<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-11051
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5084 76-0475815
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
5555 SAN FELIPE
HOUSTON, TEXAS 77056
(713) 960-5100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
PAUL M. NATION
VICE PRESIDENT AND GENERAL COUNSEL
NATIONAL-OILWELL, INC.
5555 SAN FELIPE
HOUSTON, TEXAS 77056
(713) 960-5100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
JOHN S. WATSON JAMES M. PRINCE
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER, 1001 FANNIN 4200 TEXAS COMMERCE TOWER, 600 TRAVIS
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2222 (713) 220-4200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01......................... $82,800,000 $28,552
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</TABLE>
(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any state in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* state. *
* *
***************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 24, 1996
PROSPECTUS
4,000,000 SHARES
[NATIONAL-OILWELL, INC. LOGO]
NATIONAL-OILWELL, INC.
COMMON STOCK
------------------------
All 4,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by National-Oilwell,
Inc. (the "Company"). The initial public offering price is expected to be
between $15.00 and $17.00 per share.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "NOI."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $720,000.
(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 600,000 shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York, on or
about , 1996.
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
SIMMONS & COMPANY
INTERNATIONAL
------------------------
The date of this Prospectus is , 1996.
<PAGE> 3
[Drawing of drilling rig and supporting equipment with certain components
thereof manufactured by National-Oilwell highlighted with enlarged pictures.]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes (i) exercise of
the Warrant to purchase 282,392 shares of Common Stock and, assuming an initial
public offering price of $16.00 per share, (ii) all outstanding shares of the
Company's Class A Common Stock are converted into 2,021,452 shares of Common
Stock on the effective date of the Registration Statement of which this
Prospectus is a part and (iii) 343,986 shares of Common Stock to be issued in
connection with the Company's Value Appreciation Plans are issued and
outstanding. Prospective purchasers of the Common Stock should carefully read
this entire Prospectus and should consider, among other things, the matters set
forth under "Risk Factors." Unless otherwise indicated, all information relating
to the Company contained in this Prospectus assumes the over-allotment option
described under "Underwriting" is not exercised. Certain capitalized terms which
are used but not defined in this summary are defined elsewhere in this
Prospectus.
THE COMPANY
National-Oilwell, Inc. (the "Company") is a worldwide leader in the design,
manufacture and sale of machinery and equipment and in the distribution of
maintenance, repair and operating ("MRO") products used in oil and gas drilling
and production. The Company designs, manufactures and sells drawworks, mud pumps
and power swivels (also known as "top drives"), which are the major mechanical
components of rigs used to drill oil and gas wells. Many of these components are
designed specifically for applications in offshore, extended reach and deep land
drilling. These components are installed on new drilling rigs and used in the
upgrade, refurbishment and repair of existing drilling rigs. A significant
portion of the Company's business includes the sale of replacement parts for its
own manufactured machinery and equipment. The Company estimates that
approximately 65% of the mobile offshore rig fleet and the majority of the
world's larger land rigs (2,000 horsepower and greater) manufactured in the last
twenty years utilize certain drilling machinery components manufactured by the
Company. In addition, the Company manufactures and sells a complete line of
centrifugal and reciprocating pumps used in oilfield and industrial
applications.
The Company provides distribution services through its network of 121
distribution service centers located near major drilling and production activity
worldwide, but principally in the United States and Canada. These distribution
service centers have historically provided MRO products, including valves,
fittings, flanges, replacement parts and miscellaneous expendable items. As oil
and gas companies and drilling contractors have refocused on their core
competencies and emphasized efficiency initiatives to reduce costs and capital
requirements, the Company's distribution services have evolved to offer
outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support. These arrangements have resulted in
the Company working more closely with its customers in return for a more
exclusive oilfield distribution arrangement.
The Company's business is dependent on and affected by the level of
worldwide oil and gas drilling and production activity, the aging worldwide rig
fleet which was generally constructed prior to 1982, and the profitability and
cash flow of oil and gas companies and drilling contractors. Drilling activity
has recently increased in the offshore and deeper land markets both of which are
particularly well served by the drilling machinery and equipment manufactured by
the Company. As of June 30, 1996, the worldwide offshore mobile drilling rig
utilization rate was over 90% and the number of active U.S. land rigs had
increased approximately 15% compared to June 30, 1995. As drilling activity has
increased, the Company has experienced increased demand for its manufactured
products and distribution services as existing rigs are upgraded, refurbished
and repaired, new rigs are constructed and expendable parts are used.
The Company's oilfield equipment business and distribution services
business accounted for 56% and 44%, respectively, of the combined earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the six
months ended June 30, 1996.
3
<PAGE> 5
BUSINESS STRATEGY
Beginning in 1993, a new executive and operating team was assembled to
manage the Company's business. In January 1996, that new management team,
together with an investor group led by The Inverness Group Incorporated and
First Reserve Corporation, purchased the business of the Company from its former
owners, USX Corporation and Armco Inc. Since 1993, the business strategy of the
Company has been to enhance its operating performance and build a platform for
growth by focusing on markets in which its product lines are market leaders and
which are believed by management to provide the most significant growth
potential. As part of that strategy, the Company disposed of certain of its
non-core equipment manufacturing businesses and product lines and reengineered
its distribution business during the years 1993 through 1995. See "The Company."
The completion of the redirection of the Company's business in 1995, combined
with the increase in the level of worldwide oil and gas drilling activity, has
resulted in a substantial improvement in the Company's performance, with EBITDA
before special items increasing from $6.2 million for the six months ended June
30, 1995 to $15.3 million for the six months ended June 30, 1996. See "The
Company."
The Company's current business strategy is to enhance its leading market
positions and operating performance by:
Leveraging Its Market Leading Installed Base. The Company estimates that
approximately 65% of the mobile offshore drilling rigs and the majority of the
world's larger land drilling rigs operating today use certain drilling machinery
components manufactured by the Company. The Company believes this market-leading
installed base presents substantial opportunities to capture a significant
portion of the increased level of expenditures by its customers for the
construction of new drilling rigs as well as the upgrade and refurbishment of
existing drilling rigs.
Capitalizing on Increasing Demand for Higher Horsepower Drilling Machinery.
The Company believes the advanced age of the existing fleet of drilling rigs,
coupled with increasing drilling activity involving greater water depths and
extended reach, will increase the demand for new drilling rig construction and
the upgrading and capacity enhancement of existing rigs. The Company's higher
horsepower drawworks, mud pumps and power swivels provide, in many cases, the
largest capacities currently available in the industry.
Building on Distribution Strengths. The Company has developed and
implemented integrated information and process systems that are designed for
more effective procurement, inventory management and logistics activities. A
critical element of the Company's strategy has been to regionally centralize its
procurement, inventory and logistics operations, thus gaining cost and inventory
utilization efficiencies while retaining its responsiveness to local markets. In
addition, the strategic integration of the Company's distribution expertise,
extensive distribution network and growing base of customer alliances provides
an increased opportunity for cost effective marketing of the Company's
manufactured equipment.
Capitalizing on Alliance/Outsourcing Trends. As a result of efficiency
initiatives, oil and gas companies and drilling contractors are frequently
seeking alliances with suppliers, manufacturers and service providers, or
outsourcing their procurement, inventory management and logistics requirements
for equipment and supplies in order to achieve cost and capital improvements.
The Company has entered into and is seeking alliance arrangements to better
serve its customers, to better manage its own inventory, to increase the volume
and scope of products sold to the customer without significantly increasing the
Company's overhead costs, and to expand marketing opportunities to sell
equipment manufactured by the Company. The Company believes that it is well
positioned to provide broad procurement, inventory management and other services
as a result of the Company's (i) large and geographically diverse network of
distribution service centers in major oil and gas producing areas, (ii)
purchasing leverage due to the volume of products sold, (iii) breadth of
available product lines and (iv) information systems that offer customers
enhanced online and onsite services.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock Offered by the Company.......... 4,000,000 shares
Common Stock to be Outstanding After the
Offering................................... 17,712,378 shares(1)
Use of Proceeds.............................. To repay certain outstanding indebtedness,
essentially all of which was incurred to fund
the acquisition of the Company, and for other
general corporate purposes. See "Use of
Proceeds."
New York Stock Exchange Symbol............... "NOI"
</TABLE>
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(1) Subject to adjustment based on the initial public offering price as
described in "Management -- Employee Benefit Plans and Arrangements" and
"Description of Capital Stock -- Common Stock."
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under the caption "Risk Factors." In particular, prospective
purchasers should be aware of the Company's dependence on the oil and gas
industry, the volatility of oil and gas prices and the effect of competition in
the oilfield products and services industry.
5
<PAGE> 7
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND OTHER DATA
The summary historical consolidated financial data presented below for the
three years ended December 31, 1995 is derived from the audited consolidated
financial statements of the Company. The summary consolidated financial
information as of June 30, 1996 and for the six months ended June 30, 1996 and
1995 is derived from the Company's unaudited consolidated financial statements
which, in the opinion of management, include all adjustments, consisting only of
normal recurring accruals and adjustments, necessary for the fair presentation
of the financial data for such periods.
The summary unaudited pro forma consolidated financial information is
derived from the Unaudited Pro Forma Condensed Consolidated Financial Statements
of the Company included elsewhere in this Prospectus. The unaudited pro forma
consolidated financial data give effect to (i) the pro forma effect of
completion of the Acquisition and (ii) the adjusted pro forma effect of
completion of the Offering and the application of the estimated net proceeds
therefrom as described elsewhere in this Prospectus. The pro forma financial
data is not necessarily indicative of actual results of operations that would
have occurred during those periods and is not necessarily indicative of future
results of operations. The summary consolidated financial information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Consolidated Financial
Statements of the Company and related Notes thereto and the Unaudited Pro Forma
Condensed Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
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YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------------------------------
JUNE 30, PRO FORMA PRO FORMA
-------------------- FOR OFFERING FOR ACQUISITION
1996 1995 1995 1995 1995 1994 1993
--------- -------- ------------ --------------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 294,643 $266,443 $545,803 $ 545,803 $545,803 $562,053 $627,281
Cost of revenues............... 254,556 231,556 474,791 474,791 474,791 482,423 547,401
--------- -------- ------------ --------------- -------- -------- --------
Gross profit................. 40,087 34,887 71,012 71,012 71,012 79,630 79,880
Selling, general and
administrative............... 26,681 30,903 57,231 58,231 57,231 64,422 79,391
Special charges (credits)(1)... -- (7,500) (8,458) (8,458) (8,458) (13,916) 8,565
--------- -------- ------------ --------------- -------- -------- --------
Operating income (loss)...... 13,406 11,484 22,239 21,239 22,239 29,124 (8,076)
Interest expense -- net........ (6,418) (1,063) (5,935) (12,817) (1,261) (4,731) (7,276)
Other income (expense)......... (321) 161 (1,563) (1,563) (1,401) 528 (240)
--------- -------- ------------ --------------- -------- -------- --------
Income (loss) before taxes... 6,667 10,582 14,741 6,859 19,577 24,921 (15,592)
Provision for income
taxes(2)..................... 2,667 1,204 5,408 2,413 1,937 1,041 1,871
--------- -------- ------------ --------------- -------- -------- --------
Net income (loss)....... $ 4,000 $ 9,378 $ 9,333 $ 4,446 $ 17,640 $ 23,880 $(17,463)
========= ========= ========== ============= ========= ========= =========
Net income per share(3)........ $ .30 $ .53 $ .33
========= ========== =============
Common shares
outstanding(3)(4)............ 13,368 17,712 13,368
========= ========== =============
OTHER DATA:
EBITDA before special
items(5)..................... $ 15,309 $ 6,156 $ 17,376 $ 16,376 $ 17,376 $ 21,235 $ 11,210
Summary cash flow information
Net cash provided (used) by
operating activities....... (10,552) (3,816) 41,670 37,551 (14,489)
Net cash provided (used) by
investing activities....... (107,175) 8,580 8,827 68,199 2,872
Net cash provided (used) by
financing activities....... 122,239 (1,918) 7,210 (101,753) 12,338
Depreciation and
amortization................. 1,903 2,172 3,595 3,595 3,595 6,027 10,721
Capital expenditures........... 849 2,031 4,764 4,764 4,764 3,604 1,967
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
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HISTORICAL AS ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $125,580 $130,321
Total assets.......................................... 259,481 258,732
Long-term debt, less current maturities............... 118,688 65,836
Stockholders' equity.................................. 33,982 84,259
</TABLE>
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(1) In 1995 and 1994, the Company recorded gains from the sales of certain
non-core equipment manufacturing businesses, product lines and assets, net
of other costs. In 1993, the Company recorded charges primarily related to
the disposal of a product line. See Note 10 to the Consolidated Financial
Statements included elsewhere in this Prospectus.
6
<PAGE> 8
(2) Prior to January 1, 1996, the Company was a general partnership and
therefore not subject to U.S. federal and state income taxes. See Note 9 to
the Consolidated Financial Statements included elsewhere in this Prospectus.
(3) Historical net income (loss) per share and common shares outstanding are not
presented for periods prior to January 1, 1996 because the Company was a
general partnership during these periods.
(4) Common shares outstanding assumes all outstanding shares of Class A Common
Stock are converted into 2,021,452 shares of Common Stock (assuming an
initial public offering price of $16.00 per share) in connection with the
Offering. In addition, the 1995 Pro Forma for Offering shares outstanding
includes an additional 343,986 shares (assuming an initial public offering
price of $16.00 per share) issuable under the Value Appreciation Plans and
4,000,000 shares sold in connection with the Offering.
(5) EBITDA before special items means operating income (loss) plus depreciation
and amortization plus special charges (credits). The Company uses EBITDA
along with a measurement of capital employed in the calculation of its
annual bonus plan and in the evaluation of acquisition candidates. EBITDA is
frequently used by security analysts in the evaluation of companies and is
not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
EBITDA before special items is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of the Company's operating performance or any other
measure of performance in accordance with generally accepted accounting
principles.
(6) Gives effect to the Offering and application of the assumed net proceeds
described under "Use of Proceeds." Also reflects the Offering related
adjustments described on the Unaudited Pro Forma Condensed Consolidated
Balance Sheet.
7
<PAGE> 9
RISK FACTORS
The following risk factors should be considered carefully in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby in addition to the other information in this Prospectus.
DEPENDENCE ON OIL AND GAS INDUSTRY
The Company's business is substantially dependent upon the condition of the
oil and gas industry and the industry's willingness to explore for and produce
oil and gas. The degree of such willingness is generally dependent upon the
prevailing view of future product prices, which are influenced by numerous
factors affecting the supply and demand for oil and gas, including the level of
drilling activity, worldwide economic activity, interest rates and the cost of
capital, environmental regulation, tax policies, political requirements of
national governments, coordination by the Organization of Petroleum Exporting
Countries ("OPEC") and the cost of producing oil and gas. Similarly, any
significant reduction in demand for drilling services, in cash flows of drilling
contractors or in rig utilization rates below current levels could result in a
drop in demand for products manufactured and sold by the Company. See
"Business -- General."
VOLATILITY OF OIL AND GAS PRICES
Oil and gas prices and activity have been characterized by significant
volatility over the last twenty years. Since 1986, domestic spot oil prices
(West Texas Intermediate) have ranged from a low of approximately $11 per barrel
in July 1986 to a high of approximately $40 per barrel in October 1991; domestic
spot gas prices (Henry Hub) have ranged from a low of approximately $0.90 per
mcf of gas in January 1992 to a high of approximately $2.69 per mcf in June
1996. These price changes have caused numerous shifts in the strategies of oil
and gas companies and drilling contractors and their expenditure levels and
patterns, particularly with respect to decisions to purchase major capital
equipment of the type manufactured by the Company. No assurance can be given as
to the future price levels of oil and gas or the volatility thereof or that the
future price of oil and gas will be sufficient to support current levels of
exploration and production-related activities.
HIGHLY COMPETITIVE INDUSTRY
The oilfield products and services industry is highly competitive. The
Company's revenues and earnings can be affected by competitive actions such as
price changes, introduction of new products or improved availability and
delivery. Over the last several years the market for oilfield services and
equipment has experienced overcapacity which has resulted in increased price
competition in many areas of the Company's business. The Company competes with a
large number of companies, some of which may offer certain more technologically
advanced products or possess greater financial resources than the Company. See
"Business -- Oilfield Equipment" and "Business -- Distribution Services."
POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS
Certain products of the Company are used in potentially hazardous drilling,
completion and production applications that can cause personal injury or loss of
life, damage to property, equipment or the environment and suspension of
operations. The Company maintains insurance coverage in such amounts and against
such risks as it believes to be in accordance with normal industry practice.
Such insurance does not, however, provide coverage for all liabilities
(including liabilities for certain events involving pollution), and there can be
no assurance that such insurance will be adequate to cover all losses or
liabilities that may be incurred by the Company in its operations. Moreover, no
assurance can be given that the Company will, in the future, be able to maintain
insurance at levels it deems adequate and at rates it considers reasonable or
that any particular types of coverage will be available. Litigation arising from
a catastrophic occurrence at a location where the Company's equipment and
services are used may in the future result in the Company's being named as a
defendant in product liability or other lawsuits asserting potentially large
claims. The Company is a party to various legal and administrative proceedings
which have arisen from ongoing and discontinued operations. No
8
<PAGE> 10
assurance can be given with respect to the outcome of these or any other pending
legal and administrative proceedings and the effect such outcomes may have on
the Company. See "Business -- Operating Risks and Insurance" and
"Business -- Legal Proceedings."
IMPACT OF GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulation, including those relating to oilfield operations, worker safety and
the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration for or production of oil and gas for economic
or other policy reasons could adversely affect the Company's operations. The
Company cannot determine the extent to which its future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations. See "Business -- Governmental Regulation and Environmental
Matters."
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may impose penalties or sanctions for damages to natural
resources or threats to public health and safety. Such laws and regulations may
also expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed. Sanctions for noncompliance may
include revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Certain environmental laws provide for joint
and several liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. See
"Business -- Governmental Regulation and Environmental Matters."
RISK OF CERTAIN FOREIGN MARKETS
Certain of the Company's revenues result from the sale of products to
customers for ultimate destinations in the Middle East, Africa and other
international markets and are subject to risks of instability of foreign
economies and governments. Furthermore, the Company's sales can be affected by
laws and regulations limiting exports to particular countries. Management
estimates that during the first half of 1996 approximately 20% of its revenues
were from products sold for delivery to destinations outside North America.
The Company attempts to limit its exposure to foreign currency fluctuations
by limiting the amount of sales denominated in currencies other than United
States dollars, Canadian dollars and British pounds. The Company has not engaged
in and does not currently intend to engage in any significant hedging or
currency trading transactions designed to compensate for adverse currency
fluctuations among those or any other foreign currencies. See
"Business -- Oilfield Equipment" and "Business -- Distribution Services."
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering there has been no public market for the Common Stock.
There can be no assurance that an active public market for the Common Stock will
develop upon completion of the Offering or, if developed, that such market will
be sustained. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the representatives of
the Underwriters and may bear no relationship to the market prices of the Common
Stock after the Offering. Prices for the Common Stock after the Offering may be
influenced by a number of factors, including the liquidity of the market for the
Common Stock, investor perceptions of the Company and the oil and gas industry
and general economic and other conditions. Sales of substantial amounts of
Common Stock in the public market subsequent to the
9
<PAGE> 11
Offering could adversely affect the market price of the Common Stock. For
information relating to the factors to be considered in determining the initial
public offering price, see "Underwriting."
POTENTIAL FUTURE SALE OF SHARES COULD AFFECT MARKET PRICE
Upon consummation of the Offering, the 4,000,000 shares of Common Stock
offered hereby will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except for shares sold by persons deemed to be "affiliates" of the
Company or acting as "underwriters," as those terms are defined in the
Securities Act. The 1,168,310 shares of Common Stock owned by two limited
partnerships (the "Inverness Investors") for which Inverness/Phoenix LLC serves
as managing general partner which were issued on July 15, 1995 are restricted
from resale pursuant to Rule 144 under the Securities Act until after July 15,
1997. The remaining shares of Common Stock held by the Company's existing
stockholders were issued in 1996 and are restricted from resale pursuant to Rule
144 until various dates in 1998. The parties to the Stockholders Agreement have
waived their registration rights with respect to a Registration Statement filed
by the Company with respect to the Offering. See "Certain
Transactions -- Stockholders Agreement." The Company, its executive officers and
directors and all existing stockholders of the Company have agreed not to offer,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
pledge, or otherwise dispose of or transfer any shares of Common Stock, with
certain exceptions, for a period of 180 days commencing on the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") as representative of the Underwriters. The
holders of approximately 9,378,001 shares of Common Stock (assuming an initial
public offering price of $16.00 per share) will have demand registration rights
following the expiration of 180 days after the completion of the Offering.
Future sales of shares of Common Stock by existing stockholders and future
option holders could adversely affect the market price of the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting."
CREDIT FACILITY RESTRICTIONS; ASSET ENCUMBRANCES
The Company will enter into a new five-year Senior Secured Revolving Credit
Facility (the "New Credit Facility") with General Electric Capital Corporation
("GE Capital") effective as of the closing of the Offering. The New Credit
Facility provides for a $120 million revolving loan ("the Revolver"), of which
$25 million may be used for letters of credit. The Revolver is subject to a
borrowing base limitation of 60% of eligible inventory plus 85% of eligible
accounts receivable plus various percentages of the book value of certain fixed
assets, all of which would have totaled $118.8 million as of June 30, 1996. The
New Credit Facility is secured by substantially all of the Company's assets and
contains certain financial covenants and ratios as well as a limitation on
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CONTROL BY CERTAIN STOCKHOLDERS
Following completion of the Offering, the Company's existing stockholders,
including the Inverness Investors, the First Reserve Investors, GE Capital and
members of the Company's management, will collectively own an aggregate of
12,972,196 shares of Common Stock, representing 73.2% of the then outstanding
shares (70.8% if the Underwriters' over-allotment option is exercised in full).
As a result of such ownership, such stockholders could individually or
collectively have the power to control the outcome of certain matters submitted
to a vote of the Company's stockholders, including the election of the Board of
Directors, and their interests may not reflect the interests of other
stockholders. See "Principal Stockholders."
NO ANTICIPATED DIVIDENDS
The Company's board of directors does not currently anticipate authorizing
the payment of dividends in the foreseeable future. In addition, the payment of
dividends is limited by the terms of the Company's New Credit Facility. See
"Dividend Policy."
10
<PAGE> 12
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
The existing stockholders of the Company, including management, will
realize certain benefits as a result of the Offering, including the creation of
a public market for the Common Stock. This may result in an increase in the
value of shares held by existing stockholders. See "Certain Transactions."
DILUTION TO NEW STOCKHOLDERS
Investors in the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $11.67 (assuming an
initial public offering price of $16.00 per share). See "Dilution."
CERTAIN ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE UNSOLICITED ACQUISITION
PROPOSALS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
contain certain provisions which may have the effect of delaying, deferring or
preventing a change in control of the Company, including a classified board of
directors, the removal of directors from office only for cause, the prohibition
of stockholder action by written consent, advance notice requirements respecting
stockholder nominations for director or any other matter, the number of
directors being set by the board of directors, super majority voting provisions
respecting amendments to the Company's Amended and Restated Certificate of
Incorporation and limitation of persons who may call special stockholders'
meetings. The Delaware General Corporation Law requires super majority voting
thresholds to approve certain "business combinations" between interested
stockholders and the Company which may render more difficult or tend to
discourage attempts to acquire the Company. In addition, the Company's board of
directors has the authority to issue shares of preferred stock ("Preferred
Stock") in one or more series and to fix the rights and preferences of the
shares of any such series without stockholder approval. Any series of Preferred
Stock is likely to be senior to the Common Stock with respect to dividends,
liquidation rights and, possibly, voting rights. The ability to issue Preferred
Stock could also have the effect of discouraging unsolicited acquisition
proposals, thus affecting the market price of the Common Stock and preventing
stockholders from obtaining any premium offered by the potential buyer. See
"Description of Capital Stock -- Preferred Stock" and "-- Certain Anti-Takeover
and Other Provisions of the Amended and Restated Certificate of Incorporation."
11
<PAGE> 13
THE COMPANY
In April 1987, Armco Inc., an Ohio corporation ("Armco") and USX
Corporation, a Delaware corporation ("USX"), formed National-Oilwell, a Delaware
partnership (the "Partnership"), to consolidate the oilfield equipment
manufacturing and distribution operations of Armco and USX. The Partnership was
owned 50% each by Armco and USX and was managed through a Management Committee
composed of one representative each of Armco and USX. Prior to such
consolidation, each of Armco's and USX's business operations had been a leader
in the oilfield equipment and distribution businesses since the late 1800's.
Beginning in 1993, a new executive and operating team, led by the Company's
President and Chief Executive Officer, Joel V. Staff, was assembled to manage
the Partnership's business. As a result of this change in management and a
redirection of the Company's strategy, the Company sold various product lines,
consolidated certain manufacturing facilities and concentrated its operations
within two business segments: Oilfield Equipment and Distribution Services. In
1995, the new management team, together with an investor group led by The
Inverness Group Incorporated and First Reserve Corporation, negotiated and
entered into an agreement (the "Purchase Agreement") with Armco and USX to
acquire the Partnership (the "Acquisition"), which acquisition was completed in
January 1996. Prior to the Acquisition, The Inverness Group Incorporated and
First Reserve Corporation were not affiliated with the Company or the
Partnership. Pursuant to the terms of the Purchase Agreement the Company agreed
to purchase the Partnership from USX and Armco for a consideration of $180
million. The purchase price and related expenses were funded by new equity,
existing Partnership cash, a new credit facility, a subordinated note, and
promissory notes to Armco and USX totaling $20 million (the "Seller Notes"). The
new equity was provided by the Inverness Investors, the First Reserve Investors,
GE Capital, and each of the executive officers of the Company. See
"Capitalization" and "Business -- Distribution Services."
In connection with the Acquisition, the Company entered into a $120 million
revolving credit facility with GE Capital, borrowed $30 million pursuant to term
loans and issued a $5 million subordinated note to GE Capital. In addition, GE
Capital received a warrant to purchase 282,392 shares of Common Stock from the
Company for a nominal price. Concurrent with the Offering, GE Capital will
exercise its warrant, and the Company will enter into a new five-year senior
secured revolving credit facility with GE Capital.
In connection with the Acquisition, the Company entered into a five year
tubular distribution agreement with USX on generally the same terms that existed
prior to the Acquisition. Other than the tubular distribution agreement, the
Seller Notes and certain indemnification provisions of the Purchase Agreement,
the Company has no continuing material relationship with the prior owners. See
"Business -- Agreement with Previous Owners."
The Company is a Delaware corporation whose principal executive offices are
located at 5555 San Felipe, Houston, Texas 77056, and its telephone number is
(713) 960-5100. References herein to the Company refer to the predecessor
partnership for periods prior to January 1, 1996 and to National-Oilwell, Inc.
for subsequent periods.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $58.8 million (approximately
$67.7 million if the Underwriters' over-allotment option is exercised in full)
assuming an initial public offering price of $16.00 per share, after deducting
the estimated underwriting discount and offering expenses. The Company will use
the net proceeds of the Offering to repay borrowings incurred to provide funds
for the acquisition of the Company in January 1996 under the credit agreement
dated as of December 29, 1995 (the "Credit Facility") and under a $5 million
subordinated note (the "Subordinated Note"), both with GE Capital. The Company
will use approximately $25.2 million of the estimated net proceeds to repay the
entire remaining principal balance on the term notes portion of the Credit
Facility and approximately $5.1 million to repay the Subordinated Note and its
deferred interest, and the remaining net proceeds of approximately $28.5 million
will be used to repay a portion of the revolving credit portion of the Credit
Facility.
As of June 30, 1996, the outstanding indebtedness under the Credit Facility
was $96.1 million, consisting of $70.9 million under a $120 million revolving
credit and letter of credit facility (the "Revolving Credit Facility") and $12.4
million under Term Loan A and $12.8 million under Term Loan B. Borrowings under
the Revolving Credit Facility and Term Loans A and B generally bear interest at
a London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% on the
Revolving Credit Facility, 3.0% on Term Loan A and 3.5% on Term Loan B, or GE
Capital's prime rate plus a margin of 1.5% on the Revolving Credit Facility,
1.75% on Term Loan A and 2.25% on Term Loan B. At June 30, 1996, the effective
interest rates applicable to borrowings under the Revolving Credit Facility and
the Term Loans were 8.54%, 8.72% and 9.28%, respectively. Term Loan A requires
quarterly principal payments of approximately $500,000, with final maturity on
December 31, 2000. Term Loan B requires quarterly principal payments of
approximately $62,500, with final maturity on December 31, 2001. Certain
prepayments of the Term Loans from excess cash flow are also required. The
Revolving Credit Facility has a term that expires on December 31, 2000. The
Subordinated Note bears interest at GE Capital's prime rate plus a margin of
3.0% (11.25% at June 30, 1996) and is due December 31, 2002. Interest payments
are deferred until Term Loans A and B are repaid and certain other operating
performance requirements are satisfied. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." At the closing of the Offering, the Credit Facility will be
replaced with the New Credit Facility.
DIVIDEND POLICY
The Company currently intends to retain earnings to finance the growth and
development of its business and does not anticipate paying a cash dividend on
the Common Stock in the foreseeable future. Any future change in the Company's
dividend policy will be made at the discretion of the board of directors of the
Company and will depend upon the Company's operating results, financial
condition, capital requirements, general business conditions and such other
factors as the board of directors deem relevant. Under certain circumstances,
the New Credit Facility will require the consent of the lenders prior to any
payment of cash dividends on the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Capital Stock."
13
<PAGE> 15
DILUTION
After giving effect to the conversion of all of the outstanding shares of
Class A Common Stock into shares of Common Stock, exercise of the Warrant, the
expense related to and the issuance of Common Stock in connection with the
Company's Value Appreciation Plans, the write-off of deferred financing costs
and the cost of termination of the Management Services Agreement, and assuming
an initial public offering price of $16.00 per share (the midpoint of the
estimated initial public offering price range), the pro forma net tangible book
value (total assets less goodwill and other intangibles less liabilities) of the
Company at June 30, 1996 was $1.30 per share of Common Stock. See "Description
of Capital Stock" and "Management -- Employee Benefit Plans and Arrangements."
After giving effect to the receipt of an assumed $58.8 million of net proceeds
from the Offering (based on the sale of Common Stock pursuant to the Offering at
an assumed initial public offering price of $16.00 per share and net of
estimated underwriting discounts and commissions and offering expenses), pro
forma net tangible book value per share would have been $4.33 per share of
Common Stock outstanding after the Offering, representing an immediate increase
in net tangible book value of $3.03 per share of Common Stock to the existing
stockholders and an immediate dilution of $11.67 per share to the new investors
purchasing Common Stock in the Offering. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $16.00
Net tangible book value per share before adjustments.............. $1.55
Decrease in net tangible book value per share due to:
-- write-off of deferred financing costs and the cost of
termination of the Management Services Agreement............... (.08)
-- effect of Value Appreciation Plans............................. (.17)
-----
Net tangible book value per share before the Offering............. 1.30
Increase in net tangible book value per share attributable to sale
of Common Stock by the Company in the Offering................. 3.03
-----
Pro forma net tangible book value per share after the Offering............. 4.33
------
Dilution in pro forma net tangible book value per share to new investors... $11.67
======
</TABLE>
The following table sets forth, as of June 30, 1996, the number of shares
of Common Stock purchased or to be purchased from the Company, the total
consideration paid or to be paid to the Company and the average price per share
paid or to be paid by existing stockholders, by Value Appreciation Plans
recipients and by the public investors pursuant to the Offering, based on the
assumed initial public offering price:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 13,368,392 75.5% $ 30,178,860 30.3% $ 2.26
Value Appreciation Plans
recipients...................... 343,986 1.9 5,503,776 5.5 16.00
---------- ------ ------------ ------
13,712,378 77.4 35,682,636 35.8 2.60
Public investors.................. 4,000,000 22.6 64,000,000 64.2 16.00
---------- ------ ------------ ------
Total................... 17,712,378 100.0% $ 99,682,636 100.0%
========== ====== ============ ======
</TABLE>
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the unaudited consolidated short-term debt
and capitalization of the Company as of June 30, 1996, and as adjusted to give
effect (assuming an initial public offering price of $16.00 per share) to the
conversion of the Class A Common Stock into 2,021,452 shares of Common Stock,
the exercise of the Warrant, the expense related to and the issuance of Common
Stock in connection with the Company's Value Appreciation Plans, the write-off
of deferred financing costs and the cost of termination of the Management
Services Agreement and the Offering and the application of the net proceeds to
the Company therefrom (assumed to be $58.8 million) as described under "Use of
Proceeds." The actual number of shares of Common Stock to be outstanding after
the Offering is dependent upon the per share initial public offering price due
to the terms of conversion of the Class A Common Stock and the issuance of
Common Stock pursuant to the Value Appreciation Plans. See "Description of
Capital Stock" and "Management -- Employee Benefit Plans and Arrangements." This
table should be read in conjunction with the Consolidated Financial Statements
of the Company and related Notes thereto, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the Unaudited Pro Forma
Condensed Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt............................. $ 2,500 $ --
======== =========
Long-term debt (less current maturities):
Revolving Credit Facility........................................ $ 70,865 $ 45,836
Term Notes....................................................... 22,705 --
Subordinated debt................................................ 5,118 --
Seller Notes..................................................... 20,000 20,000
---------- -----------
Total long-term debt..................................... 118,688 65,836
Stockholders' equity:
Class A Common Stock -- par value $.01; 13,288 shares outstanding
(historical), no shares outstanding (as adjusted)............. -- --
Common Stock -- par value $.01; 11,064,548 shares outstanding
(historical), 17,712,378 shares outstanding (as adjusted)..... 111 177
Additional paid-in capital....................................... 30,068 94,309
Notes receivable from officers................................... (500) --
Cumulative translation adjustment................................ 303 303
Retained earnings................................................ 4,000 (10,530)
---------- -----------
Total stockholders' equity.................................. 33,982 84,259
---------- -----------
Total capitalization..................................... $ 152,670 $ 150,095
======== =========
</TABLE>
15
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company. The selected consolidated financial data as of and for
each of the five years ended December 31, 1995 have been derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data as of and for each of the six months ended June 30,
1996 and 1995 have been derived from the Company's unaudited consolidated
financial statements which, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals and adjustments,
necessary for the fair presentation of the financial data for such periods. The
results of operations for the six months ended June 30, 1996 should not be
regarded as indicative of the results that may be expected for the full fiscal
year. The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- ---------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 294,643 $266,443 $545,803 $ 562,053 $627,281 $569,911 $802,862
Cost of revenues........................... 254,556 231,556 474,791 482,423 547,401 508,006 697,144
-------- -------- -------- -------- -------- -------- --------
Gross profit............................. 40,087 34,887 71,012 79,630 79,880 61,905 105,718
Selling, general and administrative........ 26,681 30,903 57,231 64,422 79,391 86,943 102,581
Special charges (credits)(1)............... -- (7,500) (8,458) (13,916) 8,565 6,500 24,500
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).................. 13,406 11,484 22,239 29,124 (8,076) (31,538) (21,363)
Interest expense -- net.................... (6,418) (1,063) (1,261) (4,731) (7,276) (4,790) (8,153)
Other income (expense)..................... (321) 161 (1,401) 528 (240) 941 (277)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes............... 6,667 10,582 19,577 24,921 (15,592) (35,387) (29,793)
Provision for income taxes(2).............. 2,667 1,204 1,937 1,041 1,871 876 677
-------- -------- -------- -------- -------- -------- --------
4,000 9,378 17,640 23,880 (17,643) (36,263) (30,470)
Cumulative benefit of net changes in
accounting principles(3)................. -- -- -- -- -- 1,136 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $ 4,000 $ 9,378 $ 17,640 $ 23,880 $(17,463) $(35,127) $(30,470)
======== ======== ======== ======== ======== ======== ========
Common shares outstanding.................. 13,368
========
Net income per share....................... $ .30
========
OTHER DATA:
EBITDA before special items(4)............. $ 15,309 $ 6,156 $ 17,376 $ 21,235 $ 11,210 $(12,805) $ 16,157
Summary cash flow information
Net cash provided (used) by operating
activities............................. (10,552) (3,816) 41,670 37,551 (14,489) 32,635 82,366
Net cash provided (used) by investing
activities............................. (107,175) 8,580 8,827 68,199 2,872 (4,924) (18,391)
Net cash provided (used) by financing
activities............................. 122,239 (1,918) 7,210 (101,753) 12,338 (38,683) (51,489)
Depreciation and amortization.............. 1,903 2,172 3,595 6,027 10,721 12,233 13,020
Capital expenditures....................... 849 2,031 4,764 3,604 1,967 4,941 19,153
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, JANUARY 1, JUNE 30, ---------------------------------------------------------
1996 1996 1995 1995 1994 1993 1992 1991
-------- ---------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $125,580 $121,272 $143,026 $177,365 $ 151,810 $171,632 $179,407 $239,369
Total assets.................... 259,481 259,639 262,216 288,578 268,304 343,479 371,883 453,610
Long-term debt, less current
maturities.................... 118,688 121,128 -- 9,128 -- 69,816 56,467 94,850
Owners' equity.................. 33,982 29,369 171,242 178,012 161,888 170,676 192,546 235,754
</TABLE>
- ---------------
(1) In 1995 and 1994, the Company recorded gains from the sales of certain
non-core equipment manufacturing businesses, product lines and assets, net
of other costs. In 1993, 1992 and 1991, the Company recorded charges
primarily related to the disposal of manufacturing facilities and a product
line. See Note 10 to the Consolidated Financial Statements included
elsewhere in this Prospectus.
(2) Prior to January 1, 1996, the Company was a general partnership and
therefore not subject to U.S. federal and state income taxes. See Note 9 to
the Consolidated Financial Statements included elsewhere in this Prospectus.
(3) The Company changed its methods of accounting for income taxes and
post-retirement benefits other than pensions effective January 1, 1992.
(4) EBITDA before special items means operating income (loss) plus depreciation
and amortization plus special charges (credits). The Company uses EBITDA
along with a measurement of capital employed in the calculation of its
annual bonus plan and in the evaluation of acquisition candidates. EBITDA is
frequently used by security analysts in the evaluation of companies and is
not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
EBITDA before special items is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of the Company's operating performance or any other
measure of performance in accordance with generally accepted accounting
principles.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1996 and unaudited pro forma condensed consolidated statements of
operations for the six months ended June 30, 1996 and for the year ended
December 31, 1995 give effect to (i) the Pro Forma effect of completion of the
Acquisition and (ii) the Adjusted Pro Forma effect of completion of the Offering
and the application of the estimated net proceeds therefrom as described
elsewhere in this Prospectus, as if each had occurred, in the case of the
balance sheet data, on June 30, 1996, and in the case of the statement of
operations data, on January 1, 1995. The June 30, 1996 balance sheet data has
been adjusted only for the effect of completion of the Offering as the
Acquisition adjustments are already reflected therein.
The following unaudited pro forma condensed consolidated financial data
does not necessarily reflect the actual results that would have been achieved
nor is such data necessarily indicative of future results for the Company. The
following unaudited pro forma condensed consolidated information should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in the Prospectus.
The number of shares of Common Stock outstanding on a pro forma basis is
dependent upon the per share initial public offering price due to the terms of
conversion of the Class A Common Stock and the issuance of Common Stock pursuant
to the Value Appreciation Plans. See "Description of Capital Stock -- Common
Stock" and "Management -- Employee Benefit Plans and Arrangements."
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ADJUSTED
PRO
HISTORICAL OFFERING FORMA
---------- -------- --------
<S> <C> <C> <C>
Current assets:
Cash................................................... $ 4,512 $ $ 4,512
Receivables............................................ 86,282 86,282
Inventories............................................ 121,907 121,907
Other.................................................. 7,073 7,073
---------- -------- --------
Total current assets........................... 219,774 219,774
Property, plant and equipment, net....................... 17,916 17,916
Goodwill................................................. 6,408 6,408
Deferred financing costs................................. 6,916 (6,916)(C) 1,200
1,200 (C)
Other assets............................................. 8,467 1,815 (B) 13,434
3,152 (D)
---------- -------- --------
Total assets................................... $ 259,481 $ (749) $258,732
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 2,500 $ (2,500)(A) $ --
Accounts payable....................................... 67,576 67,576
Other accrued liabilities.............................. 24,118 1,000 (B) 21,877
(2,628)(C)
(613)(D)
---------- -------- --------
Total current liabilities...................... 94,194 (4,741) 89,453
Long-term debt........................................... 118,688 (56,300)(A) 65,836
1,200 (C)
2,751 (D)
(500)(E)
(3)(F)
Other liabilities........................................ 12,617 3,775 (B) 19,184
2,792 (D)
---------- -------- --------
Total liabilities.............................. 225,499 (51,026) 174,473
Stockholders' equity:
Common stock........................................... 111 40 (A) 177
4 (D)
22 (F)
Additional paid-in capital............................. 30,068 58,760 (A) 94,309
5,500 (D)
(19)(F)
Notes receivable from officers......................... (500) 500 (E) --
Cumulative translation adjustment...................... 303 303
Retained earnings...................................... 4,000 (2,960)(B) (10,530)
(4,288)(C)
(7,282)(D)
---------- -------- --------
Total stockholders' equity..................... 33,982 50,277 84,259
---------- -------- --------
Total liabilities and stockholders' equity..... $ 259,481 $ (749) $258,732
======== ======== ========
</TABLE>
18
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS,
EXCEPT PER SHARE AMOUNTS, IN THOUSANDS):
A -- To record the issuance of shares of Common Stock pursuant to the Offering
and the application of the assumed net proceeds of $58,800 (4,000,000
shares at $16.00 per share less underwriting discount and expenses
estimated at $5,200) to repay debt as described under "Use of Proceeds."
B -- To record the expense of $4,775 (after tax cost of $2,960) due to the
termination of the Management Services Agreement as described under
"Certain Transactions" which will be paid in quarterly payments of $250
through March 31, 2001, subject to certain accelerating events.
C -- To record the write-off of $6,916 in deferred financing costs (after tax
cost of $4,288) associated with the Credit Facility that will be replaced
at the time of the Offering and the incurrence of an estimated $1,200 of
deferred financing costs that will result from the New Credit Facility.
D -- To record the effect of the Company's Value Appreciation Plans, based on
the assumed $16.00 per share initial public offering price, of an expense
of $11,745 (after tax cost of $7,282), payable by a cash payment of $2,751,
liability for future cash payments of $3,490 and the issuance of 343,986
shares of Common Stock valued at $5,504 as follows:
<TABLE>
<S> <C> <C>
Retained earnings.................................... $7,282
Deferred tax asset................................... 3,152
Taxes payable........................................ 1,311
Long-term debt.................................. $2,751
Current liability............................... 698
Long-term liability............................. 2,792
Common stock.................................... 4
Paid-in capital................................. 5,500
</TABLE>
E -- To record the mandatory repayment of promissory notes to the Company.
F -- To record the exercise of the Warrant and the conversion of the Class A
Common Stock.
19
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ADJUSTED
HISTORICAL ACQUISITION ACQUISITION OFFERING PRO FORMA
---------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................ $294,643 $ $ 294,643 $ $294,643
Cost of revenues.................... 254,556 254,556 254,556
-------- ---- -------- ------ --------
Gross profit........................ 40,087 40,087 40,087
Selling, general and
administrative.................... 26,681 26,681 (500)(B) 26,181
Special charges (credits)........... --
-------- ---- -------- ------ --------
Operating income (loss)............. 13,406 13,406 500 13,906
Interest and financial costs, net... (6,418) (650)(A) (7,068) 3,268 (C) (3,800)
Other income (expense).............. (321) (321) (321)
-------- ---- -------- ------ --------
Income (loss) before income taxes... 6,667 (650) 6,017 3,768 9,785
Provision for income taxes.......... 2,667 (247)(D) 2,420 1,431 (D) 3,851
-------- ---- -------- ------ --------
Net income (loss)................... $ 4,000 $(403) $ 3,597 $2,337 $ 5,934
======== ==== ======== ====== ========
Average shares outstanding.......... 13,368(E) 13,368 (E) 17,712 (F)
======== ======== ========
Net income per share................ $ .30 $ .27 $ .34
======== ======== ========
</TABLE>
- ---------------
A -- To record the estimated increase in interest expense that would have been
incurred related to the Acquisition had the funding of the loans occurred
on January 1, 1996.
B -- To record elimination of management fees as a result of the termination of
the Management Services Agreement in connection with the Offering.
C -- To eliminate interest expense and adjust amortization of deferred
financing costs related to debt that will be repaid with proceeds from the
Offering.
D -- To reflect the income tax expense associated with the above adjustments.
E -- Reflects 11,346,940 shares of Common Stock after exercise of the Warrant
and 2,021,452 shares of Common Stock issuable upon the conversion of the
Class A Common Stock at the assumed $16.00 per share initial public
offering price.
F -- Reflects an additional 343,986 shares of Common Stock issuable under the
Value Appreciation Plans based upon the assumed $16.00 per share initial
public offering price plus the issuance of 4,000,000 shares pursuant to
the Offering.
Note -- The above adjustments do not consider the one-time expenses described at
footnotes B, C and D on the Unaudited Pro Forma Condensed Consolidated Balance
Sheet related to the expense to terminate the Management Services Agreement, the
write-off of financing costs or the expense associated with the Value
Appreciation Plans.
20
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ADJUSTED
HISTORICAL ACQUISITION ACQUISITION OFFERING PRO FORMA
---------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $545,803 $ $ 545,803 $ $545,803
Cost of revenues...................... 474,791 474,791 474,791
-------- -------- -------- ------- --------
Gross profit.......................... 71,012 71,012 71,012
Selling, general and administrative... 57,231 1,000 (A) 58,231 (1,000)(D) 57,231
Special charges (credits)............. (8,458) (8,458) (8,458)
-------- -------- -------- ------- --------
Operating income (loss)............... 22,239 (1,000) 21,239 1,000 22,239
Interest and financial costs, net..... (1,261) (11,556)(B) (12,817) 6,882 (E) (5,935)
Other income (expense)................ (1,401) (162)(C) (1,563) (1,563)
-------- -------- -------- ------- --------
Income (loss) before income taxes..... 19,577 (12,718) 6,859 7,882 14,741
Provision for income taxes............ 1,937 476 (F) 2,413 2,995 (F) 5,408
-------- -------- -------- ------- --------
Net income (loss)..................... $ 17,640 $ (13,194) $ 4,446 $ 4,887 $ 9,333
======== ======== ======== ======= ========
Average shares outstanding............ 13,368 (G) 13,368 (G) 17,712 (H)
======== ======== ========
Net income per share.................. $ 1.32 $ .33 $ .53
======== ======== ========
</TABLE>
- ---------------
A -- To record management fees incurred as a result of the Acquisition.
B -- To record the estimated increase in interest expense and amortization of
deferred financing costs related to the long-term debt that would have
been incurred because of the Acquisition.
C -- To record amortization of goodwill.
D -- To record elimination of management fees as a result of the termination of
the Management Services Agreement in connection with the Offering.
E -- To eliminate interest expense and adjust amortization of deferred
financing costs related to debt that will be repaid with proceeds from the
Offering.
F -- To reflect the income tax expense associated with the above adjustments
and to record the increase in tax expense that would have resulted had the
Company been subject to U.S. federal and state income tax during 1995.
G -- Reflects 11,346,940 shares of Common Stock after exercise of Warrant and
2,021,452 shares of Common Stock issuable upon the conversion of the Class
A Common Stock at the assumed $16.00 per share initial public offering
price.
H -- Reflects an additional 343,986 shares of Common Stock issuable under the
Value Appreciation Plans based upon the assumed $16.00 per share initial
public offering price plus the issuance of 4,000,000 shares pursuant to
the Offering.
Note -- The above adjustments do not consider the one-time expenses
described at footnotes B, C and D on the Unaudited Pro Forma Condensed
Consolidated Balance Sheet related to the expense to terminate the
Management Services Agreement, the write-off of deferred financing costs
or the expense associated with the Value Appreciation Plans.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Effective as of January 1, 1996, all of the Company's operations were
acquired from subsidiaries of Armco Inc. and USX Corporation for $180 million
plus approximately $12 million in transaction costs (the "Acquisition"). The
Acquisition was funded from the sale of $30 million in equity, incurrence of
$114 million of debt and the use of $48 million of acquired cash. In connection
with the Acquisition, all assets and liabilities were recorded at their fair
market values, resulting in no significant change from the historical net
carrying values. The Acquisition resulted in deferred financing costs of $7.7
million and goodwill of $6.5 million. References herein to the Company refer to
the predecessor partnership for periods prior to January 1, 1996 and to
National-Oilwell, Inc. for subsequent periods.
The Company's revenues are directly related to the level of worldwide oil
and gas drilling and production activities and the profitability and cash flow
of oil and gas companies and drilling contractors, which in turn are affected by
current and anticipated prices of oil and gas. While the price of oil and gas is
generally a function of supply and demand, additional influences include costs
of exploration and production, worldwide political and economic influences,
environmental factors and governmental regulation.
As a result of a change in management and a redirection of the Company's
strategy which began in 1993, the Company sold various product lines,
consolidated certain manufacturing facilities and concentrated its operations
within two business segments: Oilfield Equipment and Distribution Services.
RESULTS OF OPERATIONS
The following table and the financial information in the discussion of the
Oilfield Equipment and Distribution Services segments provide certain
information that segregates the results of operations of previously sold product
lines and businesses in order to focus on ongoing operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Oilfield Equipment.................. $ 81.0 $ 78.9 $146.5 $187.9 $179.7
Distribution Services............... 237.3 203.5 432.3 415.7 450.4
Eliminations........................ (23.7) (16.0) (33.0) (60.0) (67.7)
------ ------ ------ ------ ------
Ongoing Operations............... 294.6 266.4 545.8 543.6 562.4
Disposed Businesses................. -- -- -- 18.5 64.9
------ ------ ------ ------ ------
Total....................... $294.6 $266.4 $545.8 $562.1 $627.3
====== ====== ====== ====== ======
Operating Income
Oilfield Equipment.................. $ 8.1 $ 3.1 $ 7.2 $ 7.0 $ .1
Distribution Services............... 7.3 2.5 9.4 9.0 13.9
Corporate........................... (2.0) (1.6) (2.9) (2.9) (2.3)
------ ------ ------ ------ ------
Ongoing Operations............... 13.4 4.0 13.7 13.1 11.7
Disposed Businesses................. -- -- -- 2.1 (11.2)
Special Charges (Credits)........... -- (7.5) (8.5) (13.9) 8.6
------ ------ ------ ------ ------
Total....................... $ 13.4 $ 11.5 $ 22.2 $ 29.1 $ (8.1)
====== ====== ====== ====== ======
</TABLE>
Oilfield Equipment
The Oilfield Equipment segment designs and manufactures a large line of
proprietary products, including drawworks, mud pumps, power swivels and
reciprocating pumps. A substantial installed base of these products
22
<PAGE> 24
results in a recurring replacement parts and maintenance business. In addition,
a full line of drilling pump expendable products are sold for maintenance of the
Company's and other manufacturers' equipment.
Sales of new equipment manufactured by the Company can result in large
fluctuations in volume between periods depending on the size and timing of the
shipment of orders. Individual orders of machinery and equipment by foreign
national oil companies can be particularly large (in excess of $10 million
each). The Company recorded large sales of this nature in each of 1993 and 1994
but has not made similar sales in 1995 or in the first half of 1996.
Revenues and operating profits have been negatively impacted over the last
several years by excess industry capacity that has prevented or reduced price
increases. Accordingly, the Company has concentrated on controlling and reducing
its costs by consolidating operations and streamlining selling and
administrative functions. The Company believes it will benefit from any
increased industry demand as additional activity can be achieved through its
existing facilities.
During the second quarter of 1996, the Company experienced a significant
increase in demand for its capital equipment, especially from offshore drilling
contractors. Sales from orders already received will result in increased capital
equipment revenues in the second half of 1996 as compared to the first six
months. The Company believes that offshore drillers have begun to experience
higher demand for and cash flows from their services that allow them to upgrade
and repair machinery and equipment on existing rigs. Improvements to the
existing fleet have been deferred for many years due to low cash flows caused by
an excess supply of rigs relative to demand, and the need for such upgrades and
repairs may be large. If utilization rates of the offshore mobile rig fleet
remain above 90%, new demand for the construction of rigs could result in a
further increase in demand for machinery and equipment manufactured by the
Company.
Revenues during the first six months of 1996 increased $2.1 million (3%)
over the comparable 1995 period as the increased demand for expendable and
replacement parts more than offset the lack of sales to foreign national oil
companies similar to the total of $9.5 million of such revenues recorded during
the first six months of 1995. Revenues in 1995 were down $41.4 million (22%)
from 1994, in large part due to the absence of $33 million in revenues
associated with an international rig package that was sold in 1994. As compared
to 1993, revenues in 1994 increased $8.2 million (5%) due to increased sales of
drilling capital equipment and related spare parts.
Operating income for the Oilfield Equipment segment increased $5.0 million
in the first half of 1996 as compared to the prior year as a result of higher
revenues, improved product mix and the consolidation in late 1995 of the
Company's United Kingdom manufacturing facility into its Houston location,
thereby resulting in lower costs and a more efficient manufacturing process.
Operating income increased slightly in 1995 in spite of the revenue decline
primarily as a result of the consolidation of facilities and other cost
reduction initiatives. In 1994, operating income increased substantially as
compared to the prior year due to the increase in revenues and the cost
reduction efforts initiated by new management.
Distribution Services
Distribution Services revenues result primarily from the sale of MRO
products from the Company's network of 121 distribution service centers and from
the sale of well casing and production tubing. These products are purchased from
numerous manufacturers and vendors, including the Company's Oilfield Equipment
segment. While the Company has increased revenues and improved its operating
income by entering into alliances and outsourcing arrangements, improvements in
operating results remain primarily dependent on attaining increased volumes of
activity through its distribution service centers while controlling the fixed
costs associated with numerous points of sale. Pricing is a lesser consideration
on operating income from distribution services as most cost increases or
reductions from the Company's suppliers are passed on to the customer.
Revenues for the six months ended June 30, 1996 increased by $33.8 million
(17%) over the comparable 1995 period due to an overall increase in market
activity, including a $16.0 million increase in tubular products sales and a
$12.7 million increase in MRO products sales. Distribution Services' revenues in
1995 were ahead
23
<PAGE> 25
of the 1994 level by $16.6 million (4%) due to improved general market
conditions in North America. As compared to 1993, revenues in 1994 decreased
$34.7 million (8%), primarily due to significantly lower revenues from tubular
products.
Operating income increased $4.8 million during the first six months of 1996
as compared to the same period in 1995 due to the higher revenue levels.
Operating income increased in 1995 as compared to 1994 by only $0.4 million due
to a change in product mix, as revenues from lower margin tubular products
increased as a percentage of segment revenues. A decrease in operating income of
$4.9 million occurred in 1994 from 1993 as a result of the lower revenues.
Corporate
Corporate charges represent the unallocated portion of centralized and
executive management costs. These costs were $2.9 million in each of 1995 and
1994, up from the 1993 level due to the addition of new executive personnel and
costs necessary to refocus the direction of the Company. Corporate costs were up
$0.5 million during the first six months of 1996 as compared to the first six
months of 1995 due to the expense of the management fee paid pursuant to the
Management Services Agreement that will be terminated in connection with the
Offering.
Special Charges (Credits)
Special charges (credits) primarily relate to the sale of businesses and
product lines in connection with a major restructuring and redirection of the
Company that was completed in 1995. During 1995, the Company recorded gains of
$8.5 million ($7.5 million of which were recorded in the first half of the year)
from the sale of a non-oilfield centrifugal pump and switch valve product line
and from the sale of excess property and equipment of closed manufacturing
facilities in the United Kingdom and Canada. A net gain of $13.9 million was
recorded in 1994 from the sales of several production equipment product lines
offset in part by costs associated with the closure of the United Kingdom
facility. In 1993 the Company recorded a net loss of $8.6 million primarily
representing the loss on the sale of its wellhead business and related assets.
Interest Expense
Interest expense increased substantially during the first half of 1996 due
to debt incurred in connection with the Acquisition. Prior to 1996, interest
expense had declined in each of 1995 and 1994 as compared to the prior year due
to reductions in debt made possible by operating profits and proceeds from the
dispositions of various businesses, product lines and assets that generated over
$75 million in cash.
Income Taxes
Due to its partnership status, the Company was not subject to U.S. federal
or state income taxes prior to 1996 and accordingly the tax provision during
such periods relates to foreign income taxes as computed under Statement of
Financial Accounting Standard ("SFAS") No. 109. Beginning in 1996, the Company
is subject to U.S. federal and state taxes and currently estimates the combined
U.S. federal, state and foreign tax rate will approximate 40% of income before
taxes for 1996 although actual taxes paid may be lower as a result of
realization of deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $126 million, a
decrease of $52 million from December 31, 1995, primarily due to the use of cash
in connection with the Acquisition. Working capital had increased by $26 million
at December 31, 1995 from the prior year end primarily due to the retention of
income from operations and proceeds of $6.9 million from the sale of a
non-oilfield pumping product line.
Due to the size of the Company's distribution services business,
significant components of the Company's assets are accounts receivable and
inventories. Accounts receivable increased during the first six months of 1996
due to higher revenues during the period. Inventories also increased due to
higher activity levels. Since
24
<PAGE> 26
1993, the Company has focused significant internal attention and emphasis on
accelerating the collection of accounts receivable and improving the Company's
return on capital employed.
The Company's business has not required large expenditures for capital
equipment. Total capital expenditures were $0.8 million during the first six
months of 1996, $4.8 million in 1995, $3.6 million in 1994 and $2.0 million in
1993. Enhancements to data processing and inventory control systems represent a
large portion of recent capital expenditures. Increases in capital expenditures
of as much as an aggregate of $6 million are anticipated over the next three
years to further enhance the Company's information systems. The Company believes
it has sufficient existing manufacturing capacity to meet current and
anticipated demand for its products and services. Significant increases in
demand for oilfield equipment products, to the extent qualified subcontracting
and outsourcing are not available, could result in increases in capital
expenditures.
The Company believes that cash generated from operations and amounts
available under the New Credit Facility will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
obligations. The Company also believes any significant increase in capital
expenditures caused by any need to increase manufacturing capacity can be funded
from operations or debt financing.
In connection with the Acquisition, the Company entered into a fully
secured, five-year credit agreement (the "Credit Facility") with GE Capital
which provides for revolving credit borrowings of up to $120 million and
long-term debt of $30 million. At June 30, 1996, borrowings under the revolving
portion of the Credit Facility were $70.9 million, plus the Company had incurred
additional usage of $12.6 million for outstanding letters of credit, leaving
$25.3 million of borrowing availability. The long-term portion of the Credit
Facility was reduced from $30 million to $25.2 million at June 30, 1996,
primarily due to the collection of proceeds from an insurance claim that existed
at the time of the Acquisition. Long-term debt at June 30, 1996 also included a
$5.1 million subordinated note and $20 million of debt financed by the sellers
in connection with the Acquisition, neither of which requires current cash
payments of principal or interest. In connection with the Credit Agreement, GE
Capital received a warrant to purchase 282,392 shares of Common Stock from the
Company for a nominal price (the "Warrant"). Concurrent with the Offering, the
Warrant will be exercised. Debt obligations are more fully described in Note 5
to the Consolidated Financial Statements.
The Company plans to use the net proceeds from the Offering to repay the
$25.2 million in term loans under the Credit Facility and the $5.1 million
subordinated note. The remaining net proceeds of $28.5 million will be used to
reduce the revolving credit facility. The Company does not currently plan to
repay the $20 million in seller notes from the net proceeds of the Offering. The
seller notes bear interest at 9%, and at the Company's option, interest payments
through January 16, 2003 may be deferred. One-half of the sum of the principal
and any deferred interest is payable on January 16, 2004, and the balance is
payable on January 16, 2005. The notes are subject to prepayment in certain
events, including the sale of significant assets by the Company or the sale by
the stockholders at the time of the Acquisition of more than 50% of their
aggregate shares. Partial prepayments are also required in connection with
certain sales of the Company's stock owned by the Inverness Investors or the
First Reserve Investors.
Effective as of the closing of the Offering, the Company will enter into a
new five-year senior secured revolving credit facility (the "New Credit
Facility") with GE Capital that will be available for acquisitions and general
corporate purposes. The New Credit Facility provides for a $120 million
revolving loan ("the Revolver"), of which $25 million may be used for letters of
credit. The Revolver is subject to a borrowing base limitation of 60% of
eligible inventory plus 85% of eligible accounts receivable plus various
percentages of the book value of certain fixed assets, all of which would have
totaled $118.8 million as of June 30, 1996.
The Revolver will bear interest at prime plus .75% or LIBOR plus 2.0%,
subject to adjustment based on the Company's total funded debt and operating
profit. Depending on the Company's financial performance, the interest rate
could be prime plus .25%, .75% or 1.25% or LIBOR plus 1.5%, 2.0% or 2.5%. The
New Credit Facility is secured by substantially all of the Company's assets and
contains certain financial covenants and ratios as well as a limitation on
dividends.
25
<PAGE> 27
The Company will pay GE Capital a fee of $900,000 on the closing of the New
Credit Facility and is obligated to pay an unused facility fee of .375% per
annum. The unused facility fee will be adjusted to .25% or .50% based upon the
ratio of funded debt to operating profit.
Although the Company is not currently pursuing any specific acquisition
candidates, from time to time the Company may identify acquisition candidates
for investigation and may in the future pursue such acquisition opportunities.
The timing, size or success of any acquisition effort and the related potential
capital commitments cannot be predicted. The Company expects to fund future
acquisitions primarily through cash flow from operations and borrowings,
including the unborrowed portion of the New Credit Facility, as well as
issuances of additional equity. There can be no assurance that additional
financing for acquisitions will be available at terms acceptable to the Company.
Inflation has not had a significant effect on the Company's operating
results or financial condition in recent years.
OFFERING RELATED EXPENSES
The Company will incur certain one-time expenses in connection with the
Offering, as follows: (i) the Management Services Agreement will be terminated
at a cost of $4.8 million ($3.0 million after tax) and will be paid in quarterly
installments of $250,000 through March 31, 2001, subject to certain accelerating
events; (ii) the Credit Facility will be replaced by the New Credit Facility,
resulting in the write-off of $6.9 million in deferred financing costs related
to the existing agreement (after tax cost of $4.3 million) and the incurrence of
approximately $1.2 million in deferred financing costs related to the New Credit
Facility; and (iii) expenses and payout under the Company's Value Appreciation
Plans. The Value Appreciation Plans are affected by the final offering price,
and assuming an initial public offering price of $16.00 per share, the Company
would incur an expense of $11.7 million ($7.3 million after tax) and would make
a cash payment at the time of closing of $2.8 million, make future annual cash
payments of $.7 million for five years beginning January 17, 1997 and issue
343,986 shares of restricted Common Stock valued at $5.5 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The methodology required by SFAS No. 121 is not materially
different from the Company's past practice and its adoption on January 1, 1996
did not have a material impact on the Company's consolidated financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 establishes alternative methods of accounting and
disclosure for employee stock-based compensation arrangements. The Company has
elected to continue the use of the intrinsic value based method of accounting
for its employee stock option plan which does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant. The Company will provide pro forma disclosure of net income and
earnings per share in the notes to the consolidated financial statements as if
the fair value based method of accounting had been applied.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Such forward-looking
statements include, without limitation, the statements regarding the trends in
the industry set forth in the Prospectus Summary and under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's anticipated future financial results and
position. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Prospectus, including but not limited to the matters described
in "Risk Factors."
26
<PAGE> 28
BUSINESS
GENERAL
The Company is a worldwide leader in the design, manufacture and sale of
machinery and equipment and in the distribution of MRO products used in oil and
gas drilling and production. The Company designs, manufactures and sells
drawworks, mud pumps and power swivels (also known as "top drives"), which are
the major mechanical components of rigs used to drill oil and gas wells. Many of
these components are designed specifically for applications in offshore,
extended reach and deep land drilling. These components are installed on new
drilling rigs and used in the upgrade, refurbishment and repair of existing
drilling rigs. A significant portion of the Company's business includes the sale
of replacement parts for its own manufactured machinery and equipment. The
Company estimates that approximately 65% of the mobile offshore rig fleet and
the majority of the world's larger land rigs (2,000 horsepower and greater)
manufactured in the last twenty years utilize certain drilling machinery
components manufactured by the Company. In addition, the Company manufactures
and sells a complete line of centrifugal and reciprocating pumps used in
oilfield and industrial applications.
The Company provides distribution services through its network of 121
distribution service centers located near major drilling and production activity
worldwide, but principally in the United States and Canada. These distribution
service centers have historically provided MRO products, including valves,
fittings, flanges, replacement parts and miscellaneous expendable items. As oil
and gas companies and drilling contractors have refocused on their core
competencies and emphasized efficiency initiatives to reduce costs and capital
requirements, the Company's distribution services have evolved to offer
outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support. These arrangements have resulted in
the Company working more closely with its customers in return for a more
exclusive oilfield distribution arrangement.
The Company's business is dependent on and affected by the level of
worldwide oil and gas drilling and production activity, the aging worldwide rig
fleet which was generally constructed prior to 1982, and the profitability and
cash flow of oil and gas companies and drilling contractors. Drilling activity
has recently increased in the offshore and deeper land markets both of which are
particularly well served by the drilling machinery and equipment manufactured by
the Company. As of June 30, 1996, the worldwide offshore mobile drilling rig
utilization rate was over 90% and the number of active U.S. land rigs had
increased approximately 15% compared to June 30, 1995. As drilling activity has
increased, the Company has experienced increased demand for its manufactured
products and distribution services as existing rigs are upgraded, refurbished
and repaired, new rigs are constructed and expendable parts are used.
The Company's oilfield equipment business and distribution services
business accounted for 56% and 44%, respectively, of the Company's combined
EBITDA for the six months ended June 30, 1996.
BUSINESS STRATEGY
Beginning in 1993, a new executive and operating team was assembled to
manage the Company's business. In January 1996, that new management team,
together with an investor group led by The Inverness Group Incorporated and
First Reserve Corporation, purchased the business of the Company from its former
owners, USX Corporation and Armco Inc. Since 1993, the business strategy of the
Company has been to enhance its operating performance and build a platform for
growth by focusing on markets in which its product lines are market leaders and
which are believed by management to provide the most significant growth
potential. As part of that strategy, the Company disposed of certain of its
non-core equipment manufacturing businesses and product lines and reengineered
its distribution business during the years 1993 through 1995. The completion of
the redirection of the Company's business in 1995, combined with the increase in
the level of worldwide oil and gas drilling activity, has resulted in a
substantial improvement in the Company's performance, with EBITDA before special
items increasing from $6.2 million for the six months ended June 30, 1995 to
$15.3 million for the six months ended June 30, 1996.
27
<PAGE> 29
The Company's current business strategy is to enhance its leading market
positions and operating performance by:
Leveraging Its Market Leading Installed Base. The Company estimates that
approximately 65% of the mobile offshore drilling rigs and the majority of the
world's larger land drilling rigs manufactured in the last twenty years use
drilling machinery manufactured by the Company. The Company believes this
market-leading installed base presents substantial opportunities to capture a
significant portion of the increased level of expenditures by its customers for
the construction of new drilling rigs as well as the upgrade and refurbishment
of existing drilling rigs.
Capitalizing on Increasing Demand for Higher Horsepower Drilling Machinery.
The Company believes the advanced age of the existing fleet of drilling rigs,
coupled with increasing drilling activity involving greater water depths and
extended reach, will increase the demand for new drilling rig construction and
the upgrading and capacity enhancement of existing rigs. The Company's higher
horsepower drawworks, mud pumps and power swivels provide, in many cases, the
largest capacities currently available in the industry.
Building on Distribution Strengths. The Company has developed and
implemented integrated information and process systems that are designed for
more effective procurement, inventory management and logistics activities. A
critical element of the Company's strategy has been to regionally centralize its
procurement, inventory and logistics operations, thus gaining cost and inventory
utilization efficiencies while retaining its responsiveness to local markets. In
addition, the strategic integration of the Company's distribution expertise,
extensive distribution network and growing base of customer alliances provides
an increased opportunity for cost effective marketing of the Company's
manufactured equipment.
Capitalizing on Alliance/Outsourcing Trends. As a result of efficiency
initiatives, oil and gas companies and drilling contractors are frequently
seeking alliances with suppliers, manufacturers and service providers, or
outsourcing their procurement, inventory management and logistics requirements
for equipment and supplies in order to achieve cost and capital improvements.
The Company has entered into and is seeking alliance arrangements to better
serve its customers, to better manage its own inventory, to increase the volume
and scope of products sold to the customer without significantly increasing the
Company's overhead costs, and to expand marketing opportunities to sell
equipment manufactured by the Company. The Company believes that it is well
positioned to provide broad procurement, inventory management and other services
as a result of the Company's (i) large and geographically diverse network of
distribution service centers in major oil and gas producing areas, (ii)
purchasing leverage due to the volume of products sold, (iii) breadth of
available product lines and (iv) information systems that offer customers
enhanced online and onsite services.
OILFIELD EQUIPMENT
The Company's oilfield equipment business consists of the design,
manufacture, sale and service of drilling and pumping products.
Products
The Company's line of drilling machinery and equipment includes drawworks,
mud pumps, power swivels (also known as "top drives"), traveling equipment and
rotary tables. This machinery constitutes the majority of the components
involved in the primary functions of the drilling of oil and gas wells which
consist of pumping fluids and hoisting, supporting and rotating the drill
string. In addition to the manufacture of new drilling equipment and related
spare parts, the Company also refurbishes used drilling machinery and equipment.
The Company also services, refurbishes and manufactures spare parts for a line
of proprietary marine equipment products.
Drilling machinery and equipment can be purchased as individual components
or as a complete drilling rig package. The Company utilizes subcontractors for
certain machine shop and fabrication work.
The Company is also a major designer and manufacturer of centrifugal and
reciprocating pumps and pumping systems, as well as a wide variety of fluid-end
accessories and expendable pump parts for oil and gas
28
<PAGE> 30
drilling and oil production. The Company estimates that over 20,000
reciprocating pumps manufactured by the Company have been installed throughout
the world.
Mission-Fluid King(R) centrifugal pumps are utilized in various oil and gas
drilling applications including drilling mud mixing, low pressure fluid
transport and charging reciprocating pumps. The Company also manufactures and
sells a wide variety of fluid-end accessories for all major manufacturers' pumps
under its Mission-Fluid King(R) brand name. Fluid-end accessories are
expendables consumed on reciprocating mud pumps during the drilling and
production process and include replacement parts such as liners, valves, seats,
pistons, piston rods and packing accessories. These products are typically
replaced at regular intervals and are essential to drilling and production
operations.
Reciprocating pumps are used in a variety of artificial lift, oil transfer
and industrial applications. A sizable aftermarket for repair parts for these
pumps exists and the Company also provides fluid-end expendables under the
Mission-Fluid King(R) name to this market. Most of the pumps sold are
incorporated into systems (which generally consist of a reciprocating pump, a
power source, piping, valves, meters and other fabricated parts installed on a
skid) thereby providing the Company with an opportunity to offer the customer a
complete turnkey package. The Company also sells reciprocating pumps to the
refining, petrochemical, mining and steel industries.
Marketing of Company Products
Substantially all of the Company's drilling machinery, equipment and spare
parts sales, and a large portion of the Company's pumps and parts, are sold
through the Company's direct sales force and through the Company's distribution
service centers. The Company also markets its pumps and parts through
distribution networks not owned by the Company. Sales to foreign state-owned oil
companies are typically made in conjunction with agent or representative
arrangements. During the first half of 1996, management estimates that
approximately 40% of oilfield equipment revenues was from products sold for
delivery to destinations located outside North America.
The Company believes it is able to leverage its position as a manufacturer
of market-leading oilfield products by marketing those products through the
Company's distribution services business. During 1995, approximately 25% of
oilfield equipment revenues was from products sold through the Company's
established network of distribution service centers. Management believes that
the Company has an advantage over its competitors in the oilfield equipment
markets by virtue of its extensive distribution network making such products
readily available from numerous locations.
Competition
The oilfield equipment industry is highly competitive and the Company's
revenues and earnings can be affected by price changes, introduction of new
products and improved availability and delivery. Over the last several years the
market for oilfield services and equipment has experienced overcapacity in some
services and products provided by the Company, which has resulted in increased
price competition in certain areas of the Company's business. The Company
competes with a large number of companies some of which may offer certain more
technologically advanced products or possess greater financial resources than
the Company. Competition for drilling systems and machinery comes from
Continental Emsco Company, Maritime Hydraulics U.S. Inc., Varco International,
Inc. and Dreco Energy Services Ltd. The principal competitors with the Company's
Mission-Fluid King(R) product line are Harrisburg/Woolley, Inc. and Southwest
Oilfield Products, Inc. Competition for the Company's reciprocating pumps comes
primarily from Wheatley-Gaso Inc. and Gardner Denver Machinery Inc.
Manufacturing and Backlog
Sales of the Company's products are made on the basis of written orders and
oral commitments. In accordance with industry practice, such orders and
commitments may not be considered firm backlog because they may generally be
cancelled without significant penalty to the customer. The Company estimates
that the value of its orders for new oilfield equipment (excluding spare parts
orders) was approximately $26 million as
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<PAGE> 31
of June 30, 1996 as compared to orders of $8 million as of June 30, 1995. Of the
$26 million of unfilled orders at June 30, 1996, the Company expects
approximately one-half will be shipped during the remainder of 1996 and the
balance during 1997. The total level of orders varies from time to time as work
is completed and orders are received.
The Company's principal manufacturing facilities are located in Houston,
Texas and McAlester, Oklahoma. See "-- Facilities." The Company also outsources
the manufacture of parts or purchases components in finished form from qualified
subcontractors.
The Company's manufacturing operations require a variety of components,
parts and raw materials which the Company purchases from multiple commercial
sources. The Company has not experienced nor expects any significant delays in
obtaining deliveries of essential components, parts and raw materials.
Engineering
The Company maintains a staff of engineers and technicians to (i) design
and test new products, components and systems for use in drilling and pumping
applications, (ii) enhance the capabilities of existing products and (iii)
assist the Company's sales organization and customers with special projects. The
Company's product engineering efforts focus on developing technology to improve
the economics and safety of drilling and pumping processes. The Company has
recently developed a 750 ton capacity power swivel to complement its existing
650 ton, 500 ton and 350 ton capacity models. The Company has also introduced a
4,000 horsepower drawworks to increase customer efficiencies when drilling at
extended depths and during horizontal drilling. A disc brake system for
drawworks has been developed which can be operated remotely and provides higher
braking torque capabilities than previous systems. The disc brake system can be
adapted to upgrade drawworks previously sold by the Company.
Patents and Trademarks
The Company owns or has a license to use a number of patents covering a
variety of products. Although in the aggregate these patents are of importance
to the Company, the Company does not consider any single patent to be of a
critical or essential nature. In general, the Company depends on technological
capabilities, manufacturing quality control and application of its expertise
rather than patented technology in the conduct of its business. The Company
enjoys product name brand recognition, principally through its National-
Oilwell(R), National(R), Oilwell(R) and Mission-Fluid King(R) trademarks, and
considers such trademarks to be important to its business.
DISTRIBUTION SERVICES
The Company is a market leader in providing comprehensive services for the
procurement, inventory management and logistics support of oilfield products to
the oil and gas industry. The Company markets and distributes its products and
services through several channels, including its network of oilfield
distribution service centers, a direct sales force and sales representatives and
agents. The Company's distribution services network includes 114 facilities
located throughout the major oil and gas producing regions of the United States
and Canada. In addition, the Company has international distribution service
points in seven locations in the United Kingdom, South America and the Pacific
Rim. The Company's distribution services customers are primarily major and large
independent oil companies and drilling contractors. Since January 1, 1995, the
Company's distribution services business has sold products to approximately
5,000 customers. Due to the nature of its distribution services business, the
Company does not maintain a backlog for such operations.
The Company is able to leverage its position as a leading provider of
distribution services by marketing products manufactured by the Company. For the
twelve month period ended December 31, 1995, approximately $43 million of the
Company's distribution services revenues resulted from the sale of the Company's
oilfield equipment products. Management believes that the Company has a
competitive advantage in the distribution services business by virtue of its
ability to distribute market-leading products manufactured by the Company's
oilfield equipment business.
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<PAGE> 32
Products
Maintenance, Repair and Operating Supplies and Equipment. The maintenance,
repair and operating ("MRO") supplies and equipment stocked by the Company's
distribution service centers vary by location. Each distribution point generally
offers a complete line of oilfield products including valves, fittings, flanges,
spare parts for oilfield equipment and miscellaneous expendable items. Most
drilling contractors and oil and gas companies typically buy such supplies and
equipment pursuant to non-exclusive contracts, which normally specify a discount
from the Company's list price for each product or product category for a
one-year period. As of June 30, 1996, the Company had approximately 1,300 active
contracts for maintenance, repair and operating supplies and equipment with
customers primarily located in North America. The sales volume of an individual
distribution service center is dependent principally upon the level of oil and
gas exploration and production activity in the area. Because of the strong
service orientation of the distribution services business, Company personnel at
distribution service centers generally provide customers with 24-hour per day
availability.
As a result of efficiency initiatives that are taking place in the oil and
gas industry, drilling contractors and oil and gas companies are more frequently
seeking strategic alliances and outsourcing their procurement and inventory
management requirements. These strategic alliances constitute a growing
percentage of the Company's business and differ from standard agreements for MRO
supplies and equipment in that the Company becomes the customer's primary
supplier of those items. In addition, the Company may assume responsibility for
procurement, inventory management and product delivery for the customer, in some
cases by working directly out of the customer's facilities.
Oil Country Tubular Goods. The Company's tubular business is focused on the
procurement, inventory management and delivery of oil country tubular goods
manufactured by third parties. Tubular goods primarily consist of well casing
and production tubing used in the drilling, completion and production of oil and
gas wells. Well casing is used to line the walls of a wellbore to provide
structural support. Production tubing provides the conduit through which the oil
or gas will be brought to the surface upon completion of the well. Historically,
sales of tubular goods have been concentrated in North America, although the
Company makes occasional sales for shipment to foreign destinations.
Substantially all of the Company's sales of tubular goods are made through the
Company's direct sales force.
In response to customer demands for improved efficiency in tubular
procurement and distribution, the Company has developed strategic alliances
between the Company and its customers. These strategic alliances enable the
Company to more efficiently source tubular goods for its customers, while
decreasing the capital and personnel requirements of the customer. These
alliance relationships currently constitute a majority of the Company's tubular
sales. Since alliances provide additional consistency and predictability to the
procurement process, the Company has also benefitted from improved utilization
of its assets and from an increase in the turnover rate of its tubular
inventory.
Competition
The oilfield distribution services business is highly competitive. The
Company's revenues and earnings can be affected by competitive actions such as
price changes, improved delivery and other actions by competitors. In addition,
there are few barriers to entry for competitors to enter the distribution
services business. The Company's principal competitors in the United States
distribution services business include Continental Emsco Company, Wilson Supply
Company, Red Man Pipe & Supply Co. and McJunkin Corporation. CE Franklin Ltd.
and DOSCO Supply are major competitors of the Company's distribution services
business in the Canadian market. The Company also competes with a number of
regional or local oilfield supply stores in each geographic market. In the
international markets, the Company's distribution services business competes
with some of the above-named competitors as well as a number of regional or
local suppliers. The Company's North American tubular goods distribution
business competes with Vinson Supply Company, Sooner Pipe & Supply Corporation,
Red Man Pipe & Supply Co., Continental Emsco Company and Wilson Supply Company
as well as a number of regional distributors.
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<PAGE> 33
Suppliers
The Company obtains the MRO products it distributes from a number of
suppliers. The Company does not believe that any one supplier of MRO products is
material to the Company. For the year ended December 31, 1995 and for the six
months ended June 30, 1996, the Company purchased approximately 36% and 28%,
respectively, of its tubular requirements from the U.S. Steel Group of USX
Corporation, and its remaining requirements from various suppliers. In
connection with the Acquisition, in January 1996 the Company entered into a five
year distribution agreement with the U.S. Steel Group on an arms length basis on
generally the same terms that existed prior to the Acquisition. The Company is
not obligated to purchase any minimum amount of tubular goods under the
agreement with the U.S. Steel Group. The Company has not experienced and does
not foresee experiencing a shortage in MRO products or tubular goods sold by the
Company.
FACILITIES
The Company owned or leased 129 facilities worldwide as of August 25, 1996,
of which the following are its principal manufacturing and administrative
facilities:
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING SPACE
LOCATION (SQ. FT.) DESCRIPTION STATUS
----------------------------- -------------- ----------------------------------- -------
<S> <C> <C> <C>
Houston, Texas............... 217,000 Manufactures drilling machinery Leased
and equipment
McAlester, Oklahoma.......... 117,000 Manufactures pumps and expendable Owned
parts
Houston, Texas............... 116,000 Administrative offices Leased
</TABLE>
The manufacturing facilities listed above are used in the Company's
oilfield equipment business. The Company also has five satellite repair and
manufacturing facilities that refurbish and manufacture new equipment and parts.
These facilities are strategically located to meet customer needs in Houston,
Texas; Odessa, Texas; New Iberia, Louisiana; Aberdeen, Scotland and Singapore.
The Company believes that the capacity of its manufacturing and repair
facilities is suitable to meet demand for the foreseeable future.
The Company owns or leases approximately 121 distribution service centers
worldwide to operate its distribution services business. No individual facility
is significant to the distribution services business. The Company also leases
space at a number of tubular storage locations for use in its tubular goods
distribution business.
EMPLOYEES
As of August 31, 1996, the Company had a total of 1,384 employees, 1,158 of
whom were salaried and 226 of whom were paid on an hourly basis. Of the
Company's workforce, 316 of the employees are employed by the Company's foreign
subsidiaries and are located outside the United States. As of August 31, 1996,
the Company was a party to one collective bargaining agreement which applied to
six employees located in Singapore. The Company considers its relationship with
its employees to be good.
OPERATING RISKS AND INSURANCE
The Company's operations are subject to the usual hazards inherent in
manufacturing products and providing services for the oil and gas industry.
These hazards can cause personal injury and loss of life, business
interruptions, property and equipment damage and pollution or environmental
damage. The Company maintains comprehensive insurance covering its assets and
operations at levels which management believes to be appropriate and in
accordance with industry practice. However, no assurance can be given that
insurance coverage will be adequate in all circumstances or against all hazards,
or that the Company will be able to maintain adequate insurance coverage in the
future at commercially reasonable rates or on acceptable terms.
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<PAGE> 34
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to regulations by federal, state and
local authorities in the United States and regulatory authorities with
jurisdiction over its foreign operations. Environmental laws and regulations
have changed substantially and rapidly over the last 20 years, placing more
restrictions and limitations on activities that may impact the environment, such
as emissions of pollutants, generation and disposal of wastes and use and
handling of chemical substances. Although compliance with various governmental
laws and regulations has not materially adversely affected the Company's
financial condition or results of operations, no assurance can be given that
compliance with such laws or regulations will not have a material adverse impact
on the Company's business in the future.
The Company has conducted a number of environmental audits of its major
facilities to identify and categorize potential environmental exposures and to
ensure compliance with applicable environmental laws, regulations and permit
requirements. This effort has required and may continue to require operational
modifications to the Company's facilities, including installation of pollution
control devices and cleanups. The costs incurred to date by the Company in
connection with the performance of environmental audits and operational
modifications to its facilities have not been material, although the Company can
provide no assurance that such costs may not increase in the future.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to the release of a
hazardous substance into the environment. These persons include the owner and
operator of the disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of the hazardous substances found at
such site. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the manufacture and
storage of products and equipment containing or requiring oil and/or hazardous
substances. Although the Company has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed of or released on or under the properties owned or leased by
the Company or on or under other locations where such wastes have been taken for
disposal. In addition, many of these properties have been operated by third
parties whose treatment and disposal or release of hydrocarbons or other wastes
was not under the Company's control. These properties and the wastes disposed
thereon may be subject to CERCLA, the Resource Conservation and Recovery Act and
analogous state laws. Under such laws, the Company would be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators), property contamination (including
groundwater contamination) or to perform remedial operations to prevent future
contamination.
The Company and approximately 250 other potentially responsible parties
("PRPs") have received notices from the Environmental Protection Agency (the
"EPA") that each is a PRP under CERCLA in connection with a waste oil recycling
facility operated in the State of Texas by Voda Petroleum. It is alleged that
the Company and its predecessors generated waste which was transported to a site
operated by Voda Petroleum and that Voda Petroleum improperly disposed of the
waste. The EPA has conducted a preliminary assessment of the site and determined
that the contamination consists primarily of oil that is subject to the
requirements of Oil Pollution Act of 1990 ("OPA") which subjects owners of
facilities to strict joint and several liability for all containment and cleanup
costs and certain other damages arising from an oil spill including, but not
limited to, the costs of responding to a release of oil to surface waters.
Liability under OPA is generally limited to the party responsible for the
facility from which the spill or release actually occurred. The EPA also has
determined that a portion of the contamination at the site consists of hazardous
substances that are subject to the provisions of CERCLA. The EPA has indicated
that it intends to remediate the Voda site and has established an initial site
cleanup estimate of approximately $2 million. Management of the
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<PAGE> 35
Company believes that the Company's liability, if any, to the extent not
otherwise provided for, should not have a material adverse effect on the
Company's consolidated financial statements.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. Moreover, it is possible that
other developments, such as stricter environmental laws, regulations and
enforcement policies thereunder, could result in additional, presently
unquantifiable, costs or liabilities to the Company.
AGREEMENT WITH PREVIOUS OWNERS
The Purchase Agreement entered into among the Company, USX Corporation and
Armco Inc. in connection with the Acquisition of the Partnership from them
provides that the Company will be responsible for (i) all of the liabilities,
including environmental costs, disclosed and undisclosed, created after April 1,
1987 with respect to the business operations of the predecessor partnership as
they were being conducted on the closing date ("Continuing Operations"), (ii)
disclosed liabilities created after April 1, 1987 with respect to operations of
the Partnership discontinued or sold prior to the closing date ("Discontinued
Operations"), (iii) disclosed liabilities for environmental costs for conditions
in existence as of April 1, 1987 ("Pre-1987 Environmental Costs"), (iv) fifty
percent of the first $8.0 million of the aggregate of undisclosed Pre-1987
Environmental Costs and undisclosed liabilities related to Discontinued
Operations and (v) taxes other than United States federal income taxes. While
there can be no assurance as to undisclosed liabilities, the Company's financial
statements reflect appropriate reserves for all material liabilities under items
(i), (ii), (iii) and (v) which were disclosed prior to the acquisition of the
Partnership or identified subsequently by the Company. It is not possible to
estimate the aggregate liability of the Company for undisclosed liabilities
under items (i), (iv) and (v), but the Company's exposure under item (iv) is
limited to a maximum of $4 million.
LEGAL PROCEEDINGS
There are pending or threatened against the Company various claims,
lawsuits and administrative proceedings, all arising from the ordinary course of
business, with respect to commercial, product liability and employee matters
which seek remedies or damages. Although no assurance can be given with respect
to the outcome of these or any other pending legal and administrative
proceedings and the effect such outcomes may have on the Company, management
believes that any ultimate liability resulting from the outcome of such
proceedings, to the extent not otherwise provided for, will not have a material
adverse effect on the Company's consolidated financial statements.
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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the Company's executive officers and directors,
together with their positions and ages.
<TABLE>
<CAPTION>
DIRECTOR'S
NAME AGE POSITION WITH THE COMPANY TERM EXPIRING
- --------------------------------- --- -------------------------------- -------------
<S> <C> <C> <C>
Joel V. Staff(1)................. 52 Chairman of the Board, President 1999
and Chief Executive Officer
C. R. Bearden.................... 50 Executive Vice President, 1998
President of Distribution
Services and Director
Lynn L. Leigh.................... 71 Senior Vice President -- Marketing --
Steven W. Krablin................ 46 Vice President and Chief --
Financial Officer
James J. Fasnacht................ 41 Vice President and General --
Manager of Pumping Systems
Merrill A. Miller, Jr............ 46 Vice President and General --
Manager of Drilling Systems
Jerry N. Gauche.................. 48 Vice President -- Organizational --
Effectiveness
Paul M. Nation................... 42 Vice President, Secretary and --
General Counsel
W. McComb Dunwoody(1)............ 51 Director 1999
William E. Macaulay(1)(3)........ 51 Director 1999
Howard I. Bull(2)(3)............. 56 Director 1998
James T. Dresher(2).............. 77 Director 1997
James C. Comis III............... 32 Director 1998
Bruce M. Rothstein............... 44 Director 1997
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
The Amended and Restated Certificate of Incorporation of the Company
classifies the board of directors into three classes having staggered terms of
three years each. The number of directors is fixed from time to time by
resolution of the board of directors and consists of not less than three
directors. The board of directors is currently set at eight members. The
executive officers named above were elected to serve in such capacities until
the next annual meeting of the board of directors, or until their respective
successors have been duly elected and qualified, or until their earlier death,
resignation, disqualification or removal from office.
Set forth below is a brief description of the business experience of the
executive officers and directors of the Company.
Joel V. Staff has served as the President and Chief Executive Officer of
the Company since July 1993 and Chairman of the Board since January 1996. Prior
to joining the Company, Mr. Staff served as a Senior Vice President of Baker
Hughes Incorporated, a worldwide diversified oil services company, from October
1983 to May 1993. Mr. Staff also serves as a director of Destec Energy Inc., an
independent power company.
C. R. Bearden has served as Executive Vice President of the Company and
President of Distribution Services since January 1995 and as a Director since
January 1996. Mr. Bearden served in various executive capacities including
President and Chief Executive Officer of Chiles Offshore Corporation from 1979
until that company's 1994 acquisition by a subsidiary of Noble Drilling
Corporation, an offshore drilling contractor, where he served as President and
Chief Operating Officer until joining the Company.
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<PAGE> 37
Lynn L. Leigh has served as a Senior Vice President since October 1993.
Prior to joining the Company, Mr. Leigh served as the President and Chief
Executive Officer of Hydril Company, a manufacturer of oilfield drilling
equipment, from January 1992 to July 1993. Prior thereto, he provided consulting
and project management support services to Grasso Oilfield Services, Inc. from
March 1989 to December 1991 and served as President of Unit Rig and Equipment
Company from November 1987 to February 1989. From July 1993 to October 1993, Mr.
Leigh was self-employed managing his personal investments. Mr. Leigh also serves
as a director of Global Marine, Inc., a marine drilling contractor.
Steven W. Krablin has served as Vice President and Chief Financial Officer
since January 1996. Mr. Krablin served in various capacities including Vice
President-Finance and Chief Financial Officer of Enterra Corporation, a
NYSE-listed, international oilfield service company, from 1986 to January 1996.
James J. Fasnacht has served as Vice President and General Manager of
Pumping Systems since November 1993, as Human Resources Manager from 1991 to
November 1993 and in various other capacities since joining the Company in 1979.
Merrill A. Miller, Jr. has served as Vice President and General Manager of
Drilling Systems since July 1996 and as Vice President of Marketing, Drilling
Systems from February 1996 to July 1996. Prior thereto, Mr. Miller was President
of Anadarko Drilling Company, a drilling contractor, from January 1995 to
February 1996. From May 1980 to January 1995, Mr. Miller served in various
capacities including Vice President/U.S. Operations of Helmerich & Payne
International Drilling Co., a drilling contractor.
Jerry N. Gauche has served as Vice President -- Organizational
Effectiveness since joining the Company in January 1994. Prior thereto, Mr.
Gauche was employed by BP Exploration, Inc., an oil and gas exploration and
production company, where he served as General Manager of Central Services from
January 1990 to September 1992 and Director of Public Affairs and Executive
Coordination from May 1988 to December 1989. From October 1992 to January 1994,
Mr. Gauche was self-employed managing his personal investments.
Paul M. Nation has served as Secretary and General Counsel of the Company
since 1987 and Vice President since 1994.
W. McComb Dunwoody has served as a Director of the Company since January
1996. Mr. Dunwoody has been Chief Executive Officer since 1981 of The Inverness
Group Incorporated, which sponsors and invests in private equity transactions.
Additionally, he has served as President and Chief Executive Officer of
Inverness/Phoenix LLC since 1994.
William E. Macaulay has served as a Director of the Company since January
1996. Mr. Macaulay has been the President and Chief Executive Officer of First
Reserve Corporation, a corporate manager of private investments focusing on the
energy and energy-related sectors, since 1983. Mr. Macaulay serves as a director
of Weatherford Enterra, Inc., an oilfield service company, Maverick Tube
Corporation, a manufacturer of steel pipe and casing, Transmontaigne Oil
Company, an oil products distribution and refining company, Hugoton Energy
Corporation, an independent oil and gas exploration and production company, and
Cal Dive International, Inc., a provider of subsea services in the Gulf of
Mexico.
Howard I. Bull has served as a Director of the Company since January 1996.
Since April 1994, Mr. Bull has been President, Chief Executive Officer and a
director of Dal-Tile International, Inc. which is the largest tile manufacturer
and distributor in North America. Prior to joining Dal-Tile International, Inc.,
Mr. Bull spent 10 years with Baker Hughes Incorporated, a worldwide diversified
oil services company, where he became Chief Executive Officer for Baker Hughes
Drilling Equipment Company. Additionally, he served York International
Corporation, a worldwide manufacturer and distributor of air conditioner and
refrigeration equipment, as President of its Applied Systems Division and Air
Conditioning Business Group. Mr. Bull also serves as a director of Marine
Drilling Companies, Inc., an offshore drilling contractor.
James T. Dresher has served as a Director of the Company since January
1996. Mr. Dresher has been Chairman/Chief Executive Officer and principal owner
of Unidata, Inc., a Denver-based software company, since December 1991 and has
been Chairman and owner of Glenangus, a residential real estate development
company, since 1972. In addition, Mr. Dresher served as Chairman/CEO of York
International Corporation
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<PAGE> 38
from 1988 to 1993. Prior thereto, Mr. Dresher served as a director, Chief
Financial Officer and Executive Vice President of Baker International
Corporation.
James C. Comis III has served as a Director of the Company since January
1996. Mr. Comis has served as Managing Director of Inverness/Phoenix LLC since
August 1994. From August 1990 to August 1994, Mr. Comis was engaged in
sponsoring and investing in private equity transactions with Mr. Dunwoody.
Bruce M. Rothstein has served as a Director of the Company since May 1996.
Mr. Rothstein is Vice President of First Reserve Corporation, which he joined in
1991. Prior to joining First Reserve, he served as Treasurer and Chief
Accounting Officer of Computer Factory, Inc.
APPOINTMENT OF DIRECTORS
All of the existing members of the Company's board of directors were
designated and elected pursuant to the terms of the Stockholders Agreement.
Messrs. Staff and Bearden were designated to serve as directors pursuant to the
Stockholders Agreement because they serve as the Company's Chief Executive
Officer and Executive Vice President, respectively. Messrs. Dunwoody, Bull,
Dresher and Comis were designated to serve as directors pursuant to the
Stockholders Agreement by DPI Oil Service Partners Limited Partnership for which
Inverness/Phoenix LLC serves as the managing general partner. Messrs. Macaulay
and Rothstein were designated to serve as directors pursuant to the Stockholders
Agreement by the partnerships for which First Reserve Corporation serves as the
managing general partner. The terms of the Stockholders Agreement concerning
rights to designate members of the board of directors will terminate
automatically upon the completion of the Offering and will not be replaced by
any agreement among the stockholders.
COMMITTEES
The Company has the following standing committees of the board of
directors:
Executive Committee. The Executive Committee consists of Messrs. Dunwoody,
Staff and Macaulay, with Mr. Dunwoody serving as Chairman. The Executive
Committee has the full power and authority to exercise all the powers of the
board of directors in the management of the business except the power to fill
vacancies in the board of directors and the power to amend the Bylaws.
Audit Committee. The Audit Committee consists of Messrs. Dresher and Bull,
with Mr. Dresher serving as Chairman. The Audit Committee has responsibility
for, among other things, (i) recommending the selection of the Company's
independent accountants, (ii) reviewing and approving the scope of the
independent accountants' audit activity and extent of non-audit services, (iii)
reviewing with Management and the independent accountants the adequacy of the
Company's basic accounting systems and the effectiveness of the Company's
internal audit plan and activities, (iv) reviewing with Management and the
independent accountants the Company's financial statements and exercising
general oversight of the Company's financial reporting process and (v) reviewing
the Company's litigation and other legal matters that may affect the Company's
financial condition and monitoring compliance with the Company's business ethics
and other policies.
Compensation Committee. The Compensation Committee consists of Messrs. Bull
and Macaulay, with Mr. Bull serving as Chairman. This committee has general
supervisory power over, and the power to grant options under, the Stock Award
and Long-Term Incentive Plan and the Value Appreciation Plans. The Compensation
Committee has responsibility for, among other things, (i) reviewing the
recommendations of the Chief Executive Officer as to appropriate compensation of
the Company's principal executive officers and certain other key personnel and
establishing the compensation of such key personnel and the Chief Executive
Officer, (ii) examining periodically the general compensation structure of the
Company and (iii) supervising the welfare and pension plans and compensation
plans of the Company.
DIRECTOR COMPENSATION
Directors who are full-time employees of the Company do not receive a
retainer or fees for service on the board of directors or on committees of the
board. Members of the board of directors who are not full-time
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<PAGE> 39
employees of the Company receive an annual fee of $15,000, a fee of $1,000 for
attendance at each meeting of the board of directors and at each meeting of its
committees or any special committee established by the board, and a fee of
$1,000 per day for any special assignments. The chairmen of the audit and
compensation committees receive a fee of $1,250 for attendance at each meeting
of the committee they chair. In addition, directors of the Company (including
directors who are not full-time employees of the Company) are eligible for
grants of stock options and other awards, although no grants have been made,
pursuant to the Stock Award and Long-Term Incentive Plan.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the compensation payable by the Company to its Chief Executive
Officer and its other most highly compensated executive officers for the year
ended December 31, 1995 and includes executive officers who joined the Company
in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND --------------------- ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION
------------------------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Joel V. Staff.................................... $275,016 -- --
Chairman, President and Chief Executive Officer
C. R. Bearden.................................... 215,625 -- --
Executive Vice President
Lynn L. Leigh.................................... 195,000 -- --
Senior Vice President
Steven W. Krablin(1)............................. -- -- --
Vice President and Chief Financial Officer
Merrill A. Miller, Jr.(1) ....................... -- -- --
Vice President
</TABLE>
- ---------------
(1) Messrs. Krablin and Miller joined the Company in January 1996 and February
1996, respectively.
EMPLOYMENT AND COMPENSATION ARRANGEMENTS
Effective as of January 1, 1996, the Company entered into an employment
agreement with each of the executive officers providing for a base salary,
participation in the Company's Incentive Plan and employee benefits as generally
provided to all employees for a continuing term of two years for Mr. Staff and
one year for each of the other executive officers. The Company is not obligated
to pay any amounts pursuant to the employment agreements upon (i) voluntary
termination; (ii) termination for cause (as defined); (iii) death; (iv)
long-term disability; or (v) employee's refusal to accept comparable employment
with a successor corporation. If the employment relationship is terminated by
the Company for any other reason, or by the employee due to an uncorrected
material breach of the employment agreement by the Company, the employee is
entitled to receive his base salary and current year targeted bonus amount
either as a lump sum payment or over the one or two year term, as applicable, as
determined by the employment agreement under the circumstances. The employment
agreements with executive officers provide for the following base salaries for
1996: Joel V. Staff -- $300,000; C. R. Bearden -- $240,000; Lynn L.
Leigh -- $195,000; Steven W. Krablin -- $150,000; and Merrill A. Miller,
Jr. -- $150,000. The executive officers are entitled to bonuses as provided in
the Company's 1996 Employee Incentive Plan. See "-- Employee Benefit Plans and
Arrangements -- Employee Incentive Plan." The named executive officers are also
entitled to certain benefits upon termination pursuant to the Stock Incentive
Plan and Value Appreciation Plans, as described herein. Termination payments to
each of the named executive officers would be as follows: Joel V.
Staff -- $727,500; C. R. Bearden -- $324,000; Lynn L. Leigh -- $263,250; Steven
W. Krablin -- $202,500; and Merrill A. Miller, Jr. -- $202,500. During the
period of employment and for a period after termination of two years for Mr.
Staff and one year for each of the other executive officers, the employees are
generally prohibited from
38
<PAGE> 40
competing or assisting others to compete with the Company in its existing or
recent business, or inducing any other employee to terminate employment with the
Company.
LONG-TERM STOCK INCENTIVE PLAN
In 1996, the Company adopted a Stock Award and Long-Term Incentive Plan
("Stock Incentive Plan"), which provides for the award of restricted stock,
incentive stock options, stock appreciation rights, performance share awards,
stock value equivalent awards or any combination of the above, to certain key
employees of the Company (the "Employee Plan Participants"). Awards are granted
to Employee Plan Participants by the Compensation Committee of the board of
directors of the Company. The Stock Incentive Plan authorizes the issuance of up
to an aggregate of 1,941,303 shares of Common Stock of the Company to the
Employee Plan Participants. As of August 31, 1996, 941,303 shares of Common
Stock of the Company had been awarded as restricted stock to seven recipients,
each of whom is an executive officer of the Company, pursuant to Restricted
Stock Agreements. Those Restricted Stock Agreements provide for the purchase of
Common Stock of the Company for $.001 per share (the "Restricted Stock"). Any of
the 941,303 shares of Restricted Stock which are forfeited can be reawarded to
new participants by the Company. The Restricted Stock is subject to forfeiture
restrictions, which prohibit the stock from being sold, assigned, pledged,
exchanged or otherwise transferred until the forfeiture restrictions have
lapsed. The Restricted Stock Agreements also provide that the Restricted Stock
must be resold to the Company for $.001 per share if the recipients' employment
with the Company is terminated for any reason prior to the lapse of the
forfeiture restrictions. The forfeiture restrictions lapse each year on 20% of
the total number of shares of Restricted Stock awarded to each Employee Plan
Participant and on an additional twenty percent of the Restricted Stock awarded
to an Employee Plan Participant upon an involuntary termination of employment
without cause. The Stock Incentive Plan is administered by the Compensation
Committee.
Under certain circumstances, the accelerated lapsing of the forfeiture
provisions of the Restricted Stock might be deemed an "excess parachute payment"
for purposes of the golden parachute tax provisions of Section 280G of the
Internal Revenue Code. To the extent it is so considered, the Company may be
denied a tax deduction. In addition, the Restricted Stock Agreements provide for
the Company to pay the Employee Plan Participants a bonus which is equal to
two-thirds of the amount of any excess parachute tax payments which may be made
by the Employee Plan Participants (the "Parachute Bonuses"), plus an additional
amount equal to the additional income taxes to be paid by the participants
related to the Parachute Bonuses.
EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS
The following are descriptions of certain of the Company's employee benefit
plans and arrangements under which employees, officers and directors of the
Company may participate.
Employee Incentive Plan. In 1996, the Company established the 1996
National-Oilwell Employee Incentive Plan (the "Employee Incentive Plan") in
which all employees, including executive officers, are eligible to receive cash
bonus payments. The amount of the bonus payment is determined by the Company's
performance objectives based on measures of EBITDA and the ratio of EBITDA to
capital employed. A minimum performance level must be achieved by the Company
before any bonus is earned, and higher levels of achievement are rewarded with
increasing bonus payments based upon an established progression. A participant's
bonus opportunity varies depending upon the level of his or her position. The
maximum bonus opportunity for the President is approximately 65% of annual base
salary and for the other executive officers is approximately 50%. The board of
directors may adjust the award by as much as 25% of the target award.
Value Appreciation and Incentive Plan A. The Company has adopted an
incentive plan, the Value Appreciation and Incentive Plan A ("VAP A"), which
provides for certain key employees of the Company ("VAP A Participants") to
qualify for an award upon the occurrence of certain events, including an initial
public offering. The Company grants VAP A Participants awards in the form of
Value Appreciation Units ("VAUs"), of which a maximum of 80 can be awarded under
VAP A. As of August 31, 1996 there were 27 key employees and managers (of whom
only Mr. Leigh is an executive officer of the Company) participating in VAP A,
and 63 of the 80 VAUs available had been awarded to those VAP A Participants. In
the event of
39
<PAGE> 41
an initial public offering, the maximum amount to be awarded to VAP A
Participants (the "Maximum VAP A Award"), which assumes all 80 VAUs have been
awarded, is calculated by multiplying the value of the total number of issued
and outstanding shares of Common Stock of the Company immediately prior to the
Offering (valued at the initial public offering price, less underwriters'
discount) times 0.04.
The amount of the award to be distributed to an individual VAP A
Participant (an "Individual Distribution Award") is calculated by multiplying
the Maximum VAP A Award by a fraction, the numerator of which is the number of
VAUs awarded to the individual VAP A Participant, and the denominator of which
is 80. Plan A Participants will receive one-third of their Base Distribution
Amount in cash within 30 days of the initial public offering. The remainder of
the Base Distribution Amount will be paid by distribution of a number of shares
of Common Stock of the Company determined by dividing the dollar value of such
remainder by the per share initial public offering price, with one-half of such
shares of Common Stock being distributed on the first anniversary of the initial
public offering and with the remainder of such shares of Common Stock being
distributed on January 17, 1999. The right of a participant to retain the stock
can not be forfeited unless the participant is terminated for cause before the
distribution of such Common Stock.
Under certain circumstances, the amounts payable under VAP A might be
deemed an "excess parachute payment" for purposes of the golden parachute tax
provisions of Section 280G of the Internal Revenue Code. To the extent it is so
considered, the Company may be denied a tax deduction. In addition, VAP A
provides for the Company to pay the VAP A Participants a bonus which is equal to
two-thirds of the amount of any excess parachute tax payments which may be made
by the VAP A Participants (the "VAP A Parachute Bonuses"), plus an additional
amount equal to the additional income taxes to be paid by the VAP A Participants
related to the VAP A Parachute Bonuses.
Value Appreciation and Incentive Plan B. The Company has adopted another
incentive plan, the Value Appreciation and Incentive Plan B ("VAP B", and
collectively with VAP A, the "Value Appreciation Plans"), which provides for
certain executive officers of the Company to qualify for an award upon the
occurrence of certain events, including an initial public offering. Only
executive officers who have received an award of restricted stock under the
Company's Stock Incentive Plan as of the date of an initial public offering
("VAP B Participants") participate in VAP B. As of August 31, 1996 there were
seven participants in VAP B. Awards to VAP B Participants consist of a Pool A
Award and a Pool B Award. The total Pool A Award is calculated by multiplying
the value of the total number of issued and outstanding shares of Common Stock
of the Company immediately prior to the public offering (valued at the initial
public offering price, less underwriters' discount) times 0.01. The total Pool B
Award is $3,490,000.
The portion of the Pool A Award to be distributed to an individual VAP B
Participant is calculated by multiplying the Pool A Award by a fraction, the
numerator of which is the number of shares of stock of the Company awarded to
the individual VAP B Participant, and the denominator of which is the total
number of shares of stock of the Company awarded to all VAP B Participants. Plan
B Participants will receive one-third of their Base Distribution Amount in cash
within 30 days of the initial public offering. The remainder of the Base
Distribution Amount will be paid by distribution of a number of shares of Common
Stock of the Company determined by dividing the dollar value of such remainder
by the per share initial public offering price, with one-half of such shares of
Common Stock being distributed on the first anniversary of the initial public
offering and with the remainder of such shares of Common Stock being distributed
on January 17, 1999. The right of a participant to retain the stock can not be
forfeited unless the participant is terminated for cause before the distribution
of such Common Stock.
The portion of the Pool B Award to be distributed to an individual VAP B
Participant is calculated by multiplying the Pool B Award by a fraction, the
numerator of which is the number of shares of restricted stock of the Company
awarded to the individual VAP B Participant under the Company's Stock Incentive
Plan, and the denominator of which is the total number of shares of restricted
stock of the Company awarded to all VAP B Participants under the Company's Stock
Incentive Plan. The timing of the distribution of the Pool B Awards is tied to
the date upon which an initial public offering occurs, but if such event occurs
prior to January 1, 1997, the Pool B Award will be paid in five equal
installments on January 17 in 1997, 1998, 1999, 2000 and 2001. Pool B Awards are
payable in cash. The right of a participant to receive the Pool B Award of
40
<PAGE> 42
VAP B can not be forfeited unless the participant is terminated for cause before
the receipt of the Pool B Award.
Under certain circumstances, the amounts payable under VAP B might be
deemed an "excess parachute payment" for purposes of the golden parachute tax
provisions of Section 280G of the Internal Revenue Code. To the extent it is so
considered, the Company may be denied a tax deduction. In addition, VAP B
provides for the Company to pay the VAP B Participants a bonus which is equal to
two-thirds of the amount of any excess parachute tax payments which may be made
by the VAP B Participants (the "VAP B Parachute Bonuses"), plus an additional
amount equal to the additional income taxes to be paid by the VAP B Participants
related to the VAP B Parachute Bonuses.
Supplemental Savings Plan. The Supplemental Savings Plan is a non-qualified
deferred compensation plan, which permits certain employees (31 as of June 30,
1996) to defer receipt of regular and/or incentive compensation. Participants
are not entitled to receive any deferred amounts prior to termination of
employment, at which time payments will be made in a lump sum or in monthly
payments over a prespecified period not to exceed 10 years.
The Supplemental Savings Plan also provides for the Company to make
contributions on behalf of the participants whose contributions to the Company's
Retirement and Thrift Plan are limited by various Internal Revenue Code
regulations. The Supplemental Savings Plan assets are held in a trust whose
assets may be reached by creditors, but which are unavailable to the Company.
Shares of the Company's Common Stock held in trust pursuant to this plan are
voted by a party unaffiliated with the Company or the trustee of the plan.
CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT
The Company and the holders of 100% of the Company's Class A Common Stock
and Common Stock outstanding prior to the Offering have entered into a
Stockholders Agreement dated January 16, 1996, as amended (the "Stockholders
Agreement"). The Stockholders Agreement contains provisions for management of
the Company, voting of shares, election of directors and restrictions on
transfer of shares. Among other things, the Stockholders Agreement provides that
four members of the Company's board of directors would be designated by DPI Oil
Service Partners Limited Partnership (of which Inverness/Phoenix LLC serves as
the managing general partner), two members of the board would be designated by
partnerships of which First Reserve Corporation serves as the managing general
partner, and the Chief Executive Officer and Executive Vice President would
serve as the remaining two directors of the Company's eight member board of
directors. All of the existing members of the Company's board of directors were
designated and elected pursuant to the terms of the Stockholders Agreement. The
terms of the Stockholders Agreement concerning rights to designate members of
the board of directors, management of the Company, and restrictions on transfer
of shares all will terminate automatically upon the completion of the Offering.
In addition, the Stockholders Agreement provides the Inverness Investors and the
First Reserve Investors, after the Offering, the right on four occasions to
require the Company to register all or part of their registerable shares under
the Securities Act, and the Company is required to use its best efforts to
effect such registration, subject to certain conditions and limitations. The
Stockholders Agreement also provides all the parties to the Stockholders
Agreement with piggyback registration rights on any offering by the Company of
any of its securities to the public except a registration on Forms S-4 or S-8.
The Company will bear the expenses of all registrations under the Stockholders
Agreement. The parties to the Stockholders Agreement have waived their
registration rights with respect to a Registration Statement filed by the
Company with respect to the Offering.
41
<PAGE> 43
FEE AGREEMENTS
The Company entered into a Management Services Agreement dated January 16,
1996 (the "Management Services Agreement") with Inverness/Phoenix LLC, a
Connecticut limited liability company. This agreement will be terminated and
replaced with a Deferred Fee Agreement immediately prior to the Offering.
The Management Services Agreement provides that Inverness/Phoenix LLC
perform management services as directed by the Company's board of directors,
including (i) assisting executive management; (ii) identifying and negotiating
acquisitions and dispositions for the Company; (iii) negotiating and analyzing
financing alternatives in connection with acquisitions, capital expenditures,
and refinancings; (iv) financial modeling and analysis; (v) assisting in
executive searches and (vi) other services as agreed with the Company's board of
directors.
The Management Services Agreement provides that Inverness/Phoenix LLC
receive fees of $1,000,000 per year, payable quarterly commencing in January
1996 and a transaction fee in connection with each acquisition or disposition by
the Company of an existing business of 1% of the aggregate transaction value of
each such transaction.
Prior to the Offering, the Management Services Agreement will be terminated
and replaced by a Deferred Fee Agreement with Inverness/Phoenix LLC and First
Reserve Corporation. Under the terms of the Deferred Fee Agreement,
Inverness/Phoenix LLC will be paid $250,000 in advance quarterly beginning on
the first day of the calendar quarter following the Offering through December
31, 1999. In addition, Inverness/Phoenix LLC and First Reserve Corporation will
be paid fees aggregating $1,050,000 and $225,000, respectively, on the first
date and to the extent such payment would not be an event of default under the
Seller Notes. The Seller Notes provide that an event of default would occur if
aggregate management or similar fees are paid to Inverness/Phoenix LLC and First
Reserve Corporation in any calendar year in excess of $1,000,000, or if
transaction fees in excess of 1% of the aggregate transaction value of any
merger, acquisition, consolidation or divesture involving the Company (a
"transaction") are paid to Inverness/Phoenix LLC and/or First Reserve
Corporation. If a transaction occurs prior to January 1, 2000, a portion of the
$1,275,000 shall be considered, and paid as, a transaction fee to the extent
that such payment does not cause an event of default under the Seller Notes.
With respect to the $1,275,000, all amounts remaining unpaid as of January 1,
2000, shall be considered as a management or similar fee and shall be payable
quarterly in advance in the aggregate amount of $250,000 (proportionally to
Inverness/Phoenix LLC and First Reserve Corporation) beginning on January 1,
2000, until the remaining unpaid portion of the $1,275,000 has been paid.
For its assistance in the Acquisition of the Partnership in January 1996,
Inverness/Phoenix LLC was paid a transaction fee of $1,800,000. In connection
with the Acquisition of the Partnership in January 1996, the Company paid First
Reserve Corporation a $1,200,000 transaction fee. In connection with the
Acquisition of the Partnership, GE Capital provided the Credit Facility,
Subordinated Note and equity capital and received transaction fees totalling
$4.7 million.
MANAGEMENT NOTES
In connection with the Acquisition, four of the Company's executive
officers issued promissory notes (the "Officer Notes") to the Company in an
aggregate amount of approximately $500,000 in exchange for Class A Common Stock
of the Company. The Officer Notes bear interest until maturity at 1.5% above the
prime interest rate, payable annually, and the principal is due on January 15,
2001 unless extended at the option of the Company. The Officer Notes were issued
by the following executive officers: James J. Fasnacht -- $150,000; Paul M.
Nation -- $199,999; C. R. Bearden -- $100,000; and Lynn L. Leigh -- $49,999. In
accordance with their terms, the Officer Notes will be prepaid immediately prior
to the Offering.
RECENT SALES OF COMMON STOCK
On July 15, 1995, the Company sold an aggregate of 1,168,310 shares of
Common Stock at $.001 per share to DPI Oil Service Partners Limited Partnership
and DPI Partners II, two limited partnerships for which Inverness/Phoenix LLC
serves as managing general partner, in connection with the initial capitaliza-
42
<PAGE> 44
tion of the Company. On January 16, 1996, the Company sold an aggregate of
8,806,479 shares of Common Stock at $.011 per share, 753,049 shares of Common
Stock at $.001 per share, an aggregate of 13,085.6 shares of Class A Common
Stock at $2,264 per share to the Inverness Investors, the First Reserve
Investors, GE Capital and members of management, including Messrs. Staff,
Bearden, Leigh, Nation and Gauche, in connection with the closing of the
Acquisition, and the Company issued a warrant to GE Capital to purchase 282,392
shares of Common Stock for $.011 per share in connection with the Credit
Facility. On July 24, 1996, the Company received the funds for and completed the
previously committed sale of an aggregate of 148,456 shares of Common Stock at
$.011 per share, 282,381 shares of Common Stock at $.001 per share and an
aggregate of 202.4 shares of Class A Common Stock at $2,264 per share to Messrs.
Fasnacht, Krablin and Miller in connection with the Acquisition which occurred
in January 1996.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Common Stock by
(i) each beneficial owner of more than five percent of the Company's Common
Stock, (ii) each director of the Company, (iii) each of the executive officers
of the Company named in the Summary Compensation Table and (iv) all executive
officers and directors of the Company as a group. At June 30, 1996, there were
13,368,392 shares of Common Stock outstanding, after giving effect to the
issuance of 282,392 shares upon the exercise of the Warrant.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING(1)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE SHARES PERCENTAGE
------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Inverness Investors(2)........... 5,150,033 38.5% 5,150,033 29.7%
666 Steamboat Road
Greenwich, Connecticut 06830
The First Reserve Investors(3)....... 4,227,968 31.6 4,227,968 24.3
475 Steamboat Road
Greenwich, Connecticut 06830
GE Capital........................... 1,607,289 12.0 1,607,289 9.3
105 W. Madison Street, Suite 1600
Chicago, Illinois 60602
Joel V. Staff........................ 369,296 2.7 369,296 2.1
Staff Trust(4)....................... 528,814 4.0 528,814 3.0
C. R. Bearden........................ 422,059 3.2 422,059 2.4
Steven W. Krablin.................... 172,062 1.3 172,062 1.0
Lynn L. Leigh........................ 155,870 1.2 155,870 *
Merrill A. Miller, Jr................ 94,127 * 94,127 *
W. McComb Dunwoody................... 5,150,033(5) 38.5 5,150,033(5) 29.7
William E. Macaulay.................. 4,227,968(6) 31.6 4,227,968(6) 24.3
Howard I. Bull....................... -- -- -- --
James T. Dresher..................... -- -- -- --
James C. Comis III................... 5,150,033(7) 38.5 5,150,033 29.7
Bruce M. Rothstein................... -- -- -- --
All directors and executive officers
as a group (14 persons)(5)(6)(7)... 11,232,289 84.0 11,232,289 64.7
</TABLE>
- ---------------
* Less than 1%.
(1) Excludes shares of Common Stock issuable pursuant to the Company's Value
Appreciation Plans (343,986 shares of Common Stock based on an assumed
initial public offering price of $16.00 per share).
(2) The "Inverness Investors" consist of two limited partnerships, DPI Oil
Service Partners Limited Partnership and DPI Partners II, of which
Inverness/Phoenix LLC, is, in each case, the managing general partner.
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<PAGE> 45
(3) The "First Reserve Investors" consist of three limited partnerships, First
Reserve Fund V, Limited Partnership, First Reserve Fund V-2 and First
Reserve Fund VI, Limited Partnership, of which First Reserve Corporation
is, in each case, the managing general partner.
(4) These shares are owned by the trust created by that certain Trust Agreement
dated April 12, 1989 by and among Joel V. Staff and Mary Martha Staff, as
Trustors, and Richard Staff, as Trustee. Mr. Staff does not vote nor
exercise investment power over these shares.
(5) Represents shares owned by the Inverness Investors. Mr. Dunwoody serves on
the investment committee of Inverness/Phoenix LLC, which is the managing
general partner of the partnerships that are the record owners of the
shares owned by the Inverness Investors. The investment committee has sole
power to vote and dispose of the investments of Inverness/Phoenix LLC.
(6) This figure equals all shares beneficially owned by the First Reserve
Investors. First Reserve Corporation, of which Mr. Macaulay is the
President and Chief Executive Officer, is the managing general partner of
the limited partnerships comprising the First Reserve Investors. Mr.
Macaulay disclaims beneficial ownership as to all such shares.
(7) Represents shares owned by the Inverness Investors. Mr. Comis serves on the
investment committee of Inverness/Phoenix LLC, which is the managing
general partner of the partnerships that are the record owners of the
shares owned by the Inverness Investors. The investment committee has sole
power to vote and dispose of the investments of Inverness/Phoenix LLC.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of common stock and 10,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock").
COMMON STOCK
As of June 30, 1996, the Company's outstanding Common Stock consisted of
11,064,548 shares of Common Stock and 13,288 shares of the Company's Class A
Common Stock. All outstanding shares of Class A Common Stock will have been
automatically converted into shares of Common Stock on the effective date of the
Registration Statement of which this Prospectus is a part. Upon completion of
the Offering, 17,712,378 shares of Common Stock will be outstanding after giving
effect to (i) the mandatory conversion of all outstanding shares of Class A
Common Stock into 2,021,452 shares of Common Stock, (ii) the exercise of the
Warrant to purchase 282,392 shares of Common Stock and (iii) the issuance of
343,986 shares of Common Stock under the Company's Value Appreciation Plans
(assuming an initial public offering price of $16.00 per share).
The holders of Common Stock are entitled to one vote per share on all
matters voted on by the stockholders, including the election of directors.
Holders of Common Stock are not entitled to cumulate their votes in elections of
directors. Common stockholders have no preemptive rights or other rights to
subscribe for additional shares.
Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, each share of Class A Common Stock will be automatically
converted into shares of Common Stock pursuant to the Company's Charter. Each
holder of Class A Common Stock will be entitled to receive the number of shares
of Common Stock equal to the Original Cost divided by the net public offering
price per share of the Common Stock being sold in the Offering (152.13 shares
for each share of Class A Common Stock, based on an assumed initial public
offering price of $16.00 per share). Pursuant to the Charter, the number of
shares of Common Stock issuable upon conversion of the Class A Common Stock is
determined by dividing $30,079,200 by the initial public offering price per
share, less underwriting discount. Based on the range of the estimated initial
public offering price of $15.00 per share to $17.00 per share (less estimated
underwriting discount), the total number of shares of Common Stock which will be
issued upon conversion of Class A Common Stock will range from 2,156,215 shares
of Common Stock to 1,902,543 shares of Common Stock. At the conclusion of the
Offering no shares of Class A Common Stock will remain outstanding.
44
<PAGE> 46
After retirement of the Class A Common Stock upon consummation of the
Offering, holders of Common Stock will have an equal and ratable right to
receive dividends when, as and if declared by the board of directors out of
funds legally available therefor subject only to any payment requirements or
other restrictions imposed by any series of Preferred Stock that may be issued
in the future. See "Dividend Policy."
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The board of directors of the Company, without any action by the
stockholders of the Company, is authorized to issue up to 10,000,000 shares of
Preferred Stock, in one or more series and to determine the voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and in liquidation and the conversion and other rights of each such
series. There are no shares of Preferred Stock outstanding. See "Certain
Anti-Takeover and Other Provisions of the Amended and Restated Certificate of
Incorporation -- Preferred Stock."
CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The Amended and Restated Certificate of Incorporation (the "Charter") and
the Bylaws of the Company contain provisions that could have an anti-takeover
effect. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors of the Company and in
the policies formulated by the board of directors and to discourage certain
types of transactions which may involve an actual or threatened change of
control of the Company. The provisions are designed to reduce the vulnerability
of the Company to an unsolicited proposal for a takeover of the Company that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of the
Company. The provisions are also intended to discourage certain tactics that may
be used in proxy fights. The board of directors believes that, as a general
rule, such takeover proposals would not be in the best interest of the Company
and its stockholders. Set forth below is a description of such provisions in the
Charter and the Bylaws. The description of such provisions set forth below
discloses, in the opinion of the Company's management, all material elements of
such provisions, is intended only as a summary and is qualified in its entirety
by reference to the pertinent sections of the Charter and the Bylaws, forms of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The board of directors has no current plans to
formulate or effect additional measures that could have an anti-takeover effect.
Classified Board of Directors. The classification of directors will have
the effect of making it more difficult for stockholders to change the
composition of the board of directors. At least two annual meetings of
stockholders generally will be required to effect a change in a majority of the
board of directors. Such a delay may help ensure that the Company's directors,
if confronted by a stockholder attempting to force a proxy contest, a tender or
exchange offer or an extraordinary corporate transaction, would have sufficient
time to review the proposal as well as any available alternatives to the
proposal and to act in what they believe to be the best interests of the
stockholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
board of directors would be beneficial to the Company and its stockholders and
whether a majority of the Company's stockholders believes that such a change
would be desirable. Pursuant to the Charter, the provisions relating to the
classification of directors may only be amended by the affirmative vote of
eighty percent of the then outstanding shares of capital stock entitled to vote
thereon ("Voting Stock").
Removal of Directors Only for Cause. Pursuant to the Charter, directors can
be removed from office, only for cause (as defined therein), by the affirmative
vote of eighty percent of the Voting Stock, other than at the expiration of
their term of office. Vacancies on the board of directors may be filled only by
the remaining directors and not by the stockholders.
Number of Directors. The Charter provides that the entire board of
directors will consist of not less than three members, the exact number to be
set from time to time by resolution of the board of directors. Accordingly, the
board of directors, and not the stockholders, has the authority to determine the
number of directors and could delay any stockholder from obtaining majority
representation on the board of directors by
45
<PAGE> 47
enlarging the board of directors and filling the new vacancies with its own
nominees until the next stockholder election.
No Written Consent of Stockholders. The Charter also provides that any
action required or permitted to be taken by the stockholders of the Company must
be taken at a duly called annual or special meeting of stockholders and may not
be taken by written consent. In addition, special meetings may only be called by
(i) the Chairman of the Board, (ii) the President or (iii) the board of
directors pursuant to a resolution adopted by a majority of the then-authorized
number of directors.
Charter and Bylaws. The Charter provides that the board of directors, by a
majority vote, may adopt, alter, amend or repeal provisions of the Bylaws.
Business Combinations under Delaware Law. The Company is subject to section
203 of the Delaware General Corporation Law ("DGCL"), which prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates and/or associates
of such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder acquired its stock, unless (i) the business combination is approved
by the corporation's board of directors prior to the date the interested
stockholder acquired shares; (ii) the interested stockholder acquired at least
85% of the voting stock of the corporation in the transaction in which it became
an interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds of
the votes entitled to be cast by disinterested stockholders at an annual or
special meeting.
Preferred Stock. The Charter authorizes the board of directors of the
Company, without any action by the stockholders of the Company, to issue up to
10,000,000 shares of Preferred Stock, in one or more series and to determine the
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and in liquidation and the conversion and other
rights of each such series. Because the terms of the preferred stock may be
fixed by the board of directors of the Company without stockholder action, the
preferred stock could be issued quickly with terms designed to make more
difficult a proposed takeover of the Company or the removal of its management,
thus affecting the market price of the Common Stock and preventing stockholders
from obtaining any premium offered by the potential buyer. The board of
directors will make any determination to issue such shares based on its judgment
as to the best interests of the Company and its stockholders.
LIABILITY OF OFFICERS AND DIRECTORS -- INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Charter limits the liability of officers and
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. Specifically, officers and directors of the
Company will not be personally liable for monetary damages for breach of an
officer's or director's fiduciary duty in such capacity, except for liability
(i) for any breach of the officers and directors duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL, or (iv) for any transaction from which the officer
and director derived an improper personal benefit.
46
<PAGE> 48
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against officers and directors,
and may discourage or deter stockholders or management from bringing a lawsuit
against officers and directors for breach of their duty of care, even though
such an action, if successful, might otherwise have benefitted the Company and
its stockholders. Both the Company's Charter and Bylaws provide indemnification
to the Company's officers and directors and certain other persons with respect
to certain matters to the maximum extent allowed by Delaware law as it exists
now or may hereafter be amended. These provisions do not alter the liability of
officers and directors under federal securities laws and do not affect the right
to sue (nor to recover monetary damages) under federal securities laws for
violations thereof.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 17,712,378 shares of Common Stock will be
outstanding. The shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate" of the Company (as that term
is defined under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining shares of Common
Stock, which are held by the Company's current stockholders, will be "restricted
securities" (within the meaning of Rule 144) and, therefore, will not be
eligible for sale to the public unless they are sold in transactions registered
under the Securities Act or pursuant to an exemption from registration,
including pursuant to Rule 144 or an offshore transaction pursuant to Regulation
S under the Securities Act. The 1,168,310 shares of Common Stock beneficially
owned by the Inverness Investors that were issued on July 15, 1995 are
restricted from resale pursuant to Rule 144 under the Securities Act until July
15, 1997. The remaining shares of Common Stock, held by the Company's existing
stockholders, were issued in 1996 and are restricted from resale under Rule 144
until various dates in 1998. The Stockholders Agreement provides the Inverness
Investors and the First Reserve Investors four demand registrations after the
Offering and provides the parties to the Stockholders Agreement with piggyback
registration rights. Such stockholders have waived their registration rights
with respect to a Registration Statement filed by the Company with respect to
the Offering. See "Certain Transactions -- Stockholders Agreement."
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Incentive Plan. Shares of Common
Stock issued pursuant to such plan generally will be available for sale in the
open market by holders who are not affiliates of the Company and, subject to the
volume and other limitations of Rule 144, by holders who are affiliates of the
Company.
In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock (i.e., 177,100
shares immediately after consummation of the Offering) and (ii) the average
weekly trading volume during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain provisions as to the manner of sale, notice requirements, and
the availability of current public information about the Company. In addition,
under Rule 144(k), if a period of at least three years has elapsed since the
later of the date restricted securities were acquired from the Company or the
date they were acquired from an affiliate of the Company, a stockholder who is
not an affiliate of the Company at the time of sale and has not been an
affiliate for at least three months prior to the sale would be entitled to sell
shares of Common Stock in the public market immediately without compliance with
the foregoing requirements under Rule 144. Rule 144 does not require the same
person to have held the securities for the applicable periods. The foregoing
summary of Rule 144 is not intended to be a complete description thereof. The
Commission has proposed an amendment to Rule 144 that would shorten the three-
and two-year holding periods described above to two years and one year,
respectively.
The Company, each of its directors and executive officers and all existing
stockholders have agreed with the Underwriters that they will not offer, sell,
contract to sell, sell any option or contract to purchase any
47
<PAGE> 49
option or contract to sell, grant any option, right or warrant for the sale of,
pledge, or otherwise dispose of or transfer any shares of Common Stock, with
certain exceptions, for a period of 180 days after the date of this Prospectus
without the prior written consent of Merrill Lynch, as representative of the
Underwriters. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made of the effect, if any, that sales of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Following the Offering, sales of substantial
amounts of Common Stock in the public market or otherwise, or the perception
that such sales could occur, could adversely affect the prevailing market price
for the Common Stock.
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom Merrill Lynch, Goldman,
Sachs & Co. and Simmons & Company International are acting as representatives
(the "Representatives"), has severally agreed to purchase from the Company the
number of shares of Common Stock set forth below opposite their respective
names. The Underwriters are committed to purchase all of such shares if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Goldman, Sachs & Co. .....................................................
Simmons & Company International...........................................
---------
Total........................................................ 4,000,000
========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Company has granted the Underwriters an option, exercisable by the
Representatives, to purchase up to 600,000 additional shares of Common Stock at
the initial public offering price, less the underwriting discount. Such option,
which expires 30 days after the date of this Prospectus, may be exercised solely
to cover over-allotments. To the extent that the Representatives exercise such
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase approximately the same percentage of the option shares
that the number of shares to be purchased initially by that Underwriter bears to
the total number of shares to be purchased initially by the Underwriters.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Representatives and may bear no
relationship to the market prices of the Common Stock after this offering. The
factors considered in determining the initial public offering price of the
Common Stock, in
48
<PAGE> 50
addition to prevailing market conditions, will be current and historical
conditions in the supply and demand for the Company's products (which conditions
may be influenced by oil and gas prices), business prospects of the Company and
the prospects in general for the industries in which the Company operates,
management of the Company, the earnings and cash flow multiples of the market
prices of common stock of other publicly traded companies in industries in which
the Company operates and the Company's cash flow and earnings prospects. There
can be no assurance that an active market for the Common Stock will develop upon
completion of the Offering or, if developed, that such market will be sustained.
Prices for the Common Stock after the Offering may be influenced by a number of
factors, including the depth and liquidity of the market for the Common Stock,
investor perceptions of the Company and the oil and gas industry in general, and
general economic and other conditions.
At the request of the Company, the Underwriters have reserved 200,000
shares of Common Stock for sale at the initial public offering price to
employees of the Company. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such employees purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Company's directors and officers and
certain of its stockholders have agreed that, during a period of 180 days from
the date of this Prospectus, such holders will not, without the prior written
consent of the Representatives, offer, sell, contract to sell, sell any option
or contract to purchase any option or contract to sell, grant any option, right
or warrant for the sale of, pledge, or otherwise dispose of or transfer any
shares of Common Stock. In addition, the Company will not, without the prior
written consent of Merrill Lynch, as representative of the Underwriters,
directly or indirectly, offer, contract to sell, sell, grant any option with
respect to, pledge, hypothecate or otherwise dispose of any shares of Common
Stock except for (i) sales of the shares of Common Stock offered hereby, (ii)
issuances pursuant to the exercise of outstanding warrants, stock options and
convertible securities, (iii) grants of options or shares of Common Stock
pursuant to the Stock Incentive Plan, (iv) bona fide gifts by stockholders to
certain donees who agree to be bound by a similar agreement, (v) certain
transfers in private transactions to affiliates of such stockholder who agree to
be bound by a similar agreement, (vi) pledges by certain officers in connection
with loans for the repayment of the Officer Notes to the Company and (vii)
issuances of capital stock by the Company in connection with acquisitions of
businesses, provided such shares issuable pursuant to acquisitions shall not be
transferable prior to the end of the 180-day period.
Goldman, Sachs & Co. was paid ordinary and customary fees by the Company
for its services as syndication agent under the Credit Facility.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters relating to the Common Stock offered hereby will be passed
upon for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated balance sheet of National-Oilwell, Inc. as of January 1,
1996 and the consolidated financial statements of National-Oilwell and
subsidiaries, the predecessor, at December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
49
<PAGE> 51
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act, with respect to the offer and sale of Common Stock pursuant to
this Prospectus. This Prospectus, filed as a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
or the exhibits and schedules thereto in accordance with the rules and
regulations of the Commission and reference is hereby made to such omitted
information. Statements in this Prospectus as to the contents of any contract,
agreement or other document filed as an exhibit to the Registration Statement
are summaries of the terms of such contracts, agreements or documents and are
not necessarily complete but, in the opinion of the Company's management,
contain all material elements of such contracts, agreements or documents.
Reference is made to each such exhibit for a more complete description of the
matters involved and such statements shall be deemed qualified in their entirety
by such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facilities maintained by the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. The Registration Statement and other information filed by the Company
with the Commission are also available at the web site of the Commission at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 (unaudited), January 1, 1996 and as of
December 31, 1995 and 1994.......................................................... F-3
Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and June
30, 1995 (unaudited) and for the Three Years in the Period Ended December 31,
1995................................................................................ F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and June
30, 1995 (unaudited) and for the Three Years in the Period Ended December 31,
1995................................................................................ F-5
Consolidated Statements of Owners' Equity for the Six Months Ended June 30, 1996
(unaudited) and for the Three Years in the Period Ended December 31, 1995........... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 53
REPORTS OF INDEPENDENT AUDITORS
Board of Directors
National-Oilwell, Inc.
We have audited the accompanying consolidated balance sheet of
National-Oilwell, Inc. and subsidiaries as of January 1, 1996. This balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of National-Oilwell, Inc. and
subsidiaries at January 1, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
August 29, 1996
Partners
National-Oilwell
We have audited the accompanying consolidated balance sheets of
National-Oilwell, a general partnership, and subsidiaries, the Partnership, as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, owners' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
National-Oilwell, a general partnership, and subsidiaries at December 31, 1995
and 1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
January 31, 1996
F-2
<PAGE> 54
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
PREDECESSOR
SUCCESSOR --------------------
------------------------- DECEMBER 31,
JUNE 30, JANUARY 1, --------------------
1996 1996 1995 1994
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 4,512 $ 17,371 $ 65,452 $ 9,418
Receivables, less allowance of $3,369, $4,015,
$4,015 and $1,023............................ 86,282 77,767 74,986 102,368
Inventories..................................... 121,907 116,107 120,686 124,096
Prepaids and other current assets............... 7,073 6,033 4,543 4,119
-------- -------- -------- --------
Total current assets.................... 219,774 217,278 265,667 240,001
Property, plant and equipment, net................ 17,916 18,936 18,877 22,397
Deferred taxes.................................... 7,759 8,464 1,450 1,959
Goodwill.......................................... 6,408 6,489 -- --
Deferred financing costs.......................... 6,916 7,684 1,089 730
Other assets...................................... 708 788 1,495 3,217
-------- -------- -------- --------
$ 259,481 $ 259,639 $288,578 $268,304
======== ======== ======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $ 2,500 $ 2,250 $ -- $ --
Accounts payable................................ 67,576 67,008 66,665 60,340
Customer prepayments............................ 1,181 7,500 7,500 1,506
Accrued compensation............................ 4,319 3,071 3,071 4,492
Other accrued liabilities....................... 18,618 16,177 11,066 21,853
-------- -------- -------- --------
Total current liabilities............... 94,194 96,006 88,302 88,191
Long-term debt.................................... 118,688 121,128 9,128 --
Insurance reserves................................ 6,456 6,201 6,201 8,524
Other liabilities................................. 6,161 6,935 6,935 9,701
-------- -------- -------- --------
Total liabilities....................... 225,499 230,270 110,566 106,416
Commitments and contingencies
Owners' equity:
Class A common stock -- par value $.01; 13,288
shares issued and outstanding................ -- -- -- --
Common stock -- par value $.01; 11,064,548
shares issued and outstanding................ 111 111 -- --
Additional paid-in capital...................... 30,068 29,608 -- --
Notes receivable from officers.................. (500) (350) -- --
Partners' capital............................... -- -- 185,506 169,784
Cumulative translation adjustment............... 303 -- (7,494) (7,896)
Retained earnings............................... 4,000 -- -- --
-------- -------- -------- --------
Total owners' equity.................... 33,982 29,369 178,012 161,888
-------- -------- -------- --------
$ 259,481 $ 259,639 $288,578 $268,304
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 55
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------- --------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $294,643 $266,443 $545,803 $562,053 $627,281
Cost of revenues........................ 254,556 231,556 474,791 482,423 547,401
-------- -------- -------- -------- --------
Gross profit............................ 40,087 34,887 71,012 79,630 79,880
Selling, general, and administrative.... 26,681 30,903 57,231 64,422 79,391
Special charges (credits)............... -- (7,500) (8,458) (13,916) 8,565
-------- -------- -------- -------- --------
Operating income (loss)................. 13,406 11,484 22,239 29,124 (8,076)
Interest and financial costs............ (6,738) (1,437) (2,358) (5,777) (8,277)
Interest income......................... 320 374 1,097 1,046 1,001
Other income (expense).................. (321) 161 (1,401) 528 (240)
-------- -------- -------- -------- --------
Income (loss) before income taxes....... 6,667 10,582 19,577 24,921 (15,592)
Provision for income taxes.............. 2,667 1,204 1,937 1,041 1,871
-------- -------- -------- -------- --------
Net income (loss)....................... $ 4,000 $ 9,378 $ 17,640 $ 23,880 $(17,463)
======== ======== ======== ======== ========
Weighted average shares outstanding..... 13,368
========
Net income per share.................... $ 0.30
========
Pro forma -- unaudited
Historical income before income
taxes.............................. $ 19,577
Pro forma adjustments other than
income taxes....................... (12,718)
--------
Pro forma income before income
taxes.............................. 6,859
Pro forma provision for income
taxes.............................. 2,413
--------
Pro forma net income.................. $ 4,446
========
Pro forma common shares outstanding... 13,368
========
Pro forma net income per share........ $ 0.33
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 56
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- -----------------------------------------
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------
1996 1995 1995 1994 1993
--------- -------- ------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)....................................... $ 4,000 $ 9,378 $17,640 $ 23,880 $(17,463)
Adjustments to reconcile net income(loss) to net cash
provided (used) by operating activities:
Depreciation and amortization........................ 1,903 2,172 3,595 6,027 10,721
Provision for losses on receivables.................. 304 2,401 2,855 545 1,237
Provision for deferred income taxes.................. 705 316 509 909 893
Gain on sale of assets............................... (192) (513) (662) (910) (867)
Foreign currency transaction (gain) loss............. (57) 102 1,170 54 160
Special charges (credits)............................ -- (7,500) (8,458) (13,916) 8,565
Changes in operating assets and liabilities:
Decrease (increase) in receivables................... (8,795) 9,445 24,583 491 (5,245)
Decrease (increase) in inventories................... (5,804) (2,610) 2,205 12,483 19,558
Decrease (increase) in prepaids and other current
assets............................................. (1,046) (7,877) (4,730) 4,287 (3,453)
Increase (decrease) in accounts payable.............. 582 (12,185) 6,959 7,614 (21,423)
Increase (decrease) in other assets/liabilities,
net................................................ (2,152) 3,055 (3,996) (3,913) (7,172)
--------- -------- ------- --------- --------
Net cash provided (used) by operating
activities.................................... (10,552) (3,816) 41,670 37,551 (14,489)
--------- -------- ------- --------- --------
Cash flow from investing activities:
Purchases of property, plant and equipment.............. (849) (2,031) (4,764) (3,604) (1,967)
Proceeds from sale of assets............................ 272 3,885 6,865 1,731 4,947
Proceeds from disposition of businesses................. -- 6,944 6,944 69,821 --
Acquisition of predecessor company, net of cash
acquired............................................. (106,248) -- -- -- --
Other................................................... (350) (218) (218) 251 (108)
--------- -------- ------- --------- --------
Net cash provided (used) by investing
activities.................................... (107,175) 8,580 8,827 68,199 2,872
--------- -------- ------- --------- --------
Cash flow from financing activities:
Principal (payments) on long-term debt.................. (11,318) -- 9,128 (69,842) 13,334
Proceeds from issuance of common stock.................. 30,179 -- -- -- --
Borrowings proceeds from Acquisition debt............... 103,378 -- -- -- --
Principal payments under capital lease obligations...... -- -- -- (911) (996)
Cash distribution to partners........................... -- (1,918) (1,918) (31,000) --
--------- -------- ------- --------- --------
Net cash provided (used) by financing
activities.................................... 122,239 (1,918) 7,210 (101,753) 12,338
--------- -------- ------- --------- --------
Effect of exchange rate losses on cash.................... -- -- (1,673) (595) (154)
Increase in cash and equivalents.......................... 4,512 2,846 56,034 3,402 567
Cash and cash equivalents, beginning of period............ -- 9,418 9,418 6,016 5,449
--------- -------- ------- --------- --------
Cash and cash equivalents, end of period.................. $ 4,512 $ 12,264 $65,452 $ 9,418 $ 6,016
========= ======== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 57
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
CLASS A ADDITIONAL RECEIVABLE CUMULATIVE
COMMON COMMON PAID-IN FROM PARTNERS' TRANSLATION RETAINED
STOCK STOCK CAPITAL OFFICERS CAPITAL ADJUSTMENT EARNINGS TOTAL
------- ------ ---------- ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
Balance at December 31,
1992........................ $ 194,367 $(1,821) $ 192,546
Net loss.................... (17,463) -- (17,463)
Translation adjustment...... -- (4,407) (4,407)
--------- ------- ---------
Balance at December 31,
1993........................ 176,904 (6,228) 170,676
Net income.................. 23,880 -- 23,880
Translation adjustment...... -- (1,668) (1,668)
Distribution................ (31,000) -- (31,000)
--------- ------- ---------
Balance at December 31,
1994........................ 169,784 (7,896) 161,888
Net income.................. 17,640 -- 17,640
Translation adjustment...... -- 402 402
Distribution................ (1,918) -- (1,918)
--------- ------- ---------
Balance at December 31,
1995........................ 185,506 (7,494) 178,012
Successor:
Issuance of 13,288 shares... -- $ 30,068 $ (500) 29,568
Issuance of 11,064,548
shares.................... $111 -- 111
Elimination of partners'
interests................. (185,506) 7,494 (178,012)
Net income.................. $4,000 4,000
Translation adjustment...... 303 303
------- ---- ------- ----- --------- ------- ------ ---------
Balance at June 30, 1996
(Unaudited)................. -- $111 $ 30,068 $ (500) $ -- $ 303 $4,000 $ 33,982
======= ==== ======= ===== ========= ======= ====== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 58
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
National-Oilwell, Inc. was formed to acquire National-Oilwell, a general
partnership between National Supply Company, Inc., a subsidiary of Armco Inc.,
and Oilwell, Inc., a subsidiary of USX Corporation, and subsidiaries, (the
"Partnership"). The consolidated financial information of the Partnership, as
predecessor, has been included with the consolidated financial information of
National-Oilwell, Inc. and subsidiaries for purposes of comparability.
References herein to the "Company" refer to the Partnership for periods prior to
January 1, 1996 and to National-Oilwell, Inc. for subsequent periods. Effective
as of January 1, 1996, National-Oilwell, Inc. acquired the Partnership for a
purchase price of $180 million, which approximated book value (the
"Acquisition"). The closing date of the transaction was January 17, 1996, with
an effective date of January 1, 1996. The accompanying consolidated balance
sheet as of January 1, 1996 reflects the accounts of National-Oilwell, Inc. as
if the acquisition of the Partnership had occurred on that date. The transaction
was accounted for under the purchase method of accounting and accordingly all
assets and liabilities of the Partnership were recorded at their fair values
resulting in only minimal basis adjustments. The purchase price and related
expenses were financed by new equity, existing cash, a new credit facility
consisting of a revolving credit line totaling $120 million and term debt of $30
million, a $5 million subordinated note and seller notes of $20 million.
Approximately $67 million of the revolving credit line was utilized to
consummate the transaction. A summary of the transaction is as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired, other than cash.................... $242,268
Cash paid to acquire Partnership.................................. 106,248
Purchase price financed by seller notes........................... 20,000
--------
Liabilities assumed..................................... $116,020
========
</TABLE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. Actual results could differ from those
estimates.
In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial position as of
June 30, 1996, and the results of operations and cash flows for each of the
six-month periods ended June 30, 1996 and 1995. Although management believes the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. The
results of operations and the cash flows for the six-month period ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, receivables, payables, and debt instruments. Cash equivalents
include only those investments having a maturity of three
F-7
<PAGE> 59
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
months or less at the time of purchase. The carrying values of these financial
instruments approximate their respective fair values.
Inventories
Inventories consist of (a) oilfield products and oil country tubular goods,
(b) manufactured equipment and (c) spare parts for manufactured equipment.
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for major
improvements which extend the lives of property and equipment are capitalized
while minor replacements, maintenance and repairs are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight-line method over the estimated useful lives of individual items.
Intangible Assets
Deferred financing costs are amortized on a straight-line basis over the
five year life of the related debt security and accumulated amortization was
$768,000 at June 30, 1996. Goodwill is amortized on a straight-line basis over
its estimated life of 40 years. The Company's policy is to periodically evaluate
goodwill and all long-lived assets to determine whether there has been any
impairment in value. Accumulated amortization was $81,000 at June 30, 1996.
Foreign Currency
The functional currency for the Company's Canadian, United Kingdom and
Australian subsidiaries is the local currency. The cumulative effects of
translating the balance sheet accounts from the functional currency into the
U.S. dollar at current exchange rates are included in cumulative foreign
currency translation adjustments. The U.S. dollar is used as the functional
currency for the Singapore and Venezuelan subsidiaries. For all operations,
gains or losses from remeasuring foreign currency transactions into the
functional currency are included in income.
Revenue Recognition
Revenue from the sale of products is recognized upon passage of title to
the customer.
Income Taxes
The Company provides for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax
reporting basis of assets and liabilities.
Net Income Per Share
Average shares outstanding includes 11,064,548 issued shares of common
stock, 282,392 shares of common stock pursuant to exercisable warrants and
2,021,452 shares of common stock associated with the conversion of Class A
common stock at an assumed initial public offering price of $16.00 as discussed
at Note 8.
F-8
<PAGE> 60
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company grants credit to its customers which operate primarily in the
oil and gas industry. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Receivables are generally due within 30 days. The Company maintains reserves for
potential losses and such losses have historically been within management's
expectations.
Long-Lived Assets
In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, was issued which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and estimated future undiscounted cash
flows indicate the carrying value of those assets may not be recoverable. The
Company implemented SFAS No. 121 on January 1, 1996 and the adoption did not
have a material effect on the financial statements.
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, JANUARY 1, --------------------
1996 1996 1995 1994
---------- ---------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials and supplies................ $ 10,092 $ 11,528 $ 11,528 $ 12,486
Work in process........................... 5,195 4,842 4,842 5,112
Finished goods and purchased products..... 106,620 99,737 104,316 106,498
--------- --------- -------- --------
$ 121,907 $ 116,107 $120,686 $124,096
========= ========= ======== ========
</TABLE>
Foreign inventories were approximately 18%, 17%, 21% and 20% of total
inventories at June 30, 1996, January 1, 1996, December 31, 1995 and December
31, 1994, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED JUNE 30, JANUARY 1, --------------------
USEFUL LIVES 1996 1996 1995 1994
------------ ----------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Land and improvements........... 2-20 Years $ 2,017 $ 2,022 $ 2,509 $ 5,718
Buildings....................... 5-31 Years 4,920 4,940 10,404 10,772
Machinery and equipment......... 5-12 Years 7,262 6,902 31,139 53,886
Computer and office equipment... 3-10 Years 5,620 5,072 19,079 21,366
------- -------- -------- --------
19,819 18,936 63,131 91,742
Less accumulated
depreciation............... (1,903) -- (44,254) (69,345)
------- -------- -------- --------
$17,916 $ 18,936 $ 18,877 $ 22,397
======= ======== ======== ========
</TABLE>
F-9
<PAGE> 61
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JANUARY 1, DECEMBER 31,
1996 1996 1995
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Credit Agreement
Revolving Credit Facilities................... $ 70,865 $ 68,378 $ --
Term Loan A................................... 12,415 15,000 --
Term Loan B................................... 12,790 15,000 --
Previous credit agreement....................... -- -- 9,128
Subordinated Note............................... 5,118 5,000 --
Seller Notes.................................... 20,000 20,000 --
-------- ------
121,188 123,378 9,128
Less current portion............................ 2,500 2,250 --
--------- --------- ------
$ 118,688 $ 121,128 $9,128
========= ======== ======
</TABLE>
Credit Agreement
The Credit Agreement provides for Revolving Credit Facilities totaling
$120,000,000 in the United States, Canada and United Kingdom through December
31, 2000 and replaced the Company's previous credit agreement. In addition to
borrowings, the Revolving Credit Facilities provide for the issuance of letters
of credit, of which $12,600,000 were outstanding at June 30, 1996. Borrowing
availability is determined based on a percentage of eligible accounts receivable
and inventory. The interest rate on the Revolving Credit Facility is prime plus
1.5% or LIBOR plus 2.75% (9.75% and 8.19% at June 30, 1996). A commitment fee of
0.5% is charged on the unused portion.
The Credit Agreement also provides for Term Loan A, payable quarterly
through December 31, 2000 and Term Loan B, payable quarterly through December
31, 2001. Interest rates on the term loans are at prime plus 1.75% and 2.25%,
respectively, or at LIBOR plus 3.0% and 3.5%, respectively. The term loans
require prepayments from certain asset disposal proceeds and from up to 80% of
excess cash flow (as defined).
The Credit Agreement is secured by essentially all assets of the Company
and contains financial covenants regarding minimum net worth, maximum capital
expenditures, minimum current ratio, minimum interest and fixed charge coverage
ratios and a maximum funded debt coverage ratio. The Credit Agreement also
restricts the Company's ability to, among other things, pay dividends, make
acquisitions and investments, incur debt and liens, and change its capital
structure or business.
Subordinated Note
The Subordinated Note bears interest at prime plus 3.0%, is due December
31, 2002 and is secured by a lien on essentially all assets of the Company.
Interest payments are deferred until the aggregate balance outstanding under
Term Loans A and B is $15,000,000 or less and certain other conditions are met.
Mandatory prepayments must be made from 50% of excess cash flow (as defined)
after Term Loans A and B are repaid.
Seller Notes
The Company owes $10,000,000 to each of the two Sellers in connection with
the Acquisition. The notes are subordinate to other existing debt and bear
interest at the rate of 9.0%. At its option, the Company may defer payment of
interest due prior to January 16, 2003. One-half of the sum of the principal and
any deferred interest is payable on January 16, 2004, and the balance is payable
on January 16, 2005. The notes are subject
F-10
<PAGE> 62
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to prepayment in certain events, including the sale of significant assets by the
Company or the sale by the stockholders at the time of the Acquisition of more
than 50% of their aggregate shares. Partial prepayments are also required in
connection with certain sales of the Company's stock owned by Duff &
Phelps/Inverness LLC or First Reserve Corporation.
Scheduled maturities of long-term debt outstanding at June 30, 1996 are as
follows: six months ending December 31, 1996 -- $1,125,000; years ending
December 31, 1997 -- $3,000,000; 1998 -- $3,250,000; 1999 -- $3,250,000;
2000 -- $75,865,000; 2001 -- $9,130,000.
6. PENSION PLANS
The Company and its consolidated subsidiaries have several pension plans
covering substantially all of its employees. Defined-contribution pension plans
cover most of the U.S. and Canadian employees and are based on years of service
and a percentage of current earnings. For the years ended December 31, 1995,
1994 and 1993, pension expense for defined-contribution plans was $1,512,000,
$1,914,000 and $2,005,000, respectively, and the funding is current.
The Company's subsidiary in the United Kingdom has a defined-benefit
pension plan whose participants are primarily retired and terminated employees
who are no longer accruing benefits. The pension plan assets are invested
primarily in equity securities, United Kingdom government securities, overseas
bonds and cash deposits. The plan assets at fair market value were $32,104,000
at December 31, 1995 and $27,389,000 at December 31, 1994. The projected benefit
obligation was $23,131,000 at December 31, 1995 and $20,630,000 at December 31,
1994. Net periodic pension cost (benefit) recognized as expense (income) for the
years ended December 31, 1995, 1994 and 1993 was $379,000, ($69,000) and
$699,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases land, buildings and storage facilities, vehicles and
data processing equipment under operating leases extending through various dates
up to the year 2004. Rent expense for the years ended December 31, 1995, 1994
and 1993 was $9,714,000, $8,691,000 and $10,372,000, respectively. The Company's
minimum rental commitments for operating leases at December 31, 1995 were as
follows (in thousands): 1996 -- $6,372; 1997 -- $4,046; 1998 -- $1,796;
1999 -- $1,312; 2000 -- $1,159; thereafter -- $6,096.
Contingencies
The Company is involved in various claims, regulatory agency audits and
pending or threatened legal actions involving a variety of matters. The total
liability on these matters at December 31, 1995 cannot be determined; however,
in the opinion of management, any ultimate liability, to the extent not
otherwise provided for, should not materially affect the financial position,
liquidity or results of operations of the Company.
Environmental
The Company's business is affected both directly and indirectly by
governmental laws and regulations relating to the oilfield service industry in
general, as well as by environmental and safety regulations that specifically
apply to the Company's business. Laws and regulations protecting the environment
have generally become more expansive and stringent in recent years and the
Company believes the trend will continue. Although the Company has not incurred
material costs in connection with its compliance with such laws, there can be no
assurance that other developments, such as stricter environmental laws,
regulations and enforcement policies thereunder, could not result in additional,
presently unquantifiable, costs or liabilities to the Company.
F-11
<PAGE> 63
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMON STOCK
The Company has authorized 40,000,000 shares, $.01 par value, common stock
and 13,288 shares, $.01 par value, Class A common stock. The Class A common
stock has preference over common stock to receive dividends or any other
distribution until the holders of Class A common stock have received in the
aggregate the original cost of $30,079,200 paid for the Class A shares. Upon the
occurrence of an initial public offering, the Class A common stock converts into
the number of shares of common stock determined by dividing the unreturned
original cost of the Class A common stock by the net public offering price. The
Company has also authorized 10,000,000 shares of $.01 par value preferred stock,
none of which is issued or outstanding.
Seven executive officers of the Company participated in the Acquisition by
acquiring common stock and Class A common stock at fair market value. In
connection therewith, four of the executives issued promissory notes to the
Company for an aggregate of $500,000. Interest on the notes is at 1.5% over
prime and is paid annually. The notes are due on January, 15, 2001 unless
extended at the option of the Company, and are secured by shares of common stock
and Class A common stock. The notes must be prepaid under certain conditions
including the occurrence of a public offering or from cash proceeds from
dividends, distributions or sale of any of the shares. The promissory notes are
reflected in the accompanying balance sheet as a reduction of owners' equity.
The Stock Award and Long-Term Incentive Plan allows grants of incentive
options, nonqualified options, restricted stock, stock appreciation rights,
performance share awards, stock value equivalent awards or any combination of
the above. In connection with the Acquisition, 941,303 shares of restricted
common stock were purchased by executive officers for $.001 per share under this
plan. These shares are subject to restriction on transferability and are not
entitled to receive dividends or distributions. Restrictions lapse annually
regarding 20% of these shares beginning one year from acquisition or in their
entirety upon the occurrence of (i) a merger or consolidation of the Company,
(ii) a sale of all or substantially all the assets of the Company, or (iii) a
sale of all the outstanding Class A common stock and common stock of the
Company. Restrictions will lapse on an additional 20% of those shares upon an
involuntary termination of employment without cause. Any restricted shares may
be repurchased by the Company for $.001 per share upon termination of the
executive officers' employment. On August 27, 1996, the Company's board of
directors approved the amendment and restatement of the plan to authorize the
issuance of up to 1,000,000 additional shares of common stock pursuant to awards
made thereunder. The Company has not made any additional awards pursuant this
plan.
In connection with the Acquisition, the Company entered into a warrant
agreement granting a significant debt holder and stockholder the right to
purchase 282,392 shares of common stock at an exercise price of $.01 per share.
The warrants may be exercised at any time through January 16, 2006. The warrant
agreement also provides for an additional 196,438, 100,815 and 102,586 shares to
be issued on the fifth, sixth and seventh anniversary of the Acquisition date in
the event the $5 million subordinated note has not been repaid on or prior to
such dates.
In January 1996, the Company established Value Appreciation Plans that are
intended to reward participants for enhancing the value of the Company common
stock. If target internal rates of return are achieved as of a triggering event
such as a qualified public offering, the 34 participants will be paid in cash or
common stock over time a percentage of the equity value as of such occurrence.
Based upon an initial public offering price of $16.00 (the midpoint of the range
of offering prices), the Value Appreciation Plans would result in a one-time
charge before taxes of $11.7 million. The Company currently expects to pay $2.8
million of this amount in cash at the time of the Offering, $3.5 million in cash
in five annual installments beginning January 17, 1997 and issue 343,986 shares
of common stock. One-half of the shares of common stock will be issued one year
after the Offering and the remaining one-half on January 17, 1999.
F-12
<PAGE> 64
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Prior to 1996, the Company was a partnership for U.S. federal tax purposes
and provided for foreign taxes but did not provide for U.S. federal or state
taxes on its income.
The domestic and foreign components of income before income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1995 1995 1994 1993
------ ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic............................. $4,702 $ 7,235 $14,194 $22,840 $(16,446)
Foreign.............................. 1,965 3,347 5,383 2,081 854
------ ------- ------- ------- --------
$6,667 $10,582 $19,577 $24,921 $(15,592)
====== ======= ======= ======= ========
</TABLE>
The components of the provision for income taxes consisted of (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1995 1995 1994 1993
------ ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $1,090 $ -- $ -- $ -- $ --
State.............................. 99 -- -- -- --
Foreign............................ 773 888 1,428 132 978
------ ------- ------- ------- --------
1,962 888 1,428 132 978
------ ------- ------- ------- --------
Deferred:
Federal............................ 507 -- -- -- --
State.............................. 112 -- -- -- --
Foreign............................ 86 316 509 909 893
------ ------- ------- ------- --------
705 316 509 909 893
------ ------- ------- ------- --------
$2,667 $ 1,204 $ 1,937 $ 1,041 $ 1,871
====== ======= ======= ======= ========
</TABLE>
The difference between the effective tax rate reflected in the provision
for income taxes and the U.S. federal statutory rate was as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1995 1995 1994 1993
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax at statutory
rate................................ $2,333 $ 3,704 $ 6,852 $ 8,722 $(5,457)
Foreign income tax rate
differential........................ 26 12 184 368 338
U.S. partnership income for which no
tax is provided..................... -- (2,532) (4,968) (7,994) 5,756
Nondeductible expenses................ 341 247 398 293 157
Foreign operating loss for which no
benefit is recognized............... -- 412 1,037 278 2,211
Change in deferred tax valuation
allowance........................... -- (639) (1,577) (809) (1,303)
Other................................. (33) -- 11 183 169
------ ------- ------- ------- -------
$2,667 $ 1,204 $ 1,937 $ 1,041 $ 1,871
====== ======= ======= ======= =======
</TABLE>
F-13
<PAGE> 65
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, JANUARY 1, ------------------
1996 1996 1995 1994
----------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Book over tax depreciation................ $ 288 $ 44 $ 1,153 $ 1,729
Accrued liabilities....................... 9,201 9,639 1,205 2,887
Net operating loss carryforwards.......... 6,738 7,143 6,780 7,268
Other..................................... 6,620 7,159 1,070 508
----------- ---------- ------- -------
Total deferred tax assets......... 22,847 23,985 10,208 12,392
Valuation allowance for deferred
tax assets...................... (13,277) (13,277) (8,310) (9,887)
----------- ---------- ------- -------
9,570 10,708 1,898 2,505
----------- ---------- ------- -------
Deferred tax liabilities:
Tax over book depreciation................ 1,569 1,891 448 346
Other..................................... 242 353 -- 200
----------- ---------- ------- -------
Total deferred tax liabilities.... 1,811 2,244 448 546
----------- ---------- ------- -------
Net deferred tax assets........... $ 7,759 $ 8,464 $ 1,450 $ 1,959
========= ========= ======= =======
</TABLE>
In connection with the Acquisition, the Company restated its deferred tax
assets and liabilities as of January 1, 1996. The deferred tax valuation
allowance increased (decreased) ($1,577) and $4,967 for the periods ending
December 31, 1995 and June 30, 1996, respectively. The decrease in the valuation
allowance is related to the realization of foreign net operating losses that
were previously deferred. The increase in the valuation allowance is related to
the Company's current estimate of deferred tax assets that may not be realized.
Any future decrease in the valuation allowance recorded at January 1, 1996 will
reduce goodwill. The Company's deferred tax assets are expected to be realized
principally through future earnings.
Undistributed earnings of the Company's foreign subsidiaries amounted to
$9,898,000 at June 30, 1996 and $9,125,000 at December 31, 1995. Those earnings
are considered to be permanently reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been made. Distribution of these
earnings in the form of dividends or otherwise would result in both U.S. federal
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable in various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $910,000 would
be payable upon remittance of all previously unremitted earnings at December 31,
1995.
The Company made income tax payments of $332,000, $557,000 and $392,000
during the years ended December 31, 1995, 1994 and 1993, respectively.
F-14
<PAGE> 66
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SPECIAL CHARGES (CREDITS)
Special charges (credits) consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Sale of product lines and assets....................... $(8,458) $(15,648) $10,000
Employee terminations and other costs.................. -- 3,817 --
Reversal of reserves................................... -- (2,085) (1,435)
------- -------- -------
Total........................................ $(8,458) $(13,916) $ 8,565
======= ======== =======
</TABLE>
Sale of Product Lines and Assets. During the second quarter of 1995 the
Company completed the sale of the Wilson-Snyder centrifugal pump and switch
valve product line. Proceeds of approximately $6.9 million from that sale
resulted in a gain of $5.5 million. In addition, the Company recorded a net gain
of approximately $3.0 million related to the final closure of a facility in the
United Kingdom and the sale of related property and equipment.
During 1994, the Company completed the sales of certain production
equipment product lines not considered part of its core businesses resulting in
a gain of $15.6 million. Proceeds received in 1994 totaled $41.0 million and
were used to reduce debt.
During 1993, the Company implemented a business strategy to focus on its
core businesses and divest marginal or unprofitable product lines. In the fourth
quarter of 1993, the Company recorded a $10.0 million charge for the estimated
loss on the sale of its wellhead business under an asset sales agreement signed
in December 1993. This charge included an $8.5 million writedown of inventories
and property, plant and equipment to estimated net realizable values and $1.5
million for transition and other direct costs of disposal. Proceeds from the
wellhead business sale of $28.7 million were used to reduce debt.
Employee Terminations and Other Costs. In conjunction with the formal
announced shutdown of a manufacturing facility in the United Kingdom, the
Company expensed approximately $3.2 million in 1994 relating to employee
termination benefits. These benefits are calculated pursuant to the terms of the
United Kingdom preexisting employee benefit plan and were paid in the fourth
quarter of 1994 and in 1995. The consolidation of the Company's Houston, Texas
manufacturing operations resulted in lease termination and other costs of $0.6
million which were paid in 1994.
Reversal of Reserves. The reversal of reserves in 1994 and 1993 primarily
relate to an $18.5 million reserve initially recorded in 1991 to accrue for the
estimated loss on the shutdown and disposition of a manufacturing facility and
related machinery and equipment at Garland, Texas. The $1.4 million reversal in
1993 primarily related to excess machinery, equipment and inventory relocation
accruals no longer needed after movement to the Company's other facilities was
completed in 1993. The $2.1 million reversal in 1994 primarily related to excess
accruals for potential demolition and environmental cleanup not required after
the facility was sold.
11. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into a five year
Management Services Agreement with the Company's largest stockholder,
Inverness/Phoenix LLC, whereby the Company would pay $1,000,000 per year for
senior management assistance and other services as agreed. The agreement also
provides that Inverness/Phoenix LLC will receive 1% of the aggregate transaction
value in connection with each acquisition or disposition completed during the
five year period. A management fee of $500,000 was recorded during the first
half of 1996 of which $200,000 was unpaid at June 30, 1996. The Company and
Inverness/Phoenix LLC have agreed to terminate this agreement upon the date of
execution of a definitive underwriting agreement relating to the anticipated
public offering discussed in Note 13 for future cash payments totalling
$4,775,000.
F-15
<PAGE> 67
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid and recorded as a cost of the Acquisition transaction fees
of $1,800,000 to the Inverness Group, Inc. and $1,200,000 to First Reserve
Corporation, the Company's second largest stockholder. Fees of $4,700,000 were
also paid to General Electric Capital Corporation in connection with the
provision of the Credit Agreement entered into in connection with the
Acquisition.
12. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations consist of the Oilfield Equipment segment and the
Distribution Services segment. The Oilfield Equipment segment designs and
manufactures a variety of oilfield equipment for use in oil and gas drilling,
completion and production activities. The Distribution Services segment
distributes an extensive line of oilfield supplies, oilfield equipment and
tubular products. The Disposed Businesses information includes the results of
operations disposed of in prior years. Intersegment sales and transfers are
accounted for at commercial prices.
Summarized financial information with respect to business segments and
geographic areas is as follows:
Business Segments (in thousands)
<TABLE>
<CAPTION>
OILFIELD DISTRIBUTION DISPOSED
EQUIPMENT(1) SERVICES CORPORATE(2) ELIMINATIONS BUSINESSES(3) TOTAL
------------ ------------ ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
1995
Revenues from:
Unaffiliated customers...... $113,511 $432,292 $ -- $ -- $ -- $545,803
Intersegment sales.......... 33,006 -- -- (33,006) -- --
-------- -------- ------- -------- -------- --------
Total revenues....... 146,517 432,292 -- (33,006) -- 545,803
Operating income (loss)....... 10,443 9,435 (2,866) -- 5,227 22,239
Capital expenditures.......... 3,540 1,157 67 -- -- 4,764
Depreciation and
amortization................ 1,899 1,662 34 -- -- 3,595
Identifiable assets........... 93,287 128,321 69,761 (2,791) -- 288,578
1994
Revenues from:
Unaffiliated customers...... $127,854 $415,722 $ -- $ -- $ 18,477 $562,053
Intersegment sales.......... 60,041 -- -- (60,041) -- --
-------- -------- ------- -------- -------- --------
Total revenues....... 187,895 415,722 -- (60,041) 18,477 562,053
Operating income (loss)....... 5,314 9,036 (2,898) -- 17,672 29,124
Capital expenditures.......... 1,690 1,832 44 -- 38 3,604
Depreciation and
amortization................ 1,922 2,564 8 -- 1,533 6,027
Identifiable assets........... 99,298 162,170 12,150 (5,314) -- 268,304
1993
Revenues from:
Unaffiliated customers...... $111,948 $450,455 $ -- $ -- $ 64,878 $627,281
Intersegment sales.......... 67,780 -- -- (67,780) -- --
-------- -------- ------- -------- -------- --------
Total revenues....... 179,728 450,455 -- (67,780) 64,878 627,281
Operating income (loss)....... 1,482 13,955 (2,308) -- (21,205) (8,076)
Capital expenditures.......... 899 455 21 -- 592 1,967
Depreciation and
amortization................ 4,380 2,370 2 -- 3,969 10,721
Identifiable assets........... 99,371 188,312 12,402 (10,265) 53,659 343,479
</TABLE>
F-16
<PAGE> 68
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(1) Operating income/(loss) of the oilfield equipment segment includes special
charges (credits) of $(3,231), $1,732 and $(1,435) for 1995, 1994 and 1993,
respectively.
(2) Corporate identifiable assets in 1995 included $65.5 million of cash and
cash equivalents.
(3) Operating income/(loss) of the disposed businesses includes special charges
(credits) of $(5,227), $(15,648) and $10,000 for 1995, 1994 and 1993,
respectively. Operating results prior to the disposal date for the business
sold in 1995 were immaterial.
Geographic Areas (in thousands)
<TABLE>
<CAPTION>
UNITED UNITED
STATES CANADA KINGDOM OTHER ELIMINATIONS TOTAL
-------- ------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1995
Revenues from:
Unaffiliated
customers........... $430,671 $59,390 $35,776 $ 19,966 $ -- $545,803
Interarea sales........ 34,416 878 16,285 233 (51,812) --
-------- ------- ------- -------- -------- --------
Total
revenues..... 465,087 60,268 52,061 20,199 (51,812) 545,803
-------- ------- ------- -------- -------- --------
Operating income
(loss)................. 18,707 2,003 (1,383) 2,912 -- 22,239
Export sales of U.S...... -- 1,700 1,539 80,075 -- 83,314
Identifiable assets...... 228,817 23,851 17,789 18,121 -- 288,578
1994
Revenues from:
Unaffiliated
customers........... $442,555 $73,052 $29,708 $ 16,738 $ -- $562,053
Interarea sales........ 26,144 579 9,726 106 (36,555) --
-------- ------- ------- -------- -------- --------
Total
revenues..... 468,699 73,631 39,434 16,844 (36,555) 562,053
-------- ------- ------- -------- -------- --------
Operating income
(loss)................. 27,166 1,872 (314) 400 -- 29,124
Export sales of U.S...... -- 1,436 635 102,265 -- 104,336
Identifiable assets...... 186,634 34,567 32,136 14,967 -- 268,304
1993
Revenues from:
Unaffiliated
customers........... $485,988 $68,766 $49,419 $ 23,108 $ -- $627,281
Interarea sales........ 33,750 552 8,395 961 (43,658) --
-------- ------- ------- -------- -------- --------
Total
revenues..... 519,738 69,318 57,814 24,069 (43,658) 627,281
-------- ------- ------- -------- -------- --------
Operating income
(loss)................. (4,865) (321) (3,980) 1,090 -- (8,076)
Export sales of U.S...... -- 1,386 389 115,464 -- 117,239
Identifiable assets...... 257,597 29,662 39,391 16,829 -- 343,479
</TABLE>
F-17
<PAGE> 69
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. PRO FORMA NET INCOME AND NET INCOME PER SHARE (UNAUDITED)
The following table sets forth for the year ended December 31, 1995: (a)
summarized historical consolidated income statement data and (b) summarized pro
forma consolidated income statement data reflecting the acquisition of the
Partnership as if such had occurred on January 1, 1995 (in thousands).
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Revenues....................................................... $ 545,803 $ 545,803
======= =======
Operating income............................................... $ 22,239 $ 21,239(A)
Interest and financial costs, net.............................. 1,261 12,817(B)
Other (income) expense......................................... 1,401 1,563(C)
------- -------
Income (loss) before income taxes.............................. 19,577 6,859
Provision for income taxes..................................... 1,937 2,413(D)
------- -------
Net income..................................................... $ 17,640 $ 4,446
======= =======
Earnings per share............................................. $ 0.33
=======
Average shares outstanding..................................... 13,368
=======
</TABLE>
- ---------------
(A) Decrease in operating income reflects the management fees discussed in Note
11 which would have been recorded if the acquisition of the Partnership had
occurred on January 1, 1995.
(B) Increase in interest costs reflects the incremental interest expense
associated with the debt incurred with the acquisition of the Partnership at
the Company's 1995 effective interest rate of 9.5%, adjusted for the
difference in the amortization of deferred financing fees associated with
the credit facilities.
(C) Increase in other (income) expense reflects the amortization of goodwill
incurred in connection with the acquisition of the Partnership.
(D) Increase in income taxes reflects the provision for U.S. federal and state
income taxes that were previously not recorded because of the partnership
status and as a result of the above pro forma adjustments.
Average shares outstanding reflects 11,346,940 shares of common stock and
common stock equivalents currently outstanding and 2,021,452 shares of common
stock issuable upon the conversion of the shares of Class A common stock at the
assumed initial offering price of $16 per share.
F-18
<PAGE> 70
[Map of North America with National-Oilwell distribution centers
illustrated with colored circles. Boxes below the map showing
the number of distribution centers in the United States,
Canada and outside of the United States and Canada.]
<PAGE> 71
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSONS TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Selected Historical Financial Data.... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
Management............................ 35
Certain Transactions.................. 41
Principal Stockholders................ 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 47
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Available Information................. 50
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
4,000,000 SHARES
[NATIONAL-OILWELL, INC. LOGO]
NATIONAL-OILWELL, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
SIMMONS & COMPANY
INTERNATIONAL
, 1996
===============================================================================
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the Offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 28,552
NASD filing fee........................................................... 8,780
New York Stock Exchange listing fee....................................... 130,000
Blue Sky fees and expenses................................................ 10,000
Printing expenses......................................................... 135,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 150,000
Transfer Agent fees....................................................... 3,000
Miscellaneous............................................................. 54,668
--------
Total........................................................... $720,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Sixth, Part II, Section 1 of the Company's Charter, a copy of which
is filed as Exhibit 3.1, and Article VI of the Company's Bylaws, a copy of which
is filed as Exhibit 3.2 to this Registration Statement, each provide that
directors, officers, employees and agents shall be indemnified to the fullest
extent permitted by Section 145 of the DGCL.
Section 145 of the DGCL authorizes, inter alia, a corporation to indemnify
any person ("indemnitee") who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
is or was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify past or present officers and directors of
such corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify him against the expenses (including attorney's fees) which he actually
and reasonably incurred in connection therewith. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs. Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
The Company intends to purchase and maintain a directors' and officers'
liability policy for such purposes.
II-1
<PAGE> 73
The form of Purchase Agreement filed as Exhibit 1.1 to this Registration
Statement contains certain provisions for indemnification of directors and
officers of the Company and the Underwriters against civil liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of Class A Common Stock which have been sold by the Company in
the following transactions will be converted into shares of Common Stock.
On July 15, 1995, the Company sold an aggregate of 1,168,310 shares of
Common Stock at $.001 per share to DPI Oil Service Partners Limited Partnership
and DPI Partners II, two limited partnerships for which Inverness/Phoenix LLC
serves as managing general partner, in connection with the initial
capitalization of the Company. The Company relied on an exemption under Section
4(2) of the Securities Act in effecting these transactions.
On January 16, 1996, the Company sold an aggregate of 8,806,479 shares of
Common Stock at $.011 per share, 753,049 shares of Common Stock at $.001 per
share, an aggregate of 13,085.6 shares of Class A Common Stock at $2,264 per
share to the Inverness Investors, the First Reserve Investors, GE Capital and
members of management, including Messrs. Staff, Bearden, Leigh, Nation and
Gauche, in connection with the closing of the Acquisition, and the Company
issued a warrant to GE Capital to purchase 282,392 shares of Common Stock for
$.011 per share in connection with the Credit Facility. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.
On July 24, 1996, the Company received the funds for and completed the
previously committed sale of an aggregate of 148,456 shares of Common Stock at
$.011 per share, 282,381 shares of Common Stock at $.001 per share and an
aggregate of 202.4 shares of Class A Common Stock at $2,264 per share to Messrs.
Fasnacht, Krablin and Miller in connection with the Acquisition which occurred
in January 1996. The Company relied on an exemption under Section 4(2) of the
Securities Act in effecting these transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of Purchase Agreement.
2.1 -- Purchase Agreement by and among Oilwell, Inc., National Supply
Company, Inc., USX Corporation, Armco Inc. and the Company dated
September 22, 1995, as amended.
3.1 -- Amended and Restated Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock certificate.
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Employment Agreement dated as of January 16, 1996 between Joel V.
Staff and the Company.
10.2 -- Employment Agreement effective as of January 17, 1996 between C. R.
Bearden and the Company, with similar agreements with Lynn L. Leigh,
Jerry N. Gauche, Paul M. Nation, James J. Fasnacht and Steven W.
Krablin, a similar agreement effective as of February 5, 1996 between
and Merrill A. Miller, Jr. and the Company.
10.3 -- Stockholders Agreement among the Company and its stockholders dated
as of January 16, 1996.
10.4 -- Waiver and First Amendment to Stockholders Agreement dated as of July
24, 1996.
10.5 -- Employee Incentive Plan.
10.6 -- Stock Award and Long-Term Stock Incentive Plan.
10.7 -- First Amendment to Stock Award and Long-Term Stock Incentive Plan.
</TABLE>
II-2
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.8 -- Value Appreciation and Incentive Plan A.
10.9 -- Value Appreciation and Incentive Plan B.
10.10 -- Restricted Stock Agreement between the Company and Joel V. Staff,
with similar agreements with C. R. Bearden, Jerry N. Gauche, Steven
W. Krablin, Merrill A. Miller, Jr., James J. Fasnacht and Paul M.
Nation.
10.11 -- Management Services Agreement.
10.12 -- Supplemental Savings Plan.
*10.13 -- Form of Credit Agreement.
*10.14 -- Deferred Fee Agreement.
*10.15 -- First Amendment to Value Appreciation and Incentive Plan A.
*10.16 -- First Amendment to Value Appreciation and Incentive Plan B.
*10.17 -- Second Amendment to Stockholders Agreement dated as of October 18,
1996.
21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages of the
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
All other exhibits have been previously filed.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable or the required
information has been provided in the consolidated financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registration pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contained a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the 24th day of October, 1996.
NATIONAL-OILWELL, INC.
By: /s/ STEVEN W. KRABLIN
-------------------------------
Steven W. Krablin
Vice President and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Steven W. Krablin and Paul M. Nation, or either
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any additional registration statement
pursuant to Rule 462(b), and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------ -----------------
<C> <S> <C>
* Chairman of the Board, October 24, 1996
- ---------------------------------------- President and Chief
Joel V. Staff Executive Officer (Principal
Executive Officer)
/s/ Steven W. Krablin Vice President and Chief October 24, 1996
- ---------------------------------------- Financial Officer (Principal
Steven W. Krablin Financial and Accounting
Officer)
* Director October 24, 1996
- ----------------------------------------
C. R. Bearden
* Director October 24, 1996
- ----------------------------------------
James C. Comis III
* Director October 24, 1996
- ----------------------------------------
W. McComb Dunwoody
* Director October 24, 1996
- ----------------------------------------
Howard I. Bull
* Director October 24, 1996
- ----------------------------------------
James T. Dresher
* Director October 24, 1996
- ----------------------------------------
William E. Macaulay
* Director October 24, 1996
- ----------------------------------------
Bruce M. Rothstein
* By /s/ Paul M. Nation
- ----------------------------------------
Paul M. Nation
as attorney-in-fact
</TABLE>
II-4
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Purchase Agreement.
2.1 -- Purchase Agreement by and among Oilwell, Inc., National Supply
Company, Inc., USX Corporation, Armco Inc. and the Company dated
September 22, 1995.
3.1 -- Restated Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock certificate.
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Employment Agreement dated as of January 16, 1996 between Joel V.
Staff and the Company.
10.2 -- Employment Agreement effective as of January 17, 1996 between C.R.
Bearden and the Company, with similar agreements with Lynn L. Leigh,
Jerry N. Gauche, Paul M. Nation, James J. Fasnacht and Steven W.
Krablin, a similar agreement effective as of February 5, 1996 between
and Merrill A. Miller, Jr. and the Company.
10.3 -- Stockholders Agreement among the Company and its stockholders dated
as of January 16, 1996.
10.4 -- Waiver and First Amendment to Stockholders Agreement dated as of July
24, 1996.
10.5 -- Employee Incentive Plan.
10.6 -- Stock Award and Long-Term Stock Incentive Plan.
10.7 -- First Amendment to Stock Award and Long-Term Stock Incentive Plan.
10.8 -- Value Appreciation and Incentive Plan A.
10.9 -- Value Appreciation and Incentive Plan B.
10.10 -- Restricted Stock Agreement between the Company and Joel V. Staff,
with similar agreements with C.R. Bearden, Jerry N. Gauche, Steven W.
Krablin, Merrill A. Miller, Jr., James J. Fasnacht and Paul M.
Nation.
10.11 -- Management Services Agreement.
10.12 -- Supplemental Savings Plan
*10.13 -- Form of Credit Agreement.
*10.14 -- Deferred Fee Agreement
*10.15 -- First Amendment to Value Appreciation and Incentive Plan A.
*10.16 -- First Amendment to Value Appreciation and Incentive Plan B.
*10.17 -- Second Amendment to Stockholders Agreement dated as of October 18,
1996.
21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages of the
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
All other exhibits have been previously filed.
<PAGE> 1
EXHIBIT 1.1
National-Oilwell, Inc.
(a Delaware corporation)
4,000,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: October ___, 1996
-1-
<PAGE> 2
<TABLE>
<S> <C> <C>
Table of Contents
PURCHASE AGREEMENT ........................................................................... 1
SECTION 1. Representations and Warranties............................................. 3
------------------------------
(a) Representations and Warranties by the Company.............................. 3
(i) Compliance with Registration Requirements......................... 3
(ii) Independent Accountants........................................... 4
(iii) Financial Statements.............................................. 4
(iv) No Material Adverse Change in Business............................ 4
(v) Good Standing of the Company...................................... 5
(vi) Good Standing of Subsidiaries..................................... 5
(vii) Capitalization.................................................... 5
(viii) Authorization of Agreement........................................ 6
(ix) Authorization and Description of Securities....................... 6
(x) Absence of Defaults and Conflicts................................. 6
(xi) Absence of Labor Dispute.......................................... 7
(xii) Absence of Proceedings............................................ 7
(xiii) Accuracy of Exhibits.............................................. 7
(xiv) Possession of Intellectual Property............................... 7
(xv) Absence of Further Requirements................................... 8
(xvi) Possession of Licenses and Permits................................ 8
(xvii) Title to Property................................................. 8
(xviii) Compliance with Cuba Act.......................................... 9
(xix) Investment Company Act............................................ 9
(xx) Environmental Laws................................................ 9
(xxi) Registration Rights............................................... 9
(xxii) Insurance......................................................... 9
(xxiii) Accounting Controls............................................... 10
(xxiv) Non-Governmental Consents, Agreements............................. 10
(b) Officer's Certificates..................................................... 10
SECTION 2. Sale and Delivery to Underwriters; Closing.................................... 10
------------------------------------------
(a) Initial Securities......................................................... 10
(b) Option Securities.......................................................... 10
(c) Payment.................................................................... 11
(d) Denominations; Registration................................................ 11
SECTION 3. Covenants of the Company...................................................... 12
------------------------
(a) Compliance with Securities Regulations and Commission
Requests............................................................... 12
(b) Filing of Amendments....................................................... 12
(c) Delivery of Registration Statements........................................ 12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
(d) Delivery of Prospectuses................................................... 13
(e) Continued Compliance with Securities Laws.................................. 13
(f) Blue Sky Qualifications.................................................... 13
(g) Rule 158................................................................... 14
(h) Use of Proceeds............................................................ 14
(i) Listing .................................................................. 14
(j) Restriction on Sale of Securities.......................................... 14
(k) Reporting Requirements..................................................... 14
(l) Compliance with NASD Rules................................................. 14
(m) Form SR.................................................................... 15
SECTION 4. Payment of Expenses........................................................ 15
-------------------
(a) Expenses................................................................... 15
(b) Termination of Agreement................................................... 15
SECTION 5. Conditions of Underwriters' Obligations.................................... 15
---------------------------------------
(a) Effectiveness of Registration Statement.................................... 16
(b) Opinion of Counsel for Company............................................. 16
(c) Opinions of General Counsel and Other Counsel.............................. 16
(d) Opinion of Counsel for Underwriters........................................ 16
(e) Officers' Certificate...................................................... 17
(f) Accountant's Comfort Letter................................................ 17
(g) Bring-down Comfort Letter.................................................. 17
(h) Approval of Listing........................................................ 18
(i) No Objection............................................................... 18
(j) Lock-up Agreements......................................................... 18
(k) Conditions to Purchase of Option Securities ............................... 18
(l) Additional Documents....................................................... 19
(m) Termination of Agreement................................................... 19
SECTION 6. Indemnification............................................................... 19
---------------
(a) Indemnification of Underwriters............................................ 19
(b) Indemnification of Company, Directors and Officers......................... 20
(c) Actions against Parties; Notification...................................... 21
(d) Settlement without Consent if Failure to Reimburse......................... 21
(e) Indemnification for Reserved Securities.................................... 21
SECTION 7. Contribution............................................................... 22
------------
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery................................................................... 23
--------
SECTION 9. Termination of Agreement................................................... 23
------------------------
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
(a) Termination; General....................................................... 23
(b) Liabilities................................................................ 24
SECTION 10. Default by One or More of the Underwriters................................. 24
------------------------------------------
SECTION 11. Notices.................................................................... 24
-------
SECTION 12. Parties .................................................................. 25
-------
SECTION 13. Governing Law and Time..................................................... 25
----------------------
SECTION 14. Effect of Headings......................................................... 25
------------------
</TABLE>
-iii-
<PAGE> 5
NATIONAL-OILWELL, INC.
(a Delaware corporation)
4,000,000 Shares of Common Stock
(par value $.01 Per Share)
PURCHASE AGREEMENT
October , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
Simmons & Company International
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
National-Oilwell, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Goldman, Sachs & Co. and Simmons & Company
International are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the Underwriters, acting severally and not jointly, of
the option described in Section 2(b) hereof to purchase all or any part of
600,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 4,000,000 shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters
-1-
<PAGE> 6
and all or any part of the 600,000 shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to 200,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not so purchased by
such eligible employees and persons having business relationships with the
Company, by the end of the first business day after the date of this Agreement
such Reserved Securities may be offered to the public as part of the public
offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-11051) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto, if any, at the
time it became effective and including the Rule 430A Information and the Rule
434 Information, as applicable, is herein called the "Registration Statement."
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration
Statement,"and after such filing the term "Registration Statement" shall include
the Rule 462(b) Registration Statement. The final prospectus in the form first
furnished to the Underwriters for use in connection with the offering of the
Securities is herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus dated October 4, 1996
together with the Term
-2-
<PAGE> 7
Sheet and all references in this Agreement to the date of
the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement,
the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the
Prospectus, any preliminary prospectus and any supplement thereto or
prospectus wrapper prepared in connection therewith, at their
respective times of issuance and at the Closing Time, complied and will
comply in all material respects with any applicable laws or regulations
of foreign jurisdictions in which the Prospectus and such preliminary
prospectus, as amended or supplemented, if applicable, are distributed
in connection with the offer and sale of Reserved Securities. Neither
the Prospectus nor any amendments or supplements thereto (including any
prospectus wrapper), at the time the Prospectus or any such amendment
or supplement was issued and at the Closing Time (and, if any option
Securities are purchased, at the Date of Delivery ), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
The representations and warranties
-3-
<PAGE> 8
in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through the Representatives expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included
in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial
information included in the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of
the audited financial statements included in the Registration
Statement. The pro forma financial statements and the related notes
thereto included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the
-4-
<PAGE> 9
ordinary course of business, which are material with respect to the
Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each of the subsidiaries
of the Company identified in Exhibit 21 of the Registration Statement
hereto (each a "Subsidiary" and, collectively, the "Subsidiaries"),
which includes each "significant subsidiary" of the Company (as such
term is defined in Rule 1-02 of Regulation S-X), has been duly
organized and is validly existing as a corporation or a limited
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its incorporation or formation, has corporate (or
partnership) power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and is duly qualified as a foreign corporation or limited partnership,
as the case may be, to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. The only subsidiaries of the
Company are (a) the subsidiaries listed on Exhibit 21 to the
Registration Statement and (b) certain other subsidiaries which,
considered in the aggregate as a single Subsidiary, do not constitute a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Historical" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities,
options or warrants referred to in the Prospectus). The shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
none of the
-5-
<PAGE> 10
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company. There are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments
of sale or liens related to or entitling any person to purchase or
otherwise acquire any shares of the capital stock of the Company
except as otherwise disclosed in the Prospectus.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid
and non-assessable; the Common Stock conforms to all statements
relating thereto contained in the Prospectus and such description
conforms to the rights set forth in the instruments defining the same;
no holder of the Securities will be subject to personal liability by
reason of being such a holder; and the issuance of the Securities is
not subject to the preemptive or other similar rights of any
securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") or the transactions described in
the Prospectus as occurring substantially contemporaneously with the
issuance and sale of the Securities and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
properties or
-6-
<PAGE> 11
operations. As used herein, a "Repayment Event" means any the holder
of any note, debenture or other evidence of indebtedness (or
any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the consummation of the transactions contemplated in this Agreement or
the transactions described in the Prospectus as occurring substantially
contemporaneously with the issuance and sale of the Securities or the
performance by the Company of its obligations hereunder; the aggregate
of all pending legal or governmental proceedings to which the Company
or any subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
-7-
<PAGE> 12
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement or the transactions
described in the Prospectus as occurring substantially
contemporaneously with the issuance and sale of the Securities, except
(i) such as have been already obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws and (ii)
such as have been obtained under the laws and regulations of
jurisdictions outside the United States in which the Reserved
Securities are offered. The Company has filed a registration statement
pursuant to Section 12(b) of the Securities Exchange Act of 1934, as
amended, to register the Securities.
(xvi) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries; and all of
the leases and subleases material to the business of the Company and
its subsidiaries, considered as one enterprise, and under which the
Company or any of its subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor
any subsidiary has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any
subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary
to the continued possession of the leased or subleased premises under
any such lease or sublease.
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(xviii) Compliance with Cuba Act. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or any Environmental
Laws.
(xxi) Registration Rights. Except as described in the
Prospectus as to which all rights have been waived with respect to
inclusion in the Registration Statement, there are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxii) Insurance. The Company maintains reasonably
adequate insurance for the business conducted by the Company.
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(xxiii) Accounting Controls. The Company and the Subsidiaries
maintain a system of accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with the management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets
is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxiv) Non-Governmental Consents, Agreements. The Company has
obtained all consents from non-governmental parties required in
connection with the issuance and sale of the Securities and has entered
into agreements with parties relating to transactions described in the
Prospectus as occurring substantially contemporaneously with the
issuance and sale of the Securities and, to the extent such agreements
are non-binding, the Company reasonably expects such parties to carry
out such agreements in the manner described in the Prospectus,
including, without limitation, (i) the exercise of the Warrant held by
General Electric Capital Corporation, (ii) the termination of the
Management Services Agreement with Inverness/Phoenix LLC and its
replacement with a Deferred Fee Agreement (iii) the execution and
delivery of a new five-year Senior Secured Revolving Credit Facility
with General Electric Capital Corporation.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 600,000 shares of Common Stock
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the
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<PAGE> 15
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representatives to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for such Option Securities. Any such time and
date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities, subject in each case to such adjustments as the Representatives in
their discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Andrews
& Kurth L.L.P., 4200 Texas Commerce Tower, Houston, Texas 77002, or at such
other place as shall be agreed upon by the Representatives and the Company, at
10:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representatives may request in writing at
least one full business day before the Closing Time or the relevant Date
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<PAGE> 16
of Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representatives in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants
with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters.
The copies of the
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<PAGE> 17
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"),
such number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend
the Registration Statement or amend or supplement the Prospectus in
order that the Prospectus will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the
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<PAGE> 18
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for
a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net
proceeds received by it from the sale of the Securities in the manner
specified in the Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect
the listing of the outstanding Common Stock as well as the Securities
on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectus, (D) any shares of Common Stock issued
pursuant to any non-employee director stock plan or dividend
reinvestment plan or (E) any shares of Common Stock or any securities
convertible or exchangeable into Common Stock issued as payment of any
part of the purchase price for businesses which are acquired by the
Company (provided, however, that such shares shall be subject to
restrictions that will prohibit the transfer thereof until after the
expiration of the 180-day lock-up period described in the preceding
sentence).
(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
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<PAGE> 19
(l) Compliance with NASD Rules. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons
will need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place a stop transfer
restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the
Reserved Securities, the Company agrees to reimburse the Underwriters
for any reasonable expenses (including, without limitation, legal
expenses) they incur in connection with such release.
(m) Form SR. The Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 of the 1933
Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities and
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities (x) the fees and expenses incurred in connection with the listing
of the Securities on the New York Stock Exchange), and (y) all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, in connection with matters related to the Reserved
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
<PAGE> 20
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing
such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Vinson & Elkins L.L.P., counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the Underwriters may reasonably
request. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the
State of New York, the law of the State of Texas, and the federal law
of the United States and the General Corporation Law of the State of
Delaware), upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(c) Opinions of General Counsel and Other Counsel. At Closing
Time, the Representatives shall have received the favorable opinion,
dated as of Closing Time, of Paul M. Nation, General Counsel of the
Company, in form and substance satisfactory to Counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the effect set forth in Exhibit
B1 hereto and to such further effect as counsel to the Underwriters may
reasonably request. In addition, the Representatives shall have
received the favorable opinions, dated as of Closing Time, of B.D.H.
Cooper L.L.B., Solicitor to National Oilwell (U.K.) Limited, to effect
set forth in Exhibit B2 hereto, and of ____________, ___________, to
the effect set forth in Exhibit B3 hereto.
(d) Opinion of Counsel for Underwriters. At Closing
Time, the Representatives shall have received the favorable opinion,
dated as of Closing Time, of
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Andrews & Kurth L.L.P., counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i),
(iv), (v) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or by-laws of the Company), (vii)
through (ix), inclusive, (xi) (solely as to the information in the
Prospectus under "Description of Capital Stock--Common Stock") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of Texas, the State of
New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
(f) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from Ernst &
Young LLP a letter dated such date, in form and substance reasonably
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (f) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
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(h) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(i) No Objection. The NASD has confirmed that it has
not raised any objection with respect to the fairness and
reasonableness of the underwriting terms and arrangements.
(j) Lock-up Agreements. At the date of this Agreement,
the Representatives shall have received an agreement substantially in
the form of Exhibit C hereto signed by the persons listed on
Schedule C hereto.
(k) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any
subsidiary of the Company hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at the
Closing Time pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
Vinson & Elkins L.L.P., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of General Counsel and Other Counsel. The
favorable opinions of Paul M. Nation, General Counsel of the
Company, and other counsel to the same effect as the opinions
required by Section 5(c) hereof.
(iv) Opinion of Counsel for Underwriters. The favorable
opinion of Andrews & Kurth L.L.P., counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(d) hereof.
(v) Bring-down Comfort Letter. A letter from Ernst & Young
LLP, in form and substance satisfactory to the Representatives
and dated such Date of Delivery, substantially in the same
form and substance as the letter furnished to the
Representatives pursuant to Section 5(g) hereof, except that
the "specified date" in
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the letter furnished pursuant to this paragraph shall be a
date not more than five days prior to such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be reasonably satisfactory in form and
substance to the Representatives and counsel for the Underwriters.
(m) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities, on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper
-19-
<PAGE> 24
material distributed in Canada in connection with the reservation and
sale of the Reserved Securities to eligible employees or the omission
or alleged omission therefrom of a material fact necessary to make the
statements therein, when considered in conjunction with the Prospectus
or preliminary prospectus, not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof; provided that (subject to Section 6(d) below) any
such settlement is effected with the written consent of the Company;
and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof, to
the extent that any such expense is not paid under (i), (ii) or (iii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
-20-
<PAGE> 25
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees of the Company to pay
for and accept delivery of Reserved Securities which, by the end of the first
business day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase.
-21-
<PAGE> 26
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any failure of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any failure of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any
-22-
<PAGE> 27
damages which such Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
-23-
<PAGE> 28
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representatives at North
Tower, World Financial Center, New York, New York 10281-1201, attention of
Wood Steinberg,
-24-
<PAGE> 29
Vice President; and notices to the Company shall be directed to it at 5555 San
Felipe, Houston, Texas 77056, attention of Paul M. Nation, Vice President and
General Counsel.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF
DAY REFER TO EASTERN TIME.
SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only) and shall
not affect the construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
NATIONAL-OILWELL, INC.
By
Title:
-25-
<PAGE> 30
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
SIMMONS & COMPANY INTERNATIONAL
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _____________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
-26-
<PAGE> 31
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................
Goldman, Sachs & Co. ............................
Simmons & Company International .................
-----------
Total ........................................ 4,000,000 Shares
===========
Sch A-1
<PAGE> 32
SCHEDULE B
National-Oilwell, Inc.
4,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $__________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $_________, being an amount equal to the initial
public offering price set forth above less $__________ per share; provided that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Sch B-1
<PAGE> 33
SCHEDULE C
List of Persons and Entities
Subject to Lock-up
First Reserve VI, Limited Partnership
First Reserve Fund V, Limited Partnership
First Reserve Fund V-2, Limited Partnership
DPI Oil Service Partners Limited Partnership
DPI Partners II
General Electric Capital Corporation
Joel V. Staff
C. R. Bearden
Lynn L. Leigh
Paul M. Nation
Jerry N. Gauche
James J. Fasnacht
Edgar J. Marsten III, on behalf of the Trust created pursuant to the
National-Oilwell Supplemental Savings Plan
Sch C-1
<PAGE> 34
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities, options or warrants referred to in the Prospectus); the
shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the Company.
(iv) The Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to the Purchase Agreement and, when issued and delivered
by the Company pursuant to the Purchase Agreement against payment of the
consideration set forth in the Purchase Agreement, will be validly issued and
fully paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.
(v) The issuance of the Securities is not subject to preemptive or other
similar rights of any securityholder of the Company.
(vi) Except as otherwise disclosed in the Registration Statement, all of
the issued and outstanding capital stock of each U.S. Subsidiary listed on
Schedule 1 hereto (each a "U.S. Subsidiary") has been duly authorized and
validly issued, is fully paid and non-assessable and, to the best of our
knowledge, is owned by the Company, directly or through subsidiaries, free and
clear of
A-1
<PAGE> 35
any security interest, mortgage, pledge, lien, encumbrance, claim or equity;
none of the outstanding shares of capital stock of any U.S. Subsidiary was
issued in violation of the preemptive or similar rights of any securityholder
of such U.S. Subsidiary.
(vii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(x) The form of certificate used to evidence the Common Stock complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the New York Stock Exchange.
(xi) The information in the Prospectus under "Description of Capital
Stock--Common Stock", "Description of Capital Stock--Preferred Stock" and
"--Certain Anti-Takeover and Other Provisions of the Amended and Restated
Certificate of Incorporation" and "--Liability of Officers and Directors --
Indemnification", and "Shares Eligible for Future Sale" and in the Registration
Statement under Item 14, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws, or legal
conclusions, has been reviewed by us and is correct in all material respects;
provided, however, that we express no opinion with respect to this item (xiii)
as to the calculation of the number of shares to be issued upon conversion of
the Class A common stock, or shares of Common Stock to be issued under the Value
Appreciation Plans.
(xii) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases
A-2
<PAGE> 36
or other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xiii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance
or sale of the Securities; provided, however, that we express no opinion as to
any securities laws of any non-U.S. jurisdiction.
(xiv) The execution, delivery and performance of the Purchase Agreement
and the consummation of the transactions contemplated in the Purchase Agreement
and in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, identified to such counsel as being material to the
Company, to which the Company or any subsidiary is a party or by which it or any
of them may be bound, or to which any of the property or assets of the Company
or any subsidiary is subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a Material Adverse Effect),
nor will such action result in any violation of the provisions of the charter or
by-laws of the Company or any Subsidiary, or (except for such violations that
would not have a Material Adverse Effect) any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any subsidiary or any of their respective properties, assets
or operations.
(xv) Except as otherwise waived or described in the Prospectus, to the
best of our knowledge, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
A-3
<PAGE> 37
(xvi) The Company is not an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the 1940 Act.
Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-4
<PAGE> 38
Schedule 1 to Exhibit A
List of Subsidiaries
U.S. Subsidiaries
Natoil, Inc.
NOW Oilfield Services, Inc
National-Oilwell, L.P.
National-Oilwell International, Inc.
Other Subsidiaries
National Oilwell (U.K.) Limited
National-Oilwell Canada Ltd.
A-5
<PAGE> 39
Exhibit B1
FORM OF OPINION OF PAUL M. NATION,
THE COMPANY'S GENERAL COUNSEL,
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
(i) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(ii) Each U.S. subsidiary listed on Schedule 1 hereto (each a "U.S.
Subsidiary"), has been duly incorporated and is validly existing as a
corporation or limited partnership, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation or
formation, has corporate or partnership power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign
corporation or limited partnership, as the case may be, to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in
a Material Adverse Effect.
(iii) The information in the Prospectus under "Description of Capital Stock --
Common Stock" and "Shares Eligible for Future Sale" and in the
Registration Statement under Item 14 to the extent that it constitutes
summaries of legal matters or legal proceedings has been reviewed by me
and is correct in all material respects.
(iv) To the best of my knowledge, no subsidiary of the Company is in
violation of its charter or by-laws and no default by the Company or any
subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration
Statement or the Prospectus or filed or incorporated by reference as an
exhibit to the Registration Statement.
(v) To the best of my knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the
B1-1
<PAGE> 40
property of the Company or any subsidiary is subject, before or brought
by any court or governmental agency or body, domestic or foreign, which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreement or the performance by the Company
of its obligations thereunder.
B1-2
<PAGE> 41
Exhibit B2
FORM OF OPINION OF B.D.H. COOPER L.L.B.,
SOLICITOR TO NATIONAL OILWELL (U.K.) LIMITED
TO BE DELIVERED PURSUANT TO SECTION 5(C)
NOW International, Inc. is recorded in the Register of Members of
National Oilwell (U.K.) Limited (the "Company") as being the owner of all of the
issued and outstanding capital stock or other equity interests of the Company.
Based upon the foregoing, I am of the opinion that none of such capital stock
and equity securities has been issued in violation of, and is not subject to
any, pre-emptive or prescription rights. There are no outstanding warrants,
options, agreements, convertible or exchangeable securities or other commitments
to which the Company is or may become obligated to issue, sell, purchase,
return, or redeem any of such capital stock or equity securities.
The Company has been duly organized and is validly existing as a
company under the laws of England and Wales; it has legal power and authority to
own, lease, and operate its properties and to conduct its business.
B2-1
<PAGE> 42
Exhibit B3
FORM OF OPINION OF______________,
RELATING TO NATIONAL-OILWELL CANADA LTD.
TO BE DELIVERED PURSUANT TO SECTION 5(C)
B2-2
<PAGE> 43
Exhibit C
FORM OF LOCK-UP AGREEMENT
TO BE DELIVERED PURSUANT TO SECTION 5(j)
BY PERSONS LISTED ON SCHEDULE C
August 26, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Goldman Sachs & Co., Inc.
Simmons & Company International
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by National-Oilwell, Inc.
Dear Sirs:
The undersigned, a stockholder of NOW Holdings, Inc. (to be
renamed National-Oilwell, Inc.), a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Goldman, Sachs & Co. and Simmons & Company
International propose to enter into a Purchase Agreement (the "Purchase
Agreement") with the Company providing for the public offering of shares (the
"Securities") of the Company's common stock, par value $.01 per share (the
"Common Stock"). In recognition of the benefit that such an offering will confer
upon the undersigned as a stockholder of the Company, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
C-3
<PAGE> 44
acknowledged, the undersigned agrees with each underwriter to be named in the
Purchase Agreement that, during a period of 180 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise; provided, (i) any person with shares of
Common Stock or securities convertible or exercisable into Common Stock that are
currently pledged to the Company as collateral for a loan made to such
individual by the Company in connection with the acquisition of such shares or
securities may pledge such shares of Common Stock or securities convertible or
exercisable into Common Stock as collateral for any loan of an equal or lesser
amount in connection with the prepayment and cancellation of such loan by the
Company; (ii) shares of Common Stock or securities convertible or exercisable
into Common Stock may be transferred by the undersigned in a private transaction
to a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the undersigned
(an "Affiliate") if such Affiliate agrees prior to such transfer in writing to
be bound by a similar lock-up agreement; (iii) shares of Common Stock or
securities convertible or exercisable into Common Stock may be transferred as
bona fide gifts by stockholders to children or trusts controlled by such
stockholder who agree prior to such transfer to be bound by a similar lock-up
agreement; and (iv) shares of Common Stock or securities convertible or
exercisable into Common Stock held by the trust pursuant to the Company's
Supplemental Savings Plan may be transferred to a beneficial owner of such
shares who is subject to a similar lock-up agreement pursuant to an event of
termination.
Very truly yours,
Signature:
Print Name:
Title (if applicable):
C-4
<PAGE> 45
Annex A
FORM OF ERNST & YOUNG LLP'S COMFORT LETTER PURSUANT TO SECTION 5(e)
We are independent public accountants with respect to the Company and the
Partnership within the meaning of the 1933 Act and the applicable published 1933
Act Regulations.
(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included in the Registration
Statement and the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim consolidated historical financial
statements for the six month periods ended June 30, 1996 and June 30,
1995 included in the Registration Statement and the Prospectus
(collectively, the "Quarterly Financials"), a reading of the latest
available unaudited interim consolidated financial statements of the
Company, a reading of the minutes of all meetings of the stockholders
and directors of the Company and its subsidiaries and the Executive and
Audit Committees of the Company's Board of Directors and any subsidiary
committees since, January 1, 1996, inquiries of certain officials of
the Company and its subsidiaries responsible for financial and
accounting matters, a review of interim financial information in
accordance with standards established by the American Institute of
Certified Public Accountants in Statement on Auditing Standards No. 71,
Interim Financial Information ("SAS 71"), with respect to the
description of relevant periods and such other inquiries and procedures
as may be specified in such letter, nothing came to our attention that
caused us to believe that:
(A) the Quarterly Financials included in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations or
any material modifications should be made to the unaudited
consolidated financial statements included in the Registration
Statement and the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B ) at August 31, 1996 and at a specified date not
more than five days prior to the date of this Agreement, there
was any change in the of the Company and its subsidiaries or
any decrease in the of the Company and its subsidiaries or any
increase in the of the Company and its subsidiaries in each
case as compared with amounts
Annex A-1
<PAGE> 46
shown in the latest balance sheet included in the Registration
Statement, except in each case for changes, decreases or
increases that the Registration Statement discloses have
occurred or may occur; or
(C) for the period from June 30, 1996 to August 31,
1996 and for the period from August 31, 1996 to a specified
date not more than five days prior to the date of this
Agreement, there was any decrease in revenues, gross profit,
or operating income, in each case as compared with the
comparable period in the preceding year, except in each case
for any decreases that the Registration Statement discloses
have occurred or may occur [considering comparing post-June
30, 1996 period to comparable period ended June 30, 1996];
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Historical Financial Data included in the
Registration Statement and a reading of the financial statements from
which such data were derived, nothing came to our attention that caused
us to believe that the Selected Historical Financial Data included in
the Registration Statement do not comply as to form in all material
respects with the disclosure requirements of Item 301 of Regulation S-K
of the 1933 Act, that the amounts included in the Selected Historical
Financial Data are not in agreement with the corresponding amounts in
the audited consolidated financial statements for the respective
periods or that the financial statements not included in the
Registration Statement from which certain of such data were derived are
not in conformity with generally accepted accounting principles;
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein, nothing came to our attention that caused us to
believe that this information does not comply as to form in all
material respects with the disclosure requirements of Items 302, 402
and 503(d), respectively, of Regulation S-K;
[(v) include if capsule nine-month earnings included-based
upon the procedures set forth in clause (ii) above, a reading of the
unaudited financial statements of the Company for the most recent
period that have not been included in the Registration Statement and a
review of such financial statements in accordance with SAS 71, nothing
came to our attention that caused us to believe that the unaudited
amounts for ____________ for the most recent period do not agree with
the amounts set forth in the unaudited consolidated financial
statements for those periods or that such unaudited amounts were not
determined on a basis substantially consistent with that of the
corresponding amounts in the audited consolidated financial
statements];
Annex A-2
<PAGE> 47
[(vi)] we are unable to and do not express any opinion on the
Unaudited Pro Forma Consolidated Balance Sheet and Statement of
Operations (the "Pro Forma Statements") included in the Registration
Statement or on the pro forma adjustments applied to the historical
amounts included in the Pro Forma Statements; however, for purposes of
this letter we have:
(A) read the Pro Forma Statements;
(B) performed an audit with respect to the financial
statements for the year ended December 31, 1995 and a review
in accordance with SAS 71 of the unaudited financial
statements for the six-month period ended June 30, 1996, to
which the pro forma adjustments were applied;
(C) made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters about the basis for their determination of the pro
forma adjustments and whether the Pro Forma Statements
complies as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation
S-X; and
(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Statements; and
on the basis of such procedures and such other inquiries and procedures
as specified herein, nothing came to our attention that caused us to
believe that the Pro Forma Statements included in the Registration
Statement does not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements; and
(vii) in addition to the procedures referred to in clause (ii)
above, we have performed other procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which
are specified herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting and
financial records of the Company [requests for specific comfort to be
discussed].
Annex A-3
<PAGE> 1
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated October 23, 1996
among
NATIONAL-OILWELL, L.P.
and NATIONAL OILWELL (U.K.) LIMITED
as Borrowers,
THE LENDERS NAMED HEREIN
as Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent and Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . 2
1.1 Credit Facilities . . . . . . . . . . . . . . . . . . . . . 2
1.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . 4
1.3 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 5
1.5 Interest on the Loans, Applicable Line Margin and
L/C Margin . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . 8
1.7 Eligible Inventory, Eligible Equipment, Eligible
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . 8
1.9 Cash Management Systems . . . . . . . . . . . . . . . . . . 9
1.10 Receipt of Payments . . . . . . . . . . . . . . . . . . . . 10
1.11 Application and Allocation of Payments . . . . . . . . . . . 10
1.12 Loan Account and Accounting . . . . . . . . . . . . . . . . 10
1.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.14 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.16 Capital Adequacy; Increased Costs; Illegality . . . . . . . 14
1.17 Effect of Amendment and Restatement . . . . . . . . . . . . 16
2. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Conditions to the Effectiveness of Agreement . . . . . . . . 16
2.2 Further Conditions to Each Revolving Credit Advance
and Term Loan C Advance . . . . . . . . . . . . . . . . . . 18
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 19
3.1 Existence and Standing; Compliance with Law . . . . . . . . 19
3.2 Chief Executive Offices . . . . . . . . . . . . . . . . . . 19
3.3 Power, Authorization, Enforceable Obligations . . . . . . . 19
3.4 Financial Statements and Projections . . . . . . . . . . . . 20
3.5 Collateral Reports . . . . . . . . . . . . . . . . . . . . . 20
3.6 Material Adverse Effect . . . . . . . . . . . . . . . . . . 20
3.7 Ownership of Property; Liens . . . . . . . . . . . . . . . . 21
3.8 Restrictions; No Default . . . . . . . . . . . . . . . . . . 21
3.9 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . 21
3.10 Ventures, Subsidiaries and Affiliates; Outstanding
Stock and Indebtedness . . . . . . . . . . . . . . . . . . . 22
3.11 Government Regulation . . . . . . . . . . . . . . . . . . . 22
3.12 Margin Regulations . . . . . . . . . . . . . . . . . . . . . 22
3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.15 No Litigation . . . . . . . . . . . . . . . . . . . . . . . 25
3.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
3.17 Employment Matters . . . . . . . . . . . . . . . . . . . . . 25
3.18 Patents, Trademarks, Copyrights and Licenses . . . . . . . . 25
3.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 26
3.20 Hazardous Materials . . . . . . . . . . . . . . . . . . . . 26
3.21 Insurance Policies . . . . . . . . . . . . . . . . . . . . . 26
3.22 Deposit and Disbursement Accounts . . . . . . . . . . . . . 26
3.23 Government Contracts . . . . . . . . . . . . . . . . . . . . 27
3.24 Customer and Trade Relations . . . . . . . . . . . . . . . . 27
3.25 Agreements and Other Documents . . . . . . . . . . . . . . . 27
3.26 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 27
3.27 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.28 FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . 28
4.1 Reports and Notices . . . . . . . . . . . . . . . . . . . . 28
4.2 Communication with Accountants . . . . . . . . . . . . . . . 28
5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 28
5.1 Maintenance of Existence and Conduct of Business . . . . . . 28
5.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . 29
5.3 Books and Records . . . . . . . . . . . . . . . . . . . . . 29
5.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 31
5.7 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8 Supplemental Disclosure . . . . . . . . . . . . . . . . . . 31
5.9 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . 32
5.10 Environmental Matters . . . . . . . . . . . . . . . . . . . 32
5.11 Landlords' Agreements, Bailee Letters and Mortgagee
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.12 Consigned Inventory . . . . . . . . . . . . . . . . . . . . 33
5.13 Leased Locations of Collateral . . . . . . . . . . . . . . . 33
6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1 Mergers, Subsidiaries, Etc . . . . . . . . . . . . . . . . . 33
6.2 Investments; Loans and Advances . . . . . . . . . . . . . . 36
6.3 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4 Employee Loans and Affiliate Transactions . . . . . . . . . 37
6.5 Capital Structure and Business . . . . . . . . . . . . . . . 37
6.6 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.8 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . 39
6.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.10 Financial Covenants . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
6.11 Hazardous Materials . . . . . . . . . . . . . . . . . . . . 39
6.12 Sale-Leasebacks . . . . . . . . . . . . . . . . . . . . . . 40
6.13 Cancellation of Indebtedness . . . . . . . . . . . . . . . . 40
6.14 Restricted Payments . . . . . . . . . . . . . . . . . . . . 40
6.15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.16 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 42
6.17 Change of Corporate Name or Location . . . . . . . . . . . . 42
6.18 Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . 42
6.19 Cash Management . . . . . . . . . . . . . . . . . . . . . . 42
6.20 No Impairment of Upstreaming . . . . . . . . . . . . . . . . 42
6.21 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 43
6.22 Intercompany Loans . . . . . . . . . . . . . . . . . . . . . 43
6.23 Inconsistent Agreements . . . . . . . . . . . . . . . . . . 44
6.24 Acquisition Documents . . . . . . . . . . . . . . . . . . . 44
7. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 44
7.2 Survival of Obligations Upon Termination of
Financing Arrangements . . . . . . . . . . . . . . . . . . . 44
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES . . . . . . . . . . . . . . 45
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 45
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.3 Waivers by Borrowers . . . . . . . . . . . . . . . . . . . . 49
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF ADMINISTRATIVE
AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.1 Assignment and Participations . . . . . . . . . . . . . . . 49
9.2 Appointment of Administrative Agent . . . . . . . . . . . . 50
9.3 Administrative Agent's Reliance . . . . . . . . . . . . . . 51
9.4 Administrative Agent and Affiliates . . . . . . . . . . . . 52
9.5 Lender Credit Decision . . . . . . . . . . . . . . . . . . . 52
9.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . 52
9.7 Successor Administrative Agent . . . . . . . . . . . . . . . 53
9.8 Setoff and Sharing of Payments . . . . . . . . . . . . . . . 53
9.9 Disbursement of Funds . . . . . . . . . . . . . . . . . . . 54
9.10 Advances; Payments; Information; Non-Funding Lenders . . . . 54
10. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . 58
10.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . 58
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.1 Complete Agreement; Modification of Agreement . . . . . . . 58
11.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . 58
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
11.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 59
11.4 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . 61
11.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . 61
11.8 Authorized Signature . . . . . . . . . . . . . . . . . . . . 61
11.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 61
11.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.11 Section Titles . . . . . . . . . . . . . . . . . . . . . . . 62
11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 63
11.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 63
11.14 Press Releases and Public Announcements . . . . . . . . . . 63
11.15 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 63
11.17 Judgment Currency . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
-iv-
<PAGE> 6
INDEX OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Amended Revolving Credit Note
Exhibit B - Form of Amended Term C Note
Schedule 1.1(a) - Responsible Individual
Schedule 3.2 - Executive Offices
Schedule 3.4(a) - Financial Statements
Schedule 3.4(b) - Pro Forma
Schedule 3.4(c) - Projections
Schedule 3.7 - Real Estate and Leases
Schedule 3.9 - Labor Matters
Schedule 3.10 - Ventures, Subsidiaries and Affiliates;
Outstanding Stock
Schedule 3.13 - Tax Matters
Schedule 3.14 - ERISA Plans
Schedule 3.15 - Litigation
Schedule 3.16 - Brokers Fees
Schedule 3.17 - Employment Matters
Schedule 3.18 - Intellectual Property
Schedule 3.20 - Hazardous Materials
Schedule 3.21 - Insurance Policies
Schedule 3.22 - Deposit and Disbursement Accounts
Schedule 3.23 - Government Contracts
Schedule 3.25 - Material Agreements
Schedule 3.28 - FEIN Numbers
Schedule 5.1 Trade Names
Schedule 6.2 - Investments; Loans and Advances
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Employee Loans and Affiliate Transactions
Schedule 6.6 - Guaranties
Schedule 6.7 - Existing Liens
Schedule 6.8 - Asset Sale Program
Schedule 6.22 - Intercompany Loans
Schedule 11.8 - Authorized Signatures
-v-
<PAGE> 7
Schedule A (Recitals) - Definitions
Schedule B (Section 1.2) - Letters of Credit Documents
Schedule C-1 (Section 1.6) - Eligible Accounts
Schedule C-2 (Section 1.6) - UK Eligible Accounts
Schedule D-1 (Section 1.7) - Eligible Inventory
Schedule D-2 (Section 1.7) - UK Eligible Inventory
Schedule E (Subsection 1.9(a)) - Cash Management Systems
Schedule F (Subsection 2.1(b)) - Schedule of Additional
Closing Documents
Schedule G (Subsection 4.1(a)) - Financial Statements and
Projections -- Reporting
Schedule H (Subsection 4.1(b)) - Collateral Reports
Schedule I (Section 6.10) - Financial Covenants
Schedule J (Section 11.10) - Notice Addresses
Schedule K (Subsection 9.10(a)(iii)) - Wire Transfer Account
Information
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This AMENDED AND RESTATED CREDIT AGREEMENT, dated October 23,
1996 and effective as of the Closing Date among NATIONAL-OILWELL, L.P., a
Delaware limited partnership, NATIONAL OILWELL (U.K.) Limited, an English
corporation, GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, for
itself, as a Lender, and as Administrative Agent, THE BANK OF NEW YORK
COMMERCIAL CORPORATION, BTM CAPITAL CORPORATION (f/k/a BOT FINANCIAL
CORPORATION), THE MITSUBISHI TRUST AND BANKING CORPORATION, and SANWA BUSINESS
CREDIT CORPORATION, as Lenders.
RECITALS
WHEREAS, NATIONAL-OILWELL, INC., f/k/a NOW HOLDINGS, INC., a
Delaware corporation ("Holdings") entered into a certain Purchase Agreement
dated as of September 22, 1995 (the "Purchase Agreement") with OILWELL, INC., a
Delaware corporation ("Oilwell"), NATIONAL SUPPLY COMPANY INC., a Delaware
corporation ("National Supply"), USX CORPORATION, a Delaware corporation
("USX"), and ARMCO INC., an Ohio corporation ("Armco") (Oilwell and National
Supply are collectively referred to herein as "Sellers") to purchase all of the
partnership interests (the "Partnership Interests") in National-Oilwell, a
Delaware general partnership ("National-Oilwell") and all of the issued and
outstanding capital stock (the "Purchased Stock") of National-Oilwell Pte.
Ltd., a Singapore corporation ("Singapore") and National-Oilwell Pty. Ltd., an
Australian corporation ("Australia");
WHEREAS, Holdings assigned all of its right, title and interest
in the Purchase Agreement to US Borrower;
WHEREAS, Borrowers entered into a Credit Agreement dated as of
December 29, 1995 (the "Prior Credit Agreement") with the Administrative Agent,
the Lenders that are parties hereto, Goldman Sachs & Co., GECC Capital Markets
Group, Inc. and certain other Lenders pursuant to which the Borrowers received
credit facilities of up to $138,000,000;
WHEREAS, each Borrower secured all of its obligations under the
Prior Credit Agreement by granting to Administrative Agent, on behalf of
Lenders, a security interest in and lien upon all of its personal and real
property;
WHEREAS, Holdings and the Partners guaranteed all of the
obligations of Borrowers to Lenders under the Prior Credit Agreement and
granted to Administrative Agent, on behalf of Lenders, a security interest in
all of the capital stock of NOW International and the Partners and the
partnership interests of US Borrower, respectively, to secure such guaranties;
WHEREAS, NOW International guaranteed all of the obligations of
Borrowers to Lenders under the Prior Credit Agreement and granted to
Administrative Agent, on behalf of Administrative Agent and Lenders, a security
interest in sixty-five percent (65%) of the capital stock of all foreign
Subsidiaries, including UK Borrower, to secure such guaranty;
<PAGE> 9
WHEREAS, Holdings has completed an initial public offering (as
more fully defined in Schedule A hereto, the "IPO") and in connection therewith
US Borrower has repaid Term Loan A and Term Loan B under the Prior Credit
Agreement;
WHEREAS, Borrowers and the Lenders desire to amend and restate
the Prior Credit Agreement to govern the terms of the Obligations that are
outstanding thereunder and to provide a revolving credit facility to US
Borrower of up to $105,000,000 (including the continuing Obligations
outstanding under the Prior Credit Agreement) and a term loan to UK Borrower of
up to $5,000,000 (including the continuing Obligations outstanding under the
Prior Credit Agreement) as a subfacility of the revolving credit facility
described above, the working capital and general business needs of US Borrower
(including the funding of Permitted Acquisitions) and UK Borrower; and
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Schedule A. All Schedules, Exhibits and other
attachments hereto, or expressly identified to this Agreement, are incorporated
herein by reference, and taken together, shall constitute but a single
agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
(a) Revolving Credit Facility. (i) Upon and subject to the terms
and conditions hereof, each Lender, severally and not jointly, agrees to make
or continue to make available, from time to time, until the Commitment
Termination Date, for US Borrower's use and upon the request of US Borrower
therefor, its Pro Rata Share of advances (each, a "Revolving Credit Advance")
in an aggregate amount which shall not at any given time exceed the lesser at
such time of (A) the Maximum Revolving Credit Loan and (B) an amount equal to
the Borrowing Base of US Borrower, less, in each case, the amount of the
Letter of Credit Obligations ("Borrowing Availability"); provided that in no
event shall the Revolving Credit Loan of any Lender exceed its Revolving Credit
Loan Commitment less its Pro Rata Share of the Letter of Credit Obligations at
such time. Until all amounts outstanding in respect of the Revolving Credit
Loan shall become due and payable on the Commitment Termination Date, US
Borrower may from time to time borrow, repay and reborrow under this Section
1.1(a). Each Revolving Credit Advance shall be made by delivery of a Borrowing
Notice by US Borrower to the individual at the Administrative Agent identified
on Schedule 1.1(a) at the address specified thereon, given no later than (x)
12:00 (noon) (New York time) on the Business Day of the proposed Revolving
Credit Advance, in the case of an Index Rate Loan, or (y) 12:00 (noon) (New
York time) on the day which is three (3) Business Days prior to the proposed
Revolving Credit Advance in the case of a LIBOR Loan; provided that unless US
Borrower shall also have complied with the requirements of Section 1.5(e), all
such Revolving Credit Advances
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shall bear interest by reference to the Index Rate; provided further that any
Revolving Credit Advance requested as a LIBOR Loan shall be in a minimum amount
of $5,000,000 and multiples of $1,000,000 in excess of such amount. Each
Borrowing Notice shall be given in writing (by telecopy or overnight courier)
or by telephone confirmed immediately in writing.
(ii) US Borrower shall execute and deliver to each Lender an
amended and restated note to evidence the Revolving Credit Loan, such note to
be in the principal amount of the Revolving Credit Loan Commitment of such
Lender, dated October 23, 1996 and substantially in the form of Exhibit A (each
an "Amended Revolving Credit Note" and, collectively, the "Amended Revolving
Credit Notes"). The Amended Revolving Credit Notes shall represent the
obligation of US Borrower to pay the amount of the Revolving Credit Loan
Commitment or, if less, the aggregate unpaid principal amount of all Revolving
Credit Advances made by Lenders to US Borrower and all other Obligations of US
Borrower together with interest thereon as prescribed in Section 1.5. The date
and amount of each Revolving Credit Advance and each payment of principal with
respect thereto shall be recorded on the books and records of Administrative
Agent, which books and records shall constitute prima facie evidence of the
accuracy of the information therein recorded. The entire unpaid balance of the
Revolving Credit Loan shall be immediately due and payable on the Commitment
Termination Date.
(b) Term Loan C. Upon and subject to the terms and conditions
hereof, each Lender having a Term Loan C Commitment, severally and not jointly,
agrees to make or continue to make as a subfacility of the Revolving Credit
Loan Facility available, from time to time, for UK Borrower's use and upon the
request of US Borrower therefor, its Pro Rata Share of advances under Term Loan
C in an aggregate amount equal to its Term Loan C Commitment (collectively,
"Term Loan C"); provided that the aggregate outstanding principal amount of
Term Loan C shall not at any time exceed an amount equal to the UK Borrowing
Base. Until all amounts outstanding in respect of Term Loan C shall become due
and payable on the Commitment Termination Date, amounts advanced under the Term
Loan C facility may be repaid and reborrowed. Term Loan C shall be evidenced
by amended and restated notes, each dated October 23, 1996 and substantially in
the form of Exhibit B (each an "Amended Term C Note"), and UK Borrower shall
execute and deliver the same to each such Lender. All advances and payments
under Term Loan C shall be in United States Dollars. All Borrowing Base
Certificate calculations for UK Borrower shall be converted to United States
Dollars at the then current exchange rates as quoted in the Wall Street
Journal, with the basis for such calculation set forth on each Borrowing Base
Certificate of UK Borrower.
The entire unpaid balance of Term Loan C shall be immediately due and payable
on the Commitment Termination Date.
(c) Reliance on Notices; Appointment of Borrower Representative.
Administrative Agent shall be entitled to rely upon, and shall be fully
protected in relying upon, any Borrowing Notice or similar notice believed by
Administrative Agent to be genuine. Administrative Agent may assume that each
Person executing and delivering such a notice was duly authorized, unless the
responsible individual acting thereon for Administrative Agent has actual
knowledge to the contrary.
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<PAGE> 11
UK Borrowers hereby designate Borrower Representative as its representative and
agent on its behalf for the purposes of issuing Borrowing Notices, giving
instructions with respect to the disbursement of the proceeds of the Loans,
selecting interest rate options, giving and receiving all other notices and
consents hereunder or under any of the other Loan Documents and taking all
other actions (including in respect of compliance with covenants) on behalf of
Borrowers under the Loan Documents. Borrower Representative hereby accepts
such appointment. Administrative Agent and each Lender may regard any notice
or other communication pursuant to any Loan Document from Borrower
Representative as a notice or communication from all Borrowers, and may give
any notice or communication required or permitted to be given to any Borrower
or Borrowers hereunder to Borrower Representative on behalf of such Borrower or
Borrowers. UK Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower.
1.2 Letters of Credit. Subject to the terms and conditions of
Schedule B, US Borrower shall have the right to request the issuance of Letters
of Credit and Lenders agree to incur Letters of Credit Obligations with respect
thereto.
1.3 Prepayment. (a) In the event that the outstanding balance
of the Revolving Credit Loan shall, at any time, exceed the lesser at such time
of (i) the Maximum Revolving Credit Loan and (ii) the Borrowing Base of US
Borrower, less, in each case, the outstanding amount of the Letter of Credit
Obligations, US Borrower shall immediately and without notice or demand of any
kind (x) repay the Revolving Credit Loan in the amount of such excess and (y)
if any excess remains after repaying the Revolving Credit Loan, cash
collateralize the Letter of Credit Obligations in such amount as may be
necessary to eliminate such remaining excess. In the event that the
outstanding balance of Term Loan C shall, at any time, exceed the UK Borrowing
Base, UK Borrower shall immediately and without notice or demand of any kind
repay Term Loan C in the amount of such excess.
(b) (i) Except for the proceeds of assets of NOW Canada (other
than property or assets of NOW Canada, if any, included in the Asset Sale
Program) required to be paid to General Electric Capital Canada Inc. pursuant
to the NOW Canada Credit Agreement and proceeds of assets and property subject
to subsection 1.3(b)(ii), immediately upon receipt by US Borrower or any
Subsidiaries of Net Proceeds of any asset disposition permitted by subsection
6.8(ii), (iii) or (iv) (including all Net Proceeds of the Asset Sale Program),
US Borrower shall prepay the Revolving Credit Loan in an amount equal to one
hundred percent (100%) of such Net Proceeds; provided that the Maximum
Revolving Credit Loan shall not be reduced as a result of any such prepayment,
and such amounts may be reborrowed.
(ii) Immediately upon receipt by UK Borrower or any of its
Subsidiaries of Net Proceeds of any asset disposition permitted by subsections
6.8(ii), 6.8(iii) or 6.8(iv) (other than assets of UK Borrower, if any,
included in the Asset Sale Program) or receipt by UK Borrower of any
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<PAGE> 12
payment by NOW Canada on its intercompany Indebtedness to UK Borrower permitted
by subsection 6.22(iii), UK Borrower shall prepay Term Loan C in an amount
equal to one hundred percent (100%) of such Net Proceeds or of such payment, as
applicable.
(c) (i) Except for the insurance proceeds of assets and property
of NOW Canada (other than property or assets of NOW Canada, if any, included in
the Asset Sale Program) required to be paid to General Electric Capital Canada
Inc. pursuant to the NOW Canada Credit Agreement and proceeds of assets and
property subject to subsection 1.3(c)(ii), immediately upon receipt by US
Borrower or any of its Subsidiaries of insurance proceeds received in the event
of loss or the seizure or requisition of any property or assets of US Borrower
or any Subsidiary, US Borrower shall prepay the Revolving Credit Loan to the
extent required in accordance with Section 5.5; provided that the Maximum
Revolving Credit Loan shall not be reduced as a result of any such prepayment
and such amounts may be reborrowed.
(ii) Immediately upon receipt by UK Borrower or any of its
Subsidiaries of insurance proceeds received in the event of loss or the seizure
or requisition of any property or assets of UK Borrower or any of its
Subsidiaries (other than property or assets included in the Asset Sale
Program), UK Borrower shall prepay Term Loan C in an amount equal to such
insurance proceeds.
(d) Upon at least fifteen (15) days' prior written notice to
Administrative Agent, UK Borrower shall have the right at any time to
voluntarily prepay all or part of Term Loan C in a minimum amount of $500,000
and integral multiples thereof; provided that any such voluntary prepayment
shall be accompanied by the payment of any LIBOR funding breakage costs in
accordance with subsection 1.13(c).
(e) Upon at least fifteen (15) days' prior written notice to
Administrative Agent, US Borrower may voluntarily permanently reduce the
Revolving Credit Loan Commitment in whole, or in part ratably among Lenders in
a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000
in excess thereof; provided that the amount of the Revolving Credit Loan
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Loan; provided further that any such voluntary
reduction shall be accompanied by the payment of any LIBOR funding breakage
costs in accordance with subsection 1.13(c); provided further that any Letter
of Credit Obligations outstanding as of the date of such reduction, to the
extent necessary, shall be canceled and returned or cash collateralized in the
manner described in Schedule B. Upon any such permanent reduction or
termination of the Revolving Credit Loan Commitment, US Borrower's right to
receive Revolving Credit Advances shall simultaneously terminate or be
permanently reduced to the same degree, as the case may be.
1.4 Use of Proceeds. US Borrower may utilize the proceeds of
all Revolving Credit Advances (i) for the financing of ordinary working capital
and general partnership needs of US Borrower (but excluding in any event any
direct or indirect redemption of partnership interests or purchase of any Stock
of Holdings or either Partner other than as permitted by Section 6.14; (ii) for
intercompany loans as permitted by this Agreement; and (iii) for Permitted
Acquisitions. UK
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Borrower may utilize the proceeds of Term Loan C to repay existing Indebtedness
owing to US Borrower and for ordinary working capital purposes.
1.5 Interest on the Loans, Applicable Line Margin and L/C
Margin. (a) US Borrower and UK Borrower shall pay interest to Administrative
Agent, for the ratable benefit of Lenders with respect to the Loans made by
each Lender, in arrears on each applicable Interest Payment Date, at a rate
equal to: (i) the Index Rate plus the Applicable Index Margin per annum or, at
the election of US Borrower in accordance with subsection 1.5(e), the
applicable LIBOR Rate plus the Applicable LIBOR Margin per annum.
The Applicable Line Margin, Applicable L/C Margin, Applicable
Index Margin, and Applicable LIBOR Margin will be .375%, 1.375%, .75%, and
2.00% per annum, respectively, as of the Closing Date. The Applicable Margins
will be adjusted (up or down) prospectively on a quarterly basis as determined
by Holdings' consolidated financial performance for the trailing four quarters,
commencing with the first day of the first calendar month that occurs more than
five (5) days after delivery of Holdings' quarterly Financial Statements to
Lenders for the Fiscal Quarter ending March 31, 1997. Adjustments in
Applicable Margins will be determined by reference to the following grid:
<TABLE>
<CAPTION>
IF FUNDED APPLICABLE APPLICABLE APPLICABLE APPLICABLE
--------- ---------- ---------- ---------- ----------
DEBT/EBIT LINE L/C MARGIN INDEX LIBOR
--------- ----- ----------- ------ ------
RATIO IS: MARGIN IS: IS: MARGIN IS: MARGIN IS:
--------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C>
=(1.25 0.250% 0.875% 0.25% 1.50%
)1.25 but =(3.00 0.375% 1.375% 0.75% 2.00%
)3.00 0.50% 1.875% 1.25% 2.50%
</TABLE>
All adjustments in the Applicable Margins after March 31, 1997,
will be implemented quarterly on a prospective basis, commencing with the first
day of the first calendar month that occurs more than five (5) days after the
date of delivery to Lenders of the quarterly unaudited or annual audited (as
applicable) Financial Statements of Holdings evidencing the need for an
adjustment. Concurrently with the delivery of those Financial Statements, US
Borrower shall deliver to Administrative Agent and Lenders a certificate,
signed by its Chief Financial Officer or Treasurer, setting forth in reasonable
detail the basis for the continuance of, or any change in, the Applicable
Margins. Failure to timely deliver such Financial Statements shall, in
addition to any other remedy provided for in this Agreement, result in an
increase in the Applicable Margins to the highest level set forth in the
foregoing grid, until the first day of the first calendar month commencing at
least five (5) days after the date of the delivery of those Financial
Statements demonstrating that such an increase is not required. If a Default or
Event of Default shall have occurred or be continuing at the time any reduction
in the Applicable Margins is to be implemented, that reduction shall be
deferred
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<PAGE> 14
until the first day of the first calendar month following the date on which
such Default or Event of Default is waived or cured.
(b) If any payment on any Loan becomes due and payable on a
day other than a Business Day, the maturity thereof will be extended to the
next succeeding Business Day (except as set forth in the definition of LIBOR
Period) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis
and all calculations of interest shall be made by Administrative Agent on the
basis of a three hundred and sixty (360) day year, in each case for the actual
number of days occurring in the period for which such interest or Fees are
payable. The Index Rate shall be determined each day based upon the Index Rate
as in effect each day. Each determination by Administrative Agent of an
interest rate hereunder shall be conclusive, absent manifest error.
(d) So long as any Event of Default shall have occurred and be
continuing, the Letter of Credit Fees and the interest rates applicable to the
respective Loans and any other Obligations shall be increased by two percent
(2%) per annum above the Letter of Credit Fees or the rate of interest, as the
case may be, otherwise applicable hereunder ("Default Rate").
(e) Provided no Default or Event of Default shall have
occurred and be continuing, US Borrower may elect by delivery of a Borrowing
Notice to Administrative Agent not later than 12:00 noon (New York time) on the
third (3rd) Business Day prior to (i) the date of any proposed Revolving Credit
Advance or Term Loan C advance all or any part of which is to bear interest at
the LIBOR Rate, (ii) the end of each LIBOR Period with respect to any LIBOR
Loans, or (iii) the date on which US Borrower wishes to convert any Index Rate
Loan to a LIBOR Loan, to have all or some portion of the Revolving Credit Loan
or Term Loan C bear or continue to bear, as applicable, interest at the LIBOR
Rate for the next succeeding LIBOR Period as designated by US Borrower in such
Borrowing Notice. Each Borrowing Notice shall be given in writing (by telecopy
or overnight courier) or by telephone confirmed immediately in writing. If no
Borrowing Notice is received with respect to a LIBOR Loan by 12:00 (noon) (New
York time) on the third (3rd) Business Day prior to the end of the LIBOR Period
with respect to such LIBOR Loan, such LIBOR Loan shall be converted to an Index
Rate Loan at the end of the LIBOR Period. US Borrower shall have the option to
(i) convert at any time all or any part of its outstanding Loan or Loans equal
to $5,000,000 and integral multiples of $1,000,000 in excess of that amount
from LIBOR Loans to Index Rate Loans or from Index Rate Loans to LIBOR Rate
Loans, or (ii) upon the expiration of any LIBOR Period applicable to a LIBOR
Loan, to continue all or any portion of such Loan equal to $5,000,000 and
integral multiples of $1,000,000 in excess of that amount as a LIBOR Loan, and
the succeeding LIBOR Period(s) of such continued Loan shall commence on the
last day of the LIBOR Period of the Loan to be continued; provided that LIBOR
Loans may be converted into Index Rate Loans only on the expiration date of a
LIBOR Period applicable thereto; provided further, that no outstanding Loan may
be made or continued as, or be converted into, a LIBOR Loan when any Default or
Event of Default has occurred and is continuing.
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(f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if, at any time until payment in full of all of the Obligations
and the termination of the Commitments, the rate of interest payable hereunder
exceeds the highest rate of interest permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto
(the "Maximum Lawful Rate"), then in such event and so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided that if at any time thereafter
the rate of interest payable hereunder is less than the Maximum Lawful Rate,
Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate
until such time as the total interest received by Administrative Agent, on
behalf of Lenders, from the making of such advances hereunder is equal to the
total interest which would have been received had the interest rate payable
hereunder been (but for the operation of this subsection 1.5(f)) the interest
rate payable since the Funding Date as otherwise provided in this Agreement.
Thereafter, the interest rate payable hereunder shall be the rate of interest
provided in subsections 1.5(a) through (e) of this Agreement, unless and until
the rate of interest again exceeds the Maximum Lawful Rate, in which event this
subsection 1.5(f) shall again apply. In no event shall the total interest
received by any Lender pursuant to the terms hereof exceed the amount which
such Lender could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. In the event
the Maximum Lawful Rate is calculated pursuant to this subsection 1.5(f), such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made.
In the event that a court of competent jurisdiction, notwithstanding the
provisions of this subsection 1.5 (f), shall make a final determination that a
Lender has received interest hereunder or under any of the other Loan Documents
in excess of the Maximum Lawful Rate, Administrative Agent shall, to the extent
permitted by applicable law, promptly apply such excess first to any interest
due and not yet paid hereunder in respect of the Loans, then to the outstanding
principal of the Loans, then to Fees and any other unpaid Obligations and
thereafter shall refund any excess to the applicable Borrower or as a court of
competent jurisdiction may otherwise order.
1.6 Eligible Accounts. Based on the most recent Borrowing
Base Certificate delivered by the applicable Borrower to Administrative Agent
and on other information available to Administrative Agent, Administrative
Agent shall in its reasonable discretion determine which Accounts shall be
deemed to be "Eligible Accounts" for purposes of determining the amounts, if
any, which are (i) permitted to be outstanding to US Borrower under the
Revolving Credit Loan and (ii) permitted to be outstanding to UK Borrower under
Term Loan C. In determining whether a particular Account constitutes an
Eligible Account, Administrative Agent shall not include any such Account which
meets any of the criteria set forth in Schedule C-1 or Schedule C-2, as
applicable. Administrative Agent reserves the right, at any time and from time
to time after the Closing Date, in the exercise of its reasonable credit
judgment (i) to adjust any eligibility criteria or to establish new eligibility
criteria as to any Borrower, which are more restrictive than those set forth in
Schedule C-1 and Schedule C-2, and (ii) establish reserves against Borrowing
Availability.
1.7 Eligible Inventory, Eligible Equipment, Eligible Real
Estate. (a) Based on the most recent Borrowing Base Certificate delivered by
the applicable Borrower to Administrative
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<PAGE> 16
Agent and on other information available to Administrative Agent,
Administrative Agent shall in its reasonable discretion determine which
Inventory of such Borrower shall be deemed to be "Eligible Inventory" for
purposes of determining the amounts, if any, which are (1) permitted to be
outstanding to US Borrower under the Revolving Credit Loan and (2) permitted to
be outstanding to UK Borrower under Term Loan C. In determining whether any
particular Inventory constitutes Eligible Inventory, Administrative Agent shall
not include Inventory which meets any of the criteria set forth in Schedule D-1
or Schedule D-2, as applicable. Administrative Agent reserves the right, at
any time and from time to time after the Closing Date, in the exercise of its
reasonable credit judgment, (i) to adjust any eligibility criteria or to
establish new eligibility criteria as to any Borrower, which are more
restrictive than those set forth in Schedule D-1 and Schedule D-2, and (ii)
establish reserves against Borrowing Availability.
(b) Administrative Agent reserves the right at any time from
and after the Closing Date, in the exercise of its reasonable credit judgment,
(i) to adjust any eligibility criteria or to establish new eligibility criteria
(which adjustment or new criteria may be more restrictive) with respect to
Eligible Equipment, Eligible On-Lease Inventory and Eligible Real Estate, and
(ii) establish reserves with respect to Eligible Equipment, Eligible On-Lease
Inventory and Eligible Real Estate, including without limitation, repair
reserves, reserves to assure payment of Liens, including Permitted Encumbrances
with respect thereto, and environmental remediation reserves with respect to
Eligible Real Estate.
1.8 Fees. (a) US Borrower shall pay to GE Capital,
individually, the fees specified in the GE Capital Fee Letter, at the times
specified for payment therein.
(b) As additional compensation for Lenders' costs and risks in
making the Revolving Credit Loan available to US Borrower, US Borrower agrees
to pay to Administrative Agent, for the ratable benefit of Lenders, in arrears,
on the first Business Day of each month prior to the Commitment Termination
Date and on the Commitment Termination Date, a fee for US Borrower's non-use of
available funds (the "Non-Use Fee") in an amount equal to the Applicable Line
Margin from time to time in effect (calculated on the basis of a 360-day year
for actual days elapsed) of the difference between the respective daily
averages of (i) the Maximum Revolving Credit Loan (as it may be adjusted from
time to time hereunder) and (ii) the amount of the Revolving Credit Loan and
Letter of Credit Obligations outstanding during the period for which the
Non-Use Fee is due.
(c) US Borrower shall pay to Administrative Agent, for the
ratable benefit of Lenders, Letter of Credit fees equal to the Applicable L/C
Margin from time to time in effect and expenses, all as set forth in Schedule
B.
1.9 Cash Management Systems. (a) US Borrower has
established and will maintain until the Termination Date, the cash management
systems described on Schedule E. All available funds received each day in US
Borrower's depository accounts shall be swept to the Collection Account and
applied to outstanding Obligations in accordance with Section 1.11.
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<PAGE> 17
(b) UK Borrower has established and will maintain until Term
Loan C has been paid in full, the cash management systems subject to a charge
in favor of Administrative Agent for the ratable benefit of Lenders. Unless
Administrative Agent shall elect to release such funds to UK Borrower, all
available funds received each day in UK Borrower's depository accounts shall be
swept to the Collection Account and applied against outstanding Obligations in
accordance with Section 1.11.
1.10 Receipt of Payments. Borrowers shall make each payment
under this Agreement not later than 12:00 noon (New York time) on the day when
due in lawful money of the United States of America in immediately available
funds to the Collection Account. For purposes of computing interest and fees
for either Borrower and for determining the amount of funds available for
borrowing by US Borrower pursuant to subsection 1.1(a), (a) all payments
(including cash sweeps) consisting of cash, wire or electronic transfers in
immediately available funds shall be deemed received on the date of deposit
thereof in the Collection Account and notice to Administrative Agent of such
deposit before the time specified above, and (b) all payments consisting of
checks, drafts, or similar non-cash items shall be deemed received on the day
of receipt of good funds following deposit of any such item of payment in the
Collection Account and notice to Administrative Agent of such deposit.
1.11 Application and Allocation of Payments. So long as any
Event of Default has occurred and is continuing, each Borrower irrevocably
waives the right to direct the application of any and all payments at any time
or times hereafter received from or on behalf of such Borrower and agrees that
Administrative Agent shall have the continuing exclusive right to apply any and
all such payments against the then due and payable Obligations of such Borrower
as the Requisite Lenders may deem advisable notwithstanding any previous entry
by Administrative Agent upon the Loan Account or any other books and records.
In the absence of a specific determination by the Requisite Lenders to the
contrary with respect to US Borrower, the same shall be applied in the
following order: (i) to then due and payable Fees and expenses; (ii) to then
due and payable interest payments; (iii) to then due and payable Obligations
other than Fees, expenses and interest and principal payments; and (iv) to the
principal balance of the Revolving Credit Loan. In the absence of a specific
determination by the Requisite Lenders to the contrary with respect to UK
Borrower, the same shall be applied in the following order: (i) to then due
and payable Fees and expenses; (ii) to then due and payable interest payments
on Term Loan C; (iii) to then due and payable Obligations other than Fees,
expenses and interest and principal payments; and (iv) to principal payments on
Term Loan C. Administrative Agent is authorized to, and at its option may,
charge to the Revolving Credit Loan balance on behalf of US Borrower amounts
equal to all Fees, expenses, Charges, costs or interest owing by US Borrower
under this Agreement or any of the other Loan Documents if and to the extent US
Borrower fails to promptly pay any such amounts as and when due, even if such
charges would cause total Revolving Credit Advances to exceed Borrowing
Availability or the Maximum Revolving Credit Loan amount. At Administrative
Agent's option and to the extent permitted by law, any charges so made shall
constitute part of the Revolving Credit Loan hereunder.
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1.12 Loan Account and Accounting. Administrative Agent shall
maintain a loan account (the "Loan Account") on its books to record: (a) all
Revolving Credit Advances and Term Loan C advances; (b) all payments made by
each Borrower, and (c) all other appropriate debits and credits as provided in
this Agreement with respect to the Revolving Credit Loan and Term Loan C or any
other Obligations. All entries in the Loan Account shall be made in accordance
with Administrative Agent's customary accounting practices as in effect from
time to time. Each Borrower shall pay all of its Obligations as such amounts
become due or are declared due pursuant to the terms of this Agreement.
The balance in the Loan Account, as recorded on Administrative
Agent's most recent printout or other written statement, shall be presumptive
evidence of the amounts due and owing to Administrative Agent and Lenders by
each Borrower; provided that any failure to so record or any error in so
recording shall not limit or otherwise affect such Borrower's obligations to
pay its Obligations. Administrative Agent shall render to US Borrower a
monthly accounting of transactions under the Revolving Credit Loan and Term
Loan C setting forth the balance of the Loan Account. Each and every such
accounting shall (absent manifest error) be deemed final, binding and
conclusive upon each Borrower in all respects as to all matters reflected
therein, unless US Borrower, within thirty (30) days after the date any such
accounting is rendered, shall notify Administrative Agent in writing of any
objection which Borrowers may have to any such accounting, describing the basis
for such objection with specificity. In that event, only those items expressly
objected to in such notice shall be deemed to be disputed by Borrowers.
Administrative Agent's determination, based upon the facts available, of any
item objected to by Borrowers in such notice shall (absent manifest error) be
final, binding and conclusive on Borrowers.
1.13 Indemnity. (a) Borrowers shall, jointly and severally,
indemnify and hold Administrative Agent, Lenders, their respective Affiliates,
and each such Person's respective officers, directors, employees, partners,
attorneys, agents and representatives (each, an "Indemnified Person"), harmless
from and against any and all suits, actions, proceedings, claims, damages,
losses, liabilities and expenses (including reasonable attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by any such Indemnified Person as the result of credit having been
extended under this Agreement and the other Loan Documents or in connection
with or arising out of the transactions contemplated hereunder and thereunder
or any actions or failures to act in connection therewith, including any and
all Environmental Liabilities and Costs (the "Indemnified Liabilities");
provided that neither Borrower shall be liable for any indemnification to such
Indemnified Person to the extent that any such suit, action, proceeding, claim,
damage, loss, liability or expense results solely from such Indemnified
Person's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction after all possible appeals have been exhausted.
To the extent that either Borrower is strictly liable under any Environmental
Laws, Borrowers' obligations to indemnify under this subsection 1.13(a) shall
likewise be without regard to fault on the part of Borrowers and without regard
to the violation of law which results in liability to Borrowers. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
subsection 1.13(a) may be unenforceable because it is violative of any law or
public policy, Borrowers shall contribute the
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maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all indemnified liabilities incurred by the
Indemnified Persons or any of them. Borrowers also agree to reimburse the
Indemnified Persons periodically for any accrued and unpaid Indemnified
Liabilities. Notwithstanding any other provision of this Agreement to the
contrary, the provisions of and undertakings and indemnifications set forth in
this subsection 1.13(a) shall survive the satisfaction and payment of the
Obligations and the termination of this Agreement, and shall continue to be the
liability, obligation and indemnification of Borrowers. All of the foregoing
costs and expenses shall be part of the Obligations and shall be secured by the
Collateral. NONE OF ADMINISTRATIVE AGENT, ANY LENDER, OR ANY OTHER INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON
ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN (OR HAVING NOT BEEN) EXTENDED OR TERMINATED UNDER THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
(b) Each Borrower hereby acknowledges and agrees that neither
Administrative Agent nor any Lender (i) is now, and has ever been, in control
of any of the Real Estate or any Borrower's or any Subsidiary's affairs, and
(ii) has the capacity through the provisions of the Loan Documents to influence
any Borrower's conduct with respect to the ownership, operation or management
of any of its Real Estate.
(c) Each Borrower understands that in connection with Lenders'
arranging to provide the LIBOR Rate interest option with respect to the
Revolving Credit Loan and Term Loan C from time to time at the option of either
Borrower on the terms provided herein, Lenders may enter into funding
arrangements with third parties ("Funding Arrangements") on terms and
conditions which could result in losses to such Lenders if such LIBOR Rate
funds do not remain outstanding at the interest rates provided herein for the
entire LIBOR Period with respect to which the LIBOR Rate has been fixed.
Consequently, in order to induce Lenders to provide such LIBOR Rate option on
the terms provided herein and in consideration of Lenders entering into such
Funding Arrangements from time to time, if any LIBOR Loans of a Borrower are
repaid in whole or in part prior to the last day of any such LIBOR Period
therefor (whether such repayment is made pursuant to any provision of this
Agreement or any other Loan Document or is the result of acceleration, by
operation of law or otherwise), such Borrower shall indemnify and hold harmless
each Lender from and against and in respect of any and all losses, costs and
expenses resulting from, or arising out of or imposed upon or incurred by such
Lender by reason of the liquidation or reemployment of funds acquired or
committed to be acquired by such Lender to fund such LIBOR Loans pursuant to
the Funding Arrangements. The amount of any losses, costs or expenses
resulting in an obligation of either Borrower to make a payment pursuant to the
foregoing sentence shall not include any losses attributable to lost profit to
Lenders but shall represent the excess, if any, of (A) such Lender's cost of
borrowing the LIBOR Rate funds pursuant to the Funding Arrangements over (B)
the return to such Lender on its reinvestment of such funds; provided that if
any Lender terminates any Funding
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Arrangements in respect of the LIBOR Loans, the amount of such losses, costs
and expenses shall include the cost to such Lender of such termination. In
reinvesting any funds borrowed by any Lender pursuant to the Funding
Arrangements, such Lender shall take into consideration the remaining maturity
of such borrowings. As promptly as practicable under the circumstances, each
Lender shall provide the applicable Borrower with its written calculation of
all amounts payable pursuant to the next preceding sentence, and such
calculation shall be final, conclusive and binding on the parties hereto absent
manifest error.
1.14 Access. (a) Each Borrower shall provide full access
during normal business hours, from time to time upon one (1) Business Day's
prior notice, to Administrative Agent and any of its officers, employees and
agents, as frequently as Administrative Agent determines, in its reasonable
discretion, to be appropriate (unless a Default or Event of Default shall have
occurred and be continuing, in which event Administrative Agent and its
officers, employees, designees, agents and representatives shall have access at
any and all times and without any advance notice), and to any Lender upon one
(1) Business Day's prior notice and the consent of such Borrower, which consent
shall not be unreasonably withheld, to the properties, facilities, books,
records, advisors and employees (including officers) of such Borrower and its
Subsidiaries, to its Collateral, to the accountants (including Ernst & Young)
of such Borrower and its Subsidiaries and to the work papers of such
accountants and, upon the occurrence of an Event of Default and during the
continuance thereof, suppliers and customers. Without limiting the generality
of the foregoing, each Borrower shall (i) permit Administrative Agent, and any
of its officers, employees, agents and representatives, to inspect, audit and
make extracts from all of such Borrower's and its Subsidiaries' corporate or
partnership records, files and books of account and (ii) permit Administrative
Agent, and any of its officers, employees, agents and representatives, to
inspect, review and evaluate the Accounts, Inventory at such Borrower's and its
Subsidiaries' locations and at premises not owned by or leased to such Borrower
or Subsidiary. Each Borrower shall make available to Administrative Agent and
its counsel, as quickly as is possible under the circumstances, originals or
copies of all books, records, board minutes, contracts, insurance policies,
environmental audits, business plans, files, financial statements (actual and
pro forma), filings with federal, state and local regulatory agencies, and
other instruments and documents which Administrative Agent may request. Each
Borrower shall deliver any document or instrument necessary for Administrative
Agent, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for such Borrower, and shall
maintain duplicate records or supporting documentation on media, including
computer tapes and discs owned by such Borrower. Each Borrower shall instruct
their certified public accountants to make available to Administrative Agent
such information and records as Administrative Agent may request. So long as
no Event of Default shall have occurred and be continuing, Administrative Agent
will give notice to US Borrower of any such request promptly after such request
has been made; provided that the failure to give such notice shall not
invalidate Administrative Agent's request to the accountants.
(b) A fee of $650 per day per individual (plus all reasonable
out-of-pocket costs and expenses) in connection with Administrative Agent's
field examinations permitted under subsection 1.14(a) and subsection 4(c) of
the Security Agreement shall be charged against the
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Revolving Credit Loan in connection with each field audit conducted by
Administrative Agent after the Closing Date; provided that so long as no
Default or Event of Default shall have occurred and be continuing, Borrowers
shall not be responsible for reimbursing Administrative Agent for the cost of
more than one (1) field examination in any twelve (12) month period.
1.15 Taxes. (a) Any and all payments by either Borrower
hereunder or under the Amended Revolving Credit Notes or the Amended Term C
Notes shall be made in accordance with this Section 1.15, without set-off or
counterclaim and free and clear of and without deduction for any and all
present or future Taxes. If any Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder or under the Amended
Revolving Credit Notes or the Amended Term C Notes, (i) the sum payable shall
be increased as much as shall be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.15) Administrative Agent or Lenders, as applicable, receive an
amount equal to the sum they would have received had no such deductions been
made, (ii) such Borrower shall make such deductions, and (iii) such Borrower
shall pay the full amount deducted to the relevant taxing or other authority in
accordance with applicable law.
(b) Each Borrower shall indemnify and pay, within thirty (30)
days of demand therefor, Administrative Agent and each Lender for the full
amount of Taxes (including any Taxes imposed by any jurisdiction on amounts
payable under this Section 1.15) paid by Administrative Agent or such Lender,
as appropriate, and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted. Upon payment to Administrative Agent of the
full amount of such Taxes, Borrowers shall be entitled to contest such Taxes
and retain all refunds with respect thereto.
(c) Within thirty (30) days after the date of any payment of
Taxes pursuant to subsection 1.15(a), US Borrower shall furnish to
Administrative Agent, at its address referred to in Section 11.10, (i) with
respect to domestic Taxes, the original or a certified copy of a receipt
evidencing payment thereof and (ii) with respect to foreign Taxes, a certified
copy of the payment instrument and, within two(2) Business Days of receipt
thereof, the original or a certified copy of a receipt evidencing payment
thereof.
1.16 Capital Adequacy; Increased Costs; Illegality. (a) In the
event that any Lender shall have determined that the adoption after the Closing
Date of any law, treaty, governmental (or quasi-governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by any Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) from any central bank or governmental agency or
body having jurisdiction does or would have the effect of increasing the amount
of capital, reserves or other funds required to be maintained by such Lender or
any Person controlling such Lender and thereby reducing the rate of return on
such Person's capital as a consequence of its obligations hereunder, then
Borrowers shall from time to time within fifteen (15) days after notice and
demand on US Borrower by such Lender (together with
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the certificate referred to in the next sentence and with a copy to
Administrative Agent) pay to Administrative Agent, for the account of such
Lender, additional amounts sufficient to compensate such Lender for such
reduction. A certificate as to the amount of such cost and showing the basis
of the computation of such cost submitted by such Lender to US Borrower and
Administrative Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.
(b) If, due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation 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 Lender of agreeing to make or the making, funding or maintaining of
any Loan, then Borrowers shall from time to time, upon demand by such Lender
(with a copy of such demand to Administrative Agent), pay to Administrative
Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost. A certificate as to the amount
of such increased cost, submitted to US Borrower and Administrative Agent by
such Lender, shall be conclusive and binding on Borrowers for all purposes,
absent manifest error. Each Lender agrees that, as promptly as practicable
after it becomes aware of any circumstances referred to in clause (i) or (ii)
above which would result in any such increased cost to such Lender, such Lender
shall, to the extent not inconsistent with such Lender's internal policies of
general application, use reasonable commercial efforts to minimize costs and
expenses incurred by it and payable to it by Borrowers pursuant to this
subsection 1.16(b).
(c) Notwithstanding anything to the contrary contained herein,
if the introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for any Lender to agree to make or
to make or to continue to fund or maintain any LIBOR Loan, then, unless such
Lender is able to agree to make or to make or to continue to fund or to
maintain such LIBOR Loan at another branch or office of such Lender without, in
such Lender's opinion, adversely affecting it or its Loans or the income
obtained therefrom, on notice thereof and demand therefor by such Lender to
Borrowers through Administrative Agent, (i) the obligation of such Lender to
agree to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) each Borrower shall forthwith prepay in full all outstanding
LIBOR Loans, together with interest accrued thereon, of such Lender unless
Borrowers, within five (5) Business Days after the delivery of such notice and
demand, convert all such Loans into a Loan bearing interest based on the Index
Rate.
(d) Upon the Administrative Agent obtaining actual knowledge
of the occurrence of any of the events set forth in this Section 1.16,
Administrative Agent shall promptly notify US Borrower of the occurrence of
such event. Borrowers shall have the right within five (5) days of receipt of
such notice to convert any outstanding LIBOR Loans to Index Rate Loans;
provided that Borrowers shall be liable for breakage costs as provided in
subsection 1.13(c).
(e) Foreign Lenders. Each Lender organized under the laws of
a jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under the Notes are exempt from
United States withholding tax or are subject to
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United States withholding tax at a reduced rate under an applicable statute or
tax treaty shall provide to US Borrower and Administrative Agent a properly
completed and executed Internal Revenue Service Form 4224 or Form 1001 or other
applicable form, certificate or document prescribed by the Internal Revenue
Service or the United States certifying as to such Foreign Lender's entitlement
to such exemption or reduced rate of withholding with respect to payments to be
made to such Foreign Lender under this Agreement and under the Notes (a
"Certificate of Exemption"). Prior to becoming a Lender under this Agreement
and within fifteen (15) days after a reasonable written request of US Borrower
or Administrative Agent from time to time thereafter, each Foreign Lender that
becomes a Lender under this Agreement shall provide a Certificate of Exemption
to US Borrower and Administrative Agent. No Person may become a Lender
hereunder if such Person is unable to deliver a Certificate of Exemption.
If a Foreign Lender does not provide a Certificate of Exemption
to Borrowers and Administrative Agent within the time periods set forth in the
preceding paragraph, Borrowers shall withhold taxes from payments to such
Foreign Lender at the applicable statutory rate and Borrowers shall not be
required to pay any additional amounts as a result of such withholding;
provided that all such withholding shall cease upon delivery by such Foreign
Lender of a Certificate of Exemption to US Borrower and Administrative Agent.
1.17 Effect of Amendment and Restatement. This Agreement
amends and restates in its entirety the Prior Credit Agreement and upon the
effectiveness of this Agreement, the terms and provisions of the Prior Credit
Agreement shall be superseded hereby. The Obligations outstanding under the
Prior Credit Agreement that remain outstanding upon the effectiveness of this
Agreement shall constitute Obligations hereunder governed by the terms hereof
and shall continue to be secured by the Collateral. Such Obligations shall be
continuing in all respects, and this Agreement shall not be deemed to evidence
or result in a novation or repayment and re-borrowing of those Obligations.
All references to the "Credit Agreement" contained in the Loan Documents
delivered in connection with the Prior Credit Agreement shall be deemed to
refer to this Amended and Restated Credit Agreement without further amendment
of those Loan Documents.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Effectiveness of Agreement.
Notwithstanding any other provision of this Agreement and without
affecting in any manner the rights of Administrative Agent and Lenders
hereunder, this Agreement shall not become effective until the following
conditions have been satisfied, in Administrative Agent's sole discretion
(including the delivery of documents in form and substance satisfactory to the
Administrative Agent). If the Closing Date does not occur on or prior to
December 31, 1996, this Agreement shall be void ab initio and of no force or
effect and the Prior Credit Agreement shall continue to govern the Obligations
outstanding thereunder.
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(a) Credit Agreement. This Agreement or counterparts hereof
shall have been duly executed by, and delivered to, Borrowers, Administrative
Agent and Lenders.
(b) Loan Documents. Administrative Agent shall have received
such reaffirmations of guaranties, and other documents, instruments, agreements
and legal opinions as Administrative Agent shall request in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
including all reaffirmations of guaranties, and other documents, instruments,
agreements and legal opinions listed in the Schedule of Documents attached
hereto as Schedule F, each in form and substance satisfactory to the
Administrative Agents.
(c) IPO. The IPO shall have been consummated; all of the Net
Proceeds thereof shall have been contributed to the equity of US Borrower, and
US Borrower shall have used the Net Proceeds to pay Indebtedness and the costs,
fees and expenses of the Related Transactions.
(d) Term Loans A and B and Subordinated Loan. Term Loan A,
Term Loan B and the Subordinated Loan (as each such term is defined in the
Prior Credit Agreement), together with all interest, fees and expenses accrued
or payable with respect thereto, shall have been paid in full.
(e) Payment of Fees. US Borrower shall have paid to GE
Capital the fees required to be paid on the Closing Date in the respective
amounts specified in the GE Capital Fee Letter.
(f) Officer's Certificate. Administrative Agent shall have
received duly executed originals of a certificate of the Chief Executive
Officer, Chief Financial Officer or Treasurer of US Borrower, dated the Closing
Date, stating that since December 31, 1995, (i) there has been no material
adverse change in the aggregate in the business, assets, liabilities, results
of operations, financial or other condition or prospects of Borrowers taken as
a whole; (ii) no litigation has been commenced which, if successful, would have
a Material Adverse Effect or would challenge any of the transactions
contemplated by this Agreement and the other Loan Documents; (iii) there have
been no distributions to either of the Partners; and (iv) there has been no
material increase in liabilities, liquidated or contingent, and no material
decrease in assets of the Borrowers taken as a whole.
(g) Financial Condition. Borrowers shall have provided
Administrative Agent and Lenders with their current operating statements, a
consolidated and consolidating balance sheet and statement of cash flows,
projections and a Borrowing Base Certificate certified by each Borrower's Chief
Executive Officer, Chief Financial Officer or Treasurer, in each case in form
and substance satisfactory to the Administrative Agent, and the Administrative
Agent shall be satisfied, in their sole discretion, with all of the foregoing,
including:
(i) the Pro Forma as of the Closing Date in accordance with
Section 3.4 hereof;
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(ii) Projections in accordance with Section 3.4 hereof; and
(iii) a certificate of the Chief Executive Officer, Chief
Financial Officer or Treasurer of US Borrower, based on such Pro Forma
and Projections, to the effect that (A) the Pro Forma fairly presents
the financial condition of US Borrower and the Subsidiaries as of the
date thereof after giving effect to the transactions contemplated by
this Agreement; and (B) the Projections are reasonable estimates of the
future financial performance of US Borrower and the Subsidiaries
subsequent to the date thereof.
(h) Corporate Proceedings. All corporate, partnership and
legal proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Administrative Agent, and
Administrative Agent shall have received all information and copies of all
documents and papers which Administrative Agent or any Lender may have
requested in connection therewith, and such documents and papers, where
appropriate, shall be certified by proper corporate or partnership officers or
Governmental Authorities.
(i) Total Expenses. Total fees, costs and expenses of the
Related Transactions (excluding fees paid to Administrative Agent and Lenders
and underwriters' discounts and commissions paid to non-Affiliates) payable on
the Closing Date shall not exceed $1,000,000.
(j) Partnership Agreement. Administrative Agent shall have
received a copy, certified on the Closing Date by the Chief Executive Officer,
Chief Financial Officer or Treasurer of US Borrower, of the Partnership
Agreement.
2.2 Further Conditions to Each Revolving Credit Advance and
Term Loan C Advance. It shall be a further condition to the initial and each
subsequent Revolving Credit Advance and Term Loan C advance, as the case may
be, and to the incurrence of the initial and any subsequent Letter of Credit
Obligations that the following statements shall be true on the date of each
such advance or funding, as the case may be:
(a) All of Borrowers' representations and warranties contained
herein or in any of the other Loan Documents shall be true and correct on and
as of the Closing Date and the date on which each such Revolving Credit Advance
or Term Loan C advance is made (or such Letter of Credit Obligations are
incurred) as though made on and as of such date, except to the extent that any
such representation or warranty expressly relates to an earlier date and except
for changes therein expressly permitted or expressly contemplated by this
Agreement.
(b) No Material Adverse Effect shall have occurred since the
Closing Date.
(c) No event shall have occurred and be continuing, or would
result from the making of any Revolving Credit Advance (or the incurrence of
any Letter of Credit Obligations), which constitutes or would constitute a
Default or an Event of Default.
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(d) After giving effect to such Revolving Credit Advance, Term
Loan C advance or such Letter of Credit Obligations the aggregate principal
amount of the Revolving Credit Loan shall not exceed the maximum amount
permitted by subsection 1.3(a) without requiring that a payment be made to
Administrative Agent or any Lender.
The request and acceptance by US Borrower or UK Borrower of the proceeds of any
Revolving Credit Advance or Term Loan C advance, respectively, or the
incurrence of any Letter of Credit Obligations shall be deemed to constitute,
as of the date of such request or acceptance, (i) a representation and warranty
by Borrowers that the conditions in this Section 2.2 have been satisfied and
(ii) a reaffirmation by Borrowers of the granting and continuance of
Administrative Agent's Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make or continue the Revolving Credit Loan
and Term Loan C and to incur or continue Letter of Credit Obligations, each
Borrower makes the following representations and warranties to Administrative
Agent and each Lender as of and after the Closing Date (unless another date is
otherwise specifically referenced), each and all of which shall survive the
execution and delivery of this Agreement.
3.1 Existence and Standing; Compliance with Law. US Borrower
is a duly organized Delaware limited partnership, validly existing and in good
standing under the laws of Delaware and has been duly qualified to conduct
business and is in good standing in each jurisdiction where it owns or leases
Real Estate and in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has been duly
qualified to conduct business and is in good standing in each other
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification. UK Borrower is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation. Each Borrower and each Subsidiary (i) has the requisite power
and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease and to conduct its business as now, heretofore and proposed to be
conducted; (ii) has all licenses, permits, consents or approvals from or by,
and has made all filings with, and has given all notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (iii) is in compliance with the Partnership Agreement or
its certificate or articles of incorporation and by-laws, or its Memorandum and
Articles of Association or comparable organizational documents, as applicable;
and (v) is in compliance with all applicable provisions of law where the
failure to comply could have a Material Adverse Effect.
3.2 Chief Executive Offices. The current location of each
Borrower's chief executive office and principal place of business is set forth
in Schedule 3.2.
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3.3 Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by Holdings, each Borrower and each
Subsidiary of the Loan Documents to which it is a party and all other
instruments and documents to be delivered by each such Person, and the creation
of all Liens provided for therein: (i) are within such Person's power; (ii)
have been duly authorized by all necessary or proper corporate or partnership
action, as applicable, and shareholder or partner approval, as applicable;
(iii) are not in contravention of any provision of the Partnership Agreement or
such Person's certificate or articles of incorporation or by-laws or its
memorandum and articles of association or comparable organizational documents,
as applicable; (iv) will not violate any law or regulation, or any order or
decree of any court or governmental instrumentality; (v) will not conflict with
or result in the breach or termination of, constitute a default under or
accelerate any performance required by, any indenture, mortgage, deed of trust,
lease, agreement or other instrument to which such Person is a party or by
which such Person or any of its property is bound; (vi) will not result in the
creation or imposition of any Lien upon any of the property of such Person
other than those in favor of Administrative Agent, on behalf of itself and
Lenders, all pursuant to the Loan Documents; and (vii) do not require the
consent or approval of any Governmental Authority or any other Person. On or
prior to the Closing Date, each of the Loan Documents shall have been duly
executed and delivered for the benefit of or on behalf of Holdings, each
Borrower and each Subsidiary (as applicable) and each Loan Document shall then
constitute a legal, valid and binding obligation of Holdings, each Borrower and
such Subsidiary, to the extent it is a party thereto, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the rights of creditors
generally or by application of general principles of equity.
3.4 Financial Statements and Projections. The financial
statements (the "Financial Statements"), except for the Projections, concerning
Holdings, Borrowers and the Subsidiaries which are referenced below have been
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein and except, with respect to unaudited
financial statements, for the absence of footnotes and normal year-end audit
adjustments) and do present fairly in all material respects the financial
condition of the Persons covered thereby as at the dates thereof and the
results of their operations for the periods then ended:
(a) The unaudited balance sheet of Holdings on a consolidated
and consolidating basis as of August 31, 1996, delivered on the Closing Date
and attached hereto as Schedule 3.4(a).
(b) The Pro Forma delivered on the Closing Date and attached
hereto as Schedule 3.4(b) was prepared by US Borrower assuming the consummation
of the Related Transactions and based on the unaudited consolidated balance
sheet of Holdings dated August 31, 1996; the underlying balance sheet was
prepared in accordance with GAAP, with only such adjustments thereto as would
be required to reflect the Related Transactions.
(c) The Projections of Holdings and its Subsidiaries delivered
on the Closing Date and attached hereto as Schedule 3.4(c) for the period from
October 1, 1996 through December 31, 1996 and for the three Fiscal Years
thereafter, after giving effect to the Related Transactions.
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3.5 Collateral Reports. Borrowers have delivered the
Collateral Reports identified on Schedule H and each such Collateral Report
complies with the description thereof contained on Schedule H.
3.6 Material Adverse Effect. Since December 31, 1995,
Borrowers and the Subsidiaries, taken as a whole have not in the aggregate
incurred any obligations, contingent liabilities, liabilities for Charges,
long-term leases or unusual forward or long-term commitments which are not
reflected in the pro forma balance sheet of Borrowers and the Subsidiaries and
which could, alone or in the aggregate, have or result in a Material Adverse
Effect. No Material Adverse Effect has occurred between December 31, 1995 and
the Closing Date.
3.7 Ownership of Property; Liens. The real estate ("Real
Estate") listed on Schedule 3.7 constitutes all of the real property owned or
leased by Borrowers and the Material Subsidiaries or where any Collateral is
located (other than Inventory in transit). Each Borrower and each Material
Subsidiary (i) owns good and marketable fee simple title to all of its owned
Real Estate, and valid and marketable leasehold interests in all of its Leases
(both as lessor and lessee, sublessor and sublessee or assignee), all as
described on Schedule 3.7, and (ii) has, with respect to US Borrower, good and
marketable title to, or valid leasehold interests in, all of its other
properties and assets and, with respect to UK Borrower, beneficial ownership
with full title guarantee of all of its other properties and assets. Neither
General Partner nor Limited Partner owns any assets or property other than its
partnership interest in US Borrower, and on and after the Closing Date neither
will own any other assets or property. NOW International owns no assets or
property other than the capital stock of the Subsidiaries described on Schedule
3.10 and on and after the Closing Date will not own any other assets or
property. None of the properties and assets of Borrowers or any Material
Subsidiary are subject to any Liens, except Permitted Encumbrances; and each
Borrower or Subsidiary has received all deeds, assignments, waivers, consents,
non-disturbance and recognition or similar agreements, bills of sale and other
documents, and duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Borrower's or Subsidiary's,
right, title and interest in and to all such Real Estate and other assets or
property. The estimated fair market value of each parcel of owned Real Estate
is set forth on Schedule 3.7. Except as described on Schedule 3.7, (i) neither
of the Borrowers and no Material Subsidiary and no other party to any such
Lease described on Schedule 3.7 is in default of its obligations thereunder or
has delivered or received any notice of default under any such Lease (which has
not been waived or cured), and no event has occurred which, with the giving of
notice, the passage of time or both, would constitute a default under any such
Lease; (ii) neither of the Borrowers and no Material Subsidiary owns or holds
or is obligated under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or dispose of any
Real Estate owned or leased by such Borrower or Subsidiary except as set forth
in Schedule 3.7; and (iii) no portion of any Real Estate owned or leased by
either Borrower or any Material Subsidiary has suffered any material damage by
fire or other casualty loss or a Release which has not heretofore been
completely repaired and restored to its original condition or is being
remedied. All material permits required to have been issued or appropriate to
enable the Real Estate owned or leased by such Borrower or Subsidiary to
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be lawfully occupied and used for all of the purposes for which they are
currently occupied and used, have been lawfully issued and are, as of Closing
Date, in full force and effect.
3.8 Restrictions; No Default. No contract, lease, agreement
or other instrument to which either Borrower or any Material Subsidiary is a
party or by which it or any of its properties or assets is bound or affected
and no provision of applicable law or governmental regulation has or results in
a Material Adverse Effect, or could have or result in a Material Adverse
Effect. Neither of the Borrowers and no Material Subsidiary is in default in
any material respect and, to such Borrower's knowledge, no third party is in
default, under or with respect to any material contract, agreement, lease or
other instrument to which it is a party.
3.9 Labor Matters. No strikes or other labor disputes against
either Borrower or any Material Subsidiary are pending or, to either Borrower's
knowledge, threatened. Hours worked by and payment made to employees of US
Borrower have not been in violation of the Fair Labor Standards Act. All
payments due from such Borrower or its Material Subsidiaries on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of such Person. Except as set forth in Schedule 3.9, neither of
the Borrowers and none of the Material Subsidiaries has any obligations under
any collective bargaining agreement or any employment agreement. There is no
organizing activity involving either Borrower or any Material Subsidiary
pending or, to either Borrower's knowledge, threatened by any labor union or
group of employees. Except as set forth in Schedule 3.9, there are no
representation proceedings pending or, to either Borrower's knowledge,
threatened with the National Labor Relations Board, and no labor organization
or group of employees of either Borrower or any Material Subsidiary has made a
pending demand for recognition. Except as set forth in Schedule 3.9, there are
no complaints or charges against any Borrower or any Material Subsidiary
pending or threatened to be filed with any federal, state, local or foreign
court, governmental agency or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by any Borrower or any Material Subsidiary.
3.10 Ventures, Subsidiaries and Affiliates; Outstanding Stock
and Indebtedness. Except as set forth in Schedule 3.10, neither Holdings nor
either Borrower has any Subsidiaries, is engaged in any joint venture or
partnership with any other Person, or is an Affiliate of any other Person.
Other than the Material Subsidiaries, no Subsidiary of either Borrower has
assets with a value in excess of $500,000. All of the issued and outstanding
Stock of each Borrower and each Subsidiary is owned by each of the stockholders
named on Schedule 3.10. No Partner's interest in US Borrower is subject to any
option, warrant, interest, right to call or commitment of any kind or
character. Except as set forth in the Shareholders Agreement, there are no
outstanding rights to subscribe or purchase, options, warrants or similar
rights or agreements pursuant to which either Borrower or any Subsidiary may be
required to issue or sell any Stock or other equity security of itself or any
of its Subsidiaries. As of the Closing Date, all outstanding Indebtedness of
each Borrower and the Subsidiaries is described in Section 6.3 (including
Schedule 6.3).
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3.11 Government Regulation. Neither of the Borrowers and no
Material Subsidiary is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940 as amended. Neither of
the Borrowers and no Material Subsidiary is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, or any other
federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder, and the making or
continuation of the Revolving Credit Advances and Term Loan C by Lenders, the
incurrence or continuation of the Letter of Credit Obligations, the application
of the proceeds thereof and repayment thereof by either Borrower and the
consummation of the transactions contemplated by this Agreement and the other
Loan Documents will not violate any provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange Commission.
3.12 Margin Regulations. Neither of the Borrowers and no
Material Subsidiary is engaged, nor will it engage, principally or as one of
its important activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin security" as such term is defined in
Regulation U or G of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") as now and from time to time hereafter in effect (such
securities being referred to herein as "Margin Stock"). Neither of the
Borrowers and no Material Subsidiary owns any Margin Stock, and the proceeds of
the Revolving Credit Advances and Term Loan C will not be used, directly or
indirectly, for the purpose of purchasing or carrying any Margin Stock, for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry any Margin Stock or for any other purpose which might
cause any of the loans or other extensions of credit under this Agreement to be
considered a "purpose credit" within the meaning of Regulation G, T, U or X of
the Federal Reserve Board.
3.13 Taxes. Except as described on Schedule 3.13, all federal,
state, local and foreign tax returns, reports and statements, including, but
not limited to, information returns required to be filed by Holdings, each
Partner, each Borrower or any Material Subsidiary, have been filed with the
appropriate Governmental Authority and all Charges and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment
thereof (or any such fine, penalty, interest, late charge or loss has been
paid), and Holdings, each Partner, each Borrower and each Material Subsidiary
has paid when due and payable all Charges required to be paid by it excluding,
in each case, Charges or other amounts being contested in accordance with
Section 5.2(b). Proper and accurate amounts have been withheld by each
Borrower or each Material Subsidiary from its respective employees for all
periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. Schedule 3.13 sets forth as of the Closing Date
those taxable years for which Holdings', either Partner's, or US Borrower's tax
returns are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit, or otherwise currently outstanding. Except as
described on Schedule 3.13, Holdings, the Partners and US Borrower have not
executed or filed with the IRS any agreement or other document extending, or
having the effect of extending, the
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period for assessment or collection of any Charges. Neither Holdings,
Borrowers, any Material Subsidiary nor the Acquired Companies are liable for
any Charges: (i) under any agreement (including, without limitation, any tax
sharing agreements) or (ii) to the best of each Borrower's or each Material
Subsidiary's knowledge, as a transferee other than as a result of the
transactions contemplated by the Purchase Agreement. As of the Closing Date,
none of Holdings, either Partner, US Borrower, any Material Subsidiary or the
Acquired Companies has agreed or been requested to make any adjustment under
IRC Section 481(a) by reason of a change in accounting method or otherwise
which would have a Material Adverse Effect.
3.14 ERISA. (a) Schedule 3.14 lists all Plans maintained or
contributed to by either Borrower or any Subsidiary and all Qualified Plans
maintained or contributed to by any ERISA Affiliate, and separately identifies
the Title IV Plans, Multiemployer Plans, any multiple employer plans subject to
Section 4064 of ERISA, unfunded Pension Plans, Welfare Plans and Retiree
Welfare Plans. Each Qualified Plan has been determined by the IRS to qualify
under Section 401 of the IRC, and the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the
IRC, and, except as set forth in Schedule 3.14, to the best knowledge of each
Borrower, nothing has occurred which would cause the loss of such qualification
or tax-exempt status. Each Plan is in compliance with the applicable
provisions of ERISA and the IRC, including the filing of reports required under
the IRC or ERISA except where a failure to comply would not have a Material
Adverse Effect, and with respect to each Plan, other than a Qualified Plan, all
required contributions and benefits have been paid in accordance with the
provisions of each such Plan. Neither of the Borrowers, and no Subsidiary or
ERISA Affiliate thereof, with respect to any Qualified Plan, has failed to make
any contribution or pay any amount due as required by Section 412 of the IRC or
Section 302 of ERISA or the terms of any such Plan. With respect to all
Retiree Welfare Plans, the present value of future anticipated expenses
pursuant to the latest actuarial projections of liabilities does not exceed
$4,000,000, and copies of such latest projections have been provided to
Administrative Agent; with respect to Pension Plans, other than Qualified
Plans, the present value of the liabilities for current participants thereunder
using PBGC interest assumptions does not exceed $1,000,000. Neither of the
Borrowers and no Subsidiary or ERISA Affiliate thereof has engaged in a
prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of
ERISA, in connection with any Plan, which would subject either Borrower or any
Subsidiary (after giving effect to any exemption) to a material tax on
prohibited transactions imposed by Section 4975 of the IRC or any other
material liability.
(b) Except as set forth in Schedule 3.14: (i) no Title IV Plan
has any Unfunded Pension Liability; (ii) no ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge
of US Borrower, threatened claims, actions or lawsuits (other than claims for
benefits in the normal course), asserted or instituted against (x) any Plan or
its assets, (y) any fiduciary with respect to any Plan or (z) either Borrower,
any Subsidiary or any ERISA Affiliate with respect to any Plan wherein the
amount at issue exceeds $100,000; (iv) neither US Borrower nor any ERISA
Affiliate thereof has incurred or reasonably expects to incur any withdrawal
liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in
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such liability) under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multiemployer Plan; (v) within the last five years
neither US Borrower, any Subsidiary nor any ERISA Affiliate thereof has engaged
in a transaction which resulted in a Title IV Plan with Unfunded Pension
Liabilities being transferred outside of the "controlled group" (within the
meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which
is a Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment (except as may be required by Section 4980B of the
IRC and at the sole expense of the participant or the beneficiary of the
participant); (vii) US Borrower, each Subsidiary and each ERISA Affiliate have
complied with the notice and continuation coverage requirements of Section
4980B of the IRC and the regulations thereunder except where the failure to
comply could not have or result in any Material Adverse Effect; and (viii) no
liability under any Plan of US Borrower has been funded, nor has such
obligation been satisfied, with the purchase of a contract from an insurance
company that is not rated AAA by the Standard & Poor's Corporation or the
equivalent by another nationally recognized rating agency. Schedule 3.14 lists
all pension plans maintained or contributed to by the Material Subsidiaries
(other than NOW International). Each such Plan is in compliance in all
material respects with all applicable laws, and, with respect to each such
Plan, all required contributions and benefits have been paid in accordance with
the provisions of such plans. No such Material Subsidiary has taken any action
or engaged in any transaction which would subject such Person to any material
liability with respect to any such plans.
3.15 No Litigation. Except as set forth in Schedule 3.15, no
action, claim or proceeding involving claims in excess of $250,000 is now
pending or, to the best knowledge of either Borrower, threatened in writing
against the Acquired Companies or against such Borrower or any Subsidiary,
before any court, board, commission, agency or instrumentality of any federal,
state, local or foreign government or of any agency or subdivision thereof, or
before any arbitrator or panel of arbitrators, nor, to the best knowledge of
either Borrower, does a state of facts exist which is reasonably likely to give
rise to such action, claim or proceedings. None of the actions, claims or
proceedings set forth in Schedule 3.15 (i) challenges such Borrower's or such
Subsidiary's right or power to enter into or perform any of its obligations
under the Loan Documents, or the validity or enforceability of any Loan
Document or any action taken thereunder, or (ii) if determined adversely, would
have or result in a Material Adverse Effect. Schedule 3.15 sets forth
summaries of Holdings and its Subsidiaries' liability reserves taken in
accordance with GAAP as of June 1, 1996 for each of the following: (i) workers
compensation, (ii) vehicle accidents, (iii) general liability, (iv) product
liability, (v) domestic warranty claims and (vi) foreign warranty claims. To
the best of Borrowers' knowledge, the reserves on the books of Holdings and its
Subsidiaries are adequate to cover all litigation pending or threatened in
writing with respect to Holdings and its Subsidiaries as of the Closing Date.
3.16 Brokers. Except as set forth in Schedule 3.16, no broker
or finder acting on behalf of Holdings, either Borrower or any Subsidiary
brought about the obtaining, making or closing of the loans made pursuant to
this Agreement or the transactions contemplated by the Loan Documents and none
of Holdings, either Borrower or any Subsidiary has obligations to any Person in
respect of any finder's or brokerage fees in connection therewith.
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3.17 Employment Matters. Except as set forth in Schedule 3.17,
there are no consulting or management agreements binding upon either Borrower
or any Material Subsidiary in excess of $250,000 in any Fiscal Year which
cannot be canceled without liability or any employment contracts binding upon
either Borrower or any Material Subsidiary with any management employee or
Affiliate of Holdings. A true and complete copy of each such agreement has
been furnished to Administrative Agent.
3.18 Patents, Trademarks, Copyrights and Licenses. Except as
otherwise set forth in Schedule 3.18, each Borrower and each Material
Subsidiary owns all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, and trade names
necessary to continue to conduct its business as heretofore conducted by it or
proposed to be conducted by it, each of which is listed, together with
Copyright Office or Patent and Trademark Office application or registration
numbers, where applicable, on Schedule 3.18. Schedule 3.18 also lists all
material tradenames or other names under which either Borrower or any Material
Subsidiary conducts business. Except as set forth in Schedule 3.18, to the
best of each Borrower's knowledge, neither the conduct of its business nor the
conduct of any Material Subsidiary's business infringes upon any intellectual
property right of any other Person.
3.19 Full Disclosure. No information contained in this
Agreement, any of the other Loan Documents, the Financial Statements, the
Collateral Reports or any written statement furnished by or on behalf of
Holdings, either Borrower, either Partner or any Subsidiary pursuant to the
terms of this Agreement, which has previously been delivered to Administrative
Agent, contained, contains or will contain any untrue statement of a material
fact or omitted, omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no fact known to either
Borrower (other than matters of a general economic nature) that has had or will
have a Material Adverse Effect and that has not been disclosed herein or in
such other documents, certificates and statements furnished to Administrative
Agent or Lenders for use in connection with the transactions contemplated by
this Agreement.
3.20 Hazardous Materials. As of the Closing Date, except as
set forth in Schedule 3.20, (i)the Real Estate is free of contamination from
any Hazardous Material except for contamination which will not materially
impact the value of an individual parcel of Real Estate with a value of
$1,000,000 or more, and (ii) each Borrower, its Subsidiaries and the Real
Estate are in compliance in all material respects with the Environmental Laws.
To the best of Borrowers' knowledge the aggregate costs of remediation and
removal for all Environmental Liabilities and Costs will not exceed $1,000,000
in any of the next three (3) Fiscal Years. Neither of the Borrowers and no
Subsidiary has caused or suffered to occur any Release with respect to any
Hazardous Material at, under, above or upon any Real Estate which Release could
reasonably be expected to have a material adverse impact on the value of an
individual parcel of Real Estate with a value of $1,000,000 or more. As of the
Closing Date, neither of the Borrowers and no Subsidiary is involved in
operations that are likely to result in the imposition of any Lien on its
assets or any material liability being imposed on such Borrower or such
Subsidiary, under any Environmental Law, and
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neither of the Borrowers and no Subsidiary has permitted any tenant or occupant
of such premises to engage in any such activity. Borrowers have provided to
Administrative Agent copies of all existing environmental reports, reviews and
audits prepared within the past year and all reasonably available and current
written information pertaining to actual or potential Environmental Liabilities
and Costs, in each case relating to either Borrower or any Subsidiary.
3.21 Insurance Policies. Schedule 3.21 lists all liability and
casualty insurance of any nature (other than freight insurance and non-material
policies of insurance regarding foreign Subsidiaries) maintained for current
occurrences by either Borrower or any Material Subsidiary, as well as a summary
of the terms of such insurance.
3.22 Deposit and Disbursement Accounts. Schedule 3.22 lists
all banks and other financial institutions at which either Borrower or any
Material Subsidiary maintains deposits and/or other accounts, including any
disbursement accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.
3.23 Government Contracts. Except as set forth in Schedule
3.23, none of the Accounts are subject to the Federal Assignment of Claims Act
(31 U.S.C. Section 3727).
3.24 Customer and Trade Relations. As of the Closing Date,
there exists no actual or threatened termination or cancellation of, or any
material adverse modification or change in: (a) the business relationship of
either Borrower or any Material Subsidiary with any customer or group of
customers whose purchases during the preceding twelve (12) months caused them
to be ranked among the ten largest customers of Borrowers and the Material
Subsidiaries taken as a whole; or (b) the business relationship of either
Borrower or any Material Subsidiary with any supplier material to the
operations of such Borrower or Subsidiary.
3.25 Agreements and Other Documents. As of the Closing Date,
Borrowers have provided or made available to Administrative Agent or its
counsel, on behalf of Lenders, accurate and complete copies (or summaries) of
all of the following agreements or documents to which either Borrower or any
Material Subsidiary is subject and each of which are listed on Schedule 3.25:
(a) Plans; (b) supply agreements with a term of one (1) year or more involving
receipts in excess of $1,000,000 not terminable by such Borrower or Subsidiary,
as appropriate, within sixty (60) days following written notice issued by such
Borrower or such Subsidiary; (c) purchase agreements with a term of one (1)
year or more involving payments of $1,000,000 or more and not terminable by
such Borrower or such Subsidiary, as appropriate, within 60 days following
written notice issued by such Borrower or such Subsidiary; (d) Leases involving
lease payments of more than $100,000 per annum; (e) any lease of equipment
having a remaining term of one year or longer involving lease payments of
$100,000 or more per annum; (f) all material licenses and permits necessary for
the conduct of such Borrower's or such Subsidiary's businesses; (g) instruments
or documents evidencing Indebtedness of such Borrower or such Subsidiary and
any security interest granted by such Borrower or such Subsidiary with respect
thereto; and (h) instruments and agreements evidencing
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the issuance of any equity securities, warrants, rights or options to purchase
equity securities of such Borrower or such Subsidiary.
3.26 Subordinated Debt. The subordination provisions of the
Sellers' Notes are enforceable against the holders of the Sellers' Notes by the
holder of any Notes. All Obligations, including the Obligations to pay
principal of and interest on the Loans and Letter of Credit Obligations,
constitute senior Indebtedness entitled to the benefits of subordination
created by the Sellers' Notes. The principal of and interest on the Notes, all
Letter of Credit Obligations and all other Obligations will constitute "senior
debt" as that or any similar term is or may be used in any other instrument
evidencing or applicable to any Subordinated Debt of US Borrower. The
consummation of the Related Transactions will not cause any principal or
interest to be due and payable with respect to the Sellers' Notes. Borrowers
acknowledge that the Administrative Agent and each Lender are entering into
this Agreement and are extending the Commitments in reliance upon the
subordination provisions of the Sellers' Notes and this Section 3.26.
3.27 Collateral. The Liens granted to Administrative Agent, on
behalf of itself and Lenders, pursuant to the Collateral Documents are fully
perfected first priority Liens in and to the Collateral described therein,
subject only to Liens set forth in Schedule 6.7 and the Liens granted to
Administrative Agent, on behalf of itself and Lenders, pursuant to the
Mortgages are fully perfected first priority Liens in and to the Mortgaged
Property described therein and Permitted Encumbrances. The amendment and
restatement of the Prior Credit Agreement in accordance herewith does not
affect the enforceability or priority of the Liens securing payment of the
Obligations.
3.28 FEIN. Schedule 3.28 lists the federal employer
identification number of US Borrower and each Subsidiary with such a number.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Borrowers each hereby covenant
and agree that from and after the Closing Date and until the Termination Date,
they shall deliver to Administrative Agent and/or Lenders, as required,
financial statements, notices and Projections at the times, to the Persons and
in the manner set forth in Schedule G.
(b) Borrowers each hereby covenant and agree that from and
after the Closing Date, they shall deliver to Administrative Agent and/or
Lenders, as required, the various Collateral Reports at the times, to the
Persons and in the manner set forth in Schedule H.
4.2 Communication with Accountants. Each Borrower authorizes
Administrative Agent and each Lender to communicate directly with its
independent certified public accountants, including Ernst & Young LLP, through
the partner in charge of Borrowers' account, and authorizes those accountants
and advisors to disclose to Administrative Agent and each Lender any and all
financial statements and other supporting financial documents and schedules
relating to any Borrower and its Subsidiaries (including, without limitation,
copies of any issued management
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letters) with respect to the business, financial condition and other affairs of
each Borrower and each Subsidiary. Each Borrower has obtained a letter from
such accountants, on which Administrative Agent is designated as a recipient,
acknowledging that such Borrower intends the financial statements certified by
such accountants to benefit or influence Lenders and that Lenders may rely upon
such certification.
5. AFFIRMATIVE COVENANTS
Borrowers each jointly and severally covenant and agree that,
without the prior written consent of Administrative Agent and the Requisite
Lenders, from and after the Closing Date and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each
Borrower shall, and shall cause each Material Subsidiary to: (a) do or cause to
be done all things necessary to preserve and keep in full force and effect its
partnership or corporate existence, as applicable, and its rights and
franchises; (b) continue to conduct its business substantially as now conducted
or as otherwise permitted hereunder; (c) at all times maintain, preserve and
protect all of its material copyrights, patents, trademarks, trade names and
all other material intellectual property and rights as licensee or licensor
thereof and preserve all the remainder of its assets and properties, used or
useful in the conduct of its business, and keep the same in good repair,
working order and condition (taking into consideration ordinary wear and tear)
and from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry
practices; and (d) transact business only in such corporate, partnership and
trade names as are set forth in Schedule 5.1.
5.2 Payment of Obligations. (a) Subject to Section 5.2(b),
each Borrower shall, and shall cause each Subsidiary to, pay and discharge or
cause to be paid and discharged promptly all (A) Charges imposed upon it, its
income and profits, or any of its property (real, personal or mixed), and (B)
lawful claims for labor, materials, supplies and services or otherwise, before
any thereof shall become past due.
(b) Each Borrower and any Subsidiary may in good faith
contest, by appropriate proceedings, the validity or amount of any Charges or
claims described in Section 5.2(a); provided that at the time of commencement
of any such action or proceeding, and during the pendency thereof (i) no
Default or Event of Default shall have occurred and be continuing, (ii)
adequate reserves with respect thereto are maintained on the books of such
Borrower or such Subsidiary, as the case may be, in accordance with GAAP, (iii)
such contest is maintained and prosecuted continuously and with diligence, (iv)
none of the Collateral becomes subject to forfeiture or loss as a result of
such Charges or claims, (v) no Lien shall be imposed to secure payment of such
Charges or claims other than inchoate tax liens, and (vi) such Borrower or such
Subsidiary, as the case may be, shall promptly pay or discharge such contested
Charges and all additional charges, interest, penalties and expenses, if any,
and such Borrower shall deliver to Administrative Agent evidence acceptable to
Administrative Agent of such compliance, payment or discharge, if such contest
is terminated or discontinued
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adversely to such Borrower or such Subsidiary, as the case may be, or the
conditions set forth in this Section 5.2(b) are no longer met.
5.3 Books and Records. Each Borrower shall keep adequate
records and books of account with respect to such Borrower's and the
Subsidiaries' business activities, in which proper entries, reflecting all
financial transactions, are made in accordance with GAAP and on a basis
consistent with the Financial Statements referred to in Schedule 3.4.
5.4 Litigation. Each Borrower shall notify Administrative
Agent in writing, promptly upon learning thereof, of any litigation commenced
or threatened against such Borrower or any Subsidiary, and of the institution
against it of any suit or administrative proceeding that (a) seeks damages of
$500,000 or more or (b) seeks injunctive relief.
5.5 Insurance. (a) Borrowers shall, at their sole cost and
expense, maintain existing or comparable policies of insurance described on
Schedule 3.21 (other than those, if any, designated as non-material on Schedule
3.21) in form and with insurers satisfactory to Administrative Agent. Such
policies shall be in such amounts as are set forth in Schedule 3.21. Borrowers
shall notify Administrative Agent promptly of any occurrence causing a material
loss or decline in value of either Borrower's or any Material Subsidiary's real
or personal property and the estimated (or actual, if available) amount of such
loss or decline. In the event either Borrower at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance required
above or to pay any premium in whole or in part relating thereto,
Administrative Agent, without waiving or releasing any Obligations or Default
or Event of Default hereunder, may at any time or times thereafter (but shall
not be obligated to) obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect thereto which
Administrative Agent deems advisable. All sums so disbursed, including
attorneys fees, court costs and other charges related thereto, shall be
payable, on demand, by Borrowers to Administrative Agent and shall be
additional Obligations hereunder secured by the Collateral; provided that, if
and to the extent Borrowers fail to promptly pay any of such sums upon demand
therefor, Administrative Agent is authorized to, and at its option may, make or
cause to be made Revolving Credit Advances on behalf of US Borrower for payment
thereof.
(b) Administrative Agent reserves the right at any time, upon
any change in either Borrower's risk profile (including, without limitation,
any change in the product mix maintained by either Borrower or any laws
affecting the potential liability of such Borrower), to require additional
forms and limits of insurance to, in Administrative Agent's reasonable opinion,
adequately protect both Administrative Agent and Lenders' interests in all or
any portion of the Collateral and to ensure that each Borrower and each
Subsidiary is protected by insurance in amounts and with coverage customary for
its industry. If requested by Administrative Agent, each Borrower shall
deliver to Administrative Agent from time to time a report of a reputable
insurance broker, satisfactory to Administrative Agent, with respect to its
insurance policies.
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(c) Borrowers shall deliver to Administrative Agent
certificates to (i) all "All Risk" and business interruption insurance naming
Administrative Agent, on behalf of itself and Lenders, as loss payee, and (ii)
all general liability and other liability policies (excluding directors' and
officers' insurance) naming Administrative Agent, on behalf of itself and
Lenders, as additional insured.
(d) Subject to the terms of this Section 5.5(d), so long as no
Default or Event of Default has occurred and is continuing, Borrowers are
hereby authorized by Administrative Agent and Lenders to settle, adjust or
compromise any claim up to $2,000,000 (i) under any property insurance required
to be carried by this Section 5.5 including the filing of appropriate
proceedings by Borrowers or their Subsidiaries and (ii) for the proceeds of any
award or payment with respect to any condemnation or other eminent domain
proceedings by any Governmental Authority. Borrowers or their Subsidiaries
shall have the right to use such proceeds to repair or replace the damaged or
destroyed property, provided that a Default or an Event of Default shall not
have occurred and be continuing at the time the proceeds are paid. If,
however, the proceeds of any such claim, award or payment, are greater than
$2,000,000 but not greater than $12,500,000, Borrowers shall settle, adjust or
compromise such claims subject to the reasonable approval of Administrative
Agent and all proceeds, awards and payments shall be paid directly to
Administrative Agent to be deposited in a cash collateral account as security
for the Obligations; provided that, so long as no Default or Event of Default
has occurred and is continuing at the time Administrative Agent receives such
amount, Administrative Agent shall release such funds to Borrowers to the
extent necessary to permit Borrowers to replace, repair, restore or rebuild
such property damaged, destroyed or taken (a "Restoration") in a diligent and
expeditious manner with materials and workmanship of equal or better quality as
existed before such damage, destruction or taking; provided further that if
such Restoration shall not have been initiated within forty-five (45) days of
receipt of such insurance proceeds, Administrative Agent may apply such
amounts, or any part thereof, to the Obligations as set forth in Section
5.5(e).
(e) Notwithstanding anything contained in Section 5.5(d) to
the contrary if (i) a Default or Event of Default shall have occurred and be
continuing at the time of making any such claim or at the time of receipt of
the proceeds of any such claim, award or payment, (ii) such proceeds are more
than $12,500,000 or (iii) the damage, destruction or taking giving rise to such
proceeds would have a Material Adverse Effect, Borrowers shall direct all
insurers under their "All Risk" policies of insurance and all Governmental
Authorities to pay all proceeds of such claims, awards or payments payable
thereunder directly to Administrative Agent, and Borrowers appoint
Administrative Agent (and all officers, employees or agents designated by
Administrative Agent) as Borrowers' true and lawful agent and attorney-in-fact
for the purpose of making, settling and adjusting all such claims under such
"All Risk" policies and condemnation and eminent domain proceedings and
endorsing the name of Borrowers on any check or other item of payment for the
proceeds therefrom, and all proceeds of any such claim, award or payment shall
be applied to the Obligations in accordance with subsection 1.3(c)(i) or
1.3(c)(ii), as applicable, unless the Requisite Lenders agree to permit part or
all of such proceeds to be used for the applicable Restoration.
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5.6 Compliance with Laws. Each Borrower shall, and shall
cause each Subsidiary to, comply in all material respects with all federal,
state, local and foreign laws and regulations applicable to it, including,
without limitation, those relating to licensing, ERISA, Environmental Laws and
labor matters.
5.7 Agreements. Each Borrower shall, and shall cause each
Subsidiary to, perform, within all required time periods (after giving effect
to any applicable grace periods), all of its obligations and enforce all of its
rights under each material agreement to which it is a party including, without
limitation, any lease or customer contract. Neither of the Borrowers and no
Subsidiary shall terminate or modify any term or provision of any agreement to
which it is a party which termination or modification could have a Material
Adverse Effect.
5.8 Supplemental Disclosure. At the request of Administrative
Agent (in the event that such information is not otherwise delivered by
Borrowers to Administrative Agent pursuant to this Agreement), so long as there
are Obligations outstanding hereunder, but not more frequently than quarterly
absent the occurrence and continuance of a Default or an Event of Default,
Borrowers will supplement each schedule or representation herein with respect
to any matter hereafter arising which, if existing or occurring on the Closing
Date, would have been required to be set forth or described in such schedule or
as an exception to such representation or which is necessary to correct any
information in such schedule or representation which has been rendered
inaccurate thereby; provided that such supplement to such schedule or
representation shall not be deemed an amendment thereof unless expressly
consented to in writing by Administrative Agent and Requisite Lenders, and no
such amendments, except as the same may be consented to in a writing which
expressly includes a waiver, shall be or be deemed a waiver of any Default or
Event of Default disclosed therein.
5.9 Employee Plans. Each Borrower shall notify Administrative
Agent of (i) all material claims, actions, or lawsuits asserted or instituted,
and of any threatened material litigation or claims, against such Borrower, any
Subsidiary or ERISA Affiliate thereof in connection with any Plan maintained,
at any time, by such Borrower, such Subsidiary or ERISA Affiliate, or to which
such Borrower, such Subsidiary or ERISA Affiliate has or had at any time any
obligation to contribute, or/and against any such Plan itself, or against any
fiduciary of or service provider to any such Plan and (ii) the occurrence of
any material "Reportable Event" with respect to any Pension Plan of such
Borrower or any Subsidiary or ERISA Affiliate thereof.
5.10 Environmental Matters. Each Borrower shall, and shall
cause each Subsidiary to, (i) comply in all material respects with the
Environmental Laws applicable to it, (ii) notify Administrative Agent promptly
after such Borrower or such Subsidiary becomes aware of any Release of a
reportable quantity of Hazardous Materials upon or at any premises owned or
occupied by it or of any other quantity of Hazardous Materials that may
materially impact the value of such premises, and (iii) promptly forward to
Administrative Agent a copy of any order, notice, permit, application, or any
communication or report received by such Borrower or such Subsidiary in
connection with any such Release or any other matter relating to the
Environmental Laws that may
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materially affect such premises or such Borrower or such Subsidiary. The
provisions of this Section 5.10 shall apply whether or not the Environmental
Protection Agency, any other federal agency or any state, local or foreign
environmental agency has taken or threatened any action in connection with any
Release or the presence of any Hazardous Materials. If an Event of Default
shall have occurred and be continuing, Administrative Agent may at its
discretion have access to properties owned or leased by either Borrower or the
Subsidiaries for the purpose of assessing compliance with applicable
Environmental Laws, including without limitation, the preparation of phase two
environmental audits. The applicable Borrower shall reimburse Administrative
Agent for all reasonable costs and expenses incurred in conducting such
assessments.
5.11 Landlords' Agreements, Bailee Letters and Mortgagee
Agreements. Each Borrower shall use its best efforts to obtain a landlord's
agreement in form and substance acceptable to Administrative Agent from the
lessor of each leased property currently being used by such Borrower or any
Subsidiary where Collateral is located in the United States or the United
Kingdom. Each Borrower shall use its best efforts to obtain a bailee letter in
form and substance acceptable to Administrative Agent and with respect to any
mill, processor, customer or toll manufacturing facility where Collateral is
located in the United States or the United Kingdom. Each Borrower shall use
its best efforts to obtain a mortgagee's agreement in form and substance
satisfactory to Administrative Agent from the mortgagee of each property owned
by such Borrower or any Subsidiary where Collateral is located in the United
States or the United Kingdom. With respect to mortgaged or leased premises or
premises under the control of third parties at which such Collateral is located
in the United States or the United Kingdom, if Borrowers are unable to obtain a
landlord or mortgagee agreement or bailee letter, all Inventory and Equipment
at that location shall automatically be deemed ineligible without further
action by Administrative Agent or any Lender for purposes of calculating (i)
Borrowing Availability and (ii) the amount permitted to be outstanding under
Term Loan C.
5.12 Consigned Inventory. With respect to consigned Inventory
at any location with an aggregate value in excess of $100,000, each Borrower
shall perfect its interest in such Inventory by filing and delivering notice to
the creditors of record of the consignee, all as provided in Section 9-114 of
the Code or other applicable domestic or foreign law, and in form and substance
satisfactory to Administrative Agent, and such Borrower shall execute and
deliver all financing statements, security agreements, amendments thereto, or
other documents (and pay the cost of filing or recording the same in all public
offices deemed necessary by Administrative Agent), as Administrative Agent may
request, in form and substance satisfactory to Administrative Agent, to perfect
and maintain the Liens on Collateral granted by such Borrower to Administrative
Agent.
5.13 Leased Locations of Collateral. Each Borrower shall, and
shall cause each Subsidiary to, timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located.
Borrowers shall promptly deliver to Administrative Agent copies of (i) any and
all default notices received under or with respect to any such leased location
or public warehouse, and (ii) such other notices or documents as Administrative
Agent may request in its reasonable discretion.
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6. NEGATIVE COVENANTS
Each Borrower jointly and severally covenants and agrees that,
without the prior written consent of Administrative Agent and the Requisite
Lenders, from and after the Closing Date until the Termination Date:
6.1 Mergers, Subsidiaries, Etc. Neither Borrower shall, or
shall cause or permit any Subsidiary to, directly or indirectly, by operation
of law or otherwise, (i) form or acquire any Subsidiary, or (ii) merge with,
consolidate with, acquire all or substantially all of the assets or Stock of,
or otherwise combine with, any Person except that any Subsidiary (other than
NOW Canada, Venezuela, UK Borrower, Singapore, Australia and the NOW
International) may merge into US Borrower; provided that US Borrower is the
surviving Person in such merger. Notwithstanding the foregoing, but subject to
all other provisions of this Agreement, US Borrower may acquire all or
substantially all of the assets of any Person (the "Target") (in each case, a
"Permitted Acquisition") or make Investments in newly formed Subsidiaries
subject to the satisfaction of the following conditions:
(i) Administrative Agent shall receive at least thirty (30)
days' prior written notice of the date upon which such proposed
Permitted Acquisition will be made, which notice shall include a
reasonably detailed description of such proposed Permitted Acquisition;
(ii) such Permitted Acquisition shall only involve assets or
businesses located in the United States (which assets may be contributed
to a Subsidiary) or assets located in a foreign country (which assets
shall be contributed to a Subsidiary of NOW International) and
comprising, in each case, a business, or those assets of a business, of
the type engaged in by US Borrower as of the Closing Date, and which
business would not subject Administrative Agent or any Lender to
regulatory or third party approvals in connection with the exercise of
its rights and remedies under this Agreement or any other Loan Documents
other than approvals applicable to the exercise of such rights and
remedies with respect to US Borrower prior to such Permitted
Acquisition;
(iii) no additional Indebtedness, contingent obligations or
other liabilities shall be incurred, assumed or otherwise be reflected
on a consolidated balance sheet of US Borrower and Target after giving
effect to such Permitted Acquisition, except (A) Revolving Credit
Advances and (B) ordinary course trade payables and accrued expenses of
the Target to the extent no Default or Event of Default shall have
occurred and be continuing or would result after giving effect to such
Permitted Acquisition;
(iv) the assets acquired in such Permitted Acquisition shall be
free and clear of all Liens (other than Permitted Encumbrances);
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(v) except as provided in clause (ii) above with respect to a
Subsidiary of NOW International, such Subsidiary is incorporated under
the laws of a State in the United States and substantially all of its
assets are located in the United States;
(vi) at or prior to the closing of any Permitted Acquisition,
Administrative Agent will be granted a first priority perfected Lien (A)
by the newly formed Subsidiary of US Borrower on all assets of such
newly formed Subsidiary or by US Borrower on the assets acquired
directly by US Borrower, as applicable, subject, in each case, only to
Permitted Encumbrances, or (B) by NOW International, in the case of a
newly formed foreign Subsidiary, on sixty-five percent (65%) of the
capital stock of such foreign Subsidiary, and Holdings, NOW
International and US Borrower shall have executed such other documents
and taken such actions as may be required by Administrative Agent in
connection therewith;
(vii) each newly formed Subsidiary of US Borrower shall have
issued a guaranty of the Obligations to Administrative Agent for the
ratable benefit of the Lenders in form and substance satisfactory to
Administrative Agent;
(viii) Concurrently with delivery of the notice referred to in
clause (i) above, US Borrower shall have delivered to Administrative
Agent and Lenders, in form and substance satisfactory to Administrative
Agent:
(A) a pro forma consolidated balance sheet of Holdings
and its Subsidiaries (the "Acquisition Pro Forma"), based on
recent financial data, which shall be complete and shall
accurately and fairly represent the assets, liabilities,
financial condition and results of operations of Holdings and its
Subsidiaries in accordance with GAAP consistently applied, but
taking into account such Permitted Acquisition and the funding of
all Loans in connection therewith, and such Acquisition Pro Forma
shall reflect that (x) average daily unused Borrowing
Availability of US Borrower for the 90-day period preceding the
consummation of such Permitted Acquisition would have exceeded
$12,500,000 on a pro forma basis (giving effect to such Permitted
Acquisition and all Revolving Credit Loans funded in connection
therewith as if made on the first day of such period) and the
Acquisition Projections (as hereinafter defined) shall reflect
that such unused Borrowing Availability of $12,500,000 shall
continue for at least 90 days after the consummation of such
Permitted Acquisition, giving effect to the payment of all trade
payables and accrued expenses in the ordinary course of business,
and (y) on a pro forma basis, Borrowers would have been in
compliance with the financial covenants set forth in Schedule I
for the four quarter period reflected in the Compliance
Certificate most recently delivered to Administrative Agent
pursuant to Schedule G prior to the consummation of such
Permitted Acquisition (giving effect to such Permitted
Acquisition and all Revolving Credit Loans funded in connection
therewith as if made on the first day of such period);
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(B) updated versions of the most recently delivered
Projections covering the three (3) year period commencing on the
date of such Permitted Acquisition and otherwise prepared in
accordance with the Projections (the "Acquisition Projections")
and based upon historical financial data of a recent date
satisfactory to Administrative Agent, taking into account such
Permitted Acquisition; and
(C) a certificate of the Chief Financial Officer or
Treasurer of Holdings and US Borrower to the effect that: (x) US
Borrower will be Solvent upon the consummation of the Permitted
Acquisition; (y) the Acquisition Pro Forma fairly presents the
financial condition of Holdings and US Borrower (on a
consolidated basis) as of the date thereof after giving effect to
the Permitted Acquisition; and (z) the Acquisition Projections
are reasonable estimates of the future financial performance of
Holdings and its Subsidiaries subsequent to the date thereof
based upon the historical performance of Holdings, its
Subsidiaries and the Target and show that Holdings and Borrower
shall continue to be in compliance with the financial covenants
set forth in Schedule I for the three (3) year period thereafter;
(ix) at least seven (7) days prior to the date upon which such
Permitted Acquisition will be made, US Borrower shall have delivered to
Administrative Agent, in form and substance satisfactory to
Administrative Agent, a certificate of the Chief Financial Officer or
Treasurer of Holdings and US Borrower to the effect that Holdings and US
Borrower have completed their due diligence investigation with respect
to the Target and such Permitted Acquisition, which investigation was
conducted in a manner similar to that which would have been conducted by
a prudent purchaser of a comparable business and the results of which
investigation were delivered to Administrative Agent and Lenders;
(x) on or prior to the date of such Permitted Acquisition,
Administrative Agent shall have received, in form and substance
satisfactory to Administrative Agent, all opinions, certificates, lien
search results and other documents reasonably requested by
Administrative Agent; a pro forma Borrowing Base Certificate of US
Borrower giving effect to such Permitted Acquisition, accompanied by all
related financial and collateral information requested by Administrative
Agent (for which Administrative Agent reserves the right to audit any
such information);
(xi) after giving effect to any such Investment (other than with
respect to a Permitted Acquisition), US Borrower shall have Borrowing
Availability in an amount equal to or greater than its working capital
requirements for the next thirty (30) days, based upon US Borrower's
historical cash needs and taking into account all of its payment
obligations under the Loan Documents and under any of its other
Indebtedness; and
(xii) at the time of such transaction and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing.
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The Accounts, Inventory and Equipment purchased from the Target
and located in the United States shall be included in US Borrower's Borrowing
Base; provided that such Accounts, Inventory, and Equipment are of the same
types and quality as those owned by US Borrower and otherwise meet all of the
criteria for eligibility set forth herein and in Schedule C-1 and Schedule D-1
and the definition of Eligible Equipment, as applicable.
6.2 Investments; Loans and Advances. Except as otherwise
permitted by Section 6.1, 6.3, 6.4, or 6.22 neither Borrower shall, or shall
cause or permit any Subsidiary to, make any Investment except: (i) Investments
in Subsidiaries and other Investments, each as in existence on the Closing Date
and disclosed on Schedule 6.2, (ii) mergers or consolidations permitted by
Section 6.1, and (iii) demand deposit accounts maintained in the ordinary
course of business.
6.3 Indebtedness. Neither Borrower shall, or shall cause or
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except (i) Indebtedness secured by Liens permitted under
subsection 6.7(iii), (ii) the Revolving Credit Loan, Term Loan C and the other
Obligations, (iii) Indebtedness of US Borrower pursuant to the Sellers' Notes,
(iv) Indebtedness of NOW Canada pursuant to the NOW Canada Credit Agreement,
(v) Indebtedness for borrowed money incurred by Singapore; provided that the
aggregate principal amount of (x) Letter of Credit Obligations incurred by US
Borrower pursuant to Section 1.2 on behalf of Singapore, (y) Indebtedness
incurred by Singapore pursuant to this subsection 6.3(v) and (z) intercompany
Indebtedness incurred by Singapore pursuant to subsection 6.22(ii) at any one
time outstanding shall not exceed $2,000,000, (vi) Indebtedness for borrowed
money incurred by Australia; provided that the aggregate principal amount of
(x) Letter of Credit Obligations incurred by US Borrower pursuant to Section
1.2 on behalf of Australia, (y) Indebtedness incurred by Australia pursuant to
this subsection 6.3(vi) and (z) intercompany Indebtedness incurred by Australia
pursuant to subsection 6.22(iii) at any one time outstanding shall not exceed
$3,000,000, (vii) Indebtedness for borrowed money incurred by Venezuela;
provided that the aggregate principal amount of (x) Letter of Credit
Obligations incurred by US Borrower pursuant to Section 1.2 on behalf of
Venezuela; (y) Indebtedness incurred by Venezuela pursuant to this subsection
6.3(vii) and (z) intercompany Indebtedness incurred by Venezuela pursuant to
subsection 6.22(vii) at any one time outstanding shall not exceed $4,000,000,
(viii) other Indebtedness permitted by Section 6.22, (ix) obligations under or
in connection with Currency Agreements, (x) obligations under or in connection
with Interest Rate Agreements, (xi) deferred taxes, (xii) unfunded pension fund
and other employee benefit plan obligations and liabilities to the extent they
are permitted to remain unfunded under applicable law; (xiii) Indebtedness
existing on the Closing Date and disclosed on Schedule 6.3; and (xiv) other
unsecured Indebtedness incurred by US Borrower not to exceed $1,000,000 in the
aggregate. Except as permitted by this Agreement with respect to the Loans,
neither Borrower shall, or shall cause or permit any Subsidiary to, directly or
indirectly voluntarily prepay, defease or in substance defease, purchase,
redeem, retire or otherwise acquire, any Indebtedness.
6.4 Employee Loans and Affiliate Transactions. (a) Except as
permitted by Sections 6.2, 6.14 and 6.22, neither Borrower shall, or shall
cause or permit any Subsidiary to, directly or indirectly, enter into or be a
party to any transaction with an Affiliate of either Borrower
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except in the ordinary course of and pursuant to the reasonable requirements of
such Borrower's or such Subsidiary's business and upon fair and reasonable
terms that shall be fully disclosed to Administrative Agent in advance to the
extent that any such transaction involves payments in excess of $250,000
(excluding purchases and sales of Inventory between US Borrower and its foreign
Subsidiaries solely in the ordinary course of business and between Borrowers
and operating companies in which DPI and First Reserve or funds under their
management are investors) in the aggregate and are no less favorable to such
Borrower or such Subsidiary than would be obtained in a comparable arm's length
transaction with a Person not an Affiliate of such Borrower. All such
transactions existing as of the Closing Date are described on Schedule 6.4(a).
(b) Neither Borrower shall, or shall cause or permit any
Subsidiary to, enter into any lending or borrowing transaction with any of its
employees, except (i) loans to their respective employees on an arm's-length
basis in the ordinary course of business for travel advances and relocation
expenses up to $100,000 for any single employee and $500,000 in the aggregate
for all such employees at any one time outstanding and (ii) loans to members of
senior management of Borrowers or their respective Subsidiaries for the purpose
of purchasing capital stock of Holdings up to $200,000 for any single
individual and $500,000 in the aggregate for all such management personnel at
any one time outstanding.
6.5 Capital Structure and Business. Neither Borrower shall,
or shall cause or permit any Subsidiary to, (i) make any changes in any of its
business or operations which would in any way adversely affect the repayment of
the Revolving Credit Loan, Term Loan C or any of the other Obligations or could
have or result in a Material Adverse Effect, (ii) except as described on
Schedule 3.10, make any change in its capital structure (including the issuance
of any shares of Stock, warrants or other securities convertible into Stock or
any revision of the terms of its outstanding Stock), or (iii) amend, modify,
terminate or waive, nor suffer the amendment, modification, termination or
waiver of, any of the terms or provisions of the Partnership Agreement or amend
the certificate or articles of incorporation, bylaws (unless required by law),
or other constitutional documents of any Subsidiary in a manner which would
have a Material Adverse Effect. Neither of the Borrowers nor any Subsidiary
shall engage in any business other than the oilfield service industry or any
lines of business reasonably related thereto (excluding the wellhead
manufacturing business).
6.6 Guaranties. Neither Borrower shall, or shall cause or
permit any Subsidiary to, incur any Guaranties except (i) by endorsement of
instruments or items of payment for deposit or collection to the general
account of such Borrower or such Subsidiary, (ii) Guaranties of the
Obligations, (iii) the Holdings Subordinated Canada Guaranty, (iv) the US
Borrower Subordinated Canada Guaranty, (v) the NOW International Subordinated
Canada Guaranty, (vi) unsecured Guaranties of performance entered into in the
ordinary course of business for Holdings' foreign Subsidiaries in connection
with purchases and sales of Inventory; and (vii) Guaranties in existence on the
Closing Date and disclosed on Schedule 6.6. Neither US Borrower nor NOW
International shall change or amend any of the subordination provisions of the
US Borrower Subordinated Canada Guaranty or the NOW International Subordinated
Canada Guaranty, respectively.
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6.7 Liens. Neither Borrower shall, or shall cause or permit
any Subsidiary to, create, incur, assume or permit to exist any Lien on or with
respect to any of its properties or assets (including Accounts, instruments, or
chattel paper), whether now owned or hereafter acquired except (i) Permitted
Encumbrances, (ii) presently existing or hereinafter created Liens in favor of
Administrative Agent, on behalf of Lenders to secure the Obligations, (iii)
Liens granted pursuant to the Stock Pledge Agreements, (iv) Liens granted by
NOW International on the Stock of its Subsidiaries to secure its obligations
under the NOW International Subordinated Canada Guaranty, (v) Liens created by
conditional sale or other title retention agreements (including, without
limitation, Capital Leases) or in connection with purchase money indebtedness
with respect to Equipment acquired by such Borrower or any of its Subsidiaries
in the ordinary course of business, involving the incurrence of an aggregate
amount of purchase money indebtedness and Capital Lease Obligations of not more
than $2,000,000 outstanding at any one time for all such Liens (provided that
such Liens attach only to the assets subject to such purchase money debt and
such Indebtedness is incurred within twenty (20) days following such purchase
and does not exceed 100% of the purchase price of the subject assets), (vi)
Liens granted by Singapore on its assets to secure Indebtedness permitted by
Section 6.3(v), (vii) Liens granted by Australia on its assets to secure
Indebtedness permitted by Section 6.3(vi), (viii) Liens granted by Venezuela on
its assets to secure Indebtedness permitted by Section 6.3(vii), (ix) Liens
granted by NOW Canada on its assets to secure Indebtedness permitted by Section
6.3(iv), (x) Liens granted by US Borrower on its partnership interest in UNOC
to secure Indebtedness of UNOC; provided that neither Borrower nor any
Subsidiary has any additional or further obligation or liability with respect
to such Indebtedness, and (xi) Liens existing on the Closing Date and
disclosed on Schedule 6.7. Neither Borrower shall, or shall cause or permit
any Subsidiary to, directly or indirectly, enter into, assume or become bound
by any agreement, instrument, indenture or other obligation (other than this
Agreement, the other Loan Documents and the NOW Canada Credit Agreement) which
restricts, prohibits or requires the consent of any Person with respect to the
creation or assumption of any Lien upon its property or assets, whether now
owned or hereafter acquired, except leases or licenses which prohibit Liens on
the property subject thereto.
6.8 Sale of Assets. Neither Borrower shall, or shall cause or
permit any Subsidiary to, sell, transfer, lease, sublease, convey, assign or
otherwise dispose of or grant any Person an option to acquire, in one
transaction or a series of transactions, any of its properties or other assets,
including the capital stock of any such Subsidiary or such Borrower or any of
its Accounts, other than (i) the sale or lease of Inventory in the ordinary
course of business, (ii) the sale, transfer, conveyance or other disposition of
fixed assets having a value not exceeding $250,000 in any single transaction or
$750,000 in the aggregate in any Fiscal Year, (iii) the sale, transfer,
conveyance or other disposition of assets which are obsolete, worn-out or
otherwise not useable in such Borrower's or such Subsidiary's business (up to
$2,000,000 in sales proceeds in the aggregate for Borrowers and their
Subsidiaries in any Fiscal Year), and (iv) assets to be sold pursuant to the
Asset Sale Program as set forth on Schedule 6.8. Borrowers shall promptly
deliver to Administrative Agent all of the Net Proceeds of sales or
dispositions permitted under clauses (ii), (iii) and (iv) of this Section 6.8,
which proceeds shall be applied to the repayment of the Obligations in
accordance with Section 1.3. With respect to any disposition of assets or
other properties permitted pursuant to
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this Section 6.8, Administrative Agent agrees on reasonable prior written
notice to release its Lien on such assets or other properties in order to
permit Borrowers to effect such disposition and shall execute and deliver to
Borrowers, at Borrowers' expense, appropriate UCC-3 termination statements
and other releases as reasonably requested by Borrowers; provided that
Borrowers have delivered to Administrative Agent all Net Proceeds from such
disposition required to be delivered to Administrative Agent.
6.9 ERISA. Neither Borrower shall, or shall cause or permit
any Subsidiary or ERISA Affiliate thereof (without Administrative Agent's prior
written consent) to, (i) acquire any ERISA Affiliate that maintains or has an
obligation to contribute to a Pension Plan that has either an "accumulated
funding deficiency", as defined in Section 302 of ERISA, or any "unfunded
vested benefits", as defined in Section 4006(a)(3)(e)(iii) of ERISA, in the
case of any Plan other than a Multiemployer Plan, and in Section 4211 of ERISA
in the case of a Multiemployer Plan, in excess of $500,000, (ii) permit or
suffer any representation set forth in Schedule 3.14 to cease to be met and
satisfied at any time if the effect thereof would be a liability in excess of
$500,000, (iii) terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability
in excess of $500,000, (iv) permit any accumulated funding deficiency, as
defined in Section 302(a)(2) of ERISA, to be incurred with respect to any
Pension Plan, in excess of $500,000, (v) fail to make any material
contributions or fail to pay any material amounts due and owing as required by
the terms of any Plan before such contributions or amounts become delinquent,
(vi) make a complete or partial withdrawal (within the meaning of Section 4201
of ERISA) from any Multiemployer Plan where such withdrawal could have a
Material Adverse Effect, or (vii) fail to promptly provide Administrative Agent
with copies of any Plan documents or governmental reports or filings, if
requested by Administrative Agent.
6.10 Financial Covenants. Borrowers shall not breach or fail
to comply with any of the Financial Covenants (the "Financial Covenants") set
forth in Schedule I.
6.11 Hazardous Materials. Neither Borrower shall, or shall
cause or permit any Subsidiary or any other Person within its control to, cause
or permit a Release or the presence, use, generation, manufacture, installation
or storage of any Hazardous Materials on, under, in, above or about any of its
real estate or the transportation of any Hazardous Materials to or from any of
its real estate that would violate in any material respect, or result in any
material liability under, any Environmental Laws. If a Default or Event of
Default shall have occurred and be continuing, each Borrower, at its own
expense, shall cause the performance of such environmental audits and
preparation of such environmental reports as Administrative Agent may from time
to time request as to any location at which Collateral is then located, by
reputable environmental consulting firms reasonably acceptable to
Administrative Agent, and in form and substance reasonably acceptable to
Administrative Agent.
6.12 Sale-Leasebacks. Neither Borrower shall, or shall cause
or permit any Subsidiary to, engage in any sale-leaseback or similar
transaction involving any of its assets; except that US Borrower may sell and
leaseback its Store Locations, subject to the following conditions;
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(i) aggregate sale proceeds shall be subject to the limitations
set forth in clause (ii) of Section 6.8
(ii) no such sale-leaseback transaction shall be entered into
with respect to the following locations: New Iberia, Louisiana
(Sugarmill Road); McAlester, Oklahoma; Kilgore, Texas; and Casper,
Wyoming;
(iii) the lease for each such location shall be on commercially
reasonable terms, disclosed to Administrative Agent in advance of the
execution thereof; and
(iv) each lessor of any such property shall have entered into a
landlord waiver in favor of Administrative Agent for the benefit of
Lenders satisfactory in form and substance to Administrative Agent.
6.13 Cancellation of Indebtedness. Neither Borrower shall, or
shall cause or permit any Subsidiary to, cancel any claim or debt owing to it,
except for reasonable consideration negotiated on an arm's-length basis and in
the ordinary course of its business consistent with past practices.
6.14 Restricted Payments. (a) Neither Borrower shall, or shall
cause or permit any Subsidiary to, make any Restricted Payment, other than (i)
distributions from Borrowers to Holdings in an amount necessary to enable
Holdings (x) to satisfy its Federal, state and local income tax obligations to
the extent such obligations are the result of the net consolidated income of US
Borrower and its Subsidiaries being attributed to Holdings for tax purposes;
provided that each Borrower's contribution shall not be greater than or paid
sooner than its ratable share of such income taxes then due and payable by
Holdings; provided further, that if either Borrower pays more to Holdings than
its ratable share of income taxes paid in cash by Holdings for any Fiscal Year,
as finally determined, it shall either demand and obtain reimbursement from
Holdings or set off the amount of such overpayment against other amounts owing
by such Borrower to Holdings, (y) to pay the necessary fees and expenses to
maintain its corporate existence and good standing and to pay the reasonable
costs of its directors' and officers' insurance, and (z) to pay legal and
accounting fees to the extent such fees relate to legal or accounting services
provided by entities which are not Affiliates of Borrowers and which services
are directly related to Borrowers or their Subsidiaries, (ii) intercompany
loans by US Borrower or a Subsidiary to the extent permitted by Section 6.22,
(iii) Restricted Payments consisting of reasonable compensation or
indemnification to Affiliates who are individuals and serve as directors,
officers or employees of a Borrower or any Subsidiary, (iv) so long as no
Default or Event of Default has occurred and is continuing, Restricted Payments
consisting of distributions of US Borrower to Holdings to enable Holdings to
make repurchases of its Stock from members of management pursuant to the terms
and conditions of the Stock Incentive Plan in effect as of the Closing Date in
form and substance satisfactory to Administrative Agent; provided that the
aggregate sum of distributions by US Borrower in any Fiscal Year in connection
with all such redemptions shall not exceed $1,000,000, and (v) redemption of
its Stock by NOW Canada permitted by the terms of the NOW Canada Credit
Agreement.
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(b) In addition to the foregoing but without duplication of
distributions under subsection 6.14(a), US Borrower may make distributions to
the Partners in an amount necessary to enable the Partners (x) to satisfy its
state and local income tax obligations to the extent such obligations are the
result of the net consolidated income of US Borrower and its Subsidiaries being
attributed to the Partners for tax purposes; provided that US Borrower's
contribution shall not be greater than or paid sooner than its ratable share of
such income taxes then due and payable by the Partners; provided further, that
if US Borrower pays more to the Partners than its ratable share of income taxes
paid in cash by each Partner for any Fiscal Year, as finally determined, it
shall either demand and obtain reimbursement from the Partners or set off the
amount of such overpayment against other amounts owing by US Borrower to the
Partners, (y) to pay the necessary fees and expenses to maintain its corporate
existence and good standing and to pay the reasonable costs of its directors'
and officers', and (z) to pay legal and accounting fees to the extent such fees
relate to legal or accounting services provided by entities which are not
Affiliates of US Borrower and which services are directly related to US
Borrower or its Subsidiaries.
(c) In addition to the foregoing, so long as no Event of Default
shall have occurred and be continuing and to the extent that no Event of
Default would result after giving effect to the payment thereof, US Borrower
may pay management or other fees in the amount of $300,000 on the Closing Date
to DPI and First Reserve and in the aggregate amount of $1,000,000 to DPI and
First Reserve in each Fiscal year in four quarterly installments of $250,000
each, payable in each year on the first day of each calendar quarter,
commencing with a payment on January 1, 1997.
6.15 Leases. (a) Neither Borrower shall, or shall cause or
permit any Subsidiary to, enter into any lease of real property or similar
agreement or arrangement if the aggregate of all such lease payments payable in
any Fiscal Year by Borrowers and their Subsidiaries would exceed $5,000,000.
(b) Neither Borrower shall, or shall cause or permit any
Subsidiary to, enter into any operating lease for equipment or personal
property, if the aggregate of all such operating lease payments payable in any
Fiscal Year for Borrowers and their Subsidiaries would exceed $7,500,000.
6.16 Fiscal Year. Neither Borrower shall, or shall cause or
permit any Subsidiary to, change its Fiscal Year.
6.17 Change of Corporate Name or Location. (a) Neither
Borrower shall, or shall cause or permit any Material Subsidiary to, (i) change
its partnership or corporate name, as applicable, or (ii) change its chief
executive office, principal place of business, partnership or corporate offices
or the location of its records concerning the Collateral, or (iii) change any
existing or establish any additional warehouse or other Collateral location,
unless such Borrower has given Administrative Agent at least thirty (30) days'
prior written notice and Administrative Agent has delivered to such Borrower
its written acknowledgment that all reasonable actions requested by
Administrative Agent in connection therewith, including, without limitation, to
continue the perfection of any Liens in favor of Administrative Agent, on
behalf of Lenders, in any Collateral
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have been completed or taken; provided that any such new location with respect
to US Borrower shall be in the continental United States; and (b) in
furtherance of and without limiting the scope of clause (a) above, neither
Borrower shall, or shall permit any Subsidiary, to change its name, identity or
partnership or corporate structure, as applicable, in any manner which might
make any financing or continuation statement or similar filing filed in
connection herewith seriously misleading within the meaning of Section 9.402(7)
or any other then applicable provision of the Code or any other applicable
foreign law except upon prior written notice to Administrative Agent and
Lenders and after Administrative Agent's written acknowledgment that any
reasonable action requested by Administrative Agent in connection therewith,
including, without limitation, to continue the perfection of any Liens in favor
of Administrative Agent, on behalf of Lenders, in any Collateral has been
completed or taken. All Collateral located at any such new location shall
automatically be deemed ineligible without further action by Administrative
Agent or any Lender to constitute Eligible Accounts, Eligible Equipment or
Eligible Inventory, as applicable, until such Borrower shall have complied with
the requirements of this Section 6.17 and Section 5.11.
6.18 Sale of Stock. Neither Borrower shall, or shall cause or
permit any Subsidiary to, sell (whether in a public or private offering or
otherwise) any of its Stock.
6.19 Cash Management. Neither Borrower shall, or shall cause
or permit any Subsidiary to, accumulate or maintain cash in disbursement or
payroll accounts as of any date of determination more than $50,000 in the
aggregate in excess of checks outstanding against such accounts as of that date
and amounts necessary to meet minimum balance requirements.
6.20 No Impairment of Upstreaming. Neither Borrower shall, or
shall cause or permit any Subsidiary to, directly or indirectly, enter into,
assume or become bound by any agreement, instrument, indenture or other
obligation (other than this Agreement, the other Loan Documents and the NOW
Canada Credit Agreement) which could directly or indirectly restrict, prohibit
or require the consent of any Person with respect to the payment of dividends
or distributions or the making of intercompany loans by a Subsidiary of either
Borrower to either Borrower or between Borrowers.
6.21 Subordinated Debt. US Borrower shall not, nor shall it
cause or permit any Subsidiary to:
(a) pay any interest or principal on the Sellers' Notes prior
to the seventh anniversary of the date thereof; or
(b) prepay, defease, purchase, redeem, retire or otherwise
acquire any Subordinated Debt except that US Borrower may make voluntary and
mandatory prepayments in accordance with the terms of any Subordinated Debt
incurred pursuant to Section 6.22(ii); provided that in each such case (i) no
Default or Event of Default has occurred and is continuing or would result
after giving effect to any such prepayment, (ii) no mandatory prepayment of the
Revolving Credit Loan or Term Loan C is due and owing pursuant to Section
1.3(a) or Section 1.1(b), as
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applicable, and (iii) after giving effect to any such payment, US Borrower
shall have unused Borrowing Availability equal to at least ten percent (10%) of
the Borrowing Base of the US Borrower in effect at the time of such payment.
6.22 Intercompany Loans. Notwithstanding any provision
contained in this Section 6 to the contrary, US Borrower and the Subsidiaries
may create, incur or permit to exist intercompany loans as follows: (i)
Indebtedness existing on the Closing Date owing from a Subsidiary to US
Borrower and described on Schedule 6.22; provided that any payment or
prepayment of such Indebtedness shall not be reborrowed by such Subsidiary
except as permitted by clauses (iii), (iv), (v), (vi) and (vii) of this Section
6.22, (ii) Subordinated Debt incurred after the Closing Date by US Borrower in
the form of intercompany loans from a Subsidiary, (iii) additional loans to NOW
Canada from US Borrower or UK Borrower; provided that the principal amount of
(x) Letter of Credit Obligations incurred by US Borrower on behalf of NOW
Canada and (y) loans incurred by NOW Canada under this Section 6.22 at any one
time outstanding shall not in the aggregate exceed $3,000,000; (iv) additional
loans to UK Borrower from US Borrower in an aggregate principal amount at any
one time outstanding not to exceed $5,000,000, (v) loans to Singapore from US
Borrower or UK Borrower; provided that the principal amount of (x) Letter of
Credit Obligations incurred by US Borrower on behalf of Singapore, (y)
Indebtedness incurred by Singapore pursuant to subsection 6.3(v), and (z) loans
incurred by Singapore under this Section 6.22 at any one time outstanding shall
not in the aggregate exceed $2,000,000; (vi) loans to Australia from US
Borrower or UK Borrower; provided that the principal amount of (x) Letter of
Credit Obligations incurred by US Borrower on behalf of Australia, (y)
Indebtedness incurred by Australia pursuant to subsection 6.3(vi), and (z)
loans incurred by Australia under this Section 6.22 at any one time outstanding
shall not in the aggregate exceed $3,000,000; (vii) loans to Venezuela from US
Borrower or UK Borrower; provided that the principal amount of (x) Letter of
Credit Obligations incurred by US Borrower on behalf of Venezuela, (y)
Indebtedness incurred by Venezuela pursuant to subsection 6.3(vii), and (z)
loans incurred by Venezuela under this Section 6.22 at any one time outstanding
shall not in the aggregate exceed $4,000,000; provided further that (a) all
such intercompany loans shall be unsecured and shall be payable upon demand;
(b) after giving effect to each such loan, both US Borrower or UK Borrower, as
applicable, and the Subsidiary receiving such intercompany loans shall be
Solvent; (c) the obligor of such loan shall use the proceeds thereof for its
own working capital requirements and general partnership or corporate purposes,
as applicable, arising in the ordinary course of its business; (d) after giving
effect to each such loan from US Borrower or UK Borrower, as applicable, US
Borrower or UK Borrower, as applicable, shall have Borrowing Availability in an
amount equal to or greater than its working capital requirements for the next
succeeding thirty (30) days, based upon its historical cash needs and taking
into account all of its payment obligations under the Loan Documents and under
any of its other Indebtedness; (e) US Borrower shall have delivered to
Administrative Agent a current list of intercompany loans outstanding in
accordance with clause (l) of Schedule G; and (f) all such intercompany loans
by US Borrower or UK Borrower to any Subsidiary shall be evidenced by
promissory notes satisfactory in form and substance to Administrative Agent and
pledged to Administrative Agent for the ratable benefit of Lenders.
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6.23 Inconsistent Agreements. Neither Borrower shall, or shall
cause or permit any Subsidiary to, become party to any agreement, note,
indenture, instrument or other arrangement, or take any other action, which,
directly or indirectly, (i) requires a sharing of any interest in the
Collateral or prohibits the creation of a Lien on any of its properties or
other assets in favor of Administrative Agent, on behalf of the Lenders, as
additional collateral for the Obligations, except operating leases, Capital
Leases or intellectual property licenses which prohibit Liens upon the assets
that are subject thereto and the documents granting Liens on the assets of
Australia and Singapore as permitted by Section 6.7; (ii) prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence of the Obligations, the
granting of Liens to secure the Obligations, amending the Loan Documents, or
(iii) contains any provision which would be violated or breached by the making
of the Revolving Credit Advances or by the performance by Borrowers or Holdings
or any Subsidiary of any of its obligations under any Loan Document.
6.24 Acquisition Documents. US Borrower shall not, nor shall
it cause or permit any Subsidiary to amend, waive or modify in any manner any
provision of any of the Acquisition Documents.
7. TERM
7.1 Termination. The Revolving Credit Loan shall be in effect
until the Commitment Termination Date, and the Revolving Credit Loan, Term Loan
C and all other Obligations related thereto shall be automatically due and
payable in full on such date.
7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan
Documents, no termination or cancellation (regardless of cause or procedure) of
any financing arrangement under this Agreement shall in any way affect or
impair the obligations, duties and liabilities of Borrowers or the rights of
Administrative Agent and Lenders relating to any unpaid portion of the
Revolving Credit Loan, Term Loan C or any other Obligation, due or not due,
liquidated, contingent or unliquidated or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of
which is required after the Commitment Termination Date. Except as otherwise
expressly provided herein or in any other Loan Document, all undertakings,
agreements, covenants, warranties and representations of or binding upon
Holdings, Borrowers, the Subsidiaries and the Partners, and all rights of
Administrative Agent and each Lender, all as contained in the Loan Documents
shall not terminate or expire, but rather shall survive such termination or
cancellation and shall continue in full force and effect until such time as all
of the Obligations have been paid in full in accordance with the terms of the
Loan Documents creating such Obligations and the Commitments have been
terminated.
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8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) Either Borrower shall fail to make any payment of
principal of, or interest on, or any other amount owing by it in respect of,
the Revolving Credit Loan, Term Loan C or any Fees, costs or expenses payable
or reimbursable by it under this Agreement or under any other Loan Document or
any of the other Obligations when due and payable or declared due and payable.
(b) Either Borrower shall fail or neglect to perform, keep or
observe any of the provisions of (i) Sections 1.4, 1.9, 5.1, 5.2, 5.5 or 6, or
any of the provisions set forth in Schedules E, G (paragraph (f) only) or I,
respectively.
(c) Either Borrower shall fail or neglect to perform, keep or
observe any provisions set forth in Section 4 or Schedules G (other than
paragraph (f) thereof) or H, respectively, within twenty (20) days after the
earlier to occur of (i) US Borrower's receipt of written notice from
Administrative Agent or any Lender or (ii) actual knowledge of such failure by
the applicable Borrower.
(d) Either Borrower shall fail or neglect to perform, keep or
observe any other provision of this Agreement (other than any provision
embodied in or covered by any other clause of this Section 8.1) and the same
shall remain unremedied for thirty (30) days or more after the earlier to occur
of (i) US Borrower's receipt of written notice of any such failure from
Administrative Agent or any Lender or (ii) actual knowledge of such failure by
the applicable Borrower.
(e) Any Guarantor shall fail or neglect to perform, keep or
observe any provision of any Guaranty Agreement (other than any provision
embodied in or covered by any other clause of this Section 8.1) and the same
shall remain unremedied for ten (10) days or more after the earlier of (i) US
Borrower's receipt of written notice of any such failure from Administrative
Agent or any Lender or (ii) actual knowledge of such failure by US Borrower.
(f) A default or breach shall occur under any Loan Document
(other than this Agreement or the Notes) or the Acquisition Documents which
default or breach continues beyond any period of grace therein provided.
(g) A default or breach shall occur under any other agreement,
document or instrument to which Holdings, either Borrower or any Subsidiary is
a party and such default is not cured within any applicable grace period and
such default or breach (i) involves the failure to make any payment when due in
respect of any Indebtedness (other than the Obligations) of Holdings, either
Borrower or any Subsidiary in excess of $1,000,000 in the aggregate, or (ii)
causes such Indebtedness or a portion thereof in excess of $1,000,000 in the
aggregate to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, or (iii) permits any holder of such Indebtedness or
a trustee to cause such Indebtedness or a portion thereof in excess of
$1,000,000 in the aggregate to become due prior to its stated maturity or prior
to its regularly
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scheduled dates of payment, regardless of whether such right is exercised or
waived by such holder or trustee.
(h) Any representation or warranty herein or in any Loan
Document or in any written statement, report, financial statement or
certificate made or delivered to any Lender by or on behalf of Holdings, either
Borrower or any Subsidiary or either Partner shall be untrue or incorrect in
any material respect, as of the date when made or deemed made.
(i) Any representation or warranty in any Guaranty Agreement
or in any written statement pursuant thereto, or in any report, financial
statement or certificate made or delivered to any Lender by any Guarantor shall
be untrue or incorrect in any material respect, as of the date when made or
deemed made.
(j) Assets of Holdings, either Borrower or any Subsidiary or
either Partner with a fair market value of $500,000 or more shall be attached,
seized, levied upon or subjected to a writ or distress warrant, or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors of Holdings, either Borrower or any Subsidiary and such condition
shall continue for thirty (30) days or more.
(k) A case or proceeding shall have been commenced against
Holdings, either Borrower or any Subsidiary or either Partner in a court having
competent jurisdiction seeking a decree or order in respect of Holdings, either
Borrower or any Subsidiary or either Partner (i) under Title 11 of the United
States Code, as now constituted or hereafter amended, the Insolvency Act of
1986, as now constituted or hereafter amended in the case of UK Borrower, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) appointing a custodian, receiver, administrative receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for Holdings, either
Borrower or any Subsidiary or either Partner or of any substantial part of any
such Person's assets, or (iii) ordering the winding-up, dissolution, or
liquidation of the affairs of Holdings, either Borrower or any Subsidiary or
either Partner and such case or proceeding shall remain undismissed or unstayed
for sixty (60) days or more or such court shall enter a decree or order
granting the relief sought in such case or proceeding.
(l) Holdings, either Borrower or any Subsidiary or either
Partner shall (i) file a petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, the Insolvency Act of
1986, as now constituted or hereafter amended in the case of UK Borrower, or
any other applicable federal, State or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, administrative receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Holdings, either Borrower or any
Subsidiary or either Partner or of any substantial part of any such Person's
assets, (iii) make an assignment for the benefit of creditors, or proposes or
enters into any composition of or other arrangement for the benefit of
creditors generally or any class of creditors, (iv) suspend payment of its
debts or become
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unable to pay its debts as they become due, or (v) take any partnership or
corporate action, as applicable, in furtherance of any such action.
(m) A final judgment or judgments for the payment of money in
excess of $750,000 in the aggregate shall be rendered against Holdings, either
Borrower or any Subsidiary or either Partner and the same shall not (i) be
fully covered by insurance in accordance with Section 5.5, or (ii) within
thirty (30) days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged prior to the
expiration of any such stay.
(n) With respect to any Plan: (i) either Borrower, any
Subsidiary or any ERISA Affiliate thereof or any other party-in-interest or
disqualified Person shall engage in any transactions which in the aggregate
result in a final assessment to either Borrower or any Subsidiary in excess of
$500,000 under Section 409 or 502 of ERISA or IRC Section 4975 which assessment
has not been paid within thirty (30) days of final assessment and which is not
being contested pursuant to subsections 6.2(b) or 6.2(c) hereof; (ii) either
Borrower, any Subsidiary or any ERISA Affiliate thereof shall incur any
accumulated funding deficiency, as defined in IRC Section 412, in the aggregate
in excess of $500,000, or request a funding waiver from the IRS for
contributions in the aggregate in excess of $500,000; (iii) either Borrower,
any Subsidiary or any ERISA Affiliate thereof shall not pay any withdrawal
liability which involves annual withdrawal liability payments which exceed
$500,000, as a result of a complete or partial withdrawal within the meaning of
Section 4203 or 4205 of ERISA, within 30 days after the date such payment
becomes due, unless such payment is being contested pursuant to subsections
6.2(b) or (c); (iv) either Borrower, any Subsidiary or any ERISA Affiliate
thereof shall fail to make a required contribution by the due date under
Section 412 of the IRC or Section 302 of ERISA which would result in the
imposition of a lien under Section 412 of the IRC or Section 302 of ERISA
within 30 days after the date such payment becomes due; or (v) an ERISA Event
(other than an event described in 29 CFR Section 2615.23) with respect to a
Pension Plan has occurred which could have a Material Adverse Effect, and
within thirty (30) days US Borrower has not contested such ERISA Event by
appropriate proceedings.
(o) Any material provision of any Loan Document shall for any
reason cease to be valid or enforceable in accordance with its terms or
Holdings, either Borrower or any Guarantor or any other Person (other than
Administrative Agent or any Lender) shall disavow its obligations thereunder or
shall deny that it has any or further obligations thereunder, or shall contest
the validity or enforceability of any thereof, or any Lien created under any
Loan Document shall cease to be a legal, valid and perfected first priority
Lien (except as otherwise permitted herein or therein) in any of the Collateral
purported to be covered thereby.
(p) Any court, government or governmental agency shall
condemn, seize or otherwise appropriate, or take custody or control of, all or
any substantial portion of the property of either Borrower or any Material
Subsidiary (other than Venezuela).
(q) A criminal or civil action, suit or proceeding is
commenced against any of Holdings, either Borrower or any Subsidiary or either
Partner under any federal or state racketeering
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statute (including, without limitation, the Racketeer Influenced and Corrupt
Organizations Act of 1970), which action, suit or proceeding could reasonably
be expected to result in a Material Adverse Effect.
(r) Any Change of Control shall occur.
(s) Any event shall occur that gives any holder of
Subordinated Debt a mandatory right of redemption or other right to prepayment
with respect thereto.
(t) Holdings or either Partner or NOW International shall
conduct or transact any business (other than being the owner of Stock held by
it as of the Closing Date) or incur any Indebtedness or other obligation or
liability or make any Investment or grant or suffer any Lien or issue any
Guaranties other than, in each case, pursuant to, or as permitted by, the Loan
Documents.
8.2 Remedies. (a) If any Default shall have occurred and be
continuing, Administrative Agent may (and at the written request of the
Requisite Lenders shall) terminate this facility with respect to further
Revolving Credit Advances or Term Loan C advances, whereupon any further
Revolving Credit Advances or Term Loan C advances, shall be made in the sole
discretion of Administrative Agent or the sole discretion of the Requisite
Lenders' (if termination occurred at the request of the Requisite Lenders);
provided that such further Revolving Credit Advance or Term Loan C advance
shall not cause the aggregate outstanding principal amount thereof to exceed
the Borrowing Availability or the UK Borrowing Base, respectively. Upon such
termination, Administrative Agent shall notify US Borrower of such action.
(b) If any Event of Default shall have occurred and be
continuing, Administrative Agent may (and at the written request of the
Requisite Lenders shall), without notice, (a) terminate or suspend the
obligations of the Lenders to make Loans hereunder, (b) declare all or any
portion of the Obligations, including all or any portion of the Revolving
Credit Loan and/or Term Loan C, to be forthwith due and payable, and require
that the Letter of Credit Obligations be cash collateralized as provided on
Schedule B; (c) increase the Letter of Credit Fees and rates of interest
applicable to the Revolving Credit Loan and/or Term Loan C to the Default Rate,
as provided in subsection 1.5(d); and (d) exercise any rights and remedies
provided to Administrative Agent under the Loan Documents and/or at law or
equity, including all remedies provided under the Code; provided that upon the
occurrence of an Event of Default specified in subsections 8.1 (k) or (l), all
of the Obligations, including the Revolving Credit Loan, shall become
immediately due and payable without declaration, notice or demand by any
Person.
8.3 Waivers by Borrowers. Except as otherwise provided for in
this Agreement or by applicable law, each of the Borrowers waives: (i)
presentment, demand and protest and notice of presentment, dishonor, notice of
intent to accelerate, notice of acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Administrative Agent on which either
Borrower may in any way be liable, and
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hereby ratifies and confirms whatever Administrative Agent may do in this
regard, (ii) all rights to notice and a hearing prior to Administrative Agent's
taking possession or control of, or to Administrative Agent's replevy,
attachment or levy upon, the Collateral or any part thereof or any bond or
security which might be required by any court prior to allowing Administrative
Agent to exercise any of its remedies, and (iii) the benefit of all valuation,
appraisal and exemption laws. Each of the Borrowers acknowledges that it has
been advised by counsel of its choice with respect to this Agreement, the other
Loan Documents and the transactions evidenced by this Agreement and the other
Loan Documents.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF ADMINISTRATIVE AGENT
9.1 Assignment and Participations. (a) Borrowers hereby
consent to Administrative Agent's and any Lender's sale of participations, and
to Administrative Agent's and any Lender's assignment, at any time or times, of
any of the Loan Documents, any Commitment or of any portion thereof or interest
therein, including, without limitation, Administrative Agent's and any Lender's
rights, title, interests, remedies, powers or duties thereunder, whether
evidenced by a writing or not; provided that any assignment by a Lender of all
or any part of its Commitment shall (i) require the consent of Administrative
Agent which consent shall not be unreasonably withheld and the execution of a
Lender Addition Agreement in form and substance satisfactory to Administrative
Agent; (ii) be conditioned on such assignee Lender representing to the
assigning Lender and the Administrative Agent that it is purchasing the
Revolving Credit Loans and/or Term Loan C to be assigned to it for its own
account, for investment purposes and not with a view to the distribution
thereof; provided that the foregoing shall not prohibit the sale of such Loans
to commercial banks, finance companies and investment funds; (iii) if a partial
assignment, be in an amount at least equal to $5,000,000 and, after giving
effect to any such partial assignment, the assigning Lender shall have retained
Commitments in an amount at least equal to $5,000,000; and (iv) include a
payment by the assigning Lender to the Administrative Agent of an assignment
fee of $3,500; provided further, that any participation by a Lender of all or
any part of its Commitments shall be made with the understanding that all
amounts payable by Borrowers hereunder shall be determined as if that Lender
had not sold such participation, and that the holder of any such participation
shall not be entitled to require such Lender to take or omit to take any action
hereunder, except actions directly affecting (i) any reduction in the principal
amount, interest rate or fees payable hereunder in which such holder
participates, (ii) any extension of the final scheduled maturity date of the
principal amount of the Revolving Credit Loan and/or Term Loan C in which such
holder participates, (iii) any release of all or substantially all of the
Collateral (other than in accordance with the terms of this Agreement or the
other Loan Documents) and (iv) any increase in the percentage advance rates set
forth in the definition of "Borrowing Base" or "UK Borrowing Base". Each
Borrower hereby acknowledges and agrees that any participation will give rise
to a direct obligation of Borrowers to the participant and the participant
shall for purposes of Sections 1.15, 1.16 and 9.8 be considered to be a
"Lender".
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(b) In the case of an assignment by a Lender under this
Section 9.1, the assignee shall have, to the extent of such assignment, the
same rights, benefits and obligations as it would if it were a Lender
hereunder. Except as provided in subsection 9.1(e),the assigning Lender shall
be relieved of its obligations hereunder with respect to its Commitments or
assigned portion thereof. Each Borrower hereby acknowledges and agrees that
any assignment will give rise to a direct obligation of Borrowers to the
assignee and that the assignee shall be considered to be a "Lender". In all
instances, each Lender's liability to make Loans hereunder shall be several and
not joint and shall be limited to such Lender's Pro Rata Share.
(c) Except as otherwise provided in this Section 9.1, no
Lender shall, as between any such Borrower and that Lender, be relieved of any
of its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender.
(d) Borrowers shall assist any Lender permitted to sell
assignments or participations under this Section 9.1 as reasonably required to
enable the assigning or selling Lender to effect any such assignment or
participation, including the execution and delivery of any and all agreements,
notes and other documents and instruments as shall be requested and the
preparation of informational materials for, and the participation of management
in meetings with, potential assignees or participants. Borrowers shall certify
the correctness, completeness and accuracy of all descriptions of Borrowers and
their affairs contained in any selling materials provided by Borrowers and all
other information provided by Borrowers and included in such materials, except
that any projections delivered by Borrowers shall only be certified by
Borrowers as having been prepared by Borrowers in good faith and based on
reasonable assumptions consistent with Borrowers' anticipated business plans.
(e) A Lender may furnish any information concerning Borrowers
in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants); provided that
such Lender shall utilize commercially reasonable procedures to cause such
assignees or participants to maintain the confidentiality of confidential
information of Borrowers. In the event Administrative Agent or any Lender
assigns or otherwise transfers all or any part of a Note, Administrative Agent
or any such Lender shall so notify Borrowers and Borrowers shall, upon the
request of Administrative Agent or such Lender, execute new Notes in exchange
for the Notes being assigned.
9.2 Appointment of Administrative Agent. GE Capital is hereby
appointed Administrative Agent to act on behalf of all Lenders as
Administrative Agent under this Agreement and the other Loan Documents. The
provisions of this Section 9.2 are solely for the benefit of Administrative
Agent and Lenders and neither Borrower, any Subsidiary nor any other Person
shall have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement and the
other Loan Documents, Administrative Agent shall act solely as an agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for either
Borrower, any Subsidiary
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or any other Person. Administrative Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Administrative Agent shall be mechanical
and administrative in nature and Administrative Agent shall not have, or be
deemed to have, by reason of this Agreement, any other Loan Document or
otherwise a fiduciary relationship in respect of any Lender. Neither
Administrative Agent nor any of its officers, directors, partners, employees,
agents or representatives shall be liable to any Lender for any action taken or
omitted to be taken by it hereunder or under any other Loan Document, or in
connection herewith or therewith, except for damages caused by its or their own
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction after all possible appeals have been exhausted.
If Administrative Agent shall request instructions from Lenders
with respect to any act or action (including failure to act) in connection with
this Agreement or any other Loan Document, then Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until
Administrative Agent shall have received instructions from Requisite Lenders,
and Administrative Agent shall not incur liability to any Person by reason of
so refraining. Administrative Agent shall be fully justified in failing or
refusing to take any action hereunder or under any other Loan Document (a) if
such action would, in the opinion of Administrative Agent, be contrary to law
or the terms of this Agreement or any other Loan Document or (b) if
Administrative Agent shall not first be indemnified to its satisfaction against
any and all liability and expense (including Environmental Liabilities and
Costs) which may be incurred by it by reason of taking or continuing to take
any such action. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Administrative Agent as a result of
Administrative Agent acting or refraining from acting hereunder or under any
other Loan Document in accordance with the instructions of Requisite Lenders.
9.3 Administrative Agent's Reliance. Neither Administrative
Agent nor any of its directors, officers, partners, agents or employees shall
be liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or the other Loan Documents, except for its or
their own gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction after all possible appeals have been exhausted.
Without limitation of the generality of the foregoing, Administrative Agent:
(i) may treat the payee of any Amended Revolving Credit Note or Term C Note as
the holder thereof until Administrative Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
Administrative Agent; (ii) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (iv) 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 the other Loan Documents on
the part of Borrowers or to inspect the Collateral (including the books and
records) of Borrowers unless requested to do so by the Requisite Lenders; (v)
shall not be responsible to any
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Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; and (vi) shall
incur no liability under or in respect of this Agreement or the other Loan
Documents by acting upon any notice, consent, certificate or other instrument
or writing (which may be by telecopy, telegram, cable or telex) believed by it
to be genuine and signed or sent by the proper party or parties.
9.4 Administrative Agent and Affiliates. With respect to its
commitment hereunder to make or continue Term Loan C advances and Revolving
Credit Advances, Administrative Agent shall have the same rights, powers and
obligations under this Agreement and the other Loan Documents as any other
Lender and may exercise the same as though it were not Administrative Agent;
and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated,
include GE Capital in its individual capacity. GE Capital and its Affiliates
may lend money to, invest in, and generally engage in any kind of business
with, either Borrower, any of its Subsidiaries and Affiliates and any Person
who may do business with or own securities of either Borrower or any such
Subsidiary or Affiliate, all as if GE Capital were not Administrative Agent and
without any duty to account therefor to Lenders. GE Capital and its Affiliates
may accept fees and other consideration from either Borrower and any of the
Subsidiaries for services in connection with this Agreement or otherwise
without having to account for the same to Lenders. Each Lender acknowledges
the potential conflict of interest between GE Capital as Administrative Agent,
GE Capital as a stockholder of Holdings and GE Capital Canada as a lender under
the NOW Canada Credit Agreement.
9.5 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon Administrative Agent or any other
Lender and based on the financial statements referred to in Section 3.4 and
such other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Loans, the creditworthiness of Borrowers
and the Subsidiaries and the value and lien status of the Collateral and its
own decision to enter into this Agreement. Each Lender also acknowledges that
it will be responsible for making its own independent appraisal of the credit
and financial condition of, and all other matters concerning, the Borrowers and
will, independently and without reliance upon Administrative Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.
9.6 Indemnification. Lenders agree to indemnify
Administrative Agent (to the extent required to be but not reimbursed by
Borrowers and without limiting the Obligations of Borrowers hereunder), ratably
according to their respective Pro Rata Shares, from and against any and all
liabilities (including Environmental Liabilities and Costs), obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against Administrative Agent in any way relating to or
arising out of this Agreement or any other Loan Document or any action taken or
omitted by Administrative Agent in connection therewith; provided that no
Lender shall be liable
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for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Administrative Agent's gross negligence or wilful misconduct as finally
determined by a court of competent jurisdiction after all possible appeals have
been exhausted. Without limiting the foregoing, each Lender agrees to
reimburse Administrative Agent promptly after demand for its ratable share of
any out-of-pocket expenses (including counsel fees) incurred by Administrative
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 and each other Loan Document, to the
extent that Administrative Agent is required to be but not reimbursed for such
expenses by Borrowers.
9.7 Successor Administrative Agent. Administrative Agent may
resign at any time by giving not less than thirty (30) days' prior written
notice thereof to Lenders and US Borrower. Upon any such resignation, the
Requisite Lenders shall have the right to appoint a successor Administrative
Agent which shall be reasonably acceptable to US Borrower. If no successor
Administrative Agent shall have been so appointed by the Requisite Lenders and
shall have accepted such appointment, within thirty (30) days after the
resigning Administrative Agent's giving notice of resignation then the
resigning Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which shall be a Lender, if a Lender is willing
to accept such appointment, or otherwise shall be a commercial bank or
financial institution organized under the laws of the United States of America
or of any State thereof having a combined capital and surplus of at least
$300,000,000, which is reasonably acceptable to US Borrower. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Administrative Agent, and the resigning Administrative Agent
shall be discharged from its duties and obligations under this Agreement and
the other Loan Documents, except that any indemnity rights or other rights in
favor of such resigning Administrative Agent shall continue. After any
resigning Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Section 9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.
9.8 Setoff and Sharing of Payments. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence and during the continuance of any Event of
Default, subject to subsection 9.10(f) each Lender and each holder of any Note
is hereby authorized at any time or from time to time, without notice to either
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and to apply any and all balances held by it at
any of its offices for the account of any Borrower (regardless of whether such
balances are then due to such Borrower) and any other properties or assets any
time held or owing by that Lender or that holder to or for the credit or for
the account of Borrowers against and on account of any of the Obligations which
are not paid when due. Any Lender or holder of any Note having a right to set
off shall, to the extent the amount of any such set off exceeds its Pro Rata
Share of the Obligations, purchase for cash (and the other Lenders
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or holders shall sell) such participations in each such other Lender's or
holder's Pro Rata Share of the Obligations as would be necessary to cause such
Lender to share such excess with each other Lender or holder in accordance with
their respective Pro Rata Shares. Each Borrower agrees, to the fullest extent
permitted by law, that (a) any Lender or holder may exercise its right to set
off with respect to amounts in excess of its Pro Rata Share of the Obligations
and may sell participations in such excess to other Lenders and holders and (b)
any Lender or holders so purchasing a participation in the Revolving Credit
Advances or Term Loan C made or other Obligations held by other Lenders or
holders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of Revolving Credit Advances, Term Loan C and other
Obligations in the amount of such participation.
9.9 Disbursement of Funds. Administrative Agent may, on
behalf of Lenders, disburse funds to US Borrower for Revolving Credit Advances
and Term Loan C advances requested. Each Lender with a Revolving Credit Loan
Commitment or a Term Loan C Commitment shall reimburse Administrative Agent on
demand for all such funds disbursed on its behalf by Administrative Agent, or
if Administrative Agent so requests, such Lender will remit to Administrative
Agent its Pro Rata Share of any Revolving Credit Advance or any Term Loan C
advance before Administrative Agent disburses same to the applicable Borrower.
If any Lender fails to pay the amount of its Pro Rata Share forthwith upon
Administrative Agent's demand, Administrative Agent shall promptly notify the
applicable Borrower and such Borrower shall immediately repay such amount to
Administrative Agent. Nothing in this Section 9.9 or elsewhere in this
Agreement or the other Loan Documents shall be deemed to require Administrative
Agent to advance funds on behalf of any Lender or to relieve any Lender from
its obligation to fulfill its Revolving Credit Loan Commitment or Term Loan C
Commitment, as applicable, hereunder or to prejudice any rights that Borrowers
may have against any such Lender as a result of any default by such Lender
hereunder.
9.10 Advances; Payments; Information; Non-Funding Lenders.
(a) Revolving Credit Advances; Term Loan C Advances; Payments;
Fee Payments.
(i) The Revolving Credit Loan and the Term Loan C balances may
fluctuate from day to day through Administrative Agent's disbursement of
funds to, and receipt of funds from, Borrowers. In order to minimize
the frequency of transfers of funds between Administrative Agent and
each Lender, Revolving Credit Advances and Term Loan C advances and
payments in respect thereof will be settled according to the procedures
described in subsections 9.10(a)(ii) and 9.10(a)(iii). Notwithstanding
these procedures, each Lender's obligation to fund its portion of any
advances made by Administrative Agent to either Borrower will commence
on the date such advances are made by Administrative Agent. Such
payments will be made by each Lender without setoff, counterclaim or
reduction of any kind.
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(ii) Not later than 12:00 noon (New York time) on the second
(2nd) Business Day of each week, or more frequently (including daily) if
Administrative Agent so elects or if US Borrower has requested a
Revolving Credit Advance in excess of $5,000,000 (each such day being a
"Settlement Date"), Administrative Agent will advise each Lender by
telephone, telex or telecopy of the amount of such Lender's Pro Rata
Share of the Revolving Credit Loan or Term Loan C balance, as
applicable, as of the close of business on the first (1st) Business Day
immediately preceding the Settlement Date. In the event that payments
are necessary to adjust the amount of such Lender's portion of the
Revolving Credit Loan or Term Loan C to such Lender's Pro Rata Share of
the Revolving Credit Loan or Term Loan C as of any Settlement Date, the
party from which such payment is due will pay the other, in same day
funds, by wire transfer to the other's account not later than 2:00 p.m.
(Chicago time) on the Settlement Date (excluding amounts charged to the
Revolving Loan Account pursuant to Section 1.11, and which do not
constitute Revolving Credit Advances). Notwithstanding the foregoing,
if Administrative Agent so elects, Administrative Agent may require that
each Lender make its Pro Rata Share of any requested Revolving Credit
Advance or Term Loan C advance, as applicable, available to
Administrative Agent for disbursement prior to the funding of such
Revolving Credit Advance or Term Loan C advance. If Administrative
Agent elects to require that such funds be so made available,
Administrative Agent shall advise each Lender by telephone, telex or
telecopy of the amount of such Lender's Pro Rata Share of such Loan no
later than 12:00 noon (New York time) on the date of funding thereof,
and each such Lender shall pay Administrative Agent such Lender's Pro
Rata Share of such requested Revolving Credit Advance or Term Loan C
advance, in same day funds, by wire transfer to the Administrative
Agent's account not later than 2:00 p.m. (New York time) on the date of
funding such Loan.
(iii) For purposes of this subsection 9.10(a)(iii), the
following terms and conditions will have the following meanings:
(A) "Daily Loan Balance" means, with respect to the
Revolving Credit Loan or Term Loan C, an amount calculated as of
the end of each calendar day by subtracting (i) the cumulative
principal amount paid by Administrative Agent to a Lender with
respect to such Loan from the Funding Date through and including
such calendar day, from (ii) the cumulative principal amount of
such Loan advanced by such Lender to Administrative Agent from
the Funding Date through and including such calendar day.
(B) "Daily Interest Rate" means, with respect to the
Revolving Credit Loan or Term Loan C, an amount calculated by
dividing the interest rate payable to a Lender on such Loan (as
set forth in Section 1.5) as of each calendar day by three
hundred sixty (360) days.
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(C) "Daily Interest Amount" means, with respect to the
Revolving Credit Loan or Term Loan C, an amount calculated by
multiplying the Daily Loan Balance of such Loan by the associated
Daily Interest Rate applicable to such Loan.
(D) "Interest Ratio" means, with respect to the Revolving
Credit Loan or Term Loan C, a number calculated by dividing the
total amount of interest on such Loan received by Administrative
Agent during the immediately preceding month by the total amount
of interest on such Loan due from Borrowers during the
immediately preceding month.
On the first (1st) Business Day of each calendar month (an "Interest Settlement
Date"), Administrative Agent will advise each Lender by telephone, telex or
telecopy of the amount of such Lender's Pro Rata Share of principal, interest
and Fees paid for the benefit of Lenders on the Revolving Credit Loan and Term
Loan C as of the end of the last day of the immediately preceding month.
Provided that such Lender has made all payments required to be made by it under
this Agreement and the other Loan Documents, Administrative Agent will pay to
such Lender, by wire transfer to such Lender's account (as specified by such
Lender on Schedule K or the applicable Lender Addition Agreement, as amended by
such Lender from time to time after the Closing Date pursuant to the notice
provisions contained herein or in the applicable Lender Addition Agreement) not
later than 11:00 a.m. (New York time) on the next Business Day following the
Interest Settlement Date, such Lender's Pro Rata Share of principal, interest
and Fees paid for the benefit of Lenders on the Revolving Credit Loan and Term
Loan C, as applicable. Such Lender's Pro Rata Share of interest on the
Revolving Credit Loan and the Term Loan C, as applicable, will be calculated by
adding together the Daily Interest Amounts for each calendar day of the prior
month for such Loan and multiplying the total thereof by the Interest Ratio for
such Loan.
(b) Availability of Lender's Pro Rata Share.
(i) Administrative Agent may assume that each Lender will make
its Pro Rata Share of each Revolving Credit Advance or Term Loan C
advance, as applicable, available to Administrative Agent on the first
(1st) Business Day following each Settlement Date. If such Pro Rata
Share is not, in fact, paid to Administrative Agent by such Lender when
due, Administrative Agent will be entitled to recover such amount on
demand from such Lender without set-off, counterclaim or deduction of
any kind.
(ii) Nothing contained in this subsection 9.10(b) will be
deemed to relieve any Lender of its obligation to fulfill its
Commitments or to prejudice any rights Administrative Agent or Borrowers
may have against any Lender as a result of any default by such Lender
under this Agreement.
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(c) Return of Payments.
(i) If Administrative Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has
been or will be received by Administrative Agent from either Borrower
and such related payment is not received by Administrative Agent, then
Administrative Agent will be entitled to recover such amount from such
Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If Administrative Agent determines at any time that any
amount received by it under this Agreement must be returned to either
Borrower or paid to any other Person pursuant to any insolvency law or
otherwise, then, notwithstanding any other term or condition of this
Agreement or any other Loan Document, Administrative Agent will not be
required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Administrative Agent on demand any portion of
such amount that Administrative Agent has distributed to such Lender,
together with interest at such rate, if any, as Administrative Agent is
required to pay to either Borrower or such other Person, without
set-off, counterclaim or deduction of any kind.
(d) Dissemination of Information. Administrative Agent will
use reasonable efforts to provide Lenders with any information received by
Administrative Agent from any Borrower which is required to be provided to
Lenders hereunder, with any notice of Default or Event of Default received by
Administrative Agent from either Borrower, with any notice of Default or Event
of Default delivered by Administrative Agent to Borrowers, with notice of any
Default or Event of Default of which Administrative Agent has actually become
aware and with notice of any action taken by Administrative Agent following any
Default or Event of Default; provided that Administrative Agent shall not be
liable to any Lender for any failure to do so, except to the extent that such
failure is attributable to Administrative Agent's gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction after all
possible appeals have been exhausted.
(e) Non-Funding Lenders. The failure of any Lender with a
Revolving Credit Loan Commitment or Term Loan C Commitment (such Lender, a
"Non-Funding Lender") to make any Revolving Credit Advance or Term Loan C
advance to be made by it on the date specified therefor shall not relieve any
other applicable Lender (each such other Lender, an "Other Lender") of its
obligations to make its Revolving Credit Advance or Term Loan C advance on such
date, but neither any Other Lender nor Administrative Agent shall be
responsible for the failure of any Non-Funding Lender to make a Revolving
Credit Advance or Term Loan C advance to be made by such Non-Funding Lender,
and no Non-Funding Lender shall have any obligation to Administrative Agent or
any Other Lender for the failure by such Non-Funding Lender. Notwithstanding
anything set forth herein to the contrary, a Non-Funding Lender shall not have
any voting or consent rights under or with respect to any Loan Document or
constitute a "Lender" (or be included in the calculation of "Requisite Lenders"
hereunder) for any voting or consent rights under, or with respect to, any Loan
Document.
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(f) Actions in Concert. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including, without limitation, exercising any
rights of set-off) without first obtaining the prior written consent of
Administrative Agent or Requisite Lenders, it being the intent of Lenders that
any such action to protect or enforce rights under this Agreement and the Notes
shall be taken in concert and at the direction of Administrative Agent.
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of Borrowers,
Administrative Agent, Lenders and their respective successors and assigns,
except as otherwise provided herein or therein. A Borrower's successors and
assigns shall include, without limitation, any trustee, receiver or debtor in
possession of or for such Borrower. Neither Borrower may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express
written consent of Administrative Agent and all Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by either Borrower
without the prior express written consent of Administrative Agent and the
Lenders shall be void. The terms and provisions of this Agreement are for the
purpose of defining the relative rights and obligations of Borrowers,
Administrative Agent and Lenders with respect to the transactions contemplated
hereby and there shall be no third party beneficiaries of any of the terms and
provisions of this Agreement or any of the other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except
as set forth in Section 11.2. As of the Closing Date, any letter of interest
or commitment letter and/or fee letter (other than the GE Capital Fee Letter)
between either Borrower and Administrative Agent or any of their respective
affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this
Agreement.
11.2 Amendments and Waivers. (a) Except as otherwise provided
herein, no amendment, modification, termination or waiver of any provision of
this Agreement or any of the Notes or consent to any departure by either
Borrower or any of the Subsidiaries therefrom, shall in any event be effective
unless the same shall be in writing and signed by Administrative Agent,
Requisite Lenders and Borrowers.
(b) Notwithstanding the foregoing, no amendment, modification,
termination or waiver shall, unless in writing and signed by Administrative
Agent and each affected Lender, do any of the following: (i) increase the
principal amount of the Commitment of any affected Lender; (ii)
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reduce the principal of, rate of interest on or Fees payable with respect to
any Revolving Credit Advance or Letter of Credit Obligations or Term Loan C;
(iii) extend the final scheduled maturity date of any Loan or any scheduled
installment or mandatory prepayment of the principal amount of any Loan; (iv)
increase the percentage advance rates above that set forth on the Closing Date
in the definition of "Borrowing Base" or "UK Borrowing Base"; (v) waive,
forgive, defer, extend or postpone any payment of Obligations including
interest or Fees required hereunder; (vi) release any Guaranty Agreement; (vii)
except as otherwise contemplated herein or in one of the other Loan Documents,
release all or any material portion of the Collateral; (viii) change the
percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans which shall be required for Lenders or any of them to take any action
hereunder; and (ix) amend or waive Section 10.1 or this Section 11.2 or the
definitions of the terms used in this Section 11.2 insofar as the definitions
affect the substance of this Section 11.2 or subordinate the Obligations to any
other Indebtedness; and provided further that no amendment, modification,
termination or waiver affecting the rights or duties of an Administrative Agent
under this Agreement or any other Loan Document shall in any event be
effective, unless in writing and signed by such Administrative Agent, in
addition to Lenders required hereinabove to take such action. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Administrative Agent
to take additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No
notice to or demand on either Borrower in any case shall entitle either
Borrower to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.2 shall be binding upon each holder
of the Notes at the time outstanding and each future holder of the Notes.
(c) Upon indefeasible payment in full of all of the
Obligations, other than Indemnified Liabilities under Section 1.13 hereof and
termination of the Commitments; provided that no suits, actions, proceedings,
or claims are pending or threatened against any Indemnified Person asserting
any damages, losses or liabilities that are Indemnified Liabilities,
Administrative Agent shall deliver to Borrowers termination statements,
mortgage releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.
11.3 Fees and Expenses. Borrowers shall jointly and severally
reimburse Administrative Agent for all reasonable out-of-pocket expenses
incurred in connection with (a) the preparation of the Loan Documents
(including the reasonable fees and expenses of all of its special loan counsel,
advisors, consultants and auditors retained in connection with the Loan
Documents and the transactions contemplated thereby and advice in connection
therewith), and (b) wire transfers to the account of Borrowers. Borrowers
shall reimburse Administrative Agent (and, with respect to clauses (iii), (iv)
and (v) below, each Lender) for all fees, costs and expenses, including the
reasonable fees, costs and expenses of counsel or other advisors (including
environmental and management consultants) for advice, assistance, or other
representation in connection with:
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(i) the forwarding to either Borrower or any other Person on
behalf of either Borrower by Administrative Agent of the proceeds of the
Revolving Credit Advances and Term Loan C advances;
(ii) consent with respect to, any of the Loan Documents or
advice in connection with the administration of the loans made pursuant
hereto or its rights hereunder or thereunder;
(iii) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Administrative Agent, any Lender, either
Borrower or any other Person) in any way relating to the Collateral, any
of the Loan Documents or any other agreement to be executed or delivered
in connection therewith or herewith, whether as party, witness, or
otherwise, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection
with a case commenced by or against any or all of the Borrowers or any
other Person that may be obligated to Administrative Agent by virtue of
the Loan Documents;
(iv) any attempt to enforce any rights of Administrative Agent
or any Lender against any or all of the Borrowers or any other Person
that may be obligated to Administrative Agent or any Lender by virtue of
any of the Loan Documents;
(v) any refinancing or restructuring of the credit arrangements
provided under the Loan Documents, whether in the nature of a "workout"
or in connection with any insolvency or bankruptcy proceeding;
(vi) efforts to (A) monitor the Loans or any of the other
Obligations, (B) evaluate, observe, assess any or all of the Borrowers,
any Subsidiary thereof or their respective affairs, and (C) verify,
protect, evaluate, assess, appraise, collect, sell, liquidate or
otherwise dispose of any of the Collateral;
including, without limitation, all the attorneys' and other professional and
service providers' fees arising from such services, including those in
connection with any appellate proceedings; and all expenses, costs, charges and
other fees incurred by such counsel and others in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 11.3 shall be payable, on demand, by Borrowers to Administrative Agent.
Without limiting the generality of the foregoing, such expenses, costs, charges
and fees may include: fees, costs and expenses of accountants, environmental
advisors, appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplication expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges; secretarial overtime charges; and expenses
for travel, lodging and food paid or incurred in connection with the
performance of such legal or other advisory services.
11.4 No Waiver. Administrative Agent's or any Lender's
failure, at any time or times, to require strict performance by Borrowers of
any provision of this Agreement and any of the
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other Loan Documents shall not waive, affect or diminish any right of
Administrative Agent or such Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver of an Event of Default under
this Agreement or any of the other Loan Documents shall not suspend, waive or
affect any other Event of Default under this Agreement and any of the other
Loan Documents whether the same is prior or subsequent thereto and whether of
the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of either Borrower contained in this
Agreement or any of the other Loan Documents and no Default or Event of Default
by either Borrower under this Agreement and no defaults by either Borrower
under any of the other Loan Documents shall be deemed to have been suspended or
waived by Administrative Agent or any Lender, unless such waiver or suspension
is by an instrument in writing signed by an officer of or other authorized
employee of Administrative Agent and Requisite Lenders and directed to
Borrowers specifying such suspension or waiver.
11.5 Remedies. Administrative Agent's and Lenders' rights and
remedies under this Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Administrative Agent or any Lender may have under any
other agreement, including the other Loan Documents, by operation of law or
otherwise. Recourse to the Collateral shall not be required.
11.6 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of
the other Loan Documents, the provision contained in this Agreement shall
govern and control.
11.8 Authorized Signature. Until Administrative Agent shall be
notified by the applicable Borrower to the contrary, the signature upon any
document or instrument delivered pursuant hereto of an officer of such Borrower
listed on Schedule 11.8 shall bind such Borrower and be deemed to be the act of
such Borrower affixed pursuant to and in accordance with resolutions duly
adopted by such Borrower's Board of Directors.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. EACH BORROWER
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HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE CITY
OF NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWERS, ADMINISTRATIVE AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS; PROVIDED THAT ADMINISTRATIVE AGENT, LENDERS AND BORROWERS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE CITY OF NEW YORK, NEW YORK; AND PROVIDED FURTHER THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ADMINISTRATIVE
AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ADMINISTRATIVE AGENT. EACH
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY
OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE
J AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other party any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be deemed to have been
validly served, given or delivered (i) upon the earlier of actual receipt and
three (3) Business Days after deposit in the United States Mail, registered or
certified mail, return receipt requested, with proper postage prepaid, (ii)
upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 11.10), (iii) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated on Schedule J or
to such other address (or facsimile number) as may be substituted by notice
given as
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herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrowers or
Administrative Agent) designated on Schedule J to receive copies shall in no
way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of this Agreement between the
parties hereto.
11.12 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and
separately constitute one agreement.
11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ADMINISTRATIVE
AGENT, LENDERS AND BORROWERS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
11.14 Press Releases and Public Announcements. Each Borrower
hereby agrees that neither it nor its Subsidiaries is on the Closing Date
issuing any press releases or other public announcements with respect to this
Agreement or the Related Transactions which mentions or uses the name of GE
Capital or any of its affiliates. Each Borrower further agrees that neither it
nor its Subsidiaries will make in the future any press releases or other public
announcements using the name of GE Capital or any of its affiliates referring
to this Agreement without their prior written consent unless such Borrower or
such Subsidiary is required to do so under law and then, in any event, such
Borrower or such Subsidiary will consult with GE Capital before issuing such
press release or other public announcements.
11.15 Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against any Borrower for liquidation or reorganization, should any Borrower
become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any
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Borrower's assets, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.16 Domicile of Loans. Each Lender may transfer and carry its
Loans at, to or for the account of any office or lending installation of such
Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 11.16 would, at the
time of such transfer, result in increased costs under Section 1.16 from those
being charged by the respective Lender prior to such transfer, then no Borrower
shall be obligated to pay such increased costs (although each Borrower shall be
obligated to pay any other increased costs of the type described above
resulting from changes after the date of the respective transfer).
11.17 Judgment Currency. If for the purposes of obtaining
judgment against either Borrower in any court in any jurisdiction with respect
to this Agreement, it becomes necessary to convert into the currency of such
jurisdiction (herein called the "Judgment Currency") any amount due hereunder
in Dollars, then conversion shall be made at the rate of exchange prevailing on
the Business Day before the day on which judgment is given. For this purpose,
"rate of exchange" means the rate at which Administrative Agent would, on the
relevant date at or about 12:00 noon (Chicago time), be prepared to sell a
similar amount of Dollars in Chicago against the Judgment Currency. In the
event that there is a change in the rate of exchange prevailing between the
Business Day before the day on which the judgment is given and the date of
payment of the amount due, such Borrower will, on the date of payment, pay such
additional amounts (if any) as may be necessary to ensure that the amount paid
on such date is the amount in the Judgment Currency which, when converted at
the rate of exchange prevailing on the date of payment, is the amount then due
under this Agreement in Dollars. Any additional amount due from such Borrower
under this Section 11.17 will be due as a separate debt and shall not be
affected by judgment being obtained for any other sums due under or in respect
of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered October 23, 1996.
NATIONAL-OILWELL, L.P.
By: NOW OILFIELD SERVICES, INC.
its general partner
By:
------------------------------
Title:
---------------------------
NATIONAL OILWELL (U.K.) LIMITED
By:
------------------------------
Title:
---------------------------
Revolving Credit Loan GENERAL ELECTRIC CAPITAL
Commitment: CORPORATION,
$41,517,000 as Administrative Agent and Lender
Term Loan C
Commitment:
$1,977,000 By:
------------------------------
Title:
---------------------------
Revolving Credit Loan THE BANK OF NEW YORK COMMERCIAL
Commitment: CORPORATION
$17,493,000
Term Loan C By:
Commitment: ------------------------------
$833,000 Title:
---------------------------
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Revolving Credit Loan BTM CAPITAL CORPORATION
Commitment:
$20,002,500 By:
Term Loan C ------------------------------
Commitment: Title:
$952,500 ---------------------------
Revolving Credit Loan THE MITSUBISHI TRUST AND BANKING
Commitment: CORPORATION
$8,494,500
Term Loan C By:
Commitment: ------------------------------
$404,500 Title:
---------------------------
Revolving Credit Loan SANWA BUSINESS CREDIT CORPORATION
Commitment:
$17,493,000 By:
Term Loan C ------------------------------
Commitment: Title:
$833,000 ---------------------------
<PAGE> 75
SCHEDULE A
to
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Agreement shall have (unless
otherwise provided elsewhere in the Agreement) the following respective
meanings and all section references in the following definitions shall refer to
Sections of the Agreement:
"Account Debtor" shall mean any Person who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" shall mean, as to any Person, all "accounts," as such
term is defined in the Code, now owned or hereafter acquired by such Person
and, in any event, including (a) all accounts receivable, other receivables,
book debts and other forms of obligations (other than forms of obligations
evidenced by chattel paper, documents or instruments) now owned or hereafter
received or acquired by or belonging or owing to such Person, whether arising
out of goods sold or services rendered by it or from any other transaction
(including any such obligations which may be characterized as an account or
contract right under the Code), (b) all of such Person's rights in, to and
under all purchase orders or receipts now owned or hereafter acquired by it for
goods or services, (c) all of such Person's rights to any goods represented by
any of the foregoing (including unpaid sellers' rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods), (d) all monies due or to become due to such Person, under
all purchase orders and contracts for the sale of goods or the performance of
services or both by such Person or in connection with any other transaction
(whether or not yet earned by performance on the part of such Person, as
appropriate) now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing.
"Acquired Companies" shall mean, collectively, Australia,
Singapore and National-Oilwell and its Subsidiaries.
"Acquisition" shall mean the acquisition by US Borrower of all of
the issued and outstanding Partnership Interests and Purchased Stock pursuant
to the Purchase Agreement.
"Acquisition Documents" shall mean the Purchase Agreement, the
Sellers' Notes, the Shareholders Agreement and all other documents, agreements
and certificates executed in connection therewith excluding, however, all Loan
Documents.
"Administrative Agent" shall mean GE Capital in its capacity as
administrative agent and not in its individual capacity, or its successor
appointed pursuant to Section 9.2.
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"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, five percent (5%) or more of any
class of the Stock or other equity interests of such Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management of such Person, whether through ownership of Stock or other equity
interests, by contract or otherwise, (ii) each Person that controls, is
controlled by or is under common control with such Person or any Affiliate of
such Person or (iii) each of such Person's employees, officers, directors,
joint venturers and partners. For the purposes of this definition, "control"
of a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through
the ownership of voting securities, by contract or otherwise; provided that,
when used in reference to US Borrower or any Subsidiary, the term "Affiliate"
shall specifically exclude Administrative Agent, Documentation Agent and each
Lender.
"Agreement" shall mean the Amended and Restated Credit Agreement
by and among Borrowers, GE Capital, as Administrative Agent and Lender, and the
other Lenders signatory from time to time to the Agreement, dated as of October
23, 1996, and shall include all restatements and modifications thereof and
amendments and supplements thereto from time to time and any appendices,
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at any and all times such reference becomes
operative.
"Amended Revolving Credit Note" shall have the meaning assigned
thereto in Section 1.1(a)(ii) and shall be substantially in the form of Exhibit
A.
"Amended Term C Note" shall have the meaning assigned thereto in
Section 1.1(b) and shall be substantially in the form of Exhibit B.
"Applicable Index Margin" shall mean the per annum interest rate
margin from time to time in effect and payable in addition to the Index Rate,
as determined by reference to Section 1.5(a).
"Applicable L/C Margin" shall mean the per annum fee, from time
to time in effect, payable with respect to outstanding Letter of Credit
Obligations as determined by reference to Section 1.5(a).
"Applicable LIBOR Margin" shall mean the per annum interest rate
from time to time in effect and payable in addition to the LIBOR Rate, as
determined by reference to Section 1.5(a).
"Applicable Line Margin" shall mean the per annum fee, from time
to time in effect, payable with respect to the unused portion of the total
Revolving Credit Commitment as determined by reference to Section 1.5(a).
"Applicable Margins" shall mean collectively the Applicable L/C
Margin, the Applicable Line Margin, the Applicable Index Margin, and the
Applicable LIBOR Margin.
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"Asset Sale Program" shall mean the planned sale by US Borrower
of the assets listed on Schedule 6.8 subject to the terms and conditions set
forth in Schedule 6.8, which terms and conditions shall be satisfactory to
Administrative Agent.
"Australia" shall have the meaning assigned thereto in the
Recitals to the Agreement.
"Borrowers" shall mean UK Borrower and US Borrower, collectively.
"Borrower Representative" shall mean National-Oilwell, L.P. in
its capacity as Borrower Representative pursuant to the provisions of
subsection 1.1(c).
"Borrowing Availability" shall have the meaning assigned thereto
in subsection 1.1(a).
"Borrowing Base" shall mean, as of any date of determination by
Administrative Agent, in its reasonable discretion from time to time, an amount
equal to the sum at such time of:
(a) eighty-five percent (85%) of US Borrower's Eligible
Accounts, less reserves established by Administrative Agent from time to
time in accordance with the Agreement; plus
(b) sixty percent (60%) of the book value of US Borrower's
Eligible Inventory valued on a first-in, first-out basis (at the lower
of cost or market), less reserves established by Administrative Agent
from time to time in accordance with the Agreement; plus
(c) the lesser of $5,000,000 or fifty percent (50%) of the
book value of Eligible On-Lease Inventory; plus
(d) the lesser of $15,000,000 or the sum of:
(i) 80% of the orderly liquidation value of Eligible
Equipment owned as of the Closing Date based upon appraisals
provided to Administrative Agent pursuant to the Prior Credit
Agreement, subject to reserves established by Administrative
Agent from time to time in accordance with the Agreement; plus
(ii) 50% of the net book value (not to exceed fair
market value) of Eligible Equipment acquired after the Closing
Date, including Equipment acquired as part of Permitted
Acquisitions, subject to reserves established by Administrative
Agent from time to time in accordance with the Agreement; plus
(iii) 50% of the fair market value of Eligible Real
Estate owned as of the Closing Date based upon appraisals
provided to Administrative Agent
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pursuant to the Prior Credit Agreement, subject to reserves
established by Administrative Agent from time to time in
accordance with the Agreement.
"Borrowing Base Certificate" shall mean a certificate of US
Borrower or UK Borrower in form and substance satisfactory to the
Administrative Agent.
"Borrowing Notice" shall mean a notice in form and substance
satisfactory to Administrative Agent specifying therein (i) the requested date
of a Loan, (ii) the amount and type of advance, conversion or continuation, as
applicable, (iii) in the case of a Revolving Credit Advance or a Term Loan C
advance at the LIBOR Rate, or a conversion into, or continuation of, a LIBOR
Loan, the duration of the LIBOR Period applicable thereto, and (iv) such other
information as may be required by Administrative Agent.
"Business Day" shall mean (a) any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of Illinois or the State of New York, and (b) with respect to all
notices, determinations, fundings and payments in connection with the LIBOR
Rate or LIBOR Loans, any day that is a Business Day pursuant to clause (a)
above and that is also a day on which banks in the city of London are generally
open for interbank or foreign exchange transactions.
"Capital Expenditures" shall mean expenditures (whether paid in
cash or property or accrued as liabilities and including the principal portion
of payments under Capital Leases, installment purchase agreements and other
similar purchase money financing arrangements) for any fixed assets or
improvements or for replacements, substitutions or additions thereto, that have
a useful life of more than one year and that are required to be capitalized
under GAAP, excluding expenditures of insurance proceeds in accordance with the
terms of this Agreement to rebuild or replace any asset after a casualty loss.
"Capital Lease" shall mean, with respect to any Person, any lease
of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet, other than any such lease
under which such Person is the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance
sheet.
"Certificate of Exemption" shall have the meaning assigned
thereto in subsection 1.16(e).
"Change of Control" shall mean (i) relative to the Partners, the
failure of Holdings at all times to own, beneficially and of record, with full
voting and economic rights associated with
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ownership of 100% of the issued and outstanding Voting Stock of all classes of
the Partners, (ii) relative to US Borrower, the failure of the Partners at all
times to own 100% of the partnership interests of US Borrower and the economic
benefits associated therewith, (iii) relative to Holdings, any Person or group
of Persons (within the meaning of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act")) other than DPI and/or First Reserve shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 30% or more of the issued and outstanding Stock of Holdings.
"Charges" shall mean, as to any Person, all federal, state,
county, city, municipal, local, foreign or other governmental taxes (including,
without limitation, taxes owed to the PBGC at the time due and payable),
levies, assessments, charges, liens, claims or encumbrances upon or relating to
(i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income
or gross receipts of such Person, (iv) such Person's ownership or use of any
properties or other assets, or (v) any other aspect of such Person's business.
"Chattel Paper" shall mean, as to any Person, any "chattel
paper," as such term is defined in the Code, now owned or hereafter acquired by
such Person, wherever located.
"Closing Date" shall mean the effective date of the Amended and
Restated Credit Agreement which shall be any date prior to December 31, 1996 on
which the conditions precedent to effectiveness thereof have been met or waived
by Administrative Agent.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Administrative Agent's or any Lender's
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, the term
"Code" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction solely for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
"Collateral" shall mean the property covered by the Security
Agreement, the Mortgages and the other Collateral Documents and any other
property, real or personal, tangible or intangible, now existing or hereafter
acquired, that may at any time be or become subject to a security interest or
Lien in favor of Administrative Agent, on behalf of itself and Lenders, to
secure the Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Guaranty Agreements, the Partner Assignment, the Stock Pledge Agreements, the
Mortgages, the Intellectual Property Security Agreements, the Pledge and
Security Agreement, and all similar agreements entered into guarantying payment
of, or granting a Lien upon property as security for payment of, the
Obligations.
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"Collateral Reports" shall mean the reports with respect to the
Collateral referred to in Schedule H.
"Collection Account" shall mean that certain account of
Administrative Agent, account number 50-232-854 in the name of Administrative
Agent at Bankers Trust Company in New York, New York.
"Commitment Termination Date" shall mean the earliest of (i) the
fifth (5th) anniversary of the Closing Date, (ii) the date of termination of
Lenders' obligation to make Revolving Credit Advances and Term Loan C advances
pursuant to Section 8.2(b), and (iii) the date of indefeasible prepayment in
full by US Borrower and UK Borrower of the Obligations, and the termination of
the Revolving Credit Loan Commitment and Term Loan C Commitment.
"Commitments" shall mean (a) as to any Lender, the aggregate
commitment of such Lender to make Revolving Credit Advances and Term Loan C
advances as set forth on the signature page to the Agreement or in the most
recent Lender Addition Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Credit
Advances and Term Loan C advances, which aggregate commitment shall be One
Hundred Five Million Dollars ($105,000,000) on the Closing Date as such amount
may be adjusted, if at all, from time to time in accordance with the Agreement.
"Concentration Account" shall have the meaning assigned thereto
in Schedule E.
"Contracts" shall mean, as to any Person, all "contracts," as
such term is defined in the Code, now owned or hereafter acquired by such
Person, and, in any event, including all contracts, undertakings, or agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which such Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
"Copyright License" shall mean, as to any Person, any and all
rights now owned or hereafter acquired by such Person under any written
agreement granting any right to use any Copyright or Copyright registration.
"Currency Agreement" shall mean, as to any Person, any foreign
exchange contract, currency swap agreement, futures contract, option contract,
synthetic cap or other similar agreement designed to protect such Person
entering into same against fluctuations in currency values.
"Debt Service" shall mean, for any period, an amount equal to the
sum of (i) the Interest Charges for such period plus (ii) the scheduled or
mandatory payments of any outstanding Indebtedness during such period.
"Debt Service Coverage Ratio" shall mean, for any period, the
ratio of EBITDA to Debt Service.
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"Default" shall mean any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned thereto in
subsection 1.5(d).
"Documents" shall mean, as to any Person, any "documents," as
such term is defined in the Code, now owned or hereafter acquired by such
Person, wherever located.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Dollars or $" shall mean lawful currency of the United States
of America.
"DPI" shall mean Duff & Phelps/Inverness L.L.C., a Connecticut
limited liability company.
"EBIT" shall mean, for any period, Holdings' consolidated net
income from operations (before interest and income taxes) all as determined in
accordance with GAAP.
"EBITDA" shall mean, for any period, Holdings' consolidated net
income from operations (before interest, taxes, depreciation, amortization and
management fees paid, and expenses and costs directly incurred, in connection
with the Acquisition and the consummation of the transactions contemplated by
the Loan Documents), all as determined in accordance with GAAP.
"Eligible Accounts" shall have the meaning assigned thereto (i)
in Schedule C-1 with respect to US Borrower and (ii) in Schedule C-2 with
respect to UK Borrower.
"Eligible Equipment" shall mean Equipment (i) owned by US
Borrower; (ii) located in the United States; (iii) in which Administrative
Agent has a first and prior perfected security interest, subject to no other
Liens, except Permitted Encumbrances as described in clauses (i) and (v) of the
definition of that term; (iv) which is not a Fixture; (v) which, if located at
leased premises, is covered by a landlord waiver acceptable to Administrative
Agent; (vi) is in good operating condition; and (vii) is at a location where
the aggregate fair market value of all Eligible Equipment and Eligible
Inventory exceeds $100,000.
"Eligible Inventory" shall have the meaning assigned thereto (i)
in Schedule D-1 with respect to US Borrower and (ii) in Schedule D-2 with
respect to UK Borrower.
"Eligible On-Lease Inventory" shall mean Inventory consisting of
power swivels, mud pumps or drawworks leased by U.S. Borrower to its customers
as to which (i) Administrative Agent shall have a first and prior perfected
security interest on the chattel paper constituting the underlying equipment
leases, subject to no other Liens or Permitted Encumbrances; (ii) each of the
original copies of the leases of such Inventory shall reflect the following
legend on the cover page and signature page thereof: "This lease constitutes
chattel paper in which National-Oilwell, L.P. has granted a security interest
to General Electric Capital Corporation, as agent."; (iii) copies of each of
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those leases shall have been provided to Administrative Agent; (iv) the
lessee's headquarters and the location at which such leased Inventory is used
are in the United States; (v) US Borrower has perfected its interest in such
leased Inventory by filing under the Code (which filings designate
Administrative Agent as assignee); (vi) US Borrower has obtained casualty
insurance in the fair value of such leased Inventory naming US Borrower and
Administrative Agent as loss payees; and (vii) the lease payments from time to
time owing by the lessee would qualify as Eligible Accounts, if permitted to be
included therein.
"Eligible Real Estate" shall mean Real Estate (i) fee simple
title to which is held by US Borrower; (ii) located in the United States; (iii)
in which Administrative Agent has a first mortgage Lien, subject to no other
Liens, except Permitted Encumbrances as described in clauses (i), (v), (viii)
and (ix) of the definition of that term; and (iv) as to which all material
buildings and improvements are structurally sound and no material casualty
event has occurred since the Closing Date which has not been repaired.
"Environmental Laws" shall mean all federal, state, local and
foreign laws, statutes, ordinances and regulations, now or hereafter in effect,
and in each case as amended or supplemented from time to time, and any
applicable judicial or administrative interpretation thereof, including any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable real estate, and any permit, license or
authorization relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation). Environmental Laws include, but are not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.)
("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C.
Sections 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. Sections 136 et seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901 et seq.) ("RCRA"); the Toxic
Substance Control Act, as amended (15 U.S.C. Sections 2601 et seq.); the Clean
Air Act, as amended (42 U.S.C. Sections 740 et seq.); the Federal Water
Pollution Control Act, as amended (33 U.S.C. Sections 1251 et seq.); the
Occupational Safety and Health Act, as amended (29 U.S.C. Sections 651 et
seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. Sections
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, removal actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to the environment,
health and safety as regulated under any Environmental Law or in connection
with any other environmental matter or
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Release, threatened Release or the presence of a Hazardous Material or
threatened Release of a Hazardous Material.
"Equipment" shall mean, as to any Person, all "equipment," as
such term is defined in the Code, now owned or hereafter acquired by such
Person, wherever located and, in any event, including all of such Person's
machinery and equipment, including processing equipment, conveyors, machine
tools, data processing and computer equipment with software and peripheral
equipment (other than software constituting part of the Accounts), and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, all whether now
owned or hereafter acquired, and wherever situated, together with all additions
and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time, and
any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any plan subject to
Section 412 of the IRC or any obligation arising under Section 4980B of the
IRC, any trade or business (whether or not incorporated) under common control
with any Borrower or any Subsidiary thereof, and which, together with such
Borrower or such Subsidiary, are treated as a single employer within the
meaning of Sections 414(b), (c), (m) or (o) of the IRC and with respect to any
plan subject to Title IV of ERISA, any trade or business (whether or not
incorporated) under common control with any Borrower or any Subsidiary, and
which, together with such Borrower or such Subsidiary is required to be
aggregated under Section 4001 of ERISA.
"ERISA Event" shall mean, with respect to any of the Borrowers,
any Subsidiary or any ERISA Affiliate, (i) a Reportable Event with respect to a
Title IV Plan or a Multiemployer Plan; (ii) the withdrawal of any Borrower or
any Subsidiary or ERISA Affiliate thereof from a Title IV Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or
partial withdrawal of any Borrower, or any Subsidiary or ERISA Affiliate
thereof from any Multiemployer Plan; (iv) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (v) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (vi) the failure to make
required contributions to a Qualified Plan; or (vii) any other event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Title IV Plan or Multiemployer Plan or the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
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"Event of Default" shall have the meaning assigned thereto in
Section 8.1.
"Federal Reserve Board" shall have the meaning assigned thereto
in Section 3.11.
"Fees" shall mean any and all fees payable to Administrative
Agent or any Lender pursuant to the Agreement or any of the other Loan
Documents.
"Financial Statements" shall have the meaning assigned thereto in
Section 3.4.
"First Reserve" shall mean First Reserve Corporation, a Delaware
corporation.
"Fiscal Month" shall mean any of the monthly accounting periods
of Holdings.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Holdings.
"Fiscal Year" shall mean, as to any Person, any of the annual
accounting periods of such Person ending on December 31 of each year.
"Fixtures" shall mean, as to any Person, any "fixtures" as such
term is defined in the Code, now owned or hereafter acquired by such Person.
"Foreign Lender" shall have the meaning assigned thereto in
Section 1.16(e).
"Funded Debt" shall mean, with respect to Holdings and its
Subsidiaries, on a consolidated and consolidating basis, all of its
Indebtedness which by the terms of the agreement governing or instrument
evidencing such Indebtedness matures more than one year from, or is directly or
indirectly renewable or extendible at its option under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of more than one year from the date of creation thereof, including
current maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and shall also include,
without limitation, the Revolving Credit Loan, Term Loan C and the other
Obligations.
"Funded Debt/EBIT Ratio" shall mean , as of the last day of any
Fiscal Quarter, the ratio of Funded Debt as of such date to EBIT for the four
Fiscal Quarters ending on such date.
"Funding Arrangements" shall have the meaning assigned thereto in
Section 1.13(c).
"Funding Date" shall mean January 17, 1996, which is the date on
which the initial Revolving Credit Advances and Loans were made under the Prior
Credit Agreement.
"GAAP" shall mean (a) with respect to US Borrower, generally
accepted accounting principles in the United States of America as in effect on
the Closing Date, consistently applied and (b) with respect to UK Borrower,
generally accepted accounting principles in the United Kingdom as in effect on
the Closing Date, consistently applied(subject, in each case, to Accounting
Changes
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agreed to in accordance with the provisions set forth in the first paragraph
under the heading "Other Definitional Provisions" in this Schedule A).
"GE Capital" shall mean General Electric Capital Corporation, a
New York corporation, in its individual capacity and not as Administrative
Agent hereunder.
"GE Capital Fee Letter" shall mean that certain fee letter
between GE Capital and US Borrower dated October 1, 1996.
"General Intangibles" shall mean, as to any Person, any "general
intangibles," as such term is defined in the Code, now owned or hereafter
acquired by such Person, and, in any event, including, without limitation, all
right, title and interest which such Person may now or hereafter have in or
under any Contract, all customer lists, Copyrights, Trademarks, Patents,
service marks, trade names, business names, corporate names, trade styles,
logos and other source or business identifiers, and all applications therefor
and reissues, extensions or renewals thereof, rights in intellectual property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark license), all
rights and claims in or under insurance policies (including insurance for fire,
damage, loss and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life, key man and business
interruption insurance, and all unearned premiums), uncertificated securities,
chooses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments and rights of indemnification.
"General Partner" shall mean NOW Oilfield Services, Inc. f/k/a
National-Oilwell, Inc., a Delaware corporation, in its capacity as the general
partner of US Borrower, and its successors and assigns.
"Goods" shall mean, as to any Person, all "goods" as such term is
defined in the Code, now owned or hereafter acquired by such Person, wherever
located.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantors" shall mean Holdings, US Borrower, each Partner, NOW
International, and each other Person, if any, which executes a Guaranty in
favor of Administrative Agent, for the benefit of the Lenders, in connection
with the transactions contemplated by the Agreement and the other Loan
Documents.
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"Guaranty" shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person (i) to purchase
or repurchase any such primary obligation, (ii) to advance or supply funds (a)
for the purchase or payment of any such primary obligation or (b) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(iv) to indemnify the owner of such primary obligation against loss in respect
thereof. The amount of any Guaranty at any time shall be deemed to be an
amount equal to the lesser at such time of (y) the stated or determinable
amount of the primary obligation in respect of which such Guaranty is made or
(z) the maximum amount for which such Person may be liable pursuant to the
terms of the instrument embodying such Guaranty; or, if not stated or
determinable, the maximum reasonably anticipated liability (assuming full
performance) in respect thereof.
"Guaranty Agreements" shall mean the Holdings Senior Guaranty,
the Holdings Subordinated UK Guaranty, the US Borrower Subordinated UK
Guaranty, the NOW Guaranty, the National Guaranty, the NOW International Senior
Guaranty, the NOW International Subordinated UK Guaranty and any other guaranty
or support agreement or similar agreement made in favor of Administrative
Agent, for the benefit of Lenders, in form and substance satisfactory to
Administrative Agent, together with all amendments, modifications and
supplements thereto consented to in writing by Administrative Agent (subject to
Section 11.2(b) of the Agreement), and shall refer to any such Guaranty as the
same may be in effect at the time such reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste,
the generation, handling, storage, treatment or disposal of which is regulated
by or forms the basis of liability now or hereafter under, any Environmental
Law in any jurisdiction in which any Borrower or any Subsidiary has owned,
leased, or operated real property or disposed of hazardous waste or currently
owns, leases or operates real property or disposes of hazardous waste
including, without limitation, any material or substance which is (i) defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste" or
other similar term or phrase under any Environmental Laws, (ii) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls
(PCB's), any radioactive substance emitting radiation in excess of prevailing
background conditions, methane, volative organic compounds or any industrial
solvent, (iii) designated as a "hazardous substance" pursuant to Section 311 of
the Clean Water Act, 33 U.S.C. Sections 1251 et seq. (33 U.S.C. Sections 1321)
or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section
1317), (iv) defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. (42
U.S.C. Section 6903), or (v) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601).
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"Holdings" shall have the meaning assigned thereto in the
Recitals to the Agreement.
"Holdings Senior Guaranty" shall mean the Guaranty dated as of
the Funding Date executed by Holdings in favor of Administrative Agent, on
behalf of itself and Lenders, guarantying the Obligations of US Borrower,
together with all amendments, modifications and supplements thereto consented
to by Administrative Agent in writing (subject to Section 11.2(b)).
"Holdings Senior Stock Pledge Agreement" shall mean the stock
pledge agreement dated as of the Funding Date executed by Holdings in favor of
Administrative Agent, on behalf of itself and Lenders, together with all
amendments, modifications and supplements thereto consented to by
Administrative Agent in writing (subject to Section 11.2(b)).
"Holdings Subordinated Acquisition Guaranty" shall mean the
Guaranty dated as of the Funding Date executed by Holdings in favor of Sellers,
guarantying the obligations of US Borrower under the Sellers' Notes, together
with all amendments, modifications and supplements thereto consented to by
Administrative Agent in writing.
"Holdings Subordinated Canada Guaranty" shall mean the Guaranty
dated as of the Funding Date executed by Holdings in favor of General Electric
Capital Canada Inc., on behalf of itself and the lenders party to the NOW
Canada Credit Agreement, guarantying the obligations of NOW Canada under the
NOW Canada Credit Agreement, together with all amendments, modifications and
supplements thereto consented to by Administrative Agent in writing.
"Holdings Subordinated Canada Stock Pledge Agreement" shall mean
the stock pledge agreement dated as of the Funding Date executed by Holdings in
favor of General Electric Capital Canada Inc., on behalf of itself and the
lenders party to the NOW Canada Credit Agreement, together with all amendments,
modifications and supplements thereto consented to by Administrative Agent in
writing.
"Holdings Subordinated UK Guaranty" shall mean the Guaranty dated
as of the Funding Date executed by Holdings in favor of Administrative Agent,
on behalf of itself and Lenders, guarantying the obligations of UK Borrower,
together with all amendments, modifications and supplements thereto consented
to by Administrative Agent in writing (subject to Section 11.2(b)).
"Holdings Subordinated UK Stock Pledge Agreement" shall mean the
stock pledge agreement dated as of the Funding Date executed by Holdings in
favor of Administrative Agent, on behalf of itself and Lenders, together with
all amendments, modifications and supplements thereto consented to by
Administrative Agent in writing (subject to Section 11.2(b)).
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all obligations of such Person for borrowed money or for the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (ii) reimbursement and all other obligations with respect to letters of
credit,
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bankers' acceptances and surety bonds, whether or not matured, (iii) all
obligations evidenced by notes, bonds, debentures or similar instruments, (iv)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (v)
all Capital Lease Obligations, (vi) all obligations of such Person under
Interest Rate Agreements, Currency Agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price hedging
arrangements, (vii) all Indebtedness referred to in clause (i), (ii), (iii),
(iv), (v) or (vi) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property or other assets (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, and (viii) the Obligations.
"Indemnified Liabilities" shall have the meaning assigned thereto
in subsection 1.13(a).
"Index Rate" shall mean, for any day, a fluctuating rate equal to
the higher of (i) the highest of the most recently published or announced
prime, corporate base, reference or similar benchmark rate announced by the
five largest member banks of the New York Clearing House Association, or (ii)
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
most recently published by the Federal Reserve Bank of New York plus one half
of one percent (0.5%) per annum.
"Index Rate Loan" shall mean a Revolving Credit Advance and/or
portion of Term Loan C bearing interest by reference to the Index Rate.
"Instruments" shall mean, as to any Person, any "instrument," as
such term is defined in the Code, now owned or hereafter acquired by such
Person, wherever located, and, in any event, including all certificated
securities, all certificates of deposit, and all notes and other, without
limitation, evidences of indebtedness, other than instruments that constitute,
or are a part of a group of writings that constitute, Chattel Paper.
"Intellectual Property Security Agreements" shall mean,
collectively, the Patent Security Agreement and the Trademark Security
Agreement.
"Interest Charges" shall mean, for any period, the aggregate of
all interest paid in cash by Holdings and its Subsidiaries on a consolidated
basis including the interest portion of any Capital Lease Obligation and all
Non-use Fees and Letter of Credit fees and expenses payable pursuant to
Schedule B but excluding interest on any intercompany Indebtedness permitted by
Section 6.22, all as determined in accordance with GAAP for the relevant
period.
"Interest Coverage Ratio" shall mean, for any period, the ratio
of EBITDA to Interest Charges.
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"Interest Payment Date" shall mean (a) as to any Index Rate Loan,
the first Business Day of each month to occur while such Loan is outstanding,
and (b) as to any LIBOR Loan, the last day of the LIBOR Period applicable
thereto and, in the case of a LIBOR Period of six months, on the last day of
each three-month interval during such LIBOR Period; provided that, in addition
to the foregoing, each of (x) the date upon which both the Commitments have
been terminated and the Loans have been paid in full; and (y) the Commitment
Termination Date shall be deemed to be an "Interest Payment Date" with respect
to any interest which is then accrued hereunder.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement,
interest rate futures contract, interest rate option contract or other similar
agreement or arrangement to which any Borrower is a party, designed to protect
such Borrower against fluctuations in interest rates.
"Inventory" shall mean, as to any Person, any "inventory," as
such term is defined in the Code, now or hereafter owned or acquired by, such
Person, wherever located, and, in any event, including inventory, merchandise,
goods and other personal property which are held by or on behalf of such
Person, for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in such Person's business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including other supplies.
"Investments" shall mean, as to any Person, any loan, advance
(other than commission, travel and similar advances to officers and employees
made in the ordinary course of business), extension of credit (other than
Investments consisting of accounts receivable arising in the ordinary course of
business on terms customary in the trade), deposit account or contribution of
capital by such Person to any other Person or any investment in, or purchase or
other acquisition of, the Stock, notes, debentures or other securities of any
other Person made by such Person.
"IPO" means an initial public offering of common stock on Form S-
1 by Holdings pursuant to a firm commitment underwriting by nationally
recognized underwriters pursuant to which Holdings shall receive at least $45
million of Net Proceeds.
"IRC" shall mean the Internal Revenue Code of 1986, as amended,
and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"L/C Issuer" shall have the meaning assigned thereto in Schedule
B.
"Leases" shall mean all leasehold estates in Real Estate now
owned or hereafter acquired by either Borrower or any Subsidiary thereof, as
lessee.
"Lender Addition Agreement" shall mean an agreement in form and
substance satisfactory to, and acknowledged by, Administrative Agent, whereby a
portion of the Revolving
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Credit Loan Commitment or Term Loan C Commitment is assigned to a Lender after
the Closing Date.
"Lenders" shall mean GE Capital, the other Lenders named on the
signature pages of the Agreement, and, if any such Lender shall assign all or
any portion of the Obligations in accordance with the terms of the Agreement,
such term shall include such assignee.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Administrative Agent and Lenders at the request of US
Borrower, whether direct or indirect, contingent or otherwise, due or not due,
in connection with the issuance of a reimbursement agreement or a guaranty by
Administrative Agent and Lenders with respect to or of Letters of Credit issued
by the L/C Issuers. The amount of such Letter of Credit Obligations shall
equal the maximum amount which may be payable by Administrative Agent or
another Lender thereupon or pursuant thereto.
"Letters of Credit" shall mean commercial or standby letters of
credit issued at the request and for the account of US Borrower, and bankers'
acceptances issued by US Borrower, for which Administrative Agent or another
Lender has incurred Letter of Credit Obligations pursuant hereto.
"LIBOR Lending Office" shall mean, as to any Lender, the first
office of such Lender specified as its "LIBOR Lending Office" opposite its name
on Schedule J or on the signature page of the applicable Lender Addition
Agreement (or, if no such office is specified, its domestic lending office) or
such other office of such Lender as such Lender may from time to time specify
to Borrowers and the Administrative Agent.
"LIBOR Loan" shall mean a Loan bearing interest by reference to
the LIBOR Rate.
"LIBOR Period" shall mean, as to any LIBOR Loan, each period
commencing on a Business Day selected by either Borrower pursuant to this
Agreement and ending one, two, three or six months thereafter, as selected by
such Borrower's irrevocable Borrowing Notice to Administrative Agent as set
forth in subsection 1.5(e); provided that the foregoing provision relating to
LIBOR Periods is subject to the following:
(1) if any LIBOR Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such LIBOR Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such LIBOR Period into another
calendar month in which event such LIBOR Period shall end on the
immediately preceding Business Day;
(2) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date with respect to the Revolving Credit Loan or
the date of the last scheduled principal installment payment date of
Term Loan C shall end two (2) Business Days prior to such date;
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(3) any LIBOR Period pertaining to a LIBOR 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 LIBOR Period) shall end on the last Business Day of a calendar
month;
(4) Such Borrower shall select LIBOR Periods so as not to
require a payment or prepayment of any LIBOR Loan during a LIBOR Period
for such Loan; and
(5) Such Borrower shall select LIBOR Periods so that there shall
be no more than five (5) separate LIBOR Loans in existence at any one
time.
"LIBOR Rate" shall mean for each LIBOR Loan for the relevant
LIBOR Period, a rate of interest determined by Administrative Agent equal to:
(a) the offered rate for deposits in United States Dollars which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the
second full Business Day next preceding the first day of each LIBOR
Period (unless such date is not a Business Day, in which event the next
succeeding Business Day will be used) for the applicable LIBOR Period
and in an amount approximately equal to the amount of the LIBOR Loan;
divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior
to the beginning of such LIBOR Period (including, without limitation,
basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve system or
other governmental authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of
such Board), which are required to be maintained by a member bank of the
Federal Reserve System.
If such interest rates shall cease to be available from Telerate
News Service, the LIBOR Rate shall be determined from such financial
reporting service or other information as shall be mutually acceptable
to Administrative Agent and Borrowers.
"License" shall mean, as to any Person, any Copyright License,
Patent License, Trademark License or other license of rights or interests now
held or hereafter acquired by such Person.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security
interest under the Code or comparable law of any jurisdiction).
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"Limited Partner" shall mean Natoil, Inc. (f/k/a NOW, Inc. and
National-Oilwell, Inc.), a Delaware corporation in its capacity as the limited
partner of US Borrower, and its successors and assigns.
"Loan Account" shall have the meaning assigned thereto in Section
1.12.
"Loan Documents" shall mean the Agreement, the Amended Revolving
Credit Notes, the Amended Term C Note, the Security Agreements, the Mortgages,
the other Collateral Documents, all other agreements, instruments, documents
and certificates identified in the Schedule of Documents in favor of
Administrative Agent and/or Lenders all other pledges, powers of attorney,
consents, assignments, contracts, notices, and all other agreements,
instruments, documents, certificates and other written matter whether
heretofore executed in connection with the Prior Credit Agreement, now or
hereafter executed by or on behalf of any Borrower or any of its Affiliates, or
any employee of any Borrower, or any of its Affiliates, and delivered to
Administrative Agent or any Lender in connection with the Agreement or the
transactions contemplated hereby, in each case as the same may have been
heretofore or may hereafter be amended, modified or supplemented from time to
time.
"Loans" shall mean the Revolving Credit Loan and Term Loan C.
"Lock Box Account" shall have the meaning assigned thereto on
Schedule E.
"Margin Stock" shall have the meaning assigned thereto in Section
3.12.
"Material Adverse Effect" shall mean a material adverse effect on
(i) the business, properties, assets, operations, prospects or financial or
other condition of Holdings and its Subsidiaries considered as a whole, (ii)
the industry in which Holdings or any of its Subsidiaries operates, (iii)
Borrowers' ability to perform their Obligations under the Loan Documents, (iv)
the Collateral or Administrative Agent's Liens, on behalf of itself and
Lenders, on the Collateral or the priority of any such Lien, or (v)
Administrative Agent's or any Lender's rights and remedies under the Agreement
and the other Loan Documents. In determining whether any individual event
would result in a Material Adverse Effect, notwithstanding that such event does
not of itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then
existing events would result in a Material Adverse Effect.
"Material Subsidiaries" shall mean, collectively, NOW Canada, UK
Borrower, Australia, Singapore, Venezuela and NOW International.
"Maximum Lawful Rate" shall have the meaning assigned to it in
subsection 1.5(g).
"Maximum Revolving Credit Loan" shall mean, at any particular
time, an amount equal to the Revolving Credit Loan Commitment of all Lenders.
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"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by Borrowers to
Administrative Agent, with respect to the Mortgaged Properties, all in form and
substance satisfactory to Administrative Agent.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA, and to which any Borrower, or any Subsidiaries
or any ERISA Affiliate is making, is obligated to make, has made or been
obligated to make, contributions on behalf of participants who are or were
employed by any of them.
"National Guaranty" shall mean the Guaranty dated as of the
Funding Date executed by the General Partner in favor of Administrative Agent,
on behalf of itself and Lenders, guarantying the Obligations of US Borrower,
together with all amendments, modifications and supplements thereto consented
to by Administrative Agent in writing (subject to Section 11.2(b)).
"National-Oilwell" shall have the meaning assigned thereto in the
Recitals to the Agreement.
"Net Proceeds" shall mean (a) with respect to any asset
disposition permitted by subsections 6.8(ii), (iii) or (iv) ("Asset
Disposition"), the sum of cash or readily marketable cash equivalents received
(including by way of a cash generating sale or discounting of a note or
receivable, but excluding any other consideration received in the form of
assumption by the acquiring Person of debt or other obligations relating to the
assets so disposed of or received in any other non-cash form) therefrom,
whether at the time of such disposition or subsequent thereto, or (b) with
respect to any sale or issuance of any Stock of Holdings or any of its
Subsidiaries after the Funding Date, cash or readily marketable cash
equivalents received (but excluding any other non-cash form) therefrom, whether
at the time of such disposition or subsequent thereto, net, in either case, of
all legal, title and recording tax expenses, underwriting discounts,
commissions and other reasonable fees, costs and expenses incurred and all
federal, state, local and other taxes required to be accrued as a liability as
a consequence of such transactions and, in the case of an Asset Disposition,
net of all payments made on any Indebtedness which is secured by such assets
pursuant to a permitted Lien upon or with respect to such assets or which must
by the terms of such Lien, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition.
"Net Worth" shall mean the book value of the assets of Holdings
and its Subsidiaries on a consolidated basis (inclusive of goodwill, patents,
trademarks, tradenames, copyrights, organization expenses, treasury stock, debt
discount and expense, deferred charges and other like intangibles), minus (i)
reserves applicable thereto, and (ii) all liabilities of Holdings and its
Subsidiaries on a consolidated basis (including accrued and deferred income
taxes), all as determined in accordance with GAAP, but excluding Net Proceeds
of the IPO and extraordinary items incurred as of the Closing Date..
"Non-Use Fee" shall have the meaning assigned to it in Section
1.8(b).
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"Notes" shall mean, collectively, the Amended Revolving Credit
Notes and the Amended Term C Note.
"Notice of Revolving Credit Advance" shall have the meaning
assigned thereto in Section 1.1.
"NOW Canada" shall mean National-Oilwell Canada Ltd., a British
Columbia corporation.
"NOW Canada Credit Agreement" shall mean that certain Credit
Agreement dated as of the Funding Date between General Electric Capital Canada
Inc. and NOW Canada, as the same may be amended, restated, modified or
otherwise supplemented from time to time in accordance with the terms thereof
and the terms of the Agreement.
"NOW Guaranty" shall mean the Guaranty dated as of the Funding
Date executed by the Limited Partner in favor of Administrative Agent, on
behalf of itself and Lenders, guarantying the Obligations of US Borrower,
together with all amendments, modifications and supplements thereto consented
to by Administrative Agent in writing (subject to Section 11.2(b)).
"NOW International" shall mean NOW International, Inc., a
Delaware corporation.
"NOW International Senior Guaranty" shall mean the Guaranty dated
as of the Funding Date executed by NOW International in favor of Administrative
Agent, on behalf of itself and Lenders, guarantying the Obligations of US
Borrower, together with all amendments, modifications and supplements thereto
consented to by Administrative Agent in writing (subject to Section 11.2(b)).
"NOW International Senior Stock Pledge Agreement" shall mean the
stock pledge agreement dated as of the Funding Date executed by NOW
International in favor of Administrative Agent, on behalf of itself and
Lenders, together with all amendments, modifications and supplements thereto
consented to by Administrative Agent in writing (subject to Section 11.2(b)).
"NOW International Senior (Australia) Stock Pledge Agreement"
shall mean the stock pledge agreement dated as of the Funding Date executed by
NOW International in favor of Administrative Agent, on behalf of itself and
Lenders, together with all amendments, modifications and supplements thereto
consented to by Administrative Agent in writing (subject to Section 11.2(b)).
"NOW International Subordinated Canada Guaranty" shall mean the
Guaranty dated as of the Funding Date executed by NOW International in favor of
General Electric Capital Canada Inc., on behalf of itself and the lenders party
to the NOW Canada Credit Agreement, guarantying the Obligations of NOW Canada
under the NOW Canada Credit Agreement, together with all amendments,
modification and supplements thereto consented to by Administrative Agent in
writing.
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"NOW International Subordinated Canada Stock Pledge Agreement"
shall mean the stock pledge agreement dated as of the Funding Date executed by
NOW International in favor of General Electric Capital Canada Inc., on behalf
of itself and the lenders party to the NOW Canada Credit Agreement, together
with all amendments, modifications and supplements thereto consented to by
Administrative Agent in writing.
"NOW International Subordinated (Australia) Canada Stock Pledge
Agreement" shall mean the stock pledge agreement dated as of the Funding Date
executed by NOW International in favor of General Electric Capital Canada Inc.,
on behalf of itself and the lenders party to the NOW Canada Credit Agreement,
together with all amendments, modifications and supplements thereto consented
to by Administrative Agent in writing.
"NOW International Subordinated UK Guaranty" shall mean the
Guaranty dated as of the Funding Date executed by NOW International in favor of
Administrative Agent, on behalf of itself and Lenders, guarantying the
Obligations of UK Borrower, together with all amendments, modifications and
supplements thereto consented to by Administrative Agent in writing (subject to
Section 11.2).
"NOW International Subordinated UK Stock Pledge Agreement" shall
mean the stock pledge agreement dated as of the Funding Date executed by NOW
International in favor of Administrative Agent, on behalf of itself and
Lenders, together with all amendments, modifications and supplements thereto
consented to by Administrative Agent in writing (subject to Section 11.2(b)).
"NOW International Subordinated (Australia) UK Stock Pledge
Agreement" shall mean the stock pledge agreement dated as of the Funding Date
executed by NOW International in favor of Administrative Agent, on behalf of
itself and Lenders, together with all amendments, modifications and supplements
thereto consented to by Administrative Agent in writing (subject to Section
11.2(b)).
"Obligations" shall mean all loans, advances, debts, liabilities
and obligations (including any obligations to cash collateralize Letter of
Credit Obligations), for the performance of covenants, tasks or duties or for
payment of monetary amounts (whether or not such performance is then required
or contingent, or amounts are liquidated or determinable) owing by either
Borrower or any Subsidiary thereof to Administrative Agent or any Lender, and
all covenants and duties regarding such amounts, of any kind or nature, present
or future, whether or not evidenced by any note, agreement or other instrument,
arising under the Prior Credit Agreement, the Agreement or any of the other
Loan Documents. This term includes all principal, interest (including, without
limitation, all interest which accrues after the commencement of any case or
proceeds in bankruptcy after the insolvency of, or for the reorganization of,
either Borrower or any Subsidiary thereof, whether or not allowed in such
proceeding), Letter of Credit Obligations, Fees, Charges, expenses,
indemnification obligations, attorneys' fees and any other sum chargeable to
any Borrower or Subsidiary thereof under the Agreement or any of the other Loan
Documents.
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"Other Taxes" shall have the meaning assigned thereto in Section
1.15.
"Partner Assignment" shall mean that certain Collateral
Assignment of Partnership Interests dated as of the Funding Date entered into
by Administrative Agent, on behalf of itself and Lenders, and the Partners,
including all amendments, restatements, modifications and supplements thereto.
"Partners" shall mean, collectively, the General Partner and the
Limited Partner.
"Partnership Agreement" shall mean that certain Amended and
Restated Partnership Agreement, dated the Funding Date, among the Partners, as
the same may hereafter be amended, modified or supplemented from time to time
in accordance with the terms of the Agreement.
"Partnership Interests" shall have the meaning assigned thereto
in the Recitals to the Agreement.
"Patent License" shall mean, as to any Person, rights under any
written agreement now owned or hereafter acquired by such Person granting any
right with respect to any invention on which a Patent is in existence.
"Patent Security Agreement" shall mean that certain Patent
Security Agreement dated as of the Funding Date entered into by Administrative
Agent, on behalf of itself and Lenders, and U.S. Borrower, including all
amendments, restatements, modifications and supplements thereto.
"Patents" shall mean, as to any Person, all of the following in
which such Person now holds or hereafter acquires any interest: (i) all letters
patent of the United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of the United
States or any other country, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is
not an individual account plan, as defined in Section 3(34) of ERISA, and which
either of the Borrowers or any Subsidiary thereof or, if a Title IV Plan, any
ERISA Affiliate maintains, contributes to or has an obligation to contribute to
on behalf of participants who are or were employed by any of them.
"Permitted Acquisitions" shall have the meaning ascribed thereto
in Section 6.1.
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"Permitted Encumbrances" shall mean the following encumbrances:
(i) Liens for taxes or assessments or other governmental Charges or levies, not
yet due and payable; (ii) pledges or deposits securing obligations under
workmen's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which any Borrower or any Subsidiary is a party as lessee made in the ordinary
course of business; (iv) deposits securing statutory obligations of any
Borrower or any Subsidiary; (v) inchoate and unperfected workers', mechanics',
suppliers' or similar liens arising in the ordinary course of business; (vi)
carriers', warehousemen's or other similar possessory liens arising in the
ordinary course of business of any Borrower or the applicable Subsidiary and
securing liabilities (which are not overdue) in an outstanding aggregate amount
not in excess of $25,000 at any time; (vii) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Borrower or any
Subsidiary is a party; (viii) any attachment or judgment lien, unless the
judgment it secures shall not, within 30 days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or shall not have
been discharged within 30 days after the expiration of any such stay; and (ix)
zoning restrictions, easements, licenses, or other restrictions on the use of
real property or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value, or
marketability of such real property, lease or leasehold estate.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit
corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean, with respect to any Borrower or any Subsidiary
or ERISA Affiliate thereof at any time, an employee benefit plan, as defined in
Section 3(3) of ERISA, which any Borrower or any Subsidiary thereof maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Pledge and Security Agreement" shall mean that certain Pledge
and Security Agreement dated as of the Funding Date entered into between
Administrative Agent, on behalf of itself and Lenders, and the Partners,
including all amendments, restatements, modifications and supplements thereto
(subject to Section 11.2(b)).
"Prior Credit Agreement" shall have the meaning assigned thereto
in the Recitals to the Agreement.
"Pro Forma" shall mean the unaudited consolidated balance sheet
of Holdings and its Subsidiaries and the balance sheets of US Borrower, UK
Borrower and NOW Canada, each as of September 30, 1996 after giving effect to
the IPO, and the payment of the Subordinated Loan, Term Loan A and Term Loan B,
as such terms are defined in the Prior Credit Agreement.
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"Proceeds" shall mean, as to any Person, "proceeds," as such term
is defined in the Code and, in any event, shall include (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to such
Person from time to time with respect to any of the Collateral, (ii) any and
all payments (in any form whatsoever) made or due and payable to such Person
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under
color of governmental authority), (iii) any claim of such Person against third
parties (a) for past, present or future infringement of any Patent or Patent
License, (b) for past, present or future infringement or dilution of any
Copyright or Copyright License or (c) for past, present or future infringement
or dilution of any Trademark or Trademark License or for injury to the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License, (iv) any recoveries by such Person against third
parties with respect to any litigation or dispute concerning any of the
Collateral, and (v) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Projections" shall mean Holdings' forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash
flow statements; and (d) capitalization statements, all prepared on a
subsidiary by subsidiary or division by division basis, if applicable, and
otherwise consistent with the historical financial statements of the Acquired
Companies, together with appropriate supporting details and a statement of
underlying assumptions.
"Pro Rata Share" shall mean with respect to all matters relating
to any Lender (a) with respect to the Revolving Credit Loan, the percentage (to
the third decimal point) obtained by dividing (i) the Revolving Credit Loan
Commitment of that Lender by (ii) the aggregate Revolving Credit Loan
Commitments of all Lenders, and, (b) with respect to Term Loan C, the
percentage obtained by dividing (i) the Term Loan C Commitment of that Lender
by (ii) the aggregate Term Loan C Commitments of all Lenders, as all such
percentages may be adjusted by assignments permitted pursuant to Section 9.1.
"Purchase Agreement" shall have the meaning assigned thereto in
the Recitals to the Agreement.
"Purchased Stock" shall have the meaning assigned thereto in the
Recitals to the Agreement.
"Qualified Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is intended to be tax-qualified under
Section 401(a) of the IRC, and which any Borrower or any Subsidiary or ERISA
Affiliate thereof maintains, contributes to or has an obligation to contribute
to on behalf of participants who are or were employed by any of them.
"Real Estate" shall have the meaning assigned to it in Section
3.7.
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"Related Transactions" shall mean the IPO, each borrowing under
the Revolving Credit Loan and Term Loan C on the Closing Date, the repayment of
the Subordinated Loan and Term Loan A and Term Loan B (as such terms are
defined in the Prior Credit Agreement), the payment of all fees, costs and
expenses associated with all of the foregoing and the execution and delivery of
all agreements and documents necessary to consummate all such transactions.
"Release" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Reportable Event" shall mean any of the events described in
Section 4043(b)(1),(2),(3),(5),(6),(8) or (9) of ERISA except to the extent the
reporting requirements have been waived or are not required.
"Requisite Lenders" shall mean (a) Lenders having more than
sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders,
or (b) if the Commitments have been terminated, more than sixty-six and two-
thirds percent (66 2/3%) of the aggregate outstanding principal amount of the
outstanding Loans and Letter of Credit Obligations.
"Restricted Payment" shall mean, as to any Person, (i) the
declaration or payment of any dividend or other distribution of cash or other
property or assets or the incurrence of any liability to make any payment or
distribution of cash or other property or assets in respect of such Person's
Stock, (ii) any payment on account of the purchase, prepayment, conversion,
exchange, surrender, redemption, defeasance or other retirement of such
Person's Stock or any other payment or distribution made in respect thereof,
either directly or indirectly, (iii) any payment, loan, contribution, or other
transfer of funds or other property to any stockholder, partner or other equity
owner or Affiliate of such Person, either directly or indirectly, (iv) any
payment made to redeem, purchase, repurchase or retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
Stock of any class of such Person now or hereafter outstanding, either directly
or indirectly, and (v) any payment or prepayment of principal or premium, if
any, or interest on, fees with respect to, redemption, conversion, exchange,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to Subordinated Debt of such Person.
"Retiree Welfare Plan" shall mean any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned
thereto in Section 1.1(a)(i).
"Revolving Credit Loan" shall mean, as the context may require,
the aggregate amount of Revolving Credit Advances outstanding at any time to US
Borrower.
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"Revolving Credit Loan Commitment" shall mean (a) as to any
Lender, the aggregate commitment of such Lender to make Revolving Credit
Advances as set forth in the signature page to the Agreement or in the most
recent Lender Addition Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Credit
Advances, which aggregate commitment shall be in an amount equal to One Hundred
Five Million Dollars ($105,000,000), as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement minus the outstanding
balance of Term Loan C from time to time.
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached hereto as Schedule F.
"Security Agreements" shall mean those Security Agreements dated
as of the Funding Date entered into between Administrative Agent, on behalf of
itself and Lenders, and the respective Borrowers including all amendments,
restatements, modifications and supplements thereto.
"Sellers" shall have the meaning assigned thereto in the Recitals
to the Agreement.
"Sellers' Notes" shall mean those certain Subordinated Promissory
Notes, dated as of the Funding Date, each in the original principal amount of
$10,000,000 executed by US Borrower in favor of the Sellers, respectively, as
the same may be amended, restated, modified or otherwise supplemented from time
to time as permitted hereunder.
"Shareholders Agreement" shall mean that certain Shareholder
Agreement dated as of the Funding Date among the shareholders of Holdings, in
form and substance satisfactory to Administrative Agent.
"Singapore" shall have the meaning assigned thereto in the
Recitals to the Agreement.
"Solvent" shall mean, with respect to any Person, that (i) the
fair salable value of its assets exceeds the fair present value of its
liabilities (including all liabilities whether reflected on a balance sheet
prepared in accordance with GAAP or otherwise and whether direct, indirect,
fixed, contingent, disputed or undisputed); (ii) such Person is able to pay its
debts when due; and (iii) such Person has capital sufficient to carry on its
current business and all businesses in which it is about to engage. "Solvency"
shall have a correlative meaning.
"Stock" shall mean all shares, options, warrants, limited
liability company units, participations, general or limited partnership
interests or other equivalents (regardless of how designated) of or in a
corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), and all agreements, instruments and documents convertible,
in whole or in part, into any one or more of the foregoing.
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"Stock Incentive Plan" shall mean that certain stock incentive
plan of Holdings in form and substance satisfactory to Administrative Agent.
"Stock Pledge Agreements" shall mean the Holdings Senior Stock
Pledge Agreement, the Holdings Subordinated UK Stock Pledge Agreement, the NOW
International Senior Stock Pledge Agreement the NOW International Senior
(Australia) Stock Pledge Agreement, the NOW International Subordinated UK Stock
Pledge Agreement, the NOW International Subordinated (Australia) UK Stock
Pledge Agreement and any other stock pledge agreement made in favor of
Administrative Agent, on behalf of itself and Lenders, in form and substance
satisfactory to Administrative Agent, together with all amendments,
modifications and supplements thereto consented to in writing by Administrative
Agent (subject to Section 11.2(b)), and shall refer to any such Stock Pledge
Agreement as the same may be in effect at the time such reference becomes
operative.
"Store Locations" shall mean those owned or leased locations at
which US Borrower maintains inventories for sale to its customers and at which
no manufacturing activities occur.
"Subordinated Debt" shall mean any Indebtedness (a) the payment
of which is subordinated to the payment of the Obligations and (b) which is
incurred pursuant to terms, conditions and documentation in form and substance
satisfactory to the Lenders. Subordinated Debt shall include, without
limitation, the Indebtedness of US Borrower in respect of the Sellers' Notes.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned legally or beneficially by such Person and/or one
or more Subsidiaries of such Person, or with respect to which any such Person
has the right to vote or designate the vote of fifty percent (50%) or more of
such Stock whether by proxy, agreement, operation of law or otherwise and (ii)
any partnership, association, trust, joint venture or similar business
organization in which such Person and/or one or more Subsidiaries of such
Person shall have an interest (whether in the form of voting or participation
in profits or capital contribution) of more than fifty percent (50%) or of
which any such Person is a general partner or may exercise the powers of a
general partner. Notwithstanding the fact that NOW International is a direct
wholly-owned Subsidiary of Holdings and each of the foreign Subsidiaries are
direct wholly-owned Subsidiaries of NOW International, all of such Persons
shall be deemed to be Subsidiaries of US Borrower for purposes of the
representations, warranties and covenants of US Borrower as set forth in the
Agreement.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Administrative Agent or a Lender by the
jurisdictions under the laws of which Administrative Agent and Lenders are
organized or any political subdivision thereof.
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"Term Loan C" shall mean the aggregate amount of Term Loan C
advances outstanding at any time to UK Borrower pursuant to Section 1.1(b).
"Term Loan C Commitment" shall mean (a) as to any Lender with a
Term Loan C Commitment, the aggregate commitment of such Lender to make Term
Loan C as set forth on the signature page to the Agreement, and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Term Loan C advances,
which aggregate commitment shall be in an amount equal to Five Million Dollars
($5,000,000), as such amount may be adjusted, if at all, from time to time in
accordance with the Agreement.
"Termination Date" shall mean the date on which the Revolving
Credit Loan and the Term Loans have been repaid in full in cash and all other
Obligations under this Agreement and the other Loan Documents have been
completely discharged and none of the Borrowers shall not have any further
right to borrow any monies thereunder and the Lenders shall not have any
further obligation to make any credit extensions or financial accommodations
hereunder.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Trademark License" shall mean rights under any written agreement
now owned or hereafter acquired by any Borrower or any of its Subsidiaries
granting any right to use any Trademark or Trademark registration.
"Trademark Security Agreement" shall mean that certain Trademark
Security Agreement dated as of the Funding Date entered into by Administrative
Agent, on behalf of itself and Lenders, and U.S. Borrower, including all
amendments, restatements, modifications and supplements thereto.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by any Borrower or any of its Subsidiaries: (i) all
trademarks, trade names, corporate names, business names, trade styles, service
marks, logos, other source or business identifiers, prints and labels on which
any of the foregoing have appeared or appear, designs and general intangibles
of like nature (whether registered or unregistered), now owned or existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state or territory thereof,
or any other country or any political subdivision thereof; and (ii) all
reissues, extensions or renewals thereof.
"UK Borrower" shall mean National Oilwell (U.K.) Limited, an
English corporation, and its successors and assigns.
"UK Borrowing Base" shall mean, as any date of determination by
Administrative Agent, in its reasonable discretion from time to time, an amount
equal to the sum at such time of:
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a) eighty-five percent (85%) of UK Borrower's Eligible
Accounts, less reserves established by Administrative Agent from time to
time in accordance with the Agreement; plus
b) sixty percent (60%) of the book value of UK Borrower's
Eligible Inventory valued on a first-in, first-out basis (at the lower
of cost or market), less reserves established by Administrative Agent
from time to time in accordance with the Agreement.
"UK Eligible Accounts" shall have the meaning assigned thereto on
Schedule C-2.
"UK Eligible Inventory" shall have the meaning assigned thereto
on Schedule D-2.
"UNOC" shall mean UNOC Equipment and Supply, L.L.C., a Delaware
limited liability company, in which US Borrower holds a thirty percent (30%)
interest.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (i) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions in
effect under such Title IV Plan, and (ii) for a period of five (5) years
following a transaction reasonably likely to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Borrower, any Subsidiary thereof or any ERISA Affiliate as a result of such
transaction.
"US Borrower" shall mean National-Oilwell, L.P., a Delaware
limited partnership, and its permitted successors and assigns.
"US Borrower Accounts" shall have the meaning assigned thereto in
Schedule E.
"US Borrower Subordinated Canada Guaranty" shall mean the
Guaranty dated as of the Funding Date executed by US Borrower in favor of
General Electric Capital Canada Inc., on behalf of itself and the lenders party
to the NOW Canada Credit Agreement, guarantying the obligations of NOW Canada
under the NOW Canada Credit Agreement, together with all amendments,
modifications and supplements thereto consented to by Administrative Agent in
writing.
"US Borrower Subordinated UK Guaranty" shall mean the Guaranty
dated as of the Funding Date executed by US Borrower in favor of Administrative
Agent, on behalf of itself and Lenders, guarantying the Obligations of UK
Borrower, together with all amendments, modifications and supplements thereto
consented to by Administrative Agent in writing (subject to Section 11.2(b)).
"US Disbursement Account" shall have the meaning assigned thereto
in Schedule E.
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"Venezuela" shall mean National-Oilwell de Venezuela, C.A., a
Venezuelan corporation.
"Voting Stock" shall mean, as to any Person, Stock of such Person
of any class or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of members of the board of
directors (or Persons performing similar functions) of such Person.
"Welfare Plans" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by either of the
Borrowers, any Subsidiary thereof or ERISA Affiliate thereof.
"Withdrawal Liability" shall mean, at any time, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
OTHER DEFINITIONAL PROVISIONS
Any accounting term used in the Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain items or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed
to limit the foregoing. In the event that any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrowers, Administrative Agent and Lenders agree to enter into
negotiations in order to amend such provisions of the Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Holdings and its Subsidiaries' financial condition
shall be the same after such Accounting Changes as if such Accounting Changes
had not been made; provided, that the agreement of Requisite Lenders to any
required amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (a) (i) with respect to US Borrower, changes in
accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions) and (ii) with respect to UK Borrower, changes in
accounting principles or standards required by the promulgation of any rule,
regulation, pronouncement or opinion by the Accounting Standards Board of the
United Kingdom (or successor thereto or any agency with similar functions) or
(b) changes in accounting principles concurred in by Holdings' certified public
accountants. In the event, if any, that Administrative Agent, Borrowers and
Requisite Lenders shall have agreed upon the required amendments, then after
such agreement has been evidenced in writing and the underlying Accounting
Change with respect thereto has been implemented, any reference to GAAP
contained in the Agreement or in any other Loan Document shall, only to the
extent of such Accounting Change, refer to GAAP, consistently applied after
giving effect to the implementation of such Accounting Change. If
Administrative Agent, Borrowers and
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Requisite Lenders cannot agree upon the required amendments within thirty (30)
days following the date of implementation of any Accounting Change, then all
financial statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the
underlying Accounting Change.
All other undefined terms contained in the Agreement or any of
the other Loan Documents shall, unless the context indicates otherwise, have
the meanings provided for by the Code as in effect in the State of New York to
the extent the same are used or defined therein. The words "herein," "hereof"
and "hereunder" and other words of similar import refer to the Agreement as a
whole, including the Exhibits and Schedules hereto, as the same may from time
to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in the Agreement.
Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. Unless otherwise expressly
provided or the context requires otherwise, all references in the Agreement to
Sections, subsections, clauses, Schedules and Exhibits shall mean and refer to
Sections, subsections, clauses, Schedules and Exhibits of this Agreement. The
words "including", "includes" and "include" shall be deemed to be followed by
the words "without limitation"; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the
Loan Documents) or, in the case of governmental Persons, Persons succeeding to
the relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of the same and any successor
statutes and regulations.
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<PAGE> 107
SCHEDULE B (Section 1.2)
to
CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Issuance. Subject to the terms and conditions of the
Agreement, the Revolving Credit Loan Commitment may, in addition to Revolving
Credit Loan Advances, be utilized, upon the request of US Borrower, for the
issuance of Letters of Credit by any bank (including any bank that is a Lender)
or the issuance of reimbursement agreements with respect thereto by
Administrative Agent so long as GE Capital is Administrative Agent, on behalf
of each Lender (severally and not jointly) according to such Lender's Pro Rata
Share of the Revolving Credit Loan Commitment to guaranty payment to banks
(whether or not such banks are Lenders) which issue (or have previously issued
prior to the Funding Date) Letters of Credit for the account of US Borrower or
any Subsidiary. The aggregate amount of all Letter of Credit Obligations
incurred by Administrative Agent and the Lenders pursuant to this paragraph (a)
shall not at any time exceed Twenty-Five Million Dollars ($25,000,000) and (1)
no such Letter of Credit shall have an expiry date which is more than two years
following the date of issuance thereof and (2) Administrative Agent and the
Lenders shall be under no obligation to incur Letter of Credit Obligations in
respect of any Letter of Credit having an expiry date which is later than the
Commitment Termination Date. It is understood that the selection of the bank
or other legally authorized Person (including any Lender) which shall issue any
Letter of Credit contemplated by this paragraph (a) shall be made by
Administrative Agent, in its sole discretion.
(b) Advances Automatic. In the event that Administrative
Agent or any Lender shall make any payment on or pursuant to any Letter of
Credit Obligation, to satisfy its reimbursement obligation US Borrower hereby
authorizes and directs Administrative Agent to make a Revolving Credit Advance
under Section 1.1(a) in the amount of such payment regardless of whether a
Default or Event of Default shall have occurred and be continuing.
(c) Cash Collateral. In the event that any Letter of Credit
Obligation, whether or not then due and payable, shall for any reason be
outstanding on the Commitment Termination Date including upon termination of
the Commitments pursuant to Section 8.2(b), US Borrower will pay to
Administrative Agent for the benefit of the Lenders cash or cash equivalents
acceptable to Administrative Agent ("Cash Equivalents") in an amount equal to
the maximum amount then available to be drawn under the applicable Letter of
Credit. Such funds or Cash Equivalents shall be held by Administrative Agent
in a cash collateral account (the "Cash Collateral Account") maintained at a
bank or financial institution acceptable to Administrative Agent. The Cash
Collateral Account shall be in the name of Administrative Agent (as a cash
collateral account), and shall be under the sole dominion and control of
Administrative Agent and subject to the terms of this Schedule B. US Borrower
hereby pledges, and grants to Administrative Agent, on behalf of Lenders, a
security interest in all such funds and Cash Equivalents held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all amounts due in respect of the
B-1
<PAGE> 108
Letter of Credit Obligations, whether or not then due. The Agreement,
including this Schedule B, shall constitute a security agreement under
applicable law.
From time to time after funds are deposited in the Cash
Collateral Account, Administrative Agent may apply such funds or Cash
Equivalents then held in the Cash Collateral Account to the payment of any
amounts, in such order as Administrative Agent may elect, as shall be or shall
become due and payable by US Borrower to the Lenders with respect to such
Letter of Credit Obligations, or, if all Letter of Credit Obligations have been
satisfied, to other Obligations then due.
Neither US Borrower nor any Person claiming on behalf of or
through US Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon indefeasible
payment in full of all the Obligations, any funds remaining in the Cash
Collateral Account shall be returned to US Borrower or as otherwise required by
law.
Administrative Agent shall at the direction of US Borrower invest
the funds in the Cash Collateral Account in short term investments guaranteed
by the United States government or an agency thereof, and to the extent not
necessary to satisfy the Obligations, interest and earnings thereon, if any,
shall be the property of US Borrower.
(d) Fees and Expenses. In the event that the Lenders shall
incur any Letter of Credit Obligation pursuant hereto at the request or on
behalf of US Borrower, US Borrower agrees to pay (I) to Administrative Agent
for the benefit of the Lenders, as compensation to the Lenders for such Letter
of Credit Obligation, (i) all reasonable costs and expenses incurred by
Administrative Agent or any Lender on account of such Letter of Credit
Obligation, (ii) commencing with the month in which such Letter of Credit
Obligation is incurred by the Lenders and monthly thereafter for each month
during which such Letter of Credit Obligation shall remain outstanding, a fee
in an amount equal to the Applicable L/C Margin per annum from time to time in
effect multiplied by the maximum amount available from time to time to be drawn
under the applicable Letter of Credit, and (II) to any issuer of a Letter of
Credit, if not Administrative Agent (the "L/C Issuer"), on demand, such fees
(including, without limitation, all per annum fees), charges and expenses of
the L/C Issuer in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued. All fees due under this paragraph (d) shall be calculated on the basis
of a 360-day year and the actual number of days elapsed and shall be paid to
Administrative Agent for the benefit of the Lenders or the L/C Issuer, as the
case may be, in arrears, on the first day of each month.
(e) Request for Lender Guaranty Agreements. US Borrower shall
give Administrative Agent at least two (2) Business Days prior written notice
as to the issuance of a Letter of Credit or a reimbursement agreement with
respect thereto, specifying the date such Letter of Credit or reimbursement
agreement is to be issued, identifying the beneficiary and describing the
nature of the transactions proposed to be supported thereby. The notice shall
be accompanied by the form of the Letter of Credit acceptable to the L/C Issuer
to be guarantied or issued.
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<PAGE> 109
(f) Obligation Absolute. US Borrower shall be irrevocably and
unconditionally obligated without presentment, demand, protest or other
formalities of any kind, to reimburse Administrative Agent and Lenders for any
amounts paid by Administrative Agent or any Lender with respect to Letter of
Credit Obligations including, without limitation, all amounts paid under any
draw with respect to a Letter of Credit, any guaranty or reimbursement
obligation paid upon any draw of a Letter of Credit and all fees, costs and
expenses paid by Administrative Agent or any Lender to any L/C Issuer. The
obligation of US Borrower to reimburse Administrative Agent and Lenders for
payments made with respect to any Letter of Credit Obligation shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances including the following circumstances:
(1) any lack of validity or enforceability of any Letter of
Credit or any other agreement;
(2) the existence of any claim, set-off, defense or other
right which US Borrower or any of its Affiliates or any Lender may at any time
have against a beneficiary or any transferee of any Letter of Credit (or any
Persons for whom any such transferee may be acting), any Lender, or any other
Person, whether in connection with the Agreement, the transactions contemplated
herein or therein or any unrelated transaction (including any underlying
transaction between US Borrower or any of its Affiliates and the beneficiary
for which the Letter of Credit was procured);
(3) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by Administrative Agent, any Lender, or the L/C
Issuer under or in connection with any Letter of Credit against presentation of
a demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit; provided that, in the case of any payment by
Administrative Agent or any Lender under or in connection with any Letter of
Credit, Administrative Agent or such Lender has not acted with gross negligence
or willful misconduct (as finally determined by a court of competent
jurisdiction after all possible appeals have been exhausted) in determining
that the demand for payment under such Letter of Credit or guaranty thereof
complies on its face with any applicable requirements for a demand for payment
under such Letter of Credit or guaranty thereof;
(5) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lenders' Duties. In addition
to amounts payable as elsewhere provided in the Agreement, US Borrower hereby
agrees to pay, and to protect, indemnify and save harmless each Agent, each
Lender and any L/C Issuer from and against any and
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<PAGE> 110
all claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees and allocated costs of internal counsel)
which such Agent, Lender or L/C Issuer may incur or be subject to as a
consequence, direct or indirect, of (1) the issuance of any Letter of Credit or
guaranty thereof, other than primarily as a result of the gross negligence or
willful misconduct of the Agent, Lender or L/C Issuer seeking indemnification
(as finally determined by a court of competent jurisdiction after all possible
appeals have been exhausted) or (2) the failure of any Agent, any Lender or any
L/C Issuer to honor a demand for payment under or in connection with any Letter
of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or Governmental Authority.
As among Administrative Agent, any Lender and any L/C Issuer and
US Borrower, US Borrower assumes all risks of the acts and omissions of, or
misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In
furtherance and not in limitation of the foregoing, to the fullest extent
permitted by law neither Administrative Agent, any L/C Issuer nor any Lender
shall be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(iii) for failure of the beneficiary of any Letter of Credit to comply fully
with conditions required in order to demand payment under such Letter of
Credit; provided that, in the case of any payment by Administrative Agent, any
Lender or any L/C Issuer under or in connection with any Letter of Credit or
guaranty thereof, Administrative Agent or any L/C Issuer has not acted with
gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction after all possible appeals have been exhausted) in
determining that the demand for payment under such Letter of Credit or guaranty
thereof complies on its face with any applicable requirements for a demand for
payment under such Letter of Credit or guaranty thereof; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in
cipher; (v) for errors in interpretation of technical terms; (vi) for any loss
or delay in the transmission or otherwise of any document required in order to
make a payment under any Letter of Credit or guaranty thereof or of the
proceeds thereof; (vii) for the credit of the proceeds of any drawing under any
Letter of Credit or guaranty thereof; and (viii) for any consequences arising
from causes beyond the control of Administrative Agent, any Lender or any L/C
Issuer. None of the above shall affect, impair, or prevent the vesting of any
of Administrative Agent's, any L/C Issuer's or any Lender's rights or powers
hereunder or under the Agreement.
B-4
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SCHEDULE C-1 (Section 1.6)
to
CREDIT AGREEMENT
ELIGIBLE ACCOUNTS
Eligible Accounts shall include all Accounts of US Borrower,
except any Account:
(a) which does not arise from the sale of goods or the
performance of services by US Borrower in the ordinary course of its business
or which constitutes payments receivable under leases for Eligible On-Lease
Inventory;
(b) upon which (i) US Borrower's right to receive payment is
not absolute or is contingent upon the fulfillment of any condition whatsoever
or (ii) US Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) against which is asserted any defense, counterclaim,
setoff or dispute;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the Account Debtor obligated upon such
Account;
(e) with respect to which an invoice, acceptable to
Administrative Agent in form and substance, has not been sent;
(f) that (i) is not owned by US Borrower or (ii) is subject to
any right, claim, security interest or other interest of any other Person,
other than the Lien in favor of Administrative Agent, on behalf of itself and
Lenders;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of US Borrower or any Subsidiary (other than operating
companies in which First Reserve or DPI is an investor so long as the same
arise in the ordinary course on an arm's-length basis);
(h) that is the obligation of an Account Debtor that is the
United States government or a political subdivision thereof, unless
Administrative Agent, in its sole discretion, has agreed to the contrary in
writing and the US Borrower, if necessary or desirable, has complied with the
Federal Assignment of Claims Act of 1940, and any amendments thereto, with
respect to such obligation;
(i) that is the obligation of an Account Debtor not located in
the United States or Canada (other than the provinces of Prince Edward Island,
Newfoundland and Nova Scotia and the Northwest Territories) unless such Account
Debtor has supplied the US Borrower with an irrevocable letter of credit
denominated in U.S. Dollars in form and substance satisfactory to the
C-1-1
<PAGE> 112
Administrative Agent, issued by a financial institution satisfactory to the
Administrative Agent, sufficient to cover the applicable Account and without
right to setoff;
(j) that is the obligation of an Account Debtor to whom US
Borrower or any Subsidiary is liable for goods sold or services rendered by the
Account Debtor to US Borrower or any Subsidiary (but such Account shall be
ineligible only to the extent of such liability);
(k) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may
be conditional;
(l) that is in default; provided that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) the Account is not paid within the earlier of: sixty (60)
days following its due date or ninety (90) days following its original
invoice date;
(ii) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or
fails to pay its debts generally as they come due; or
(iii) if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other
federal, state or foreign (including any provincial) receivership,
insolvency relief or other law or laws for the relief of debtors;
(m) which is the obligation of an Account Debtor that is in
default (as defined in subparagraph (l)(i) above) on fifty percent (50%) or
more of the dollar amount of Accounts upon which such Account Debtor is
obligated;
(n) as to which Administrative Agent's security interest, on
behalf of itself and Lenders, therein is not a first priority perfected
security interest or as to which any other Person has a security interest;
(o) as to which any of the representations or warranties
pertaining to Accounts set forth in the Agreement or any of the other Loan
Documents is untrue;
(p) to the extent such Account exceeds any credit limit
established by Administrative Agent in its reasonable discretion;
(q) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper; or
(r) which is otherwise unacceptable to Administrative Agent in
its reasonable discretion.
C-1-2
<PAGE> 113
SCHEDULE C-2 (Section 1.6)
to
CREDIT AGREEMENT
ELIGIBLE ACCOUNTS
Eligible Accounts shall include all Accounts of UK Borrower,
except any Account:
(a) which does not arise from the sale of goods or the
performance of services by UK Borrower in the ordinary course of its business;
(b) upon which (i) UK Borrower's right to receive payment is
not absolute or is contingent upon the fulfillment of any condition whatsoever
or (ii) UK Borrower is not able to bring suit or otherwise enforce its remedies
against the Account Debtor through judicial process;
(c) against which is asserted any defense, counterclaim,
setoff or dispute;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the Account Debtor obligated upon such
Account;
(e) with respect to which an invoice, acceptable to
Administrative Agent in form and substance, has not been sent;
(f) that (i) is not owned by UK Borrower or (ii) is subject to
any right, claim, security interest or other interest of any other Person,
other than the Lien in favor of Administrative Agent, on behalf of itself and
Lenders;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of UK Borrower, US Borrower or any Subsidiary (other than
operating companies in which First Reserve or DPI is an investor so long as the
same arise in the ordinary course on an arm's-length basis);
(h) that is the obligation of an Account Debtor not located in
England unless such Account Debtor has supplied UK Borrower with an irrevocable
letter of credit denominated in U.S. Dollars in form and substance satisfactory
to the Administrative Agent, issued by a financial institution satisfactory to
the Administrative Agent, sufficient to cover the applicable Account and
without right to setoff;
(i) that is the obligation of an Account Debtor to whom UK
Borrower, US Borrower or any Subsidiary is liable for goods sold or services
rendered by the Account Debtor to UK Borrower, US Borrower or any Subsidiary
(but such Account shall be ineligible only to the extent of such liability);
C-2-1
<PAGE> 114
(j) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may
be conditional;
(k) that is in default; provided that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) the Account is not paid within the earlier of: sixty (60)
days following its due date or ninety (90) days following its original
invoice date;
(ii) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or
fails to pay its debts generally as they come due; or
(iii) if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other
foreign (including any provincial) receivership, insolvency relief or
other law or laws for the relief of debtors;
(l) which is the obligation of an Account Debtor that is in
default (as defined in subparagraph (l)(i) above) on fifty percent (50%) or
more of the dollar amount of Accounts upon which such Account Debtor is
obligated;
(m) as to which Administrative Agent's security interest, on
behalf of itself and Lenders, therein is not a first priority perfected
security interest or as to which any other Person has a security interest;
(n) as to which any of the representations or warranties
pertaining to Accounts set forth in the Agreement or any of the other Loan
Documents is untrue;
(o) to the extent such Account exceeds any credit limit
established by Administrative Agent in its reasonable discretion;
(p) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper; or
(q) which is otherwise unacceptable to Administrative Agent in
its reasonable discretion.
C-2-2
<PAGE> 115
SCHEDULE D-1 (Section 1.7)
to
CREDIT AGREEMENT
ELIGIBLE INVENTORY
Eligible Inventory shall include all Inventory of US Borrower, except
any Inventory which:
(a) is not owned by US Borrower free and clear of all Liens
and rights of any other Person, except the Liens in favor of Administrative
Agent, on behalf of itself and Lenders;
(b) is not (i) located on premises owned, leased or operated
by US Borrower or its Subsidiaries or (ii) stored with a bailee, warehouseman
or similar person, with Administrative Agent's prior consent and, except as
provided in Section 5.11, as to which a satisfactory landlord or bailee letter
has been delivered to Administrative Agent;
(c) is placed on consignment (unless such Inventory otherwise
meets the criteria herein set forth and unless the Administrative Agent shall
otherwise consent), in transit or is otherwise not located on premises owned or
leased by US Borrower;
(d) is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory have been
delivered to Administrative Agent;
(e) in Administrative Agent's reasonable determination, is
excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;
(f) consists of display items or packing or shipping
materials, work-in-process Inventory or replacement parts for Equipment;
(g) consists of goods which have been returned by the buyer if
defective or otherwise not salable;
(h) is not of a type held for sale in the ordinary course of
US Borrower's business;
(i) as to which Administrative Agent's interest, on behalf of
itself and Lenders, therein is not a first priority perfected security
interest;
(j) as to which any of the representations or warranties
pertaining to Inventory set forth in the Agreement or any of the other Loan
Documents is untrue;
(k) inventory consisting of any costs associated with
"freight-in" charges other than the initial transportation thereof to a
location under US Borrower's control;
D-1-1
<PAGE> 116
(l) is Eligible On-Lease Inventory; or
(m) is otherwise unacceptable to Administrative Agent in its
reasonable discretion.
In addition, Eligible Inventory shall be subject to the reserve
provisions set forth in Section 5.11.
D-1-2
<PAGE> 117
SCHEDULE D-2 (Section 1.7)
to
CREDIT AGREEMENT
ELIGIBLE INVENTORY
Eligible Inventory shall include all Inventory of UK Borrower, except
any Inventory which:
(a) is not owned by UK Borrower free and clear of all Liens
and rights of any other Person, except the Liens in favor of Administrative
Agent, on behalf of itself and Lenders;
(b) is not (i) located on premises owned, leased or operated
by UK Borrower or its Subsidiaries or (ii) stored with a bailee, warehouseman
or similar person, with Administrative Agent's prior consent and, except as
provided in Section 5.11, as to which a satisfactory landlord or bailee letter
has been delivered to Administrative Agent;
(c) is placed on consignment (unless such Inventory otherwise
meets the criteria herein set forth and unless the Administrative Agent shall
otherwise consent), in transit or is otherwise not located on premises owned or
leased by UK Borrower;
(d) is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory have been
delivered to Administrative Agent;
(e) in Administrative Agent's reasonable determination, is
excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;
(f) consists of display items or packing or shipping
materials, work-in-process Inventory or replacement parts for Equipment;
(g) consists of goods which have been returned by the buyer if
defective or otherwise not salable;
(h) is not of a type held for sale in the ordinary course of
UK Borrower's business;
(i) as to which Administrative Agent's interest, on behalf of
itself and Lenders, therein is not a first priority perfected security
interest;
(j) as to which any of the representations or warranties
pertaining to Inventory set forth in the Agreement or any of the other Loan
Documents is untrue;
(k) inventory consisting of any costs associated with
"freight-in" charges other than the initial transportation thereof to a
location under UK Borrower's control; or
D-2-1
<PAGE> 118
(l) is otherwise unacceptable to Administrative Agent in its
reasonable discretion.
In addition, Eligible Inventory shall be subject to the reserve
provisions set forth in Section 5.11.
D-2-2
<PAGE> 119
SCHEDULE E (Section 1.9)
to
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
US Borrower shall establish and maintain the Cash Management Systems
described below:
(a) On or before the Closing Date and for so long as the
Revolving Credit Loan or any other Obligations are outstanding, US Borrower
shall (i) establish lock boxes ("Lock Boxes") at one or more of the banks set
forth on Schedule 3.22 (each, a "Relationship Bank"), and shall request in
writing and otherwise take such reasonable steps to ensure that all Account
Debtors forward payment directly to such Lock Boxes, and (ii) deposit or cause
to be deposited promptly, and in any event no later than the first Business Day
after the date of receipt thereof, all cash, checks, drafts or other similar
items of payment relating to or constituting payments made in respect of any
and all Collateral (whether or not otherwise delivered to a Lock Box) into bank
accounts in US Borrower's name (collectively, the "Borrower Accounts") at
Relationship Banks. On or before the Closing Date, the US Borrower shall have
established a concentration account in US Borrower's name (the "Concentration
Account") at the bank which shall be designated as the Concentration Account
bank on Schedule 3.22 (the "Concentration Account Bank"), in accordance with a
blocked account agreement in form and substance and with such bank as shall be
satisfactory to Administrative Agent, in its sole discretion.
(b) On or before the Closing Date, the Concentration Account
Bank, the bank where the Disbursement Account (as hereinafter defined) is
located and all Relationship Banks, shall have entered into tri-party blocked
account agreements with Administrative Agent, for the benefit of itself and
Lenders, and US Borrower, in form and substance acceptable to Administrative
Agent, which shall become operative on or prior to the Closing Date at the
applicable banks at which accounts are maintained. Each such blocked account
agreement shall provide, among other things, that (i) all items of payment
deposited in such account and proceeds thereof deposited in such Concentration
Account are held by such bank as agent or bailee-in-possession for
Administrative Agent, on behalf of itself and Lenders, (ii) the bank executing
such agreement has no rights of setoff or recoupment or any other claim against
such account, as the case may be, other than for payment of its service fees
and other charges directly related to the administration of such account and
for returned checks or other items of payment, and (iii) from and after the
Closing Date (A) with respect to banks at which a Borrower Account is located,
such bank agrees to forward immediately all amounts in each Borrower Account to
the Concentration Account Bank and to commence the process of daily sweeps from
such Borrower Account into the Concentration Account and (B) with respect to
the Concentration Account Bank, such bank agrees to forward immediately all
amounts received in the Concentration Account to the Collection Account through
daily sweeps from such Concentration Account into the Collection Account.
E-1
<PAGE> 120
(c) US Borrower shall cause each Relationship Bank at which
any Borrower Account and Lock Box is located to (i) deposit any checks, drafts
or other similar items of payment received in any Lock Box directly into a
Borrower Account, (ii) forward immediately, and in no event less frequently
than once each Business Day, all amounts in the Borrower Accounts at such bank
to the Concentration Account and (iii) commence, and continue each Business
Day, the process of daily sweeps from each Borrower Account into the
Concentration Account. From and after the Closing Date, US Borrower shall
cause the Concentration Account Bank to forward immediately all amounts
received in the Concentration Account to the Collection Account through daily
sweeps from such Concentration Account into the Collection Account.
(d) So long as no Default or Event of Default has occurred and
is continuing, US Borrower may amend Schedule 3.22 to add or replace a Lock Box
or Borrower Account or to replace the Concentration Account; provided that (i)
Administrative Agent shall have consented in writing to the opening of such
Borrower Account or Lock Box or replacement of the Concentration Account with
the relevant bank and (ii) prior to the time of the opening of such US Borrower
Account or Lock Box or replacement of the Concentration Account, US Borrower
and such bank shall have executed and delivered to Administrative Agent a tri-
party blocked account agreement, in form and substance satisfactory to
Administrative Agent.
(e) The Lock Boxes, Borrower Accounts, Disbursement Account
and the Concentration Account shall be cash collateral accounts, with all cash,
checks and other similar items of payment in such accounts securing payment of
the Loans and all other Obligations, and in which US Borrower shall have
granted a Lien to Administrative Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.
(f) All amounts deposited in the Collection Account shall be
deemed received by Administrative Agent in accordance with Section 1.10 of the
Agreement and shall be applied (and allocated) by Administrative Agent in
accordance with Section 1.11 of the Agreement. In no event shall any amount be
so applied unless and until such amount shall have been credited in immediately
available funds to the Collection Account.
(g) US Borrower may maintain, in its name, an account (the
"Disbursement Account") at a bank acceptable to Administrative Agent into
which, Administrative Agent shall, from time to time, deposit proceeds of
Revolving Credit Advances made pursuant to Section 1.1 for use by US Borrower
solely in accordance with the provisions of Section 1.4.
(h) US Borrower shall (i) hold in trust for the Administrative
Agent, for the benefit of itself and Lenders, all checks, cash and other items
of payment received by US Borrower, and (ii) within one (1) Business Day after
receipt by US Borrower of any checks, cash or other items or payment, deposit
the same into a Borrower Account. US Borrower acknowledges and agrees that all
cash, checks or items of payment constituting proceeds of Collateral are the
property of Administrative Agent and Lenders. All proceeds of the sale or
other disposition of any Collateral, shall be deposited directly into the
Borrower Accounts.
E-2
<PAGE> 121
(i) Notwithstanding the foregoing, US Borrower may maintain a
local store cash deposit account at First Nichols National Bank, P.O. Box 18,
Kenedy, Texas 78119-0018 (Account No. 58853901) (the "First Nichols Bank
Account") into which not more than one thousand five hundred dollars ($1,500)
shall be deposited each month and as to which no tri-party blocked account
agreements shall be required; provided that not more than five thousand dollars
($5,000) shall be accumulated at any time in the First Nichols Bank Account.
E-3
<PAGE> 122
SCHEDULE G (Section 4.1(a))
to
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
US Borrower shall deliver or cause to be delivered to
Administrative Agent or to Administrative Agent and Lenders, as indicated, the
following:
(a) Monthly Financials. To Administrative Agent and Lenders,
within twenty-five (25) days after the end of each Fiscal Month, financial
information regarding Holdings and its Subsidiaries, certified by the Chief
Financial Officer of US Borrower, consisting of consolidated (and consolidating
as to US Borrower, NOW Canada and UK Borrower only) unaudited balance sheets
and statements of income and cash flow for such Fiscal Month and for the period
from the beginning of the then current Fiscal Year to the end of such Fiscal
Month, setting forth in each case, in comparative form, the figures for the
corresponding periods in the preceding Fiscal Year and a comparison to budget
for such Fiscal Year, all prepared in accordance with GAAP (subject to normal
year-end adjustments), with all of such financial information for the last
Fiscal Month of each Fiscal Quarter to be accompanied by a statement in
reasonable detail showing the calculations used in determining compliance with
the financial covenants set forth on Schedule I and a management discussion and
analysis which includes a comparison to budget for that Fiscal Quarter and a
comparison of performance for that period to the corresponding period in the
preceding Fiscal Year.
All of such financial information shall be accompanied by the
certification of the Chief Financial Officer of US Borrower that (i) such
financial information presents fairly in accordance with GAAP (subject to
normal year-end adjustments) the financial position, results of operations and
statements of cash flows of Holdings and its Subsidiaries, on both a
consolidated and consolidating basis, in each case as at the end of such Fiscal
Month and for the period then ended and (ii) any other information presented is
true, correct and complete in all material respects and that there was no
Default or Event of Default in existence as of such time or, if a Default or
Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default;
(b) Operating Plan. To Administrative Agent and Lenders, as
soon as available, but not later than thirty (30) days after the end of each
Fiscal Year, an annual operating plan, approved by the Board of Directors of
Holdings, for the following year, which will include a statement of all of the
material assumptions on which such plan is based, will include monthly balance
sheets and a monthly budget for the following year and will integrate sales,
gross profits, operating expenses, operating profit, cash flow projections and
borrowing availability projections, all prepared on the same basis and in
similar detail as that on which operating results are reported (and, in the
case of cash flow projections, representing management's good faith estimates
of future financial performance based on historical performance), and plans for
personnel, Capital Expenditures and facilities;
G-1
<PAGE> 123
(c) Annual Audited Financials. To Administrative Agent and
Lenders, within ninety (90) days after the end of each Fiscal Year, audited
financial statements, for Holdings and its Subsidiaries on a consolidated (and
consolidating as to US Borrower, NOW Canada and UK Borrower only) basis,
consisting of balance sheets and statements of income and retained earnings and
cash flows, setting forth in comparative form in each case the figures for the
previous Fiscal Year, which financial statements shall be prepared in
accordance with GAAP, certified without qualification by an independent
certified public accounting firm of national standing or otherwise acceptable
to Administrative Agent, and accompanied by (i) a statement prepared in
reasonable detail showing the calculations used in determining compliance with
each of the financial covenants set forth on Schedule I, (ii) a report from
such accounting firm to the effect that, in connection with their audit
examination, nothing has come to their attention to cause them to believe that
a Default or Event of Default has occurred (or specifying those Defaults and
Events of Default that they became aware of), it being understood that such
audit examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) a letter addressed to Administrative Agent, on behalf of itself
and Lenders, in form and substance reasonably satisfactory to Administrative
Agent and subject to standard qualifications taken by nationally recognized
accounting firms, signed by such accounting firm acknowledging that
Administrative Agent and Lenders are entitled to rely upon such accounting
firm's certification of such audited financial statements, (iv) the annual
letters to such accountants in connection with their audit examination
detailing contingent liabilities and material litigation matters and (v) the
certification of the Chief Executive Officer or Chief Financial Officer of US
Borrower that all such financial statements present fairly in accordance with
GAAP the financial position, results of operations and statements of cash flows
of Holdings and its Subsidiaries on a consolidated and consolidating basis, as
at the end of such year and for the period then ended, and that there was no
Default or Event of Default in existence as of such time or, if a Default or
Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default;
(e) Management Letters. To Administrative Agent and Lenders,
within ten (10) Business Days after receipt thereof by Holdings or US Borrower,
copies of all management letters, exception reports or similar letters or
reports from its independent certified public accountants;
(f) Default Notices. To Administrative Agent and Lenders, as
soon as practicable, and in any event within ten (10) Business Days after an
executive officer of US Borrower has actual knowledge of the existence of any
Default, Event of Default or the existence of any other event which has had a
Material Adverse Effect, telephonic or telecopied notice specifying the nature
of such Default or Event of Default or other event including the anticipated
effect thereof, which notice, if given telephonically, shall be promptly
confirmed in writing on the next Business Day;
(g) SEC Filings and Press Releases. To Administrative Agent
and Lenders, promptly upon their becoming available, copies of: (1) all
financial statements, reports, notices and proxy statements made publicly
available by Holdings, US Borrower or any of their respective Subsidiaries to
its security holders; (2) all regular and periodic reports and all registration
statements
G-2
<PAGE> 124
and prospectuses, if any, filed by Holdings, US Borrower or any of their
respective Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any Governmental Authority or private regulatory
authority; and (3) all press releases and other statements made available by
Holdings, US Borrower or any of their respective Subsidiaries to the public
concerning material adverse changes or developments in the business of any such
Person;
(h) Subordinated Debt and Equity Notices. To Administrative
Agent and Lenders, as soon as practicable, copies of all material written
notices given or received by Holdings, US Borrower or any of their respective
Subsidiaries with respect to any of the Subordinated Debt or Stock of such
Person, and US Borrower shall notify Administrative Agent within two (2)
Business Days after US Borrower obtains knowledge of any matured or unmatured
event of default with respect to the Sellers' Notes or any other Subordinated
Debt;
(i) Supplemental Schedules. To Administrative Agent,
supplemental disclosures, if any, required by Section 5.8.
(j) Insurance Notices. To Administrative Agent, disclosure of
losses or casualties required by Section 5.5;
(k) Claims under Purchase Agreement. To Administrative Agent,
as soon as practicable, and in any event within ten (10) business days after
Holdings or US Borrower makes any indemnity claim or demand under the Purchase
Agreement in excess of $100,000 individually or together with related claims, a
copy of each such claim or demand, together with any other documents of a
material nature delivered to or sent by it in any way relating to such claim or
demand; and
(l) Other Documents. To Administrative Agent and Lenders,
such other financial and other information respecting US Borrower's or any
Subsidiary's businesses, financial condition as Administrative Agent or any
Lender shall, from time to time, request.
Administrative Agent shall deliver copies of materials received
pursuant to paragraphs (i) through (k) above to any Lender requesting copies
thereof in writing.
G-3
<PAGE> 125
SCHEDULE H (Section 4.1(b))
to
CREDIT AGREEMENT
COLLATERAL REPORTS
(a) To Administrative Agent and each Lender, upon its request,
and in no event less frequently than fifteen (15) days after the end of each
Fiscal Month, each of the following:
(i) a Borrowing Base Certificate, in each case accompanied by
such supporting detail and documentation as shall be requested by
Administrative Agent in its reasonable discretion;
(ii) a summary of Inventory by location and type with a
supporting perpetual Inventory report, in each case accompanied by such
supporting detail and documentation as shall be requested by
Administrative Agent in its reasonable discretion;
(iii) a monthly trial balance showing Accounts outstanding aged
from invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to 90
days and 90 days or more, accompanied by such supporting detail and
documentation as shall be requested by Administrative Agent in its
reasonable discretion; and
(iv) upon the request of Administrative Agent from time to time
(together with a copy of all or any part of such delivery requested by
any Lender in writing after the Closing Date), collateral reports
including all additions and reductions (cash and non-cash) with respect
to Accounts, in each case accompanied by such supporting detail and
documentation as shall be requested by Administrative Agent in its
reasonable discretion;
(b) To Administrative Agent, at the time of delivery of each
of the monthly financial statements delivered pursuant to Schedule G, a
reconciliation of the Accounts trial balance and month-end Inventory reports to
the applicable Borrower's general ledger and monthly financial statements
delivered pursuant to such Schedule G, in each case accompanied by such
supporting detail and documentation as shall be requested by Administrative
Agent in its reasonable discretion;
(c) To Administrative Agent, at the time of delivery of the
financial statements for the last Fiscal Month of each Fiscal Quarter delivered
pursuant to Schedule G, a listing, as to US Borrower only, of government
contracts subject to the Federal Assignment of Claims Act of 1940;
(d) Each Borrower, at its own expense, shall deliver to
Administrative Agent the results of each physical verification, if any, which
such Borrower may in its discretion have made, or caused any other Person to
have made on its behalf, of all or any portion of its Inventory; and
H-1
<PAGE> 126
(e) Such other reports, statements and reconciliations with
respect to the Borrowing Base or Collateral as Administrative Agent shall from
time to time request in its reasonable discretion.
H-2
<PAGE> 127
SCHEDULE I (Section 6.10)
to
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrowers shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:
(a) Maximum Capital Expenditures. Borrowers and their
Subsidiaries on a consolidated basis shall not make Capital Expenditures
(other than Capital Expenditures incurred as part of a Permitted
Acquisition) during the following periods that exceed in the aggregate
the amounts set forth opposite each of such periods:
<TABLE>
<CAPTION>
Period Maximum Capital
------ ---------------
Expenditures per Period
-----------------------
<S> <C>
Fiscal Year 1996 $ 6,000,000
---------------------
Fiscal Year 1997 $ 8,000,000
---------------------
Fiscal Year 1998 $ 8,000,000
---------------------
Fiscal Year 1999
and each Fiscal Year thereafter $ 10,000,000
---------------------
</TABLE>
(b) Minimum Net Worth. Borrowers and their Subsidiaries on a
consolidated basis shall maintain at all times during each of the Fiscal
Years set forth below, a minimum Net Worth equal to or greater than the
following:
<TABLE>
<CAPTION>
Period Minimum Net Worth
------ -----------------
per Period
----------
<S> <C>
Fiscal Year 1997 $ 40,000,000
----------------
Fiscal Year 1998 $ 51,300,000
----------------
Fiscal Year 1999 $ 64,700,000
----------------
Fiscal Year 2000 $ 79,700,000
----------------
Fiscal Year 2001 $ 85,000,000
----------------
</TABLE>
(c) Minimum Interest Coverage Ratio. Borrowers and their
Subsidiaries on a consolidated basis shall have at the end of each
Fiscal Quarter set forth below, an Interest Coverage Ratio for the 12-
month period then ended, of not less than the following:
3.5 to 1 for the Fiscal Quarter ending December 31, 1996;
4.1 to 1 for each Fiscal Quarter ending during Fiscal Year 1997;
4.5 to 1 for each Fiscal Quarter ending during Fiscal Year 1998
and for each Fiscal Quarter ending thereafter.
I-1
<PAGE> 128
SCHEDULE J (Section 11.10)
to
CREDIT AGREEMENT
(a) If to Administrative Agent or GE Capital, at
General Electric Capital Corporation
105 West Madison Street - Suite 1600
Chicago, Illinois 60602
Attention: National-Oilwell Account Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
with copies to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: David G. Crumbaugh, Esq.
Telecopier No.: (312) 558-5700
Telephone No.: (312) 558-5600
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7556
(b) If to any Lender (copies should also be sent
in accordance with paragraph (a) above)
BTM Capital Corporation
Trammel Crow Center
Suite 3160
2001 Ross Avenue
L.B. 101
Dallas, Texas 75201
Attention: H. Milton Amos, Vice President
Telecopier No.: (214) 954-0781
Telephone No.: (214) 954-0770
J-1
<PAGE> 129
BNY Commercial Corporation
1290 Avenue of the Americas
3rd Floor
New York, New York 10104
Attention: Daniel Murray, Vice President
Telecopier No.: (212) 408-4313
Telephone No.: (212) 408-4088
Mitsubishi Trust
520 Madison Avenue
25th Floor
New York, New York 10022
Attention: Susan Le Fevre, Vice President
Telecopier No.: (212) 644-6825
Telephone No.: (212) 891-8243
Sanwa Business Credit
500 Glenpointe Centre West
4th Floor
Teaneck, New Jersey 07666-6803
Attention: Oleh Szczupak
Telecopier No.: (201) 836-4744
Telephone No.: (201) 836-4006
(c) If to either Borrower, at
National-Oilwell
P.O. Box 4638
Houston, Texas 77210-4638
Attention: Chief Financial Officer
Telecopier No.: (713) 960-5212
Telephone No.: (713) 960-5506
With copies to:
National-Oilwell
P.O. Box 4638
Houston, Texas 77210-4638
Attention: General Counsel
Telecopier No.: (713) 960-5237
Telephone No.: (713) 960-5406
J-2
<PAGE> 130
SCHEDULE K (Section 9.10(a)(iii))
to
CREDIT AGREEMENT
WIRE TRANSFER INFORMATION
1. For The Bank of New York Commercial Corporation:
The Bank of New York
48 Wall Street
New York, NY 10015
Account No.: 0000016608
ABA No.: 021000018
Re: National-Oilwell
Attn: Guardatt Jagnanan
Phone No.: (212) 408-4188
Fax No.: (212) 408-4319
2. For Sanwa Business Credit Corporation:
Harris Bank & Trust Company
111 West Monroe Street
Chicago, Illinois 60690
Account No.: 401-686-1
ABA No.: 071-000-288
Re: National-Oilwell
Attn: Robert Nadler, Operations Supervisor
Phone No.: (201) 836-4006
Fax No.: (201) 836-4744
3. For BTM Capital Corporation:
Bank of Boston
125 Summer Street
Boston, MA 02110
Account No.: 521-11235
ABA No.: 011-000-390
Attn: Tim Gilbert
Phone No.: (617) 345-5614
Fax No.: (617) 345-5250
K-1
<PAGE> 131
4. For The Mitsubishi Trust and Banking Corporation:
Bankers Trust
1 Bankers Trust Plaza
New York, NY 10006
Account No.: MTBC, New York
MTBC Account No.: 04201547
ABA No.: 0210-0103-3
Ref.: SL-840 National-Oilwell
Attn: Loan Administration
Phone No.: (212) 891-8256
Fax No.: (212) 755-2349
K-2
<PAGE> 1
DEFERRED FEE AGREEMENT
This Agreement is made as of October 18, 1996, effective as of
, 1996 (the "Effective Date"), by and between National-Oilwell, Inc.,
a Delaware corporation (the "Company"), Inverness/Phoenix LLC, a Connecticut
limited liability company ("Inverness") and First Reserve Corporation, a
Delaware corporation ("First Reserve").
WHEREAS, the Company (under its former name, NOW Holdings, Inc.) and
Inverness (under its former name, Duff & Phelps/Inverness LLC) entered into a
Management Services Agreement dated as of January 16, 1996 (the "Management
Services Agreement"), and
WHEREAS, the Company and Inverness desire to terminate the Management
Services Agreement and replace it with this Deferred Fee Agreement (the
"Agreement"), and
WHEREAS, the Company, Inverness and First Reserve desire to set forth
certain agreements with respect to the termination of the Management Services
Agreement and its replacement by the Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. DEFINITIONS.
(a) Seller Notes. The Seller Notes are the two subordinated
promissory notes issued by the Company on January 16, 1996 to Oilwell,
Inc., a Delaware corporation, and National Supply Company, Inc., a
Delaware corporation, each in the principal amount of $10,000,000 bearing
interest at 9% per annum and due January 16, 2005.
(b) Transaction. A Transaction is an acquisition, merger,
consolidation or divestiture involving the Company immediately after
which the consolidated net worth of the Company is equal to or greater
than such consolidated net worth immediately prior to such transaction.
2. TERMINATION OF MANAGEMENT SERVICES AGREEMENT. As of the Effective
Date, the Management Services Agreement shall be terminated and replaced with
this Agreement and all unpaid amounts accrued through September 30, 1996 under
the Management Services Agreement shall be paid by the Company to Inverness on
the Effective Date.
<PAGE> 2
3. PAYMENTS.
The Company shall make the following payments:
(a) Beginning on the first day of the calendar quarter following
the Effective Date and continuing through December 31, 1999, the Company
shall pay to Inverness a quarterly fee of $250,000 payable on the first
day of each calendar quarter, provided, however, that the first quarterly
payment under this section 3(a) shall be paid on the Effective Date; and
(b) The Company shall pay to Inverness fees aggregating
$1,050,000 and pay to First Reserve fees aggregating $225,000 on the
first date that such payments will not result in an event of default
under the Seller Notes; provided, however, that (i) if a Transaction
occurs prior to January 1, 2000, a portion of the $1,275,000 aggregate
fee payable to Inverness and First Reserve under this paragraph shall be
considered, and paid as, a transaction fee to the extent that such
payment does not cause an event of default under the Seller Notes and
(ii) any portion of the $1,275,000 aggregate fee payable to Inverness and
First Reserve under this paragraph remaining unpaid as of January 1, 2000
shall be considered as a management or similar fee and shall be paid by
the Company beginning on January 1, 2000, until the remaining unpaid
portion of the $1,275,000 has been paid in full, with such payments to be
made by the Company quarterly in advance in the aggregate amount of
$250,000 per quarter and such payments being allocated proportionally to
Inverness and First Reserve based on the outstanding amount of the
$1,275,000 aggregate fee owed to each of them respectively.
4. NOTICES. All notices hereunder shall be in writing and shall be
delivered personally or mailed by United States mail, postage prepaid,
addressed to the parties as follows:
To the Company:
National-Oilwell, Inc.
5555 San Felipe
Houston, TX 77056
Attn: Chief Executive Officer
To First Reserve:
First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06380
Attn: William E. Macaulay
2
<PAGE> 3
To Inverness:
Phoenix/Inverness LLC
666 Steamboat Road
Greenwich, CT 06830
Attn: W. McComb Dunwoody
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Attn: John S. Watson
5. ASSIGNMENT. No party may assign any obligations hereunder to any
other party without the prior written consent of the other parties; such
consent shall not be unreasonably withheld; provided, however, that Inverness
may assign its rights and obligations under this Agreement to any of its
affiliates or successors without the consent of the Company.
6. SUCCESSORS. This Agreement and all the obligations and benefits
hereunder shall inure to the successors and assigns of the parties.
7. COUNTERPARTS. This Agreement may be executed and delivered by each
party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute but one and the same agreement.
8. ENTIRE AGREEMENT; MODIFICATION; GOVERNING LAW. The terms and
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of
this Agreement nor waiver of the terms or conditions thereof shall be binding
upon either party unless approved in writing by an authorized representative of
such party. All issues concerning this agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Connecticut or any other jurisdiction) that would
cause the application of the law of any jurisdiction other than the State of
Connecticut.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
NATIONAL-OILWELL, INC.
By
----------------------------------
Joel V. Staff
Chief Executive Officer
INVERNESS/PHOENIX LLC
By
----------------------------------
W. McComb Dunwoody
President
FIRST RESERVE CORPORATION
By
----------------------------------
William E. Macaulay
President
4
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO
NATIONAL-OILWELL, INC.
VALUE APPRECIATION AND INCENTIVE PLAN A
WHEREAS, NATIONAL-OILWELL, INC. (formerly Now Holdings, Inc.) (the
"Company") has heretofore adopted the NOW HOLDINGS, INC. VALUE APPRECIATION AND
INCENTIVE PLAN A (the "Plan"); and
WHEREAS, the Company desires to rename and amend the Plan;
NOW, THEREFORE, the Plan shall be renamed and amended as follows:
1. Effective as of August 28, 1996, the Plan shall be renamed
"National-Oilwell, Inc. Value Appreciation and Incentive Plan A" and references
in the Plan to "Now Holdings, Inc." shall be replaced with references to
"National- Oilwell, Inc."
2. Effective as of October 1, 1996, Paragraphs (b), (c), (d), (e) and
(f) of Article IV of the Plan shall be deleted and the following shall be
substituted therefor:
"(b) FORM AND TIME OF DISTRIBUTIONS. Distributions under the Plan
resulting from a Triggering Event other than a Qualified Public Offering
Triggering Event shall be paid in single lump sum cash payments which are
paid within the 30 day period immediately following the Triggering Event.
If the Triggering Event results from a Qualified Public Offering, the
distribution to a Participant of the Base Distribution Amount determined
pursuant to Paragraph (a) above for such Participant shall be paid as
follows:
If the Triggering Event occurs One-third of the Base Distribution
on or before January 17, 1998: Amount determined pursuant to Paragraph
(a) above will be paid in cash within 30
days of the date of the Triggering Event
and the remainder of such Base
Distribution Amount will be paid by
distribution of a number of shares of
Common Stock determined by dividing the
dollar value of such remainder by the
per share initial public offering price,
with one-half of such shares of Common
Stock being distributed on the first
anniversary of the Triggering Event and
with the remainder of such shares of
Common Stock being distributed on
January 17, 1999.
<PAGE> 2
If the Triggering Event occurs One-half of the Base Distribution Amount
after January 17, 1998 but on or determined pursuant to Paragraph (a)
before January 17, 1999: above will be paid in cash within 30
days of the date of the Triggering Event
and the remainder of such Base
Distribution Amount will be paid by
distribution of a number of shares of
Common Stock determined by dividing the
dollar value of such remainder by the
per share initial public offering price,
with such shares of Common Stock being
distributed on January 17, 1999.
If the Triggering Event occurs All of the Base Distribution Amount
after January 17, 1999: determined pursuant to Paragraph (a)
above will be paid in cash within 30
days after the Triggering Event.
Notwithstanding the foregoing, no shares of Common Stock shall be
transferred to a Participant except upon payment by such Participant to
the Company of $0.01 per share cash.
(c) FORFEITURES. If a Participant who was employed by the
Company as of a Triggering Event is later involuntarily terminated by the
Company without cause, or if employment is terminated due to the death of
the employee, any Base Distribution Amounts then remaining payable to him
or her pursuant to Paragraph (b) above shall be paid to him or her within
30 days after the date of such employment termination. If the employment
of a Participant who was employed by the Company as of a Triggering Event
is later terminated by the Company for cause, all Base Distribution
Amounts then remaining payable to him or her pursuant to Paragraph (b)
above shall be forfeited. If a Participant who was employed by the
Company as of a Triggering Event terminates employment for any reason
other than a reason described in the preceding sentences, all Base
Distribution Amounts payable to him or her pursuant to Paragraph (b)
above shall be paid in accordance with Paragraph (b) above.
(d) COMMON STOCK ISSUANCE. The aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 300,000
shares. Any of such shares which remain unissued at the termination of
the Plan shall cease to be subject to the Plan, but, until termination of
the Plan, the Company shall at all times reserve a sufficient number of
shares to meet the requirements of the Plan. Shares shall be deemed to
have been issued under the Plan only to the extent actually issued and
delivered. Shares to be distributed pursuant to the Plan may be
authorized but unissued Common Stock or Common Stock previously issued
and outstanding and reacquired by the Company. Stock required to be
distributed pursuant to the Plan:
-2-
<PAGE> 3
(1) shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common
Stock in the event of changes in the outstanding Common Stock
by reason of dividends payable in stock of the Company, stock
splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant
changes in capitalization occurring after the date of the
grant thereof;
(2) shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any
merger or consolidation of the Company, any issue of debt or
equity securities having any priority or preference with
respect to or affecting Common Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or
proceeding;
(3) shall be appropriately adjusted if the Company shall effect a
subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend on Common Stock payable in stock
of the Company; and
(4) shall, if the Company recapitalizes or otherwise changes its
capital structure, be appropriately adjusted to reflect such
recapitalization.
The Company intends to register for issuance and, to the extent required
to achieve liquidity for Participants, for resale under the Securities
Act of 1933, as amended (the 'Act') the shares of Common Stock acquired
by a Participant pursuant to Plan distributions and to keep such
registration effective. In the absence of such effective registration or
an available exemption from registration under the Act, issuance of
shares of Common Stock acquired under the Plan will be delayed until
registration of such shares is effective or an exemption from
registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event
exemption from registration under the Act is available with respect to
shares of Common Stock acquired by a Participant pursuant to Plan
distributions, the Participant (or the person acquiring such Common Stock
in the event of Participant's death or incapacity), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws.
(e) EXTRAORDINARY EVENT ADJUSTMENTS. If an extraordinary event
outside of the control of the Company occurs which would result in a
substantial distortion from the ordinary operation of the Plan, the Board
of Directors of the
-3-
<PAGE> 4
Company, in its sole discretion, may make such adjustment to the
operation of the Plan as it determines to be appropriate.
(f) TAX BONUS. In addition to amounts payable under the Plan
pursuant to Paragraphs (a) and (b) above, the Company shall pay to any
Participant with respect to any distributions under the Plan which are
subject to the tax imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended, (the 'Code') a tax bonus as described in this
Paragraph (f). The tax bonus payable to a Participant under this
Paragraph (f) shall be equal to the amount determined by (i) determining
the aggregate amounts distributed to the Participant pursuant to
Paragraphs (a) and (b) above which are treated as excess parachute
payments (within the meaning of Section 280G of the Code or the
corresponding provision of any successor statute) (adjusted, as
appropriate, to reflect any delayed or installment payments) and which
are subject to the tax imposed under Section 4999 of the Code or the
corresponding provision of any successor statute (the 'Parachute
Amount'), (ii) determining the decimal which expresses the maximum rate
of tax imposed under section 4999 of the Code or the corresponding
provision of any successor statute (the 'Parachute Tax Rate') and the
maximum statutory rate, expressed as a decimal, of Federal income tax
applicable to the Participant (after reflecting all deductions and
adjustments) applicable to the Participant for the taxable year in which
he receives the distributions pursuant to Paragraphs (a) and (b) above
(the 'Regular Tax Rate'), (iii) multiplying the Parachute Amount by the
Parachute Tax Rate, (iv) multiplying the amount determined in item (iii)
by 2/3 and (v) multiplying the amount determined in item (iv) by a
fraction, the numerator of which is one and the denominator of which is
one minus the Regular Tax Rate.
(g) WITHHOLDING TAXES. The Company shall have the right to
deduct from all payments under this Plan any federal, state or local
taxes required by law to be withheld with respect to such payments, to
deduct from other compensation payable to a Participant any federal,
state or local taxes required by law to be withheld with respect to such
payments or to accept from a Participant a payment of cash in an amount
necessary to permit the Company to satisfy any federal, state or local
tax withholding obligations with respect to such payments."
3. As amended hereby, the Plan is specifically ratified and
reaffirmed.
IN WITNESS WHEREOF, this amendment is executed this _____ day of
_____________, 1996.
ATTEST: NATIONAL-OILWELL, INC.
By
- ------------------------------ ------------------------------
Paul M. Nation, Vice President, Joel B. Staff, President and
General Counsel and Secretary Chief Executive Officer
-4-
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO
NATIONAL-OILWELL, INC.
VALUE APPRECIATION AND INCENTIVE PLAN B
WHEREAS, NATIONAL-OILWELL, INC. (formerly Now Holdings, Inc.) (the
"Company") has heretofore adopted the NOW HOLDINGS, INC. VALUE APPRECIATION AND
INCENTIVE PLAN B (the "Plan"); and
WHEREAS, the Company desires to rename and amend the Plan;
NOW, THEREFORE, the Plan shall be renamed and amended as follows:
1. Effective as of August 28, 1996, the Plan shall be renamed
"National-Oilwell, Inc. Value Appreciation and Incentive Plan B" and references
in the Plan to "Now Holdings, Inc." shall be replaced with references to
"National- Oilwell, Inc."
2. Effective as of October 1, 1996, Paragraphs (b), (c) and (d) of
Article IV of the Plan shall be deleted and the following shall be substituted
therefor:
"(b) FORM AND TIME OF DISTRIBUTIONS. Base Distribution Amount
distributions under the Plan resulting from a Pool A Triggering Event
other than a Qualified Public Offering Pool A Triggering Event shall be
paid in single lump sum cash payments which are paid within the 30 day
period immediately following the Pool A Triggering Event. If the Pool A
Triggering Event results from a Qualified Public Offering, the
distribution to a Participant of the Base Distribution Amount determined
pursuant to Paragraph (a) above for such Participant shall be paid as
follows:
If the Pool A Triggering Event One-third of the Base Distribution
occurs on or before January 17, Amount determined pursuant to Paragraph
1998: (a) above will be paid in cash within 30
days of the date of the Pool A
Triggering Event and the remainder of
such Base Distribution Amount will be
paid by distribution of a number of
shares of Common Stock determined by
dividing the dollar value of such
remainder by the per share initial
public offering price, with one-half of
such shares of Common Stock being
distributed on the first anniversary of
the Pool A Triggering Event and with the
remainder of such shares of Common Stock
being distributed on January 17, 1999.
<PAGE> 2
If the Pool A Triggering Event One-half of the Base Distribution
occurs after January 17, 1998 Amount determined pursuant to Paragraph
but on or before January 17, (a) above will be paid in cash within 30
1999: days of the date of the Pool A
Triggering Event and the remainder of
such Base Distribution Amount will be
paid by distribution of a number of
shares of Common Stock determined by
dividing the dollar value of such
remainder by the per share initial
public offering price, with such shares
of Common Stock being distributed on
January 17, 1999.
If the Pool A Triggering Event All of the Base Distribution Amount
occurs after January 17, 1999: determined pursuant to Paragraph (a)
above will be paid in cash within 30
days after the Pool A Triggering Event.
Notwithstanding the foregoing, no shares of Common Stock shall be
transferred to a Participant except upon payment by such Participant to
the Company of $0.01 per share cash.
(c) FORFEITURES. If a Participant who was employed by the
Company as of a Pool A Triggering Event is later involuntarily terminated
by the Company without cause, or if employment is terminated due to the
death of the employee, any Base Distribution Amounts then remaining
payable to him or her pursuant to Paragraph (b) above shall be paid to
him or her within 30 days after the date of such employment termination.
If the employment of a Participant who was employed by the Company as of
a Pool A Triggering Event is later terminated by the Company for cause,
all Base Distribution Amounts then remaining payable to him or her
pursuant to Paragraph (b) above shall be forfeited. If a Participant who
was employed by the Company as of a Pool A Triggering Event terminates
employment for any reason other than a reason described in the preceding
sentences, all Base Distribution Amounts payable to him or her pursuant
to Paragraph (b) above shall be paid in accordance with Paragraph (b)
above.
(d) COMMON STOCK ISSUANCE. The aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 100,000
shares. Any of such shares which remain unissued at the termination of
the Plan shall cease to be subject to the Plan, but, until termination of
the Plan, the Company shall at all times reserve a sufficient number of
shares to meet the requirements of the Plan. Shares shall be deemed to
have been issued under the Plan only to the extent actually issued and
delivered. Shares to be distributed pursuant to the Plan may be
authorized but unissued Common Stock or Common Stock previously issued
and outstanding and reacquired by the Company. Stock required to be
distributed pursuant to the Plan:
<PAGE> 3
(1) shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common
Stock in the event of changes in the outstanding Common Stock
by reason of dividends payable in stock of the Company, stock
splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant
changes in capitalization occurring after the date of the
grant thereof;
(2) shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any
merger or consolidation of the Company, any issue of debt or
equity securities having any priority or preference with
respect to or affecting Common Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or
proceeding;
(3) shall be appropriately adjusted if the Company shall effect a
subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend on Common Stock payable in stock
of the Company; and
(4) shall, if the Company recapitalizes or otherwise changes its
capital structure, be appropriately adjusted to reflect such
recapitalization.
The Company intends to register for issuance and, to the extent required
to achieve liquidity for Participants, for resale under the Securities
Act of 1933, as amended (the 'Act') the shares of Common Stock acquired
by a Participant pursuant to Plan distributions and to keep such
registration effective. In the absence of such effective registration or
an available exemption from registration under the Act, issuance of
shares of Common Stock acquired under the Plan will be delayed until
registration of such shares is effective or an exemption from
registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event
exemption from registration under the Act is available with respect to
shares of Common Stock acquired by a Participant pursuant to Plan
distributions, the Participant (or the person acquiring such Common Stock
in the event of Participant's death or incapacity), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws."
3. Effective as of October 1, 1996, Paragraphs (c) and (d) of Article V
of the Plan shall be deleted and the following shall be substituted therefor:
-3-
<PAGE> 4
"(c) FORM OF POOL B DISTRIBUTIONS. Pool B distributions to
a Participant under the Plan shall be paid in cash.
(d) FORFEITURES. If the employment of a Participant who
was employed by the Company or an Affiliate as of a Pool B Triggering
Event is later terminated for any reason other than by the Company or an
Affiliate for cause, any Pool B distribution amounts then remaining
payable to him or her pursuant to Paragraph (b) above shall be paid to
him or her as if such Participant continued to be employed by the Company
or an Affiliate. If the employment of a Participant who was employed by
the Company or an Affiliate as of a Pool B Triggering Event is terminated
by the Company or an Affiliate for cause, all Pool B distribution amounts
then remaining payable to him or her pursuant to paragraph (b) above
shall be forfeited and the amount of such remaining Pool B distributions
which are so forfeited shall be used to increase the amounts of Pool B
distributions then remaining payable to other Participants as follows:
(1) The forfeited Pool B distribution amount which would have
otherwise been payable as of a given date to the forfeiting
Participant (the 'Distribution Date Forfeiture Amount') shall
be applied to increase the Pool B distribution amounts
payable as of such date to the Participants entitled to Pool
B distributions as of such date.
(2) The increase in the Pool B distributions for a Participant
entitled to an increase pursuant to item (1) above shall be
determined by multiplying the Distribution Date Forfeiture
Amount by a fraction, the numerator of which is the Pool B
distribution amount payable as of such date to such
Participant and the denominator of which is the total Pool B
distribution amount payable to all Participants as of such
date and then by increasing such Participant's Pool B
distribution amount for such date by the amount so
determined."
4. Effective as of October 1, 1996, Paragraph (f) of Article X of the
Plan shall be deleted and the following shall be substituted therefor:
"(f) WITHHOLDING TAXES. The Company shall have the right to
deduct from all payments under this Plan any federal, state or local
taxes required by law to be withheld with respect to such payments, to
deduct from other compensation payable to a Participant any federal,
state or local taxes required by law to be withheld with respect to such
payments or to accept from a Participant a payment of cash in an amount
necessary to permit the Company to satisfy any federal, state or local
tax withholding obligations with respect to such payments."
5. As amended hereby, the Plan is specifically ratified and
reaffirmed.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this amendment is executed this _____ day of _____________,
1996.
ATTEST: NATIONAL-OILWELL, INC.
By
- ------------------------------ ----------------------------------
Paul M. Nation, Vice President, Joel B. Staff, President and
General Counsel and Secretary Chief Executive Officer
-5-
<PAGE> 1
SECOND AMENDMENT
TO
STOCKHOLDERS AGREEMENT
OCTOBER 18, 1996
The undersigned parties to that certain Stockholders Agreement dated as of
January 16, 1996 by and among NOW Holdings, Inc. (now, National-Oilwell, Inc.)
and its stockholders (the "Stockholders Agreement"), pursuant to Section 8.2 of
the Stockholders Agreement, hereby consent to the following amendment to the
Stockholders Agreement:
Section 6.1(h) of the Stockholders Agreement is hereby amended and
restated in its entirety to read as follows:
"(h) If a registration pursuant to this Section 6.1 involves an
Underwritten Offering and the managing underwriter shall advise the
Company that, in its judgment, the number of shares proposed to be
included in such Offering should be limited due to market conditions, then
the Company will promptly so advise each holder of Registerable Securities
that has requested registration, and the Company Securities, if any, shall
first be excluded from such Offering to the extent necessary to meet such
limitation; and if further exclusions are necessary to meet such
limitation, the shares shall be excluded on a pro rata basis among all
Registerable Securities requested to be registered pursuant to Section
6.1(a)(i) and 6.1(a)(ii)."
<PAGE> 2
IN WITNESS WHEREOF, each of the parties hereto has caused this Consent and
Amendment to be executed as of October 18, 1996 by their respective officers
thereunto duly authorized.
NATIONAL-OILWELL, INC.
By:________________________
Joel V. Staff
President
DPI OIL SERVICE PARTNERS
LIMITED PARTNERSHIP
By: Inverness/Phoenix LLC
Managing General Partner
By:_____________________
W.McComb Dunwoody
President
DPI PARTNERS II
By:_______________________
W. McComb Dunwoody
Managing Partner
GENERAL ELECTRIC
CAPITAL CORPORATION
By:_______________________
Name:
Title: Authorized Signature
<PAGE> 3
FIRST RESERVE FUND V,
LIMITED PARTNERSHIP
By: First Reserve Corporation,
as Managing General Partner
By:________________________
Bruce Rothstein
Vice President
FIRST RESERVE FUND V-2,
LIMITED PARTNERSHIP
By: First Reserve Corporation,
as Managing General Partner
By:________________________
Bruce Rothstein
Vice President
FIRST RESERVE FUND VI,
LIMITED PARTNERSHIP
By: First Reserve Corporation,
as Managing General Partner
By:________________________
Bruce Rothstein
Vice President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 29, 1996 related to the consolidated balance
sheet of National-Oilwell, Inc. and subsidiaries, and to the use of our report
dated January 31, 1996 related to the consolidated financial statements of
National-Oilwell, a general partnership, and subsidiaries in the Registration
Statement (Form S-1 No. 333-11051) and related Prospectus for the registration
of 4,000,000 shares of common stock.
ERNST & YOUNG LLP
Houston, Texas
October 24, 1996
