);
(xv) none of the Company or any of its
Subsidiaries (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 Company is the common parent, or (B) has any Liability for
Taxes of any person (other than the Company and its Subsidiaries)
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;
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(e) Schedule 2.11(e) contains a true, complete and
accurate list of countries, states, territories and jurisdictions (whether
foreign or domestic) in which each of the Company and/or its Subsidiaries have
filed income, franchise, sales and use Tax Returns for taxable periods ending
after December 31, 1992.
2.12 Employee Benefits.
(a) Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Benefit Plan" means 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.
(ii) "Code" means the Internal Revenue Code of
1986, as amended and any regulations promulgated or proposed
thereunder.
(iii) "Company Benefit Plan" means each Benefit Plan
(other than an Employee Agreement (as defined below)) 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 Company, any Subsidiary or any ERISA Affiliate for
the benefit of any Employee (as defined below), and pursuant to which
the Company, any Subsidiary or any ERISA Affiliate has or may have any
liability, contingent or otherwise.
(iv) "Department" means the U.S. Department of
Labor.
(v) "Employee" means each current, former, or
retired employee, officer, consultant, independent contractor, agent
or director of the Company or any Subsidiary.
(vi) "Employee Agreement" means each management,
employment, severance, consulting, non- compete, confidentiality, or
similar agreement or contract between the Company or any Subsidiary
and any Employee pursuant to which the Company or any Subsidiary has
or may have any liability contingent or otherwise.
(vii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and any regulations promulgated or
proposed thereunder.
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(viii) "ERISA Affiliate" means each business or
entity which is a member of a "controlled group of corporations,"
under "common control" or an "affiliated service group" with the
Company within the meaning of Sections 414(b), (c) or (m) of the Code,
or required to be aggregated with the Company under Section 414(o) of
the Code, or is under "common control" with the Company (within the
meaning of Section 4001(a)(14) of ERISA.
(ix) "IRS" means the Internal Revenue Service.
(x) "Multiemployer Plan" means each Company
Benefit Plan which is a "multi-employer plan" within the meaning of
Sections 3(37) or 4001(a)(3) of ERISA.
(xi) "PBGC" means the Pension Benefit Guaranty
Corporation.
(xii) "Pension Plan" means 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.
(xiii) "Welfare Plan" means each Company Benefit
Plan which is an "employee welfare benefit plan" within the meaning of
Section 3(1) of ERISA.
(b) Schedule. Schedule 2.12(b) 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. Neither the
Company nor any ERISA Affiliate 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.
(c) Documents. The Company 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 (3) most
recent annual actuarial valuations, if any, prepared for each Company Benefit
Plan; (iii) the three (3) 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 (3) most recent
Form 990's and 1041's, if applicable; (iv) a statement of alternative form of
compliance pursuant to Department of Labor Regulation Section 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
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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; and
(viii) all material communications to any Employee or Employees relating to
each Company Benefit Plan.
(d) Compliance. With respect to each Company Benefit
Plan (i) the Company, each Subsidiary and each ERISA Affiliate have performed
all obligations required to be performed by them under each Company Benefit
Plan and Employee Agreement and neither the Company nor any ERISA Affiliate 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 material compliance with all applicable laws, statutes, orders,
rules and regulations (except for laws, statutes, orders, rules and regulations
for which the failure to comply could not reasonably result in a loss, expense
or other liability exceeding $15,000), 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 the Company or any ERISA Affiliate or any fiduciary 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 the Company or any ERISA Affiliate, threatened or anticipated
(other than routine claims for benefits) against the Company or any ERISA
Affiliate or any administrator, trustee or other fiduciary 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 Under Chapter 43 of
Subtitle D of the Code; (viii) each Company Benefit Plan can be amended,
terminated or otherwise discontinued without liability to the Company or any
ERISA Affiliate; (ix) the Company, each Subsidiary and each ERISA Affiliate
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 Company or any ERISA Affiliate no such audit or
investigation is pending or threatened.
(e) Pension Plans. Neither the Company nor any ERISA
Affiliate presently sponsors, maintains, contributes to, nor is the Company or
any ERISA Affiliate required to contribute
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to, nor has the Company 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.
(f) Multiemployer Plans. At no time has the Company or
any ERISA Affiliate contributed to or been required to contribute 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.
(g) No Post-Employment Obligations. Except as set forth
on Schedule 2.12(g), neither the Company 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.
(h) Effect of Transaction. Except as set forth on
Schedule 2.12(h), 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, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or
the Buyer to amend 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. No payment or benefit which will or
may be made by the Company, the Buyer, any 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.
(i) 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.
(j) Welfare Plan Funding. With respect to each Welfare
Plan, all claims incurred (including claims incurred but not reported) by
Employees thereunder for which the Company or any 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
reflected as a liability or accrued for on the Audited Balance Sheet.
(k) Controlled Group Liability. The Company has no
liability, contingent or otherwise, to, or with respect to any Benefit Plan
(other than the Company Benefit Plans and
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Employee Agreements that are completely and accurately listed on Schedule
2.12(k)), which is now or previously has been sponsored, maintained,
contributed to, or required to be contributed to, by any Subsidiary or any
ERISA Affiliate or former ERISA Affiliate.
(l) Severance Payments. Except as completely and
accurately listed on Schedule 2.12(l), 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)
from the Company.
2.13 Compliance with Certain Legal Requirements; Governmental
Authorizations.
(a) Except as completely and accurately set forth in
Schedule 2.13(a), and except for Legal Requirements for which the cost of
compliance with or the liability for the failure to comply with would not
exceed $15,000, individually or in the aggregate, (i) the Company and each
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) neither the
Company nor any 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 2.13(b) contains a true, complete and
accurate list of each Governmental Authorization that is held by the Company or
any Subsidiary or that otherwise relates to or is required in connection with
the business or operations of the Company or its Subsidiaries. Each
Governmental Authorization listed in Schedule 2.13(b) has, to the best
knowledge of the Company, been duly authorized and is valid and in full force
and effect. Except as completely and accurately set forth in Schedule 2.13(b),
or, except such non-compliance, event or failure which would not exceed
$15,000, individually or in the aggregate, (i) each of the Company and its
Subsidiaries has complied in all material respects with all of the terms and
requirements of the Governmental Authorization applicable to it and identified
in Schedule 2.13(b), (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 Governmental
Authorization identified in Schedule 2.13(b), or (B) would result in the
revocation, withdrawal, suspension, cancellation, modification or termination
of any Governmental Authorization identified in Schedule 2.13(b) and (iii) the
Governmental Authorizations are sufficient and adequate in all respects to
permit the continued lawful conduct of the business and operations of the
Company and its Subsidiaries in the manner now conducted.
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 the Company or any Subsidiary nor is there any judgment,
decree, injunction, rule or order of any Governmental Body or arbitrator
outstanding against the Company or any Subsidiary, or (ii) to the best
knowledge of the Company and the Shareholders, no suit, action or proceeding or
investigation threatened against or affecting the Company or any Subsidiary, in
each case set forth in clause (i) or (ii) that, individually or in the
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aggregate, could adversely affect the Company or Buyer or that could reasonably
be expected to or prevent, hinder or materially delay the ability of the
Company to consummate the Contemplated Transactions.
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 Company has
conducted its 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 Company and its Subsidiaries 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 and except such
adverse matters as do not exceed $250,000, individually or in the aggregate,
(b) any waiver of any valuable right of the Company or any Subsidiary, the
cancellation of any valuable right of the Company or any Subsidiary, or the
cancellation of any material debt or claim held by the Company or any
Subsidiary (other than debts or claims that do not exceed $10,000, individually
or in the aggregate), (c) any payment, discharge or satisfaction of any claim,
liability or obligation of the Company or any Subsidiary other than in the
ordinary course of business, (d) any Encumbrance upon the assets of the Company
or any Subsidiary other than Permitted Liens that arise in the ordinary course
of business, (e) any payment of dividends on, or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any
securities of the Company, (f) any issuance of any stock, bonds or other
securities of the Company, (g) any sale, assignment or transfer of any tangible
or intangible assets of the Company, except in the ordinary course of business
with respect to inventory, (h) any loan by the Company or any Subsidiary to any
officer, director, employee, consultant, holder of any Option (an
"Optionholder") or shareholder of the Company or any Subsidiary, (i) any
increase, direct or indirect, in the compensation paid or payable to any
officer or director of the Company or any Subsidiary, or, other than in the
ordinary course of business, to any other employee, consultant or agent of the
Company or any Subsidiary, (j) any change in the accounting methods, practices
or policies of the Company or any Subsidiary, (k) any indebtedness incurred for
borrowed money by the Company or any Subsidiary other than in the ordinary
course of business, (l) any amendment to or termination of any material
agreement to which the Company or any Subsidiary is a party (except agreements
that involve less than $25,000, individually or in the aggregate), (m) the
making or changing of a material Tax election, except such election,
compromises or payments as would not exceed $25,000, individually or in the
aggregate, 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), (n) any transaction by the Company or any
Subsidiary except in the ordinary course of business or as otherwise
contemplated hereby, or (o) any agreement or commitment (contingent or
otherwise) by the Company or any Subsidiary to do any of the foregoing.
2.16 Contracts; Leases; Absence of Certain Practices.
(a) Schedule 2.16(a) sets forth a true, complete and
accurate list of each contract, agreement, arrangement or commitment, written
or oral (a "Contract") to which the Company or any Subsidiary is a party, or by
or to which the Company or any Subsidiary or the properties, assets or
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operations of the Company or any Subsidiary may be subject, of a type described
below (a "Material Contract"), and the Company has made available to Buyer for
its review true and complete copies of each, except such agreements and
contracts as are cancelable without penalty by the Company and the other
parties to such contract or agreement with 30 days prior written notice,
(i) Employee Agreement;
(ii) employee collective bargaining agreement or
other contract with any labor union;
(iii) covenant of the Company or any Subsidiary not
to compete or other covenant of the Company or any Subsidiary
restricting the development, manufacture, marketing or distribution of
the products and services of the Company or any Subsidiary;
(iv) Contract with (A) any Shareholder or
Optionholder or any affiliate or relative of any Shareholder or
Optionholder or (B) any current or former officer, director or
employee of the Company, any Subsidiary or any affiliate of the
Company or any Subsidiary (other than Employee Agreements);
(v) lease, sublease or similar agreement with any
person under which the Company or any 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 the Company or any Subsidiary;
(vi) except for leases, subleases or similar
agreements not involving $25,000, individually or in the aggregate,
lease, sublease or similar agreement with any person under which (A)
the Company or any 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) the Company or any Subsidiary
is a lessor or sublessor of, or makes available for use by any person,
any tangible personal property owned or leased by the Company or any
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) except for Contracts not involving $50,000,
individually or in the aggregate, 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 $50,000.00);
(viii) except for Contracts not involving $10,000,
individually or in the aggregate, (A) continuing Contract for the
future purchase of supplies or equipment, (B) management, service,
consulting or other similar type of Contract or (C) advertising
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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
(except for licenses, options or other agreements not involving
$25,000 in value, individually or in the aggregate) relating in whole
or in part to Intellectual Property (as defined in Section 2.21(c),
including any license or other agreement under which the Company or
any Subsidiary is licensee or licensor of any such Intellectual
Property) or to trade secrets, confidential information or proprietary
rights and processes of the Company, any Subsidiary or any other
person or entity;
(x) Contract or other instrument under which the
Company or any 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 the Company or any 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 Company or any Subsidiary or (B) the
Company or any Subsidiary has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any person;
(xii) Contract or other instrument under which the
Company or any 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 or other Encumbrance upon
any Company Property, which lien or other Encumbrance 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 the Company, any Subsidiary or any
predecessor person;
(xv) except for Contracts or arrangements not
involving $25,000, individually or in the aggregate, Contract or other
arrangement that involves performances of services or delivery of
goods or materials by the Company or any 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);
(xvi) Contract or other arrangement of the Company
or any Subsidiary, including, without limitation, any partnership or
joint venture agreement, any stock or asset
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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 the Company or any 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
(xix) except for other agreements, contracts,
leases, licenses, commitments or instruments not involving $10,000,
individually or in the aggregate, other agreement, contract, lease,
license, commitment or instrument to which the Company or any
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 section only, "material"
shall mean in excess of $10,000.00).
Except as completely and accurately set forth in Schedule
2.16(a), all Material 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 material breach, violation
or default by the Company or any Subsidiary and no event which, with notice or
lapse of time or both, would (A) constitute a material breach, violation or
default by the Company or any Subsidiary under any such Material Contract
(except such contracts involving less than $15,000, individually or in the
aggregate) or (B) give rise to any lien or right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or acceleration
against the Company or any Subsidiary under, any such Material Contract which
would have a Material Adverse Effect (except such contracts involving less than
$15,000, individually or in the aggregate). To the best knowledge of the
Company, no other party to any of such Material 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 Material 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, except
such as would not exceed $15,000, individually or in the aggregate.
(b) No direct or indirect payments have been made to any
person or entity by the Company or its 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 either the Company or any
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. Neither the Company nor any
Subsidiary nor any of their respective officers, directors or employees has nor
any Shareholder 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
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is or may be in a position to assist or hinder the Company or any Subsidiary or
to assist the Company or any Subsidiary in connection with any actual or
proposed transaction relating to its business or operations or any of its
property or 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 Company has 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 either of the Company or its
Subsidiaries, 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 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, neither the Company nor its
Subsidiaries is in default in any material respect 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 defaults that could not reasonably result
in a loss, expense or other liability exceeding $15,000, individually or in the
aggregate. 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 (except for unpaid claims involving less than
$15,000, individually or in the aggregate), and neither the Company nor any
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, neither the Company or any 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) For purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Environmental Conditions" means (a) any
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) any 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.
(ii) "Environmental Laws" shall mean all federal,
state, local or municipal laws, rules, regulations, statutes,
ordinances or orders, and any judicial interpretations
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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. Sections 9601 et seq. ("CERCLA"), the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
Sections 11001 et seq., the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901 et seq., the Toxic Substances Control Act, 15
U.S.C. Sections 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Air Act, 42
U.S.C. Sections 7401 et seq., the Clean Water Act (Federal Water
Pollution Control Act), 33 U.S.C. Sections 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. Sections 300f et seq., the Occupational
Safety and Health Act 29 U.S.C. Sections 641, et seq., and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et
seq.
(iii) "Environmental Liabilities" means any and all
Damages (as defined in Section 9.2(b) hereof) (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.
(iv) "Environmental Permits" shall mean any
permit, license, approval, registration, identification number or
other authorization required by any applicable Environmental Law.
(v) "Hazardous Substances" shall mean any (a)
petroleum or petroleum products, (b) substance included within the
definition of "hazardous substances" under Section 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.
(b) Except as completely and accurately disclosed on
Schedule 2.18 and in any surveys, if any, delivered pursuant to Section 4.7
hereof:
(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 or transported to or from
any property described on Schedule 2.18 (a "Covered Property"), except
in compliance with applicable Environmental Laws;
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(ii) neither the Company or any 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 or is 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) neither the Company or any Subsidiary has
received any notification that it has been named as a potentially
responsible party under, and none of the Covered 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
Covered Property is subject to any lien arising under Environmental
Laws;
(iv) the Company and each Subsidiary has all
Environmental Permits necessary to operate its business and facilities
in compliance with applicable Environmental Laws and the Company 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;
(v) there are no underground storage tanks
located on or under any Covered Property and any underground storage
tank previously removed from any Covered 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 the Company or a
Subsidiary or relating to the ownership, lease or use of any Covered
Property under or in respect of any Environmental Laws;
(vii) the Company has provided the Buyer copies of
all environmental audits, assessments or other evaluations in its
possession or subject to its control prepared with respect to its
business, its Subsidiaries' business or any Covered Property;
(viii) no asbestos or polychlorinated biphenyl are
present on or at any Covered Property;
(ix) except for noncompliances that have been
corrected and cannot cause the Buyer or the Company or any Subsidiary
to incur any Environmental Liability, the Company and each Subsidiary
has conducted its business and operations in compliance with all
material limitations, restrictions, conditions, standards,
prohibitions, requirements and obligations established under
Environmental Laws;
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(x) there are no obligations, undertakings or
liabilities arising out of or relating to Environmental Laws that the
Company or any 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
the Company or any Subsidiary.
From the date hereof through the Closing Date, 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. Except as completely and accurately set
forth in Schedule 2.19, neither the Company nor any Shareholder has incurred
any liability for brokerage or finder's fees or agent's commissions or other
similar payments in connection with this Agreement or the Contemplated
Transactions.
2.20 Labor Matters. Except as completely and accurately set forth
on Schedule 2.20, (i) each of the Company and its Subsidiaries is in material
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 (except with respect to laws,
rules and regulations the failure to comply with could not reasonably expect to
result in a loss, expense or other liability exceeding $10,000, individually or
in the aggregate), (ii) neither the Company nor any 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) neither the Company nor any
Subsidiary is presently, nor has been within the past twelve months, bound by
or subject to (and none of its assets or properties 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 the Company and
the Shareholders, has sought to represent any of the employees, representatives
or agents of the Company or its Subsidiaries (iv) there is no labor strike,
dispute, slowdown or stoppage pending, or, to the best knowledge of the Company
and the Shareholders, threatened against or involving the Company and its
Subsidiaries, and (v) to the best knowledge of the Company and the
Shareholders, no salaried key employee has any plans to terminate his or her
employment with the Company and its Subsidiaries.
2.21 Intellectual Property.
(a) Schedule 2.21(a) includes a true, complete and
accurate list of all Intellectual Property (as defined in Section 2.21(c)
hereof) held or owned by the Company or its Subsidiaries or in which either of
the Company or its Subsidiaries has any interest and is all the Intellectual
Property necessary for use in the Company's and its Subsidiaries' businesses as
presently conducted. Except
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as completely and accurately set forth on Schedule 2.21, (a) the Company or its
Subsidiaries owns or has the perpetual right to use, without payment to or
interference from any person, all Intellectual Property identified in Schedule
2.21(a), such Intellectual Property being valid, enforceable and in good
standing. The Company and its Subsidiaries do not know, and have received no
notice of any claim or infringement or interference or other conflict with the
asserted rights of others with respect to any Intellectual Property.
(b) The Company or its Subsidiaries 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 or operations of the Company or its
Subsidiaries as presently conducted and as proposed to be conducted, free and
clear of all Encumbrances, and no Trade Secret has been challenged or
misappropriated in any way or to the best knowledge of the Shareholders and the
Company, has any proceeding been threatened with respect thereto and none of
the subject matter of any such Trade Secret has been misappropriated or is
alleged to have been misappropriated from any person.
(c) For purposes of this Agreement, the term
"Intellectual Property" shall mean all patents (including all reissues,
divisions, continuations, and extensions thereof), patent applications,
trademarks, service marks, trade names, all other names, logos and slogans
embodying business, product or service goodwill and all computer software
(including data and related documentation).
2.22 Effect of Transaction. Except as completely and accurately set
forth in Schedule 2.22, neither the Company nor any of its Subsidiaries has a
reasonable basis to believe that any creditor, employee, client, customer,
supplier, distributor or other person having a material business relationship
with the Company or any of its Subsidiaries intends to change such relationship
because of the Contemplated Transactions.
2.23 Disclosure. No representation or warranty of the Company or
the Shareholders contained in this Agreement, and no statement contained in any
document, or Schedule furnished or to be furnished by or on behalf of the
Company or any Shareholder to Buyer or any of their respective representatives
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary in
order to make the statements herein or therein not misleading or necessary in
order to fully and fairly provide the information required to be provided in
any such document, certificate or Schedule, except material facts or omissions
of material facts that individually or in the aggregate would not exceed
$15,000.
2.24 Suppliers. Except as completely and accurately set forth in
Schedule 2.24, neither the Company nor any Subsidiary has any supplier or
distributor from whom it purchased more than 5% of its services or merchandise
during the year ended December 31, 1996, or from whom it reasonably
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expects to purchase more than 5% of its services or merchandise during the
twelve-month period ending December 31, 1997. 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 Company or any Subsidiary with any supplier or distributor of services
or merchandise (except for suppliers who provided less than $25,000 worth of
supplies, individually or in the aggregate) 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 (except arrangements
involving less than $25,000, individually or in the aggregate).
2.25 Customers. Except as completely and accurately set forth in
Schedule 2.25, neither the Company nor any Subsidiary has any customer that
accounts for more than 5% of its sales during the year ended December 31, 1996,
or to whom it expects to account for more than 5% of its sales during the
twelve months ended December 31, 1997. Except as completely and accurately set
forth in Schedule 2.25 since the date of the Balance Sheet there has not been
(i) any material adverse change in the business relationship of the Company or
any 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. During the past two years, neither the
Company nor any Subsidiary has received any customer complaints concerning its
products and services which are presently unresolved, 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 Authority, No Conflict, Foreign Status.
(a) If such Shareholder is designated as an individual on
Schedule 1.1(a) (an "Individual Shareholder"), such Individual Shareholder
represents and warrants that such Individual Shareholder has all requisite
legal right, power, capacity and authority to execute and deliver this
Agreement and to perform fully such Shareholder's obligations hereunder. This
Agreement has been duly executed by such Individual Shareholder and constitutes
the legal, valid, and binding obligation of such Individual Shareholder,
enforceable against such Individual Shareholder 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) Wind River Associates, L.L.C. ("Wind River"),
represents and warrants that it is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of Georgia,
and it possesses full limited liability company power and authority to execute
and deliver this Agreement and to perform fully is obligations hereunder and no
other corporate or limited liability company activity on behalf of Wind River
is necessary to authorize this Agreement or to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and the
consummation by Wind River of the transactions contemplated hereby have been
duly authorized by all necessary corporate or limited liability company
authority to execute and delivery this Agreement and fully perform its
obligations hereunder. This Agreement has been duly executed by Wind River and
constitutes the legal, valid and binding obligation of Wind River, enforceable
against Wind River in accordance with its terms, except to the extent that
enforceability may be limited by
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bankruptcy, insolvency or other similar laws affecting creditors' rights
generally. Wind River has previously provided to Buyer true and complete
copies of its limited liability company certificate currently in effect.
(c) First Commerce represents and warrants that it is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Louisiana and 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 First Commerce of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no other corporate
proceedings on the part of First Commerce are necessary to authorize this
Agreement or to consummate the Contemplated Transactions. This Agreement has
been duly executed by First Commerce and constitutes the legal, valid and
binding obligation of First Commerce, enforceable against First Commerce 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.
(d) Banc One represents and warrants that it is a limited
partnership duly organized, validly existing and in good standing under the
laws of the state of Ohio, and it possesses full limited partnership power and
authority to execute and deliver this Agreement and to perform fully is
obligations hereunder. The execution and delivery of this Agreement and the
consummation by Bank One of the transactions contemplated hereby have been duly
authorized by all necessary partnership action and no other partnership
proceedings on the part of Bank One are necessary to authorize this Agreement
or to consummate the Contemplated Transactions. This Agreement has been duly
executed by Banc One and constitutes the legal, valid and binding obligation of
Banc One, enforceable against Banc One 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.
(e) Each Shareholder represents and warrants as to
himself or itself, but not with respect to any other Shareholder, that except
as completely and accurately set forth in Schedule 2.26(e), the execution,
delivery and performance of this Agreement by such Shareholder, as the case may
be, 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 (including limited liability company
certificate or limited liability company agreement) of such
Shareholder, if such Shareholder is other than an Individual
Shareholder;
(ii) except as would not involve an expense, loss,
cost to cure or other liability to the Company or its Subsidiaries
exceeding $10,000, individually or in the aggregate, contravene,
conflict with, or result in a material violation or breach of or
default under (with or without due notice or lapse of time, or both),
require filing with or obtaining
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consent from 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 applicable
Legal Requirement or Order to which such Shareholder is subject; or
(iii) except as would not involve an expense, loss,
cost to cure or other liability to the Company or its Subsidiaries
exceeding $10,000, individually or in the aggregate, contravene,
conflict with, or result in a material 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 material Governmental Authorization that is
held by the Shareholder or that otherwise relates to the business and
operations of such Shareholder;
(iv) contravene, conflict with, or result in a
material 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 material agreement or contract
(except agreements or contracts not involving more than $10,000,
individually or in the aggregate), written or oral, to which the
Shareholder is a party.
(f) Except as completely and accurately set forth in
Schedule 2.26(f) such Shareholder is not, and will not be, required to give any
notice to or obtain any consent from any person or entity in connection with
the Contemplated Transactions.
(g) Except as set forth on Schedule 2.26(g), such
Shareholder is not a foreign person within the meaning of Code Section 1445.
(h) The Preferred Shareholders represent and warrant that
the issued and outstanding Preferred Stock owned by them is owned free of any
liens, pledges, encumbrances, agreements or claims, except for restrictions on
transfers arising under state and federal securities laws or set forth on
Schedule 1.1(a) hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and the Shareholders 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.
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. Except as completely and accurately set
forth in Schedule 3.4, Buyer has incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payments in connection with this Agreement or any of the
Contemplated Transactions.
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3.5 Disclosure. No representation or warranty of Buyer contained
in this Agreement and no statement contained in any document, certificate or
Schedule furnished or to be furnished by or on behalf of Buyer to the
Shareholders or any of their respective representatives pursuant to this
Agreement, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or Schedule.
3.6 Governmental Filings, Consents. Except as set forth on
Schedule 3.6 hereto, there are no consents from third parties or requirements
for filing or obtaining consents from any Government Body or pursuant to any
Legal Requirement.
ARTICLE IV
COVENANTS OF THE SHAREHOLDERS
AND THE COMPANY
4.1 Access. During the period commencing on the date of this
Agreement and continuing through the Closing Date, the Shareholders (other than
Banc One and First Commerce) shall use their best efforts to cause the Company
and its Subsidiaries to, and the Company will, and will cause its Subsidiaries
to, (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
Company and its Subsidiaries, (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
Shareholders and the Company 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 Shareholders and the Company will allow Buyer to meet with representatives
of certain of the Company's and the Subsidiaries' customers in order to confirm
that satisfactory business relationships exist between the Company and/or the
Subsidiaries, as applicable, and such customers. No investigation or receipt
of information shall affect any representation or warranty of the Shareholders
or the Company 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
Shareholders (other than Banc One and First Commerce) will cause each of the
Company and its Subsidiaries to, and the Company will, and will cause its
Subsidiaries to:
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(i) except as otherwise allowed or required
pursuant to the terms of this Agreement, conduct the business and
operations of the Company and its Subsidiaries only in the ordinary
course in a manner consistent with past practice, including without
limitation payment of trade payables and payments under the Company's
existing line of credit with Wells Fargo Bank, N.A.;
(ii) use best efforts to preserve intact the
current business organizations of the Company and its Subsidiaries,
keep available the services of the current officers, employees, and
agents of the Company and its Subsidiaries, and maintain the relations
and goodwill with all suppliers, customers, licensers, licensees,
landlords, trade creditors, Employees, agents, and others having
business relationships with the Company or its Subsidiaries;
(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 the Company and its Subsidiaries 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) 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 shareholder or Optionholder (in their
capacity as such) or pursuant to any Material Contract; and
(ix) report periodically to Buyer concerning the
status and operation of the business and operations of the Company and
its Subsidiaries.
4.3 Conduct of Business of the Company. Except as contemplated by
this Agreement or with the prior written consent of Buyer, during the period
from the date hereof to the Closing, the Company will not, and will cause its
Subsidiaries not to:
(i) amend its charter or bylaws or comparable
organizational documents or the terms of any of its securities or any
agreements relating thereto (including without limitation, any
agreement pursuant to which Options are outstanding);
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(ii) issue, pledge or sell, or authorize the
issuance, pledge or sale of, additional shares of Capital Stock or
other securities of any class or series, including without limitation,
securities exchangeable for or convertible into Capital Stock of any
class or series, or any calls, commitments, rights, warrants or
options to acquire any securities or Capital Stock;
(iii) declare, set aside, make or pay any dividend
or other distribution payable in cash, stock, property or otherwise
with respect to any of its Capital Stock;
(iv) split, combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or
purchase or otherwise acquire, directly or indirectly, any shares of
Capital Stock, or any of its other securities;
(v) except for increases in salary, wages and
benefits of officers (other than executive officers) or employees of
the Company or its Subsidiaries 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 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;
(vi) except for matters set listed on Schedule
4.3(xi), acquire, sell, lease or dispose of any assets (except raw
materials, in the ordinary course of business) which are, individually
or in the aggregate, material to the Company or its Subsidiaries, 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);
(vii) (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 or under lines of credit
existing as of January 31, 1997, (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;
(viii) 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
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organization or division thereof; provided, however, the Company and
its subsidiaries may enter into its currently proposed transaction
with Black Max Downhole Tool, Ltd.;
(ix) 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;
(x) (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;
(xi) except for betterments and improvements to
existing equipment in the ordinary course of business, make or agree
to make capital expenditures that are not set forth on the Company's
capital expenditure schedule attached as Schedule 4.3(xi) hereto, as
revised on the Closing Date to include all additional capital
expenditures approved by Buyer in writing;
(xii) mortgage, pledge or subject to any
Encumbrance any of its properties or assets, tangible or intangible;
(xiii) take any action that would cause any of the
representations and warranties contained in Article II 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
(xiv) 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,
the Company and its Subsidiaries will use commercially reasonable efforts to
obtain all consents required from third parties that are party to Contracts
with the Company or its Subsidiaries to the Contemplated Transactions. To the
extent required by law, each Shareholder 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 a seller of voting stock under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations promulgated thereunder
(the "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 Act shall expire as soon as practicable after
the execution and delivery of this Agreement. Each Shareholder shall furnish
or cause to be furnished to Buyer such information as Buyer requires for the
purposes of performing Buyer's obligations under Section 5.1(b) hereof. All
filing fees paid pursuant to the Act will be paid by Buyer.
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4.5 Best Efforts. Without the prior written consent of Buyer, no
Shareholder shall, and no Shareholder shall cause the Company to, 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 Shareholders and
the Company herein not to be true, complete and accurate as of the Closing.
4.6 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Article VIII, none of the Shareholders, the Company or
its Subsidiaries 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
operations of the Company or its Subsidiaries or a substantial amount of the
property or assets of either of the Company or its Subsidiaries, or of any of
the Capital Stock or any other equity securities of the Company or its
Subsidiaries (including by way of an initial public offering), or any merger,
consolidation, business combination, liquidation, recapitalization, dissolution
or similar transaction involving the Company or its Subsidiaries (collectively,
"Sale Proposals") or any other transaction the consummation of that 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 written inquiries or Sale Proposals are received
by, or any such information is requested in writing from or any such
negotiations or discussions are sought to be initiated with the Company, its
Subsidiaries or any of the Shareholders, then the Company and such Shareholders
will promptly notify Buyer of the nature, 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 Company, its Subsidiaries or the Shareholders will accept any Sale Proposal
from any person or entity other than Buyer.
4.7 Phase II Environmental Studies. At any time prior to the
Closing and for three years thereafter the Shareholders, at the Shareholder's
sole cost and expense, may perform (or have performed) and deliver to Buyer
prior to the Closing or thereafter, a Phase II Environmental Assessment (or for
Covered Property located in France, an industrial site assessment) conducted by
a third party environmental consultant acceptable to Buyer (an "Environmental
Consultant") that demonstrates through soil and groundwater sampling that
operations and events or activities at or near the Covered Property, by the
Company and its Subsidiaries or by a third party, have not caused soil or
groundwater contamination on or originating from the Covered Property (a "Phase
II Environmental Assessment"). Prior to conducting the soil and groundwater
sampling, the consultant will submit to Buyer, for Buyer's approval, a scope of
work and work plan describing the proposed soil and groundwater testing to be
conducted at the Covered Property and the criteria used to determine the areas
to be tested and the laboratory analysis to be requested. Among other things,
the groundwater testing should establish the direction of groundwater flow at
the Covered Property. If
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each of such Phase II Environmental Assessments indicates that there are not
any existing or contingent Environmental Liabilities that reasonably could be
expected to cost the Company in excess of $50,000, individually or in the
aggregate, then the delivery of such Phase II Environmental Surveys shall be
deemed a "Clean Phase II Event" for purposes of this Agreement. In the event
such Phase II Environmental Assessments are completed and their delivery to
Buyer would not result in a Clean Phase II Event due to the existence of
existing or contingent Environmental Liabilities that reasonably could be
expected to cost the Company in excess of $50,000 (an "Unclean Event"), then
the Shareholders may, at their option, cure or remedy such Unclean Event so
that Phase II Environmental Assessments constituting a Clean Phase II Event may
be delivered to Buyer. Prior to performing the procedures necessary to cure or
remedy the Unclean Event, the Shareholders must first give written notice to
Buyer of their intent to cure, the estimated cost to cure, which shall be set
forth in a written good faith, bona fide estimate of an Environmental
Consultant of the costs to perform the remediation or other clean-up procedures
necessary to deliver the Phase II Environmental Assessments necessary for a
Clean Phase II Event. Prior to the Closing, the costs of the Environmental
Consultant shall be paid directly by the Shareholders. Following the Closing,
the costs of the Environmental Consultant shall be paid from the Escrow Fund.
If a Clean Phase II Event occurs prior to Closing, the Cash Consideration shall
be increased by, and the Escrow Amount reduced by, $1,000,000. If the Clean
Phase II Event occurs after Closing, then the Shareholders shall be entitled to
receive a payment from the Escrow Fund equal to $1,000,000 less any amounts
paid from the Escrow Fund to the Environmental Consultant or paid out relating
to Environmental Claims.
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, the Shareholders and the Company will use commercially reasonable
efforts to cooperate with one another (i) in promptly determining whether any
filings are required to be made or Governmental Authorizations 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.
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(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 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 Shareholders
such information concerning Buyer as Shareholders need to perform their
obligations under Section 4.4 of this Agreement and further agrees that all
filing fees required to be paid pursuant to the Act will be paid by Buyer.
(c) To the extent permitted by its constituent documents
and any applicable law, in the case of the Company and a non-Individual
Shareholder, and to the extent permitted by applicable law, the Company and
each Shareholder (except for Banc One and First Commerce) agrees to provide,
and will cause its respective officers and employees to provide, all necessary
cooperation in connection with the arrangement of 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 by the Company 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, the Company agrees, and
each Shareholder (other than Banc One and First Commerce) agrees to use its
best efforts to cause the Company, at the request of Buyer, to call for
prepayment or redemption, of the indebtedness of the Company specified on
Schedule 5.1(c) (the "Closing Date Retired Debt") provided that no such
prepayment or redemption shall actually be made (other than to existing
revolving credit lines) until contemporaneously with or after the Closing and
provided that such call or notice is contingent upon the Closing. The Company
and each Shareholder (except for Banc One and First Commerce) also agree to
cooperate with Buyer and use their best 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 Encumbrances relating thereto.
(d) The Company and the Shareholders (other than Banc One
or First Commerce) agree to use their best efforts to cooperate with Buyer and
to use their best efforts to assist Buyer's outside auditors, and to cause the
Company's existing outside auditors (the "Company Auditors") to assist Buyer's
outside auditors, in the preparation of any audited, unaudited, pro forma or
other financial statements that may be reasonably requested by Buyer for filing
with the Securities and Exchange Commission (the "Commission") in connection
with any filings that may be made by Buyer under the Securities Act or the
Securities Exchange Act of 1934 (the "Exchange Act") or pursuant to a private
placement
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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 Company and the Shareholders
(except for Banc One and First Commerce) also agree to use their best efforts
to cause the Company Auditors to consent to the inclusion of their audit
opinion in, and the reference to such auditors as experts 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, including in
connection with Buyer obtaining financing through the public debt or equity
markets, in which Buyer is required to include audited financial statements of
the Company as of and for the year ended December 31, 1996, and any prior dates
or periods audited by the Company Auditors. In addition, the Company and the
Shareholders (except for Banc One and First Commerce) agree to use their best
efforts to cause the Company Auditors to provide a "comfort letter" or similar
letter that may be reasonably requested by Buyer's placement agents or
underwriters in connection with any financings in connection with the
Contemplated Transactions. With respect to the foregoing, Buyer agrees to pay
the reasonable fees and costs and expenses incurred by the Company Auditors in
connection with providing such assistance. In the event the Company Auditors
refuse to provide such assistance, or such assistance is not provided in a
timely manner, then Buyer shall be entitled to cause its independent auditors
to perform an audit of the Company as of and for the twelve months ended
December 31, 1996, and any prior periods or dates, reasonably necessary so that
such outside auditor can provide the consent or "comfort letter" requested of
the Company Auditors pursuant to this Section 5.1(d). The fees and expenses of
any audit and other procedures conducted by Buyer's outside auditors pursuant
to the preceding sentence shall be borne entirely by the Shareholders.
5.2 Transfer Taxes. The Shareholders shall each bear and pay when
due all sales, use, transfer, stamp, conveyance, recording, value added or
other Taxes (including any real property gains Tax and any Income Taxes)
imposed by any taxing jurisdiction domestic or foreign, in respect of the
Contemplated Transactions and all recording or filing fees, notarial fees and
other similar costs of Closing with respect to this Agreement or the
Contemplated Transactions and the Shareholders will at their own expense file
all necessary Tax Returns and other documentation with respect to all such
Taxes fees and costs. The Shareholders and Buyer shall cooperate in the
preparation, execution and filing of any Tax Returns that may be required in
connection with such Taxes, fees and costs.
5.3 Best Efforts. Without the prior consent of the Shareholders,
Buyer will not take any action that would cause or reasonably be expected to
tend to cause the conditions to the obligations of the parties to the 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 would cause the representations and warranties made by
the Buyer herein not to be true, complete and accurate as of the Closing.
5.4 Public Announcements. Neither Buyer, on the one hand, nor the
Shareholders and the Company, 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 of each of Chaman Malhotra,
Tommy Ramsay and Wind River shall be deemed consent for all Shareholders),
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.
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5.5 Non-competition.
(a) For purposes of this Section 5.5 only, the definition
of "Shareholder" shall exclude Banc One and First Commerce and James Brodie
Pugh Trust, Robert Doddridge, Elaine Birkbeck, Twyla Schwieger, Olga Hoegg de
Pugh, Charlie Pugh, Patty Pugh and R. J. Pugh. Each Shareholder acknowledges
that pursuant to this Agreement that Buyer has purchased from the Shareholders
the goodwill of the Company and that to induce Buyer to pay the Purchase Price
for the Shares that the protection and maintenance of such goodwill constitutes
a legitimate interest to be protected by the Company and Buyer by this covenant
not to compete. Therefore, each Shareholder (separately from the other
Shareholders) agrees that for the period (the "Noncompetition Period")
commencing upon the date hereof and ending upon the third anniversary (the
"Ending Date") of a date (the "Termination Date") that is the later to occur of
(i) the termination of the Shareholder's employment with the Company or (ii)
the Closing Date, the Shareholder shall not, directly or indirectly, either as
an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is engaged in business
(the "Company's Business") related to (i) underbalanced drilling, air drilling,
foam drilling, or mist drilling in the oil and gas, hydrocarbon or geothermal
drilling and exploration industries, (ii) the compression and pipeline testing
industries, or (iii) providing any other product or service currently provided
or which the Company currently intends to provide in the future, in any case
within North and South America, Europe, Africa, Asia, Australia or India, or
within any other geographic area where the Company engages or proposes at the
time of the Termination Date to engage in business (such entire geographic area
is hereinafter referred to as the "Noncompetition Area"). Each Shareholder
(separately from the other Shareholders) represents to the Company and the
Buyer that the enforcement of the restriction contained in this Section 5.5
would not be unduly burdensome to such Shareholder. Each Shareholder further
represents (severally from the other Shareholders) and acknowledges that such
Shareholder 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 5.5.
(b) Each Shareholder 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 Shareholder shall entitle the Company and
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 Company or Buyer may show
itself justly entitled. Further, each Shareholder (separately from the other
Shareholders) agrees that during any period in which such Shareholder is in
breach of this covenant not to compete, the time period of this covenant as it
applies to such Shareholder shall be extended for the amount of time that such
Shareholder is in breach hereof.
(c) In addition to the restrictions set forth in
paragraph (a) of this Section 5.5, each Shareholder (separately from the other
Shareholders) agrees that for the Noncompetition Period such Shareholder will
not, either directly or indirectly, (i) make known to any person, firm or
corporation that is engaged in the Company's Business the names and addresses
of any of the customers of the
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Company, potential customers of the Company upon whom the Company has called
upon in the 12-month period immediately preceding the Termination Date or
contacts of the Company 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 Company, whether for such Shareholder or for
any other person, firm or corporation.
(d) Each Shareholder (separately from the other
Shareholders) agrees that for the Noncompetition Period such Shareholder 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 Shareholder 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 Company or (ii) make known to any person, firm or corporation that
is engaged in the Company's Business, or executive recruiting or search firms
that have clients engaged in the Company's 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
Company.
(e) The representations and covenants contained in this
Section 5.5 on the part of each Shareholder 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 Shareholder against the Company or any
officer, director, or other Shareholder of the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants of such Shareholder contained in this Section
5.5.
(f) If any Shareholder violates any covenant contained in
this Section 5.5 and the Company brings legal action for injunctive or other
relief, the Company 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 Shareholder contained in this Section 5.5
shall be deemed to have durations as specified above, which periods shall be
extended as to the applicable Shareholder for the period commencing upon the
date of entry by a court of competent jurisdiction of a final judgment
enforcing the covenants of such Shareholder in this Section 5.5 and ending upon
the third anniversary of such date.
(g) The parties to this Agreement agree that the
limitations contained in this Section 5.5 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 5.5 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 any Shareholder contests the validity or
enforceability of any of the provisions of this Section 5.5, then such
Shareholder hereby agrees to pay in a timely and prompt manner any and all
legal fees and expenses incurred by the Company or Buyer from time to time as
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a result of such contesting party's contesting of the validity or
enforceability of any provision in this Agreement; provided, however, the
Company's or Buyer's, as applicable, fees and expenses shall not be paid by
such Shareholder in the event no part of this Section 5.5 is ultimately deemed
enforceable by a court of law or by settlement between the parties; and
provided further, however, nothing contained in this Section 5.5 shall obligate
the Company to pay any legal fees or expenses incurred by any Shareholder in
connection with any litigation by the Company or Buyer against such Shareholder
to enforce the terms of this Agreement against such Shareholder.
(i) Notwithstanding anything contained herein to the
contrary, the provisions of this Section 5.5 are separate obligations of each
Shareholder, and no Shareholder shall have any liability or obligation with
respect to any other Shareholder's obligations or breach under this Section
5.5. Buyer shall have no right to claim Damages against Escrow Funds (as
defined in the Escrow Agreement) for breach by any Shareholder of such
Shareholder's obligations under this Section 5.5).
5.6 Inability to Obtain Financing. In the event the Buyer's Board
of Directors determines by a written Board resolution in its sole discretion
that the Company has no reasonable possibility of obtaining the financing
necessary to pay the Purchase Price, the Buyer shall as soon as is reasonably
practicable notify the Company of such determination.
5.7 Melodi Lane Lease. The Company shall, and the Shareholders
who are members of Melodi Lane Investments L.L.C. shall cause Melodi Lane
Investments L.L.C., to execute and deliver the Lease Amendment at the Closing.
5.8 FIRPTA Certification. The Company shall deliver to the Buyer
on or before the Closing Date (i) a statement that complies with the
requirements of Section 1445(b)(3) of the Internal Revenue code of 1986, as
amended, Treas. Reg. Section 1.1445-2(c)(3), and Treas. Reg. Section
1.897-2(h), and (ii) verification that the Company has mailed the
aforementioned statement to the Internal Revenue Service within the
requirements of Section Treas. Reg. 1.897-2(h)(2).
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 Shareholders and the Company shall use their respective
best 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:
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6.1 Accuracy of Representations. Each of the representations and
warranties of Shareholders and the Company 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 Company and the Shareholders
shall have delivered to the Buyer certificates dated the Closing Date, and in
the case of the Company or a non-Individual Shareholder, signed by their
respective officers, and in all other cases, signed by the Shareholder, to the
effect set forth above in this Section 6.1 as to the representations and
warranties made by such Shareholder in this Agreement.
6.2 Performance. Each of the covenants and obligations that the
Company and the Shareholders 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. Each of the Company and the Shareholders shall have delivered
to the Buyer certificates dated the Closing Date, and in the case of the
Company or a non-Individual Shareholder signed by their respective officers,
and in all other cases, signed by the Shareholder, to the effect set forth
above in this Section 6.2 as to the covenants and obligation that such
Shareholder 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 operations of the Company or any of the Subsidiaries 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 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 operations of the Company or any
of the Subsidiaries 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 shall have been
duly executed and delivered by the Company and each of the individuals and with
the salary amounts and option granting amounts for such individuals as listed
on Schedule 6.6.
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6.7 Closing Documents. Buyer shall have received from the Company
and the Shareholders such closing certificates, documents and opinions
(including legal opinions which shall be substantially in the form attached
hereto as Exhibit C) 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 Shareholder shall have
delivered to the Company 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 Tax Sharing. Any Tax allocation or sharing agreements or
arrangements to which the Company or any of its Subsidiaries is a party that
include any person other than the Company or any of its Subsidiaries shall have
been terminated as to the Company and each of its Subsidiaries, and any
liability of the Company and its Subsidiaries thereunder shall have been
canceled.
6.10 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.
6.11 Financing. The Buyer shall have obtained financing upon terms
and conditions acceptable to the Buyer in its sole discretion sufficient to
consummate the Contemplated Transactions.
6.12 Shareholders' Releases. Each Shareholder shall have delivered
a Shareholders' Release in the form attached hereto as Exhibit E.
6.13 Melodi Lane Lease. The Lease Amendment shall have executed
and delivered by the applicable parties thereto.
6.14 Other Agreements. The Shareholders and the Escrow Agent shall
have executed and delivered the Escrow Agreement. The Employment Agreements
shall have been executed by the applicable employees.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
COMPANY'S, AND SHAREHOLDERS'
OBLIGATION TO CLOSE
The obligation of the Company and the Shareholders 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
Shareholders, in whole or in part), and Buyer shall use its best efforts to
cause such conditions to be fulfilled; provided, however, the Company's and
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Shareholders' 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 Shareholders
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
Company and the Shareholders 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 Company and the Shareholders 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 either of
the Shareholders 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 and opinions (including legal opinions which shall be
substantially in the form attached hereto as Exhibit D) reasonably requested by
the Shareholders and the Company and their respective counsel.
7.5 Other Agreements. Buyer and the Escrow Agent shall have
executed the Escrow Agreement.
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 Shareholders
the Cash Consideration and to the Preferred Shareholders the Preferred Purchase
Price, and the Escrow Amount to the Escrow Agent, each in accordance with
Section 1.1(a) hereof.
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
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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 Shareholders of, any of the Contemplated Transactions.
7.9 Melodi Lane Lease. The applicable parties shall have executed
and delivered the Lease Amendment.
7.10 Arnold Guaranty. Wells Fargo shall have agreed to release the
Arnold Guaranty.
7.11 Malhotra Account. Wells Fargo Bank, N.A., shall have agreed
to release the Malhotra Blocked Investment Account.
7.12 Closing Date Retired Debt. The Closing Date Retired Debt,
other than the debt to Wells Fargo Bank, N.A., which may be repaid at the
option of the Buyer, shall have been paid in full.
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 material breach of any of the
representations, warranties or covenants of the Shareholders or the
Company set forth in this Agreement has been committed and such breach
has not been (A) waived by Buyer or (B) cured by the Shareholders or
the Company within ten (10) days after their receipt of written notice
thereof from Buyer;
(ii) by the Shareholders, 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 Shareholders or (B) cured by Buyer
within ten (10) days after their receipt of written notice thereof
from the Shareholders;
(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 Shareholders, upon receipt of the
notice contemplated by Section 5.6, or if any of the conditions in
Article VII has not been satisfied and if satisfaction of such
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condition is or becomes impossible (other than through the failure of
the Company or the Shareholders to comply with their obligations under
this Agreement) and the Shareholders have not waived such condition on
or before the Closing Date;
(v) by mutual consent of Buyer and the
Shareholders;
(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 Company; or
(vii) by either Buyer or the Shareholders, 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 the date (the "Drop Dead Date")
that is on or before the later of (i) May 31, 1997 or (ii) 3 business
days following termination of any required approvals or termination
waiting period under the Act, but only so long as Buyer has used its
best efforts to obtain such approval or termination of waiting period
as soon as is reasonably practicable, or such later date as the
parties may agree upon in writing.
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 to pay expenses under Sections 4.7, and the
obligations under 5.1, 5.3, 10.1, 10.2, 10.3, 10.6, and 10.10, 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; provided that, if Buyer has
not removed the condition in Section 6.11 by delivering notice at least two
business days prior to the Drop Dead Date of such removal to each of Chaman
Malhotra, Tommy Ramsay and Wind River, which shall be deemed notice to all
Shareholders, the Buyer shall have no right to claim a breach or default by any
Shareholder.
ARTICLE IX
INDEMNIFICATION; REMEDIES
9.1 Survival. Subject to the limitations set forth in Section 9.4,
9.6 and 9.7 all representations, warranties, covenants, and obligations in this
Agreement, the Schedules and any supplements to the Schedules will survive the
Closing and any investigation by the parties hereto or their representatives.
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9.2 Indemnification and Reimbursement by the Shareholders.
(a) Subject to the limitations set forth in Sections 9.4,
9.6 and 9.7 from and after the Closing, the Shareholders will jointly and
severally indemnify, defend and hold harmless Buyer, its affiliates (including,
without limitation the Company) 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)) actually suffered, incurred or realized by such
party arising directly or indirectly from any of the following (except for
breaches of any representation or warranty or covenant of a shareholder
contained in Sections 2.26 and 5.5 hereof, for which the other Shareholders
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") made by
the Shareholders or Preferred Shareholders or the Company in this
Agreement, the Schedules or any supplements to the Schedules, the
Exhibits hereto, when executed, or certificates delivered to the Buyer
in connection with this Agreement;
(ii) any breach by the Shareholders or the Company
of any covenant or obligation of the Shareholders or the Company in
this Agreement (including, without limitation, the obligations to pay
expenses set forth in Section 10.1), the Exhibits hereto, when
executed, or certificates delivered to the Buyer in connection with
this Agreement;
(iii) (A) Taxes of the Company and its
Subsidiaries with respect to any Tax period or portion of a period
ended on or before the Closing Date to the extent that the amount of
such Taxes exceeds the amount of the specific accrual and reserve for
such Taxes (other than any accrual or reserve for deferred Taxes) on
the Closing Balance Sheet; and
(B) without duplication, Taxes assessed
against the Company or any of its Subsidiaries under Code Section 6901
or Treasury Regulations Section 1.1502-6 (or any analogous provision
of state, local or foreign law) or as a transferee or successor, by
contract, or otherwise.
In the case of any Tax that relates to any 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 Company for each of the
Pre-Closing Period and the Post-Closing Period shall be determined as
follows:
(1) In the case of any franchise or
similar Tax that is not based upon or measured by net income
and any ad valorem Tax, the portion attributable to the
Pre-Closing Period shall be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator
of which is the number of days
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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.
(2) In the case of any such Tax not
described in the preceding paragraph, the portion attributable
to the Pre-Closing Period shall be determined on the basis of
an interim closing of the books as of and including the
Closing Date in accordance with the next two sentences. For
purposes of this Section 9.2(a)(iii), the liability for such
Tax with respect to the Pre-Closing Period shall be the
product of (x) such Tax for the entire taxable period,
multiplied by (y) a fraction, the numerator of which is the
hypothetical Tax for such Pre-Closing Period (determined on
the basis of such interim closing of the books, without
annualization) and the denominator of which is the sum of such
numerator plus the hypothetical Tax for the Post-Closing
Period (determined on the basis of such interim closing of the
books, without annualization). The hypothetical Tax for any
period shall in no case be less than zero. The amount of such
Tax remaining after subtracting the portion attributable to
the Pre-Closing Period (as determined in accordance with the
preceding provisions of this Section 9.2(a)(iii)) is the
amount of such Tax attributable to the Post-Closing Period.
(iv) all Environmental Liabilities, whenever
incurred, based upon, arising from or related to any conditions,
events, circumstances, facts, activities, practices, incidents,
actions or omissions occurring or existing on or prior to the Closing
Date at, on, under, about, or within any Covered Property regardless
of whether such Environmental Liabilities are known, unknown,
disclosed, undisclosed, fixed or contingent, or whether such
Environmental Liabilities relate to on-site or off-site Environmental
Conditions, including without limitation any such Environmental
Liabilities arising from the use, storage, handling, treatment,
disposal, generation, transportation or release of any Hazardous
Substances on or prior to the Closing Date.
The amount of any Damages for which indemnification is provided under this
Section 9.2(a) shall be (i) increased to take account of any net Tax cost
incurred by the Indemnified Party arising from the receipt of indemnity
payments hereunder (grossed up for such increase) and (ii) reduced to take
account of any net Tax benefit realized, in a tax return of the Buyer with
respect to a tax period which ends on or before the Buyer's tax year which
includes May 31, 2000, by the Indemnified Party arising from the incurrence or
payment of any such Damage. In computing the amount of any such Tax cost or
Tax benefit, the Indemnified Party shall be deemed to recognize all other items
of income, gain, loss, deduction or credit before recognizing any item arising
from the receipt of any indemnity payment hereunder or the incurrence or
payment of any indemnified Damage. Any indemnification payment hereunder shall
initially be made without regard to this Section 9.2(a) and shall be increased
or reduced to reflect any such net Tax cost (including gross-up) or net Tax
benefit only after the Indemnified Party has actually realized such cost or
benefit. For purposes of this
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<PAGE> 67
Agreement, an Indemnified Party shall be deemed to have "actually realized" a
net Tax cost or a net Tax benefit to the extent that, and at such time as, the
amount of Taxes payable by such Indemnified Party is increased above or reduced
below, as the case may be, the amount of Taxes that such Indemnified Party
would be required to pay but for the receipt of the indemnity payment or the
incurrence or payment of such Damage, as the case may be. The amount of any
increase or reduction hereunder shall be adjusted to reflect any final
determination (which shall include the execution of Form 870-AD or successor
form) with respect to the Indemnified Party's liability for Taxes and payments
between Shareholder and Buyer, to reflect such adjustment shall be made if
necessary. Any indemnity payment under this Agreement shall be treated as an
adjustment to the Purchase Price for Tax purposes, unless a final determination
(which shall include the execution of a Form 870-AD or successor form) with
respect to the Indemnified Party or any of its affiliates causes any such
payment not to be treated as an adjustment to the Purchase Price for United
States Federal income tax purposes. In addition, the amount which an
Indemnified Party shall be entitled to receive as indemnity payment for Damages
under this Section 9.2(a) shall be net of any actual insurance recovery paid to
the Indemnified Party on account of such Damages from an unaffiliated third
party.
(b) As used in this Agreement, the term "Damages" shall
mean any claims, liabilities, diminutions in value, 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, 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 9).
(c) From and after the Closing, each Shareholder hereby
waives any right to seek contribution or other recovery from the Company in
connection with any claim for indemnification for Damages asserted by or on
behalf of any Buyer Indemnitee pursuant to Section 9.2.
9.3 Indemnification and Reimbursement by Buyer. From and after the
Closing, Buyer will indemnify, defend and hold harmless the Shareholders, 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
Schedules, the Exhibits hereto, when executed, or certificate
delivered to the Shareholders in connection with this Agreement; and
(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 Shareholders in connection
with this Agreement.
55
<PAGE> 68
9.4 Termination of Indemnification. The obligations to indemnify
and hold harmless a party hereto shall terminate on the third anniversary of
the Closing Date except with respect to the representations and warranties and
covenants contained in Section 5.5 which shall survive for the applicable
statute of limitations; provided, however, that with respect to any actual or
potential Damages as to which the Indemnifying Party (as defined in Section
9.5(a)) has received notice pursuant to Section 9.5(a) and the Escrow Agreement
(as applicable) on or prior to the applicable period specified in this Section
9.4, such indemnification obligations shall survive without limitation as to
time, irrespective of whether such Damages are incurred or expended in whole or
in part subsequent to the applicable termination date. Notwithstanding the
foregoing, upon the occurrence of a Clean Phase II Event, the representations
and warranties contained in Section 2.18 and the indemnification obligations
contained in Section 9.2(a)(iv) shall terminate immediately.
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 by the Buyer under the Escrow Agreement, notice
or delivery of documents to the Shareholder Representative (as defined in the
Escrow Agreement) shall be deemed to be sufficient notice or delivery under
this Section 9.5(a).
(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
56
<PAGE> 69
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 Company 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 Company. The
Company shall in good faith defend each such claim with counsel selected by the
Company and reasonably acceptable to the Indemnified Party and the Indemnifying
Party. The Company shall keep the Indemnified Party and the Indemnifying Party
fully informed at all times of the status of the Third-Party Claim. The
Company, 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 reasonably available for any discovery or trial. The
Company 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 for any applicable Damages to the Indemnified Party, upon demand,
except that in the case the Indemnified Party is Buyer, indemnity payments
shall be paid pursuant to the Escrow Agreement; provided, however, (i) with
respect to Claims relating to the representations, warranties and covenants
relating to payment of expenses and costs contained in Section 4.7, 5.1 or
10.1, the Buyer may elect to receive indemnity payments, and shall receive
indemnity payments in the case of Damages relating to breaches of the
representations, warranties and covenants contained in Section 5.5, by
certified or cashier's check
57
<PAGE> 70
from the applicable Shareholder. If any Shareholder shall at any time owe or
otherwise become liable to Buyer for any amount, in addition to Buyer's or the
Company's other rights hereunder, at law or in equity, Buyer and the Company
shall have the right to offset any such amount against any amount held by or
owed to Buyer or the Company for the account of or by any of the Shareholders.
9.6 Limitations on Amount of Liability. No Shareholder shall have
liability to any Buyer Indemnitee pursuant to Section 9.2(a) until the total
aggregate amount of all Damages with respect to all Claims arising under
Section 9.2(a) exceeds $400,000.00 (the "Basket Amount"); provided, however,
the "Basket" limitation shall not apply with respect to the Shareholders'
representations, warranties and covenants contained in Sections 2.11, 2.12,
2.18, 4.7, 5.1, 5.5, 9.2(a)(iii), 9.2(a)(iv) or 10.1. Once the total aggregate
amount of all such Damages exceeds the Basket Amount, the Shareholders shall be
obligated to the Buyer Indemnities for any and all such Damages without regard
to or deduction of the Basket Amount. However, notwithstanding anything
contained herein to the contrary, the total liability of any Shareholder to the
Buyer Indemnitees pursuant to Section 9.2(a) shall not exceed the Escrow Fund;
provided, however, this limitation shall not apply to Damages with respect to
Claims related to Shareholders' representations, warranties and covenants
contained in Section 4.7, 5.1, 5.5 or 10.1.
9.7 General Limitations on Liability. Buyer hereby acknowledges
and agrees that notwithstanding anything contained herein or in any
certificate, document, instrument or agreement delivered pursuant hereto or in
any way related to the Contemplated Transactions (collectively, the
"Transactions Documents"), no Shareholder shall have any liability or
obligation of any nature for any breach or violation by any other Shareholder
or the Company of any representation, warranty, covenant, commitment, indemnity
or other obligation or agreement of any nature contained herein or in any other
Transaction Document beyond the interest of such Shareholder in amounts on
deposit in the Escrow Fund, and in the event of any such breach or default,
Buyer's sole recourse to such Shareholders shall be limited to amounts in the
Escrow Fund. In the event of any conflict between this section 9.7 and the
provisions of any other Transaction Document, this Section 9.7 shall control.
Notwithstanding the foregoing, this limitation shall not apply to any
Shareholder's (other than Banc One or First Commerce) representations,
warranties and covenants contained in Sections 4.7, 5.1, 5.5 or 10.1.
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. The
Shareholders shall be solely liable and responsible for any fees or expenses
owed to
58
<PAGE> 71
the individuals or entities listed on Schedule 2.19 and Buyer shall be solely
liable and responsible for any fees and expenses owed to the individuals or
entities listed on Schedule 3.4. Simultaneous with the agreement to the
Closing Balance Sheet as provided in Section 1.3, the Shareholders shall
reimburse the Company and its Subsidiaries for all expenses incurred by the
Company and its Subsidiaries in connection with this Agreement and the
Contemplated Transactions, including any professional or other expenses
incurred in connection with or relating to the negotiation and settlement of
the liabilities listed in Section 1.2(b)(ii)(A).
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 Shareholders, to the names and addresses as set forth on
Schedule 10.2:
If to Buyer: Dailey Petroleum Services Corp.
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.
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.
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<PAGE> 72
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 October 30,
1997, by and between Buyer and Quest Capital Corp. 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.
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 or the Company to assign its rights and
delegate its duties 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 Company in connection with the
Contemplated Transactions, as security for the Company'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.
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<PAGE> 73
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 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> 74
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"BUYER" DAILEY PETROLEUM SERVICES CORP.
By: /s/ James F. Farr
--------------------------------
James F. Farr
President and Chief
Executive Officer
"COMPANY" AIR DRILLING INTERNATIONAL, INC.
By: /s/ Robert W. Espy III
--------------------------------
Name: Robert W. Espy III
-----------------------
Title: Vice President
----------------------
"SHAREHOLDERS"
/s/ Chaman Malhotra
------------------------------------
Chaman Malhotra
JAMES BRODIE PUGH REVOCABLE TRUST
By: /s/ J.B. Pugh
--------------------------------
Name: J.B. Pugh
-----------------------
Title: Shareholder
----------------------
/s/ Tommy D. Ramsay
------------------------------------
Tommy D. Ramsay
62
<PAGE> 75
/s/ Robert Doddridge
------------------------------------
Robert Doddridge
/s/ Mark Gerner
------------------------------------
Mark Gerner
/s/ Don Wells
------------------------------------
Don Wells
/s/ Roberto Rodrigano
------------------------------------
Roberto Rodrigano
/s/ Gordon Yeo
------------------------------------
Gordon Yeo
/s/ Douglas Crow
------------------------------------
Douglas Crow
/s/ Ignatius Sluys
------------------------------------
Ignatius Sluys
/s/ Elaine Birkbeck
------------------------------------
Elaine Birkbeck
63
<PAGE> 76
/s/ Twyla Schwieger
------------------------------------
Twyla Schwieger
/s/ Olga Hoegg de Pugh
------------------------------------
Olga Hoegg de Pugh
/s/ Charles Pugh
------------------------------------
Charles Pugh
/s/ Patty Pugh
------------------------------------
Patty Pugh
/s/ R. J. Pugh
------------------------------------
R. J. Pugh
MALHOTRA ENTERPRISES LTD.
By: /s/ Tommy D. Ramsay
--------------------------------
Name: Tommy D. Ramsay
-----------------------
Title: Vice President
----------------------
WIND RIVER ASSOCIATES, L.L.C.
By: /s/ Robert W. Espy III
--------------------------------
Name: Robert W. Espy III
-----------------------
Title: Member Manager
----------------------
64
<PAGE> 77
BANC ONE CAPITAL PARTNERS L.P.
By: BOCP Corporation
General Partner
By: /s/ Suzanne B. Kriscunas
---------------------------
Suzanne B. Kriscunas,
Authorized Signer
FIRST COMMERCE CAPITAL, INC.
By: /s/ Paul F. Giffin
--------------------------------
Paul F. Giffin,
Senior Vice President
65
<PAGE> 1
EXHIBIT 2.2
AMENDMENT NO. 1 TO
STOCK PURCHASE AND SALE AGREEMENT
This First Amendment to Stock Purchase and Sale Agreement Among Dailey
Petroleum Services Corp., a Delaware corporation (the "Buyer"), Air Drilling
International, Inc., a Delaware corporation (the "Company"), the shareholders
of the Company and the Preferred Shareholders of Air Drilling Services, Inc., a
Wyoming corporation ("ADS") (collectively such shareholders and preferred
shareholders, the "Shareholders") is executed effective this 30th day of May,
1997.
W I T N E S S E T H:
WHEREAS, the Buyer, the Company and the Shareholders executed that
certain Stock Purchase and Sale Agreement dated May 8, 1997 (the "Agreement");
WHEREAS, pursuant to Section 8.1 of the Agreement either the Buyer or
the Shareholders may terminate the Agreement if the Closing has not occurred on
or before May 31, 1997; and
WHEREAS, the Buyer, the Company and the Shareholders wish to amend
Section 8.1 of the Agreement;
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements contained therein 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:
1. Section 1.1(c) of the Agreement is hereby amended and restated
in its entirety as follows:
"(c) In the event the amount of the Closing Date Retired
Debt (as defined in Section 5.1(c) hereof) as of the Closing Date less
one-half of all dividends on the Preferred Stock that have been paid
as PIK dividends or are accrued and unpaid as of the Closing Date less
one-half of the accrued and unpaid interest as of the Closing Date on
the debt listed on Schedule 1.1(c) (the "Management Debt") less all
amounts set forth on Schedule 4.3(xi) or other expenditures for
capital expenditures approved by Buyer in writing prior to the Closing
Date is less than $18,200,000, the Cash Consideration shall be
increased by an amount equal to the difference between such amounts,
which difference shall be distributed to the Shareholders in
accordance with the percentages set forth on Schedule 1.1(a).
Similarly, in the event the Closing Date Retired Debt on the Closing
Date less one-half of all dividends on the Preferred Stock that have
been paid as PIK dividends or are accrued and unpaid as of the Closing
Date less one-half of the accrued and unpaid interest as of the
Closing Date on the Management Debt less all amounts set forth on
Schedule 4.3(xi) or other expenditures for capital expenditures
approved by Buyer in writing prior to the Closing Date exceeds
$18,200,000, the Cash Consideration shall be reduced by an amount
equal to the difference between such amounts and shall be deducted
from the amounts paid to the Shareholders in accordance with the
percentages set forth on Schedule 1.1(a)."
2. Section 8.1(vii) of the Agreement is hereby amended and
restated in its entirety to read as follows:
<PAGE> 2
"(vii) by either Buyer or the Shareholders, 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 the date (the "Drop Dead Date") that is on or
before the later of (i) June 20, 1997 or (ii) 3 business days
following termination of any required approvals or termination waiting
period under the Act, but only so long as Buyer has used its best
efforts to obtain such approval or termination of waiting period as
soon as is reasonably practicable, or (iii) such later date as the
parties may agree upon in writing."
3. Section 8.2 of the Agreement is hereby amended and restated in
its entirety to read as follows:
"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 to pay expenses under
Sections 4.7, and the obligations under 5.1, 5.3, 10.1, 10.2, 10.3,
10.6, and 10.10, 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; provided that, if Buyer
has not removed the condition in Section 6.11 by delivering notice at
least two business days prior to the Drop Dead Date of such removal to
each of Chaman Malhotra, Tommy Ramsay and Wind River, which shall be
deemed notice to all Shareholders, the Buyer shall have no right to
claim a breach or default by any Shareholder."
(Signatures begin on next page)
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"BUYER" DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
-----------------------------------
James F. Farr
President and Chief Executive
Officer
"COMPANY" AIR DRILLING INTERNATIONAL, INC.
By: /s/ ROBERT W. ESPY, III
-----------------------------------
Name: Robert W. Espy, III
--------------------------
Title: Vice President
-------------------------
"SHAREHOLDERS"
/s/ CHAMAN MALHOTRA
---------------------------------------
Chaman Malhotra
JAMES BRODIE PUGH REVOCABLE TRUST
By: *
-----------------------------------
Name:
--------------------------
Title:
-------------------------
/s/ TOMMY D. RAMSAY
---------------------------------------
Tommy D. Ramsay
-3-
<PAGE> 4
**
---------------------------------------
Robert Doddridge
*
---------------------------------------
Mark Gerner
*
---------------------------------------
Don Wells
*
---------------------------------------
Roberto Rodrigano
**
---------------------------------------
Gordon Yeo
**
---------------------------------------
Douglas Crow
**
---------------------------------------
Ignatius Sluys
**
---------------------------------------
Elaine Birkbeck
-4-
<PAGE> 5
*
---------------------------------------
Twyla Schwieger
*
---------------------------------------
Olga Hoegg de Pugh
*
---------------------------------------
Charles Pugh
*
---------------------------------------
Patty Pugh
*
---------------------------------------
R. J. Pugh
MALHOTRA ENTERPRISES LTD.
By: /s/ TOMMY D. RAMSEY
------------------------------------
Name: Tommy D. Ramsey
--------------------------
Title: Vice President
-------------------------
WIND RIVER ASSOCIATES, L.L.C.
By: /s/ ROBERT W. ESPY, III
------------------------------------
Name: Robert W. Espy, III
--------------------------
Title: Member Manager
-------------------------
-5-
<PAGE> 6
BANC ONE CAPITAL PARTNERS L.P.
By: BOCP Corporation
General Partner
By: /s/ SUZANNE B. KRISCUNAS
------------------------------
Suzanne B. Kriscunas,
Authorized Signer
FIRST COMMERCE CAPITAL, INC.
By: /s/ PAUL F. GIFFIN
-----------------------------------
Paul F. Giffin,
Senior Vice President
*By: /s/ CHAMAN MALHOTRA
-----------------------------------
Chaman Maholtra
Attorney-in-Fact
Pursuant to Power of Attorney
**By: /s/ TOMMY D. RAMSAY
-----------------------------------
Tommy D. Ramsay
Attorney-in-Fact
Pursuant to Power of Attorney
-6-
<PAGE> 1
EXHIBIT 10.1
ESCROW AGREEMENT
This Escrow Agreement, dated as of June 20, 1997, is among Dailey
Petroleum Services Corp., a Delaware corporation ("Buyer"), and the
shareholders and warrantholders of Air Drilling International, Inc., a Delaware
corporation (the "Company"), each listed on Exhibit A hereto (such shareholders
and warrantholders are referred to herein individually as a "Shareholder" and
collectively as the "Shareholders", and Robert W. Espy, III is sometimes
referred to herein as the "Shareholder Representative") and U.S. Trust Company
of Texas, N.A. (the "Escrow Agent");
W I T N E S S E T H :
WHEREAS, Buyer, the Company and the Shareholders have entered into a
Stock Purchase and Sale Agreement dated May 8, 1997 (the "Purchase Agreement"),
which provides, among other things, for the purchase (the "Purchase") of all of
the outstanding capital stock of the Company and all of the outstanding
preferred stock of ADS by Buyer; and
WHEREAS, the parties hereto desire, pursuant to Section 1.1(a) of the
Purchase Agreement, to set aside a portion of the consideration to be paid to
the Shareholders in connection with the Purchase, subject to the terms and
conditions set forth herein; and
WHEREAS, the parties hereto have agreed upon and wish to set forth
herein the terms and conditions relating to the escrow of the portion of the
consideration for the Purchase to be so delivered to and held by the Escrow
Agent;
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the parties hereto hereby agree as follows:
1. Definitions. Except as otherwise defined herein, capitalized
terms used in this Escrow Agreement will have the meanings set forth in the
Purchase Agreement.
2. Appointment of Escrow Agent. U.S. Trust Company of Texas,
N.A. is hereby appointed as Escrow Agent for the purposes set forth herein and
the Escrow Agent hereby accepts such appointment on the terms herein provided.
3. Deposit of Escrow Fund for Claims. For the purposes herein
set forth, Buyer, together with the delivery of this Escrow Agreement, deposits
with the Escrow Agent the sum of $3,000,000 in cash. However, in the event a
Clean Phase II Event occurs prior to the Closing, the amount deposited with the
Escrow Agent shall be $2,000,000 in cash. The sum so deposited with the Escrow
Agent, together with all income earned thereon pursuant to Section 8 hereof,
less payments made for costs and expenses in connection with this Escrow
Agreement pursuant to
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Sections 4.f, 11 and 12 hereof, is herein called the "Escrow Fund". The Escrow
Fund will be held, invested, reinvested and disbursed by the Escrow Agent in
accordance with the terms hereof.
4. Satisfaction of Claims with Escrow Fund. The Escrow Fund will
be retained by the Escrow Agent and shall be distributed at any time, or from
time to time, for the purpose of paying Claims as follows:
a. If Buyer has made a Claim with respect to which funds
from the Escrow Fund may be applied pursuant to the Purchase
Agreement, Buyer may advise the Shareholder Representative in writing
of such Claim (an "Asserted Claim"), describing such Asserted Claim
(to the extent known) in reasonable detail and shall transmit a copy
of such notice to the Escrow Agent, and in the event such Claim is a
Third Party Claim, such notice shall comply with the provisions of
Section 9.5(a) of the Purchase Agreement relating to Third Party
Claims, provided however, that failure to provide such notice within
an applicable time period shall not affect the Buyer's right to
payment hereunder except to the extent the Shareholder Representative
and the Shareholders have been materially prejudiced as a result of
such failure to provide timely notice;
b. The amount of any Asserted Claim (the "Asserted
Amount") and the amount of Escrow Funds, if any, requested to be
delivered to Buyer pursuant to Section 4.d hereof shall be
simultaneously certified in the notice to be provided in Section 4.a
above to the Escrow Agent and the Shareholder Representative in
writing by Buyer;
c. In connection with any Asserted Claim, Buyer will, or
will cause the Company to, make available to the Shareholder
Representative, counsel thereto and accountants therefor such records
pertaining to the Asserted Claim (to the extent such Asserted Claim is
a Third Party Claim) in accordance with Section 9.5(a) of the Purchase
Agreement, provided however, that failure to provide such records
within an applicable time period shall not affect the Buyer's right to
payment hereunder except to the extent the Shareholder Representative
and the Shareholders have been materially prejudiced as a result of
such failure to timely provide such records;
d. On the 31st day following receipt of the
certification pursuant to the provisions of Section 4.b hereof (or
pursuant to Section 6 hereof as to the certification of a final
Asserted Claim on account of a Third Party Claim) of the Asserted
Amount of any Asserted Claim, subject to Sections 4.e and 4.f hereof,
such Asserted Amount shall be distributed to Buyer in respect of such
Asserted Claim pursuant to Section 4(g) hereof and the other terms of
this Escrow Agreement; provided, however, that, if within 30 days
following receipt of such certification, the Shareholder
Representative delivers a statement of specific objections thereto to
Buyer and the Escrow Agent (which written notification shall
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<PAGE> 3
be received by the Escrow Agent within such 30-day period following
the receipt by it of the above-referenced certification by Buyer) that
he intends to challenge Buyer's certification of its Asserted Claim or
a specified part thereof (the "Contested Amount"), then the Contested
Amount shall, notwithstanding the provisions of this Section 4, remain
in escrow with the Escrow Agent until a final resolution (by a written
agreement of Buyer and the Shareholder Representative or pursuant to
the arbitration provisions hereof, or to the extent applicable, the
determination of a court of competent jurisdiction to the extent the
Claim arises from a Third Party Claim subject to such court's
jurisdiction) of the dispute as to such matters (the amount, if any,
so resolved is herein called the "Resolved Amount");
e. Upon the 31st day following such receipt of a
certificate in accordance with Section 4.b hereof (or upon resolution
of a Contested Amount as provided herein if such a certification shall
be challenged), subject to Section 4.f hereof, the Escrow Agent shall
pay to Buyer the lesser of (i) the Asserted Amount less the Contested
Amount with respect to that Asserted Claim, if such certification
shall have been challenged and such challenge shall not have been
resolved, or the Resolved Amount, if any, if such certification is
challenged and resolved and (ii) the amount then held in the Escrow
Fund.
f. At any time following the notice of challenge to an
Asserted Claim (other than with respect to Sections 5.4 or 5.5 of the
Purchase Agreement) as provided for by Section 4.d hereof, either
Buyer or the Shareholder Representative may refer the matter to final
and binding arbitration in accordance with the applicable provisions
of the Purchase Agreement. The arbitration shall be conducted before
a single arbitrator in Houston, Texas to be appointed (in the absence
of agreement by the parties as to such appointment) by the American
Arbitration Association ("AAA") and shall be conducted in accordance
with the Commercial Arbitration Rules of the AAA. Such arbitrator
shall, upon completion of such arbitration proceedings, certify the
results of the arbitration to the Escrow Agent, including his decision
with respect to the existence of a Claim and the Resolved Amount
thereof, if any, and the Escrow Agent shall be entitled to rely and
act accordingly with respect to payments to Buyer hereunder, if any,
on the basis of the decision of such arbitrator as so certified. 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 shall be entered upon the
award made pursuant to the arbitration. The fees, costs and expenses
of the arbitrator shall be borne by the parties in inverse proportion
as they may prevail on the 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. All fees, costs and expenses of
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the arbitrator borne by the Shareholders, as determined by the
arbitrator, shall be paid from the Escrow Fund. If the arbitrator
decides in Buyer's favor with respect to any Asserted Claim, Buyer's
reasonable legal fees and related expenses in connection with such
arbitration (as determined by the arbitrator) shall be included in the
Resolved Amount.
5. Procedures for Application of Escrow Funds.
a. In the event notice to remedy or cure an Unclean
Event is provided to Buyer pursuant to Section 4.7 of the Agreement,
the Buyer and the Shareholder Representative shall each provide a copy
of each notice to the Escrow Agent with a statement as to agreement or
any disagreements with respect to such notice. In the event of any
disagreements, Buyer and the Shareholder Representative shall
negotiate in good faith to resolve such differences. If the parties
have not resolved their differences within 10 business days from the
date such notice is provided to the Escrow Agent, then the arbitration
provisions of Section 4.f. shall be followed. Following resolutions
of the dispute, the Escrow Agent shall pay to the Environmental
Consultant the amount of specified in the notice (or determined upon
resolution of the dispute) upon presentment of the invoice relating to
the procedures to be performed, or already performed by, such
Environmental Consultant, which invoice shall be agreed to by the
Buyer and the Shareholder Representative. Upon the occurrence of a
Clean Phase II Event following the Closing, Buyer and the Shareholder
Representative shall certify such occurrence to the Escrow Agent, and
upon such certification, the Escrow Agent shall release to the
Shareholders in accordance with Section 7 hereof an amount of Escrow
Funds equal to the lesser of (i) $1,000,000 less any amounts paid from
the Escrow Fund to the Environmental Consultant and less any amounts
paid from the Escrow Fund relating to Claims under Section 9.2(a)(iv)
or of the Agreement relating to the representations and warranties
contained in Section 2.18 of the Agreement, or (ii) the balance of the
Escrow Fund.
b. On the date that is three years from the Closing Date
(the "Final Expiration Date"), and after all distributions (x) to
Buyer in respect of any Asserted Claims and the payment of any other
amounts under Section 4.f, (y) to the Shareholder Representative of
the fees and expenses of the Shareholder Representative provided for
by Section 11 hereof and (z) to the Escrow Agent of all expenses paid
or reasonably established to be incurred by the Escrow Agent in
connection with this Escrow Agreement pursuant to Section 12 hereof,
the balance of the Escrow Funds shall be distributed to the
Shareholders on a pro rata basis as provided in Section 7 hereof;
provided that the amount so distributed to the Shareholders shall be
reduced by the aggregate amount of Asserted Claims then unpaid or
unresolved, and by all fees and expenses incurred or reasonably
expected to be incurred pursuant to Section 4.f or Section 11 (which
fees and expenses shall be paid from the Escrow Fund upon the
direction of the Shareholder Representative
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<PAGE> 5
and Buyer, which direction from Buyer will not be unreasonably
withheld) and that have not been paid.
c. As to any amounts held under the Escrow Agreement
after the Final Expiration Date on account of the existence of
unresolved or unpaid Asserted Claims on the Final Expiration Date,
such amounts shall be distributed from time to time to Buyer or to the
Shareholders on a pro rata basis, in accordance with Section 7 hereof,
as such Asserted Claims are resolved; provided that the amount
distributable to the Shareholders shall be reduced by all fees and
expenses incurred or reasonably expected to be incurred by the
Shareholder Representative that have not been paid pursuant to Section
4.f or Section 11 (which fees and expenses shall be paid from the
Escrow Fund upon the direction of the Shareholder Representative and
Buyer, which direction from Buyer will not be unreasonably withheld).
6. Special procedures with respect to claims made against the
Company as to which liability, and amount thereof is uncertain. If a Third
Party Claim is made against the Buyer or the Company that Buyer believes
constitutes, or may (upon final resolution) constitute, a Claim hereunder, then
Buyer shall certify such matter to the Escrow Agent and the Shareholder
Representative as an Asserted Claim in accordance with Section 4.b hereof even
though such claim against the Buyer or the Company is at the time uncertain or
unresolved and even though the exact amount of any loss, liability, cost or
expense on account thereof may be unknown at the time of such certification
and, therefore, even though it is unknown whether such matter may (upon final
resolution) constitute a Claim hereunder. In making such certification, Buyer
may make a good faith estimate the maximum amount of exposure with respect
thereto and such estimated amount shall constitute a Contested Amount for
purposes of Section 4.d hereof. The Buyer, or the Company at the Buyer's
election, shall take exclusive control over all matters relating to any Claim
that constitutes a Third Party Claim. The Shareholders Representative shall
have the right (which expenses shall be paid by the Shareholders to the
Shareholders Representative and which shall not be paid from the Escrow Fund)
to appoint counsel of its choice to represent the interests of the Shareholders
and to participate in the defense, negotiation and/or settlement of the Third
Party Claim. Counsel employed by the Shareholder Representative shall act in an
advisory capacity only with respect to the defense provided by the Buyer or the
Company, as applicable. The Buyer or the Company, as applicable, shall in good
faith defend each such claim with counsel selected by the Buyer or the Company,
as applicable, and reasonably acceptable to the Shareholder Representative.
The Buyer or the Company, as applicable, shall keep the Shareholder
Representative fully informed at all times of the status of the Third Party
Claim. The Buyer or the Company, as applicable, shall cooperate with the
Shareholder Representative 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 reasonably available for any
discovery or trial. The Buyer or the Company, as applicable, shall notify the
Shareholder Representative prior to settling or compromising any Third Party
Claim.
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<PAGE> 6
The provisions hereof with respect to arbitration shall,
notwithstanding any other provision hereof, be held in abeyance until such time
as Buyer or the Company, as applicable, certifies to the Shareholder
Representative and the Escrow Agent that the uncertainties as to such Third
Party Claim have been resolved or developed in such manner that Buyer believes
a Claim exists on account thereof and thus that it is certifying a final
Asserted Claim with respect thereto. The amount of such final Asserted Claim
shall thereafter constitute the Contested Amount for purposes of Section 4.d
hereof. If there is a disagreement between the parties with respect thereto,
then the procedure for arbitration provided for by Section 4 hereof shall be
followed.
7. Matters Pertaining to Distributions to Shareholders. Amounts
to be distributed to Shareholders shall be distributed in accordance with the
percentages set forth on Exhibit A hereto. The right of a Shareholder to
receive any amounts under this Section 7 may not be transferred or otherwise
assigned by the Shareholder to any party, unless such transfer or assignment
occurs by will or by operation of law. From time to time the Escrow Agent
shall provide Buyer and the Shareholder Representative with any changes of
address or similar changes that it may receive with respect to the
Shareholders. In connection with any distribution to be made to Shareholders,
Buyer and the Shareholder Representative shall provide a schedule to the Escrow
Agent setting forth the names, addresses and, to the extent available thereto,
the tax identification numbers of the Shareholders and the amounts to which
each such Shareholder is entitled under this Section 7. The Escrow Agent shall
distribute such amounts in accordance with such instructions as promptly as
practicable after its receipt of such instructions. After 120 days following
the furnishing of such instructions, Shareholder Representative shall be
entitled to require the Escrow Agent to deliver to it any funds (including any
interest received with respect thereto) that the Escrow Agent is unable to, or
does not, disburse to a Shareholder pursuant to this Section 7, and thereafter
such Shareholder shall be entitled to look to Shareholder Representative
(subject to abandoned property, escheat or other similar laws) only as a
general creditor thereof with respect to the cash payable to such Shareholder
pursuant to this Escrow Agreement.
8. Investment of Cash Portion of Escrow Fund. The Escrow Agent
will invest the Escrow Fund in readily marketable securities of the United
States Government or its lawful agencies or in securities guaranteed by the
full faith and credit of the United States, which securities, in either case,
shall have maturities of less than one year, or in shares of investment
companies that, by their charter, invest solely in such securities. In
investing and reinvesting the Escrow Fund, the Escrow Agent will seek to obtain
the best yield consistent with safety of principal, ready marketability and
liquidity that may be necessary to pay Asserted Claims and to make
distributions hereunder. The Escrow Agent will have the authority to sell
investments that it has made from time to time as it deems appropriate. All
income earned on the cash portion of the Escrow Fund, after payment of expenses
incurred in connection therewith, will be held, invested, reinvested and
released with, and shall be deemed to be a part of, the Escrow Fund. All
income earned on the cash portion of the Escrow Fund, after payment of expenses
incurred in connection therewith, will be held, invested, reinvested and
released with, and shall be deemed to be a part of, the Escrow Fund. Neither
Buyer, the Company, the Shareholder Representative, the Shareholders nor the
Escrow Agent shall be liable or responsible for any loss resulting from any
investment or reinvestment made pursuant to this Section 8. All income earned
on the Escrow
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<PAGE> 7
Fund shall be deemed income of Buyer and not of the Escrow Fund for federal
income tax purposes, and Buyer shall pay any federal income taxes attributable
to such income, it being agreed by the parties that the Escrow Fund will be
treated as a grantor trust for federal income tax purposes. Similarly, Buyer
shall be entitled to any deduction available to the Escrow Fund for federal
income tax purposes on account of any expenses contemplated by this Escrow
Agreement to be paid from the Escrow Fund. Further, it is recognized by the
parties that distributions from the Escrow Fund to the Shareholders, if any,
will be taxable in part as interest income to the Shareholders under provisions
of the Internal Revenue Code of 1986 relating to the imputation of interest and
original issue discount, and Buyer will be entitled to any deduction available
for federal income tax purposes on account of the interest income so taxable to
the Shareholders.
9. Liability of Escrow Agent. The duties of the Escrow Agent
hereunder will be limited to the observance of the express provisions of this
Escrow Agreement. The Escrow Agent will not be subject to, or be obliged to
recognize, any other agreement between the parties hereto or directions or
instructions not specifically set forth as provided for herein. The Escrow
Agent will not make any payment or disbursement from or out of the Escrow Fund
that is not expressly authorized pursuant to this Escrow Agreement. The Escrow
Agent may rely upon and act upon any instrument received by it pursuant to the
provisions of this Escrow Agreement that it reasonably believes to be genuine
and in conformity with the requirements of this Escrow Agreement. The Escrow
Agent undertakes to use the same degree of care and skill in performing its
services hereunder as an ordinary prudent person would do or use under the
circumstances in the conduct of his or her own affairs. The Escrow Agent will
not be liable for any error of judgment or any act done or any step taken by it
in good faith or for any mistake of fact or law or for anything that it might
do or refrain from doing in connection with this Escrow Agreement, except to
the extent such actions shall be proved to constitute a material breach of the
Escrow Agent's obligations hereunder, gross negligence or willful misconduct on
the part of the Escrow Agent.
10. Indemnification of Escrow Agent. The Shareholders and Buyer
will severally, but not jointly, indemnify and hold the Escrow Agent harmless
from and against any and all losses, costs, damages or expenses (including, but
not limited to, reasonable attorneys' fees) it may sustain by reason of its
service as Escrow Agent hereunder but only to the extent such losses, costs,
damages or expenses exceed the amount of the funds available in the Escrow
Fund, and except such losses, costs, damages or expenses (including, but not
limited to, reasonable attorneys' fees) incurred by reason of such acts or
omissions for which the Escrow Agent is liable or responsible under the last
sentence of Section 9 hereof. The foregoing indemnification shall survive the
resignation of the Escrow Agent or the termination of this Escrow Agreement.
11. Release of Shareholder Representative; Successor Shareholder
Representative; Fees and Expenses of Shareholder Representative. Each
Shareholder, by accepting amounts paid pursuant to the Purchase Agreement, and
by becoming a beneficiary of this Escrow Agreement, appoints the Shareholder
Representative as such Shareholder's sole and exclusive agent to represent such
Shareholder's interests as a beneficiary of this Escrow Agreement, releases the
Shareholder Representative from liability for any action taken or not taken by
the Shareholder
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Representative under the terms hereof, and agrees that all such action taken or
not taken by the Shareholder Representative shall be binding upon the interests
of such Shareholder in all respects as if such Shareholder had taken or not
taken such action in the absence of the Shareholder Representative's gross
negligence or willful misconduct. Should Robert W. Espy III cease to act as
the Shareholder Representative for any reason, the Shareholders shall appoint
an individual from among the Shareholders as the Shareholder Representative.
Any person so appointed as Shareholder Representative shall sign a counterpart
of this Escrow Agreement in such capacity. For services as Shareholder
Representative, the Shareholder Representative will be paid annually from the
Escrow Fund an aggregate fee of $200 per month, pro rated for actual service in
such capacity in any year (with the aggregate amount to be split as they may
agree among persons who may be jointly acting as the Shareholder
Representative), provided that such fee shall not in the aggregate exceed the
aggregate interest income earned by the Escrow Fund less the fees and expenses
of the Escrow Agent provided for by Section 12 hereof.
12. Fees and Expenses of the Escrow Agent. Except as provided in
Section 17 hereof, all fees of the Escrow Agent for its service hereunder,
together with any expenses reasonably incurred by the Escrow Agent in
connection with this Escrow Agreement, shall be paid from the cash portion of
the Escrow Fund. The Escrow Agent is authorized to pay such fees and expenses
in advance and on the anniversary date of such advance payment thereafter. The
fees and expenses for services hereunder shall be calculated pursuant to the
terms and conditions set forth in the letter attached hereto as Exhibit B.
13. Designees for Instructions. Buyer, may, by notice to the
Escrow Agent, designate one or more persons who will execute notices and from
whom the Escrow Agent may take instructions hereunder. Such designations may
be changed from time to time upon notice to the Escrow Agent from Buyer. Until
further notice, Mr. William D. Sutton and David T. Tighe are each designated as
the respective designees of Buyer to give notices and instructions to the
Escrow Agent. The Escrow Agent will be entitled to rely conclusively on any
notices or instructions from any person so designated by Buyer.
14. Resignation of Escrow Agent. The Escrow Agent may resign from
its duties hereunder by giving each of the Buyer and the Shareholder
Representative written notice of the effective date of such resignation (which
effective date shall be at least 60 days after the date of such notice is
given). If on or before the effective date of such resignation, the Escrow
Agent has not received joint written instructions from Buyer and the
Shareholder Representative regarding the transfer of the Escrow Fund, it will
thereupon deposit the Escrow Fund into the registry of a court of competent
jurisdiction. The parties hereto intend that a substitute Escrow Agent will be
appointed to fulfill the duties of the Escrow Agent hereunder for the remaining
term of this Escrow Agreement in the event of the Escrow Agent's resignation
and agree reasonably to cooperate to make such appointment.
15. Notices. All notices, requests, instructions and demands that
may be given by any party hereto to any other party in the course of the
transactions herein contemplated will be in
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writing and will be deemed given when posted in the United States mail,
certified return receipt requested, addressed to the respective parties as
follows, or when received, if earlier, by other written or electronic
communication as follows:
(a) If to Buyer or the Company:
Dailey Petroleum Services Corp.
One Lawrence Center
P.O. Box 1863
Conroe, Texas 77305
Attention: General Counsel
Tel: 281/350-3399
Fax: 409/593-2132
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010-3095
Attention: Mr. Robert F. Gray, Jr.
Tel: 713/651-5151
Fax: 713/651-5246
(b) If to the Escrow Agent:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
ATTN: Corporate Trust
Tel: 214/754-1200
Fax: 214/754-1303
(d) If to the Shareholder Representative:
Robert W. Espy, III
c/o Quest Capital Corp.
1360 West Peachtree Street, Suite 1990
Atlanta, Georgia 30309
Tel: 404/876-1990
Fax: 404/876-6532
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with a copy to:
Judy Tabb
Carr, Tabb & Pope LLP
1360 West Peachtree Street, Suite 1990
Atlanta, Georgia 30309
Tel: 404/876-1990
Fax: 404/876-6532
16. Binding Effect. This Escrow Agreement will be binding upon
and inure to the benefit of the parties hereto and their permitted assigns.
17. Amendment and Termination. This Escrow Agreement may be
amended before the Effective Time by and upon written notice to the Escrow
Agent, given jointly by Buyer, the Shareholder Representative, and the Company,
but the duties and responsibilities of the Escrow Agent may not be increased
without its written consent. This Escrow Agreement may be amended or canceled
by and upon written notice to the Escrow Agent given jointly by Buyer and the
Shareholder Representative, but the duties and responsibilities of the Escrow
Agent may not be increased without its written consent. This Escrow Agreement
will terminate on the date on which no amounts remain in the Escrow Fund;
provided, however, that Buyer shall pay the Escrow Agent all reasonable fees
and expenses incurred by it and remaining unpaid on the date of such
termination; and provided further that this Escrow Agreement shall not
terminate until the final resolution of all Asserted Claims.
18. Applicable Law. THIS ESCROW AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO CONFLICTS OF LAW PRINCIPLES.
19. Counterparts. This Escrow Agreement may be executed in one or
more counterparts, each of which will be deemed an original, but all of which
together will constitute but one and the same instrument.
20. Captions and Paragraph Headings. Captions and paragraph
headings used herein are for convenience only and are not part of this Escrow
Agreement and will not be used in construing it.
SIGNATURES BEGIN ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
DAILEY PETROLEUM SERVICES CORP.
By: /s/ JAMES F. FARR
-------------------------------------
James F. Farr
President and Chief Executive Officer
SHAREHOLDER REPRESENTATIVE
By: /s/ ROBERT W. ESPY, III
---------------------------------------
Name: Robert W. Espy, III
-------------------------------------
Title:
------------------------------------
SHAREHOLDERS
/s/ CHAMAN MALHOTRA
------------------------------------------
Chaman Malhotra
JAMES BRODIE PUGH REVOCABLE TRUST
By: *
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
/s/ TOMMY D. RAMSAY
------------------------------------------
Tommy D. Ramsay
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<PAGE> 12
**
------------------------------------------
Robert Doddridge
*
------------------------------------------
Mark Gerner
*
------------------------------------------
Don Wells
*
------------------------------------------
Roberto Rodrigano
**
------------------------------------------
Gordon Yeo
**
------------------------------------------
Douglas Crow
**
------------------------------------------
Ignatius Sluys
**
------------------------------------------
Elaine Birkbeck
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<PAGE> 13
*
------------------------------------------
Twyla Schwieger
*
------------------------------------------
Olga Hoegg de Pugh
*
------------------------------------------
Charles Pugh
*
------------------------------------------
Patty Pugh
*
------------------------------------------
R. J. Pugh
MALHOTRA ENTERPRISES LTD.
By: /s/ CHAMEN MALHATRA
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
WIND RIVER ASSOCIATES, L.L.C.
By: /s/ ROBERT W. ESPY, III
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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BANC ONE CAPITAL PARTNERS L.P.
By: BOCP Corporation
General Partner
By: /s/ SUZANNE B. KRISCUNAS
--------------------------------
Suzanne B. Kriscunas,
Authorized Signer
FIRST COMMERCE CAPITAL, INC.
By: /s/ PAUL F. GIFFIN
------------------------------------
Paul F. Giffin,
Senior Vice President
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<PAGE> 15
*By: /s/ CHAMAN MALHOTRA
------------------------------------
Chaman Maholtra
Attorney-in-Fact
Pursuant to Power of Attorney
**By: /s/ TOMMY D. RAMSAY
------------------------------------
Tommy D. Ramsay
Attorney-in-Fact
Pursuant to Power of Attorney
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U.S. TRUST COMPANY OF TEXAS, N.A.
By: /s/ PETER C. GERRER
---------------------------------------
Name: Peter C. Gerrer
-------------------------------------
Title: Vice President
------------------------------------
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EXHIBIT A
<TABLE>
<CAPTION>
NAME PERCENTAGE
- --------------------------------- ----------
<S> <C>
Chaman Malhotra 4.010
James Brodie Pugh Revocable Trust 2.874
Tommy D. Ramsay 1.110
Robert Doddridge .557
Mark Gerner .472
Don Wells .472
Roberto Rodrigano .377
Gordon Yeo .341
Douglas Crowe .307
Ignatius Sluys .273
Elaine Birkbeck .235
Twyla Schwieger .141
Olga hoegg de Pugh .118
Charlie Pugh .118
Patty Pugh .118
R. J. Pugh .118
Malhotra Enterprises Ltd. .118
Wind River Associates, LLC 70.640
Banc One Capital Partners LP 11.200
First Commerce Capital, Inc. 6.400
------
100%
======
</TABLE>
A-17
<PAGE> 1
EXHIBIT 10.2
================================================================================
THIRD AMENDED AND RESTATED LOAN AGREEMENT
BY AND AMONG
DAILEY PETROLEUM SERVICES CORP.,
THE FINANCIAL INSTITUTIONS PARTY HERETO,
AND
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION,
AS AGENT
JUNE 20, 1997
================================================================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE 1. DEFINITIONS AND GENERAL RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.1 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.2 Financial Statements; Projections . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.5 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.7 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.8 Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.9 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.10 Liens and Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.11 Availability of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.12 Regulations U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.16 Environmental Condition of the Property . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.17 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.18 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.19 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.20 Broker's; Transaction Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 3. THE CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.2 Revolving Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 3.3 Advances and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.4 Conversions and Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.5 Loan Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.6 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.8 Payments to the Agent and the Banks . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.9 Payments by the Banks to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.10 Computation of Fees and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.11 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.12 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.14 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.15 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.16 Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.17 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.18 Eurodollar Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.19 Certain Agreements Regarding Letters of Credit . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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Section 3.20 Voluntary Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . 51
Section 3.21 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 4. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 4.1 Conditions Precedent to Initial Credit Extensions . . . . . . . . . . . . . . . . . . 52
Section 4.2 Additional Conditions Precedent to Each Loan . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 5.3 Notice; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 5.4 Maintenance of Corporate Existence and Properties . . . . . . . . . . . . . . . . . . 57
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 5.6 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.7 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.9 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.10 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.11 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.12 Maximum Funded Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.13 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.14 Minimum Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.15 Revenue Producing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.17 Notification of Releases of Hazardous Materials . . . . . . . . . . . . . . . . . . . 60
Section 5.18 Environmental Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.19 Chattel Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.20 Lockbox; Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 5.21 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.1 Limitations on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.2 Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.3 Limitations on Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.4 Loans, Advances and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.5 Limitations on Fundamental Changes; Disposition of Assets . . . . . . . . . . . . . . 62
Section 6.6 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.8 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.9 Transactions with Affiliates and Other Persons . . . . . . . . . . . . . . . . . . . . 63
Section 6.11 Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.12 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 7. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.2 Optional Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.3 Automatic Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.4 Additional Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 8. RELATION OF BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
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<TABLE>
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Section 8.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.3 Appointment of Additional Co-Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.4 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.5 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.6 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.7 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.9 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.10 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.11 Pro Rata Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.12 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.13 Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.14 No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.15 Third Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 9. ASSIGNMENTS, PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 9.1 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 10. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.1 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.2 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.3 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.7 Expenses; Documentary Taxes; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 78
Section 11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.9 Notification of Addresses, Lending Offices, Etc. . . . . . . . . . . . . . . . . . . 79
Section 11.10 Controlling Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.11 Table of Contents; Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.12 Waivers and Release of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.13 Grant of Security Interest; Ratification of Documents . . . . . . . . . . . . . . . 80
Section 11.14 Restatement and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.15 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.16 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.17 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.18 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 11.19 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 11.20 No Oral Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
</TABLE>
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<PAGE> 5
Exhibits:
A - Form of Compliance Certificate
B - Form of Loan Formula Certificate
C - Form of Notice of Borrowing
D - Form of Notice of Conversion/Continuation
E - Form of Revolving Credit Note
F - Form of Term Note
G - Form of Credit Request
H - Form of Assignment and Acceptance
Schedules:
I - Commitments
1.01A - Ineligible Foreign Countries
1.01B - Permitted International Customers
2.4 - Litigation
2.13 - Subsidiaries
3.1 - Term Note Principal Payments
6.1 - Permitted Existing Indebtedness
6.9 - Transactions with Affiliates
11.8 - Lending Offices; Addresses for Notices
-iv-
<PAGE> 6
THIRD AMENDED AND RESTATED LOAN AGREEMENT
This THIRD AMENDED AND RESTATED LOAN AGREEMENT is entered into as of
June 20, 1997, by and between DAILEY PETROLEUM SERVICES CORP., a Delaware
corporation (the "Borrower"), formerly known as Dailey Corporation, a Delaware
corporation, successor by merger to Dailey Petroleum Services Corp. ("DPSC"), a
Delaware corporation, the SEVERAL FINANCIAL INSTITUTIONS THAT ARE PARTIES TO
THIS AGREEMENT (collectively, the "Banks" and individually a "Bank"), and WELLS
FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, DPSC and Wells Fargo Bank (Texas), National Association,
formerly known as First Interstate Bank of Texas, N.A. ("Wells Fargo"), in its
capacity as the sole lender thereunder, entered into a Second Amended and
Restated Loan Agreement dated as of December 13, 1995 (the "Initial
Agreement"), whereby the Bank agreed to make available to DPSC credit upon the
terms and conditions set forth therein; and
WHEREAS, effective as of June 5, 1996, DPSC and Wells Fargo entered
into a First Amendment to Second Amended and Restated Loan Agreement (the
"First Amendment"); and
WHEREAS, pursuant to a Plan and Agreement of Merger, effective as of
June 6, 1996, DPSC merged with and into Dailey Corporation, a Delaware
corporation, and Dailey Corporation amended its Certificate of Incorporation to
change its name to "Dailey Petroleum Services Corp." (the "Merger
Transaction"); and
WHEREAS, on June 11, 1996, but effective as of June 6, 1996, the
Borrower and Wells Fargo entered into an Assumption Agreement (the "Assumption
Agreement"), whereby the Borrower assumed all the duties, liabilities, and
obligations of DPSC in and under the Initial Agreement, as amended by the First
Amendment, and the other Loan Documents (as defined in the Initial Agreement)
and the Loan Documents (as defined in the Initial Agreement) were amended to
substitute the Borrower for DPSC under such documents, all in accordance with
the terms of the Assumption Agreement; and
WHEREAS, effective as of December 13, 1996, Borrower and Wells Fargo
entered into a Second Amendment to Second Amended and Restated Loan Agreement
(the "Second Amendment"); and
WHEREAS, the Initial Agreement, as amended by the First Amendment and
the Second Amendment and the Assumption Agreement, is hereinafter sometimes
called the "Prior Loan Agreement"; and
WHEREAS, the Borrower has requested that the Agent and the Banks amend
and restate the Prior Loan Agreement in its entirety to (i) increase the
amounts available to the Borrower under the revolving credit facility and the
term loan facility and (ii) to modify and amend certain other provisions of the
Prior Loan Agreement; and
<PAGE> 7
WHEREAS, the Prior Loan Agreement is being amended and restated by
this Agreement in order to reflect the agreements of the parties hereto and to
make the requested amendments on the terms and conditions set forth herein; and
WHEREAS, this Agreement does not extinguish the obligations of the
Borrower under, or discharge or release the liens and security interests of,
the Prior Loan Agreement, the Prior Term Note, the Prior Revolving Credit Note,
the Loan Documents (as defined in the Prior Loan Agreement) or any other
document executed in connection with, evidencing, securing or pertaining to the
Prior Loan Agreement, the Prior Term Note, the Prior Revolving Credit Note; and
nothing contained in this Agreement shall be construed as a substitution or
novation of the Indebtedness under the Prior Loan Agreement, the Prior Term
Note, the Prior Revolving Credit Note, or the instruments securing same, all of
which shall remain in full force and effect except as modified hereby or by any
other instruments executed in connection with this Agreement;
NOW, THEREFORE, to induce the Banks to extend credit and financial
accommodations to the Borrower and in consideration of the mutual agreements,
provisions and covenants contained herein and such other good and valuable
considerations, the receipt and sufficiency of which are acknowledged hereby,
the parties hereto hereby agree to amend and restate the Prior Loan Agreement
as follows:
ARTICLE 1. DEFINITIONS AND GENERAL RULES. The following definitions and
general rules will apply hereto:
Section 1.1 General Rules For the purposes of this Agreement:
(a) The terms defined in this Article 1, unless the
context requires otherwise, will have the meanings applied to them in Section 1
and will include the plural as well as the singular. Additional definitions
may be found in the preamble and throughout this Agreement;
(b) All accounting terms not otherwise defined herein
will have the meanings assigned to them in accordance with GAAP; and
(c) The words "herein," "hereof," "hereunder" and words
of similar import refer to this Agreement as a whole and not to a particular
article, section, paragraph or other subdivision.
Section 1.2 Definitions. As used in this Agreement, the following
terms will have the following meanings unless the context requires otherwise:
Accounts means with respect to any Person all of such Person's
accounts, chattel paper, contract rights, instruments and retail installment
contracts arising out of goods sold or leased (and in each case actually
delivered) or for services rendered by such Person.
Acquisition means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (a)
the acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of 50%
of the capital stock of a corporation (or similar entity), which stock
-2-
<PAGE> 8
has ordinary voting power for the election of the members of the acquiree's
board of directors or persons exercising similar functions (other than stock
having such power only by reason of the happening of a contingency), or the
acquisition of in excess of 50% of the partnership interests or equity of any
Person not a corporation which acquisition gives the acquirer the power to
direct or cause the direction of the management and policies of the acquiree,
or (c) a merger or consolidation or any other combination with another Person
(other than a Person that is a Subsidiary) provided that the Borrower or a
Subsidiary of the Borrower is the surviving entity.
ADI means Air Drilling International, Inc., a Delaware
corporation.
ADI Acquisition Agreement means that certain Stock Purchase
and Sale Agreement dated as of May 8, 1997, as amended by Amendment No. 1
thereto dated May 30, 1997, between Borrower, ADI, the shareholders of ADI
("ADI Shareholders") and the preferred shareholders of Services (the "Services
Shareholders" and, together with the ADI Shareholders, the "Selling
Shareholders").
ADI Acquisition Documents means the ADI Acquisition Agreement
and all other agreements or instruments delivered in connection therewith in
order to consummate the Air Drilling Acquisition.
Adjustment Date has the meaning specified in Section 3.10(c)
hereof.
Affiliate of any Person means any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through ownership of voting securities,
membership interests or by contract or otherwise.
Agent means Wells Fargo Bank (Texas), National Association in
its capacity as agent for the Banks hereunder, and any successor agent arising
under Section 8.10.
Agreement means this Third Amended and Restated Loan Agreement
as originally executed or hereafter renewed, extended, modified, amended or
restated.
Air Drilling Acquisition means the acquisition by Borrower of
(a) all of the outstanding capital stock of ADI and (b) all of the outstanding
preferred stock of Air Drilling Services, Inc., a Wyoming corporation
("Services"), along with consummation of the other transactions contemplated by
the ADI Acquisition Agreement.
Applicable Margin means, for any day, the specified number of
Basis Points denominated "LIBOR Margin" or "Base Rate Margin," as applicable,
on Schedule 3.10 attached hereto, based upon the Funded Debt Ratio, such
percent to change when and as the Funded Debt Ratio changes, effective on the
date of each such change, determined in accordance with the provisions of
Section 3.10(c) hereof.
Asset Sale means any sale, lease or other disposition
(including any such transaction effected by way of merger or consolidation and
any condemnation of property
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<PAGE> 9
(or any transfer or disposition of property in lieu of condemnation for which
the Borrower or any of its Subsidiaries receives a condemnation award or other
compensation)) by the Borrower or any of its Subsidiaries, including without
limitation any sale-leaseback transaction, whether or not involving a Capital
Lease, of (i) any asset (other than Revenue Producing Assets) but excluding (a)
dispositions of inventory (excluding Revenue Producing Assets), cash, Cash
Equivalents and obsolete, unused or unnecessary equipment, in each case in the
ordinary course of business and (b) dispositions of any Property to the
Borrower or a Guarantor and (ii) Revenue Producing Assets not in the ordinary
course of business.
Assignee has the meaning specified in Section 9.1 of this
Agreement.
Assumption Agreement means that certain Assumption Agreement
dated effective June 6, 1996, by the Borrower in favor of Wells Fargo assuming
the Indebtedness of DPSC to Wells Fargo.
Bank has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include Wells Fargo, including in its
capacity as Issuing Bank, and any successor Issuing Bank; for purposes of
clarification only, to the extent that Wells Fargo or any successor Issuing
Bank may have any rights or obligations in addition to those of the Banks due
to its status as Issuing Bank, its status as such will be specifically
referenced.
Base Rate means, for any day, the higher of: (a) the sum of
0.50% per annum and the latest Federal Funds Rate; and (b) the Prime Rate.
Base Rate Loan means a Loan that bears interest based on the
Base Rate.
Basis Points means one one-hundredth of one percent (1/100 of
1%) per annum.
Borrowing means a borrowing hereunder consisting of Revolving
Credit Loans or Term Loans of the same Type made to the Borrower on the same
day by the Banks pursuant to Section 3.1 or 3.2 of this Agreement, and, other
than in the case of Base Rate Loans, having the same Interest Period.
Business Day means (i) a day (other than Saturday, Sunday or a
legal holiday) on which banks in Houston, Texas, are open for business, and
(ii) if the applicable Business Day relates to any Eurodollar Rate Loan, a day
which is a "Business Day" described in clause (i) hereof and which is also a
day for trading by and between banks in the London interbank Eurodollar market.
Canadian Subsidiary means a Subsidiary incorporated under the
laws of Canada or any province thereof.
Capital Lease means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease on the balance sheet of a Person.
Cash Collateral Account has the meaning specified in Section
5.20.
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<PAGE> 10
Cash Equivalents mean any of the following: (a) securities
with maturities of two hundred seventy (270) days or less from the date of
acquisition thereof issued or fully guaranteed or insured as to payment of
principal and interest by the United States or any agency thereof, (b)
certificates of deposit and bankers acceptances with maturities of one hundred
eighty (180) days or less from the date of acquisition thereof issued by, and
deposit accounts at, any commercial bank having capital and surplus equal to or
greater than $250,000,000 and whose letters of credit are rated at least A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., (c)
commercial paper of a domestic issuer rated at least either A-1 by Standard &
Poor's Corporation or P-1 by Moody's Investors Service, Inc. with maturities
of two hundred seventy (270) days or less from the date of acquisition thereof,
(d) money market mutual funds which are only allowed to purchase the types of
securities described in clause (a) of this definition, (e) repurchase
agreements with a term of thirty (30) days or less and entered into with a
commercial bank meeting the requirements of clause (b) of this definition and
which repurchase agreements are secured by first a security interest on
obligations of the type described in clause (a) of this definition that have a
market value (exclusive of accrued interest) at least equal to the amount of
each respective repurchase agreement, and (f) securities (other than "margin
stock" as such term is defined in Regulation U) rated at least either BBB by
Moody's Investors Service, Inc. or BBB by Standard & Poor's Corporation with
maturities of one hundred eighty (180) days or less from the date of
acquisition thereof.
CERCLA means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as
amended.
Change of Control means (a) any "person" or "group" within the
meaning of Section 13(d) and 14(d)(2) of the Exchange Act (a "Group") purchases
or otherwise acquires, directly or indirectly, "beneficial ownership" (as such
term is defined in Rule 13d-3 under the Exchange Act ("Beneficial Ownership")
of securities of the Borrower which, together with any securities owned
beneficially by any "affiliates" or "associates" of such Group (as such terms
are defined in Rule 12b-2 under the Exchange Act), shall represent more than
twenty-five percent (25%) of the combined voting power of the Borrower's
securities which are entitled to vote generally in the election of directors
and which are outstanding on the date immediately prior to the date of such
purchase or acquisitions; (b) a sale of all or substantially all of the assets
of the Borrower and its Subsidiaries to any Person or Group; (c) the
liquidation or dissolution of the Borrower; or (d) during any consecutive
two-year period, individuals who at the beginning of such period constituted
the Board of Directors of the Borrower (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Borrower was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Borrower then in office.
Chattel Paper means a writing or writings which evidence both
a monetary obligation and a security interest in or a lease of specific goods,
including, without limitation, short-term rental agreements relating to
downhole drilling tools and other equipment.
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<PAGE> 11
Closing Date means the date on which all of the conditions
precedent stated in Article 4 hereof have been met to the satisfaction of the
Majority Banks or waived by the Majority Banks in writing (and which in any
event must occur no later than June 30, 1997).
Code means the Internal Revenue Code of 1986, as amended from
time to time, any predecessor statute and any statute enacted in replacement
thereof.
Collateral means the properties and assets described in
Section 3.11 hereof.
Commitment means, for each Bank, the sum of its Line of Credit
Commitment and Term Loan Commitment.
Commitment Percentage means as to any Bank, the percentage of
the aggregate Line of Credit Commitment or Term Loan Commitment constituted by
such Bank's Commitment.
Compliance Certificate means a certificate substantially in
the form of Exhibit A.
Consignment Assets means Revenue Producing Assets (other than
those assets for which a Person has properly complied with the filing and
notice requirements of Section 9.114 of the UCC) sold or delivered on a "sale
on approval" or a "sale or return" (as each of those terms are defined in
Section 2.326 of the UCC), or on consignment, on memorandum, or on a guaranteed
sale basis.
Consolidated Capital Expenditures means, for any period, the
additions to property, plant and equipment and other capital expenditures
(excluding the costs of spare parts acquired or fabricated for use in repairs
of equipment which parts will be expensed when consumed) of the Borrower and
its Subsidiaries for such period, as the same are or would be set forth in a
consolidated statement of cash flows of the Borrower and its Subsidiaries for
such period, determined in accordance with GAAP.
Consolidated Debt Service means, for any period, the sum of
(a) Consolidated Interest Expense for such period and (b) all payments of
principal in respect of Indebtedness of the Borrower and its Subsidiaries
(including, without limitation, Subordinated Indebtedness and the principal
component of any payments in respect of Capital Leases) paid or payable during
such period, determined on a consolidated basis in accordance with GAAP.
Consolidated EBITDA means, for any period, the sum of: (i)
the Consolidated Net Income for such period, plus (ii) to the extent that any
of the items referred to in any of clauses (A) through (C) below were deducted
in calculating such Consolidated Net Income: (A) Consolidated Interest Expense
for such period, (B) depreciation and amortization expense of such Person and
its Subsidiaries for such period, and (C) all taxes measured by income of such
Person and its Subsidiaries; provided, however, that Consolidated Net Income
shall be computed for the purposes of this definition without regard to
expenses incurred by Borrower for stock-based compensation because of
Borrower's adoption of the fair-value-based method of accounting for employee
stock option plans pursuant to Financial Accounting Standards Board Statement
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<PAGE> 12
No. 123, to non-cash write-ups and write-downs, and without giving effect to
extraordinary losses or extraordinary gains for such period.
Consolidated Excess Cash Flow means, for any period, the
Consolidated EBITDA of the Borrower for such period, less taxes measured by
income of the Borrower and its Subsidiaries paid in cash during such period,
less Consolidated Capital Expenditures paid in cash during such period, less
Consolidated Interest Expense paid in cash for such Period, less scheduled
payments of principal in respect of Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, Subordinated Indebtedness and the
principal component of any payments in respect of Capital Leases) paid during
such period, determined on a consolidated basis, in accordance with GAAP.
Consolidated Funded Debt means Funded Debt of a Person and its
Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
Consolidated Interest Expense means, for any period, the
interest expense of the Borrower and its Subsidiaries (including amortization
of debt discounts, net cost under interest rate contracts and all of the
interest but not the principal component of rentals in respect of Capital Lease
obligations) determined on a consolidated basis for such period in accordance
with GAAP.
Consolidated Net Income means, for any period, a Person's
consolidated net income (or loss) after income and franchise taxes determined
in conformity with GAAP, but excluding: (a) the income of any other Person
(other than Subsidiaries) in which such Person or any of its Subsidiaries has
an ownership interest, unless and only to the extent received by such Person or
its Subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to asset dispositions or adjustments to the carrying value of
non-current assets; and (c) to the extent not included in clauses (a) and (b)
above, any after-tax extraordinary non-cash gains or extraordinary non-cash
losses.
Contingent Liabilities means any and all liabilities of a
Person, direct or indirect, for or in connection with the obligations, stock or
payment of dividends of any other Person, whether such liabilities arise by
guaranty, endorsement, agreement to purchase or repurchase, agreement to lease,
agreement to supply or advance funds (including, without limitation, agreements
to maintain working capital, solvency or other balance sheet conditions or
agreements to purchase stock or make capital contributions) or otherwise;
provided, however, that agreements to purchase or repurchase goods or services
and agreements to lease property entered into in the ordinary course of a
Person's business shall not be deemed to be "Contingent Liabilities."
Contractual Obligations means as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
Conversion Date means any date on which the Borrower elects to
convert a Base Rate Loan to a Eurodollar Rate Loan or a Eurodollar Rate Loan to
a Base Rate Loan.
Convertible Currency means Dollars, British pounds sterling,
German deutsche marks, Italian lira, French francs, Norwegian Kroner, Swiss
francs, Canadian
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<PAGE> 13
dollars, Japanese yen, Dutch gilders, and any other currency for which there is
a readily available and established exchange rate.
Credit Exposure means the sum of the undrawn amount of any
Letters of Credit then outstanding plus the aggregate amount of drafts paid
under Letters of Credit for which the Borrower has not reimbursed the Issuing
Bank.
Credit Extension means and includes (a) the making of any
Revolving Credit Loans hereunder, and (b) the Issuance of any Letters of Credit
hereunder.
Current Assets means at any date all assets of a Person that,
in accordance with GAAP, would be included as current assets on a balance sheet
of such Person on such date.
Current Liabilities means at any date all liabilities of a
Person that, in accordance with GAAP, would be included as current liabilities
on a balance sheet of such Person on such date.
Default means any event specified in Section 7.1 of this
Agreement, regardless of whether any requirement for the giving of notice or
the lapse of time has been satisfied.
Default Rate means the lesser of (i) a rate that is two
percentage points above the Prime Rate, as it varies, or (ii) the Maximum Rate,
as it varies.
Dollars, dollars and $ means dollars in lawful currency of the
United States of America.
Domestic Lending Office means, with respect to each Bank, the
office of such Bank designated as such on Schedule 11.8 hereto or such other
office of such Bank as such Bank may from time to time specify to the Borrower
and the Agent.
Eligible Accounts means, at any time, the amount equal to the
sum (without duplication) of (i) the aggregate unpaid amount of a Person's
Accounts for which invoices have been issued and payment for which is due
within 60 days, less any down payments plus (ii) the aggregate unpaid amount of
a Person's Accounts at the end of a calendar month for which invoices have not
been issued at the end of such calendar month but for which invoices have been
issued within twenty (20) days after the end of such calendar month and for
which payment is due within 60 days, less any down payments; provided, however,
there shall be excluded from Eligible Accounts (without duplication and only to
the extent otherwise included in Eligible Accounts):
(i) any amount billed and remaining unpaid more
than 120 days from issuance (or any amount remaining unpaid more than
90 days from the due date in the case of instruments, lease agreements
and chattel paper),
(ii) any amount due from suppliers of materials or
inventory to a Person but only to the extent that such Person is
indebted to
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<PAGE> 14
such suppliers with respect to materials or supplies purchased by such
Person from such suppliers,
(iii) any Account in which the Banks do not have a
valid and perfected first priority lien, mortgage or security
interest,
(iv) any Account arising from sales to or services
rendered for any Subsidiary or Affiliate of such Person,
(v) any Account arising from sales or leases to
or services rendered for any Governmental Authority (unless such
Governmental Authority is a Governmental Authority of the United
States of America and such Governmental Authority has properly
acknowledged the Agent's first priority security interests in such
Accounts to the satisfaction of the Agent with appropriate
assignments, to the Agent and Banks, and the Agent preapproves the
same in their reasonable discretion),
(vi) any Account arising from sales on a "sale or
return", "sale on approval" (as such terms are defined in the UCC),
consignment, or guaranteed sale basis,
(vii) any contra account and any Account which is
or may be subject to a right of setoff, claim or defense,
(viii) any Account of a Person due from a customer
whose principal place of business is located outside the United States
of America, and any Foreign Account of a Person,
(ix) any Account owed by an account debtor to a
Person, if more than twenty percent (20%) of the balances then
outstanding on accounts owed by such account debtor and any Affiliate
of the account debtor to such Person have remained unpaid for more
than one hundred twenty (120) days from the dates of their original
invoices (or have remained unpaid for more than ninety (90) days from
the due date in the case of instruments, lease agreements and chattel
paper),
(x) the amount of all discounts, allowances,
rebates, credits and adjustments claimed and available to such
Accounts,
(xi) the amount billed for or representing
retainage, if any, until all prerequisites to the immediate payment of
retainage have been satisfied,
(xii) any Account which, when aggregated with all
other Accounts of the same account debtor, constitutes more than 10%
of such Person's total Eligible Accounts before deductions made
pursuant to this clause, and
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<PAGE> 15
(xiii) any Account reasonably rejected by the Agent
as unsuitable (the Agent to advise the Borrower which accounts are
rejected with 10 days advance notice).
Eligible Foreign Accounts means, at any time, the amount equal
to the Dollar equivalent of the aggregate unpaid amount (without duplication)
of a Person's (a) Accounts due from a customer whose principal place of
business is located outside of the United States of America and Canada and (b)
Foreign Accounts, in each instance payable in Convertible Currency; provided
that (i) such Accounts are secured by a letter of credit in form, substance and
amount, and from a bank, reasonably acceptable to the Agent, (ii) such Accounts
are secured by a valid and enforceable export insurance policy issued by the
Export-Import Bank of the United States or an insurance company acceptable to
the Agent, with appropriate assignments, in each case, to the Agent and the
Banks, and the Agent preapprove the same in their reasonable discretion, (iii)
(A) the obligor or its consolidated parent on such Account is Investment Grade,
and (B) the payment of said Account is not due from an office of the obligor
thereon located in one of the countries listed on Schedule 1.01A, or (iv) (A)
the obligor on such Account is pre-approved by the Agent in its reasonable
discretion or described on Schedule 1.01(B) and (B) the payment of said Account
is not due from an office of the obligor thereon located in one of the
countries listed on Schedule 1.01(A); and provided further that, in each
instance, such Accounts otherwise meet all of the requirements to be an
Eligible Account (other than clauses (iii), (v) and (viii) of the definition of
Eligible Accounts); provided further however, for the avoidance of doubt, the
term Eligible Foreign Accounts shall include invoiced and noninvoiced Accounts
of the nature described in that portion of the definition of Eligible Accounts
that precedes clause (i) thereof.
Eligible Jurisdictions means at any time with respect to any
Collateral (i) the jurisdictions listed on Schedule B attached to the Security
Agreement and the Subsidiary Security Agreements or, if any such jurisdiction
is designated on Schedule B as a "Non-Central Filing State", the counties or
parishes listed on Schedule B and (ii) any other jurisdiction in which
Collateral is located so long as Borrower delivers to Agent written notice that
Collateral is, or is to be, located in that jurisdiction within sufficient time
to permit Agent to continue or perfect its security interest in such Collateral
on a continuous basis and Borrower provides to Agent financing statements or
other documents, instruments and opinions reasonably required by Agent to grant
and perfect a first priority security interest (subject only to Permitted
Liens) in such Collateral.
Environmental Laws means any and all laws, subsequent
enactments, amendments and modifications, including without limitation,
federal, state and local laws, statutes, ordinances, rules, regulations,
permits, licenses, approvals, interpretations and orders of courts or
Governmental Authorities relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Materials.
EPA means the United States Environmental Protection Agency,
and any successor agency.
ERISA means the Employment Retirement Income Security Act of
1974, as amended from time to time, and any regulation promulgated thereunder.
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<PAGE> 16
ERISA Affiliate means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
Eurocurrency Liabilities has the meaning assigned to such term
in Regulation D of the Federal Reserve Board, as in effect from time to time.
Eurodollar Lending Office means, with respect to each Bank,
the office of such Bank designated as such on Schedule 11.8 hereto or such
other office of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.
Eurodollar Rate means, for each Interest Period for any
Eurodollar Rate Loan, an interest rate per annum (rounded upward, if necessary,
to the nearest one-sixteenth of one percent (1/16%)) determined pursuant to the
following formula:
Eurodollar Rate = LIBOR
---------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
Eurodollar Reserve Percentage means the maximum
reserve percentage in effect on the date LIBOR for such Interest
Period is determined (whether or not applicable to any Bank) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period; and
LIBOR means the rate of interest per annum determined
by the Agent to be the arithmetic mean (rounded upward, if necessary,
to the nearest one-hundredth of one percent (1/100%)) of the rates of
interest per annum notified to the Agent as the rate of interest at
which dollar deposits in an amount approximately equal to the amount
of the Loan to be made or continued as, or converted into, a
Eurodollar Rate Loan and having a maturity equal to such Interest
Period would be offered to major banks in the London Interbank market
at their request at or about 11:00 a.m. (London Time) on the second
Business Day before the commencement of such Interest Period.
Eurodollar Rate Loan means a Loan that bears interest based on
the Eurodollar Rate.
Event of Default means any event specified in Section 7.1 of
this Agreement, provided that any requirement in connection with such event for
the giving of notice or lapse of time has been satisfied.
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<PAGE> 17
Exchange Act means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
Federal Funds Rate means, for any period, the rate set forth
in the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for the previous day opposite the caption "Federal
Funds (Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such previous day will be the rate set forth in the
daily statistical release designated as the Composite 3:30 p.m. Quotations for
U.S. Government Securities, or any successor publication, published by the
Federal Reserve Bank of New York (including any such successor, the "Composite
3:30 p.m. Quotations") for such previous day under the caption "Federal Funds
Effective Rate" if on any relevant day the appropriate rate for such previous
day is not yet published in either H.15(519) or the Composite 3:30 p.m.
Quotations, the rate for such previous day will be the arithmetic mean of the
rates for the last transaction in overnight Federal funds arranged prior to
9:00 a.m. (New York City time) on that day by each of three 93) leading brokers
of Federal funds transactions in New York City, selected by the Agent.
Fee Letter has the meaning specified in subsection 3.7(a).
Foreign Accounts means with respect to any Person all of such
Person's Accounts which are generated from the sale or lease of goods or the
provision of services from installations of such Person outside of the United
States and Canada unless the invoices with respect to such Accounts are payable
by the account debtor from a location within the United States.
Foreign Subsidiaries means the foreign Subsidiaries of the
Borrower listed on Schedule 2.13 hereto and any other Subsidiary of the
Borrower that is not a U. S. Subsidiary or a Canadian Subsidiary.
Funded Debt means Indebtedness.
Funded Debt Ratio means at any date the ratio of (i)
Consolidated Funded Debt of the Borrower on such date to (ii) the Consolidated
EBITDA of the Borrower for the twelve consecutive calendar months ending on
such date.
GAAP means generally accepted accounting principles set forth
in the Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination; and the requisite that such principles be applied on a
consistent basis shall mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period.
Governmental Authority means any nation or government, any
state, province, county, city or other political subdivision, agency or
instrumentality exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
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<PAGE> 18
Guarantors mean collectively each of the Canadian Subsidiaries
and each of the U.S. Subsidiaries of the Borrower as of the date of this
Agreement, as identified on Schedule 2.13 attached hereto, and each other
Subsidiary that executes and delivers a Guaranty.
Guaranty means one or more continuing guaranty agreements in
favor of the Agent and the Banks, in form and substance acceptable to the
Majority Banks, to be executed by the Guarantors, as the same may be renewed,
modified, extended, supplemented or amended, at any time or from time to time.
Hazardous Materials means any substance or material which is
or becomes regulated by, or which may form the basis of liability under, any
Environmental Law.
Hazardous Materials Contamination means the contamination
(whether presently existing or hereafter occurring) of the buildings, facilities
or improvements, air, soil, groundwater or surface water of the Property or
other property as a result of the presence of Hazardous Materials on the
Property at any time.
Hedging Agreement means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
Indebtedness means, for any Person, the sum of the following
(without duplication): (a) all obligations of such Person for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments; (c) all obligations of such Person to pay the deferred purchase
price of Property or services, except trade accounts payable (other than for
borrowed money) arising in the ordinary course of business of such Person; (d)
all obligations under Capital Leases; (e) all Indebtedness and other
obligations secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person (provided, however, that if such
Indebtedness is not assumed by a Person, the amount of such Indebtedness shall
not be deemed to exceed the greater of the book value or fair market value of
the collateral subject to such Lien); (f) guaranties, endorsements (other than
for collection in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply funds to
invest in any Person, or otherwise to assure a creditor against loss; (g) all
financial obligations or undertakings of such Person to maintain or cause to be
maintained the financial position or covenants of other Persons; and (h) all
obligations of such Person under or in connection with Hedging Agreements once
such obligations become "debt" according to GAAP.
Indemnified Parties means collectively the Agent and each Bank
and all of their respective directors, officers, employees, agents, successors,
attorneys and assigns.
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Initial Projections means the projections and analysis of the
income statement and balance sheet for the Borrower and its Subsidiaries
(giving effect to the Air Drilling Acquisition), on a consolidated and
consolidating basis, for the five year period following the Closing Date.
Insolvency or Insolvent means, with reference to a Person
other than a partnership, (i) the sum of its debts is greater than all of its
properties, at a fair valuation, exclusive of any properties transferred,
concealed, or removed with intent to hinder, delay, or defraud creditors, or
(ii) is generally not able to pay its debts as they become due; and with
reference to a partnership, a Person is insolvent hereunder if (a) its
financial condition is such that the sum of its debts is greater than the
aggregate of, at a fair valuation, (i) all of such partnership's properties
exclusive of properties transferred, concealed or removed with intent to
hinder, delay or defraud creditors of the partnership, and (ii) the sum of the
excess of the value of each general partner's non-partnership properties,
exclusive of properties transferred, concealed or removed with intent to
hinder, delay or defraud creditors, over such partner's non-partnership debts,
or (b) is generally not able to pay its debts as they become due.
Interest Payment Date means, with respect to each Eurodollar
Rate Loan, the last day of each Interest Period applicable to such Loan, and
with respect to Base Rate Loans, the last day of each calendar quarter and each
date a Base Rate Loan is converted into a Eurodollar Rate Loan or a Eurodollar
Rate Loan is converted to a Base Rate Loan or any Loan is prepaid; provided,
however, that if any Interest Period for any Eurodollar Rate Loan exceeds three
(3) months, interest shall also be paid on the date which falls three (3)
months after the beginning of such Interest Period.
Interest Period means, with respect to any Eurodollar Rate
Loan, the period commencing on the Business Day such Loan is disbursed or
continued or on the Conversion Date on which such Loan is converted to such
Eurodollar Rate Loan and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is one, two, three or six months thereafter, as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period pertaining to a
Eurodollar Rate Loan would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Rate Loan,
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period pertaining to a
Eurodollar Rate Loan that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period;
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<PAGE> 20
(iii) no Interest Period for any Term Loans shall
extend beyond the Term Maturity Date and no Interest Period for any
Revolving Credit Loan shall extend beyond the Line of Credit
Termination Date; and
(iv) no Interest Period applicable to a Term Loan
or portion thereof shall extend beyond any date upon which is due any
scheduled principal payment in respect of the Term Loans unless the
aggregate principal amount of Term Loans represented by Base Rate
Loans, or by Eurodollar Rate Loans having Interest Periods that will
expire on or before such date, equals or exceeds the amount of such
principal payment.
Interest Rate Contracts means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates.
Investment Grade, with respect to any Person, means a Person
who has (i) long term unsecured non-credit enhanced Indebtedness is rated BBB-
or better by Standard & Poor's Rating Group or Baa3 by Moody's Investors
Service, Inc., (ii) total annual revenues in excess of $1,000,000,000 and (iii)
consolidated net worth of at least $250,000,000.
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
Issue means, with respect to any Letter of Credit, to issue or
to extend the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms "Issued," "Issuing," and "Issuance" have corresponding
meanings.
Issuing Bank means, with respect to a Letter of Credit, Wells
Fargo, and any successor Issuing Bank.
Lending Office means with respect to any Bank, the office or
offices of such Bank specified as its "Lending Office" or "Domestic Lending
Office" or "Eurodollar Lending Office", as the case may be, opposite its name
on Schedule 11.8 or such other office or offices of such Bank as such Bank may
from time to time specify to the Borrower and the Agent.
Letter of Credit means a letter of credit Issued pursuant to
Section 3.2 hereof and Letters of Credit means the letters of credit so Issued.
Letter of Credit Advance means each Bank's participation in
any Letter of Credit Borrowing in accordance with its Line of Credit Commitment
Percentage.
Letter of Credit Agreements means the application and letter
of credit agreements now or hereafter executed by the Borrower, such agreements
to be on the Issuing Bank's standard form (with such changes thereto as the
Borrower and the Issuing Bank may agree from time to time) and completed in
form and substance satisfactory to the Issuing Bank.
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<PAGE> 21
Letter of Credit Borrowing means an extension of credit
resulting from a drawing under any Letter of Credit which shall not have been
reimbursed on the date when made nor converted into a Borrowing of Revolving
Credit Loans under Section 3.19 hereof.
Letter of Credit Sub-Limit means the aggregate sum of Five
Million Dollars ($5,000,000).
Lien shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or
contract, and including but not limited to the security interest or lien
arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting the property. For the purposes of this
Agreement, a Person shall be deemed to be the owner of any property which it or
he has acquired or holds subject to a conditional sale agreement, financing
lease or other arrangement pursuant to which title to the property has been
retained by or vested in some other Person for security purposes.
Line of Credit means the line of credit provided for in
Section 3.2 hereof.
Line of Credit Commitment Percentage means, for each Bank,
such Bank's Commitment Percentage of the Line of Credit Commitments as set
forth opposite such Bank's name in Schedule I under the heading "Line of Credit
Commitment Percentage," as the same may be reduced or adjusted as a result of
one or more assignments pursuant to Article 9.
Line of Credit Commitments means the commitments of the Banks
to make Loans pursuant to Section 3.2 and Issue or participate in the Issuance
of Letters of Credit pursuant to Section 3.2 in the maximum aggregate amount of
the lesser of (a) Fifteen Million Dollars ($15,000,000) or (b) the Loan
Formula, and Line of Credit Commitment means, for each Bank, such Bank's
commitment to make Loans or participate in Credit Exposure in an aggregate
amount equal to its Commitment Percentage of the Line of Credit Commitments.
Line of Credit Termination Date means the earlier to occur of
(i) June 30, 2002, or (ii) the date on which the Line of Credit Commitment is
terminated pursuant to the terms hereof.
Loan means an extension of credit by a Bank to the Borrower in
the form of a Term Loan, a Revolving Credit Loan, or Letter of Credit Advance
and Loans means the Term Loans, the Revolving Credit Loans and the Letter of
Credit Advances.
Loan Documents means this Agreement, the Notes, the Letter of
Credit Agreements, the Security Instruments, the Interest Rate Contracts, and
any and all other documents and instruments executed in connection therewith or
contemplated thereby.
Loan Formula means at any time the amount equal to the sum of
(without duplication) (i) an amount equal to 80% of the Eligible Accounts of
the Borrower, its U.S.
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<PAGE> 22
Subsidiaries and its Canadian Subsidiaries, plus (ii) an amount equal to 80% of
the Eligible Foreign Accounts of the Borrower and the Foreign Subsidiaries, in
each case as of the last day of the preceding month; provided that at no time
shall the amount determined by reference to Eligible Foreign Accounts be
greater than 60% of the Loan Formula
Loan Formula Certificate means a loan formula certificate in
substantially the form attached hereto as Exhibit B, setting forth the
computation of the Loan Formula as of the close of business on the last day of
the month immediately preceding the day that such loan formula certificate is
delivered on behalf of the Borrower to the Agent pursuant to Section 5.1
hereof.
Majority Banks means at any time Banks holding at least
sixty-six and two-thirds percent (66 2/3%) of the then aggregate unpaid
principal amount of the Loans, or of, if no such principal amount is then
outstanding, Banks having at least sixty-six and two-thirds percent (66 2/3%)
of the Commitments.
Mandatory Prepayments means such payments from the Borrower to
the Banks as may be necessary to reduce the aggregate principal amount of
indebtedness and liabilities of the Borrower under the Revolving Credit Notes
(including total Credit Exposure) to an amount permitted by the Loan Formula
and this Agreement.
Material Adverse Effect means a material adverse effect on (a)
the business, assets, operations, or financial or other condition of the
Borrower and its Subsidiaries taken as a whole or (b) the Borrower's ability to
perform under any Loan Document to which it is a party or to pay the
Obligations in accordance with the terms of this Agreement and the other Loan
Documents or the Agent's and the Bank's rights to enforce or collect the
Obligations.
Material Asset Sale means (i) each individual Asset Sale by
the Borrower or any of its Subsidiaries the gross sales price of which exceeds
the sum of $50,000 and (ii) all Asset Sales by the Borrower or any of its
Subsidiaries in any fiscal year the aggregate gross sales price of which
exceeds $250,000.
Material Foreign Subsidiaries means, at any time, any Canadian
Subsidiary, any Subsidiary organized under the laws of Venezuela or Scotland
and any other Foreign Subsidiary that, together with its Subsidiaries, (a)
accounted for more than 5% of the revenue of the Borrower and its Subsidiaries
determined on a consolidated basis for the then most recently completed fiscal
year of the Borrower, or (b) was the owner of more than 5% of the assets of the
Borrower and its Subsidiaries determined on a consolidated basis at the end of
such fiscal year of the Borrower, all as shown in the case of (a) and (b) on
the consolidated financial statements of the Borrower and its Subsidiaries for
such fiscal year of the Borrower.
Maximum Rate means the maximum lawful rate of interest
permitted by applicable usury laws, now or hereafter enacted, which interest
rate shall change when and as such laws change, to the extent permitted by such
laws, effective on the day such change in such laws becomes effective;
provided, however, that the term "Maximum Rate" shall mean a rate of interest
equal to five percentage points above the Prime Rate, as it varies, if there is
no Maximum Rate under applicable usury laws.
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<PAGE> 23
Multiemployer Plan means a "multiemployer plan" (within the
meaning of Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA
Affiliate makes, is making, or is obligated to make contributions or has made,
or, during the preceding three calendar years, been obligated to make,
contributions.
Net Cash Proceeds means, with respect to any transaction or
event, an amount equal to the cash proceeds received by the Borrower or any of
its Subsidiaries from or in respect of such transaction or event (including any
cash proceeds received as income or other proceeds of any noncash proceeds of
any Asset Sale), less (x) any expenses reasonably incurred by such Person in
respect of such transaction or event and (y) if such transaction or event is an
Asset Sale, (i) the amount of any Indebtedness secured by a Lien on any asset
disposed of in such Asset Sale and discharged from the proceeds thereof and
(ii) any taxes actually paid or to be payable by such Person (as estimated by a
senior financial or accounting officer of the Borrower, giving effect to the
overall tax position of the Borrower) in respect of such Asset Sale.
Non-Redeemable Stock means capital stock issued by the
Borrower, provided that neither the Borrower nor any of its Subsidiaries has
any obligation to redeem or purchase such stock or to exchange such stock for,
or convert such stock to, any other security (other than Non-Redeemable Common
Stock), whether such obligation arises pursuant to the terms of such stock or
of any agreement relating thereto or otherwise and whether or not such
obligation exists in all circumstances or only upon the occurrence of a
particular event or condition or upon the passage of time or otherwise.
"Non-Redeemable Common Stock" means Non-Redeemable Stock that is common stock
issued by the Borrower.
Note means a Term Note or a Revolving Credit Note, and Notes
means the Term Notes and the Revolving Credit Notes, or all of them, as any or
all of the same may be renewed, rearranged, modified, increased or extended at
any time or from time to time.
Notice of Borrowing means a notice given by the Borrower to
the Bank pursuant to Section 3.3 of this Agreement, in substantially the form
of Exhibit C to this Agreement.
Notice of Conversion/Continuation means a notice given by the
Borrower to the Bank pursuant to Section 3.4 of this Agreement, in
substantially the form of Exhibit D to this Agreement.
Obligations means all Loans, Credit Exposure, and other
Indebtedness, advances, debts, liabilities, obligations, covenants and duties
owing by the Borrower or any of its Subsidiaries, or any of them, to any Bank,
the Agent, or any of the Indemnified Parties under this Agreement or any other
Loan Documents, of any kind or nature, present or future, whether or not
evidenced by any note, draft, acceptance, open account, letter of credit,
surety agreement, guaranty or other instrument, whether or not for the payment
of money, whether arising by reason of an extension of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, whether joint or
several, due or to become due, now existing or hereafter arising and however
acquired. The term "Obligations" includes, without limitation, all interest,
charges, reasonable expenses, reasonable fees, reasonable attorneys' fees and
disbursements and any other sum
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<PAGE> 24
chargeable to the Borrower or any of its Subsidiaries under this Agreement or
any other Loan Document.
Other Taxes has the meaning specified in Section 3.13(b)
hereof.
Participant has the meaning specified in Section 9.1(d).
PBGC means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
Pension Plan means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or in
the case of a multiple employer plan (as described in Section 4064(a) of ERISA)
has made contributions at any time during the immediately preceding five (5)
plan years.
Permitted Liens means (i) liens created by the Security
Instruments or this Agreement, (ii) liens for taxes, assessments and other
governmental charges not yet payable, or the validity of which are being
contested in good faith by appropriate proceedings and as to which adequate
reserves have been set aside in accordance with GAAP on the books of the
Borrower or its Subsidiaries, as applicable, (iii) deposits or pledges of cash
or Cash Equivalents to secure the payment of workmen's compensation,
unemployment insurance or other social security benefits or obligations, public
or statutory obligations, surety or appeal bonds or other obligations of a like
general nature incurred in the ordinary course of business, provided all such
Liens in the aggregate could not reasonably be expected to have a Material
Adverse Effect, (iv) landlords', mechanics', materialmen's, warehousemen's,
carriers', vendors' or other like liens arising by operation of law in the
ordinary course of business securing obligations which are not overdue for a
period longer than 90 days, or which are being contested in good faith by
appropriate proceedings and against which the Borrower or its Subsidiaries, as
applicable, has provided adequate reserves in accordance with GAAP, (v)
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other minor title exceptions with respect
to property which do not materially impair the use of such property in the
operation of the business of the Borrower or its Subsidiaries, as applicable,
or the value of such property, (vi) inchoate statutory liens, liens arising
under ERISA to secure current service pension liabilities as they are incurred
under the provisions of Plans from time to time in effect, (vii) purchase money
Liens or purchase money security interests on any fixed asset acquired or held
by the Borrower in the ordinary course of business, securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the cost of
acquiring such fixed asset; provided that any such Lien attaches to such fixed
asset concurrently with or within thirty (30) days after the acquisition
thereof and provided that at the time any such purchase money Lien or purchase
money security interest attaches, the aggregate principal amount of all
Indebtedness outstanding at any one time that is secured by such purchase money
Lien or purchase money security interest shall not exceed $2,000,000, (viii)
adverse claims and disputes that (A) arise with respect to the Borrower's or
any of its Subsidiaries' Accounts, (B) arise in the ordinary course of each
Person's business, (C) were not incurred in connection with the borrowing of
money or obtaining of advances or credit, (D) do not in the aggregate (I)
materially detract from the value of each Person's Accounts or (II) materially
impair, or interfere with, the operation of each Person's business, and (E)
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<PAGE> 25
would not otherwise cause or result in a Default or Event of Default, and (ix)
liens permitted in the Security Instruments or otherwise by the Majority Banks
in writing.
Person means any corporation, limited liability company,
partnership, trust, estate, individual, unincorporated business entity or
governmental department, administrative agency or instrumentality.
Plan means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower or any of its Subsidiaries sponsors or
maintains or to which the Borrower or any of its Subsidiaries makes, is making
or is obligated to make contributions and includes any Pension Plan.
Post Closing Condition Letter means that certain post closing
condition letter agreement dated as of June 20, 1997, between the Borrower and
the Agent, as the same may be amended, supplemented, modified or restated from
time to time at any time.
Prime Rate means the variable per annum rate of interest most
recently announced by the Agent as its "prime rate," with the understanding
that the Agent's "prime rate" may be one of several base rates and serves as a
basis upon which effective rates of interest from time to time are calculated
for loans making reference thereto and may not be the lowest of the Agent's
base rates.
Prior Revolving Credit Note means that certain promissory note
dated December 13, 1996, executed by the Borrower and payable to the order of
Wells Fargo in the original principal amount of $3,000,000 which note was given
in renewal, rearrangement, and modification of but not in novation or discharge
of that certain promissory note dated January 15, 1993, executed by DPSC and
payable to the order of Wells Fargo in the original principal amount of
$4,875,370.04, which note was assumed by Borrower under the Assumption
Agreement and which note was given in renewal, rearrangement, increase and
modification of, but not in novation or discharge of, that certain revolving
credit note dated November 8, 1991, executed by the Borrower and payable to the
order of the Bank in the original principal amount of $5,000,000.
Prior Term Note means that certain promissory note dated
December 1, 1993, executed by the Borrower and payable to the order of Wells
Fargo in the original principal amount of $10,000,000.
Property means any right or interest of a Person in or to
property of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible.
Regulation U means Regulation U of the Board of Governors of
the Federal Reserve System, 12 C.F.R., Part 221.
Regulation X means Regulation X of the Board of Governors of
the Federal Reserve System, 12 C.F.R., Part 224.
Reimbursement Obligation has the meaning specified in Section
3.19(c) hereof.
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Reportable Event means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
Requirement of Law means as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its Property or to which such Person
or any of its Property is subject.
Responsible Officer means, with respect to (i) any
corporation, the Chairman of the Board of Directors, the President, the chief
executive officer, the chief operating officer or the chief financial officer
(or with respect to financial reporting and compliance with financial
covenants, the chief financial officer or treasurer), and (ii) any partnership,
the aforementioned officers of (x) such partnership's corporate managing
partner or (y) in the event the managing partner is a partnership, such
partnership managing partner's corporate managing partner.
Revenue Producing Assets means, for any Person, such Person's
inventory of (i) down-hole drilling tools and fishing tools that are used in a
drilling, fishing or workover application ("revenue producing tools"), (ii)
components, subassemblies, and expendable (replacement) parts of or for revenue
producing tools, (iii) revenue producing tools and expendable (replacement)
parts therefor in production, and (iv) raw materials used to build the assets
described in the foregoing clauses (i), (ii) and (iii) used by a Person or held
by such Person for lease or rent to such Person's customers.
Revolving Credit Loan means any loan by a Bank to the Borrower
pursuant to Section 3.2 of this Agreement and may be a Base Rate Loan or
Eurodollar Rate Loan, and Revolving Credit Loans means all loans by the Banks
to the Borrower pursuant to Section 3.2 of this Agreement.
Revolving Credit Note means a promissory note of the Borrower
payable to the order of a Bank, in substantially the form attached hereto as
Exhibit A, evidencing the aggregate indebtedness of the Borrower to such Bank
resulting from the Revolving Credit Loans made by such Bank, as the same may be
replaced, renewed, extended, modified, supplemented or rearranged from time to
time or at any time.
Security Agreement-Pledges means (i) that certain Security
Agreement-Pledge dated as of even date herewith, between the Borrower, as
debtor, in favor of the Agent for the benefit of and as representative of the
Banks, as secured party, and (ii) any one or more other security agreements in
form and substance acceptable to the Majority Banks to be executed on behalf of
the Borrower and its Subsidiaries, in each instance, as the same may be
renewed, modified, extended, supplemented, rearranged, amended or restated, at
any time from time to time.
Security Agreements means (i) that certain Third Amended and
Restated Security Agreement dated as of even date herewith, between the
Borrower, as debtor, in favor of the Agent for the benefit and as
representative of the Banks, as secured party, amending and restating that
certain Second Amended and Restated Security Agreement dated as of December 1,
1993, between DPSC, as debtor, and Wells Fargo, as secured
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<PAGE> 27
party, and (ii) any one or more other security agreements in form and substance
acceptable to the Majority Banks, to be executed on behalf of the Borrower, in
each instance, as the same may be renewed, modified, extended, supplemented,
rearranged, amended, or restated, at any time or from time to time.
Security Instruments means the Security Agreements, the
Security Agreement-Pledges, the Subsidiary Security Agreements, the Subsidiary
Security Agreement-Pledges, and Guaranties, together with all financing
statements and other documents necessary for recordation of the same or
perfection of the liens, mortgages and security interests granted thereby.
Selling Shareholders has the meaning specified in the
definition of "ADI Acquisition Agreement" in Section 1.1 hereof.
Subordinated Indebtedness means the Indebtedness of a Person,
calculated in accordance with GAAP consistently applied, heretofore or
hereafter incurred, that, by the express terms of the instrument evidencing or
creating such Indebtedness or by the terms of a subordination agreement in form
and substance satisfactory to the Majority Banks, is validly and effectively
made subordinate and subject in right to payment, to whatever extent the
Majority Banks may require, to the prior payment of the Obligations to the
Banks.
Subsidiary means, with respect to any Person, any corporation,
association, partnership, joint venture, limited liability company, or other
business entity, of which more than 50% of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
Subsidiary Security Agreement-Pledges means one or more
security agreements-pledges securing the Obligations, now or hereafter executed
by each U.S. Subsidiary and Material Foreign Subsidiary, in each case, that has
a U.S. Subsidiary or a Material Foreign Subsidiary, in form and substance
acceptable to the Agent and the Majority Banks, as the same may be renewed,
modified, extended, supplemented, rearranged, amended or restated, at any time
from time to time.
Subsidiary Security Agreements means one or more security
agreements securing the Obligations, now or hereafter executed by each U.S.
Subsidiary and Material Foreign Subsidiary, in form and substance acceptable to
the Agent and the Majority Banks, as the same may be renewed, modified,
extended, supplemented, rearranged, amended or restated, at any time from time
to time.
Tangible Net Worth of a Person means, at any time, the total
assets of such Person less the total liabilities of such Person as set forth on
its balance sheet at such date, prepared in accordance with GAAP consistently
applied, plus Subordinated Indebtedness of such Person, except that the sum of
the following shall be excluded therefrom: (i) goodwill, including any amounts
(however designated on such balance sheet) representing the cost of acquisition
of Subsidiaries in excess of underlying tangible assets, unless an appraisal of
such assets made by a reputable firm of appraisers acceptable to the Majority
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<PAGE> 28
Banks at the time of acquisition indicates sufficient value to cover such
excess, (ii) patents, trademarks, copyrights, intangibles and other similar
assets, (iii) any obligations due from holders of equity interests in such
Person, and (iv) any treasury stock that is classified as an asset.
Taxes has the meaning specified in Section 3.13(a) hereof.
Term Loan means any extension of credit by a Bank to the
Borrower pursuant to Section 3.1 of this Agreement and may be a Base Rate Loan
or a Eurodollar Rate Loan, and Term Loans means all extensions of credit by the
Banks to the Borrower pursuant to Section 3.1 of this Agreement.
Term Loan Commitment Percentage means, for each Bank, such
Bank's Commitment Percentage of the Term Loan Commitments as set forth opposite
such Bank's name in Schedule I under the heading "Term Loan Commitment
Percentage," as the same may be reduced or adjusted as a result of one or more
assignments pursuant to Article 9.
Term Loan Commitments means the commitments of the Banks to
make Loans pursuant to Section 3.1 in the maximum aggregate amount of Forty-one
Million Five Hundred Thousand Dollars ($41,500,000) and Term Loan Commitment
means, for each Bank, such Bank's commitment to make Loans in an aggregate
amount equal to its Commitment Percentage of the Term Loan Commitments.
Term Maturity Date means the earlier to occur of (a) June 30,
2002 or (b) the date on which the Term Notes shall be accelerated in accordance
with the provisions of this Agreement.
Term Note means a promissory note of the Borrower, payable to
the order of a Bank, in substantially the form attached hereto as Exhibit F,
evidencing the aggregate indebtedness of the Borrower to such Bank resulting
from the Term Loan made by such Bank, as the same may be replaced, renewed,
extended, modified, supplemented, or rearranged from time to time or at any
time.
Type means either a Base Rate Loan or a Eurodollar Rate Loan.
UCC means the Texas Business and Commerce Code as presently
enacted or hereafter amended.
Unfunded Pension Liability means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
United States and U.S. each means the United States of
America.
U.S. Subsidiary means a Subsidiary incorporated under the laws
of the United States of America or any state thereof.
Wells Fargo means Wells Fargo Bank (Texas), National
Association.
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<PAGE> 29
Wholly-Owned Subsidiary means any corporation in which (other
than directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of every
other class, in each case, at the time as of which any determination is being
made, is owned, beneficially and of record, by the Company, or by one or more
of the other Wholly-Owned Subsidiaries, or both.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents,
warrants and agrees as follows:
Section 2.1 Corporate Authority. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the state or jurisdiction, as the case may be, of
its incorporation and is duly licensed, qualified to do business and in good
standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such licensing and qualification and in which
failure to be so licensed or qualified would have a Material Adverse Effect,
and has all powers and all permits, consents and authorizations necessary to
own and operate its properties and to carry on its business as presently
conducted. The execution, delivery and performance of this Agreement by the
Borrower, the borrowings and Issuances of Letters of Credit hereunder and the
execution and delivery of the Notes and the other Loan Documents by the
Borrower and its Subsidiaries, as applicable, (i) have been duly authorized by
proper corporate proceedings, and (ii) will not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
Certificate or Articles of Incorporation or Bylaws of the Borrower and its
Subsidiaries, or of any mortgage, indenture, contract, agreement or other
instrument, or any judgment, order or decree, binding upon the Borrower or any
of its Subsidiaries. No consent of the Borrower's, or any of its
Subsidiaries' shareholders or any holder of any Indebtedness of the Borrower or
any of its Subsidiaries is required as a condition to the validity of this
Agreement or any other Loan Document. This Agreement, the Notes, and the other
Loan Documents, when duly executed and delivered in accordance with this
Agreement, will constitute legal, valid and binding obligations of the Borrower
and its Subsidiaries in accordance with their respective terms.
Section 2.2 Financial Statements; Projections. (a) The audited
annual financial statements of the Borrower and its Subsidiaries at April 30,
1996 and the interim financial statements of the Borrower and its Subsidiaries
for the 9 months ended January 31, 1997, and the related statements of income
and retained earnings and cash flow for the periods then ended, copies of which
have been delivered to the Banks, fairly present the financial position of the
Borrower and its Subsidiaries at April 30, 1996 and January 31, 1997, and the
results of its operations and the changes in its financial position for the
periods then ended in conformity with GAAP applied on a basis consistent with
the preceding period; provided, however, that the interim financial statements
of the Borrower shall not be required to include statements of retained
earnings and cash flow, and shall not be required to contain footnote
disclosures in accordance with GAAP. Such financial statements are true and
correct in all material respects and have been prepared in accordance with GAAP
consistently followed throughout the periods involved. No event or condition
having a Material Adverse Effect has occurred since April 30, 1996.
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(b) The Initial Projections have been prepared in good
faith based upon assumptions that Borrower's management believed or believes to
be reasonable at the time such Initial Projections were or are prepared.
Section 2.3 Governmental Approvals. No approvals of any Governmental
Authority having jurisdiction over the Borrower or any of its Subsidiaries are
necessary to permit the Borrower or any of its Subsidiaries to enter into this
Agreement, the Note and the other Loan Documents, to borrow hereunder, to grant
security and guaranty payment and performance of obligations as provided herein
and therein.
Section 2.4 Litigation. Except as set forth on Schedule 2.4 hereto,
there is no action, suit, proceeding, claim or dispute pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries before any court or Governmental Authority or otherwise
contemplated at law, in equity or in arbitration, which, if such action, suit
or proceeding were adversely determined, (i) would subject the Borrower or any
of its Subsidiaries to any liability not fully covered by insurance (subject to
normal deductibles), or (ii) would have a Material Adverse Effect.
Section 2.5 No Event of Default. No Default or Event of Default has
occurred and is continuing or would result from the incurring of obligations by
the Borrower or its Subsidiaries under this Agreement or any Loan Document.
Section 2.6 Use of Proceeds. The proceeds of the Term Loans will be
used by the Borrower (i) to refinance the outstanding principal balance of the
Prior Term Note on the Closing Date, and (ii) to finance the Air Drilling
Acquisition. The proceeds of the Revolving Credit Loans will be used by the
Borrower to finance a portion of the Air Drilling Acquisition, for working
capital and general corporate purposes and Acquisitions permitted by Section
6.4. All loans evidenced by the Notes are and shall be "business loans," as
such term is used in the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended, and such loans are for business or commercial
purposes and not primarily for personal, family, household or agricultural use,
as such terms are used or defined in Texas Revised Civil Statutes, Article
5069-1.04, Texas Credit Code, Regulation Z promulgated by the Board of
Governors of the Federal Reserve System, and Titles I and V of the Consumer
Credit Protection Act.
Section 2.7 Properties. Each of the Borrower and its Subsidiaries
has and will continue to have in all material respects good and indefeasible
title to all of its assets and properties, free and clear of all liens,
mortgages, security interests and other encumbrances, except for Permitted
Liens.
Section 2.8 Status. Neither the Borrower nor any of its Subsidiaries
is (i) subject to regulation as a "public utility" or "public service
corporation" or the equivalent under any applicable federal or state law, (ii)
an "investment company" or a company "controlled" by an "investment company" or
an "investment advisor" within the meaning of the Investment Company Act of
1940, as amended, or (iii) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utilities
Holding Company Act of 1935, as amended.
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Section 2.9 Tax Returns. Each of the Borrower and its Subsidiaries
has filed all United States tax returns and all city, state and foreign tax
returns required to be filed by it, or obtained extensions of time for filing
such returns (without penalty), and has paid, or made provisions for the
payment of, all taxes which have become due pursuant to any such return or
pursuant to any assessment received by the Borrower or any of its Subsidiaries,
as applicable, except such taxes and assessments, if any, as are being
contested in good faith and as to which adequate reserves have been provided in
accordance with GAAP, and to the best of the Borrower's knowledge, such returns
properly reflect in all material respects any United States income tax, foreign
tax, state tax and city tax of the Borrower or any of its Subsidiaries, as
applicable, for the periods covered thereby.
Section 2.10 Liens and Security Interests. The security interests,
mortgages and liens attaching to the Collateral will constitute at all times
valid, perfected and enforceable first priority security interests, mortgages
and liens in favor of the Agent and the Banks, subject to no prior or superior
lien, mortgage, security interest or other encumbrance, except Permitted Liens.
Except as otherwise provided in Section 3.11, before any funding under the
Notes, the Borrower has taken and has caused its Subsidiaries to take, or will
have participated with the Agent and the Banks in taking, all necessary action
(including making all necessary filings) to provide the Banks with first
priority perfected security interests, mortgages and liens in the Collateral
under the laws of all applicable jurisdictions. Notwithstanding anything
contained herein but subject to Section 3.11, (a) with respect to equipment in
which a security interest would be perfected by taking possession of, or noting
a lien on, a certificate of title or similar document, the Borrower shall not
be required to take action to perfect security interests in such equipment, (b)
with respect to equipment which is leased to lessees located in jurisdictions
where no UCC-1 financing statement (or other filing required by such
jurisdiction to perfect a security interest in such equipment) in favor of the
Agent for the benefit of the Banks has been filed, the Borrower shall be
required to perfect a security interest in such jurisdiction only if requested
to do so by the Agent in writing, (c) to the extent equipment or inventory is
located outside the United States, Canada, Venezuela, Scotland, or any other
jurisdiction in which a Material Foreign Subsidiary has a substantial amount of
Collateral in the ordinary course of the Borrower's or any of its Subsidiaries'
business, the Borrower shall not be required to perfect the security interest
of the Banks in such Collateral, and (d) the Borrower shall not be required to
perfect the security interest of the Banks in Foreign Accounts except to the
extent that such security interest can be perfected by filing in the United
States, Canada, Venezuela, Scotland or any other jurisdiction in which a
Material Foreign Subsidiary has a substantial amount of Collateral or such
Foreign Account is owned by a Material Foreign Subsidiary.
Section 2.11 Availability of Records. The Borrower will, and will
cause each of its Subsidiaries to, permit any representative, accountant,
officer, employee, or attorney of the Agent or any Bank to (i) visit and
inspect any of their properties, (ii) examine their books and financial
records, (iii) verify the due investment and application of the proceeds of the
Loans in accordance with Section 2.6 hereof, and (iv) discuss their affairs,
finances and accounts with their officers and independent certified public
accountants, all at such reasonable times and during reasonable business hours,
and as often as the Agent of any such Bank may deem necessary.
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Section 2.12 Regulations U and X. No part of the proceeds received
by the Borrower hereunder will be used, directly or indirectly, for the purpose
of purchasing or carrying, or for payment in full or in part of Indebtedness
which was incurred for the purpose of purchasing or carrying, any "margin
stock," as such term is defined in Regulation U. No part of the proceeds
received by the Borrower from the Loans made hereunder will be used for any
purpose which violates Regulation X.
Section 2.13 Subsidiaries. Except as set forth on Schedule 2.13
hereto, neither the Borrower nor any of its Subsidiaries has any Subsidiaries
or investments in any Person (other than Cash Equivalents). Schedule 2.13 sets
forth the ownership of each Subsidiary, the number of shares of capital stock
owned by such Person, the certificate numbers representing such shares, the
percentage owned by such Person and the jurisdiction of formation for each
Subsidiary.
Section 2.14 ERISA.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
Section 2.15 Solvency. Neither (a) the Borrower, or (b) the Borrower
and its Subsidiaries taken as a whole is Insolvent and, after giving effect to
the transactions contemplated hereby and by the other Loan Documents, neither
(a) the Borrower or (b) the Borrower and its Subsidiaries taken as a whole will
become Insolvent as a result thereof. Each of (a) the Borrower and (b) the
Borrower and its Subsidiaries taken as a whole is and will be able to pay its
debts as they become due, and has and will have capital sufficient to carry on
its business and all businesses in which it is about to engage; owns and will
own
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property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay its debts and obligations; and,
after giving effect to the transactions contemplated hereby and by the other
Loan Documents, neither (a) the Borrower nor (b) the Borrower and its
Subsidiaries taken as a whole will have incurred, intended to incur, or believe
that it has incurred, debts beyond its ability to pay as such debts become due.
Section 2.16 Environmental Condition of the Property.
(a) The location, construction, occupancy, operation,
condition and use of the Property do not violate any applicable law, statute,
ordinance, rule, regulation, order or determination of any Governmental
Authority, or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Property, including without limitation all applicable
zoning ordinances and building codes, flood disaster, occupational health and
safety laws and Environmental Laws where such violation could reasonably be
expected to have a Material Adverse Effect.
(b) Without limitation of (a) above, neither the Property
nor the Borrower or any of its Subsidiaries is in violation of or subject to
any existing, pending or threatened administrative enforcement proceeding,
notice of violation, administrative or consent order or agreement, litigation
or settlement by any Governmental Authority or subject to any investigatory or
remedial obligations under any Environmental Laws with respect to the presence
or suspected presence of Hazardous Materials Contamination where such
violation, proceeding, notice, order, agreement, litigation, settlement or
obligation would have a Material Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries is
subject to any liability or obligation, where such liability or obligation
could reasonable be expected to have Material Adverse Effect, relating to (i)
the environmental conditions on, under or about the Property which violate
Environmental Laws, including without limitation, the air, soil, surface and
ground water conditions at the Property; or (ii) the use, management, handling,
transport, treatment, generation, storage, disposal, release or discharge of
any Hazardous Materials which violate Environmental Laws.
(d) The Borrower and its Subsidiaries have obtained or
are pursuing all permits, licenses or similar authorizations required under any
Environmental Law to construct, occupy, operate or use, or relating to the
existence of buildings, improvements, facilities, fixtures and equipment
forming a part of the Property.
(e) The Borrower and each of its Subsidiaries is not
aware that any Hazardous Materials are now located on the Property or have
escaped or been released into the environment, or deposited, spilled, leaked,
discharged, or disposed of at, on, from, under or near the Property or any
portion thereof when the maintenance of such Hazardous Materials on the
Property or such escape, release, deposit, spill, leak, discharge or disposal
could reasonably be expected to have a Material Adverse Effect. In addition,
(a) no portion of the Property is being used nor, to the knowledge of the
Borrower, or its Subsidiaries has been used by any Person at any previous time
for the generation, disposal, storage, treatment, processing or other handling
of Hazardous Materials in violation of Environmental Laws, and (b) no part of
the Property is affected by any
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Hazardous Materials Contamination, in either case where such use or if such
effect could reasonably be expected to have a Material Adverse Effect.
(f) To the best of Borrower's and its Subsidiaries'
knowledge, no property adjoining or within a one-half mile radius of any
Property is being used, or has been used at any previous time, for the
generation, treatment, storage, processing, disposal or other handling of
Hazardous Materials in violation of Environmental Laws, where such use could
reasonably be expected to have a Material Adverse Effect.
(g) The Property is not currently on, and to Borrower's
and the Subsidiaries' knowledge, has never been on, any federal or state
"superfund" or "superlien" list or registry.
Section 2.17 Compliance. Each of the Borrower and its Subsidiaries
is in compliance in all respects with all applicable governmental approvals and
laws, ordinances and regulations, including without limitation, the Americans
with Disabilities Act, Environmental Laws and zoning, land use, and building
laws, ordinances and regulations, except to the extent that such non-compliance
would not have a Material Adverse Effect.
Section 2.18 Disclosure. All factual information heretofore or
contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Agent and the Banks for purposes of or in connection with
this Agreement, the Notes, and the other Loan Documents, or any transaction
contemplated therein is, and all other such information hereafter furnished by
or on behalf of the Borrower or any of its Subsidiaries to the Agent and the
Banks will be, true and accurate on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.
Section 2.19 No Burdensome Restrictions. Neither the Borrower nor
any of its Subsidiaries is a party to or bound by any Contractual Obligation or
subject to any charter or corporate restriction or any Requirement of Law which
could cause a Material Adverse Effect.
Section 2.20 Broker's; Transaction Fees. Neither the Borrower nor
any of its Subsidiaries has any obligation to any Person in respect of any
finder's, broker's or investment banker's fee in connection herewith.
ARTICLE 3. THE CREDIT FACILITY.
Section 3.1 Term Loan.
(a) Subject to and upon the terms, conditions, covenants
and agreements contained herein, each Bank severally agrees to make a Term Loan
to the Borrower on the Closing Date in an amount not to exceed such Bank's Term
Commitment. The Term Loan made by each Bank shall be evidenced by a Term Note
payable to the order of such Bank in an amount equal to the Term Commitment of
such Bank.
(b) The principal of and interest to accrue on the Term
Notes shall be due and payable as follows:
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(i) The principal of each Term Note is due and
payable in quarterly installments, all of such installments, except
for the last, being in the amount specified for such installment on
Schedule 3.1 hereto, and the last and final installment being in the
amount of the then remaining unpaid principal balance thereof, the
first such installment of principal being due and payable on September
30, 1997, and each subsequent installment of principal being due and
payable on the last day of each succeeding third calendar month
thereafter until the Term Maturity Date, when the then remaining
unpaid balance of principal of each Term Note shall become due and
payable in full.
(ii) Interest on such principal shall be due and
payable in installments as it accrues on each Interest Payment Date.
(c) All renewals, extensions, modifications, increases,
and rearrangements of the Term Notes, if any, shall be deemed to be made
pursuant to this Agreement and, accordingly, shall be subject to the terms and
provisions hereof, and the Borrower shall be deemed to have ratified, as of
such renewal, extension, modification, increase, or arrangement date, all of
the representations, warranties, covenants and agreements set forth herein.
Section 3.2 Revolving Line of Credit.
(a) Subject to, and upon the terms, conditions, covenants
and agreements contained herein, each Bank severally agrees to make Revolving
Credit Loans to the Borrower at any time, and from time to time, prior to the
Line of Credit Termination Date in such amounts as the Borrower may request up
to, but not exceeding, such Bank's Line of Credit Commitment less, however, in
each instance, (A) such Bank's Line of Credit Commitment Percentage of then
existing Credit Exposure and (B) the principal amount outstanding under such
Bank's Revolving Credit Note; provided, however, that after giving effect to
any Borrowing of Revolving Credit Loans, the aggregate principal amount of all
Revolving Credit Loans then outstanding shall not exceed the total Line of
Credit Commitments less the total existing Credit Exposure.
(b) Subject to, and upon the terms, conditions, covenants
and agreements contained herein and in the Letter of Credit Agreements
delivered in accordance with Section 3.19 hereof, prior to the Line of Credit
Termination Date, the Issuing Bank agrees to issue nontransferable standby
letters of credit, in form and substance satisfactory to the Issuing Bank, for
the account of the Borrower; provided, however, that the aggregate undrawn face
amount of all Letters of Credit at any time outstanding shall not exceed the
lesser of (i) the total Line of Credit Commitments less (Y) the aggregate
amount of drafts paid under Letters of Credit for which the Borrower has not
reimbursed the Issuing Bank and (Z) the principal amount then outstanding under
all Revolving Credit Notes, and (ii) the Letter of Credit Sub-Limit. At no
time shall the sum of all Credit Exposure plus the aggregate amount of
outstanding Revolving Credit Loans exceed the total Line of Credit Commitments.
(c) The Revolving Credit Loans made by each Bank shall be
evidenced by a Revolving Credit Note payable to the order of such Bank in an
amount equal to the
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Line of Credit Commitment of such Bank. Each Bank shall either note in its
books and records or endorse on the schedules annexed to its Revolving Credit
Note, the date, amount and maturity of each Revolving Credit Loan made by it
and the amount of each payment of principal made by the Borrower with respect
thereto. Each Bank is irrevocably authorized by the Borrower to endorse its
Revolving Credit Note and each Bank's record shall be conclusive absent
manifest or material error; provided, however, that the failure of a Bank to
make, or an error in making, a notation thereon with respect to any Revolving
Credit Loan shall not limit or otherwise affect the obligations of the Borrower
hereunder or under any such Revolving Credit Note to such Bank. In the event
of an actual conflict between the terms and conditions of this Agreement and
the terms and conditions of any Letter of Credit Agreements, the terms and
conditions of this Agreement shall prevail.
(d) Letters of Credit shall be issued only for purposes
approved by the Issuing Bank in its sole and absolute discretion, and shall be
issued for a period not in excess of one (1) year and shall expire no later
than the Line of Credit Termination Date.
(e) The principal of and interest to accrue on the
Revolving Credit Notes shall be due and payable as follows:
(i) Interest to accrue on the Revolving Credit
Notes shall be due and payable in installments as it accrues on each
Interest Payment Date;
(ii) the principal amount of the Revolving Credit
Notes then outstanding shall be due and payable in full on or before
the Line of Credit Termination Date.
(f) All renewals, extensions, modifications, increases,
and rearrangements of the Revolving Credit Notes, if any, shall be deemed to be
made pursuant to this Agreement and, accordingly, shall be subject to the terms
and provisions hereof, and the Borrower shall be deemed to have ratified, as of
such renewal, extension, modification, increase, or rearrangement date, all of
the representations, warranties, covenants and agreements set forth herein.
Section 3.3 Advances and Letters of Credit.
(a) Each Borrowing of Revolving Credit Loans shall be
made upon the irrevocable written notice of the Borrower in the form of a
Notice of Borrowing (which notice must be received by the Bank prior to 11:00
a.m. (Houston, Texas time) (i) three (3) Business Days prior to the requested
borrowing date, in the case of Eurodollar Rate Loans, and (ii) one (1) Business
Day prior to the requested borrowing date, in the case of Base Rate Loans,
specifying:
(1) the total amount of the Borrowing which shall
be in an aggregate minimum principal amount of (A) One Million Dollars
($1,000,000), in the case of Eurodollar Rate Loans, and (B) Five
Hundred Thousand Dollars ($500,000), in the case of Base Rate Loans,
and, in either case, in an integral multiple of One Hundred thousand
Dollars ($100,000) above such amount;
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(2) the requested borrowing date which shall be a
Business Day;
(3) whether the Borrowing is to be a Revolving
Credit Loan comprised of Eurodollar Rate Loans or Base Rate Loans, and
the amount of each in conformance with Section 3.2 above; and
(4) the duration of the Interest Period
applicable to such Loans included in such notice, subject to the
definition of Interest Period. If the Notice of Borrowing shall fail
to specify the duration of the Interest Period for any Borrowing
comprised of Eurodollar Rate Loans, such Interest Period shall be
three months;
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Bank as aforesaid not
later than 11:00 a.m. (Houston, Texas time) one (1) Business Day before the
Closing Date and such Borrowing will consist of Base Rate Loans only.
(b) Upon receipt of the Notice of Borrowing, the Agent
shall promptly notify each Bank thereof and of the amount of such Bank's
Commitment Percentage of the Borrowing.
(c) Each Bank will, in the case of each Borrowing
consisting of a Revolving Credit Loan, make the amount of its Commitment
Percentage of the Borrowing available to the Agent for the account of the
Borrower at the office specified by the Agent in Section 11.8 for payment by
10:00 a.m. (Houston, Texas time) on the borrowing date requested by the
Borrower in funds immediately available to the Agent. Unless any applicable
condition specified in Article 4 has not been satisfied, the proceeds of all
such Loans will then be made available to the Borrower by the Agent at such
office by crediting the account of the Borrower on the books of the Agent with
the aggregate of the amounts made available to the Agent by the Banks and in
like funds as received by the Agent.
(d) The provisions of Section 3.3(a) notwithstanding, if
the Borrower shall not have given a timely notice of a Borrowing to be made on
the last day of any Interest Period for outstanding Eurodollar Rate Loans, then
unless the Bank shall have received notice that the Borrower elects not to make
a Borrowing on such day (such notice to have been received at least two
Business Days prior to such day) the Bank shall be deemed to have received a
Notice of Borrowing from the Borrower requesting Base Rate Loans to be made on
such day in an amount equal to the amount of such outstanding Eurodollar Rate
Loans reduced to the extent necessary to reflect any reductions of the
Commitments on or prior to such day.
(e) After giving effect to any Borrowing, there may not
be more than five (5) different Interest Periods in effect.
(f) (i) Each Letter of Credit shall be Issued upon
receipt by the Issuing Bank of a written request of the Borrower (a
"Credit Request") in substantially the form of Exhibit F together with
a duly executed Letter of
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Credit Agreement not later than 11:00 a.m. (Houston, Texas time) three
(3) Business Days prior to the date set for the Issuance of such
Letter of Credit. The Agent will advise the Banks of the face amount
of each Letter of Credit requested within two (2) Business Days of its
receipt of the Borrower's request for a Letter of Credit.
(ii) Each Credit Request shall be irrevocable and
shall specify, among other things:
(1) the proposed date of issuance of the
Letter of Credit, which shall be a Business Day;
(2) the stated amount of the Letter of
Credit;
(3) the date of expiration of the Letter
of Credit;
(4) the name and address of the
beneficiary of the Letter of Credit;
(5) the documents to be presented by the
beneficiary of the Letter of Credit in case of any drawing thereunder;
(6) the full text of any certificate to
be presented by the beneficiary in case of any drawing thereunder;
(7) the purpose of the Letter of Credit;
and
(8) the aggregate amount of (y) Credit
Exposure (including the requested Letter of Credit) to be existing on
the date of Issuance of such Letter of Credit, and (z) all Revolving
Credit Loans to be outstanding on the date of Issuance of such Letter
of Credit; and shall contain a certification to the Issuing Bank that
the Issuance of such Letter of Credit will not cause the sum of the
amounts referred to in clause (8) (y) and (8) (z) above to exceed the
aggregate amount of Borrowings and Credit Exposure permitted pursuant
to Section 3.2 of this Agreement.
(iii) Any request for amendment to or extension of
the expiry date of any previously issued Letter of Credit shall be
submitted pursuant to a Credit Request by the Borrower to the Issuing
Bank not later than two (2) Business Days prior to the date of the
proposed amendment or extension. The Agent shall promptly notify the
Banks of each request for an amendment to or renewal of any Letter of
Credit. The Issuing Bank shall not amend or extend the expiry date of
any Letter of Credit if the issuance of a new Letter of Credit having
the same terms and conditions as such Letter of Credit as so amended
or extended would be prohibited by any provision of Section 3.1 or
3.2(f) of this Agreement.
(g) There shall be only one (1) Borrowing of the Term
Loans and to the extent the amount of the Borrowing of the Term Loan (as set
forth in the Notice of
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Borrowing) is less than the total Term Commitments, the Term Commitment of each
Bank shall be automatically reduced by an amount equal to such Bank's Term
Commitment Percentage of the difference between the amount of the Borrowing of
the Term Loan (as set forth in the Notice of Borrowing) and the total Term
Commitment.
Section 3.4 Conversions and Renewals.
(a) The Borrower may upon irrevocable written notice to
the Agent in accordance with Section 3.4(b):
(i) elect to convert on any Business Day, any
Base Rate Loans (or any part thereof) into Eurodollar Rate Loans;
provided, that the amount so converted is in an amount not less than
the minimum amount specified in paragraph (1) of Section 3.3(a);
(ii) elect to convert on any Interest Payment
Date, any Eurodollar Rate Loans maturing on such Interest Payment
Date (or any part thereof) into Base Rate Loans; provided, that if
the aggregate amount of Eurodollar Rate Loans shall have been reduced,
by payment, prepayment, or conversion of part thereof to be less than
One Million Dollars ($1,000,000), the Eurodollar Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date
the right of the Borrower to continue such Loans as Eurodollar Rate
Loans, as the case may be, shall terminate; or
(iii) elect to renew, on any Interest Payment Date
therefor, any Eurodollar Rate Loans (or any part thereof); provided,
that the amount so renewed is in an amount not less than the minimum
amount specified in paragraph (1) of Section 3.3(a).
(b) The Borrower shall deliver by telex, cable or
facsimile, confirmed immediately by a telephone call and by delivery of the
hard copy original thereof, a Notice of Conversion/ Continuation received by
Agent not later than 11:00 a.m. (Houston, Texas time) at least (i) three (3)
Business Days in advance of the Conversion Date or renewal date, if the
Revolving Credit Loans are to be converted into or continued as Eurodollar Rate
Loans; and (ii) one (1) Business Day in advance of the Conversion Date, if the
Revolving Credit Loans are to be converted into Base Rate Loans, specifying
(1) the proposed Conversion Date or renewal date;
(2) the aggregate amount of Revolving Credit
Loans to be converted or renewed;
(3) the nature of the proposed conversion or
continuation; and
(4) the duration of the requested Interest
Period, subject to the definition of Interest Period.
(c) If upon the expiration of any Interest Period
applicable to Eurodollar Rate Loans, the Borrower has failed to select a new
Interest Period to be applicable to
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such Eurodollar Rate Loans, or if any Event of Default shall then have occurred
and be continuing, the Borrower shall be deemed to have elected to convert such
Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation,
the Agent shall promptly notify each Bank thereof. All conversions and
renewals shall be made pro rata according to the respective outstanding
principal amounts of the Loans held by each Bank with respect to which such
notice was given.
(e) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or renewal of any Loans, there
shall be not more than five (5) different Interest Periods in effect.
Section 3.5 Loan Formula. The aggregate principal amount at any time
remaining unpaid on Revolving Credit Loans plus the sum of the then existing
Credit Exposure will not be in excess of the Line of Credit Commitments.
Section 3.6 Prepayments.
(a) Subject to Section 3.17, the Borrower may, at any
time or from time to time, upon at least three (3) Business Days' notice to the
Agent, in the case of Eurodollar Rate Loans, and at least one (1) Business
Days' notice to the Agent, in the case of Base Rate Loans, prepay the principal
of the Loans, in whole or in part, in amounts of Five Million Dollars
($5,000,000) or any integral multiple of One Million Dollars ($1,000,000) above
such amount (each such prepayment of principal to be accompanied by payment of
accrued unpaid interest in respect thereof to the date of prepayment);
provided, however, that because the Revolving Credit Note is a master revolving
credit note, the Revolving Credit Note shall remain in full force and effect
until terminated as provided therein or until, at a time when no amounts,
principal, interest or otherwise, are then owing, the Borrower releases the
Banks from any obligation to make Loans and issue Letters of Credit pursuant to
the Line of Credit. Any such prepayment shall be applied first to accrued
interest under the Note or Notes being so prepaid, then to the discharge of any
expenses or damages for which the Agent and the Banks may be entitled to
receive reimbursement under any agreement with the Borrower, and the balance
remaining, if any, shall be applied to the reduction of principal of the Notes
being so prepaid in the inverse order of maturity; provided, that, in the case
of prepayments of the Term Loans, amounts so applied to the reduction of the
principal thereof shall be applied to reduce all scheduled payments pro rata.
Such notice of prepayment shall specify the date and amount of such prepayment
and whether such prepayment is of the Term Loan or a Revolving Credit Loan, or
Base Rate Loans or Eurodollar Rate Loans, or any combination thereof and the
Agent shall promptly notify each Bank thereof and of such party's Commitment
Percentage of such prepayment. Such notice shall not thereafter be revocable
by the Borrower. If such notice is given, the Borrower shall make such
prepayment and the payment amount specified in such notice shall be due and
payable on the date specified therein, together with accrued interest to each
such date on the amount prepaid and the amounts required pursuant to Section
3.17.
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(b) The Borrower shall make all Mandatory Prepayments, if
any, as and when each Loan Formula Certificate is delivered to the Agent
pursuant to Section 5.1 of this Agreement.
(c) In addition to the foregoing, and in addition to all
scheduled payments in respect of the Term Loans pursuant to Section 3.1(b)(i),
if the aggregate outstanding principal balance of the Term Notes is equal to or
greater than $20,000,000, the Borrower shall, within ninety (90) days after the
end of each fiscal year during the term hereof (commencing with the fiscal year
of the Borrower ending in 1998) during which the Funded Debt Ratio at any time
was (i) equal to or greater than 2.5 to 1.0, prepay a portion of the Term Loans
in an amount equal to seventy-five percent (75%) of Consolidated Excess Cash
Flow for such fiscal year, and (ii) equal to or greater than 1.5 to 1.0 but
less than 2.5 to 1.0, prepay a portion of the Term Loans in an amount equal to
fifty percent (50%) of Consolidated Excess Cash Flow for such fiscal year, such
prepayments in each case to be applied to reduce all then remaining scheduled
payments in respect of the Term Loans pro rata.
(d) In addition to the foregoing, and in addition to all
scheduled payments in respect of the Term Loans pursuant to Section 3.1(b)(i),
the Borrower shall, within ten (10) days after any Material Asset Sale or
issuance by the Borrower or any of its Subsidiaries of any debt or equity
securities (other than an issuance to the Borrower of capital stock by a
Subsidiary of the Borrower), prepay a portion of the Term Loans in an amount
equal to one hundred percent (100%) of the Net Cash Proceeds of such sale or
issuance, such prepayments in each case to be applied to reduce all then
remaining scheduled payments in respect of the Term Loans pro rata.
(e) Any prepayments pursuant to Section 3.6(b), 3.6(c) or
3.6(d) above made on a day other than an Interest Payment Date for any Loan
shall be applied first to Base Rate Loans, if any, then outstanding and then to
Eurodollar Rate Loans with the shortest Interest Periods remaining.
Section 3.7 Fees.
(a) Upfront, Agency Fees. The Borrower shall pay an up
front fee to the Agent for the account of the Banks in accordance with, and
shall pay an agency fee to the Agent for the Agent's own account, as required
by, the letter agreement (as the same may be amended or restated from time to
time at any time "Fee Letter") between the Borrower and the Agent dated June
20, 1997.
(b) Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Bank a commitment fee in an amount (the
"Commitment Fee") equal to the specified number of Basis Points per annum
denominated "Commitment Fee" on Schedule 3.10 attached hereto, based upon the
Funded Debt Ratio, such percent to change when and as the Funded Debt Ratio
changes, effective on the date of each such change, determined in accordance
with the provisions of Schedule 3.10 hereof, multiplied by the average daily
unused portion of the Line of Credit Commitment. The Commitment Fee shall
accrue from the date this Agreement is executed by all parties hereto to the
Line of Credit Termination Date and shall be payable quarterly in arrears, all
such payments, except for the last such payment, becoming due and payable on
the last day of each calendar quarter commencing with the calendar quarter
ending September 30, 1997, and
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the last and final installment becoming due and payable on the Line of Credit
Termination Date.
(c) Letter of Credit Fee. The Borrower agrees to pay to
the Agent for the pro rata benefit of the Banks a letter of credit fee for
Issuing the Letters of Credit under the Line of Credit (calculated separately
for each Letter of Credit), payable at the time of Issuance and on each
anniversary thereof, calculated as the product of (i) the specified number of
Basis Points denominated "Letter of Credit Fee" on Schedule 3.10 attached
hereto, based upon the Funded Debt Ratio, such percent to change when and as
the Funded Debt Ratio changes, effective on the date of each such change,
determined in accordance with the provisions of Schedule 3.10 hereof,
multiplied by (ii) the face amount of such Letter of Credit. Such commission
shall be due and payable upon issuance and be non-refundable. In addition, the
Borrower shall pay the Issuing Bank (x) an Issuance fee of one-quarter of one
percent (0.25%) per annum on the face amount of each Letter of Credit, at the
time of such Issuance, and (y) its standard amendment, transfer, negotiation
and other fees.
Section 3.8 Payments to the Agent and the Banks.
(a) All payments (including prepayments) to be made by
the Borrower on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to the Agent, for the account of the
Banks (except as otherwise expressly contemplated hereby), at the Agent's
office set forth in Section 11.8 in U.S. Dollars and in immediately available
funds no later than 11:00 a.m. (Houston, Texas time) on the date such payments
are due. The Agent shall distribute such payments pro rata to each Bank in
accordance with its Commitment Percentage of such principal, interest, fees or
other amounts, promptly upon receipt in like funds as received. Any payment
which is received by the Agent later than 11:00 a.m. (Houston, Texas time)
shall be deemed to have been received on the immediately succeeding Business
Day. If and to the extent that the Agent receives any payment or prepayment
from the Borrower and fails to distribute such payment or prepayment to the
Banks ratably on the basis of their respective commitment percentages on the
day the Agent receives such payment or prepayment (if received prior to 11:00
a.m. on such day) or the next Business Day if received after 11:00 a.m., then
the Agent shall pay to each Bank such Bank's Commitment Percentage thereof
together with interest thereon at the Federal Funds Rate for each day from the
date such amount should have been distributed by the Agent to the Banks until
the day the Agent pays such amounts to the Banks as above described.
(b) Whenever any payment hereunder shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be; provided,
however, that if such extension would cause payment of interest on or principal
of Eurodollar Rate Loans to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
(c) Unless the Agent shall have received written notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such
date and the Agent may (but shall not
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be required to), in reliance upon such assumption, cause to be distributed to
each Bank on such due date an amount equal to the amount then due such Bank.
If and to the extent the Borrower shall not have made such payment in full to
the Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank, together with interest thereon for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amounts to the Agent, at the Federal Funds Rate as in effect on such date.
(d) With respect to any and all principal and interest
payments commitment fees, letter of credit fees or other fees described in
Section 3.7 hereof, due and payable to the Agent, the Issuing Bank, or any Bank
under the Loan Documents, the Borrower hereby irrevocably authorizes the Agent
to debit the operating account of the Borrower with Wells Fargo, account
#4159715457, or its successor or replacement account, in an amount such that
the aggregate amount debited from such operating deposit account does not
exceed such payment amount or fee. If there are insufficient funds in such
operating account to cover the amount of such payment or fee then due, such
debits will be reversed (in whole or in part, in the Agent's sole discretion)
and such amount not debited shall be deemed to be unpaid. No such debit under
this subsection shall be deemed a set-off.
Section 3.9 Payments by the Banks to the Agent.
(a) Each Bank shall make available to the Agent in
immediately available funds for the account of the Borrower the amount of its
Commitment Percentage of any Borrowing.
(b) Unless the Agent shall have received notice from a
Bank on the Closing Date or, with respect to each Borrowing after the Closing
Date, at least one (1) Business Day prior to the date of any proposed Borrowing
that such Bank will not make available to the Agent for the account of the
Borrower the amount of such Bank's Commitment Percentage of such Borrowing, the
Agent may assume that each Bank has made such amount available to the Agent on
such borrowing date and the Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made such
full amount available to the Agent and the Agent in such circumstances makes
available to the Borrower such amount, such Bank shall within two (2) Business
Days following the date of such Borrowing make such amount available to the
Agent together with interest at the Federal Funds Rate for each day during such
period. A certificate of the Agent submitted to any Bank with respect to
amounts owing under this Section 3.9(b) shall be conclusive, absent manifest
error. If such amount is so made available, such payment to the Agent shall
constitute such Bank's Loan on the date of Borrowing for all purposes of this
Agreement. If such amount is not made available to the Agent within two (2)
Business Days following the date of such Borrowing, the Agent shall notify the
Borrower of such failure to fund and, upon demand by the Agent, the Borrower
shall pay to the Agent such amount, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such Borrowing.
(c) The failure of any Bank to make any Loan on any date
of Borrowing shall not relieve any other Bank of its obligation, if any,
hereunder to make a Loan on the
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date of such Borrowing pursuant to the provisions contained herein, but no Bank
shall be responsible for the failure of any other Bank to make the Loan to be
made by such other Bank on the date of any Borrowing.
Section 3.10 Computation of Fees and Interest.
(a) Subject to Section 3.10(b), each Loan shall bear
interest on the outstanding principal amount thereof from the date when made
until it becomes due at a rate per annum equal to the lesser of (i) the Maximum
Rate, on the one hand, and (ii) the sum of (x) the Eurodollar Rate or the Base
Rate, as the case may be, plus (y) the Applicable Margin as the same may be
adjusted in accordance with the provisions of Section 3.10(c), on the other
hand (any interest rate referred to in this Section 3.10(a)(ii), together with
the Default Rate as and when applicable in accordance with Section 3.10(b)
hereof, is referred to in the next succeeding sentence as an "Accrual Rate").
Notwithstanding the foregoing, if at any time the Accrual Rate shall exceed the
Maximum Rate and thereafter the Accrual Rate shall become less than the Maximum
Rate, the rate of interest payable hereunder and under the Notes shall be the
Maximum Rate until the Banks shall have received the amount of interest which
the Banks would have received if the Accrual Rate had not been limited by the
Maximum Rate during the period of time the Accrual Rate exceeded the Maximum
Rate.
(b) During the continuation of any Event of Default or
after acceleration, the Borrower shall pay interest (after as well as before
judgment to the extent permitted by law) on the principal amount of all Loans
due and unpaid, at the lesser of (i) the Default Rate and (ii) the Maximum
Rate.
(c) The Applicable Margin, Letter of Credit Fee and
Commitment Fee shall be the respective number of Basis Points specified in
Schedule 3.10 attached hereto in the column corresponding to the Funded Debt
Ratio as of the last Adjustment Date (the Applicable Margin, Letter of Credit
Fee and Commitment Fee on and from the Closing Date until the first Adjustment
Date shall be determined on the assumption that the Funded Debt Ratio is
greater than or equal to 2.0 to 1.0 but less than 2.5 to 1.0). The Applicable
Margin, the Letter of Credit Fee and the Commitment Fee shall be calculated in
reliance on the most recent financial reports and Compliance Certificate
delivered pursuant to Sections 5.1(a), 5.1(c) and 5.1(i) hereof with respect to
the fiscal quarter ending immediately before the fiscal quarter in question
(e.g., the financial statements for the first fiscal quarter of a fiscal year
are used to determine the Applicable Margin, Letter of Credit Fee and
Commitment Fee for the period beginning on the below-defined "Adjustment Date"
occurring in the second fiscal quarter). Each adjustment of the Applicable
Margin, Letter of Credit Fee and Commitment Fee shall be made by the Agent as
of the first day following the date of delivery of the financial statements and
Compliance Certificate pursuant to Sections 5.1(a), 5.1(d) and 5.1(i) (the
"Adjustment Date"). Such adjusted Applicable Margin, Letter of Credit Fee and
Commitment Fee shall be effective as of the Adjustment Date, except that with
respect to all Eurodollar Rate Loans outstanding on the Adjustment Date, the
adjusted Applicable Margin shall apply as of the first day of the Interest
Period next following the Adjustment Date. Notwithstanding the foregoing, in
the event the Borrower shall fail for any reason to deliver any of the
requisite financial statements or related Compliance Certificate, within five
(5) days of the applicable date specified in Sections 5.1(a), 5.1(c) and 5.1(i)
the Applicable Margin, Letter of Credit Fee and Commitment Fee shall be
determined, from
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the first day after the date such financial statements and Compliance
Certificate were required to have been delivered pursuant to Sections 5.1(a),
5.1(c) and 5.1(i) (without regard to any grace or cure period applicable
thereto pursuant to Article 7 hereof) until the same are delivered in
accordance therewith, on the assumption that the Funded Debt Ratio is greater
than or equal to 2.50 to 1.0.
(d) All computations of interest for Base Rate Loans
shall be made on the basis of a three hundred sixty-five (365) or three hundred
sixty-six (366) day year, as the case may be, and actual days elapsed. All
other computations of fees and interest under this Agreement shall be made on
the basis of a three hundred sixty (360) day year and actual days elapsed
unless such calculation would result in a usurious rate, in which case interest
shall be calculated on the per annum basis of 365 or 366 days, as the case may
be. Interest and fees shall accrue during each period during which interest or
such fees are computed from and including the first day thereof to but
excluding the last day thereof.
(e) The Agent shall, as soon as practicable, notify the
Borrower and the Banks of each determination of a Eurodollar Rate, provided
that any failure to do so shall not relieve the Borrower of any liability
hereunder. Any change in the interest rate on a Loan resulting from a change
in the Eurodollar Reserve Percentage, Eurocurrency Liabilities, the Federal
Funds Rate, or the Prime Rate shall become effective as of the opening of
business on the day on which such change in the Eurodollar Reserve Percentage,
Eurocurrency Liabilities, the Federal Funds Rate, or the Prime Rate shall
become effective. The Agent shall, as soon as practicable notify the Borrower
and the Banks of the effective date and the amount of each such change provided
that any failure to do so shall not relieve the Borrower of any liability
hereunder.
(f) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Banks in the absence of manifest error. The Agent shall,
at the request of the Borrower or any Bank, deliver to the Borrower or such
Bank, as the case may be, a statement showing the quotations used by the Agent
in determining any interest rate pursuant to this Section 3.10.
Section 3.11 Security.
(a) Payment of the Notes and the Obligations and the
performance of the covenants set forth in this Agreement and the other Loan
Documents will be secured, directly or indirectly, by a first priority
perfected security interest, mortgage, assignment or lien, as the case may be,
in and upon the following described property and assets:
(i) all of the Borrower's, its U.S. Subsidiaries'
and, subject to the applicable provisions of the Post Closing
Condition Letter, Material Foreign Subsidiaries' present and future
accounts, inventory, equipment, fixtures, documents, instruments,
general intangibles, chattel paper (as such terms are defined in the
UCC), notes receivable, drafts, acceptances, patents, copyrights,
trademarks, trade secrets and other intellectual property, rental
agreements and lease agreements relating to any of the foregoing, and
contract rights now owned or existing and hereafter acquired or
arising, wherever located, and all the proceeds thereof, which
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property and assets are more particularly described in, and which
security interests will be evidenced by, one or more Security
Agreements or Subsidiary Security Agreement-Pledges, as applicable;
and
(ii) 100% of the outstanding capital stock or
other ownership interest of all U.S. Subsidiaries and, subject to the
applicable provisions of the Post Closing Condition Letter, 66 1/2% of
the outstanding capital stock or other ownership interest of all
Material Foreign Subsidiaries now owned or hereafter acquired by the
Borrower or any of its Subsidiaries, which security interest will be
evidenced by one or more Security Agreement-Pledges and Subsidiary
Security Agreement-Pledges;
(b) Payment of the Notes and the Obligations will be
guaranteed by the Guarantors, each of such guarantees to be evidenced by a
Guaranty. If at any time after the date of this Agreement any Person becomes a
U.S. Subsidiary or a Material Foreign Subsidiary of the Borrower, the Borrower
shall cause each such Person to do the following, within thirty (30) days after
such Person becomes a U.S. Subsidiary or a Material Subsidiary of the Borrower:
(i) execute and deliver to the Agent a Guaranty, (ii) the Borrower and/or such
Subsidiary, as applicable, shall grant to the Agent, for the benefit of the
banks, a first priority perfected security interest in 100% of the stock or
other ownership interest in any such U.S. Subsidiary and 66 1/2% of the stock
or other ownership interest in any such Material Foreign Subsidiary, in form
and substance acceptable to the Agent and the Majority Banks, in each instance,
(iii) enter into a valid, binding and enforceable Subsidiary Security Agreement
(granting the Agent, for the benefit of the Banks, a first priority perfected
security interest (in scope and substance acceptable to the Agent and the
Majority Banks) in the property of the type described in Section 3(a)(i) hereof
owned by such Subsidiary, (iv) execute such other documents and instruments as
may be necessary to comply with Subsection 3.11(c) below, and (v) furnish the
Agent, for the benefit of the Agent and the Banks, a written opinion of counsel
to such Person reasonably acceptable to the Agent and the Majority Banks
covering such matters as the Agent and the Majority Banks may reasonably
require.
(c) The Borrower will, and will cause each of its U.S.
Subsidiaries and Material Foreign Subsidiaries to, execute, acknowledge and
deliver to the Agent and the Banks such instruments, mortgages, chattel
mortgages, deeds of trust, security agreements, security agreement-pledges,
statements, assignments and financing statements, in form and substance
acceptable to the Agent and the Majority Banks, as in the good faith and
discretion of counsel for the Agent and the Majority Banks may be necessary to
enforce, grant to the Agent and the Banks and perfect, in the United States,
Canada, Venezuela, Scottland and such other jurisdictions in which the
Collateral owned by such Subsidiaries is located, the security interests,
liens, assignments and mortgages on the Collateral. Each of the Borrower, the
Agent and the Banks agrees that all Collateral now or hereafter securing any of
the Obligations hereunder also shall secure any and all other indebtedness and
liabilities now or hereafter owing by the Borrower to the Agent and the Banks
under the Loan Documents.
(d) At such time as (i) the Term Notes have been repaid
in full in cash and (ii) no Default exists, then (A) the Material Foreign
Subsidiaries shall be deemed released from their Obligations under the
Guaranties and the Subsidiary Security Agreements to which they are a party and
the security interests in the Collateral described
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therein (provided that such release shall not terminate or release any
Subsidiary Security Agreement Pledge of such Subsidiary which covers any
outstanding capital stock or other ownership interest of the Material Foreign
Subsidiaries, which security interest shall remain in full force and effect),
and (B) the obligations of the Borrower and its Subsidiaries to (1) secure the
Obligations with the Material Foreign Subsidiaries' property of the type
described in Section 3.11(a)(i) and (2) deliver a guaranty of the Obligations
executed by any Material Foreign Subsidiary, shall terminate. Borrower may
request Agent to confirm in writing that such release has occurred by giving
Agent a certificate that the foregoing conditions have been met and such
evidence thereof (or legal opinions in connection therewith) as Agent may
request. Upon receipt of such request, certificate and evidence and upon
satisfaction of such conditions, Agent shall (and each Lender hereby
irrevocably authorizes Agent to) execute such documents as Agent deems
appropriate to confirm such release of the Material Foreign Subsidiaries from
their respective obligations under their respective Guarantees and Subsidiary
Security Agreements (other than with respect to security interests in 66 1/2%
of the outstanding capital stock or other ownership interest of the Material
Foreign Subsidiaries, which security interest shall remain in full force and
effect).
Section 3.12 No Default. The Agent, the Issuing Bank, and the Banks
may, but shall not be required to, make or continue any advance or issue any
Letter of Credit under the Line of Credit or renew any Note if an event has
occurred and is continuing which constitutes an Event of Default.
Section 3.13 Taxes.
(a) Subject to Section 3.13(g), any and all payments by
the Borrower to each Bank or the Agent under this Agreement shall be made free
and clear of, and without deduction or withholding for, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, such taxes (including income taxes or franchise taxes) as are imposed on
or measured by each Bank's or the Agent's, as the case may be, net income by
the jurisdiction under the laws of which such Bank or the Agent, as the case
may be, is organized or maintains a Lending Office or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes").
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes"); provided, however, nothing in this Agreement shall be construed to
require the Borrower to pay any Other Taxes if the payment of such Other Taxes
by the Borrower is prohibited by applicable laws.
(c) Subject to Section 3.13(i), the Borrower will
indemnify and hold harmless each Bank and the Agent for the full amount of
Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 3.13) paid by
such Bank or the Agent (as the case may be) and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally
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asserted. Payment under this indemnification shall be made within thirty (30)
days from the date such Bank or the Agent, as the case may be, makes written
demand therefor.
(d) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then, subject to Section 3.13(i),
(i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
3.13) such Bank or the Agent, as the case may be, receives an amount
equal to the sum it would have received had no such deductions been
made,
(ii) the Borrower shall make such deductions, and
(iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(e) Within thirty (30) days after the date of any payment
by the Borrower of Taxes or Other Taxes, the Borrower will furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof, or
other evidence of payment satisfactory to the Agent.
(f) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code, and such Bank claims exemption from U.S.
withholding tax under Section 1441 or 1442 of the Code, such Bank shall deliver
to the Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
properly completed IRS Forms 1001 and W-8 before the payment of any
interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement; or
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of
such Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during
which interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction. In addition, in the event any Bank claims exemption from, or
reduction of, withholding tax under a United States tax treaty by providing IRS
Form 1001 and such Bank sells, assigns, grants
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a participation in, or otherwise transfers all or part of the obligations of
the Borrower to such Bank under this Agreement, such Bank agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
obligations of the Borrower to such Bank under this Agreement. To the extent
of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid. In the event any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the obligations of the
Borrower to such Bank under this Agreement, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(g) If any Bank is entitled to a reduction in the
applicable withholding tax, the Agent may withhold from any interest payment to
such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
subsection (f) are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(h) If the IRS or any authority of the United States or
other jurisdiction asserts a claim that the Agent did not properly withhold tax
from amounts paid to or for the account of any Bank (because the appropriate
form was not delivered, was not properly executed, or because such Bank failed
to notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Bank shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this subsection (h), together with all costs, expenses and
attorneys' fees.
(i) The Borrower will not be required to pay any
additional amounts in respect of United States Federal income tax pursuant to
Section 3.13(d) to any Bank for the account of any Lending Office of such Bank:
(i) if the obligation to pay such additional
amounts would not have arisen but for a failure by such Bank to comply
with its obligations under Section 3.13(f) in respect of such Lending
Office;
(ii) if such Bank shall have delivered to the
Borrower a Form 4224 in respect of such Lending Office pursuant to
Section 3.13(f) and such Bank shall not at any time be entitled to
exemption from deduction or withholding of United States Federal
income tax in respect of payments by the Borrower hereunder for the
account of such Lending Office for any reason other than a change in
United States law or regulations or in the official interpretation of
such law or regulations by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form 4224; or
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(iii) if such Bank shall have delivered to the
Borrower a Form 1001 in respect of such Lending Office pursuant to
Section 3.13(f) and such Bank shall not at any time be entitled to
exemption from deduction or withholding of United States Federal
income tax in respect of payments by the Borrower hereunder for the
account of such Lending Office for any reason other than a change in
United States law or regulations or any applicable tax treaty or
regulations or in the official interpretation of any such law, treaty
or regulations by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form 1001.
(j) If, at any time, the Borrower requests any Bank to
deliver any forms or other documentation pursuant to Section 3.13(f), then the
Borrower shall, on demand of such Bank through the Agent, reimburse such Bank
for any costs or expenses reasonably incurred by such Bank in the preparation
or delivery of such forms or other documentation.
(k) The agreements and obligations of the Borrower
contained in this Section 3.13 shall survive the payment in full of principal
and interest hereunder and under the Notes and are subject in their entirety to
the terms and provisions of Section 11.6 hereof.
Section 3.14 Sharing of Payments, Etc.. If, other than as provided
in Sections 3.15, 3.16, or 3.17, any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Loans made by it in excess of its Commitment
Percentage of payments on account of the Loans obtained by all the Banks, such
Bank shall forthwith purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment ratably with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase by such Bank from each other Bank shall be rescinded and
each other Bank shall repay to the purchasing Bank the purchase price paid
thereto to the extent of such recovery together with an amount equal to such
paying Bank's Commitment Percentage (according, to the proportion of (a) the
amount of such paying Bank's required repayment to (b) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
The Borrower agrees that any Bank so purchasing a participation from another
Bank pursuant to the provisions of this Section 3.14 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.
Section 3.15 Illegality.
(a) If the introduction of any Requirement of Law or any
change in or in the interpretation or administration thereof shall make it
unlawful, or any central bank or other Governmental Authority shall assert that
it is unlawful, for any Bank or its Lending Office to make Eurodollar Rate
Loans, then, on notice thereof by such Bank through the Agent to the Borrower,
the obligation of such Bank to make Eurodollar Rate Loans shall
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be suspended until such notifying Bank shall have notified the Agent and the
Borrower that the circumstances giving rise to such determination no longer
exists.
(b) If it shall be unlawful to maintain any Eurodollar
Rate Loan, the Borrower shall prepay in full all Eurodollar Rate Loans of such
Bank then outstanding, together with interest accrued thereon, either on the
last day of the Interest Period thereof if such Bank may lawfully continue to
maintain such Eurodollar Rate Loans to such day, or immediately, if such Bank
may not lawfully continue to maintain such Eurodollar Rate Loans together with
any amounts required to be paid in connection therewith pursuant to Section
3.17.
(c) If the Borrower is required to prepay any Eurodollar
Rate Loan immediately as provided in Section 3.15(b), then concurrently with
such prepayment, the Borrower shall borrow from such Bank, in the amount of
such prepayment, a Base Rate Loan.
(d) If the obligation of any Bank to make or maintain
Eurodollar Rate Loans has been terminated, the Borrower may elect, by giving
notice to such Bank through the Agent that all Loans which would otherwise be
made by such Bank as Eurodollar Rate Loans shall be instead Base Rate Loans.
Section 3.16 Increased Cost and Reduced Return.
(a) If, due to either (i) the introduction of or any
change (other than any change by way of imposition of or increase in reserve
requirements included in the Eurodollar Reserve Percentage) in or in the
interpretation of any Requirement of Law or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Bank of agreeing to make or making, funding or maintaining any
Eurodollar Rate Loans, then the Borrower shall be liable for, and shall from
time to time, upon demand therefor by such Bank (with a copy of such demand to
the Agent), pay to the Agent for the account of such Bank, additional amounts
as are sufficient to compensate such Bank for such increased costs.
(b) The Borrower agrees that if, due to any Requirement
of Law, or because of any change in any existing Requirement of Law, or in the
interpretation thereof by any official authority, whether or not having the
force of law, which comes into effect after the date of this Agreement, (i) the
Issuing Bank, the Agent or any other Bank or the Borrower should with respect
to any Letters of Credit issued or to be issued pursuant to the terms hereof,
be subject to any tax, charge, fee, deduction or withholding of any kind
whatsoever, or (ii) reserve requirements, or changes in existing reserve
requirements, should be imposed on the Issuing Bank, the Agent or any other
Bank with respect to any Letters of Credit issued or to be issued pursuant to
the terms hereof, and if any of the above-mentioned measures, or any other
similar measure, should result in (A) any increase in the cost to the Agent or
any other Bank of issuing, maintaining, confirming or participating any Letter
of Credit pursuant to this Agreement or of any transaction under or in
connection with any Letter of Credit or this Agreement, or (B) any reduction in
the payment or deposit of any amount (principal, interest, fee or otherwise)
receivable by the Issuing Bank, the Agent or any other Bank in respect of any
Letter of Credit or of any transaction under any Letter of Credit, then the
Borrower shall pay to the Agent upon
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demand such increased cost or reduction, including such additional amounts as
may be necessary so that every net payment or deposit, after deduction or
withholding for or on account of such payment or deposit (including any taxes
levied on additional amounts paid pursuant to this Section) will not be less
than the corresponding amount provided for under applicable Letters of Credit
or Letter of Credit Agreements.
(c) If any Bank shall have determined that the
introduction of any applicable Requirement of Law or guideline regarding
capital adequacy, or any change therein any change in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Bank (or its Lending Office) or any corporation controlling
such Bank with any request, guideline or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, affects or would affect the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such
Bank, and such Bank (taking, into consideration such Bank's or such corporation
s, policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of such Bank's obligation under this Agreement, then, upon demand
of such Bank, the Borrower shall immediately pay to such Bank, from time to
time as specified by such Bank, additional amounts sufficient to compensate
such Bank for such increase.
(d) The provisions of this Section 3.16 are subject in
their entirety to the provisions of Section 11.6 of this Agreement.
Section 3.17 Funding Losses. Subject to the provisions of Section
11.6 of this Agreement, the Borrower agrees to reimburse each Bank and to hold
such Bank harmless from any loss or expense which such Bank may sustain or
incur as a consequence of:
(a) failure of the Borrower to make any payment or
prepayment of principal with respect to any Eurodollar Rate Loan (including
payments made after any acceleration thereof),
(b) failure of the Borrower to borrow, continue or
convert a Loan after the Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation,
(c) failure of the Borrower to make any prepayment after
the Borrower has given a notice in accordance with Section 3.6, and/or
(d) prepayment (whether optional or mandatory under the
terms of this Agreement) of a Eurodollar Rate Loan on a day which is not the
last day of the Interest Period with respect thereto,
including, without limitation, any such loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain its Eurodollar
Rate Loans hereunder or from fees payable to terminate the deposits from which
such funds were obtained. A certificate of the respective Bank with respect to
amounts owing under this Section 3.17 shall be conclusive absent manifest
error.
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This covenant shall survive termination of this Agreement and the Loan
Documents and repayment of the Loans and the extinguishment of all Credit
Exposure.
Section 3.18 Eurodollar Rate Protection. In the event that (a) the
Majority Banks shall have determined (which determination shall be conclusive
and binding upon the Borrower) that for any reason adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate applicable for any
requested Interest Period with respect to a proposed Loan that the Borrower has
requested be made as a Eurodollar Rate Loan or (b) the Majority Banks shall
determine (which determination shall be conclusive and binding upon the
Borrower) that the Eurodollar Rate applicable for any requested Interest Period
with respect to a proposed Loan that the Borrower has requested be made as a
Eurodollar Rate Loan do not adequately and fairly reflect the cost to the Bank
of funding such Loan, the Agent shall forthwith give telex or facsimile notice
of such determination to the Borrower and each Bank at least one day prior to
the proposed borrowing date for such Eurodollar Rate Loan. If such notice is
given, any requested Eurodollar Rate Loan shall be made as a Base Rate Loan.
Until such notice has been withdrawn by the Agent, no further Eurodollar Rate
Loans may be requested by the Borrower and on the Interest Payment Date of any
Eurodollar Rate Loan then outstanding and so affected, such outstanding
Eurodollar Rate Loan shall be converted into a Base Rate Loan.
Section 3.19 Certain Agreements Regarding Letters of Credit.
(a) The Issuing Bank shall not have any obligation to
issue a Letter of Credit unless the Borrower shall have complied with all the
terms and conditions of this Agreement. If, in accordance with its standard
operating procedures, the Issuing Bank determines that a demand for payment
under a Letter of Credit conforms to the terms and conditions of such Letter of
Credit, the Issuing Bank shall, as soon as reasonably practicable, give notice
to the Borrower and to the Banks of the date it will make payment to the
applicable beneficiary in accordance with the terms of such Letter of Credit.
The Borrower's obligation to reimburse the Agent as provided herein is
absolute, unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement, under all circumstances
whatsoever, including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of
this Agreement, any Letter of Credit, any Letter of Credit Agreement,
or any other document;
(ii) the existence of any claim, setoff, defense
or other right which the Borrower may have at any time against the
beneficiary of any Letter of Credit, the Agent, the Banks, or any
other Person, whether in connection with this Agreement, any Letter of
Credit, or any Letter of Credit Agreement, the transactions
contemplated herein or any unrelated transactions;
(iii) any draft, certificate or other document
presented under any Letter of Credit proves to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein is
untrue or inaccurate in any respect whatsoever;
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(iv) payment by the Issuing Bank under any Letter
of Credit against presentation of a sight draft or certificate which
complies in all material respects with the terms of a Letter of Credit
but does not strictly comply therewith;
(v) the surrender or impairment of any Collateral;
(vi) any failure of the Issuing Bank or any Bank
to provide notice to the Borrower of any drawing under a Letter of
Credit;
(vii) the occurrence or continuance of a Default
or Event of Default; or
(viii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
(b) Each Bank hereby agrees that it shall be liable under
and pursuant to each Letter of Credit pro rata in proportion to its Commitment
Percentage of the face amount thereof to the same extent and with the same
effect as if such Bank had issued such Letter of Credit. In that regard,
immediately upon the issuance by the Issuing Bank of any Letter of Credit in
accordance with this Agreement, each other Bank shall be deemed to have
irrevocably and unconditionally purchased and received from the Issuing Bank,
without recourse or warranty, an undivided interest and participation in such
Letter of Credit, including all obligations of the Borrower with respect
thereto and any security therefor or guaranty pertaining thereto, in an amount
equal to the product of (i) the Line of Credit Commitment Percentage of such
Bank and (ii) the stated amount of such Letter of Credit. For purposes of
Section 3.7(b) of this Agreement, each issuance of a Letter of Credit by the
Issuing Bank shall be deemed to utilize the Line of Credit Commitment of each
Bank (other than the Issuing Bank) by an amount equal to the amount of such
participation and to utilize the Line of Credit Commitment of the Issuing Bank
by an amount equal to the stated amount of such Letter of Credit less the
aggregate amount of all participations therein.
(c) The Borrower hereby unconditionally and irrevocably
agrees to reimburse the Issuing Bank for each payment made by the Issuing Bank
under any Letter of Credit issued by the Issuing Bank (a "Reimbursement
Obligation") on the date the Issuing Bank is making such payment in accordance
with Section 3.19(a) of this Agreement (or, if the Issuing Bank's notice to the
Borrower pursuant to Section 3.19(a) was given after 12:00 Noon (Houston, Texas
time) on such date, on the Business Day next following such date), together
with, (i) if applicable, interest on the amount paid by the Issuing Bank from
the date the payment was made until it becomes due at a rate per annum equal to
the lesser of (y) the Maximum Rate, or (z) the Base Rate plus the Applicable
Margin, and (ii) if such reimbursement is not made when due (whether directly,
by means of Loans as provided in Section 3.19(d) below or by application of any
funds then contained in any Cash Collateral Account) interest on the amount so
paid by the Issuing Bank from and including the date on which it becomes due to
but not including the date the Issuing Bank is reimbursed therefor at a rate
per annum equal to the lesser of (y) the Maximum Rate, or (z) the Default Rate.
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(d) Subject to the conditions contained in Article 4, the
Borrower may satisfy its Reimbursement Obligation to the Issuing Bank by
borrowing Base Rate Loans hereunder in accordance with Sections 3.2 and 3.3 of
this Agreement, the proceeds of which Loans will be used to reimburse the
Issuing Bank for the amount of any disbursement made by it under a Letter of
Credit, together with interest thereon to the extent provided in Section
3.19(c). If the Borrower shall fail to reimburse or cause the Issuing Bank to
be reimbursed directly or by application of funds contained in any Cash
Collateral Account on the same day the Issuing Bank honors a drawing under a
Letter of Credit (or, if the Issuing Bank's notice to the Borrower pursuant to
Section 3.19(a) was given after 12:00 Noon (Houston, Texas time) on such date,
on the Business Day next following such date), the Agent shall promptly notify
the other Banks thereof; provided, however, that if on the date of such
notification there shall not exist any Default under Section 7.1(g) or 7.1(h),
the Borrower shall be deemed to have requested that Base Rate Loans be made by
the Banks, to be disbursed on the date of payment by the Issuing Bank under
such Letter of Credit. In the event that any Bank fails to make available to
the Agent the amount of such Bank's Loan, on the date payment is made under the
Letter of Credit, the Issuing Bank shall be entitled to recover such amount on
demand from such Bank together with interest thereon at the Federal Funds Rate.
(e) If any Reimbursement Obligation of the Borrower is
not repaid directly by the Borrower when due and cannot be repaid by means of a
Borrowing of Loans and there shall not then be sufficient funds available for
the payment due to the Issuing Bank in any Cash Collateral Account, each other
Bank will promptly pay to the Agent the amount of such other Bank's
participation in such Reimbursement Obligation determined in accordance with
Section 3.19(b). Each Bank's obligation to pay the amount of its participation
in a Reimbursement Obligation in accordance with this Agreement, as a result of
a drawing under a Letter of Credit, shall be absolute and unconditional and
without recourse to the Issuing Bank and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Issuing Bank, the Borrower or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default, an Event of Default or a Material Adverse Effect; or (iii) any
other circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing; provided, however, that each Bank's obligation to make
Revolving Credit Loans under Section 3.2 is subject to the conditions set forth
in Section 4.2.
(f) Upon and only upon receipt by the Issuing Bank of
funds from the Borrower (i) in reimbursement of any payment made under a Letter
of Credit with respect to which any Bank has theretofore made a payment to the
Agent pursuant to Section 3.19(d) or 3.19(e), or (ii) in payment of interest on
any Reimbursement Obligation, the Agent will pay to each such Bank, in the same
funds as those received by the Issuing Bank, such Bank's Line of Credit
Commitment Percentage of such funds.
(g) If the Agent is required at any time to return to the
Borrower or to a trustee, receiver, liquidator, custodian or other similar
official any portion of the payments made by the Borrower to the Issuing Bank
in reimbursement of a payment made under any Letter of Credit or interest
thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent
its Line of Credit Commitment Percentage of any amounts so returned by the
Agent, plus, to the extent the Issuing Bank is required to pay interest to the
Borrower or such official and such interest remains unreimbursed, interest
thereon from
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the date such demand is made to but not including the date such amounts are
returned by such Bank to the Agent, at a rate per annum equal to the Federal
Funds Rate.
(h) The Borrower assumes all risks of the acts or
omissions of beneficiaries of any of the Letters of Credit with respect to
their use of the Letters of Credit. The Issuing Bank will not pay drafts drawn
under Letters of Credit unless such conform to the requirements of the
applicable Letter of Credit. Except in the case of gross negligence or willful
misconduct on the part of the Issuing Bank or any of its employees, neither the
Issuing Bank nor its correspondents nor any of the other Banks nor the Agent
shall be responsible for any of the following (INCLUDING, BUT NOT LIMITED TO,
THOSE CAUSED BY THE ISSUING BANK'S, ITS CORRESPONDENT'S, ANY OF THE OTHER
BANKS', OR THE AGENT'S OWN NEGLIGENCE): (i) the validity or genuineness of
certificates or other documents, even if such certificates or other documents
should in fact prove to be invalid, fraudulent or forged; (ii) errors,
omissions, interruptions or delay in the transmission or delivery of any
messages, by mail, telex, facsimile or otherwise, whether or not they be in
code; (iii) errors in the translation or for errors in interpretation of
technical terms; or (iv) any consequences arising from causes beyond the
Issuing Bank's control or the control of their correspondents; nor shall the
Issuing Bank be responsible for any error, neglect or default of any of their
correspondents; and none of the above shall affect, impair or prevent the
vesting of any of the Issuing Bank's rights or powers hereunder or under any
Letter of Credit, all of which rights shall be cumulative. The Issuing Bank
and its correspondents may accept certificates or other documents that appear
on their face to be in order, without responsibility for further investigation.
In furtherance but not in limitation of the foregoing provisions, the Borrower
agrees that any action taken by the Issuing Bank or any of its correspondents
in good faith in connection with any such Letter of Credit, or any related
drafts, certificates, documents or instruments, shall be binding on the
Borrower and shall not put the Issuing Bank or its correspondents under any
resultant liability to the Borrower; and the Borrower makes a like agreement as
to any inaction or omission, unless in breach of good faith.
(i) The Banks severally agree to indemnify the Agent and
the Issuing Bank and each officer, director, employee, agent and Affiliate of
the Agent and the Issuing Bank ratably according to their Line of Credit
Commitment Percentages, to the extent not reimbursed by the Borrower, from and
against any and all actions, causes of action, suits, losses, liabilities,
damages, and expenses which may at any time (including at any time following
the payment of any of the Reimbursement Obligations) be imposed on, incurred by
or asserted against such Person in any way relating to or arising out of the
issuance of, transfer of, or payment or failure to pay under any Letter of
Credit issued pursuant to this Agreement or the use of proceeds of any payment
made under any Letter of Credit issued in accordance with the terms of this
Agreement and EVEN IF CAUSED BY SUCH PERSON'S OWN NEGLIGENCE; provided,
however, that no Bank shall be liable for the payment of any portion of such
actions, causes of action, suits, losses, liabilities, damages and expenses
resulting solely from such Person's gross negligence or willful misconduct.
Section 3.20 Voluntary Termination or Reduction of Commitments.
Subject to Section 3.17 of this Agreement, the Borrower may upon not less than
five (5) Business Days' prior notice to the Agent, terminate the Line of Credit
Commitments or permanently reduce the Line of Credit Commitments by an
aggregate minimum amount of $5,000,000 or any integral multiple of $1,000,000
above such amount, provided, that no such
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reduction or termination shall be permitted if, after giving effect thereto and
to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the then outstanding principal amount of the Loans plus all then
existing Credit Exposure would exceed the amount of the Line of Credit
Commitments then in effect and, provided, further, that once reduced in
accordance with this Section 3.20, the Line of Credit Commitments may not be
increased. Any reduction of the Line of Credit Commitments shall be applied to
each Bank's Line of Credit Commitment in accordance with such Bank's Line of
Credit Commitment Percentage. If the Line of Credit Commitments are terminated
in their entirety, all accrued commitment fees to, but not including, the
effective date of such termination shall be payable on the effective date of
such termination without any premium or penalty.
Section 3.21 Change of Lending Office. Each Bank agrees that, upon
the occurrence of any event giving rise to the operation of Section 3.13(d),
3.15, 3.16, or 3.18 hereof with respect to such Bank, it will, if requested by
Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank) to designate another lending office for its Loan (provided that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage) with the object of avoiding the
consequence of the event giving rise to the operation of any such Section.
Nothing in this Section shall affect or postpone any of the obligations of the
Borrower or the right of any Bank provided in Sections 3.13, 3.15, 3.16, or
3.18.
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.1 Conditions Precedent to Initial Credit Extensions. The
obligation of the Bank to make the initial Revolving Credit Loan or issue the
initial Letter of Credit provided herein is subject to the condition precedent
that on or before the Closing Date the following shall have been delivered to
the Agent and the Banks in form and substance satisfactory to the Agent and the
Banks:
(a) This Agreement and the Notes dated the Closing Date
and duly executed and delivered by the Borrower.
(b) The other Loan Documents and such evidence of
filings, acknowledgments or acceptances of any such documents as the Agent and
the Banks may reasonably request or require, all duly executed and delivered by
all parties thereto. The Security Instruments shall be effective to grant to
the Agent and the Banks first priority perfected liens and security interests
in the Collateral.
(c) Written opinion or opinions, dated the Closing Date,
of counsel for the Borrower and its Subsidiaries in form and substance
satisfactory to the Agent and the Banks covering all such matters as the Agent
and the Banks may require.
(d) A copy of the Borrower's and its Subsidiaries'
articles or certificates of incorporation, as the case may be, and bylaws,
including all amendments thereto, all certified, in the case of certificates or
articles of incorporation, by the Secretary of State of the respective Person's
state of incorporation, and, in the case of, bylaws, by the Secretary or an
Assistant Secretary of such Person, as the case may be, as being in full force
and effect on the Closing Date, and all other documents the Agent and the Banks
may request
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relating to the existence, qualification and good standing of the Borrower and
its Subsidiaries.
(e) A copy of a resolution or resolutions passed by the
Boards of Directors of the Borrower and its Subsidiaries certified by the
Secretary or an Assistant Secretary of such Person as being in full force and
effect on the Closing Date, each of which corporate resolutions authorizing the
borrowings and Letters of Credit provided for herein and/or the execution,
delivery and performance of this Agreement, and the other Loan Documents, and
any other instrument or agreement required hereunder from such Person, as the
case may be, and providing as to the incumbency, and containing the specimen
signature or signatures, of the person or persons authorized to execute and
deliver this Agreement, the Notes, and the other Loan Documents and any other
instrument or agreement required hereunder.
(f) A summary of the insurance coverage of the Borrower
and its Subsidiaries, which shall be in form, scope and substance reasonably
satisfactory to the Agent and the Banks, together with certificates from each
insurer required pursuant to Section 5.5 hereof.
(g) Evidence satisfactory to the Majority Banks that as
of the Closing Date the Agent and the Banks have a first priority perfected
Lien on the Collateral and that there exist no Liens (other than Permitted
Liens) on any Property of the Borrower or any of its Subsidiaries, except as
specifically provided in Section 3.11 hereof.
(h) The fees then payable pursuant to Sections 3.7 and
11.7 of this Agreement (including the fees, expenses and disbursements of the
Bank's counsel), shall have been paid to the Agent or any Bank or such counsel,
as applicable.
(i) A certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that (i) the representations and warranties
contained in Article II are true and correct on and as of such date, as though
made on and as of such date, taking into account the Air Drilling Acquisition,
(ii) no Default or Event of Default exists or would result from the Credit
Extension being made on the Closing Date, (iii) there has occurred since April
30, 1996, no event or circumstance that has resulted or would reasonably be
expected to result in a Material Adverse Effect and (iv) all of the conditions
precedent set forth in Section 4.2 have been satisfied.
(j) Photocopies of the principal Acquisition Documents
(duly executed and delivered by each party thereto each in form and substance
satisfactory to the Agent and the Majority Banks), certified as being true,
correct and complete by a Responsible Officer of Borrower, a letter from
counsel to each Selling Shareholder permitting the Agent to rely upon such
counsel's opinion delivered to Borrower in connection with the Air Drilling
Acquisition as if such opinion had been addressed to the Agent, and evidence,
to Agent's satisfaction, that (a) Borrower has consummated (or concurrently
with the initial Loans is consummating) the Air Drilling Acquisition for a
total consideration of not more that $47,000,000 (including the assumption of
liabilities), (b) the Air Drilling Acquisition was consummated without the
waiver by the Borrower of any of the conditions precedent to the closing
thereof contained in the Acquisition Agreement and (c) each of the Borrower and
the Selling Shareholders has obtained any approvals required for
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the consummation of the Air Drilling Acquisition including, without limitation,
approvals required under the Hart-Scott- Rodino Antitrust Improvements Act of
1976, as amended.
(k) Evidence that all Indebtedness of the Company and its
Subsidiaries required to be repaid as set forth on Schedule 6.1 shall have been
(or shall simultaneously with the initial Loans be) repaid, all liens securing
the same shall have been (or shall simultaneously with the initial Loans be)
terminated and all commitments thereunder shall have been (or shall
simultaneously with the initial Loans be) cancelled.
(l) Such other evidence as the Bank may reasonably
request to establish the consummation of the transactions contemplated hereby,
the taking of all proceedings in connection herewith and compliance with the
conditions set forth in this Agreement.
Section 4.2 Additional Conditions Precedent to Each Loan. The
obligation of each Bank to make any Loan or the Issuing Bank to issue any
Letter of Credit provided herein is subject to the following further conditions
precedent:
(a) Notice, Application. The Agent shall have received
(with, in the case of the initial Revolving Credit Loan only, a copy for each
Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable or in the case of any Issuance of any Letter of Credit, the Issuing
Bank and the Agent shall have received a Credit Request, as required under
Section 3.3(f).
(b) The representations and warranties contained herein
and in the other Loan Documents shall be true and correct on the date of each
Loan or the date of issuance of each Letter of Credit (except such
representations and warranties that relate solely to an earlier date and that
were true and correct on such earlier date) and each of the Borrower and its
Subsidiaries shall be deemed to repeat such representations and warranties made
by it on such date.
(c) The Borrower and its Subsidiaries shall have
performed and complied with all agreements and conditions contained in this
Agreement and the other Loan Documents. No Event of Default or Default shall
have occurred and be continuing or shall result from such Loan or issuance of
Letters of Credit.
(d) The making of the Loans and the issuance of all
Letters of Credit shall not be prohibited by the laws and regulations of the
jurisdictions to which the Agent, any Bank, the Borrower or its Subsidiaries is
subject (including, without limitation, Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System), and shall not subject the Agent or
any Bank to any penalty or, in the reasonable judgment of the Majority Banks,
other burdensome condition under or pursuant to any applicable law or
governmental regulation.
(e) There shall be no suit, action, investigation,
inquiry or other proceeding by any Governmental Authority or any other Person
or any other legal or administrative proceeding pending or, to the knowledge of
the Borrower, threatened, which (i) questions the validity or legality of this
Agreement, any of the other Loan Documents or any of the transactions
contemplated by this Agreement or the other Loan Documents or seeks damages in
connection with any of the foregoing or (ii) if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
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(f) No event or condition having a Material Adverse
Effect shall have occurred since April 30, 1996.
Each Notice of Borrowing and Credit Request submitted by the Borrower hereunder
shall constitute a representation and warranty by the Borrower hereunder, as of
the date of each such notice and as of each Borrowing date, or Issuance date,
as applicable, that the conditions in this Section 4.2 are satisfied.
ARTICLE 5. AFFIRMATIVE COVENANTS.
During the term of this Agreement, and for so long as any Bank shall
have any Commitment or any Letter of Credit remains outstanding hereunder, and
until the Notes and all of the Obligations have been paid in full and there
shall exist no Credit Exposure, unless compliance with the provisions of the
following subsections shall have been waived in writing by the Majority Banks,
the Borrower agrees as follows:
Section 5.1 Financial Statements. The Borrower will and, as
applicable, will cause its Subsidiaries to furnish the following to the Agent
with copies for each Bank:
(a) As soon as available, but in any event, within one
hundred twenty (120) days after the end of each fiscal year of the Borrower, a
copy of the Borrower's and its Subsidiaries' annual audited consolidated
financial statements (consisting of at least a balance sheet and related
statements of income, retained earnings and cash flow prepared in conformity
with GAAP applied on a basis consistent with that of the preceding fiscal
year), and accompanied by an unqualified opinion of an independent certified
public accountant selected by the Borrower and acceptable to the Majority
Banks;
(b) As soon as available, but in any event not later than
one hundred twenty (120) days after the end of each fiscal year of the
Borrower, an unaudited consolidating balance sheet of the Borrower and each of
its Subsidiaries as at the end of such fiscal year and the related
consolidating statement of income for such fiscal year, all in reasonable
detail certified by a proper Responsible Officer of the Borrower as having been
used in connection with the preparation of the financial statements referred to
in Section 5.1(a) hereof;
(c) As soon as available, but in any event, within
forty-five (45) days of the end of each quarter of each fiscal year during the
term hereof, unaudited interim consolidating and consolidated financial
statements of the Borrower and each of its Subsidiaries prepared and certified
by a proper Responsible Officer of the Borrower and prepared similarly to the
audited statements referred to in clause (a) above (subject to normal year-end
audit adjustments) and consisting of at least balance sheets as of the close of
such period and statements of income, retained earnings and cash flow for the
quarter then ended and for the period from the beginning of the fiscal year to
the close of such period;
(d) Upon request by any Bank, a copy of the federal
income tax return of the Borrower and its Subsidiaries, for the current fiscal
year then ended, certified by a proper Responsible Officer of such Person;
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(e) Promptly upon their becoming available, Borrower will
deliver copies of: (i) all financial statements, reports, notices and proxy
statements sent or made available by the Borrower or any of its Subsidiaries to
their security holders; (ii) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the Borrower or any
of its Subsidiaries with any securities exchange or with the U.S. Securities
and Exchange Commission or any Governmental Authority; and (iii) all press
releases and other statements made available by the Borrower or any of its
respective Subsidiaries to the public concerning the financial condition of the
Borrower or any of its Subsidiaries;
(f) (i) Promptly after the filing thereof with the
United States Secretary of Labor or the Pension Benefit Guaranty Corporation,
copies of each annual and other report with respect to each Plan or any trust
created thereunder, and (ii) immediately upon becoming aware of the occurrence
of any "reportable event," as such term is defined in Section 4043 of ERISA, or
of any "prohibited transaction," as such term is defined in Section 4975 of the
Code in connection with any Plan or any trust created thereunder, a notice
signed by the President or a principal financial officer of the Borrower
specifying the nature thereof, what action the Borrower is taking or proposes
to take with respect thereto and, when known, any action taken by the Internal
Revenue Service with respect thereto;
(g) As soon as available, but in any event, within 20
days after the end of each month during the term hereof, a Loan Formula
Certificate for the appropriate time period, certified by a Responsible Officer
of the Borrower containing a certificate of a Responsible Officer of the
Borrower stating that a review of the activities of the Borrower and its
Subsidiaries during the period covered by such certificate has been made under
his supervision with a view to determining whether the Borrower and its
Subsidiaries have kept, observed, performed and fulfilled all of their
obligations under this Agreement, the Notes, the Security Instruments and the
other Loan Documents, and that, to the best of his knowledge, during such
period, each has kept, observed, performed and fulfilled each and every
covenant in this Agreement, the Notes, the Security Instruments and the other
Loan Documents, and is not at the time in default under any of the same, or if
it shall have been or shall be in default, specifying the same;
(h) Simultaneously with the delivery of each set of
financial statements referred to in clause (c) above, a quarterly listing and
aging of accounts receivable of the Borrower and its Subsidiaries, certified by
a Responsible Officer of the Borrower;
(i) Simultaneously with the delivery of each set of
financial statements referred to in clauses (a) and (c) above, a Compliance
Certificate certified by a Responsible Officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 5.11, 5.12, 5.13,
5.14, and 5.15 hereof, on the date of such financial statements and (ii)
stating whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(j) As soon as available, but in any event, no later than
30 days prior to the end of each fiscal year of the Borrower, projections of
the Borrower's and its
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Subsidiaries' financial statements for the next fiscal year of the Borrower
certified by a Responsible Officer of the Borrower; and
(k) Such other financial and other information concerning
the Borrower and its Subsidiaries as the Agent or any Bank shall request from
time to time.
Section 5.2 Payment of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, pay all Obligations in accordance with their
terms and will, and will cause each of its Subsidiaries to, pay and discharge
all other Indebtedness in the ordinary course of business where failure to pay
and discharge such other Indebtedness would have a Material Adverse Effect;
provided, further, that notwithstanding the foregoing, the Borrower and its
Subsidiaries may contest in good faith any such other Indebtedness by
appropriate proceedings so long as adequate reserves are established as
required by GAAP.
Section 5.3 Notice; Litigation. The Borrower shall and shall
cause each of its Subsidiaries to, promptly give written notice to the Agent
and each Bank of (i) the occurrence of any Default or Event of Default, (ii)
any legal, judicial or regulatory proceedings affecting the Borrower or any
Subsidiary or any of their properties or assets in which the amount involved is
material, is not covered (subject to normal deductibles) by insurance and is
likely to have a Material Adverse Effect, (iii) any dispute between the
Borrower or any of its Subsidiaries and any Governmental Authority or other
Person that is likely materially to interfere with the normal business
operations of the Borrower or any of its Subsidiaries , (iv) any substantial
damage to any material part of the Collateral, specifying the nature and extent
of damage and whether such damage is being repaired in due course, or total
loss or destruction of any material part of the Collateral, (v) any other
action, event or condition of any nature of which it has knowledge which, in
the reasonable opinion of the Borrower is likely to have, or lead to, or result
in, any Material Adverse Effect, and (vi) the voluntary or involuntary
bankruptcy of, or any assignment for the benefit of creditors or the seeking of
any relief under any bankruptcy or other similar laws by, the Borrower or any
of its Subsidiaries.
Section 5.4 Maintenance of Corporate Existence and Properties. The
Borrower will, and will cause each of its Subsidiaries to, (i) continue to
engage in the businesses presently being operated, (ii) maintain its corporate
existence and good standing in each jurisdiction in which it is required to be
qualified, if its failure to be so qualified would have a Material Adverse
Effect, (iii) keep and maintain all franchises, permits, licenses and
properties useful and necessary in the conduct of its business in good order
and condition if failure to do so would have a Material Adverse Effect, and
(iv) duly observe and conform to all material requirements of any Governmental
Authorities relative to the conduct of its business or the operation of its
properties or assets, if such failure duly to observe and conform to such
requirements would have a Material Adverse Effect or could result in criminal
prosecution.
Section 5.5 Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain insurance with financially sound and responsible
companies, in such form, in such amounts and against such risks (including,
without limitation, public liability and property damage insurance) as is
customarily carried by companies engaged in the same or similar businesses,
operating like properties and similarly situated, plus any additional
insurance, if any, required in the Security Instruments. The Borrower and its
Subsidiaries
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will have the right to place any such insurance with any insurance carrier
acceptable to the Majority Banks. Upon execution of this Agreement, the
Borrower will furnish the Agent, with copies to each Bank (i) a summary of the
insurance coverage of the Borrower and its Subsidiaries, together with
certificates showing the Bank as loss payee to the extent its interests may
appear, all such policies to be noncancellable without 15 days' prior written
notice to the Agent, and will supplement such summary from time to time as the
amounts or terms of such insurance coverage change, and (ii) copies of the
applicable policies and proof of payment of the premiums therefor.
Section 5.6 Payment of Taxes. The Borrower will, and will cause each
of its Subsidiaries to, pay and discharge when due all taxes, assessments and
other liabilities, except those being contested in good faith by appropriate
proceedings, and against which the Borrower or its applicable Subsidiary has
set up adequate reserves, in accordance with GAAP.
Section 5.7 Accounts Receivable. The Borrower will, and will cause
each of its Subsidiaries to, maintain its accounts receivable in a manner
consistent with normal business practices, including normal terms and
conditions for payment, for companies engaged in similar operations in similar
jurisdictions.
Section 5.8 Further Assurances. The Borrower will, and cause each of
its Subsidiaries to, at any time and from time to time, execute and deliver
such further instruments and take such further action as may reasonably be
requested by the Majority Banks, in order to cure any defects in the execution
and delivery of, or to comply with or accomplish the covenants and agreements
contained in this Agreement, the Notes, the Security Instruments or the other
Loan Documents.
Section 5.9 Inspection. The Borrower will, and will cause each of
its Subsidiaries to, permit the Agent or any Bank (and any Person appointed by
the Agent or any Bank to act for it and on its behalf) to examine its corporate
and financial books and records and other records, books and properties, to
perform audits of the Collateral and to discuss its affairs, finances and
accounts with the officers of the Borrower and the Borrower's Subsidiaries, and
the Borrower's and the Borrower's Subsidiaries' independent certified public
accountants all at the expense of the Borrower and at all reasonable times and
as often as may be reasonably requested.
Section 5.10 Solvency. The Borrower will not be, and will not permit
the Borrower and its Subsidiaries taken as a whole, to be, Insolvent.
Section 5.11 Current Ratio. The Borrower and its Subsidiaries will
maintain a ratio of Current Assets to Current Liabilities of not less than 1.30
to 1.0, determined on a consolidated basis, at all times throughout the term
hereof.
Section 5.12 Maximum Funded Debt Ratio. The Borrower and its
Subsidiaries will maintain a Funded Debt Ratio during each period set forth
below of not greater than the ratio set forth below opposite such period:
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<TABLE>
<CAPTION>
Funded Debt
Period Ratio
- ------ -----------
<S> <C>
Closing Date
through and including
June 30, 2000 3.0 to 1.0
July 1, 2000 and
thereafter 2.5 to 1.0.
</TABLE>
Section 5.13 Tangible Net Worth. The Borrower and its Subsidiaries
will maintain a positive Tangible Net Worth, determined on a consolidated
basis, at all times during the term of this Agreement in an amount not less
than the sum of:
(a) Ninety percent (90%) of the Tangible Net
Worth of the Borrower and its Subsidiaries at April 30, 1997
determined on a consolidated basis from the annual audited financial
statements of the Borrower and its Subsidiaries for the fiscal year of
the Borrower ending 1997 required pursuant to Section 5.1(a) hereof,
plus
(b) seventy-five percent (75%) of Net Income of
the Borrower for each month ending after April 30, 1997, in each case,
for which Consolidated Net Income is positive (but with no deduction
on account of negative Consolidated Net Income for any month), plus
(c) upon the consummation of any issuance of
Non-Redeemable Stock after April 30, 1997, one hundred percent (100%)
of the amount of Net Cash Proceeds received by the Borrower or any of
its Subsidiaries from all such issuances.
Section 5.14 Minimum Debt Service Coverage Ratio. The Borrower and
its Subsidiaries will maintain a ratio of (i) Consolidated EBITDA for the
period of 12 full consecutive calendar months ending on the last day of each
fiscal quarter of the Borrower throughout the term hereof less taxes measured
by income of the Borrower and its Subsidiaries paid in cash during such period,
to (ii) Consolidated Debt Service for such period, of not less than 1.3 to 1.0.
Section 5.15 Revenue Producing Assets. The Borrower and its
Subsidiaries will maintain, at all times, Revenue Producing Assets (exclusive
of Consignment Assets) determined on an original cost basis of not less than an
amount equal to the greater of (i) one hundred-ten percent (110%) of the then
aggregate outstanding principal balance of the Term Notes or (ii) one
hundred-ten percent (110%) of the aggregate Commitment Amount set forth on
Schedule I with respect to the Line of Credit.
Section 5.16 Environmental Compliance. The Borrower will, and will
cause each of its Subsidiaries, and their respective contractors and invitees
to, comply in all respects with the requirements of all Governmental
Authorities pursuant to Environmental Laws. Borrower shall not, and shall not
permit any of its Subsidiaries to, cause or permit any
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Hazardous Materials to be brought upon or kept or used on or about the Property
in violation of any Environmental Law or which results in any Hazardous
Materials Contamination which could reasonably be expected to have a Material
Adverse Effect.
Section 5.17 Notification of Releases of Hazardous Materials. The
Borrower will, and will cause each of its Subsidiaries to, immediately notify
the Agent and each of the Banks of, and provide the Agent and each of the Banks
with copies of any notifications of, discharges or releases or threatened
releases or discharges of a Hazardous Material on, upon, into, or from the
Property that could reasonably be expected to have a Material Adverse Effect
which are given or required to be given by or on behalf of the Borrower or any
of its Subsidiaries to any Governmental Authorities. Such copies of
notifications shall be delivered to the Agent and each of the Banks at the same
time as they are delivered to the Governmental Authorities. The Borrower will,
and will cause each of its Subsidiaries to, promptly undertake and diligently
pursue to completion any appropriate and legally required or authorized
investigation, abatement and remedial containment and cleanup action in the
event of any release or discharge, or threatened release or discharge, of a
Hazardous Material on, upon, into or from the Property.
Section 5.18 Environmental Indemnification. The Borrower hereby
indemnifies and agrees to hold harmless the Indemnified Parties from and
against all liabilities, claims, actions, consequential damages, costs and
expenses or loss, regardless of whether any of the foregoing are foreseeable or
unforeseeable, whether by Governmental Authorities or third parties, so long as
any of the foregoing occur directly or indirectly by virtue of (i) the breach
of any representation or warranty, or affirmative or negative covenant
regarding any Environmental Laws or Hazardous Materials; (ii) any Hazardous
Material being present at any time in, upon or around any part of any Property,
or in the soil, air, groundwater, or surface water on, above or under the
Property; (iii) the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a Hazardous Material on,
under or about the Property; (iv) operations of Borrower or any of its
Subsidiaries; or (v) the imposition or recording of liens on the Property
pursuant to any Environmental Laws. The liabilities, claims, actions,
consequential damages, costs and expenses and losses included in the indemnity
in this Section shall include, without limitation, amounts paid in settlement
of claims, all consultant, expert and legal fees and expenses of any
Indemnified Party's legal counsel costs and expense incurred in connection with
any investigations of site conditions, or any abatement, cleanup, remediation,
removal, or restoration work, or any damages or injuries to the person or
property of any third parties or to land, air, water or other natural
resources. Upon demand by the Majority Banks, the Borrower and its
Subsidiaries shall jointly and severally defend any investigation, action, or
proceeding alleging the presence of any Hazardous Material which affects any
Property or which is brought or commenced against any Indemnified Party,
whether alone or together with the Borrower, its Subsidiaries or any other
person, all at the Borrower's cost and expense but with counsel to be approved
by the Majority Banks in the exercise of its reasonable judgment.
Section 5.19 Chattel Paper. The Borrower will, and will cause each
of its U.S. Subsidiaries and Material Foreign Subsidiaries (to the extent the
laws of the relevant jurisdiction make it desirable to do so) to, stamp or
otherwise imprint all Chattel Paper (other than Chattel Paper consisting of
Foreign Accounts) relating to any of its respective assets with a legend in the
following form:
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"THIS CHATTEL PAPER IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, AS AGENT FOR THE BENEFIT OF THE
BANKS (AS SUCH TERM IS DEFINED IN THAT CERTAIN THIRD AMENDED AND RESTATED
CREDIT AGREEMENT DATED AS OF JUNE 20, 1997, AMONG DAILEY PETROLEUM SERVICES,
CORP., THE FINANCIAL INSTITUTIONS A PARTY THERETO FROM TIME TO TIME (THE
"BANKS"), AND THE AGENT, AS THE SAME MAY BE AMENDED OR RESTATED AT ANY TIME."
Section 5.20 Lockbox; Cash Collateral Account. Notwithstanding any
provision herein or in the other Loan Documents to the contrary, after the
occurrence of an Event of Default, the Borrower agrees to direct all customers
and licensees to send all sales remittance checks, license and royalty payments
and proceeds to a post office box (the "Lockbox") designated by the Agent for
the benefit of the Banks for collection and deposit in, and to deposit all cash
generated by cash sales and cash prepayments at time of purchase by the
Borrower's customers, and all proceeds (collectively, the "Proceeds") of
accounts, accounts receivable, license agreements, royalty agreements, and
credit card sales received by it into a cash collateral account (the "Cash
Collateral Account") designated by the Agent for the benefit of the Banks and
from which only officers of the Agent will be authorized to withdraw funds.
The Proceeds shall be deposited promptly in the Cash Collateral Account upon
receipt thereof by the Borrower in the form received with any endorsements
necessary for collection). After the occurrence of an Event of Default, all
Proceeds deposited in the Cash Collateral Account shall be applied to the
reduction of the Revolving Credit Note.
Section 5.21 ERISA. The Borrower shall, and shall cause each of its
ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
ARTICLE 6. NEGATIVE COVENANTS.
During the term of this Agreement, and for so long as any Bank shall
have any Commitment hereunder, and until the Notes and all of the Obligations
have been paid in full and there shall exist no Credit Exposure, unless
compliance with the following subsections shall have been waived in writing by
the Majority Banks, the Borrower agrees as follows:
Section 6.1 Limitations on Indebtedness. The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Indebtedness except (i) the Indebtedness incurred under this
Agreement and the other Loan Documents, (ii) existing Indebtedness described on
Schedule 6.1 attached hereto, (iii) Capital Leases or other Indebtedness
incurred to finance the purchase of tangible, fixed or capital assets in an
aggregate amount not to exceed $500,000 at any one time outstanding, (iv)
Indebtedness incurred by the Borrower from the Guarantors, (v) Indebtedness of
any Guarantor of the Borrower to the Borrower or any other Guarantor, (vi)
Indebtedness of any Subsidiary of Borrower (other than Guarantors) to Borrower
or any of Borrower's other Subsidiaries (other than Guarantors), when
aggregated with all loans, advances, extension of credit and investments
(without duplication), not to exceed the aggregate
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amount set forth in Section 6.4(v) at any one time outstanding and (vii) other
Indebtedness of the Borrower and the Guarantors not to exceed an aggregate
amount of $2,000,000 at any one time outstanding.
Section 6.2 Limitations on Liens. The Borrower will not, and will
not permit any of its Subsidiaries to, create, assume or suffer to exist any
Lien of any kind upon any of its Properties or assets, whether now owned or
hereafter acquired, except Permitted Liens.
Section 6.3 Limitations on Contingent Liabilities. The Borrower will
not, and will not permit any of its Subsidiaries to, create, assume or suffer
to exist any Contingent Liabilities, except (i) as permitted hereunder, (ii)
guaranties of Indebtedness of the Borrower or any Subsidiary permitted pursuant
to Section 6.1 hereof, (iii) for endorsements of instruments for collection in
the ordinary course of business, (iv) reimbursement obligations in connection
with letters of credit and performance bonds to secure the performance of bids
and trade contracts (other than for borrowed money) incurred in the ordinary
course of the Borrower's and its Subsidiaries' business and (v) any such
liability in favor of the Agent and the Banks under this Agreement or the other
Loan Documents.
Section 6.4 Loans, Advances and Investments. The Borrower will not,
and will not permit any of its Subsidiaries to, make or permit to remain
outstanding any advances, loans or extensions of credit to, or purchase or own
any stock, bonds, notes, debentures, or other securities of, or make any
investments in, any Person (other than the Borrower or a Guarantor) except (i)
accounts, instruments, chattel paper, and general intangibles (as defined in
the UCC) arising or acquired, and trade credit extended, in the ordinary course
of business as presently conducted, (ii) Cash Equivalents, (iii) expenses,
advances and loans made to employees of the Borrower in the ordinary course of
business and not exceeding an aggregate amount of $750,000 at any one time
outstanding, (iv) Acquisitions, provided that the aggregate of all amounts
expended and liabilities assumed by Borrower and its Subsidiaries for all
Acquisitions during a fiscal year shall not exceed $5,000,000, (v) advances,
loans or extensions of credit to Subsidiaries (other than Guarantors) at any
one time outstanding plus the aggregate of all investments in Subsidiaries
(other than Guarantors) in an aggregate amount not to exceed (y) $13,000,000,
so long as any amounts remain owing on the Term Notes and (z) $18,000,000,
after the Term Notes have been paid in full in cash.
Section 6.5 Limitations on Fundamental Changes; Disposition of
Assets. The Borrower will not, and will not permit any of its Subsidiaries to,
(a) enter into any merger or consolidation, except any
Subsidiary of the Borrower may merge, consolidate or combine with or into (i)
the Borrower (provided that the Borrower shall be the continuing or surviving
corporation) or (ii) any one or more Subsidiaries of the Borrower (provided
that if any transaction shall be between a Subsidiary and a wholly-owned
Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving
corporation);
(b) liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided, however, that this Subsection 6.5(b)
shall not apply to any Subsidiary;
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(c) convey, sell, lease (other than leases of inventory
entered into in the ordinary course of business), charter or otherwise dispose
of all or substantially all of its property, assets or business; or
(d) except in the ordinary course of business, enter into
any arrangement, directly or indirectly, whereby the Borrower or its applicable
Subsidiary would sell or transfer any properties (other than real property),
either now owned or thereafter acquired, and then or thereafter lease as lessee
such properties or any part thereof or any property (other than real property)
to be used for substantially the same purpose.
Section 6.6 Dividends. The Borrower will not, and will not permit
any of its Subsidiaries (other than Wholly-Owned Subsidiaries) to, declare or
pay any dividend (other than dividends payable solely in stock) or make any
other distribution on account of, or purchase, acquire, retire, or redeem any
stock of the Borrower or any such Subsidiaries whether now owned or hereafter
outstanding.
Section 6.7 ERISA Compliance. The Borrower shall not, and shall not
suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably expected to result in liability
of the Company in an aggregate amount in excess of $500,000; or (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
Section 6.8 Nature of Business. The Borrower will not, and will not
permit any of its Subsidiaries to, (i) engage in any lines of business or
business ventures other than those in which it is presently engaged or that are
directly related thereto, (ii) change in any material respect its methods of
operation or manner of doing business, (iii) without 45 days prior written
notice to the Agent and the Majority Banks, change the location of its chief
executive office, or (iv) change its name (without 45 days prior written notice
to the Agent and the Majority Banks), its identity as a corporation or its
corporate structure.
Section 6.9 Transactions with Affiliates and Other Persons. Except
as disclosed on Schedule 6.9, the Borrower will not, and will not permit any of
its Subsidiaries to, engage in any transaction with an Affiliate, which
individually or together with other transactions subject to this Section 6.9 is
material, on terms less favorable to it than would be obtainable at the time in
comparable transactions with Persons not affiliated with the Borrower or its
Subsidiaries, as the case may be. The Borrower will not, and will not permit
any of its Subsidiaries to, incur, create or assume any commitments to make
payments, whether as rental or otherwise, under any lease, rental or other
arrangement, written or oral, for the use of any other Person if, under the
terms of any such agreements, the amount of rentals payable thereunder is
greater than a fair market rental.
Section 6.10 Lease Obligations. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, create or suffer to exist any
obligations for the payment of rent for any property under lease or agreement
to lease, except for:
(a) leases of the Borrower and of Subsidiaries in
existence on the Closing Date and any renewal, extension or refinancing
thereof;
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(b) operating leases entered into by the Borrower or any
Subsidiary after the Closing Date in the ordinary course of business;
(c) leases entered into by the Borrower or any Subsidiary
after the Closing Date pursuant to sale- leaseback transactions permitted under
subsection 6.5(d);
(d) Capital Leases other than those permitted under
clauses (a) and (c) of this Section, entered into by the Borrower or any
Subsidiary after the Closing Date to finance the acquisition of equipment;
provided that the aggregate annual rental payments for all such Capital Leases
shall not exceed in any fiscal year $1,000,000.
Section 6.11 Accounting Changes. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, make any significant change in
accounting treatment or reporting practices, except as required by GAAP, or
change the fiscal year of the Borrower or of any Subsidiary without 45 days
prior written notice to the Agent and the Majority Banks.
ARTICLE 7. DEFAULT.
Section 7.1 Events of Default. The occurrence of any of the
following events or conditions shall constitute an "Event of Default":
(a) Failure of the Borrower to pay any principal of or
interest on any Notes, or failure to make any mandatory prepayment hereunder
when due;
(b) Any representation or warranty made by the Borrower
or any of its Subsidiaries in this Agreement or in any of the other Loan
Documents or in any certificate, financial or other statement furnished by the
Borrower or any of its Subsidiaries pursuant hereto or thereto or in connection
herewith or therewith is false in any material respect as of the date made or
furnished;
(c) Failure to observe or perform any of the covenants,
terms or agreements contained in Sections 3.6, 5.2, 5.5, 5.8, 5.9, 5.10, 5.11,
5.12, 5.13, 5.14, 5.15, 5.20 or Article 6 hereof;
(d) Failure to pay any amounts due hereunder or under any
other Loan Document (other than those described in Section 7.1(a) above) when
due or declared due, or failure to observe or perform any other covenants,
terms or agreements contained in this Agreement, any Loan Document or any other
agreements with the Agent or any Bank, and such failure to pay or other default
shall continue unremedied for a period of fifteen (15) days after the earlier
of (i) the date upon which the Borrower or its applicable Subsidiaries, knew or
should have known of such failure or (ii) the date upon which written notice
thereof has been given to the Borrower by the Agent or any Bank;
(e) The Borrower or any of its Subsidiaries (i) is
generally not paying its Indebtedness as it becomes due, (ii) fails to pay any
principal of or interest on any obligation or obligations for borrowed money
under any agreement involving an amount or amounts greater than $500,000 beyond
the period of grace, if any, provided for in the instrument or agreement under
which the same was created, or (iii) fails to observe or
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perform any other term, condition or agreement contained in any obligation or
obligations for borrowed money under any agreement involving an amount or
amounts greater than $500,000 or in any instrument or agreement evidencing,
securing or relating thereto if the effect thereof is to cause or permit the
holder or holders of such obligation (or a trustee or an agent on behalf of
such holder or holders) to cause any such obligation to become due prior to its
stated maturity;
(f) An event of default shall occur under any of the Loan
Documents;
(g) Any Loan Document ceases to be in full force and
effect and valid, binding, and enforceable in accordance with its terms, or any
of the Security Instruments ceases to create a valid and perfected first
priority Lien as required hereby and thereby, or the Borrower or any of its
Subsidiaries shall so state in writing;
(h) Filing by the Borrower or any of its Subsidiaries of
a voluntary petition or any answer seeking reorganization, arrangement,
readjustment of its or his debts or for any other relief under any applicable
bankruptcy act or law, or under any other insolvency act or law, now or
hereafter existing, or any action by the Borrower or any of its Subsidiaries
consenting to, approving of or acquiescing in any such petition or proceeding;
the application by the Borrower or any of its Subsidiaries for, or the
appointment by consent or acquiescence of, a receiver or trustee for the
Borrower or any of its Subsidiaries or for all or a substantial part of its or
his property; the making by the Borrower or any of its Subsidiaries of an
assignment for the benefit of creditors, the inability of the Borrower or any
of its Subsidiaries, or the admission by the Borrower or any of its
Subsidiaries in writing of its inability, to pay its debts as they mature (the
term "acquiescence" means the failure to file a petition or motion in
opposition to such petition or proceeding or to vacate or discharge any order,
judgment or decree providing for such appointment within 30 days after the
appointment of a receiver or trustee);
(i) Filing of an involuntary petition against the
Borrower or any of its Subsidiaries in bankruptcy or seeking reorganization,
arrangement or readjustment of its or his debts or for any other relief under
any applicable bankruptcy act or law, or under any other insolvency act or law,
now or hereafter existing and such petition remains undismissed or unanswered
for a period of 30 days from such filing; or the involuntary appointment of a
receiver or trustee for the Borrower or any of its Subsidiaries for all or a
substantial part of its or his property and such appointment remains unvacated
or unopposed for a period of 10 days from such appointment; or the issuance of
a writ of attachment, execution or similar process against any substantial part
of the Property of the Borrower or any of its Subsidiaries and such writ
remains unbonded or undismissed for a period of 10 days from notice to the
Borrower or any of its Subsidiaries of its issuance;
(j) Final judgment for the payment of money in excess of
$500,000 shall be rendered against the Borrower or any of its Subsidiaries and
the same shall remain undischarged for a period of 30 days, during which
execution shall not be effectively stayed; or
(k) (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess
of $500,000; (ii) the aggregate amount
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of Unfunded Pension Liability among all Pension Plans at any time exceeds
$500,000; or (iii) the Borrower or any ERISA Affiliate shall fail to pay when
due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multiemployer Plan in an aggregate amount in excess of $500,000; or
(l) There occurs any Change of Control; or
(m) There occurs a Material Adverse Effect; or
(n) Any Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty; or any
Guaranty is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or any Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder.
Section 7.2 Optional Acceleration. Upon the occurrence and
continuance of any Event of Default set forth in Subsection 7.1(a), (b), (c),
(d), (e), (f), (g), (j), (k), (l), (m), or (n) hereof, any obligation of the
Agent and all of the Banks to extend credit to the Borrower pursuant hereto
shall immediately terminate and the Agent, at the request of the Majority
Banks, and with the consent of the Majority Banks, without notice to the
Borrower or any of its Subsidiaries, may declare the principal of and interest
accrued on the Notes to be forthwith due and payable, WHEREUPON THE SAME SHALL
BECOME DUE AND PAYABLE WITHOUT ANY PRESENTMENT, DEMAND, PROTEST, NOTICE OF
PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION, OR NOTICE OF
ANY KIND (EXCEPT NOTICE REQUIRED PURSUANT TO THIS AGREEMENT OR OTHERWISE BY
LAW), ALL OF WHICH ARE HEREBY WAIVED. With respect to all Letters of Credit
that shall not have matured or with respect to which presentment for honor
shall not have occurred, Borrower shall deposit in a Cash Collateral Account at
the Agent an amount equal to the aggregate undrawn amount of Letters of Credit,
and the unused portions thereof, if any, shall be returned to Borrower after
the respective expiration dates of the Letters of Credit and after all Notes
and Obligations hereunder, under the Security Instruments and under the Letter
of Credit Agreements are paid in full.
Section 7.3 Automatic Acceleration. Upon the occurrence of any Event
of Default set forth in Subsection 7.1(h) or (i) hereof, any obligation of the
Agent and all of the Banks to make advances under the Notes shall automatically
terminate and the principal of and interest accrued on the Notes shall be
immediately and automatically due and payable without notice or demand of any
kind, and THE SAME SHALL BE DUE AND PAYABLE IMMEDIATELY WITHOUT ANY
PRESENTMENT, ACCELERATION, DEMAND, PROTEST, NOTICE OF INTENT TO ACCELERATE,
NOTICE OF ACCELERATION, NOTICE OF PROTEST OR NOTICE OF ANY KIND (EXCEPT NOTICE
REQUIRED PURSUANT TO THIS AGREEMENT OR OTHERWISE BY LAW), ALL OF WHICH ARE
HEREBY WAIVED. With respect to all Letters of Credit that shall not have
matured or with respect to which presentment for honor shall not have occurred,
Borrower shall deposit in a Cash Collateral Account at the Agent an amount
equal to the aggregate undrawn amount of Letters of Credit, and the unused
portions thereof, if any, shall be returned to Borrower after the respective
expiration dates of the
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Letters of Credit and after all Notes and Obligations hereunder, under the
Security Instruments and under the Letter of Credit Agreements are paid in
full.
Section 7.4 Additional Remedies. In case any one or more Events of
Default or Defaults shall occur and be continuing the Agent shall, at the
request of the Majority Banks, and with the consent of the Majority Banks may,
proceed to protect and enforce the rights of the Agent and the Banks by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein, in the Notes, or in the
other Loan Documents, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law, or otherwise. In addition, the Borrower will pay to the
Agent and the Banks such further amount as shall be sufficient to cover the
cost and expenses of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of any holder of the Notes in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice such holder's rights,
powers or remedies. No right, power or remedy conferred by this Agreement, the
Notes, or by the other Loan Documents upon any holder thereof shall be
exclusive of any other right, power or remedy referred to herein or therein or
now or hereafter available at law, in equity, by statute or otherwise.
ARTICLE 8. RELATION OF BANKS.
Section 8.1 Appointment.
(a) Each Bank hereby irrevocably appoints, designates and
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent. Without limiting the generality of the foregoing sentence, the use of
the term "agent" in this Agreement and the other Loan Documents with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks
with respect to any Letters of Credit Issued by it and the documents associated
therewith; provided, however, that the Issuing Bank shall have all of the
benefits and immunities (i) provided to the Agent in this Article 8 with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit Issued by it or proposed to be Issued by it
and the application and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term "Agent", as used in this Article 8,
included the Issuing Bank with
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respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
Section 8.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents, employees, any
additional co-agent appointed pursuant to Section 8.3 below, or
attorney-in-fact that it selects with reasonable care.
Section 8.3 Appointment of Additional Co-Agent.
(a) It is the purpose of this Agreement that there shall
be no violation of any law of any jurisdiction denying or restricting the right
of banking corporations or associations to transact business as agent in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or the Loan Documents and in particular in case of the enforcement thereof on
Default, or in case the Agent deems that by reasons of any present or future
law of any jurisdiction it may not exercise any of the powers, rights or
remedies herein or therein granted to the Agent or take any other action which
may be desirable or necessary in connection therewith, the Agent, with the
consent of the Majority Banks, may appoint an additional individual or
institution as a separate or additional co-agent, in which event each and every
remedy, power, right, claim, demand, cause of action, immunity, interest and
lien expressed or intended by this Agreement or the other Loan Documents to be
exercised by or vested in or conveyed to the Agent with respect thereto shall
be exercisable by and vest in such separate or additional co-agent, but only to
the extent necessary to enable such separate or additional co-agent to exercise
such powers, rights and remedies, and every covenant and obligation necessary
to the exercise thereof by such separate or additional co-agent shall run to
and be enforceable by either of them.
(b) Should any conveyance or instrument in writing from
the Banks be required by such separate or additional co-agent so appointed by
the Agent for more fully and certainly vesting in and confirming to him or it
such rights, powers, duties and obligations, any and all such conveyances and
instruments shall, on request, be executed, acknowledged and delivered by the
Majority Banks. In case any such separate or additional co-agent or a
successor, shall die, become incapable of acting, resign or be removed, all
the rights, powers, duties and obligations of such separate or additional
co-agent, so far as permitted by law, shall vest in and be exercised by the
Agent until the appointment of a successor to such separate or additional
co-agent. Any such separate or additional co-agent appointed by the Agent
pursuant to this Section 8.3 may be removed by the Agent at any time, in which
case all powers, rights and remedies vested in such separate or additional
co-agent shall again vest in the Agent as if no such appointment of additional
co-agent had been made.
Section 8.4 Liability of Agent. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall
be (a) liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document (except for its
own gross negligence or willful misconduct), or (b) responsible in any manner
to any of the Banks for any recital, statement, representation or warranty made
by the Borrower or any of its Subsidiaries or any officer of any of them
contained in this Agreement or in any other Loan Document or in any
certificate, report,
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statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower or any of its Subsidiaries to perform its
obligations hereunder or thereunder, or (c) required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Loan
Document. The Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a notice of the assignment or
transfer thereof shall have been filed with the Agent pursuant to Article 9,
together with the approval of the Borrower (if such approval is required under
Article 9), which approval of the Borrower shall not be unreasonably withheld,
to such assignment or transfer. The Agent shall not be under any obligation to
any Bank to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the Properties, books or records of the Borrower
or any of its Subsidiaries.
Section 8.5 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telecopy, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including counsel to the
Borrower or any of its Subsidiaries), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Majority Banks
as it deems appropriate and, if it so requests, it shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Banks and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Banks and all future holders of the Obligations.
(b) For purposes of determining compliance with the
conditions specified in Article 4, each Bank shall be deemed to have consented
to, approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Banks.
Section 8.6 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
payable to the Agent for the account of the Banks, unless the Agent shall have
received written notice from a Bank or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Banks. The Agent shall take
such action with respect to such Default or Event of Default as shall be
requested by the Majority Banks in accordance with Article 7 hereof; provided,
however, that unless and until the Agent shall have received any such request,
the Agent may (but shall not be obligated to)
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take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable and in the best
interests of the Banks.
Section 8.7 Credit Decision. Each Bank expressly acknowledges that
neither the Agent nor any of its Affiliates nor any officer, director,
employee, agent, attorney-in-fact of any of them has made any representation or
warranty to it and that no act by the Agent hereinafter taken, including any
review of the affairs of the Borrower and its Subsidiaries shall be deemed to
constitute any representation or warranty by the Agent to any Bank. Each Bank
represents to the Agent and the other Banks that it has, independently and
without reliance upon the Agent and the other Banks and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries and
made its own decision to enter into this Agreement and the other Loan Documents
and extend credit to the Borrower hereunder. Each Bank also represents that it
will, independently and without reliance upon the Agent and the other Banks and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to
the business, prospects, operations, property, financial and other condition
and creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder, the Agent (a) shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower or any of its Subsidiaries which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates, (b) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or any other Loan Document,
and (c) shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document, or any instrument or document furnished or executed
pursuant hereto or therewith.
Section 8.8 Indemnification. The Banks agree to indemnify the Agent
(to the extent not reimbursed by or on behalf of the Borrower and without
limiting the obligations of the Borrower to do so), ratably according to their
respective Commitment Percentages of their outstanding Loans, or, if no Loans
are outstanding, their Commitments, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement, any other Loan Documents, or any document contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided, however, that no Bank shall be liable for the
payment to the Agent of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT THE AGENT
SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
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COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND ARISING OUT OF OR RESULTING FROM
THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH PERSON. The
Agent shall not be required to do any act hereunder or under any other document
or instrument delivered hereunder or in connection herewith or take any action
toward the execution or enforcement of the agencies hereby created, or to
prosecute or defend any suit in respect to this Agreement or the Loan Documents
or any collateral security, unless indemnified to its satisfaction by the
holders of the Notes against loss, cost, liability, and expense. If any
indemnity furnished to the Agent for any purpose is, in the opinion of such
Person insufficient or becomes impaired, such Person may call for additional
indemnity and not commence or cease to do the acts indemnified against until
such additional indemnity is furnished. Without limitation of the foregoing,
each Bank agrees to reimburse the Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including, without limitation, the costs
and expenses which the Borrower is obligated to pay under Section 11.7 hereof)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Borrower.
Section 8.9 Agent in Individual Capacity. Wells Fargo and its
Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from and generally engage in any kind of business with the
Borrower and its Subsidiaries as though Wells Fargo were not the Agent
hereunder and its Affiliates may accept fees and other consideration from the
Borrower for services in connection with this Agreement or otherwise without
having to account for the same to the Banks. With respect to its Loans and its
Commitment Percentage of outstanding Credit Exposure, Wells Fargo (and any
successor acting as Agent) shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent, and the terms "Bank" and "Banks" shall include Wells Fargo in its
individual capacity.
Section 8.10 Successor Agent. The Agent may resign as Agent upon
thirty (30) days' notice to the Banks. If the Agent shall resign as Agent
under this Agreement, the Majority Banks shall appoint from among the Banks a
successor agent for the Banks. If no successor Agent is appointed prior to the
effective date of the resignation of the Agent, the Agent shall appoint, after
consulting with the Banks, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring Agent
and the term "Agent" shall mean such successor agent and the retiring Agent's
rights, powers and duties, as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article 8 and
Section 11.7 hereof shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.
Section 8.11 Pro Rata Sharing. All payments of principal and
interest on the Loans are to be divided pro rata among the Banks participating
in such Loans according to their respective Commitment Percentages. All
payments of fees to be shared among the Banks (except as set forth in the Fee
Letter with respect to the fees described therein and fees payable solely for
the account of the Agent or the Issuing Bank) are to be divided
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among the Banks pro rata according to the Commitment Percentage of each Bank in
respect of the Loan to which the fees relate, or, if there are no amounts
outstanding in respect of a Loan, according to the Commitments of the Banks
under the Loan to which the fees relate.
Section 8.12 Approvals. Upon any occasion requiring or permitting an
approval, consent, waiver, election or other action on the part of the Majority
Banks, action shall be taken by the Agent for and on behalf of, or for the
benefit of all Banks, upon the direction of the Majority Banks, and any such
action shall be binding on all Banks. Unless all Banks agree in writing, no
amendment, modification, consent or waiver shall be effective which
(a) increases the amount of the Loans or the availability
of Letters of Credit, or increases the Commitment or Commitment Percentage of
any Bank;
(b) reduces interest, principal or commitment fees owing
hereunder or under the Notes;
(c) extends the fixed date on which any sum is due
hereunder or under the Notes;
(d) waives an Event of Default arising from a failure to
pay principal of or interest on a Loan within the applicable grace period if
any;
(e) changes the provisions of this Section 8.12;
(f) releases any Guaranty; or
(g) releases any Collateral other than in connection with
the sale of any Property or assets permitted under this Agreement.
Section 8.13 Collateral Matters.
(a) Priority of Liens and Security Interests.
Notwithstanding any provisions to the contrary contained in the Security
Instruments, and irrespective of the time, order or method of attachment or
perfection of the liens and security interests granted thereby or the time or
order of filing or recording of financing statements or other liens, mortgages,
deeds of trust or security interests, and irrespective of anything contained in
any filing or agreement to which any of the Banks may now or hereafter be a
party, the Agent and the Banks hereby agree among themselves, as to the
priorities to be accorded the Collateral, that the security interests securing
the Obligations and created in favor of the Banks under the Security
Instruments shall constitute a first priority security interest in all
Collateral and the proceeds thereof to be shared on a pari passu basis by all
of the Banks.
(b) Order of Distributions. Any proceeds received by the
Agent from the foreclosure, sale or other disposition of any of the Collateral
and any other proceeds received by the Agent pursuant to the terms hereof and
of the Security Instruments, including, without limitation, insurance proceeds,
shall be applied by the Agent as follows:
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(i) FIRST, to the payment of all agency fees
payable to and costs and expenses of the Agent incurred in connection
with the collection of such proceeds or the protection of the rights
and interests of the Banks therein;
(ii) SECOND, to the ratable payment of accrued and
unpaid interest on the unpaid principal amount of all outstanding
Obligations to the date of such application, pro rata among the Banks
according to each Bank's applicable Commitment Percentage;
(iii) THIRD, to the payment of the unpaid principal
amount of all Obligations outstanding, pro rata among the Banks
according to each Bank's applicable Commitment Percentage (whether by
acceleration or otherwise);
(iv) FOURTH, to the payment of, without
duplication, any other indebtedness due and payable on the date of
such application arising pursuant to the obligations of the Borrower
under this Agreement and the other Loan Documents, pro rata among the
Banks according to each Bank's applicable Commitment Percentage; and
(v) FIFTH, the balance, if any, shall be paid to
the Borrower or as a court or Governmental Authority of competent
jurisdiction may direct.
(c) Rights to Enforce. So long as any Obligations are
outstanding, the Agent shall have the sole and exclusive right to carry out the
provisions of the Security Instruments and to enforce all rights and privileges
accruing to the Agent by reason of the Security Instruments.
(d) Further Assurances. The Agent and the Banks each
agree to execute any further documents or amendments as may be necessary to
effect the purposes of this Article 8, including, without limitation, any
registration or recordation upon any applicable public records.
(e) Proceeds. Each Bank agrees that (i) if at any time
it shall receive any proceeds of any Collateral or any proceeds pursuant to the
terms of any of the Security Instruments (other than through application by the
Agent in accordance with Section 8.13(b) hereof), it shall promptly turn the
same over to the Agent for application in accordance with Section 8.13(b)
hereof, (ii) it will not take or cause to be taken any action, including,
without limitation, the commencement of any legal or equitable proceedings, the
purposes of which are or could be to give such Bank any preference or priority
against the other Banks with respect to the Collateral, and (iii) it will not
take or cause to be taken any action to accelerate the maturity of the
Obligations owing to it or to waive any default thereunder unless the Majority
Banks shall have agreed in writing to accelerate all the Obligations or to
waive such default, any agreement of the Majority Banks not to accelerate or to
waive such default shall be binding on all the Banks with respect to
acceleration and waiver of defaults under this Agreement.
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(f) Limitation on Action. The Agent shall not be
required to take any action to enforce the Security Instruments or to realize
upon any Collateral, unless the Majority Banks shall have so requested in
writing to the Agent. Upon receipt of such written request the Agent shall (i)
notify all the other Banks thereof in writing or by telecopy or telex, and (ii)
take such action as may be lawfully available to it under the Security
Instruments or with respect to any Collateral; provided that, the Agent shall
be fully justified in failing or refusing to take any such action unless it
shall first be indemnified to its satisfaction by the Banks requesting or
acquiescing in any such action for any liability and expense which might result
from such action. If any indemnity furnished to the Agent shall become
impaired, the Agent may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given.
Section 8.14 No Liability. The Banks have not made to each other,
nor do they hereby or otherwise make to each other, any warranties, express or
implied, nor do they assume any liability to each other with respect to (a)
obligors under any instruments of guarantee; (b) the enforceability, validity,
value or collectability of the advances or other extensions of credit made or
acceptances created, any collateral therefor, or any guarantee or security
which may have been granted to any of them in connection with any of the
agreements; or (c) the Borrower's or any of its Subsidiaries' title or right to
transfer any other Collateral. No Bank shall be liable to any other Bank for
any action or failure to act or any error in judgment, negligence or mistake or
oversight whatsoever on the part of any Bank or any Bank's agents, officers,
employees, or attorneys with respect to any transaction relating to the
agreements or security or guarantees therefor, provided such Bank has acted in
good faith and has not been guilty of gross negligence or willful misconduct.
Section 8.15 Third Party Rights. The agreements and covenants
contained in this Article 8 are solely for the benefit of the Agent and the
Banks and their respective successors and assigns, and no other person, firm,
entity or corporation shall have any right, benefit, priority or interest
under, or because of the existence of, this Article 8.
ARTICLE 9. ASSIGNMENTS, PARTICIPATIONS.
Section 9.1 Assignments, Participations, etc..
(a) Any Bank may, with the written consent of the
Borrower (at all times other than during the existence of a Default) and the
Agent and the Issuing Bank, which consent of the Borrower shall not be
unreasonably withheld, and upon written notice to the Agent, at any time assign
and delegate to one (1) or more banks, insurance companies, finance companies,
financial institutions, funds, or other entities and, with notice to the Agent
but without the consent of the Borrower, the Agent or the Issuing Bank may
assign to any of its one-hundred percent (100%) owned Affiliates (each an
"Assignee") all or an equal percentage of all of the Loans and outstanding
Credit Exposure of such Bank, and the Commitments and any other rights or
obligations of such Bank hereunder in a minimum amount of Five Million Dollars
($5,000,000), provided, however, that the Borrower and the Agent shall be
entitled to continue to deal solely and directly with such Bank in connection
with the interests so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to such Assignee, shall have been given to the
Borrower and the Agent by
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such Bank and such Assignee, and (ii) such Bank and its Assignee shall have
delivered to the Borrower and the Agent an Assignment and Acceptance in the
form of Exhibit H attached hereto, together with any Note or Notes subject to
such assignment; and (iii) the assignor Bank or the Assignee has paid to the
Agent a processing fee in the amount of Three Thousand Dollars ($3,000.00).
(b) From and after the date that the Agent notifies the
assignor Bank that it has received the Assignment and Acceptance, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Bank under the Loan
Documents, and (ii) the assignor Bank shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
the Loan Documents.
(c) Within five (5) Business Days after its receipt of
notice by the Agent that it has received an executed Assignment and Acceptance,
the Borrower shall execute and deliver to the Agent, new Notes evidencing such
Assignee's assigned Loans, Credit Exposure and Commitments and, if the assignor
Bank has retained a portion of its Loans, Credit Exposure and its Commitments,
replacement Notes in the principal amount of the Revolving Credit Loans and
Term Loans retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's making its payment under the Assignment and Acceptance, this
Agreement and Schedule I hereto, shall be deemed to be amended to the extent,
but only to the extent, necessary to reflect the addition of such Assignee and
the resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Bank
pro tanto.
(d) Any Bank may at any time sell to one (1) or more
banks or other entities (a "Participant") a participating interest in any of
its Loans and Credit Exposure, and the Commitments of such Bank or any other
interest of such Bank hereunder, provided, however, that (i) such Bank's
obligations under this Agreement shall remain unchanged, (ii) such Bank shall
remain solely responsible for the performance of such obligations, (iii) the
Borrower, the Issuing Bank and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and (iv) no Bank shall transfer or grant any participating
interest under which the Participant shall have rights to approve any amendment
to, or any consent or waiver with respect to this Agreement or any other Loan
Document, except to the extent such amendment, consent or waiver would require
unanimous consent of the Banks as described in the first proviso to Section
10.1. In the case of any such participation, the Participant shall be entitled
to the benefit of Sections 3.13, 3.16 and 11.7(b) and (c) as though it were
also a Bank hereunder, and if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this
Agreement.
(e) Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest in, or pledge,
all or any portion of its rights
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under and interest in this Agreement [and the Note held by it] in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
ARTICLE 10. AMENDMENTS AND WAIVERS.
Section 10.1 Amendments and Waivers. No amendment, modification or
waiver of any provision of this Agreement or any Loan Document and no consent
with respect to any departure by the Borrower or any of its Subsidiaries
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver shall be effective only
in the specific instance and for the specific purpose for which given;
provided, however, that no such wavier, amendment, modification or consent that
requires the written consent of all Banks pursuant to Section 8.12 shall be
effective unless the written consent of all Banks is so obtained and provided
further that no amendment, wavier or consent shall, unless in writing and
signed by the Agent in addition to the Majority Banks, affect the rights or
duties of the Agent under this Agreement.
ARTICLE 11. MISCELLANEOUS.
Section 11.1 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent or any Bank, any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law or in any other agreement.
Section 11.2 Survival of Agreements. All representations and
warranties, all covenants and all provisions for indemnification and for the
payment of expenses contained in this Agreement or made in writing by or on
behalf of the Borrower or any other Person in connection with the transactions
contemplated by this Agreement shall survive the execution and delivery of this
Agreement and the other Loan Documents, any investigation at any time made by
the Agent or any Bank or on its or their behalf, the making of any Loans by the
Agent or any Bank under this Agreement, any transfer of title to any Property
(whether by sale, foreclosure, deed in lieu of foreclosure or otherwise) and
any disposition or payment of the Notes. All statements contained in any
certificate or other instrument delivered by or on behalf of the Borrower, any
of its Subsidiaries or any other Person pursuant to this Agreement and the
other Loan Documents or in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be deemed representations and
warranties of the Borrower under this Agreement.
Section 11.3 Successors. This Agreement shall be binding upon each
of the Borrower and its Subsidiaries, and their respective successors and
assigns and shall inure to the benefit of the Agent, each Bank and their
respective successors and assigns.
Section 11.4 Counterparts. This Agreement may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
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Section 11.5 Severability. In case any one or more of the provisions
contained in this Agreement, the Notes, or any other Loan Document should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not be affected in any way thereby.
Section 11.6 Interest. (a) It is the intention of the parties
hereto to comply strictly with applicable usury laws, if any; accordingly,
notwithstanding any provision to the contrary in this Agreement or in any of
the other Loan Documents, in no event shall the Loan Documents require or
permit the payment, taking, reserving, receiving, collection or charging of any
sums constituting interest under applicable laws which exceed the maximum
amount permitted by such laws. If any such excess interest is called for,
contracted for, charged, taken, reserved, or received in connection with any
credit extension under this Agreement or in any of the documents securing the
payment hereof or otherwise relating hereto, or in any communication by the
Agent, any Bank or any other person to the Borrower or any other person, or in
the event all or part of the principal or interest of any Loan shall be prepaid
or accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged, taken,
reserved, or received on the amount of principal actually outstanding from time
to time under this Agreement or any other Loan Document shall exceed the
maximum amount of interest permitted by applicable usury laws, then in any such
event it is agreed as follows: (i) the provisions of this paragraph shall
govern and control, (ii) neither the Borrower nor any other Person now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (iii)
any such excess which is or has been received notwithstanding this paragraph
shall be credited against the then unpaid principal balance hereof or, if the
Obligations have been or would be paid in full by such credit, refunded to
Borrower, and (iv) the provisions of the Loan Documents, and any communication
to Borrower, shall immediately be deemed reformed and such excess interest
reduced, without the necessity of executing any other document, to the maximum
lawful rate allowed under applicable laws as now or hereafter construed by
courts having jurisdiction hereof or thereof. Without limiting the foregoing,
all calculations of the rate of interest contracted for, charged, taken,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating
and spreading during the period of the full term of the Obligations, including
all prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, reserved, or received. The terms of this
paragraph shall be deemed to be incorporated in every Loan Document.
(b) The Borrower and each Bank agree that Tex. Civ. Stat.
Ann art. 5069 Ch. 15 (which regulates certain revolving loan accounts and
revolving tri-party accounts) shall not apply to any revolving loan accounts
created under this Agreement or any Revolving Credit Note or maintained in
connection therewith.
(c) To the extent that the interest rate laws of the
State of Texas are applicable to this Agreement or any Note, the applicable
interest rate ceiling is the indicated (weekly) ceiling determined in
accordance with Article 5069-1.04(a)(1) of the Texas Revised Civil Statutes, as
amended, and, to the extent that this Agreement or any
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Note is deemed an open end account as such term is defined in Article
5069-1.01(f) of the Texas Revised Civil Statutes, as amended, the Majority
Banks retain the right to modify the interest rate in accordance with
applicable law.
Section 11.7 Expenses; Documentary Taxes; INDEMNIFICATION.
(a) The Borrower will pay (i) all out-of-pocket expenses
of the Agent (including reasonable fees, expenses and disbursements of counsel
for the Agent) in connection with the preparation, negotiation, enforcement,
operation, syndication, and administration of this Agreement, the Notes, the
other Loan Documents, or any documents executed in connection therewith, or any
waiver, modification or amendment of any provision hereof or thereof; and (ii)
pay or reimburse the Agent and each Bank for all costs and expenses incurred by
them in connection with the enforcement, attempted enforcement, or preservation
of any rights or remedies under this Agreement or any other Loan Document
during the existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding, appellate proceeding, all
court costs and costs of collection (including, without limitation, reasonable
fees, expenses and disbursements of counsel for the Agent and any Bank), then,
and in any such event, the attorneys' fees arising from such services and all
expenses, costs, charges and other fees incurred by such counsel in any way or
respect arising in connection with or relating to any of the events or actions
described in this Section together with interest thereon from the date incurred
until paid by the Borrower at the maximum rate allowed by applicable laws,
which Borrower agrees to pay on demand, shall constitute Obligations and shall
be secured by and entitled to the benefits of the Loan Documents. The Borrower
agrees to indemnify the Indemnified Parties from and hold it harmless against
any documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery by the Borrower or any other
Person of this Agreement, the Notes, the other Loan Documents, and any
documents executed in connection therewith AND EXPRESSLY INDEMNIFIES AND AGREES
TO HOLD HARMLESS THE INDEMNIFIED PARTIES FROM ANY SUCH CLAIMS, DAMAGES,
LIABILITIES, AND EXPENSES ARISING BY REASON OF ANY INDEMNIFIED PARTY'S OWN
NEGLIGENCE.
(b) The Borrower shall indemnify the Indemnified Parties
from, and hold the Indemnified Parties harmless against, any and all costs,
losses, liabilities, claims, damages or expenses incurred by them (whether or
not any of the Indemnified Parties is designated a party thereto), INCLUDING
THOSE CAUSED BY THE INDEMNIFIED PARTIES' OWN NEGLIGENCE but excluding those
caused by the Indemnified Parties' gross negligence or willful misconduct,
arising out of or by reason of any litigation or other similar proceeding
(including preparation for such litigation or proceeding) related to the
execution, delivery, and performance of this Agreement, the Notes, or the other
Loan Documents, or any actual or proposed use by the Borrower of the proceeds
of the issuance of the Notes or the Borrower's entering into and performing of
any agreement or instrument referred to herein, including, without limitation,
the reasonable fees and disbursements of the Indemnified Parties' counsel
incurred in connection therewith.
(c) The Borrower also agrees to pay, and will save the
Indemnified Parties harmless from, all claims, demands and liabilities in
respect of the fees and commissions, if any, of brokers and finders alleged to
have been incurred in connection
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with any of the transactions contemplated by this Agreement and the other Loan
Documents and any expenses, including reasonable legal fees arising in
connection with such claims, demands or liabilities.
Section 11.8 Notices.
(a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Borrower by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
Schedule 11.8, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on Schedule 11.8; or, as directed to the Borrower
or the Agent, to such other address as shall be designated by such party in a
written notice to the other parties, and as directed to any other party, at
such other address as shall be designated by such party in a written notice to
the Borrower and the Agent.
(b) All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article 3 and 8 to the Agent shall not be effective until
actually received by the Agent, and notices pursuant to Article 3 to the
Issuing Bank shall not be effective until actually received by the Issuing Bank
at the address specified for the "Issuing Bank" on the applicable signature
page hereof.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrower. The Agent and the Banks shall be entitled
to rely on the authority of any Person purporting to be a Person authorized by
the Borrower to give such notice and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans and L/C Obligations
shall not be affected in any way or to any extent by any failure by the Agent
and the Banks to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Banks of a confirmation which is at
variance with the terms understood by the Agent and the Banks to be contained
in the telephonic or facsimile notice.
Section 11.9 Notification of Addresses, Lending Offices, Etc.. Each
Bank shall notify the Agent in writing of any changes in the address to which
notices to such Bank should be directed, of payment instructions in respect to
all payments to be made to it hereunder and of such other administrative
information as the Agent shall reasonably request.
Section 11.10 Controlling Document. In the event of actual conflict
in the terms and provisions of this Agreement, the Notes and the other Loan
Documents, the terms and provisions of this Agreement will control.
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Section 11.11 Table of Contents; Descriptive Headings. The table of
contents and the descriptive headings of the several sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
Section 11.12 Waivers and Release of Claims. As additional
consideration to the execution, delivery, and performance of this Agreement by
the parties hereto and to induce the Agent, the Issuing Bank and the Banks to
enter into this Agreement, the Borrower represents and warrants that (a) the
Borrower knows of no defenses, counterclaims or rights of setoff to the payment
of any indebtedness of the Borrower to the Banks, and (b) the Borrower for
itself, its Subsidiaries, their respective representatives, agents, officers,
directors, employees, shareholders, and successors and assigns, hereby fully,
finally, completely, generally and forever releases, discharges, acquits,
waives and relinquishes the Indemnified Parties, from any and all claims,
actions, demands, and causes of action of whatever kind or character, whether
joint or several, whether known or unknown, for any and all injuries, harm,
damages, penalties, costs, losses, expenses, attorneys' fees, and/or liability
whatsoever and whenever incurred or suffered by any of them that arose or
accrued prior to the execution of this Agreement. Notwithstanding any
provision of this Agreement, the Prior Loan Agreement or any other Loan
Document, this Section 11.12 shall remain in full force and effect and shall
survive the delivery of the Notes, this Agreement and the other Loan Documents
and the making, extension, renewal, modification, amendment or restatement of
any thereof.
Section 11.13 Grant of Security Interest; Ratification of Documents.
The Borrower hereby grants to the Agent for the benefit of the Banks a security
interest and lien in the Collateral to secure payment and performance of the
Obligations, including, without limitation, the Notes and the Letter of Credit
Agreements. All Loan Documents executed in connection herewith and with the
Prior Loan Agreement are and remain in full force and effect in accordance with
their respective terms. Without in any way limiting the generality of the
foregoing, the Borrower hereby ratifies and confirms the Security Instruments,
and the liens, security interests and obligations created thereby, and the
Borrower hereby confirms and agrees that any and all liens, security interests
and obligations created by the Security Instruments and other security or
Collateral now or hereafter held by the Agent and the Banks as security for
payment and performance of the Obligations under the Prior Loan Agreement, are
hereby renewed and carried forward to secure payment and performance of all of
the Obligations, including, without limitation, the Notes and the Letter of
Credit Agreements. The Security Instruments are and remain legal, valid and
binding obligations of the parties thereto, enforceable in accordance with
their respective terms. References in the Loan Documents (other than this
Agreement) to the Prior Loan Agreement, the "Agreement," the "Loan Agreement"
and words of similar import shall be deemed to be references to the Prior Loan
Agreement as amended and restated by this Agreement.
Section 11.14 Restatement and Amendment. This Agreement restates,
amends and supersedes the Prior Loan Agreement in its entirety, but does not
novate or discharge the Prior Loan Agreement. The recitals at the beginning of
this Agreement are incorporated into this Agreement as agreements of the
parties hereto.
Section 11.15 No Waiver. The Borrower agrees that no Event of
Default and no Default has been waived or remedied by the execution of this
Agreement by the Agent and
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the Banks, and any such Default or Event of Default heretofore arising and
currently continuing shall continue after the execution and delivery hereof.
Section 11.16 Acknowledgment. Each of the Borrower and its
Subsidiaries ratifies and confirms that the Security Instruments are and remain
in full force and effect in accordance with their respective terms and that the
Collateral is unimpaired. Each of the Borrower and its Subsidiaries hereby
acknowledges and agrees that (a) the liens created and evidenced by the Loan
Documents are valid and existing liens of the recited dignity and priority, and
(b) no other granting of a lien or security interest or assignment has been or
will be executed affecting the Collateral without the Agent's and the Majority
Banks' prior written consent.
SECTION 11.17 GOVERNING LAW. THIS AGREEMENT, THE NOTES, THE SECURITY
INSTRUMENTS AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY APPLY.
SECTION 11.18 SUBMISSION TO JURISDICTION. WITH RESPECT TO ANY AND
ALL DISPUTES ARISING HEREUNDER, UNDER THE NOTES, UNDER THE OTHER LOAN
DOCUMENTS, OR UNDER ANY OF THE OTHER INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH OR THEREWITH NOT SETTLED, OR SUBJECT TO ARBITRATION,
PURSUANT TO THE ARBITRATION PROGRAM REFERENCED IN SECTION 11.19 HEREOF, THE
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY NOTES AND ANY DOCUMENT TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT OF ANY THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF TEXAS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM AND MAIL), POSTAGE PREPAID, TO IT AT
ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF; AND
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(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
SECTION 11.19 ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered
by the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in Texas
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded
to it under 12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators
must be active members of the Texas State Bar with expertise in the substantive
laws applicable to the subject matter of the Dispute. Arbitrators are
empowered to resolve Disputes by summary rulings in response to motions filed
prior to the final arbitration hearing. Arbitrators (i) shall resolve all
Disputes in accordance with the substantive law of the state of Texas, (ii)
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<PAGE> 88
may grant any remedy or relief that a court of the state of Texas could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
SECTION 11.20 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES,
THE OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed in Houston, Texas, as of the date first above-mentioned.
THE BORROWER:
DAILEY PETROLEUM SERVICES
CORP.
By /s/ DAVID T. TIGHE
-------------------------------------
David T. Tighe
Senior Vice President
THE AGENT:
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By /s/ THEODORE M. NOWAK
-------------------------------------
Name: Thedore M. Nowak
Title: Vice President
THE BANKS:
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By /s/ THEODORE M. NOWAK
-------------------------------------
Name: Thedore M. Nowak
Title: Vice President
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<PAGE> 1
EXHIBIT 10.3
THIRD AMENDED AND RESTATED
COMMERCIAL SECURITY AGREEMENT
This Third Amended and Restated Commercial Security Agreement
("Agreement") is entered into effective as of the 20th day of June, 1997, by
and between WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as Agent ("Secured
Party") for the Banks from time to time a party to the Loan Agreement (as
hereinafter defined) and DAILEY PETROLEUM SERVICES CORP., a Delaware
corporation, ("Debtor") formerly known as Dailey Corporation, a Delaware
corporation, successor by merger to Dailey Petroleum Services Corp., a Delaware
corporation. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Third Amended and Restated Loan Agreement
dated as of June 20th, 1997 between Debtor and Secured Party and the Banks from
time to time a party thereto (the Third Amended and Restated Loan Agreement as
it may be amended, modified or restated from time to time and at any time being
herein referred to as the "Loan Agreement").
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, Debtor grants to Secured Party the security interest (and the
pledges and assignments as applicable) hereinafter set forth and agrees with
Secured Party as follows:
A. OBLIGATIONS SECURED. The security interest and pledges and
assignments as applicable granted hereby are to secure punctual payment and
performance of the following: (i) the Revolving Credit Notes, and any and all
extensions, renewals, modifications, increases and rearrangements thereof, (ii)
all reimbursement obligations now existing or hereafter arising with respect to
Letters of Credit issued by the Issuing Bank for the account of Debtor in
accordance with the Loan Agreement, (iii) the Term Notes, and any and all
extensions, renewals, modifications, increases and rearrangements thereof, (iv)
the obligations of Debtor to Secured Party and the Banks, or any one of them
(including without limitation the Issuing Bank), under this Agreement, the Loan
Agreement and the other Loan Documents and any and all amendments, supplements,
modifications and restatements thereof and thereto, and (v) any and all other
indebtedness, liabilities and obligations whatsoever of Debtor to Secured Party
and the Banks, or any one of them, whether direct or indirect, absolute or
contingent, primary or secondary, due or to become due and whether now existing
or hereafter arising, whether joint or several, or joint and several as created
and evidenced by, and arising under, the Loan Agreement and the Notes and the
other Loan Documents, and all renewals, extensions, increases, and
rearrangements of such indebtedness, obligations or liabilities, including any
and all amounts owing or which may hereafter become owing thereon or in
connection therewith, including, without limitation, any and all amounts of
principal, interest, attorneys' fees, costs of collection and other amounts
owing thereunder (all of which are herein separately and collectively referred
to as the "Obligations"). Debtor acknowledges that the security interest
hereby granted shall secure all future advances as well as any and all other
indebtedness, liabilities, and Obligations of Debtor to Secured Party and the
Banks, or any one of them, whether now in existence or hereafter arising.
B. USE OF COLLATERAL. Debtor represents, warrants and covenants
to Secured Party that the Collateral will be used by the Debtor primarily for
business purposes.
<PAGE> 2
C. DESCRIPTION OF COLLATERAL. Debtor hereby grants to Secured
Party on behalf of and for the ratable benefit of the Banks a security interest
in all of the Debtor's present and after acquired personal property (and hereby
pledges and assigns as applicable) and agrees that Secured Party shall continue
to have a security interest in (and a pledge and assignment as applicable), in
all of the Debtor's present and after acquired personal property, and without
limiting the generality of the foregoing, in and to the following property, to
wit:
All Accounts. All accounts, contract rights, rights
to the payment of money including, but not limited to, tax refund
claims, insurance proceeds, proceeds from tort claims and any rent
payable due or to become due under any rent or lease contracts, now
owned or existing as well as any and all that may hereafter arise or
be acquired by Debtor, and all the proceeds and products thereof,
including without limitation, all notes, drafts, acceptances,
instruments and chattel paper arising therefrom, and all returned or
repossessed goods arising from or relating to any such accounts, or
other proceeds or products of any sale, lease, rental or other
disposition of Debtor's inventory.
All Inventory. All of Debtor's inventory, including
all goods, merchandise, raw materials, goods or work in process,
finished goods and other tangible personal property, wheresoever
located, now owned or hereafter acquired and held for sale, rent or
lease or furnished or to be furnished under contracts for service or
used or consumed in Debtor's business and all additions and accessions
thereto and contracts with respect thereto and all documents of title
evidencing or representing any part thereof, and all products and
proceeds thereof.
All Equipment. All equipment of every nature and
description whatsoever now owned or hereafter acquired by Debtor
including all appurtenances and additions thereto and substitutions
therefor, wheresoever located, including all tools, parts and
accessories used in connection therewith. As used herein, the term
"equipment" shall not include inventory as herein defined.
All Fixtures. All of Debtor's fixtures and
appurtenances thereto, and such other goods, chattels, fixtures,
equipment and personal property affixed or in any manner attached to
the real estate and/or building(s) or structure(s), including all
additions and accessions thereto and replacements thereof and articles
in substitution therefor, howsoever attached or affixed, wherever
located, including without limitation the locations described on
Exhibit D.
General Intangibles. All general intangibles
including, but not limited to, goodwill, engineering drawings and
customer lists, and other personal property now owned or hereafter
acquired by Debtor other than goods, accounts, chattel paper,
documents and instruments.
Chattel Paper. All of Debtor's interest under
chattel paper, lease agreements and other instruments or documents,
whether now existing
<PAGE> 3
or owned by Debtor or hereafter arising or acquired by Debtor,
evidencing both a debt and security interest in or lease of specific
goods.
Instruments. All of Debtor's now owned or existing
as well as hereafter acquired or arising instruments and documents.
Rental Agreements. Without limiting the foregoing,
all of the Debtor's right, title and interest in and to the following
whether now existing or hereafter arising or entered into: all
agreements (the "Rental Agreements") entered into by Debtor, as
lessor, for the lease, rental or conditional sale of inventory or
equipment, or both, (together with all monies and claims for monies
which may arise out of the Rental Agreements, all claims, rights,
powers, privileges and remedies of Debtor thereunder and, to the
extent not included in the foregoing, any and all proceeds of any and
all of the foregoing).
Intellectual Property. Without limiting the
foregoing, all of Debtor's now or hereafter acquired: (i) Copyrights,
including, without limitation, those listed on Schedule I hereto, as
it may be amended from time to time, (ii) Licenses, including, without
limitation, those listed on Schedule II hereto, as it may be amended
from time to time, (iii) Intellectual Property General Intangibles,
(iv) Patents, including, without limitation, those listed on Schedule
III hereto, as it may be amended from time to time, (v) Trademarks,
including, without limitation, those listed on Schedule IV hereto, as
it may be amended from time to time, (vi) Trade Secrets, including,
without limitation, those related to the Products listed on Schedule V
hereto, as it may be amended from time to time, and (vii) all products
and Intellectual Property Proceeds (including, without limitation,
insurance proceeds) of, and additions, improvements and accessions to,
and books and records describing or used in connection with, any and
all of the foregoing property.
The term "Collateral" as used in this Agreement shall mean and
include, and the security interest (and pledge and assignment as applicable)
shall cover, all of the property described in this paragraph C, as well as any
accessions, additions and attachments thereto and the proceeds and products
thereof, including without limitation, all cash, general intangibles, accounts,
inventory, equipment, fixtures, notes, drafts, acceptances, securities,
instruments, chattel paper, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom, and in and to
all returned or repossessed goods arising from or relating to any of the
property described herein or other proceeds of any sale, rental, lease or other
disposition of such property.
As additional security for the punctual payment and performance of the
Obligations, and as part of the Collateral, Debtor hereby grants to Secured
Party a security interest in, and a pledge and assignment of, all of Debtor's
right, title and interest in and to any and all money, property, deposit
accounts, accounts, securities, documents, chattel paper, claims, demands,
instruments, items or deposits now held or hereafter coming within Secured
Party's custody or control, including without limitation, all certificates of
deposit and other depository accounts, whether such have matured or the
exercise of Secured Party's rights results in loss of interest or principal or
other penalty on such deposits, but excluding deposits subject to tax penalties
if assigned and excluding deposits
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<PAGE> 4
of F.I.C.A. and federal withholding taxes. Without prior notice to or demand
upon the Debtor (except as otherwise provided in the Loan Agreement), Secured
Party may exercise its rights granted above at any time when an event of
default has occurred and is continuing. Secured Party's rights and remedies
under this paragraph shall be in addition to and cumulative of any other rights
or remedies of Secured Party provided in the Loan Agreement or any of the other
Loan Documents or otherwise afforded at law and equity including, without
limitation, any rights of setoff to which Secured Party may be entitled.
All terms not otherwise defined herein or defined in the Loan
Agreement and which are defined in the Uniform Commercial Code adopted in the
State of Texas in effect on the date of execution hereof, shall have the
meaning ascribed to them in the Uniform Commercial Code adopted in the State of
Texas in effect as of the date of execution hereof and set forth in any
amendment to the Uniform Commercial Code adopted in the State of Texas to
become effective after the date of execution hereof.
D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents and warrants as follows:
1. Ownership; No Encumbrances. The Debtor is, and as to any
property acquired after the date hereof which is included within the
Collateral, Debtor will be, the owner of such Collateral free and clear of all
security interests, charges, adverse claims, encumbrances, liens and rights of
any and every nature whatsoever except for (a) the security interests (and
pledges and assignments, as applicable) granted hereby, and (b) the Permitted
Liens. Schedules I through V attached hereto accurately describe all material
Copyright registrations, applications for Copyright registrations, Licenses,
Patents, and applications for Patents and Trademarks owned by Debtor, except
those filed in foreign jurisdictions which are not yet recorded in Debtor's
central records.
2. No Financing Statements. There is no financing statement or
similar filing now on file in any public office covering all or any part of the
Collateral, and Debtor will not execute and there will not be on file in any
public office any such financing statement or similar filing except (i) the
financing statements filed or to be filed in favor of Secured Party or (ii)
financing statements that evidence Permitted Liens, and (iii) the filing of
this Agreement or a representation hereof with the United States Patent and
Trademark Office, the United States Copyright Office, and any similar office or
agency.
3. Accuracy of Information. All information furnished by Debtor
to Secured Party concerning Debtor, the Collateral and the Obligations, or
otherwise for the purpose of obtaining or maintaining credit, is or will be at
the time the same is furnished, accurate and complete in all material respects.
4. Authority. Debtor has full right and authority to execute and
perform its obligations under this Agreement and to create the security
interest (and pledges and assignment as applicable) created by this Agreement.
The making and performance by Debtor of this Agreement will not violate any
articles or certificates of incorporation, bylaws or similar document
respecting Debtor, any provision of law, any order of court or governmental
agency, or any indenture or other agreement to which Debtor is a party, or by
which Debtor or any of the Collateral is bound, or be in conflict with, result
in a breach of or constitute (with due notice and/or lapse of time) a default
under any such indenture or other agreement, or result in the creation or
imposition of any charge, lien, security
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<PAGE> 5
interest, claim or encumbrance of any and every nature whatsoever upon the
Collateral, except as contemplated by this Agreement.
5. Addresses. The address of Debtor designated on the signature
page hereof is Debtor's place of business, if Debtor has only one place of
business; Debtor's chief executive office, if Debtor has more than one place of
business and the location where Debtor keeps all of its books and records with
respect to any accounts. Debtor agrees not to change such address without
advance written notice to Secured Party.
6. Possession of Collateral; Locations.
(a) To the best of Debtor's knowledge, the Debtor has
possession and control of its inventory, fixtures and equipment, except for (i)
inventory rented, leased, subleased, consigned for sale or rental, sold by
conditional sale or on demonstration to any customer or sales agent in the
ordinary course of the Debtor's business, (ii) inventory or equipment in
transit in the ordinary course of the Debtor's business, (iii) inventory,
equipment or fixtures under repair or maintenance by parties other than the
Debtor, (iv) inventory and equipment in the possession of persons who are
providing specialized fabrication of component parts in the ordinary course of
the Debtor's business and (v) equipment and fixtures at store points and sales
locations owned or leased by Debtor and leased or subleased to third parties or
otherwise not occupied by the Debtor.
(b) To the best of Debtor's knowledge, the list attached
hereto as Exhibit "A" accurately and completely describes all current locations
of any and all inventory and equipment owned by Debtor except for the inventory
and equipment described in the foregoing subclauses 6(a)(i) through (v).
(c) All of Debtor's equipment and fixtures that are based
in the United States of America will be located at all times in Eligible
Jurisdictions (except for equipment and fixtures described in subclauses
6(a)(ii), 6(a)(iii), and 6(a)(iv) above which, to the extent they are not
located in Eligible Jurisdictions, shall at no time constitute a material
portion of the Debtor's equipment and fixtures based in the United States).
The term "Eligible Jurisdictions" means at any time with respect to any
Collateral (i) the states listed on Exhibit B attached hereto or, if any such
state is designated on Exhibit B as a "Non-Central Filing State", the counties
or parishes listed on Exhibit B and (ii) any other jurisdiction in the United
States in which Collateral is located so long as Debtor delivers to Secured
Party written notice that Collateral is, or is to be, located in that
jurisdiction within sufficient time to permit Secured Party to continue its
security interest in such Collateral on a continuous basis and Debtor provides
to Secured Party financing statements or other documents reasonably required by
Secured Party to perfect a first priority security interest (subject only to
Permitted Liens) in such Collateral.
7. Labor Standards Compliance. Debtor and each of its
Subsidiaries has produced all goods in compliance in all material respects with
the terms and requirements of the Fair Labor Standards Act of 1938 (29 U.S.C.
Section 201 et seq.), as amended.
E. GENERAL COVENANTS. Debtor covenants and agrees as follows:
1. Operation of the Collateral. Debtor agrees to maintain and
use the Collateral solely in the conduct of its own business. All Collateral
will be maintained in a careful and proper manner, and in conformity in all
material respects with all applicable
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<PAGE> 6
material permits or licenses. Debtor shall comply in all respects with all
applicable statutes, laws, ordinances and regulations, if failure to so comply
could reasonably be expected to have a Material Adverse Effect. Debtor shall
not use the Collateral in any unlawful manner or for any unlawful purposes (if
use in an unlawful manner or for an unlawful purpose could reasonably be
expected to have a Material Adverse Effect), or in any manner or for any
purpose that would expose the Collateral to unusual risk (taking into account
the nature of the oil and gas drilling business), or to penalty, forfeiture or
capture, or that would render void, inoperative or unenforceable any insurance
in connection with the Collateral. Notwithstanding the foregoing, it is
understood and agreed that (i) the Collateral is used in the oil and gas
drilling business, (ii) a portion of the inventory is located in foreign
countries which present risk of political expropriation, civil unrest or other
upheaval, (iii) certain of Debtor's sales agents in foreign countries may be or
could become undercapitalized and involve inherent credit risk and (iv)
Debtor's inventory of rental tools is not covered by insurance.
2. Condition. Debtor shall maintain, service and repair the
Collateral so as to keep it in good working order and condition in all material
respects. Debtor shall replace within a reasonable time all parts that may be
worn out, lost, destroyed or otherwise rendered unfit for use, with appropriate
replacement parts except that tools which, in the ordinary course of its
business, Debtor determines to be worn out or obsolete may be sold as scrap.
Debtor shall obtain and maintain in good standing at all times all applicable
material permits, licenses, registrations and certificates relating to the
Collateral in all material respects.
3. Assessments. Debtor shall promptly pay when due all taxes,
assessments, license fees, registration fees, and governmental charges levied
or assessed against Debtor or with respect to the Collateral or any part
thereof except for those being contested in good faith by appropriate
proceedings and against which Debtor has set up adequate reserves in accordance
with GAAP.
4. No Encumbrances. Debtor agrees not to suffer or permit any
charge, lien, security interest, adverse claim or encumbrance of any and every
nature whatsoever against the Collateral or any part thereof except for (a) the
security interest in favor of Secured Party granted herein, and (b) Permitted
Liens.
5. No Transfer. Except as otherwise provided herein or in the
Loan Agreement with respect to inventory, Debtor shall not, without the prior
written consent of Secured Party, sell, assign, transfer, lease, charter,
encumber, pledge, mortgage, hypothecate or dispose of the Collateral, or any
part thereof, or interest therein, or offer or contract to do any of the
foregoing except for (i) sales and dispositions of Collateral which is worn
out, obsolete or not necessary to Debtor's operations and which occur in the
ordinary course of Debtor's business, (ii) Debtor may transfer inventory and
related support equipment to its Affiliates in the ordinary course of business
for use in foreign countries, as long as Debtor is in compliance with paragraph
D6(c) hereof, and (iii) Debtor may from time to time hereafter sell inventory
in the ordinary course of business on terms and may then sell any promissory
note or other instrument accepted in payment (and any letter of credit or other
collateral therefor) at such discount from face amount as Debtor may agree.
Debtor agrees to notify Secured Party promptly upon the sale of a store point
or sales location, such notice to include the aggregate sales price and a copy
of the applicable sales agreement(s) and related documents.
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<PAGE> 7
6. Notices and Reports. In addition to those notices required by
Debtor to Secured Party under the terms of the Loan Agreement, Debtor shall
promptly notify Secured Party in writing of any change in the name, identity or
structure of Debtor, any charge, lien, security interest, claim or encumbrance
asserted against the Collateral (other than Permitted Liens). Debtor shall
promptly notify Secured Party of any additions or changes to Schedules I
through V hereto. Debtor shall furnish such other reports, information and
data regarding the Collateral and such other matters as Secured Party may
reasonably request from time to time. Secured Party is authorized to file at
any time and from time to time one or more financing statements, continuation
statements, filings with the United States Patent and Trademark Office, United
States Copyright Office, and other similar office or agency, or other documents
for the purpose of perfecting, confirming, continuing, enforcing or protecting
the security interests, pledges, assignments and other rights granted to
Secured Party hereunder.
7. Landlord's Waivers. Debtor shall furnish, at Debtor's sole
cost and expense, to Secured Party, if requested, landlord's waivers of all
liens with respect to any Collateral covered by this Agreement that is or may
be located upon leased premises, such landlord's waivers to be in such form and
upon such terms as are reasonably acceptable to Secured Party.
8. Additional Filings. Debtor agrees to execute and deliver such
financing statement or statements, or amendments thereof or supplements
thereto, or other documents as Secured Party may from time to time reasonably
require in order to comply with the Texas Uniform Commercial Code (or other
applicable state law of the jurisdiction where any of the Collateral is
located) and the laws of the United States of America and to preserve, protect
and, if necessary, perfect the Secured Party's rights to the Collateral.
9. Protection of Collateral. Secured Party, at its option, at
anytime after the occurrence and during the continuance of an event of default,
but without any obligation whatsoever to do so, may (a) discharge taxes,
claims, charges, liens, security interests, assessments or other encumbrances
of any and every nature whatsoever (other than Permitted Liens) at any time
levied, placed upon or asserted against the Collateral, or any portion thereof,
(b) place and pay for insurance on the Collateral, or any portion thereof, to
the extent such insurance is required by the Loan Agreement, including
insurance that only protects Secured Party's interest, (c) pay for the repair,
improvement, testing, maintenance and preservation of the Collateral, or any
portion thereof, (d) pay any filing, recording, registration, licensing or
certification fees or other fees and charges related to the Collateral, or any
portion thereof, or (e) take any other action to preserve and protect the
Collateral, or any portion thereof, and Secured Party's rights and remedies
under this Agreement as Secured Party may deem necessary or appropriate.
Debtor agrees that Secured Party shall have no duty or obligation whatsoever to
take any of the foregoing actions. Debtor agrees to promptly reimburse Secured
Party upon demand for any payment made or any expense incurred by the Secured
Party pursuant to this authorization. These payments and expenditures, together
with interest thereon from date incurred until paid by Debtor accruing at a
rate equal to the Default Rate which Debtor agrees to pay, shall constitute
additional Obligations and shall be secured by and entitled to the benefits of
this Agreement.
10. Inspection. Debtor shall permit Secured Party by or through
any of its officers, agents, attorneys or accountants, to inspect and examine
the Collateral, or any
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<PAGE> 8
portion thereof, wherever located, and to examine and make copies and abstracts
from Debtor's books and records.
11. Insurance. Debtor shall have and maintain insurance in
accordance with the terms of the Loan Agreement. For so long as no event of
default has occurred and is continuing, any proceeds of insurance with respect
to Collateral may be paid to Debtor, provided that if any such payment exceeds
$200,000, Debtor covenants to use such proceeds to repair or replace the
Collateral, or to pay the same to Secured Party to be applied to payment of the
Obligations, and Debtor shall provide to Secured Party such evidence and
assurance of such use as Secured Party may require; provided, however, that if
an event of default has occurred and is continuing, all proceeds of insurance
with respect to Collateral shall be paid to Secured Party. Upon the occurrence
and during the continuance of an event of default (i) Secured Party is hereby
authorized to act as attorney for Debtor in obtaining, adjusting, settling and
canceling such insurance and endorsing any drafts or instruments, (ii) Secured
Party shall be authorized to apply the proceeds from any insurance to the
Obligations secured hereby, and (iii) Debtor specifically authorizes Secured
Party to disclose information from the policies of insurance to prospective
insurers regarding the Collateral.
12. Further Assurances. Debtor shall do, make, procure, execute
and deliver all such additional and further acts, things, deeds, interests and
assurances as Secured Party may reasonably require from time to time to
protect, assure and enforce Secured Party's rights and remedies granted under
this Agreement.
F. ADDITIONAL PROVISIONS REGARDING ACCOUNTS. The following
provisions shall apply to all accounts included within the Collateral:
1. Definitions. The term "account," as used in this Agreement,
shall have the same meaning as set forth in the Uniform Commercial Code of
Texas in effect as of the date of execution hereof, and as set forth in any
amendment to the Uniform Commercial Code of Texas to become effective after the
date of execution hereof, and also shall include, but shall not be limited to,
all present and future notes, instruments, documents, general intangibles,
drafts, acceptances and chattel paper of Debtor, and the proceeds thereof.
2. Additional Warranties. The Debtor will maintain its accounts
receivable in a manner consistent with normal business practices, including
normal terms and conditions for payment, for companies engaged in similar
operations in similar jurisdictions. Debtor represents and warrants as to each
and all of its accounts as follows: (a) substantially all of Debtor's accounts
arise out of a bona fide sale or lease of goods delivered to, or out of and for
services actually rendered by Debtor to, the account debtor named in the
account; and (b) Debtor is the owner thereof free and clear of any charges,
liens, security interests, adverse claims and encumbrances of any and every
nature whatsoever except Permitted Liens.
3. Collection of Accounts. Secured Party shall have the right at
any time after the occurrence and during the continuance of an event of
default, in its own name or in the name of the Debtor to require Debtor
forthwith to transmit all proceeds of collection of accounts to Secured Party,
to notify any and all account debtors to make payments of the accounts directly
to Secured Party, to demand, collect, receive, receipt for, sue for, compound
and give acquittal for, any and all amounts due or to become due on the
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accounts and to endorse the name of the Debtor on all commercial paper given in
payment or part payment hereof, and in Secured Party's discretion to file any
claim or take any other action or proceeding that Secured Party may deem
necessary or appropriate to protect and preserve and realize upon the accounts
and related Collateral. Unless and until Secured Party elects to collect
accounts, and the privilege of Debtor to collect accounts is revoked by Secured
Party in writing, Debtor shall continue to collect accounts. In order to
assure collection of accounts in which Secured Party has a security interest
(or pledge or assignment as applicable) hereunder, Secured Party may at any
time after the occurrence and during the continuance of an event of default
notify the post office authorities to change the address for delivery of mail
addressed to Debtor to such address as Secured Party may designate, and to open
and dispose of such mail and receive the collections of accounts included
herewith. Secured Party shall have no duty or obligation whatsoever to collect
any account, or to take any other action to preserve or protect the Collateral;
however, should Secured Party elect to collect any account or take possession
of any Collateral, Debtor releases Secured Party from any claim or claims for
loss or damage arising from any act or omission in connection therewith,
including, without limitation, any claim or claims for loss or damage arising,
in whole or in part, from any negligent act or omission of Secured Party, its
officers, directors, employees, agents, successors or assigns, except for the
Secured Party's gross negligence or willful misconduct.
4. Identification and Assignment of Accounts. At any time after
the occurrence and during the continuation of an event of default and upon the
written request of Secured Party, Debtor shall take such action and execute and
deliver such documents as Secured Party may reasonably request in order to
identify, confirm, mark, segregate and assign accounts and to evidence Secured
Party's interest in same. Without limitation of the foregoing, upon the
written request of Secured Party, Debtor agrees to assign accounts to Secured
Party, identify and mark accounts as being subject to the security interest (or
pledge or assignment as applicable) granted hereby, mark Debtor's books and
records to reflect such assignments, and forthwith to transmit to Secured Party
in the form as received by Debtor any and all proceeds of collection of such
accounts. The provisions of this paragraph F.4 are in addition to, and do not
limit, the provisions of paragraph H.2 of this Security Agreement.
5. Account Reports. Debtor will deliver to Secured Party written
reports in form and content satisfactory to Secured Party, with respect to
accounts and such other information as set forth in the Loan Agreement or as
Secured Party may request from time to time.
G. ADDITIONAL PROVISIONS REGARDING INVENTORY. The following
provisions shall apply to all inventory included within the Collateral:
1. Revenue Producing Assets Reports. Upon Secured Party's
request, Debtor will deliver to Secured Party the written report setting forth
a description of the Revenue Producing Assets of the Borrower and their
respective values (on an original cost basis) and their respective locations.
Debtor shall immediately notify Secured Party of any matter affecting the
Revenue Producing Assets which creates a Material Adverse Effect.
2. Use of Inventory. Unless and until the privilege of Debtor to
use inventory in the ordinary course of Debtor's business is revoked by Secured
Party upon the occurrence and during the continuance of an event of default,
Debtor may use the inventory in any manner not inconsistent with this
Agreement, may sell or lease that part
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of the Collateral consisting of inventory provided that all such sales and
leases are in the ordinary course of business, and may use and consume any raw
materials or supplies that are necessary in order to carry on Debtor's
business. A sale in the ordinary course of business does not include a
transfer in partial or total satisfaction of a debt.
3. Accounts as Proceeds. All accounts that are proceeds of the
inventory included within the Collateral shall be subject to all of the terms
and provisions hereof pertaining to accounts.
4. Protection of Inventory. Debtor shall take all action
necessary to protect and preserve the inventory in all material respects.
H. ADDITIONAL PROVISIONS REGARDING CHATTEL PAPER. The following
provisions shall apply to chattel paper and similar property included within
the Collateral:
1. Representations and Warranties. Debtor represents and
warrants to Secured Party that: (a) Debtor is the owner of all inventory or
has a perfected first and prior security interest or lien on any such
inventory, except for the rights of any party to whom the inventory was sold,
rented or leased ("Customer"), any security interests or liens thereon in favor
of Secured Party and Permitted Liens; and (b) all chattel paper and any and all
documents related thereto are genuine and in all respects what they purport to
be and arise out of bona fide sales, rentals or leases of goods sold, rented or
leased; and (c) the Debtor will maintain its chattel paper in a manner
consistent with normal business practices, including normal terms and
conditions for payment, for companies engaged in similar operations in similar
jurisdictions.
2. Legend. Within five (5) Business Days from the date of
execution hereof, Debtor (a) shall cancel and strike through any and all
legends placed on the chattel paper and any documents relating thereto
declaring a security interest in favor of any creditor (other than Secured
Party), and (b) shall stamp, imprint or type in bold print and in a conspicuous
place on all chattel paper with Debtor as the lessor and each document relating
thereto the following legend:
"THIS CHATTEL PAPER IS SUBJECT TO A SECURITY INTEREST IN FAVOR
OF WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, AS AGENT FOR THE BENEFIT OF
THE BANKS (AS SUCH TERMS IS DEFINED IN THAT CERTAIN THIRD AMENDED AND RESTATED
CREDIT AGREEMENT DATED AS OF ___________, 1997, AMONG DAILEY PETROLEUM
SERVICES, CORP., THE FINANCIAL INSTITUTIONS PARTY THERETO FROM TIME TO TIME
(THE "BANKS"), AND THE AGENT, AS THE SAME MAY BE AMENDED OR RESTATED AT ANY
TIME."
Debtor shall immediately stamp, print or type such legend in bold and in a
conspicuous place on all chattel paper hereafter made with Debtor as lessor.
Without limiting the right of inspection granted to Secured Party elsewhere in
this Agreement, Debtor shall permit Secured Party by or through any of its
officers, agents, attorneys or accountants, to visit the offices of Debtor and
inspect and examine the chattel paper, or any portion thereof, all at
reasonable times during normal business hours upon reasonable advance notice,
or at the option of Secured Party, to require Debtor to deliver to Secured
Party copies of any or all such chattel paper, all in order to assure
compliance with the covenants in this subparagraph 2.
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3. Assignment of Perfected Interests. In the event Debtor files
or causes to be filed or recorded any financing statement or similar filing to
perfect its security interest or lien in any of the inventory, Debtor shall
reflect on such filing the assignment of such security interest to Secured
Party or at the election of Secured Party, Debtor shall execute and deliver to
Secured Party assignments of any such financing statements which Secured Party
may record, at the expense of Debtor.
4. Location of Chattel Paper. Debtor shall keep all chattel
paper and related records at its executive office located at the address of
Debtor set forth on the signature page of the Loan Agreement and shall not
relocate any of such chattel paper or related records without the prior written
consent of Secured Party.
I. ADDITIONAL PROVISIONS REGARDING RENTAL AGREEMENTS AND SIMILAR
COLLATERAL. The following provisions shall apply to all Rental Agreements
included within the Collateral:
1. General Representations and Warranties. Debtor represents and
warrants to Secured Party that Debtor has full right, power and authority to
assign its interest in the Rental Agreements and Debtor has not assigned or
granted a security interest in any of the Rental Agreements to anyone other
than Secured Party, and (b) Debtor's interest in the Rental Agreements is not
subject to any claim, setoff, lien, deduction or encumbrance of any nature,
except Permitted Liens.
2. Retention of Obligations. Neither this assignment nor any
action or actions on the part of Secured Party shall constitute an assumption
of any obligation on the part of Secured Party under the Rental Agreements and
Debtor shall continue to be liable for all obligations thereunder, Debtor
hereby agreeing to perform each and all of its obligations under the Rental
Agreements and to indemnify and hold Secured Party free and harmless from and
against any loss, costs, liability or expense (including but not limited to
reasonable attorneys' fees, the allocated costs of staff counsel and
accountants' fees) resulting from any failure of Debtor to so perform.
3. Rights to Assume Upon Event of Default. On or after the
occurrence and during the continuance of an event of default, Secured Party
may, but shall not be obligated to, assume all of the rights and obligations of
Debtor under any or all of the Rental Agreements. Debtor agrees that it will,
upon the request of Secured Party from time to time and at any time after an
event of default has occurred and is continuing, execute and deliver such
documents and instruments as Secured Party or its counsel may deem necessary or
desirable to effect the assignment of said Rental Agreements to Secured Party
or its nominee. Such assumption, however, shall not relieve Debtor of its
obligations under the Rental Agreements, and Debtor shall remain liable for all
costs and expenses incurred in connection with the performance of its
obligations under the Rental Agreements. If Secured Party shall pay the unpaid
amounts due under any Rental Agreement, Secured Party shall thereupon be
subrogated to all the Debtor's rights against the contracting party with
respect to such payment. Under no circumstances shall Secured Party be deemed
by any party to have assumed Debtor's rights and obligations under a Rental
Agreement unless and until such written notice is delivered to the lessee
thereunder in accordance with the foregoing.
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4. Protection of Rights. Secured Party shall have the right at
any time after the occurrence and during the continuance of an event of default
(but shall have no obligation) to take in its name or in the name of Debtor or
otherwise such action as Secured Party may at any time or from time to time
determine to be necessary to cure any default under the Rental Agreements or to
protect the rights of Debtor or Secured Party thereunder. Secured Party shall
incur no liability to Debtor if any action taken by Secured Party or on its
behalf in good faith pursuant to this Agreement shall prove to be in whole or
in part inadequate or invalid. Debtor agrees to hold Secured Party free and
harmless from and against any loss, cost, liability or expense (including but
not limited to reasonable attorney's fees and expenses) to which Secured Party
may be exposed, or that Secured Party may incur, in exercising any of its
rights under this Agreement except for any such losses, costs, liabilities or
expenses incurred as a result of the Secured Party's gross negligence or
willful misconduct.
5. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party its true and lawful attorney-in-fact in Debtor's name or
in Secured Party's name or otherwise, upon the occurrence and during the
continuation of an event of default, to enforce, all rights of Debtor under the
Rental Agreements, and, or, to transfer the Rental Agreements to Secured Party
pursuant to paragraph 3 of this Section I. It is hereby recognized that the
power of attorney herein granted is coupled with an interest and shall not be
revocable.
6. Disposition. Debtor will not enter into any other security
agreement covering the Collateral and will not permit any other financing
statement covering the same to be on file so long as any of the Obligations
remain unpaid, except any such security agreement or financing statement in
favor of Secured Party. Except as provided in clause (iii) of paragraph E.5 of
this Agreement, Debtor will not sell or offer to sell or transfer any Rental
Agreements or rights under Rental Agreements as long as the Obligations remain
unpaid.
7. Maintenance of Rental Agreements. Debtor, at its expense,
shall perform and observe all terms and provisions of the Rental Agreements to
be performed and observed by it, maintain the Rental Agreements in full force
and effect and enforce the Rental Agreements in accordance with their terms
where Debtor's failure to do any such item would have a Material Adverse
Effect. Debtor will give Secured Party access to copies of all notices,
requests and other documents received by Debtor under or pursuant to the Rental
Agreements. Debtor shall not, without the prior written consent of Secured
Party, cancel or terminate the Rental Agreements, or consent to or accept any
cancellation or termination thereof, amend or otherwise modify the Rental
Agreements in any manner, give any consent, waiver or approval thereunder or
waive any default under or breach of any Rental Agreements except (in any such
event) in the ordinary course of Debtor's business.
8. Receipt of Proceeds in Trust by Debtor. In the event Debtor
shall receive any moneys, income, payments or benefits attributable or accruing
to the Rental Agreements, Debtor will hold the same in trust for Secured Party
and will not commingle the same with any other property or moneys of Debtor and
will promptly deliver the same to Secured Party in the form received, such sums
to be applied toward the payment of the principal balance of the Obligations,
or, in Secured Party's sole discretion, released to Debtor; provided, however,
that Debtor may retain, use, commingle, and dispose of any
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moneys received before the occurrence and during the continuance of an event of
default from payment of any moneys, income, payments or benefits attributable
to the Rental Agreements for any lawful corporate purpose and such moneys shall
not constitute part of the moneys held in trust.
9. Form of Rental Agreements. All Rental Agreements will be in
substantially the form previously delivered to Secured Party or in such other
form or forms reasonably acceptable to the Secured Party. Debtor shall not
enter into any Rental Agreements prohibiting their assignability.
10. Collection of Accounts and General Intangibles. In addition
to the foregoing, without assuming any rights or obligations under any of the
Rental Agreements, Secured Party shall have the right in its own name or in the
name of the Debtor, after the occurrence and during the continuance of an event
of default, to require Debtor forthwith to transmit all proceeds of Rental
Agreements not otherwise received in trust hereunder to Secured Party, to
notify any and all parties to said Rental Agreements to make payments
thereunder directly to Secured Party, to demand, collect, receive, receipt for,
sue for, compound and give acquittal for, any and all amounts due or to become
due thereunder and to endorse the name of Debtor on all commercial paper given
in payment or part payment thereof, and in Secured Party's discretion to file
any claim or take any other action or proceeding that Secured Party may deem
necessary or appropriate to protect and preserve and realize upon the Rental
Agreements. Secured Party shall have no duty or obligation whatsoever to
collect any amounts under the Rental Agreements, or to take any other action to
preserve or protect the Rental Agreements; however, should Secured Party elect
to collect any amounts under the Rental Agreements or take any other action to
protect or preserve same, Debtor releases Secured Party from any claim or
claims for loss or damage arising from any act or omission in connection
therewith, except for Secured Party's gross negligence or willful misconduct
BUT INCLUDING, WITHOUT LIMITATION, ANY CLAIMS ARISING OUT OF OR RELATING TO, IN
WHOLE OR IN PART, THE NEGLIGENT ACTS OR OMISSION OF SECURED PARTY.
J. ADDITIONAL PROVISIONS REGARDING INTELLECTUAL PROPERTY.
1. Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms have the following meanings:
"Copyrights" means all of the following now or hereafter owned
by Debtor: (i) all copyright in any original work of authorship fixed in any
tangible medium of expression, now known or later developed, (ii) all
registrations and applications for registration of any such copyright in the
United States or any other country or political subdivision, including, without
limitation, registrations, recordings, supplemental registrations and
applications in the United States Copyright Office, and (iii) the right to sue
for past, present and future infringement of the foregoing.
"Copyright License" means any written agreement executed or to
be executed by Debtor granting any right to any third party under any Copyright
now or hereafter owned by Debtor, or granting any right to Debtor under any
Copyright now or hereafter owned by any third party.
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"Intellectual Property General Intangibles" means all
intangible intellectual or other similar property of Debtor of any kind or
nature now owned or hereafter acquired by Debtor, including without limitation,
inventions, designs, Patents, Copyrights, Licenses, Trademarks and associated
goodwill, Trade Secrets, confidential or proprietary technical and business
information, know-how, improvements, technical developments, know-how or other
data or information, software, databases and related documentation,
registrations, franchises, and all other intellectual or other similar property
rights not otherwise described above.
"License" means any Patent License, Trademark License,
Copyright License or other intellectual property license as to which Debtor is
a party.
"Patent License" means any written agreement executed or to be
executed by Debtor granting to any third party any right to practice any
invention disclosed and claimed in a Patent, now or hereafter owned by Debtor,
or granting to Debtor any right to practice any invention disclosed and claimed
in a Patent, now or hereafter owned by any third party.
"Patents" means all of the following now or hereafter owned by
Debtor: (i) all extant letters patent of the United States or any other country
or political subdivision, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country or
political subdivision, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or any other
country or political subdivision, (ii) all reissues, continuations, divisions,
continuations-in-part or extensions thereof, (iii) all inventions disclosed and
claimed therein, including the right to make, use and or sell the inventions
disclosed and claimed therein, and (iv) the right to sue for past, present and
future infringement of the foregoing.
"Intellectual Property Proceeds" means any consideration
received by Debtor from the sale, exchange, lease or other disposition of any
asset or property which constitutes Collateral, any value received as a
consequence of the possession of any Collateral and any payment received from
any insurer or other person or entity as a result of the destruction, loss,
theft or other involuntary conversion of whatever nature of any asset or
property which constitutes Collateral, any claim of Debtor which constitutes
Collateral, any claim of Debtor against third parties (i) for past, present or
future infringement of any Patent or Patent License, or (ii) for past, present
or future infringement or dilution of any Trademark or Trademark License or for
injury to the goodwill associated with any Trademark or Trademark licensed
under any Trademark License, or (iii) for past, present or future infringement
of any Copyright or Copyright License, and any and all other amounts from time
to time to time paid or payable under or in connection with any of the
Collateral.
"Trademark License" means any written agreement executed or to
be executed by Debtor granting to any third party any right to use any
Trademark now or hereafter owned by Debtor, or granting to Debtor any right to
use any Trademark now or hereafter owned by any third party.
"Trademarks" means all of the following now or hereafter owned
by Debtor: (i) all trademarks, service marks, trade names, corporate names,
company names, indicia, business source identifiers, business names, fictitious
business names, trade styles, trade
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dress, logos, other source or business identifiers, designs and general
intangibles of like nature all of the type for which exclusive rights may be
provided under the laws of the applicable jurisdiction, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office, any State of the United States or any other country or any
political subdivision thereof, (ii) all goodwill associated therewith arising
in or relating to the ordinary course of business of Debtor, (iii) all
extensions or renewals thereof, and (iv) the right to sue for past, present and
future infringement of the foregoing.
"Trade Secrets" means all trade secrets and other confidential
or proprietary technical and business information, now or hereinafter owned by
Debtor, including, without limitation, manufacturing processes, formulas,
compositions, data and other technical information and know-how all of the type
for which exclusive rights may be provided under the laws of the applicable
jurisdiction, relating to the products listed on Schedule V hereto, as it may
be amended from time to time, and any improvements thereon or changes thereto.
2. Trademark. Debtor (either itself or through licensees) will,
for each Trademark material to the conduct of Debtor's business, (i) continue
to use such Trademark on each and every trademark class of goods applicable to
its current line of products and/or services as reflected in its current
catalogs, brochures and price lists in order to maintain such Trademark in full
force free from any claim of abandonment for nonuse, (ii) maintain the quality
of products and services offered under such Trademark, (iii) employ such
Trademark with the notice of application or Federal registration as the case
may be, (iv) not use such Trademark in violation of any third-party rights and
(v) not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby such Trademark may become abandoned or
invalidated.
3. Patent. Debtor (either itself or through licensees) will, for
each Patent, not do any act, or omit to do any act, whereby any Patent which is
material to the conduct of Debtor's business may become invalidated or
dedicated, and shall continue to mark any products covered by a Patent with the
relevant patent number as required by the patent laws.
4. Copyright. Debtor (either itself or through licensees) will,
for each work covered by a Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as required
under the copyright laws.
5. Notification. Debtor shall notify Secured Party immediately
if it knows or has reason to know that any Patent, Trademark or Copyright
material to the conduct of its business may become abandoned or dedicated, or
of any adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any Proceeding in
the United States Patent and Trademark office, United States Copyright Office
or any court) regarding such ownership of any such material Patent, Trademark
or Copyright, its right to register the same, or to keep and maintain the same.
6. Filings. In no event shall Debtor, either itself or through
any agent, employee, licensee or designee, file an application for any Patent,
Trademark or Copyright with the United States Patent and Trademark Office,
United States Copyright Office or
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any similar office or agency in the United States of America or any state
thereof or enter into a License, unless it timely executes, delivers and files
for record, at its expense, in the United States Patent and Trademark Office,
the United States Copyright Office, or similar office or agency of the United
States of America or any state thereof, as applicable, notice of this security
interest in the form attached hereto as Exhibit "C" or an equivalent thereof
("Notice of Security Interest"). Debtor, at Debtor's expense, shall execute,
deliver and file for record from time to time at Secured Party's request, but
not more often than annually, (a) Notice of Security Interest in the United
States Patent and Trademark Office and the Library of Congress, as appropriate,
to evidence and perfect this security interest in each Patent, application for
Patent, Trademark, application or registration of Trademark, Patent License and
Trademark License, provided no such Notice of Security Interest in favor of
Secured Party is on file with such Office or Library, and (b) Notice of
Security Interest in the United States Copyright Office to evidence and perfect
this security interest in each Copyright, Copyright License and application or
registration of Copyright, provided no such Notice of Security Interest in
favor of Secured Party is on file with such Office. Each Notice of Security
Interest shall completely and accurately describe such Collateral and shall
otherwise fully comply with the rules of the respective offices in which they
are filed. Upon request of Secured Party, Debtor shall execute and deliver any
and all other agreements, instruments, documents, financing statements or
amendments or supplements thereto, notices of security interest and papers as
Secured Party may reasonably request to evidence and perfect Secured Party's
security interest in any such Patent, Trademark, Copyright or License, and the
goodwill and general intangibles of Debtor relating thereto or represented
thereby, and Debtor hereby constitutes Secured Party its attorney-in-fact upon
the occurrence and during the continuance of an event of default to execute and
file such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed; such power, being coupled with an interest, is
irrevocable until the Obligations are paid in full.
7. Maintenance. Debtor will take all necessary steps that are
consistent with the general practice of companies in the Debtor's industry in
any proceeding before the United States Patent and Trademark Office, United
States Copyright Office or any similar office or agency, to maintain and pursue
each application material to the conduct of Debtor's business relating to the
Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or
registration) and to maintain each registration material to the conduct of
Debtor's business of the Patents, Trademarks and Copyrights including, without
limitation, filing of application for renewal, affidavits of use, affidavits of
incontestability and maintenance fees, and, where appropriate, to initiate
opposition, interference and cancellation proceedings against third parties.
8. Infringement, Misappropriation or Dilution. In the event that
any Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of Debtor's business is believed infringed, misappropriated or diluted
by a third party, Debtor shall notify Secured Party within fifteen (15) days
after it learns thereof and shall, if consistent with good business practice,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
9. Validity. To the best of Debtor's knowledge, each of the
Patents, Trademarks, Copyrights and Licenses which are material to the Debtor's
business are valid and enforceable and the Debtor has notified the Secured
Party in writing of all prior
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licenses, conveyances and transfers thereof (including public uses and sales
within one year of the date hereof) of which it is aware and which are in
effect and of all suits pending, or litigation threatened of which the Debtor
has actual knowledge which relate in any way to the Patents, Trademarks,
Copyrights and Licenses that are material to the Debtor's business.
K. EVENTS OF DEFAULT. For purposes of this Agreement, the terms
"default" and "event of default" shall mean a "Default" and "Event of Default,"
respectively, as each of those terms are defined in the Loan Agreement.
L. REMEDIES. Upon the occurrence of and during the continuance
of an event of default, Secured Party, at its option, shall be entitled to
exercise any one or more of the remedies set forth in the Loan Agreement, any
of the other Loan Documents, any afforded at law or in equity and any of the
following remedies (all of which are cumulative):
1. Remedies. Secured Party shall have all of the rights and
remedies provided for in this Agreement, in the Loan Agreement and in any of
the other Loan Documents, the rights and remedies in the Uniform Commercial
Code of Texas, or to the extent the laws of states other than Texas would
apply, then any rights and remedies provided by the laws of those
jurisdictions, and any and all of the rights and remedies at law and equity,
all of which shall be deemed cumulative. Without limiting the generality of
the foregoing, Debtor agrees that Secured Party shall have the right to (a)
require Debtor to assemble the Collateral, or any portion thereof, and make it
available to Secured Party at a place designated by Secured Party that is
reasonably convenient to both parties, which Debtor agrees to do; (b) take
possession of the Collateral, or any portion thereof, with or without process
of law, and, in this connection, enter any premises where the Collateral, or
any portion thereof, is located to remove same, to render it unusable, or to
dispose of same on such premises; (c) sell, lease or otherwise dispose of the
Collateral, or any portion thereof, by public or private proceedings, for cash
or credit, without assumption of credit risk and Secured Party may conduct one
or multiple sales of such Collateral, or any portion thereof, without limiting,
releasing or affecting the right of Secured Party to conduct other sales with
respect to the remaining Collateral; and/or (d) collect and receipt for,
compound, compromise, and settle, and give releases, discharges and
acquittances with respect to, any and all amounts owned by any person or entity
with respect to the Collateral, or any portion thereof. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will send Debtor
reasonable notice of the time and place of any public sale or of the time after
which any private sale or other disposition will be made. Any requirement of
reasonable notice to Debtor shall be met if such notice is mailed, first class
mail, postage prepaid, to Debtor at the address of Debtor designated at the
beginning of this Agreement, at least ten (10) days before the day of any
public sale or at least ten (10) days before the time after which any private
sale or other disposition will be made.
2. Appointment of Secured Party as Attorney-in-Fact. Debtor
irrevocably appoints Secured Party and any officer or agent thereof, with a
full power of substitution, as its true and lawful attorney-in-fact to take any
and all appropriate action in Secured Party's discretion and to execute any and
all documents and instruments which Secured Party may deem necessary and
desirable to accomplish the purpose of this Agreement, including without
limitation, to bring suit to enforce or defend any of the Intellectual Property
General Intangibles; to demand, collect, recover and give receipts with respect
to
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any sums due under any of the Collateral and to receive, endorse and collect
any drafts, instruments or documents of title with respect to any Collateral,
to remove any Collateral from the property owner, encumbrancer or other person
having an interest in the property where any Collateral is located, and in
connection therewith, Secured Party is authorized to show a copy of this
Agreement to such person as evidence of Debtor's appointment of Secured Party
as Debtor's agent and lawful attorney-in-fact and of Debtor's authorization to
allow Secured Party to remove any collateral from said property. This power of
attorney is a power coupled with an interest and shall be irrevocable.
3. Expenses. Debtor shall be liable for and agrees to pay the
reasonable expenses incurred by Secured Party in enforcing its rights and
remedies, in retaking, holding, testing, repairing, improving, selling, leasing
or disposing of the Collateral, or any portion thereof, or like expenses,
including, without limitation, attorneys' fees and out-of-pocket legal expenses
incurred by Secured Party. These expenses, together with interest thereon from
the date incurred until paid by Debtor at the Default Rate, which Debtor agrees
to pay, shall constitute additional Obligations and shall be secured by and
entitled to the benefits of this Agreement.
4. Proceeds; Surplus; Deficiencies. Proceeds received by Secured
Party from disposition of the Collateral, or any portion thereof, shall be
applied toward Secured Party's expenses and other Obligations in such order or
manner as Secured Party may elect. Debtor shall be entitled to any surplus if
one results after lawful application of the proceeds. To the extent not
prohibited by applicable laws, Debtor shall remain liable for any deficiency.
5. Remedies Cumulative. The rights and remedies of Secured Party
are cumulative and the exercise of any one or more of the rights or remedies
shall not be deemed an election of rights or remedies or a waiver of any other
right or remedy. Secured Party may remedy any default and may waive any
default without waiving the default remedied or without waiving any other prior
or subsequent default.
M. OTHER AGREEMENTS.
1. Savings Clause. The usury savings clause provided in Section
11.6 of the Loan Agreement is incorporated by reference into this Agreement and
is made a part hereof for all purposes; it being agreed that all rights and
remedies of Secured Party hereunder are subject to and entitled to the benefit
of the terms of such usury savings clause.
2. WAIVERS. DEBTOR AND ANY MAKER, ENDORSER, GUARANTOR, SURETY OR
OTHER PARTY LIABLE IN ANY CAPACITY RESPECTING THE OBLIGATIONS HEREBY WAIVE
DEMAND, NOTICE OF INTENTION TO ACCELERATE, NOTICE OF ACCELERATION, NOTICE OF
NONPAYMENT, PRESENTMENT, PROTEST, NOTICE OF DISHONOR AND ANY OTHER SIMILAR
NOTICE WHATSOEVER. THE DEBTOR HEREBY WAIVES ALL RIGHTS TO RECEIVE FROM THE
SECURED POLICY OR THE BANKS A COPY OF ANY FINANCING STATEMENTS OR FINANCING
CHARGE STATEMENT FILED, OR ANY VERIFICATION STATEMENT RECEIVED, AT ANY TIME IN
RESPECT OF THIS AGREEMENT.
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<PAGE> 19
3. Severability. Any provision hereof found to be invalid by
courts having jurisdiction shall be invalid only with respect to such provision
(and then only to the extent necessary to avoid such invalidity). The
offending provision shall be modified to the maximum extent possible to confer
upon Secured Party the benefits intended thereby. Such provision as modified
and the remaining provisions hereof shall be construed and enforced to the same
effect as if such offending provision (or portion thereof) had not been
contained herein, to the maximum extent possible.
4. Use of Copies. Any carbon, photographic or other reproduction
of this Agreement or any financing statement signed by Debtor is sufficient as
a financing statement for all purposes, including without limitation, filing in
any state as may be permitted by the provisions of the Uniform Commercial Code
of such state; provided, however, Secured Party agrees to omit from any copy or
reproduction of this Agreement to be filed for record in any public office the
portion of Schedule III which lists and describes pending applications for
letters patent, it being understood, however, that Secured Party may file, or
cause to be filed, notices of security interest with the United States Patent
and Trademark Office and attach thereto descriptions of any pending
applications for letters patent.
5. Relationship to Other Agreements. This Security Agreement and
the security interests (and pledges and assignments as applicable) herein
granted are in addition to (and not in substitution, novation or discharge of)
any and all prior or contemporaneous security agreements, security interests,
pledges, assignments, liens, rights, titles or other interests in favor of
Secured Party or assigned to Secured Party by others in connection with the
Obligations. All rights and remedies of Secured Party in all such agreements
are cumulative, but in the event of actual conflict in terms and conditions,
the terms and conditions of this Agreement shall govern and control; provided,
however, in the event of any conflict between the terms and conditions of this
Agreement and the Loan Agreement, the terms and conditions of the Loan
Agreement shall govern and control.
6. Notices. Any notice or demand given by Secured Party to
Debtor in connection with this Agreement, the Collateral or the Obligations
shall be given in accordance with Section 11.8 of the Loan Agreement.
7. Headings and Gender. Paragraph headings in this Agreement are
for convenience only and shall be given no meaning or significance in
interpreting this Agreement. All words used herein shall be construed to be of
such gender or number as the circumstances require.
8. Amendments. Neither this Agreement nor any of its provisions
may be changed, amended, modified, waived or discharged orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, amendment, modification, waiver or discharge is sought.
9. Renewal and Extension of Security Interests. This Agreement
and the security interests (and pledges and assignments, as applicable) herein
granted are in addition to (but not in substitution, novation, or discharge
of), and in renewal, extension, ratification, and confirmation of, any and all
prior or contemporaneous security agreements, security interests, pledges,
assignments, liens, rights, titles, or other interests in favor of the Secured
Party including, but not limited to, that certain Second Amended
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<PAGE> 20
and Restated Commercial Security Agreement dated as of December 13, 1995 from
Debtor to Wells Fargo Bank (Texas), National Association (successor to First
Interstate Bank of Texas, N.A.), which Second Amended and Restated Commercial
Security Agreement dated as of December 13, 1995 from Debtor to Wells Fargo
Bank (Texas), National Association (successor to First Interstate Bank of
Texas, N.A.) amended and restated that certain Amended and Restated Commercial
Security Agreement dated as of December 1, 1993 from Debtor to Wells Fargo Bank
(Texas), National Association (successor to First Interstate Bank of Texas,
N.A.), which Amended and Restated Commercial Security Agreement dated as of
December 1, 1993 from Debtor to Wells Fargo Bank (Texas, National Association
(successor to First Interstate Bank of Texas, N.A.) amended and restated that
certain Commercial Security Agreement dated as of February 10, 1992 from Debtor
to Wells Fargo Bank (Texas), National Association (successor to First
Interstate Bank of Texas, N.A.) (such security agreements, as amended from time
to time, being collectively called the "Prior Agreement"), all of which
security interests (and pledges and assignments, as applicable) are hereby
renewed, extended, and carried forward in full force and effect to secure the
prompt payment and performance of the Obligations. This Agreement restates and
amends the Prior Agreement in its entirety.
10. Continuing Agreement. The security interest (and pledges and
assignments as applicable) hereby granted and all of the terms and provisions
in this Agreement shall be deemed a continuing agreement. They shall continue
in full force and effect and remain effective between the parties until the
earlier of (a) the expiration of four (4) years after repayment in full of all
Obligations, or (b) the repayment in full of all Obligations and the giving by
Debtor of ten (10) days' written notice of revocation of this Agreement.
11. Binding Effect. The provisions of this Security Agreement
shall be binding upon the heirs, personal representatives, successors and
assigns of Debtor and the rights, powers and remedies of Secured Party
hereunder shall inure to the benefit of the successors and assigns of Secured
Party; provided, however, nothing herein contained shall permit Debtor to
assign, transfer or convey any or all of the Collateral in violation of the
terms of this Agreement or the Loan Agreement.
12. Release of Certain Collateral. Secured Party hereby agrees
that in the event Debtor hereafter acquires fixed assets subject to a purchase
money Lien or purchase money security interest which is a Permitted Lien to
secure indebtedness permitted by Section 6.1(iii) of the Loan Agreement and the
security agreement pursuant to which Debtor grants such Lien or security
interest prohibits the Secured Party's lien in such fixed assets, then the
security interest granted herein in such fixed assets and the proceeds thereof
shall terminate and be of no further force and effect; provided, however, that
at such time no default or event of default then exists and that upon payment
in full of the indebtedness secured by such purchase money Lien or such
purchase money security interest, the security interest created hereby in such
fixed assets shall automatically be reinstated with full force and effect.
Secured Party hereby agrees to execute such partial release forms as may be
reasonably required from time to time by the lender or lenders who are entitled
to such purchase money Lien or purchase money security interest in accordance
with this Section M.12.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT (A) PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE PERFECTION
OR FORECLOSURE OF LIENS
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<PAGE> 21
AND ENFORCEMENT OF RIGHTS AND REMEDIES AGAINST THE COLLATERAL ARE GOVERNED BY
THE LAWS OF ANY APPLICABLE JURISDICTION OTHER THAN THE STATE OF TEXAS, AND (B)
THAT THE LAWS OF THE UNITED STATES OF AMERICA INCLUDING, WITHOUT LIMITATION,
THE NATIONAL BANK ACT, AND ANY RULES, REGULATIONS OR ORDERS ISSUED OR
PROMULGATED UNDER SUCH LAWS APPLICABLE TO THE AFFAIRS AND TRANSACTIONS ENTERED
INTO BY SECURED PARTY AND THE BANKS, OTHERWISE PREEMPT TEXAS, OR OTHER STATE
LAW, IN WHICH EVENT SUCH FEDERAL LAW SHALL CONTROL.
14. SUBMISSION TO JURISDICTION. WITH RESPECT TO ANY AND ALL
DISPUTES ARISING HEREUNDER, UNDER THE OTHER LOAN DOCUMENTS, OR UNDER ANY OF THE
OTHER INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH
NOT SETTLED, OR SUBJECT TO ARBITRATION, PURSUANT TO THE ARBITRATION PROGRAM
REFERENCED IN SECTION M.15 HEREOF, THE DEBTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY DOCUMENT TO WHICH IT IS A
PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT OF ANY
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE
OF TEXAS, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM AND MAIL), POSTAGE PREPAID, TO IT AT
ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
15. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way
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<PAGE> 22
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of the
Loan Documents. Any party may by summary proceedings bring an action in court
to compel arbitration of a Dispute. Any party who fails or refuses to submit
to arbitration following a lawful demand by any other party shall bear all
costs and expenses incurred by such other party in compelling arbitration of
any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from a
court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in the
substantive laws applicable to the subject matter of the Dispute. Arbitrators
are empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve
all Disputes in accordance with the substantive law of the state of Texas, (ii)
may grant any remedy or relief that a court of the state of Texas could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be
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<PAGE> 23
decided by majority vote of a panel of three arbitrators; provided however,
that all three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
16. Appoint of Agent; Assignment of Security Interest. Wells
Fargo Bank (Texas), National Association, in its capacity as the sole lender
under the Prior Security Agreement ("Wells Fargo") hereby (i) appoints Agent,
and designates and authorizes the Agent to such action on its behalf under the
provisions of the Loan Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to it by the
terms of the Loan Agreement and the other Loan Documents, together with such
powers as are reasonably incidental thereto, and (ii) assigns the liens and
security interests of Wells Fargo (granted pursuant to the Prior Agreement) to
the Secured Party on behalf of and for the ratable benefit of the Banks.
17. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES, THE
OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 24
EXECUTED this 20th day of June, 1997.
DEBTOR:
DAILEY PETROLEUM SERVICES CORP.
By /s/ DAVID T. TIGHE
------------------------------------
David T. Tighe
Vice President
Address: 2507 North Frazier
Conroe, Texas 77303
SECURED PARTY:
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as AGENT for the BANKS
By /s/ THEODORE M. NOWAK
------------------------------------
Theodore M. Nowak
Vice President
Address: 1000 Louisiana
Houston, Texas 77002
WELLS FARGO:
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By /s/ THEODORE M. NOWAK
-----------------------------------
Theodore M. Nowak
Vice President
Address: 1000 Louisiana
Houston, Texas 77002
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<PAGE> 1
EXHIBIT 10.4
GUARANTY AGREEMENT
THIS CONTINUING GUARANTY AGREEMENT (this "Guaranty") by ____________
____________________, a Delaware corporation ("Guarantor"), is in favor of the
Banks (as hereinafter defined) from time to time parties to the Credit
Agreement (as hereinafter defined), including without limitation the Issuing
Bank (as defined in the Loan Agreement) and WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, a national banking association, as agent (the "Agent") for the
banks (the "Banks") from time to time party to that certain Third Amended and
Restated Loan Agreement (as the same may be amended, modified or restated, the
"Loan Agreement"), dated as of June 20, 1997, among Dailey Petroleum Services
Corp., a Delaware corporation (formerly known as Dailey Corporation, a Delaware
corporation, successor by merger to Dailey Petroleum Services Corp., a Delaware
corporation) ("Borrower"), the Agent and the Banks. Capitalized terms used but
not defined herein have the meanings ascribed to them in the Loan Agreement.
W I T N E S S E T H:
WHEREAS, the Agent and the Banks have extended and will extend credit
and financial accommodations to Borrower, whose address is 2507 North Frazier,
Conroe, Texas 77303; and
WHEREAS, Guarantor, as a Subsidiary of Borrower, has determined that
it will derive material direct and indirect economic benefits as a result of
said extensions of credit;
NOW, THEREFORE, (i) to induce the Agent and the Banks, at any time and
from time to time, to loan monies, with or without security, to or for the
account of Borrower, (ii) at the special insistence and request of the Agent
and the Banks, and (iii) for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as
follows:
1. Guarantor hereby absolutely and unconditionally guarantees the
prompt and punctual payment and performance when due (whether at its maturity,
by lapse of time, by acceleration or otherwise) of the Guaranteed Obligations
(hereinafter defined). This is a continuing guaranty applicable to and
guaranteeing any and all indebtedness, obligations, and liabilities of every
kind and character of Borrower to the Agent and the Banks, whether now existing
or hereafter arising, whether due and owing or to become due and owing,
howsoever created or arising or evidenced, whether joint or several, or joint
and several, whether absolute or contingent, as created and evidenced by, and
arising under, the Loan Agreement, the Notes and/or the other Loan documents,
and all renewals, extensions, increases, and rearrangements of such
indebtedness, obligations or liabilities, including any and all amounts owing
or which may hereafter become owing thereon or in connection therewith,
including, without limitation, any and all amounts of principal, interest,
attorneys' fees, costs of collection and other amounts owing thereunder
(hereinafter called the "Guaranteed Obligations").
2. Guarantor hereby waives marshalling of assets and liabilities,
sale in inverse order of alienation, notice of acceptance of this Guaranty and
of any indebtedness,
<PAGE> 2
obligation or liability to which it applies or may apply, and waives
presentment and demand for payment thereof, notice of dishonor or nonpayment
thereof, notice of intention to accelerate, notice of acceleration, protest,
and notice thereof and all other notices and demands, collection or instigation
of suit or any other action by the Agent or the Banks in collection thereof,
including any notice of default in payment thereof or other notice to, or
demand of payment therefor on, any party. Further, Guarantor expressly waives
each and every right to which it may be entitled by virtue of the suretyship
law of the State of Texas including without limitation, any rights it may have
pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001, Civil
Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce
Code.
3. Guarantor agrees to pay to each of the Agent or the Banks its
reasonable collection costs, including any additional amount for attorneys'
fees, but in no event to exceed the maximum amount permitted by law, if the
Guaranteed Obligations are not paid by Guarantor upon demand when due as
required herein or if this Guaranty is enforced by suit or through probate or
bankruptcy court or through any judicial proceedings whatsoever, and should it
be necessary to reduce Banks' or the Agent's or any one or more of their claims
to judgment, such judgment shall bear interest at the lesser of (i) the Default
Rate and (ii) the Maximum Rate.
4. This is an absolute and unconditional guaranty of payment and
not of collection, by Guarantor, jointly and severally with any guarantor of
the Guaranteed Obligations in each and every particular, and Guarantor waives
any right to require that (a) any action be brought against Borrower or any
other person or entity, (b) the Agent or any Bank enforce its rights against
any other guarantor of the Guaranteed Obligations, (c) the Agent or any Bank
proceed or enforce its rights against or exhaust any security given to secure
the Guaranteed Obligations, (d) the Agent or any Bank have Borrower joined with
Guarantor or any other guarantor of all or part of the Guaranteed Obligations
in any suit arising out of this Guaranty and/or the Guaranteed Obligations, or
(e) the Agent or any Bank pursue any other remedy in Bank's powers whatsoever.
Neither the Agent nor any Bank shall be required to mitigate damages or take
any action to reduce, collect or enforce the Guaranteed Obligations. Guarantor
waives any defense arising by reason of any disability, lack of corporate
authority or power, or other defense of Borrower or any other guarantor of the
Guaranteed Obligations, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any reason.
Should the Agent or any Bank seek to enforce the obligations of Guarantor by
action in any court, Guarantor waives any necessity, substantive or procedural,
that a judgment previously be rendered against Borrower or any other person or
entity or that Borrower or any other person or entity be joined in such cause
or that a separate action be brought against Borrower or any other person or
entity. The obligations of Guarantor hereunder are several from those of
Borrower or any other person or entity (including without limitation any other
surety for Borrower), and are primary obligations concerning which Guarantor is
the principal obligor. All waivers herein contained shall be without prejudice
to the Agent or any Bank at its option to proceed against Borrower or any other
person or entity, whether by separate action or by joinder.
5. Guarantor agrees that suit may be brought against Guarantor
and any other guarantors of the Guaranteed Obligations, jointly and severally,
and against one or more of them, less than all, without impairing the rights of
the Agent and the Banks, or any one or more of them, against the other
guarantors; nor shall the Agent or any Bank be required
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<PAGE> 3
to join Borrower or any other guarantor or liable party in a suit against a
particular guarantor; and the Agent and the Banks may release Borrower and/or
one or more guarantor(s) or settle with such persons or entities as the Agent
and the Banks deem fit without releasing or impairing the rights of the Agent
and the Banks, or any one or more of them, to demand and collect the balance of
such indebtedness from the other remaining guarantors not so released.
6. Guarantor hereby consents and agrees to each of the following
to the fullest extent permitted by law, and agrees that the Guarantor's
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any rights
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
(a) Any renewal, extension, modification, increase,
decrease, alteration or rearrangement of all or any part of the Guaranteed
Obligations or any instrument executed in connection therewith, or any contract
or understanding between Borrower and the Agent and/or the Banks, or any other
person or entity, pertaining to the Guaranteed Obligations;
(b) Any adjustment, indulgence, forbearance or compromise
that might be granted or given by the Agent and/or the Banks, or any one or
more of them, to Borrower or Guarantor or any person or entity liable on the
Guaranteed Obligations;
(c) The insolvency, bankruptcy arrangement, adjustment,
composition, liquidation, disability, dissolution, death or lack of power of
Borrower or Guarantor or any other person or entity at any time liable for the
payment of all or part of the Guaranteed Obligations; or any dissolution of
Borrower or Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the shareholders, partners,
or members of Borrower or Guarantor; or any reorganization of Borrower or
Guarantor;
(d) The invalidity, illegality or unenforceability of all
or any part of the Guaranteed Obligations, or any document or agreement
executed in connection with the Guaranteed Obligations, for any reason
whatsoever, including without limitation the fact that the Guaranteed
Obligations, or any part thereof, exceed the amount permitted by law, the act
of creating the Guaranteed Obligations or any part thereof is ultra vires, the
officers or representatives executing the documents or otherwise creating the
Guaranteed Obligations acted in excess of their authority, the Guaranteed
Obligations violate applicable usury laws, Borrower has valid defenses, claims
or offsets (whether at law, in equity or by agreement) which render the
Guaranteed Obligations wholly or partially uncollectible from Borrower, the
creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing
part of the Guaranteed Obligations or executed in connection with the
Guaranteed Obligations, or given to secure the repayment of the Guaranteed
Obligations) is illegal, uncollectible, legally impossible or unenforceable, or
the documents or instruments pertaining to the Guaranteed Obligations have been
forged or otherwise are irregular or not genuine or authentic;
(e) Any full or partial release of the liability of
Borrower on the Guaranteed Obligations or any part thereof, of any co-
guarantors, or any other person or
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<PAGE> 4
entity now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to pay the
Guaranteed Obligations in full without assistance or support of any other
person or entity, and Guarantor has not been induced to enter into this
Guaranty on the basis of a contemplation, belief, understanding or agreement
that other parties other than Borrower will be liable to perform the Guaranteed
Obligations, or Bank will look to other parties to perform the Guaranteed
Obligations;
(f) The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Obligations;
(g) Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including without limitation
negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Guaranteed Obligations;
(h) The failure of the Agent and/or the Banks, or any one
or more of them, or any other person or entity to exercise diligence or
reasonable care in the preservation, protection, enforcement, sale or other
handling or treatment of all or any part of such collateral, property or
security;
(i) The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by Guarantor
that Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any of the collateral for the Guaranteed Obligations;
(j) Any payment by Borrower to the Agent (whether for
sums owing to the Agent or to the Agent for the benefit of the Banks, or any
one or more of them) or any Bank is held to constitute a preference under the
bankruptcy laws, or for any reason Bank is required to refund such payment or
pay such amount to Borrower or someone else;
(k) Any other action taken or omitted to be taken with
respect to the Guaranteed Obligations, or the security and collateral therefor,
whether or not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Guaranteed Obligations
pursuant to the terms hereof; it being the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed
Obligations when due, notwithstanding any occurrence, circumstance, event,
action, or omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Guaranteed Obligations; or
(l) The fact that all or any of the Guaranteed
Obligations cease to exist by operation of law, including without limitation by
way of a discharge, limitation or tolling thereof under applicable bankruptcy
laws.
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<PAGE> 5
7. In the event any payment by Borrower or any other guarantor of
all or part of the Guaranteed Obligations to the Agent (whether for sums owing
to the Agent or to the Agent for the benefit of the Banks, or any one or more
of them) or any Bank is held to be a preference under the bankruptcy laws, or
if for any other reason the Agent or any Bank is required to refund such
payment or pay the amount thereof to any other party, such payment by Borrower
or by such guarantor to the Agent or any Bank shall not constitute a release of
Guarantor from any liability respecting payment of the Guaranteed Obligations,
and Guarantor agrees to pay such amount to Bank upon demand.
8. The usury savings clause set forth in Section 11.6 of the Loan
Agreement is hereby incorporated by reference into this Guaranty and is made a
part hereof for all purposes; it being agreed that all rights and remedies of
the Agent and the Banks, or any one or more of them, hereunder are subject to
the usury savings clause.
9. This Guaranty is for the benefit of the Agent and the Banks,
and for such other persons and entities as may from time to time become or be
the holders of any Guaranteed Obligations; and this Guaranty shall be
transferable and negotiable, with the same force and effect and to the same
extent as the Guaranteed Obligations may be transferable, it being understood
that upon the assignment or transfer by the Agent or the Banks, or any one or
more of them, of any Guaranteed Obligations, the legal holder of such
Guaranteed Obligations shall have all of the rights granted to the Agent and
the Banks under this Guaranty.
10. Payment of all amounts hereunder shall be made at the offices
of the Agent.
11. [Intentionally Omitted]
12. Any notice, request or other communication required or
permitted to be given hereunder shall be given as provided in the Loan
Agreement. Guarantor will comply with and perform all affirmative and negative
covenants and agreements made by Borrower in the Loan Agreement with respect to
the Guarantor. All representations and warranties made by Borrower in the Loan
Agreement with respect to the Guarantor are true and correct as of the date
hereof. The Agent and the Banks shall be entitled to rely on all of the
representations and warranties made by Borrower in the Loan Agreement with
respect to the Guarantor with the same force and effect as though they were
incorporated in this Guaranty and made by the Guarantor for the Agent and the
Banks herein.
13. This Guaranty shall not be wholly or partially satisfied or
extinguished by Guarantor's payment of any amount hereunder, including payment
of all amounts due as of any specified date, but shall continue in full force
and effect as against Guarantor for the full amount, except as otherwise
specified herein, as to all Guaranteed Obligations created, incurred or arising
prior to the time when notice of termination is given by the Guarantor to the
Agent and the Banks as specified herein, or which thereafter may be incurred
for which the Agent and/or the Banks have, prior to the effective date of such
notice, committed to lend to Borrower, and until payment in full thereof. Any
and all extensions of credit and financial accommodations concurrently herewith
or hereafter made by the Agent and/or the Banks to Borrower shall be
conclusively presumed to have been made in acceptance hereof.
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<PAGE> 6
14. This Guaranty shall be binding upon Guarantor, its successors
and assigns and shall inure to the benefit of, and be enforceable by, the Agent
and the Banks and their respective successors and permitted assigns and each
and every other person who shall, pursuant and subject to the provisions of the
Loan Agreement from time to time be or become the owner or holder of any of the
Guaranteed Obligations, and each and every reference herein to the "Agent" or
the "Banks" shall also include each and every such successor, assign, owner or
holder. Guarantor shall not assign or delegate its obligations hereunder
without the prior written consent of the Agent.
15. The release by the Agent or the Banks of Borrower or one or
more other guarantors of all or part of the Guaranteed Obligations shall not
affect the Guarantor, who shall remain fully liable in accordance with the
terms of this Guaranty.
16. This Guaranty shall be in addition to and cumulative of, and
not in substitution, novation or discharge of, any and all prior or
contemporaneous guaranty agreements by Guarantor or other persons or entities,
in favor of the Agent and/or the Banks or assigned to the Agent and/or the
Banks by others.
17. The undersigned guaranteeing corporation does hereby
acknowledge that it has investigated fully the benefits and advantages which
will be derived by the undersigned from execution of this Guaranty, and the
Board of Directors of the undersigned corporation has decided that, and the
undersigned corporation does hereby acknowledge, warrant and represent that, a
direct or an indirect benefit will accrue to the undersigned by reason of
execution of this Guaranty.
18. Guarantor represents and warrants that (i) this Guaranty is
not given with actual intent to hinder, delay or defraud any entity to which
Guarantor is or will become, on or after the date hereof, indebted; (ii)
Guarantor has received at least a reasonably equivalent value in exchange for
the giving of this Guaranty; (iii) Guarantor is not insolvent on the date
hereof and will not become insolvent as a result of the giving of this
Guaranty; (iv) Guarantor is not engaged in a business of transaction, nor is
about to engage in a business or transaction, for which any property remaining
with Guarantor constitutes an unreasonably small amount of capital; or (v)
Guarantor does not intend to incur debts that will be beyond the Guarantor's
ability to pay as such debts mature. For the purposes of making the
representations set forth in Paragraph 18(iii) above, Guarantor has taken into
account its right of contribution as set forth in Paragraph 28 below and its
value as a going concern.
19. Guarantor shall furnish to the Agent all such financial
statements and other information relating to the financial condition,
properties and affairs of Guarantor as the Agent or the Banks may from time to
time request.
20. Guarantor will not change its address, name or identity
without notifying the Agent of such change in writing at least thirty (30) days
prior to the effective date of such change.
21. No delay on the part of the Agent or the Banks in exercising
any right hereunder or failure to exercise the same shall operate as a waiver
of such right, nor shall any single or partial exercise of any right, power or
privilege bar any further or subsequent exercise of the same or any other
right, power or privilege.
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<PAGE> 7
22. This Guaranty shall not be changed orally, but shall be
changed only by agreement in writing signed by the person against whom
enforcement of such change is sought.
23. The masculine and neuter genders used herein shall each
include the masculine, feminine and neuter genders and the singular number used
herein shall include the plural number. The words "person" and "entity" shall
include without limitation individuals, corporations, partnerships, joint
ventures, associations, joint stock companies, trusts, unincorporated
organizations, and governments and any agency or political subdivision thereof.
24. This Guaranty may be executed in multiple counterparts, and
each counterpart executed by any party shall be deemed an original and shall be
binding upon the person or entity executing the same, irrespective of whether
any other Guarantor has executed this or any other counterpart of this
Guaranty. Production of any counterpart other than the one to be enforced
shall not be required.
25. If any provision of this Guaranty is determined to be invalid
by any court of competent jurisdiction or to be in violation of any applicable
law, such invalidity or violation shall have no effect on any other provisions
of this Guaranty (which shall remain valid and binding and in full force and
effect) or in any other jurisdiction, and to that end the provisions of this
Guaranty shall be considered severable.
26. Guarantor expressly waives any and all rights to exercise any
right of subrogation, reimbursement and contribution (contractual, statutory or
otherwise) against the Agent and the Banks, individually and collectively,
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising
from the existence or performance of this Guaranty and the Guarantor
irrevocably waives any right to enforce any remedy which the Agent and the
Banks, or any one or more of them, now have or may hereafter have against the
Borrower and waives its enforcement of any benefit of, and any right to
participate in, any security now or hereafter held by the Agent and the Banks,
or any one or more of them, until the Guaranteed Obligations have been paid in
full and until all commitments of the Agent and the Banks, individually and
collectively, to extend credit to the Borrower under the Loan Agreement and the
other Loan Documents have terminated.
27. Guarantor hereby expressly covenants and agrees for the
benefit of the Agent and the Banks that all obligations and liabilities of the
Borrower and the Other Guarantors (as that term is defined hereinafter), or any
one or more of them, to the Guarantor of whatsoever description (including,
without limitation, all intercompany receivables of the Guarantor from the
Borrower) shall be subordinated and junior in right of payment to the
Guaranteed Obligations. Following the occurrence of an Event of Default and
thereafter, so long as it continues, any indebtedness of the Borrower to the
Guarantor shall, if the Agent shall so request, be collected and received by
the Guarantor as trustee for the Agent and the Banks and paid over to the Agent
and the Banks, or any one or more of them, as the case may be, on account of
the Guaranteed Obligations, but without reducing or affecting in any manner the
liability of the Guarantor under this Guaranty.
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<PAGE> 8
28. Guarantor acknowledges that other Subsidiaries of the Borrower
have guaranteed the payment and performance of the Guaranteed Obligations
(collectively, the "Other Guarantors") and to the extent Guarantor is required
to satisfy all or any part of the Guaranteed Obligations pursuant to the terms
of this Guaranty, Guarantor shall have and be entitled to rights of
contribution against the Other Guarantors and to the extent any Other Guarantor
is required to satisfy all or any part of the Guaranteed Obligations, Guarantor
agrees that such Other Guarantor shall be entitled to rights of contribution
against the Guarantor; provided, however, this sentence is intended only to
define the relative rights of the Guarantor and all Other Guarantors, and
nothing set forth in this sentence is intended to or shall impair the
obligations of the Guarantor and Other Guarantors, jointly and severally, to
pay to the Agent and the Banks, or any one or more of them, as the case may be,
the Guaranteed Obligations as and when the same shall become due and payable in
accordance with the terms of this Guaranty.
29. (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT PROVIDED
IN PARAGRAPH 29(b) BELOW AND TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA MAY OTHERWISE APPLY.
(b) NOTWITHSTANDING ANYTHING IN PARAGRAPH 29(a) ABOVE TO
THE CONTRARY, NOTHING IN THIS GUARANTY SHALL BE DEEMED TO CONSTITUTE A WAIVER
OF ANY RIGHTS WHICH THE AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL
BANK ACT OR OTHER APPLICABLE FEDERAL LAW.
30. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY OF
THIS GUARANTY, GUARANTOR HEREBY CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. GUARANTOR
HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION
IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. GUARANTOR HEREBY
WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY
BE MADE BY ANY OTHER MEANS PERMITTED BY TEXAS LAW. Guarantor has irrevocably
designated, appointed and empowered CT Corporation System, 811 Dallas, Houston,
Texas 77002, as its duly authorized registered agent (together with any
successor agent, the "Authorized Agent") to receive, accept and acknowledge for
and on its behalf and on behalf of its property service of any and all legal
process, summons, notices, and documents which may be served in any proceeding,
which service may be made on such designee, appointee and agent in accordance
with legal procedures prescribed for such courts. Such appointment shall be
irrevocable so long as any Guaranteed Obligations remain outstanding or until
the appointment, similarly irrevocable, of such successor Authorized Agent and
such successor's acceptance of such appointment. Guarantor agrees to take any
and all action necessary to continue such designation in full force and effect
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<PAGE> 9
and to advise the Agent of any change of address of such Authorized Agent; and
should such Authorized Agent become unavailable for this purpose for any
reason, Guarantor shall promptly irrevocably designate a successor Authorized
Agent within Houston, Texas, which shall agree to act as such, with the powers
and for the purposes specified in this subsection. If Guarantor does not so
appoint a successor agent within 5 Business Days of such unavailability, the
Required Holders may appoint a successor Authorized Agent without further act
by Guarantor. Guarantor further irrevocably consents and agrees to the service
of any and all legal process, summons, notices and documents out of any of the
aforesaid courts in any such Proceeding by hand delivery, to it at its address
set forth under its signature line below or to any other address of which it
shall have given notice to its then Authorized Agent. Guarantor agrees that
service upon it or any such Authorized Agent as provided for herein shall, to
the fullest extent permitted by law, constitute valid and effective personal
service upon its, as the case may be, and that the failure of any such
Authorized Agent to give any notice of such service to it shall not impair or
affect in any way the validity of such service or any judgment rendered in any
action or proceeding based thereon.
31. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Guaranty. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
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<PAGE> 10
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from a
court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in the
substantive laws applicable to the subject matter of the Dispute. Arbitrators
are empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve
all Disputes in accordance with the substantive law of the state of Texas, (ii)
may grant any remedy or relief that a court of the state of Texas could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly
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<PAGE> 11
related to the Loan Documents or the subject matter of the Dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the
parties.
[Remainder of This Page Intentionally Left Blank.]
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<PAGE> 12
THIS GUARANTY, THE LOAN AGREEMENT, THE NOTES, THE SECURITY
INSTRUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED this 20th day of June 1997.
______________________________
By:
----------------------------------------
David T. Tighe
Vice President
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<PAGE> 1
EXHIBIT 10.5
SECURITY AGREEMENT-PLEDGE
(STOCK OF DOMESTIC AND FOREIGN SUBSIDIARIES
OF ___________________________)
This Security Agreement-Pledge is entered into as of the 2nd day of
June, 1997, by ___________________________, a _______ corporation (herein
called "Pledgor"), whose address is __________________________________________,
_______________, in favor of WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as
Agent (herein called "Secured Party") for the Banks from time to time a party
to the Loan Agreement (as hereinafter defined), whose address is 1000
Louisiana, Houston, Texas 77002 (the "Agreement"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Third
Amended and Restated Loan Agreement dated as of June 20, 1997 between Dailey
Petroleum Services Corp., a Delaware corporation ("Borrower"), and Secured
Party and the Banks from time to time a party thereto (the Third Amended and
Restated Loan Agreement as it may be amended, modified or restated from time to
time and at any time being herein referred to as the "Loan Agreement").
SECTION 1. SECURITY INTEREST. For value received, the receipt and
sufficiency of which is hereby acknowledged including, without limitation, the
agreement by Secured Party and the Banks, or any one of them, to extend and
continue to extend certain credit and financial accommodations to Borrower,
Pledgor has granted and does hereby grant to Secured Party on behalf and for
the ratable benefit of the Banks a security interest in and pledge of, and
agrees and acknowledges that Secured Party has and shall continue to have a
security interest in and pledge of, the following described property (herein
called the "Collateral"), to-wit:
All of the stock in all of Pledgor's subsidiaries listed on Exhibit
"A" hereto attached and hereby made a part hereof.
together with all moneys, income, proceeds and benefits attributable or
accruing to such property including, but not limited to, all stock rights,
rights to subscribe, cash dividends, liquidating dividends, stock dividends,
dividends paid in stock, new securities or other properties or benefits to
which Pledgor is or may hereafter become entitled to receive on account of such
property, and in the event that Pledgor shall receive any of such, Pledgor
shall hold the same as Trustee for Secured Party and will immediately deliver
the same to Secured Party to be held hereunder in the same manner as the
property specifically described above is held hereunder. All of the property
in which Secured Party is hereby granted a security interest shall herein
sometimes be called the "Collateral" or the "Pledged Securities". Pledgor
agrees to execute such stock powers, endorse such instruments, execute such
additional pledge agreements or other documents as may be required by Secured
Party in order to effectively grant to Secured Party the security interest in
the Collateral.
As additional security for payment of the Obligations (as hereinafter
defined), Pledgor hereby grants to Secured Party a security interest in and to,
and a contractual pledge and assignment of, any and all moneys, property,
accounts, securities, documents, chattel paper, claims, demands, instruments,
items or deposits of Pledgor, now or hereafter coming within Secured Party's
custody or control, including, by way of example and not of limitation, all
certificates of deposit and other depository accounts, whether such have
matured or the exercise of Secured Party's rights hereunder results in loss of
interest or
<PAGE> 2
other penalty on such deposits. Without prior notice to or demand upon
Pledgor, Secured Party may exercise its rights hereunder, as well as other
rights and remedies at law and equity (all of which are cumulative), at any
time when an Event of Default (as hereinafter defined) has occurred and is
continuing.
SECTION 2. OBLIGATIONS. The pledge and security interest granted
hereby is to secure the punctual payment and performance of (i) the Revolving
Credit Notes, and any and all extensions, renewals, modifications, increases
and rearrangements thereof, (ii) all reimbursement obligations now existing or
hereafter arising with respect to Letters of Credit issued by the Issuing Bank
for the account of Borrower in accordance with the Loan Agreement, (iii) the
Term Notes, and any and all extensions, renewals, modifications, increases and
rearrangements thereof, (iv) the obligations of Pledgor and/or Borrower to
Secured Party and the Banks, or any one of them (including without limitation
the Issuing Bank), under the Loan Agreement and the other Loan Documents and
any and all amendments, supplements, modifications and restatements thereof and
thereto, and (v) any and all other indebtedness, liabilities and obligations
whatsoever of Pledgor and/or Borrower to Secured Party and the Banks, or any
one of them, whether direct or indirect, absolute or contingent, primary or
secondary, due or to become due and whether now existing or hereafter arising,
whether joint or several, or joint and several as created and evidenced by, and
arising under, the Loan Agreement and the Notes, and the other Loan Documents,
and all renewals, extensions, increases, and rearrangements of such
indebtedness, obligations or liabilities, including any and all amounts owing
or which may hereafter become owing thereon or in connection therewith,
including, without limitation, any and all amounts of principal, interest,
attorneys' fees, costs of collection and other amounts owing thereunder (all of
which are herein separately and collectively referred to as the "Obligations").
Pledgor acknowledges that the security interest hereby granted shall secure all
future advances as well as any and all other indebtedness, liabilities, and
obligations of Pledgor and/or Borrower to Secured Party and the Banks, or any
one of them, whether now in existence or hereafter arising.
SECTION 3. WARRANTIES AND COVENANTS OF PLEDGOR. Pledgor hereby
represents, warrants, covenants and agrees that:
A. Except for the security interest granted hereby,
Pledgor is the legal and beneficial owner of the Collateral free of any adverse
claim, lien, mortgage, pledge, security interest or other encumbrance, or right
or option on the part of any third party to purchase or otherwise acquire the
Collateral or any part thereof; and Pledgor will defend the Collateral against
all claims and demands of all parties at any time claiming the same or an
interest therein;
B. The pledge of the Collateral pursuant to this
Agreement and the performance of the actions required to perfect such security
interests creates a valid and perfected first priority security interest in the
Collateral and the proceeds thereof in favor of Secured Party, securing the
payment of the Obligations;
C. No authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or regulatory body in
regard to the Pledgor is required (i) for the pledge by Pledgor of the
Collateral pursuant to this Agreement or for
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<PAGE> 3
the execution, delivery or performance of this Agreement by Pledgor, or (ii)
for the exercise by Secured Party of the rights provided in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement, except
the performance of the actions required to perfect such security interests;
D. No part of the proceeds received by Pledgor from the
Loans made under the Loan Agreement will be used, directly or indirectly, for
the purpose of purchasing or carrying, or for payment in full or in part of
indebtedness which was incurred for the purpose of purchasing or carrying, any
"margin stock," as such term is defined in Regulation U of the Federal Reserve
Board. No part of the proceeds received by Pledgor from the loans made under
the Loan Agreement will be used for any purpose which violates Regulation X of
the Federal Reserve Board;
E. The Pledged Securities constituting stock are duly
authorized, validly issued, fully paid and non-assessable, and none of such
shares has been issued or transferred in violation of the securities
registration, securities disclosure or similar laws of any jurisdiction to
which such issuance or transfer may be subject. There are no options,
warrants, calls or commitments of any character relating to the Pledged
Securities;
F. The Pledged Securities constituting stock constitute
100% of the issued and outstanding shares of common stock of the Subsidiaries
of the Pledgor now owned by the Pledgor. Pledgor agrees that it will (i) to
the best of its ability, cause its Subsidiaries not to issue any stock, other
securities or other ownership interest in addition to or in substitution for
the shares of stock comprising Pledged Securities, except to the Secured Party,
(ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock, other securities
or other ownership interests of each issuer of Pledged Securities, and (iii)
pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all shares of stock, other securities, or other ownership
interests of any entity which, after the date of this Agreement, becomes a
Subsidiary of Pledgor;
G. Except as provided under Section 3.M below, Pledgor
will not sell or offer to sell or otherwise transfer, pledge, mortgage,
hypothecate, dispose of or encumber the Collateral or any interest therein
without the prior written consent of Secured Party;
H. Pledgor will keep the Collateral free from any and
all adverse liens, mortgages, pledges, claims, security interests and other
encumbrances;
I. Pledgor will pay to Secured Party all expenses and
expenditures, including reasonable attorney's fees and legal expenses, incurred
or paid by Secured Party in preparation, negotiation, administration or
enforcement of this Agreement. Pledgor agrees to pay interest on such amounts
at the Default Rate from the date such are incurred by Secured Party until the
date same are paid by Pledgor;
J. The security interest granted hereby shall in no way
be affected by any indulgence or indulgences, extension or extensions, change
or changes in the form, evidence, maturity, rate of interest or otherwise of
any of the Obligations, nor by want of
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presentment, notice, protest, suit or indulgence upon any of the Obligations,
nor shall any release of, or failure to perfect the security interest or lien
in, any security for or, of any of the parties liable for, the payment of the
Obligations in any manner affect or impair this pledge, and the same shall
continue in full force and effect in accordance with the terms hereof until the
Obligations have been fully paid;
K. [Intentionally Omitted]
L. Secured Party shall have the power to endorse and is
hereby appointed Pledgor's agent for the purpose of endorsing in the name of
Pledgor any instrument or document constituting Collateral or which may be
received in payment or as proceeds of the Collateral;
M. In the event Pledgor shall receive any monies,
income, interest, cash dividends, liquidating dividends, stock dividends, new
securities or other benefits or proceeds attributable or accruing to the
Pledgor will hold the same in trust for the benefit of Secured Party and will
not commingle the same with any other property or monies of Pledgor and will
immediately deliver or otherwise transfer the same to Secured Party in the same
form as so received (with any necessary endorsement) to be held as part of the
Collateral provided, however, so long as an Event of Default is then
continuing, Pledgor may, free of any lien or security interest created hereby,
receive, retain and use all moneys and cash dividends as it would any other
cash payment it otherwise receives;
N. Secured Party shall never be liable for its failure
to give notice to Pledgor of default in the payment of or upon the Collateral.
Secured Party shall have no duty to fix or preserve rights against prior
parties to the Collateral, which Pledgor hereby assumes to do, and shall never
be liable for its failure to use diligence to collect any amount payable in
respect to the Collateral, but shall be liable only to account to Pledgor for
what it may actually collect or receive thereon. The powers conferred on
Secured Party hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon Secured Party to exercise any such powers.
Without limiting the foregoing, it is specifically understood and agreed that
Secured Party shall have no responsibility for ascertaining any maturities or
similar matters relating to any of the Collateral or for informing Pledgor with
respect to any of such matters (irrespective of whether Secured Party actually
has, or may be deemed to have, knowledge thereof). Should Secured Party elect
to collect any amounts to which Pledgor is entitled under the Collateral or
take any other action to protect or preserve Pledgor's interest therein,
Pledgor releases Secured Party from any claim or claims for loss or damage
arising from any act or omission in connection therewith;
O. Pledgor agrees to pay prior to delinquency all taxes,
governmental charges, liens and assessments which, if unpaid, would become a
lien against the Collateral, except such as may be contested in good faith and
as to which adequate reserves have been provided for the payment thereof if
required by generally accepted accounting principles, and upon the failure of
the Pledgor to do so Secured Party at its option may pay any of same for the
account of Pledgor; and
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P. The representations, warranties and covenants set
forth in this Section 3 shall survive the execution and delivery of this
Agreement.
SECTION 4. Voting Rights; Dividends, Etc.
A. So long as no Event of Default shall have occurred
and be continuing and Secured Party shall not have given Pledgor the notice
provided for in Section 4.B. hereafter:
(i) the Pledgor shall be entitled to exercise any
and all voting and/or consensual rights and powers relating or
pertaining to the Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Loan Agreement;
provided, however, that the Pledgor shall give the Secured Party
contemporaneous written notice of the manner in which it intends to
exercise, or the reasons for refraining from exercising, any such
right or power other than with respect to the election of directors
and voting with respect to matters in the ordinary course of Pledgor's
business; and
(ii) the Pledgor shall be entitled to receive and
retain any and all ordinary cash dividends and distributions payable
on the Collateral, but only as allowed by Section 6.6 of the Loan
Agreement, and with the understanding that any and all stock and/or
liquidating dividends, distributions in property, returns of capital
or other distributions made on or in respect of the Collateral as a
substitute therefor, whether resulting from a subdivision, combination
or reclassification of the outstanding capital stock of any issuer
thereof or received in exchange for other Collateral or any part
thereof or as a result of any merger, consolidation, acquisition or
other exchange of assets to which any such issuer may be a party or
otherwise, and any and all cash and other property received in
redemption of or in exchange for any Collateral (either at maturity,
upon call for redemption or otherwise) shall be and become part of the
Collateral and, if received by the Pledgor, shall be held in trust for
the benefit of the Secured Party and shall forthwith be delivered to
the Secured Party or its designated custodian (accompanied by proper
instruments of assignment and/or stock powers executed by the Pledgor
in accordance with the Secured Party's instructions) to be held as
Collateral subject to the terms of this Agreement.
B. Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and other
consensual rights and powers which it is entitled to exercise pursuant to
Section 4.A.(i) and to receive the dividends and distributions which it is
authorized to receive and retain pursuant to Section 4.A.(ii) shall cease upon
the giving of notice to such effect by the Secured Party, and all such rights
shall thereupon, after the giving of such notice by Secured Party, become
vested in the Secured Party who shall, during the continuance of any Event of
Default, have the sole and exclusive right and authority to exercise such
voting and other consensual rights and powers and to receive and hold as
Collateral the dividends and distributions which the Pledgor would otherwise be
authorized to retain pursuant to
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Section 4.A.(ii). Secured Party is hereby granted the right, upon the
occurrence and during the continuance of an Event of Default, to transfer the
Pledged Securities, or any part thereof, to itself or its nominee. Any and all
cash and other property paid over to or received by the Secured Party pursuant
to the provisions of this Subsection B. may be held by the Secured Party as
additional security for the Obligations or, at Secured Party's option, be
applied to the Obligations, whether or not then due, in such order as Secured
Party may elect. If for any reason, any dividend or distribution is received
by the Pledgor after the occurrence and during the continuance of an Event of
Default and after the giving of notice as provided in this paragraph, such
dividend or distribution shall be received in trust for the benefit of the
Secured Party, be segregated from the other property or funds of the Pledgor,
and be forthwith delivered or otherwise transferred to the Secured Party as
collateral in the same form as so received (with any necessary endorsement).
SECTION 5. Event of Default. For purposes of this Agreement,
the terms "Default" and "Event of Default" shall mean a "Default" and an "Event
of Default," respectively, as those terms are each defined in the Loan
Agreement.
SECTION 6. REMEDIES OF SECURED PARTY.
A. Upon the happening of any Event of Default specified
herein, and at any time thereafter that such Event of Default shall continue,
at the option of the holder thereof, all or any part of the Obligations shall
become immediately due and payable without presentment, demand, notice of
intention to accelerate, notice of acceleration, notice of non-payment,
protest, notice of dishonor, or any other notice whatsoever to Pledgor or any
person obligated thereon, and, in addition to those rights set forth in Section
4.B. of this Agreement, Secured Party shall have and may exercise with
reference to the Collateral and Obligations any and all of the rights and
remedies of a secured party under the Uniform Commercial Code as then in effect
in the State of Texas, and as otherwise granted herein or under any other
applicable law or under any other agreements executed by Pledgor (all of which
rights and remedies shall be cumulative), including, without limitation, the
right to sell the Collateral, or any part thereof, at public or private sale or
at any broker's board or on any securities exchange, for cash or on credit, or
for future delivery without assumption of any credit risk, and at such price or
prices as Secured Party may deem satisfactory. Any holder of the Obligations
may be the purchaser of all or any part of the Collateral so sold at any public
sale (or if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price
quotations, at any private sale) and thereafter hold the same absolutely, free
from any right or claim or right of whatever kind. Secured Party is hereby
authorized at any such sale, if it deems it advisable so to do, to restrict the
prospective bidders or purchasers of any of the Pledged Securities to persons
who will represent and agree that they are purchasing for their own account for
investment, and not with a view to the distribution or sale of any of the
Pledged Securities. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely,
free from any claim or right of whatever kind. Unless the Collateral threatens
to decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Pledgor notice of such sale at least ten (10)
days before the date fixed for such sale (which Pledgor agrees is reasonable
notice within the meaning of
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Section 9.504(c) of the Texas Business and Commerce Code, as in effect on the
date of execution hereof). Such notice, in the case of a public sale, shall
state the time and place fixed for such sale, and, in the case of sale at a
broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or the
portion thereof so being sold, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix in
the notice of such sale. At any such sale, the Collateral may be sold in one
lot as an entirety or in separate parcels as Secured Party may determine.
Secured Party shall not be obligated to make any such sale pursuant to any such
notice. Secured Party may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the same may be so adjourned. In case of
any sale of all or any part of the Collateral on credit or for future delivery,
the Collateral so sold may be retained by Secured Party until the purchase
price is paid by the purchaser thereof, but Secured Party shall not incur any
liability due to any failure of such purchaser to take up and pay for the
Collateral so sold and, upon such failure, such Collateral may again be sold
upon like notice. Instead of exercising the power of sale herein conferred
upon it, Secured Party may proceed by a suit or suits at law or in equity to
foreclose the security interests herein granted and sell the Collateral, or any
part thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
B. If Secured Party shall determine to exercise its
right to sell all or any part of the Collateral and if in the opinion of
counsel to Secured Party it is advisable to have the Collateral or the portion
thereof to be sold registered under the provisions of the Securities Act of
1933 (the "Act"), Pledgor hereby agrees, at its own cost and expense (i) to
execute and deliver, and to use its best efforts to cause each corporation
whose securities are to be sold and its directors and officers to execute and
deliver, all such instruments and documents, and to do or cause to be done all
other such acts and things, as may be necessary or, in the opinion of Secured
Party, advisable to register the Collateral, or the portion thereof to be sold,
under the provisions of the Act and to cause the registration statement
relating thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make or cause to be
made all amendments and supplements thereto and to the related prospectus
which, in the opinion of Secured Party, are necessary or advisable, all in
conformity with the requirements of the Act and the rules and regulations of
the Securities and Exchange Commission applicable thereto, (ii) to use its best
efforts to cause the corporation whose securities are to be sold to agree to
make, and to make available to its security holders as soon as practicable, an
earnings statement (which need not be audited) covering a period of at least 12
months, beginning with the first month after the effective date of any such
registration statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Act, (iii) to use its best efforts to qualify the
Collateral under state Blue Sky or securities laws and to obtain the approval
of any governmental authorities for the sale of the Collateral, as requested by
Secured Party and (iv) at the request of Secured Party, to indemnify and hold
harmless Secured Party, the holder or holders of the Obligations and any
underwriters, including any person controlling any of the foregoing, from and
against any loss, liability, claim, damage and expense, including reasonable
attorneys' fees incurred in connection therewith, under the Act or otherwise
insofar as
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such loss, liability, claim, damage or expense arises out of or is based upon
any untrue statement or alleged untrue statement of a material fact contained
in such registration statement or prospectus or in any preliminary prospectus
or any amendment or supplement thereto, or arises out of or is based upon any
omission or alleged omission to state therein a material fact required to be
stated or necessary to make the statements therein not misleading, such
indemnification to remain operative regardless of any investigation made by or
on behalf of Secured Party, the holder or holders of the Obligations or any
underwriters, including any person controlling any of the foregoing; provided,
however, that Pledgor shall not be liable in any case to the extent that any
such loss, liability, claim, damage or expense arises out of or is based on an
untrue statement or alleged untrue statement or an omission or an alleged
omission made in reliance upon and in conformity with written information
furnished to such corporation by Secured Party, any holder or holder of the
Obligations or any underwriter.
C. Pledgor recognizes that Secured Party may be unable
to effect a public sale of the Collateral by reason of certain prohibitions
contained in the Act, but may be compelled to resort to one or more private
sales thereof to a restricted group of purchasers. Pledgor agrees that any
such private sales may be at prices and other terms less favorable to the
seller than if sold at public sales and notwithstanding such circumstances, any
such private sales shall be deemed to have been made in a commercially
reasonable manner. Secured Party shall be under no obligation to order or
permit the Collateral to be sold at a public sale or to delay a sale of any of
the Collateral for the period of time necessary to permit the issuer of such
securities to register such securities under the Act or under applicable state
securities laws for public sale under the Act, as amended, even if the issuer
would agree to do so.
D. Expenses payable by Pledgor in connection with any
disposition under the provisions above shall include, but shall not be limited
to, all costs of a registration under the Act of any Pledged Securities or of
sale of any Pledged Securities pursuant to any applicable regulation under the
Act, brokers' or underwriters' commissions, fees or discounts, accounting and
legal fees, costs of printing and other expenses of transfer and sale. Pledgor
agrees to pay to Secured Party on demand following and during the continuance
of any Event of Default and in advance of any such registration, sale or other
realization on the Pledged Securities, such amount which, in the estimation of
counsel to Secured Party, will cover all of such costs and expenses described
above, and all other costs and expenses of enforcing the Obligations and of
realizing on the Pledged Securities, including reasonable attorneys' fees and
legal expenses.
E. Proceeds received by Secured Party from disposition
of the Collateral, or any portion thereof, shall be applied toward Secured
Party's expenses and other Obligations in such order or manner as Secured Party
may elect. Pledgor shall be entitled to any surplus if one results after
lawful application of the proceeds. Pledgor shall remain liable for any
deficiency.
F. Pledgor hereby appoints, effective upon the
occurrence of any Event of Default and thereafter, so long as such Event of
Default continues, Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time in Secured Party's discretion to take any
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<PAGE> 9
action and to execute any instrument which Secured Party in its reasonable
determination may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral, or any part thereof, and to
give full discharge for the same, and to vote any and all Pledged Securities at
any regular or special meeting of shareholders, as Secured Party may elect. It
is hereby recognized that the power of attorney granted herein is coupled with
an interest and shall not be revocable. Except to the extent otherwise
required by applicable law, Secured Party shall not be obligated or be deemed
to assume any duty or responsibility with respect to any or all of the
Collateral of any nature or kind whatsoever, other than the physical custody
thereof.
G. The rights, powers and remedies given to Secured
Party by this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any applicable statute or rule of law.
Secured Party may exercise any banker's lien or right of setoff with respect to
the Obligations of Pledgor in the same manner as if such Obligations were
unsecured. Any forbearance or failure or delay by Secured Party in exercising
any right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
or remedy hereunder shall not preclude the further exercise thereof.
SECTION 7. MISCELLANEOUS.
A. No delay or omission on the part of Secured Party in
exercising any rights hereunder shall operate as a waiver of any such right or
any other right. A waiver on any one or more occasions shall not be construed
as a bar to or waiver of any right or remedy on any future occasion.
B. It is the intention of the parties hereto to comply
strictly with applicable usury laws; accordingly, notwithstanding any provision
to the contrary in this Agreement, the Loan Agreement, the Revolving Credit
Notes, the Term Notes, the other Loan Documents or in any of the documents
securing the payment thereof or otherwise relating thereto, in no event shall
this Agreement or such instruments or documents require or permit the payment,
charging, taking, reserving, or receiving of any sums constituting interest
under applicable laws which exceed the maximum amount permitted by such laws.
If any such excess interest is contracted for, charged, taken, reserved, or
received in connection with any loan evidenced by the Loan Agreement, the
Revolving Credit Notes, the Term Notes, the other Loan Documents or in any of
the documents securing the payment thereof or otherwise relating thereto, or in
any communication by the Secured Party or any other Person to the Pledgor or
any other Person, or in the event all or part of the principal or interest
under, the Loan Agreement, the Revolving Credit Notes, the Term Notes, the
other Loan Documents, or in any of the documents securing the payment thereof
or otherwise relating thereto shall be prepaid or accelerated, so that under
any of such circumstances or under any other circumstance whatsoever the amount
of interest contracted for, charged, taken, reserved, or received on the amount
of principal actually outstanding from time to time under the Revolving Credit
Notes or the Term Notes shall exceed the maximum amount of interest permitted
by applicable usury laws, then in any such event it is agreed as follows: (i)
the provisions of this paragraph shall
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govern and control, (ii) any such excess shall be deemed an accidental or bona
fide error and canceled automatically to the extent of such excess, and shall
not be collected or collectible, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance under the Revolving Credit Notes or the Term Notes, as
the case may be, and if the balance is paid, refunded to the Pledgor, and (iv)
the effective rate of interest shall be automatically reduced to the maximum
lawful rate allowed under applicable laws as construed by courts having
jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved,
or received in connection with the Loan Agreement, the Revolving Credit Notes,
the Term Notes, the other Loan Documents, or in any of the documents securing
the payment thereof or otherwise relating thereto which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate shall
be made to the extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of the applicable
Loan, including all prior and subsequent renewals and extensions, all interest
at any time contracted for, charged, taken, reserved, or received.
C. Pledgor agrees to do such further acts and things,
and to execute and deliver such additional conveyances, assignments,
agreements, proxies, powers of attorney, dividend orders, and other
instruments, as Secured Party may at any time reasonably request in connection
with the administration or enforcement of this Agreement or related to the
Collateral, or any part thereof, or in order better to assure and confirm to
Secured Party its rights, powers and remedies hereunder. Pledgor hereby
consents and agrees that the issuers of the Collateral or any registrar or
transfer agent or trustees for any of the Collateral shall be entitled to
accept the provisions hereof as conclusive evidence of the right of Secured
Party to effect any transfer pursuant to this Agreement, notwithstanding any
other notice or direction to the contrary heretofore or hereafter given by
Pledgor or any other person to any of such issuers or to any such registrar or
transfer agent or trustees.
D. All rights of Secured Party hereunder shall inure to
the benefit of its successors and permitted assigns, and all obligations of
Pledgor shall bind its successors or assigns. The rights and remedies of
Secured Party hereunder are cumulative, and the exercise of any one or more of
the remedies provided herein shall not be construed as a waiver of any of the
other remedies of Secured Party.
E. The security interest hereby granted and all the
terms and provisions hereof shall be deemed a continuing security interest and
shall continue in full force and effect, and all the terms and provisions
hereof shall remain effective as between the parties, until the first to occur
of the following: (i) the expiration of four years from the date of payment of
Pledgor's last obligation to Secured Party or (ii) the repayment by Pledgor of
all Obligations and the receipt, acceptance and acknowledgment by Secured Party
of written notice from Pledgor of revocation of the terms and provisions
hereof.
F. This Agreement and the security interest herein
granted are in addition to, and not in substitution, novation or discharge of,
any and all prior or contemporaneous security agreements and security interests
in favor of Secured Party or assigned to Secured Party by Pledgor. All rights,
powers and remedies of Secured Party
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<PAGE> 11
in all such security agreements are cumulative, but in the event of actual
conflict in terms and conditions, the terms and conditions of the latest
security agreement shall govern and control.
G. Any provision of this Agreement found to be invalid
under the laws of the State of Texas, or any other state having jurisdiction or
other applicable law, shall be invalid only with respect to the offending
provision. All words used herein shall be construed of such gender or number
as the circumstances require. The laws of the State of Texas and, as
applicable, the laws of the United States of America, shall govern this
Agreement, its construction, interpretation and enforcement.
H. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument.
I. Arbitration.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any
similar applicable state law.
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<PAGE> 12
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from a
court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in the
substantive laws applicable to the subject matter of the Dispute. Arbitrators
are empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve
all Disputes in accordance with the substantive law of the state of Texas, (ii)
may grant any remedy or relief that a court of the state of Texas could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business, by applicable law or regulation, or to the extent necessary to
exercise any
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judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
J. The Debtor hereby waives all rights to receive from
the Banks a copy of any Financing Statement or Financing Change Statement
filed, or any Verification Statement received, at any time in respect of this
Agreement.
K. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, AND ALL
OTHER DOCUMENTS EXECUTED BY PLEDGOR IN CONNECTION WITH THE LOAN AGREEMENT
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed as of the date set forth above.
___________________________
By:
-----------------------------------
Name:
Title:
- PLEDGOR -
Exhibit A - Collateral
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EXHIBIT 10.6
SUBSIDIARY
COMMERCIAL SECURITY AGREEMENT
This Commercial Security Agreement ("Agreement") is entered into
effective as of the 20th day of June, 1997, by and between WELLS FARGO BANK
(TEXAS), NATIONAL ASSOCIATION, as Agent ("Secured Party") for the Banks from
time to time a party to the Loan Agreement (as hereinafter defined) and ______
_______________________, a __________ corporation ("Debtor"). All capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Third Amended and Restated Loan Agreement dated as of June 20, 1997 among
Dailey Petroleum Services Corp., a Delaware corporation ("Borrower"), Secured
Party and the Banks from time to time a party thereto (the Third Amended and
Restated Loan Agreement as it may be amended, modified or restated from time to
time and at any time being herein referred to as the "Loan Agreement").
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, Debtor grants to Secured Party the security interest (and the
pledges and assignments as applicable) hereinafter set forth and agrees with
Secured Party as follows:
A. OBLIGATIONS SECURED. The security interest and pledges and
assignments as applicable granted hereby are to secure punctual payment and
performance of the following: (i) the Revolving Credit Notes, and any and all
extensions, renewals, modifications, increases and rearrangements thereof, (ii)
all reimbursement obligations now existing or hereafter arising with respect to
Letters of Credit issued by the Issuing Bank for the account of Borrower in
accordance with the Loan Agreement, (iii) the Term Notes, and any and all
extensions, renewals, modifications, increases and rearrangements thereof, (iv)
the obligations of Debtor and/or Borrower to Secured Party and the Banks, or
any one of them (including without limitation the Issuing Bank), under this
Agreement, the Loan Agreement and the other Loan Documents and any and all
amendments, supplements, modifications and restatements thereof and thereto,
and (v) any and all other indebtedness, liabilities and obligations whatsoever
of Debtor and/or Borrower to Secured Party and the Banks, or any one of them,
whether direct or indirect, absolute or contingent, primary or secondary, due
or to become due and whether now existing or hereafter arising, whether joint
or several, or joint and several as created and evidenced by, and arising
under, the Loan Agreement, the Notes and the other Loan Documents, and
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all renewals, extensions, increases, and rearrangements of such indebtedness,
obligations or liabilities, including any and all amounts owing or which may
hereafter become owing thereon or in connection therewith, including, without
limitation, any and all amounts of principal, interest, attorneys' fees, costs
of collection and other amounts owing thereunder (all of which are herein
separately and collectively referred to as the "Obligations"). Debtor
acknowledges that the security interest hereby granted shall secure all future
advances as well as any and all other Obligations of Debtor and/or Borrower to
Secured Party and the Banks, or any one of them, whether now in existence or
hereafter arising.
B. USE OF COLLATERAL. Debtor represents, warrants and covenants
to Secured Party that the Collateral will be used by the Debtor primarily for
business purposes.
C. DESCRIPTION OF COLLATERAL. Debtor hereby grants to Secured
Party on behalf of and for the ratable benefit of the Banks a security interest
in all of the Debtor's present and after acquired personal property (and hereby
pledges and assigns as applicable) and agrees that Secured Party shall continue
to have a security interest in (and a pledge and assignment as applicable), in
all of the Debtor's present and after acquired personal property, and without
limiting the generality of the foregoing, in and to the following property, to
wit:
All Accounts. All accounts, contract rights, rights to the
payment of money including, but not limited to, tax refund claims, insurance
proceeds, proceeds from tort claims and any rent payable due or to become due
under any rent or lease contracts, now owned or existing as well as any and all
that may hereafter arise or be acquired by Debtor, and all the proceeds and
products thereof, including without limitation, all notes, drafts, acceptances,
instruments and chattel paper arising therefrom, and all returned or
repossessed goods arising from or relating to any such accounts, or other
proceeds or products of any sale, lease, rental or other disposition of
Debtor's inventory.
All Inventory. All of Debtor's inventory, including all
goods, merchandise, raw materials, goods or work in process, finished goods and
other tangible personal property, wheresoever located, now owned or hereafter
acquired and held for sale, rent or lease or furnished or to be furnished under
contracts for service or used or consumed in Debtor's business and all
additions and accessions thereto and contracts with respect thereto and all
documents of title evidencing or representing any part thereof, and all
products and proceeds thereof.
All Equipment. All equipment of every nature and description
whatsoever now owned or hereafter acquired by Debtor including all
appurtenances and additions thereto and substitutions therefor, wheresoever
located, including all tools, parts and accessories used in connection
therewith. As used herein, the term "equipment" shall not include inventory as
herein defined.
All Fixtures. All of Debtor's fixtures and appurtenances
thereto, and such other goods, chattels, fixtures, equipment and personal
property affixed or in any manner attached to the real estate and/or
building(s) or structure(s), including all additions and accessions thereto and
replacements thereof and articles in substitution therefor, howsoever attached
or affixed, wherever located, including without limitation the locations
described on Exhibit D.
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General Intangibles. All general intangibles including, but
not limited to, goodwill, engineering drawings and customer lists, and other
personal property now owned or hereafter acquired by Debtor other than goods,
accounts, chattel paper, documents and instruments.
Chattel Paper. All of Debtor's interest under chattel paper,
lease agreements and other instruments or documents, whether now existing or
owned by Debtor or hereafter arising or acquired by Debtor, evidencing both a
debt and security interest in or lease of specific goods.
Instruments. All of Debtor's now owned or existing as well as
hereafter acquired or arising instruments and documents.
Rental Agreements. Without limiting the foregoing, all of the
Debtor's right, title and interest in and to the following whether now existing
or hereafter arising or entered into: all agreements (the "Rental Agreements")
entered into by Debtor, as lessor, for the lease, rental or conditional sale of
inventory or equipment, or both, (together with all monies and claims for
monies which may arise out of the Rental Agreements, all claims, rights,
powers, privileges and remedies of Debtor thereunder and, to the extent not
included in the foregoing, any and all proceeds of any and all of the
foregoing).
Intellectual Property. Without limiting the foregoing, all of
Debtor's now or hereafter acquired: (i) Copyrights, including, without
limitation, those listed on Schedule I hereto, as it may be amended from time
to time, (ii) Licenses, including, without limitation, those listed on Schedule
II hereto, as it may be amended from time to time, (iii) Intellectual Property
General Intangibles, (iv) Patents, including, without limitation, those listed
on Schedule III hereto, as it may be amended from time to time, (v) Trademarks,
including, without limitation, those listed on Schedule IV hereto, as it may be
amended from time to time, (vi) Trade Secrets, including, without limitation,
those related to the Products listed on Schedule V hereto, as it may be amended
from time to time, and (vii) all products and Intellectual Property Proceeds
(including, without limitation, insurance proceeds) of, and additions,
improvements and accessions to, and books and records describing or used in
connection with, any and all of the foregoing property.
The term "Collateral" as used in this Agreement shall mean and
include, and the security interest (and pledge and assignment as applicable)
shall cover, all of the property described in this paragraph C, as well as any
accessions, additions and attachments thereto and the proceeds and products
thereof, including without limitation, all cash, general intangibles, accounts,
inventory, equipment, fixtures, notes, drafts, acceptances, securities,
instruments, chattel paper, insurance proceeds payable because of loss or
damage, or other property, benefits or rights arising therefrom, and in and to
all returned or repossessed goods arising from or relating to any of the
property described herein or other proceeds of any sale, rental, lease or other
disposition of such property.
As additional security for the punctual payment and performance of the
Obligations, and as part of the Collateral, Debtor hereby grants to Secured
Party a security interest in, and a pledge and assignment of, all of Debtor's
right, title and interest in and to any and all money, property, deposit
accounts, accounts, securities, documents, chattel paper, claims, demands,
instruments, items or deposits now held or hereafter coming within Secured
Party's custody or control, including without limitation, all certificates of
deposit and other depository accounts, whether such have matured or the
exercise of
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Secured Party's rights results in loss of interest or principal or other
penalty on such deposits, but excluding deposits subject to tax penalties if
assigned and excluding deposits of F.I.C.A. and federal withholding taxes.
Without prior notice to or demand upon the Debtor (except as otherwise provided
in the Loan Agreement), Secured Party may exercise its rights granted above at
any time when an event of default has occurred and is continuing. Secured
Party's rights and remedies under this paragraph shall be in addition to and
cumulative of any other rights or remedies of Secured Party provided in the
Loan Agreement or any of the other Loan Documents or otherwise afforded at law
and equity including, without limitation, any rights of setoff to which Secured
Party may be entitled.
All terms not otherwise defined herein or defined in the Loan
Agreement and which are defined in the Uniform Commercial Code adopted in the
State of Texas in effect on the date of execution hereof, shall have the
meaning ascribed to them in the Uniform Commercial Code adopted in the State of
Texas in effect as of the date of execution hereof and set forth in any
amendment to the Uniform Commercial Code adopted in the State of Texas to
become effective after the date of execution hereof.
D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents and warrants as follows:
1. Ownership; No Encumbrances. The Debtor is, and as to any
property acquired after the date hereof which is included within the
Collateral, Debtor will be, the owner of such Collateral free and clear of all
security interests, charges, adverse claims, encumbrances, liens and rights of
any and every nature whatsoever except for (a) the security interests (and
pledges and assignments, as applicable) granted hereby, and (b) the Permitted
Liens. Schedules I through V attached hereto accurately describe all material
Copyright registrations, applications for Copyright registrations, Licenses,
Patents, and applications for Patents and Trademarks owned by Debtor, except
those filed in foreign jurisdictions which are not yet recorded in Debtor's
central records.
2. No Financing Statements. There is no financing statement or
similar filing now on file in any public office covering all or any part of the
Collateral, and Debtor will not execute and there will not be on file in any
public office any such financing statement or similar filing except (i) the
financing statements filed or to be filed in favor of Secured Party or (ii)
financing statements that evidence Permitted Liens, and (iii) the filing of
this Agreement or a representation hereof with the United States Patent and
Trademark Office, the United States Copyright Office, and any similar office or
agency.
3. Accuracy of Information. All information furnished by Debtor
to Secured Party concerning Debtor, the Collateral and the Obligations, or
otherwise for the purpose of obtaining or maintaining credit, is or will be at
the time the same is furnished, accurate and complete in all material respects.
4. Authority. Debtor has full right and authority to execute and
perform its obligations under this Agreement and to create the security
interest (and pledges and assignment as applicable) created by this Agreement.
The making and performance by Debtor of this Agreement will not violate any
articles or certificates of incorporation, bylaws or similar document
respecting Debtor, any provision of law, any order of court or governmental
agency, or any indenture or other agreement to which Debtor is a party, or by
which Debtor or any of the Collateral is bound, or be in conflict with, result
in a breach of or constitute (with due notice and/or lapse of time) a default
under any such indenture
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or other agreement, or result in the creation or imposition of any charge,
lien, security interest, claim or encumbrance of any and every nature
whatsoever upon the Collateral, except as contemplated by this Agreement.
5. Addresses. The address of Debtor designated on the signature
page hereof is Debtor's place of business, if Debtor has only one place of
business; Debtor's chief executive office, if Debtor has more than one place of
business and the location where Debtor keeps all of its books and records with
respect to any accounts. Debtor agrees not to change such address without
advance written notice to Secured Party.
6. Possession of Collateral; Locations.
(a) To the best of Debtor's knowledge, the Debtor has
possession and control of its inventory, fixtures and equipment, except for (i)
inventory rented, leased, subleased, consigned for sale or rental, sold by
conditional sale or on demonstration to any customer or sales agent in the
ordinary course of the Debtor's business, (ii) inventory or equipment in
transit in the ordinary course of the Debtor's business, (iii) inventory,
equipment or fixtures under repair or maintenance by parties other than the
Debtor, (iv) inventory and equipment in the possession of persons who are
providing specialized fabrication of component parts in the ordinary course of
the Debtor's business and (v) equipment and fixtures at store points and sales
locations owned or leased by Debtor and leased or subleased to third parties or
otherwise not occupied by the Debtor.
(b) To the best of Debtor's knowledge, the list attached
hereto as Exhibit "A" accurately and completely describes all current locations
of any and all inventory and equipment owned by Debtor except for the inventory
and equipment described in the foregoing subclauses 6(a)(i) through (v).
(c) All of Debtor's equipment and fixtures that are based
in the United States of America, Canada, Venezuela, and Scotland will be
located at all times in Eligible Jurisdictions (except for equipment and
fixtures described in subclauses 6(a)(ii), 6(a)(iii), and 6(a)(iv) above which,
to the extent they are not located in Eligible Jurisdictions, shall at no time
constitute a material portion of the Debtor's equipment and fixtures based in
the United States of America, Canada, Venezuela and Scotland). The term
"Eligible Jurisdictions" means at any time with respect to any Collateral (i)
the jurisdictions listed on Exhibit B attached hereto or, if any state
designated on Exhibit B as a "Non-Central Filing State", the counties or
parishes listed on Exhibit B, and (ii) any other jurisdiction in the United
States of America, Canada, Venezuela, and Scotland in which Collateral is
located so long as Debtor delivers to Secured Party written notice that
Collateral is, or is to be, located in that jurisdiction within sufficient time
to permit Secured Party to continue its security interest in such Collateral on
a continuous basis and Debtor provides to Secured Party financing statements or
other documents reasonably required by Secured Party to perfect a first
priority security interest (subject only to Permitted Liens) in such
Collateral.
7. Labor Standards Compliance. Debtor and each of its
Subsidiaries has produced all goods in compliance in all material respects with
the terms and requirements of the Fair Labor Standards Act of 1938 (29 U.S.C.
Section 201 et seq.), as amended.
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E. GENERAL COVENANTS. Debtor covenants and agrees as follows:
1. Operation of the Collateral. Debtor agrees to maintain and
use the Collateral solely in the conduct of its own business. All Collateral
will be maintained in a careful and proper manner, and in conformity in all
material respects with all applicable material permits or licenses. Debtor
shall comply in all respects with all applicable statutes, laws, ordinances and
regulations, if failure to so comply could reasonably be expected to have a
Material Adverse Effect. Debtor shall not use the Collateral in any unlawful
manner or for any unlawful purposes (if use in an unlawful manner or for an
unlawful purpose could reasonably be expected to have a Material Adverse
Effect), or in any manner or for any purpose that would expose the Collateral
to unusual risk (taking into account the nature of the oil and gas drilling
business), or to penalty, forfeiture or capture, or that would render void,
inoperative or unenforceable any insurance in connection with the Collateral.
Notwithstanding the foregoing, it is understood and agreed that (i) the
Collateral is used in the oil and gas drilling business, (ii) a portion of the
inventory is located in foreign countries which present risk of political
expropriation, civil unrest or other upheaval, (iii) certain of Debtor's sales
agents in foreign countries may be or could become undercapitalized and involve
inherent credit risk and (iv) Debtor's inventory of rental tools is not covered
by insurance.
2. Condition. Debtor shall maintain, service and repair the
Collateral so as to keep it in good working order and condition in all material
respects. Debtor shall replace within a reasonable time all parts that may be
worn out, lost, destroyed or otherwise rendered unfit for use, with appropriate
replacement parts except that tools which, in the ordinary course of its
business, Debtor determines to be worn out or obsolete may be sold as scrap.
Debtor shall obtain and maintain in good standing at all times all applicable
material permits, licenses, registrations and certificates relating to the
Collateral in all material respects.
3. Assessments. Debtor shall promptly pay when due all taxes,
assessments, license fees, registration fees, and governmental charges levied
or assessed against Debtor or with respect to the Collateral or any part
thereof except for those being contested in good faith by appropriate
proceedings and against which Debtor has set up adequate reserves in accordance
with GAAP.
4. No Encumbrances. Debtor agrees not to suffer or permit any
charge, lien, security interest, adverse claim or encumbrance of any and every
nature whatsoever against the Collateral or any part thereof except for (a) the
security interest in favor of Secured Party granted herein, and (b) Permitted
Liens.
5. No Transfer. Except as otherwise provided herein or in the
Loan Agreement with respect to inventory, Debtor shall not, without the prior
written consent of Secured Party, sell, assign, transfer, lease, charter,
encumber, pledge, mortgage, hypothecate or dispose of the Collateral, or any
part thereof, or interest therein, or offer or contract to do any of the
foregoing except for (i) sales and dispositions of Collateral which is worn
out, obsolete or not necessary to Debtor's operations and which occur in the
ordinary course of Debtor's business, (ii) Debtor may transfer inventory and
related support equipment to its Affiliates in the ordinary course of business
for use in foreign countries, as long as Debtor is in compliance with paragraph
D6(c) hereof, and (iii) Debtor may from time to time hereafter sell inventory
in the ordinary course of business on terms and may then sell any promissory
note or other instrument accepted in payment (and any letter of credit or other
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collateral therefor) at such discount from face amount as Debtor may agree.
Debtor agrees to notify Secured Party promptly upon the sale of a store point
or sales location, such notice to include the aggregate sales price and a copy
of the applicable sales agreement(s) and related documents.
6. Notices and Reports. To the extent not previously performed
pursuant to Section 6.8 of the Loan Agreement Debtor shall promptly notify
Secured Party in writing of any change in the name, identity or structure of
Debtor, any charge, lien, security interest, claim or encumbrance asserted
against the Collateral (other than Permitted Liens). Debtor shall promptly
notify Secured Party of any additions or changes to Schedules I through V
hereto. Debtor shall furnish such other reports, information and data
regarding the Collateral and such other matters as Secured Party may reasonably
request from time to time. Secured Party is authorized to file at any time and
from time to time one or more financing statements, continuation statements,
filings with the United States Patent and Trademark Office, United States
Copyright Office, and other similar office or agency, or other documents for
the purpose of perfecting, confirming, continuing, enforcing or protecting the
security interests, pledges, assignments and other rights granted to Secured
Party hereunder.
7. Landlord's Waivers. Debtor shall furnish, at Debtor's sole
cost and expense, to Secured Party, if requested, landlord's waivers of all
liens with respect to any Collateral covered by this Agreement that is or may
be located upon leased premises, such landlord's waivers to be in such form and
upon such terms as are reasonably acceptable to Secured Party.
8. Additional Filings. Debtor agrees to execute and deliver such
financing statement or statements, or amendments thereof or supplements
thereto, or other documents as Secured Party may from time to time reasonably
require in order to comply with the Texas Uniform Commercial Code (or other
applicable state law of the jurisdiction where any of the Collateral is
located) and the laws of the United States of America and to preserve, protect
and, if necessary, perfect the Secured Party's rights to the Collateral.
9. Protection of Collateral. Secured Party, at its option, at
anytime after the occurrence and during the continuance of an event of default,
but without any obligation whatsoever to do so, may (a) discharge taxes,
claims, charges, liens, security interests, assessments or other encumbrances
of any and every nature whatsoever (other than Permitted Liens) at any time
levied, placed upon or asserted against the Collateral, or any portion thereof,
(b) place and pay for insurance on the Collateral, or any portion thereof, to
the extent such insurance is required by the Loan Agreement, including
insurance that only protects Secured Party's interest, (c) pay for the repair,
improvement, testing, maintenance and preservation of the Collateral, or any
portion thereof, (d) pay any filing, recording, registration, licensing or
certification fees or other fees and charges related to the Collateral, or any
portion thereof, or (e) take any other action to preserve and protect the
Collateral, or any portion thereof, and Secured Party's rights and remedies
under this Agreement as Secured Party may deem necessary or appropriate.
Debtor agrees that Secured Party shall have no duty or obligation whatsoever to
take any of the foregoing actions. Debtor agrees to promptly reimburse Secured
Party upon demand for any payment made or any expense incurred by the Secured
Party pursuant to this authorization. These payments and expenditures, together
with interest thereon from date incurred until paid by Debtor accruing at a
rate equal to the lesser of (i) the Default Rate
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and (ii) the Maximum Rate, which Debtor agrees to pay, shall constitute
additional Obligations and shall be secured by and entitled to the benefits of
this Agreement.
10. Inspection. Debtor shall permit Secured Party by or through
any of its officers, agents, attorneys or accountants, to inspect and examine
the Collateral, or any portion thereof, wherever located, and to examine and
make copies and abstracts from Debtor's books and records.
11. Insurance. For so long as no event of default has occurred
and is continuing, any proceeds of insurance with respect to Collateral may be
paid to Debtor, provided that if any such payment exceed $250,000, Debtor
covenants to use such proceeds to repair or replace the Collateral, or to pay
the same to Secured Party to be applied to payment of the Obligations, and
Debtor shall provide to Secured Party such evidence and assurance of such use
as Secured Party may require; provided, however, that if an event of default
has occurred and is continuing, all proceeds of insurance with respect to
Collateral shall be paid to Secured Party. Upon the occurrence and during the
continuance of an event of default (i) Secured Party is hereby authorized to
act as attorney for Debtor in obtaining, adjusting, settling and canceling such
insurance and endorsing any drafts or instruments, (ii) Secured Party shall be
authorized to apply the proceeds from any insurance to the Obligations secured
hereby, and (iii) Debtor specifically authorizes Secured Party to disclose
information from the policies of insurance to prospective insurers regarding
the Collateral.
12. Further Assurances. Debtor shall do, make, procure, execute
and deliver all such additional and further acts, things, deeds, interests and
assurances as Secured Party may reasonably require from time to time to
protect, assure and enforce Secured Party's rights and remedies granted under
this Agreement.
F. ADDITIONAL PROVISIONS REGARDING ACCOUNTS. The following
provisions shall apply to all accounts included within the Collateral:
1. Definitions. The term "account," as used in this Agreement,
shall have the same meaning as set forth in the Uniform Commercial Code of
Texas in effect as of the date of execution hereof, and as set forth in any
amendment to the Uniform Commercial Code of Texas to become effective after the
date of execution hereof, and also shall include, but shall not be limited to,
all present and future notes, instruments, documents, general intangibles,
drafts, acceptances and chattel paper of Debtor, and the proceeds thereof.
2. Additional Warranties. The Debtor will maintain its accounts
receivable in a manner consistent with normal business practices, including
normal terms and conditions for payment, for companies engaged in similar
operations in similar jurisdictions. Debtor represents and warrants as to each
and all of its accounts as follows: (a) substantially all of Debtor's accounts
arise out of a bona fide sale or lease of goods delivered to, or out of and for
services actually rendered by Debtor to, the account debtor named in the
account; and (b) Debtor is the owner thereof free and clear of any charges,
liens, security interests, adverse claims and encumbrances of any and every
nature whatsoever except Permitted Liens.
3. Collection of Accounts. Secured Party shall have the right at
any time after the occurrence and during the continuance of an event of
default, in its own name or in the
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name of the Debtor to require Debtor forthwith to transmit all proceeds of
collection of accounts to Secured Party, to notify any and all account debtors
to make payments of the accounts directly to Secured Party, to demand, collect,
receive, receipt for, sue for, compound and give acquittal for, any and all
amounts due or to become due on the accounts and to endorse the name of the
Debtor on all commercial paper given in payment or part payment hereof, and in
Secured Party's discretion to file any claim or take any other action or
proceeding that Secured Party may deem necessary or appropriate to protect and
preserve and realize upon the accounts and related Collateral. Unless and
until Secured Party elects to collect accounts, and the privilege of Debtor to
collect accounts is revoked by Secured Party in writing, Debtor shall continue
to collect accounts. In order to assure collection of accounts in which
Secured Party has a security interest (or pledge or assignment as applicable)
hereunder, Secured Party may at any time after the occurrence and during the
continuance of an event of default notify the post office authorities to change
the address for delivery of mail addressed to Debtor to such address as Secured
Party may designate, and to open and dispose of such mail and receive the
collections of accounts included herewith. Secured Party shall have no duty or
obligation whatsoever to collect any account, or to take any other action to
preserve or protect the Collateral; however, should Secured Party elect to
collect any account or take possession of any Collateral, Debtor releases
Secured Party from any claim or claims for loss or damage arising from any act
or omission in connection therewith, including, without limitation, any claim
or claims for loss or damage arising, in whole or in part, from any negligent
act or omission of Secured Party, its officers, directors, employees, agents,
successors or assigns, except for the Secured Party's gross negligence or
willful misconduct.
4. Identification and Assignment of Accounts. At any time after
the occurrence and during the continuation of an event of default and upon the
written request of Secured Party, Debtor shall take such action and execute and
deliver such documents as Secured Party may reasonably request in order to
identify, confirm, mark, segregate and assign accounts and to evidence Secured
Party's interest in same. Without limitation of the foregoing, upon the
written request of Secured Party, Debtor agrees to assign accounts to Secured
Party, identify and mark accounts as being subject to the security interest (or
pledge or assignment as applicable) granted hereby, mark Debtor's books and
records to reflect such assignments, and forthwith to transmit to Secured Party
in the form as received by Debtor any and all proceeds of collection of such
accounts. The provisions of this paragraph F.4 are in addition to, and do not
limit, the provisions of paragraph H.2 of this Security Agreement.
5. Account Reports. Debtor will deliver to Secured Party written
reports in form and content satisfactory to Secured Party, with respect to
accounts and such other information as set forth in the Loan Agreement or as
Secured Party may request from time to time.
G. ADDITIONAL PROVISIONS REGARDING INVENTORY. The following
provisions shall apply to all inventory included within the Collateral:
1. Revenue Producing Assets Reports. Upon Secured Party's
request, Debtor will deliver to Secured Party the written report setting forth
a description of the Revenue Producing Assets of the Borrower and their
respective values (on an original cost basis) and their respective locations.
Debtor shall immediately notify Secured Party of any matter affecting the
Revenue Producing Assets which creates a Material Adverse Effect.
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2. Use of Inventory. Unless and until the privilege of Debtor to
use inventory in the ordinary course of Debtor's business is revoked by Secured
Party upon the occurrence and during the continuance of an event of default,
Debtor may use the inventory in any manner not inconsistent with this
Agreement, may sell or lease that part of the Collateral consisting of
inventory provided that all such sales and leases are in the ordinary course of
business, and may use and consume any raw materials or supplies that are
necessary in order to carry on Debtor's business. A sale in the ordinary
course of business does not include a transfer in partial or total satisfaction
of a debt.
3. Accounts as Proceeds. All accounts that are proceeds of the
inventory included within the Collateral shall be subject to all of the terms
and provisions hereof pertaining to accounts.
4. Protection of Inventory. Debtor shall take all action
necessary to protect and preserve the inventory in all material respects.
H. ADDITIONAL PROVISIONS REGARDING CHATTEL PAPER. The following
provisions shall apply to chattel paper and similar property included within
the Collateral:
1. Representations and Warranties. Debtor represents and
warrants to Secured Party that: (a) Debtor is the owner of all inventory or
has a perfected first and prior security interest or lien on any such
inventory, except for the rights of any party to whom the inventory was sold,
rented or leased ("Customer"), any security interests or liens thereon in favor
of Secured Party and Permitted Liens; and (b) all chattel paper and any and all
documents related thereto are genuine and in all respects what they purport to
be and arise out of bona fide sales, rentals or leases of goods sold, rented or
leased; and (c) the Debtor will maintain its chattel paper in a manner
consistent with normal business practices, including normal terms and
conditions for payment, for companies engaged in similar operations in similar
jurisdictions.
2. Legend. Within five (5) Business Days from the date of
execution hereof, Debtor (a) shall cancel and strike through any and all
legends placed on the chattel paper and any documents relating thereto
declaring a security interest in favor of any creditor (other than Secured
Party), and (b) shall stamp, imprint or type in bold print and in a conspicuous
place on all chattel paper with Debtor as the lessor and each document relating
thereto the following legend:
"THIS CHATTEL PAPER IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, AS AGENT FOR THE
BENEFIT OF THE BANKS (AS SUCH TERM IS DEFINED IN THAT CERTAIN THIRD
AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF JUNE 20, 1997, AMONG
DAILEY PETROLEUM SERVICES, CORP., THE FINANCIAL INSTITUTIONS A PARTY
THERETO FROM TIME TO TIME (THE "BANKS"), AND THE AGENT, AS THE SAME
MAY BE AMENDED OR RESTATED AT ANY TIME)."
Debtor shall immediately stamp, print or type such legend in bold and in a
conspicuous place on all chattel paper hereafter made with Debtor as lessor.
Without limiting the right of inspection granted to Secured Party elsewhere in
this Agreement, Debtor shall permit
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Secured Party by or through any of its officers, agents, attorneys or
accountants, to visit the offices of Debtor and inspect and examine the chattel
paper, or any portion thereof, all at reasonable times during normal business
hours upon reasonable advance notice, or at the option of Secured Party, to
require Debtor to deliver to Secured Party copies of any or all such chattel
paper, all in order to assure compliance with the covenants in this
subparagraph 2.
3. Assignment of Perfected Interests. In the event Debtor files
or causes to be filed or recorded any financing statement or similar filing to
perfect its security interest or lien in any of the inventory, Debtor shall
reflect on such filing the assignment of such security interest to Secured
Party or at the election of Secured Party, Debtor shall execute and deliver to
Secured Party assignments of any such financing statements which Secured Party
may record, at the expense of Debtor.
4. Location of Chattel Paper. Debtor shall keep all chattel
paper and related records at its executive office located at the address of
Debtor set forth on the signature page of the Loan Agreement and shall not
relocate any of such chattel paper or related records without the prior written
consent of Secured Party.
I. ADDITIONAL PROVISIONS REGARDING RENTAL AGREEMENTS AND SIMILAR
COLLATERAL. The following provisions shall apply to all Rental Agreements
included within the Collateral:
1. General Representations and Warranties. Debtor represents and
warrants to Secured Party that Debtor has full right, power and authority to
assign its interest in the Rental Agreements and Debtor has not assigned or
granted a security interest in any of the Rental Agreements to anyone other
than Secured Party, and (b) Debtor's interest in the Rental Agreements is not
subject to any claim, setoff, lien, deduction or encumbrance of any nature,
except Permitted Liens.
2. Retention of Obligations. Neither this assignment nor any
action or actions on the part of Secured Party shall constitute an assumption
of any obligation on the part of Secured Party under the Rental Agreements and
Debtor shall continue to be liable for all obligations thereunder, Debtor
hereby agreeing to perform each and all of its obligations under the Rental
Agreements and to indemnify and hold Secured Party free and harmless from and
against any loss, costs, liability or expense (including but not limited to
reasonable attorneys' fees, the allocated costs of staff counsel and
accountants' fees) resulting from any failure of Debtor to so perform.
3. Rights to Assume Upon Event of Default. On or after the
occurrence and during the continuance of an event of default, Secured Party
may, but shall not be obligated to, assume all of the rights and obligations of
Debtor under any or all of the Rental Agreements. Debtor agrees that it will,
upon the request of Secured Party from time to time and at any time after an
event of default has occurred and is continuing, execute and deliver such
documents and instruments as Secured Party or its counsel may deem necessary or
desirable to effect the assignment of said Rental Agreements to Secured Party
or its nominee. Such assumption, however, shall not relieve Debtor of its
obligations under the Rental Agreements, and Debtor shall remain liable for all
costs and expenses incurred in connection with the performance of its
obligations under the Rental Agreements. If Secured Party shall pay the unpaid
amounts due under any Rental Agreement, Secured Party shall thereupon be
subrogated to all the Debtor's rights against
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the contracting party with respect to such payment. Under no circumstances
shall Secured Party be deemed by any party to have assumed Debtor's rights and
obligations under a Rental Agreement unless and until such written notice is
delivered to the lessee thereunder in accordance with the foregoing.
4. Protection of Rights. Secured Party shall have the right at
any time after the occurrence and during the continuance of an event of default
(but shall have no obligation) to take in its name or in the name of Debtor or
otherwise such action as Secured Party may at any time or from time to time
determine to be necessary to cure any default under the Rental Agreements or to
protect the rights of Debtor or Secured Party thereunder. Secured Party shall
incur no liability to Debtor if any action taken by Secured Party or on its
behalf in good faith pursuant to this Agreement shall prove to be in whole or
in part inadequate or invalid. Debtor agrees to hold Secured Party free and
harmless from and against any loss, cost, liability or expense (including but
not limited to reasonable attorney's fees and expenses) to which Secured Party
may be exposed, or that Secured Party may incur, in exercising any of its
rights under this Agreement except for any such losses, costs, liabilities or
expenses incurred as a result of the Secured Party's gross negligence or
willful misconduct.
5. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party its true and lawful attorney-in-fact in Debtor's name or
in Secured Party's name or otherwise, upon the occurrence and during the
continuation of an event of default, to enforce, all rights of Debtor under the
Rental Agreements, and, or, to transfer the Rental Agreements to Secured Party
pursuant to paragraph 3 of this Section I. It is hereby recognized that the
power of attorney herein granted is coupled with an interest and shall not be
revocable.
6. Disposition. Debtor will not enter into any other security
agreement covering the Collateral and will not permit any other financing
statement covering the same to be on file so long as any of the Obligations
remain unpaid, except any such security agreement or financing statement in
favor of Secured Party. Except as provided in clause (iii) of paragraph E.5 of
this Agreement, Debtor will not sell or offer to sell or transfer any Rental
Agreements or rights under Rental Agreements as long as the Obligations remain
unpaid.
7. Maintenance of Rental Agreements. Debtor, at its expense,
shall perform and observe all terms and provisions of the Rental Agreements to
be performed and observed by it, maintain the Rental Agreements in full force
and effect and enforce the Rental Agreements in accordance with their terms
where Debtor's failure to do any such item would have a Material Adverse
Effect. Debtor will give Secured Party access to copies of all notices,
requests and other documents received by Debtor under or pursuant to the Rental
Agreements. Debtor shall not, without the prior written consent of Secured
Party, cancel or terminate the Rental Agreements, or consent to or accept any
cancellation or termination thereof, amend or otherwise modify the Rental
Agreements in any manner, give any consent, waiver or approval thereunder or
waive any default under or breach of any Rental Agreements except (in any such
event) in the ordinary course of Debtor's business.
8. Receipt of Proceeds in Trust by Debtor. In the event Debtor
shall receive any moneys, income, payments or benefits attributable or accruing
to the Rental Agreements, Debtor will hold the same in trust for Secured Party
and will not commingle
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the same with any other property or moneys of Debtor and will promptly deliver
the same to Secured Party in the form received, such sums to be applied toward
the payment of the principal balance of the Obligations, or, in Secured Party's
sole discretion, released to Debtor; provided, however, that Debtor may retain,
use, commingle, and dispose of any moneys received before the occurrence and
during the continuance of an event of default from payment of any moneys,
income, payments or benefits attributable to the Rental Agreements for any
lawful corporate purpose and such moneys shall not constitute part of the
moneys held in trust.
9. Form of Rental Agreements. All Rental Agreements will be in
substantially the form previously delivered to Secured Party or in such other
form or forms reasonably acceptable to the Secured Party. Debtor shall not
enter into any Rental Agreements prohibiting their assignability.
10. Collection of Accounts and General Intangibles. In addition
to the foregoing, without assuming any rights or obligations under any of the
Rental Agreements, Secured Party shall have the right in its own name or in the
name of the Debtor, after the occurrence and during the continuance of an event
of default, to require Debtor forthwith to transmit all proceeds of Rental
Agreements not otherwise received in trust hereunder to Secured Party, to
notify any and all parties to said Rental Agreements to make payments
thereunder directly to Secured Party, to demand, collect, receive, receipt for,
sue for, compound and give acquittal for, any and all amounts due or to become
due thereunder and to endorse the name of Debtor on all commercial paper given
in payment or part payment thereof, and in Secured Party's discretion to file
any claim or take any other action or proceeding that Secured Party may deem
necessary or appropriate to protect and preserve and realize upon the Rental
Agreements. Secured Party shall have no duty or obligation whatsoever to
collect any amounts under the Rental Agreements, or to take any other action to
preserve or protect the Rental Agreements; however, should Secured Party elect
to collect any amounts under the Rental Agreements or take any other action to
protect or preserve same, Debtor releases Secured Party from any claim or
claims for loss or damage arising from any act or omission in connection
therewith, except for Secured Party's gross negligence or willful misconduct
BUT INCLUDING, WITHOUT LIMITATION, ANY CLAIMS ARISING OUT OF OR RELATING TO, IN
WHOLE OR IN PART, THE NEGLIGENT ACTS OR OMISSION OF SECURED PARTY.
J. ADDITIONAL PROVISIONS REGARDING INTELLECTUAL PROPERTY.
1. Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms have the following meanings:
"Copyrights" means all of the following now or hereafter owned
by Debtor: (i) all copyright in any original work of authorship fixed in any
tangible medium of expression, now known or later developed, (ii) all
registrations and applications for registration of any such copyright in the
United States or any other country or political subdivision, including, without
limitation, registrations, recordings, supplemental registrations and
applications in the United States Copyright Office, and (iii) the right to sue
for past, present and future infringement of the foregoing.
"Copyright License" means any written agreement executed or to
be executed by Debtor granting any right to any third party under any Copyright
now or
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hereafter owned by Debtor, or granting any right to Debtor under any Copyright
now or hereafter owned by any third party.
"Intellectual Property General Intangibles" means all
intangible intellectual or other similar property of Debtor of any kind or
nature now owned or hereafter acquired by Debtor, including without limitation,
inventions, designs, Patents, Copyrights, Licenses, Trademarks and associated
goodwill, Trade Secrets, confidential or proprietary technical and business
information, know-how, improvements, technical developments, know-how or other
data or information, software, databases and related documentation,
registrations, franchises, and all other intellectual or other similar property
rights not otherwise described above.
"License" means any Patent License, Trademark License,
Copyright License or other intellectual property license as to which Debtor is
a party.
"Patent License" means any written agreement executed or to be
executed by Debtor granting to any third party any right to practice any
invention disclosed and claimed in a Patent, now or hereafter owned by Debtor,
or granting to Debtor any right to practice any invention disclosed and claimed
in a Patent, now or hereafter owned by any third party.
"Patents" means all of the following now or hereafter owned by
Debtor: (i) all extant letters patent of the United States or any other country
or political subdivision, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country or
political subdivision, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or any other
country or political subdivision, (ii) all reissues, continuations, divisions,
continuations-in-part or extensions thereof, (iii) all inventions disclosed and
claimed therein, including the right to make, use and or sell the inventions
disclosed and claimed therein, and (iv) the right to sue for past, present and
future infringement of the foregoing.
"Intellectual Property Proceeds" means any consideration
received by Debtor from the sale, exchange, lease or other disposition of any
asset or property which constitutes Collateral, any value received as a
consequence of the possession of any Collateral and any payment received from
any insurer or other person or entity as a result of the destruction, loss,
theft or other involuntary conversion of whatever nature of any asset or
property which constitutes Collateral, any claim of Debtor which constitutes
Collateral, any claim of Debtor against third parties (i) for past, present or
future infringement of any Patent or Patent License, or (ii) for past, present
or future infringement or dilution of any Trademark or Trademark License or for
injury to the goodwill associated with any Trademark or Trademark licensed
under any Trademark License, or (iii) for past, present or future infringement
of any Copyright or Copyright License, and any and all other amounts from time
to time to time paid or payable under or in connection with any of the
Collateral.
"Trademark License" means any written agreement executed or to
be executed by Debtor granting to any third party any right to use any
Trademark now or hereafter owned by Debtor, or granting to Debtor any right to
use any Trademark now or hereafter owned by any third party.
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"Trademarks" means all of the following now or hereafter owned
by Debtor: (i) all trademarks, service marks, trade names, corporate names,
company names, indicia, business source identifiers, business names, fictitious
business names, trade styles, trade dress, logos, other source or business
identifiers, designs and general intangibles of like nature all of the type for
which exclusive rights may be provided under the laws of the applicable
jurisdiction, now existing or hereafter adopted or acquired, all registrations
and recordings thereof, and all applications in connection therewith,
including, without limitation, registrations, recordings and applications in
the United States Patent and Trademark Office, any State of the United States
or any other country or any political subdivision thereof, (ii) all goodwill
associated therewith arising in or relating to the ordinary course of business
of Debtor, (iii) all extensions or renewals thereof, and (iv) the right to sue
for past, present and future infringement of the foregoing.
"Trade Secrets" means all trade secrets and other confidential
or proprietary technical and business information, now or hereinafter owned by
Debtor, including, without limitation, manufacturing processes, formulas,
compositions, data and other technical information and know-how all of the type
for which exclusive rights may be provided under the laws of the applicable
jurisdiction, relating to the products listed on Schedule V hereto, as it may
be amended from time to time, and any improvements thereon or changes thereto.
2. Trademark. Debtor (either itself or through licensees) will,
for each Trademark material to the conduct of Debtor's business, (i) continue
to use such Trademark on each and every trademark class of goods applicable to
its current line of products and/or services as reflected in its current
catalogs, brochures and price lists in order to maintain such Trademark in full
force free from any claim of abandonment for nonuse, (ii) maintain the quality
of products and services offered under such Trademark, (iii) employ such
Trademark with the notice of application or Federal registration as the case
may be, (iv) not use such Trademark in violation of any third-party rights and
(v) not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby such Trademark may become abandoned or
invalidated.
3. Patent. Debtor (either itself or through licensees) will, for
each Patent, not do any act, or omit to do any act, whereby any Patent which is
material to the conduct of Debtor's business may become invalidated or
dedicated, and shall continue to mark any products covered by a Patent with the
relevant patent number as required by the patent laws.
4. Copyright. Debtor (either itself or through licensees) will,
for each work covered by a Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as required
under the copyright laws.
5. Notification. Debtor shall notify Secured Party immediately
if it knows or has reason to know that any Patent, Trademark or Copyright
material to the conduct of its business may become abandoned or dedicated, or
of any adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any Proceeding in
the United States Patent and Trademark office, United States Copyright Office
or any court) regarding such ownership of any such material Patent, Trademark
or Copyright, its right to register the same, or to keep and maintain the same.
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6. Filings. In no event shall Debtor, either itself or through
any agent, employee, licensee or designee, file an application for any Patent,
Trademark or Copyright with the United States Patent and Trademark Office,
United States Copyright Office or any similar office or agency in the United
States of America or any state thereof or enter into a License, unless it
timely executes, delivers and files for record, at its expense, in the United
States Patent and Trademark Office, the United States Copyright Office, or
similar office or agency of the United States of America or any state thereof,
as applicable, notice of this security interest in the form attached hereto as
Exhibit "C" or an equivalent thereof ("Notice of Security Interest"). Debtor,
at Debtor's expense, shall execute, deliver and file for record from time to
time at Secured Party's request, but not more often than annually, (a) Notice
of Security Interest in the United States Patent and Trademark Office and the
Library of Congress, as appropriate, to evidence and perfect this security
interest in each Patent, application for Patent, Trademark, application or
registration of Trademark, Patent License and Trademark License, provided no
such Notice of Security Interest in favor of Secured Party is on file with such
Office or Library, and (b) Notice of Security Interest in the United States
Copyright Office to evidence and perfect this security interest in each
Copyright, Copyright License and application or registration of Copyright,
provided no such Notice of Security Interest in favor of Secured Party is on
file with such Office. Each Notice of Security Interest shall completely and
accurately describe such Collateral and shall otherwise fully comply with the
rules of the respective offices in which they are filed. Upon request of
Secured Party, Debtor shall execute and deliver any and all other agreements,
instruments, documents, financing statements or amendments or supplements
thereto, notices of security interest and papers as Secured Party may
reasonably request to evidence and perfect Secured Party's security interest in
any such Patent, Trademark, Copyright or License, and the goodwill and general
intangibles of Debtor relating thereto or represented thereby, and Debtor
hereby constitutes Secured Party its attorney-in-fact upon the occurrence and
during the continuance of an event of default to execute and file such writings
for the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power, being coupled with an interest, is irrevocable until the
Obligations are paid in full.
7. Maintenance. Debtor will take all necessary steps that are
consistent with the general practice of companies in the Debtor's industry in
any proceeding before the United States Patent and Trademark Office, United
States Copyright Office or any similar office or agency, to maintain and pursue
each application material to the conduct of Debtor's business relating to the
Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or
registration) and to maintain each registration material to the conduct of
Debtor's business of the Patents, Trademarks and Copyrights including, without
limitation, filing of application for renewal, affidavits of use, affidavits of
incontestability and maintenance fees, and, where appropriate, to initiate
opposition, interference and cancellation proceedings against third parties.
8. Infringement, Misappropriation or Dilution. In the event that
any Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of Debtor's business is believed infringed, misappropriated or diluted
by a third party, Debtor shall notify Secured Party within fifteen (15) days
after it learns thereof and shall, if consistent with good business practice,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
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9. Validity. To the best of Debtor's knowledge, each of the
Patents, Trademarks, Copyrights and Licenses which are material to the Debtor's
business are valid and enforceable and the Debtor has notified the Secured
Party in writing of all prior licenses, conveyances and transfers thereof
(including public uses and sales within one year of the date hereof) of which
it is aware and which are in effect and of all suits pending, or litigation
threatened of which the Debtor has actual knowledge which relate in any way to
the Patents, Trademarks, Copyrights and Licenses that are material to the
Debtor's business.
K. EVENTS OF DEFAULT. For purposes of this Agreement, the terms
"default" and "event of default" shall mean a "Default" and "Event of Default,"
respectively, as each of those terms are defined in the Loan Agreement.
L. REMEDIES. Upon the occurrence of and during the continuance
of an event of default, Secured Party, at its option, shall be entitled to
exercise any one or more of the remedies set forth in the Loan Agreement, any
of the other Loan Documents, any afforded at law or in equity and any of the
following remedies (all of which are cumulative):
1. Remedies. Secured Party shall have all of the rights and
remedies provided for in this Agreement, in the Loan Agreement and in any of
the other Loan Documents, the rights and remedies in the Uniform Commercial
Code of Texas, or to the extent the laws of states other than Texas would
apply, then any rights and remedies provided by the laws of those
jurisdictions, and any and all of the rights and remedies at law and equity,
all of which shall be deemed cumulative. Without limiting the generality of
the foregoing, Debtor agrees that Secured Party shall have the right to (a)
require Debtor to assemble the Collateral, or any portion thereof, and make it
available to Secured Party at a place designated by Secured Party that is
reasonably convenient to both parties, which Debtor agrees to do; (b) take
possession of the Collateral, or any portion thereof, with or without process
of law, and, in this connection, enter any premises where the Collateral, or
any portion thereof, is located to remove same, to render it unusable, or to
dispose of same on such premises; (c) sell, lease or otherwise dispose of the
Collateral, or any portion thereof, by public or private proceedings, for cash
or credit, without assumption of credit risk and Secured Party may conduct one
or multiple sales of such Collateral, or any portion thereof, without limiting,
releasing or affecting the right of Secured Party to conduct other sales with
respect to the remaining Collateral; and/or (d) collect and receipt for,
compound, compromise, and settle, and give releases, discharges and
acquittances with respect to, any and all amounts owned by any person or entity
with respect to the Collateral, or any portion thereof. Unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will send Debtor
reasonable notice of the time and place of any public sale or of the time after
which any private sale or other disposition will be made. Any requirement of
reasonable notice to Debtor shall be met if such notice is mailed, first class
mail, postage prepaid, to Debtor at the address of Debtor designated at the
beginning of this Agreement, at least ten (10) days before the day of any
public sale or at least ten (10) days before the time after which any private
sale or other disposition will be made.
2. Appointment of Secured Party as Attorney-in-Fact. Debtor
irrevocably appoints Secured Party and any officer or agent thereof, with a
full power of substitution, as its true and lawful attorney-in-fact to take any
and all appropriate action in Secured Party's discretion and to execute any and
all documents and instruments which Secured
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Party may deem necessary and desirable to accomplish the purpose of this
Agreement, including without limitation, to bring suit to enforce or defend any
of the Intellectual Property General Intangibles; to demand, collect, recover
and give receipts with respect to any sums due under any of the Collateral and
to receive, endorse and collect any drafts, instruments or documents of title
with respect to any Collateral, to remove any Collateral from the property
owner, encumbrancer or other person having an interest in the property where
any Collateral is located, and in connection therewith, Secured Party is
authorized to show a copy of this Agreement to such person as evidence of
Debtor's appointment of Secured Party as Debtor's agent and lawful
attorney-in-fact and of Debtor's authorization to allow Secured Party to remove
any collateral from said property. This power of attorney is a power coupled
with an interest and shall be irrevocable.
3. Expenses. Debtor shall be liable for and agrees to pay the
reasonable expenses incurred by Secured Party in enforcing its rights and
remedies, in retaking, holding, testing, repairing, improving, selling, leasing
or disposing of the Collateral, or any portion thereof, or like expenses,
including, without limitation, attorneys' fees and out-of-pocket legal expenses
incurred by Secured Party. These expenses, together with interest thereon from
the date incurred until paid by Debtor at the Default Rate, which Debtor agrees
to pay, shall constitute additional Obligations and shall be secured by and
entitled to the benefits of this Agreement.
4. Proceeds; Surplus; Deficiencies. Proceeds received by Secured
Party from disposition of the Collateral, or any portion thereof, shall be
applied toward Secured Party's expenses and other Obligations in such order or
manner as Secured Party may elect. Debtor shall be entitled to any surplus if
one results after lawful application of the proceeds. To the extent not
prohibited by applicable laws, Debtor shall remain liable for any deficiency.
5. Remedies Cumulative. The rights and remedies of Secured Party
are cumulative and the exercise of any one or more of the rights or remedies
shall not be deemed an election of rights or remedies or a waiver of any other
right or remedy. Secured Party may remedy any default and may waive any
default without waiving the default remedied or without waiving any other prior
or subsequent default.
M. OTHER AGREEMENTS.
1. Savings Clause. The usury savings clause provided in Section
11.6 of the Loan Agreement is incorporated by reference into this Agreement and
is made a part hereof for all purposes; it being agreed that all rights and
remedies of Secured Party hereunder are subject to and entitled to the benefit
of the terms of such usury savings clause.
2. WAIVERS. DEBTOR AND ANY MAKER, ENDORSER, GUARANTOR, SURETY OR
OTHER PARTY LIABLE IN ANY CAPACITY RESPECTING THE OBLIGATIONS HEREBY WAIVE
DEMAND, NOTICE OF INTENTION TO ACCELERATE, NOTICE OF ACCELERATION, NOTICE OF
NONPAYMENT, PRESENTMENT, PROTEST, NOTICE OF DISHONOR AND ANY OTHER SIMILAR
NOTICE WHATSOEVER. THE DEBTOR HEREBY WAIVES ALL RIGHTS TO RECEIVE FROM THE
SECURED PARTY OR THE BANKS A COPY OF ANY FINANCING STATEMENT OR FINANCING
CHANGES STATEMENT FILED, OR
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ANY VERIFICATION STATEMENT RECEIVED, AT ANY TIME IN RESPECT OF THIS AGREEMENT.
3. Severability. Any provision hereof found to be invalid by
courts having jurisdiction shall be invalid only with respect to such provision
(and then only to the extent necessary to avoid such invalidity). The
offending provision shall be modified to the maximum extent possible to confer
upon Secured Party the benefits intended thereby. Such provision as modified
and the remaining provisions hereof shall be construed and enforced to the same
effect as if such offending provision (or portion thereof) had not been
contained herein, to the maximum extent possible.
4. Use of Copies. Any carbon, photographic or other reproduction
of this Agreement or any financing statement signed by Debtor is sufficient as
a financing statement for all purposes, including without limitation, filing in
any state as may be permitted by the provisions of the Uniform Commercial Code
of such state; provided, however, Secured Party agrees to omit from any copy or
reproduction of this Agreement to be filed for record in any public office the
portion of Schedule III which lists and describes pending applications for
letters patent, it being understood, however, that Secured Party may file, or
cause to be filed, notices of security interest with the United States Patent
and Trademark Office and attach thereto descriptions of any pending
applications for letters patent.
5. Relationship to Other Agreements. This Security Agreement and
the security interests (and pledges and assignments as applicable) herein
granted are in addition to (and not in substitution, novation or discharge of)
any and all prior or contemporaneous security agreements, security interests,
pledges, assignments, liens, rights, titles or other interests in favor of
Secured Party or assigned to Secured Party by others in connection with the
Obligations. All rights and remedies of Secured Party in all such agreements
are cumulative, but in the event of actual conflict in terms and conditions,
the terms and conditions of this Agreement shall govern and control; provided,
however, in the event of any conflict between the terms and conditions of this
Agreement and the Loan Agreement, the terms and conditions of the Loan
Agreement shall govern and control.
6. Notices. Any notice or demand given by Secured Party to
Debtor in connection with this Agreement, the Collateral or the Obligations
shall be given in accordance with Section 11.8 of the Loan Agreement.
7. Headings and Gender. Paragraph headings in this Agreement are
for convenience only and shall be given no meaning or significance in
interpreting this Agreement. All words used herein shall be construed to be of
such gender or number as the circumstances require.
8. Amendments. Neither this Agreement nor any of its provisions
may be changed, amended, modified, waived or discharged orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, amendment, modification, waiver or discharge is sought.
9. Continuing Agreement. The security interest (and pledges and
assignments as applicable) hereby granted and all of the terms and provisions
in this Agreement shall be deemed a continuing agreement. They shall continue
in full force and effect and
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remain effective between the parties until the earlier of (a) the expiration of
four (4) years after repayment in full of all Obligations, or (b) the repayment
in full of all Obligations and the giving by Debtor of ten (10) days' written
notice of revocation of this Agreement.
10. Binding Effect. The provisions of this Security Agreement
shall be binding upon the heirs, personal representatives, successors and
assigns of Debtor and the rights, powers and remedies of Secured Party
hereunder shall inure to the benefit of the successors and assigns of Secured
Party; provided, however, nothing herein contained shall permit Debtor to
assign, transfer or convey any or all of the Collateral in violation of the
terms of this Agreement or the Loan Agreement.
11. Release of Certain Collateral. Secured Party hereby agrees
that in the event Debtor hereafter acquires fixed assets subject to a purchase
money Lien or purchase money security interest which is a Permitted Lien to
secure indebtedness permitted by Section 6.1(iii) of the Loan Agreement and the
security agreement pursuant to which Debtor grants such Lien or security
interest prohibits the Secured Party's lien in such fixed assets, then the
security interest granted herein in such fixed assets and the proceeds thereof
shall terminate and be of no further force and effect; provided, however, that
at such time no default or event of default then exists and that upon payment
in full of the indebtedness secured by such purchase money Lien or such
purchase money security interest, the security interest created hereby in such
fixed assets shall automatically be reinstated with full force and effect.
Secured Party hereby agrees to execute such partial release forms as may be
reasonably required from time to time by the lender or lenders who are entitled
to such purchase money Lien or purchase money security interest in accordance
with this Section M.11.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT (A) PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE PERFECTION
OR FORECLOSURE OF LIENS AND ENFORCEMENT OF RIGHTS AND REMEDIES AGAINST THE
COLLATERAL ARE GOVERNED BY THE LAWS OF ANY APPLICABLE JURISDICTION OTHER THAN
THE STATE OF TEXAS, AND (B) THAT THE LAWS OF THE UNITED STATES OF AMERICA
INCLUDING, WITHOUT LIMITATION, THE NATIONAL BANK ACT, AND ANY RULES,
REGULATIONS OR ORDERS ISSUED OR PROMULGATED UNDER SUCH LAWS APPLICABLE TO THE
AFFAIRS AND TRANSACTIONS ENTERED INTO BY SECURED PARTY AND THE BANKS, OTHERWISE
PREEMPT TEXAS, OR OTHER STATE LAW, IN WHICH EVENT SUCH FEDERAL LAW SHALL
CONTROL.
13. SUBMISSION TO JURISDICTION. WITH RESPECT TO ANY AND ALL
DISPUTES ARISING HEREUNDER, UNDER THE OTHER LOAN DOCUMENTS, OR UNDER ANY OF THE
OTHER INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH
NOT SETTLED, OR SUBJECT TO ARBITRATION, PURSUANT TO THE ARBITRATION PROGRAM
REFERENCED IN SECTION M.14 HEREOF, THE DEBTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY DOCUMENT TO WHICH IT IS A
PARTY, OR FOR RECOGNITION AND
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ENFORCEMENT OF ANY JUDGMENT IN RESPECT OF ANY THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF TEXAS, THE COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND APPELLATE
COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM AND MAIL), POSTAGE PREPAID, TO IT AT
ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGE HEREOF; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
14. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any
Dispute shall be resolved by binding arbitration (except as set forth in (e)
below) in accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall
be resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the Loan Documents. The arbitration shall be conducted at a location in
Texas selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award
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rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any party to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain provisional or
ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a receiver, from a
court of competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in the
substantive laws applicable to the subject matter of the Dispute. Arbitrators
are empowered to resolve Disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve
all Disputes in accordance with the substantive law of the state of Texas, (ii)
may grant any remedy or relief that a court of the state of Texas could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to
the contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of Texas, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of (A)
whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of Texas. Judgment confirming an award
in such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas.
(f) Miscellaneous. To the maximum extent practicable,
the AAA, the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results
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thereof, except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein. If
more than one agreement for arbitration by or between the parties potentially
applies to a Dispute, the arbitration provision most directly related to the
Loan Documents or the subject matter of the Dispute shall control. This
arbitration provision shall survive termination, amendment or expiration of any
of the Loan Documents or any relationship between the parties.
15. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTES, THE
OTHER LOAN DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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EXECUTED this 20TH day of June, 1997.
DEBTOR:
----------------------------------------
By
-------------------------------------
Name: David T. Tighe
Title: Vice President
Address:
2507 N. Frazier
Conroe, Texas 77303
SECURED PARTY:
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, as Agent for
the Banks
By
-------------------------------------
Name: Theodore M. Nowak
Title: Vice President
Address:
1000 Louisiana
Houston, Texas 77002
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