<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
DRIL-QUIP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3533 74-2162088
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
13550 HEMPSTEAD HIGHWAY
HOUSTON, TEXAS 77040
(713) 939-7711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LARRY E. REIMERT
13550 HEMPSTEAD HIGHWAY
HOUSTON, TEXAS 77040
(713) 939-7711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
WALTER J. SMITH THOMAS P. MASON
BAKER & BOTTS, L.L.P. ANDREWS & KURTH L.L.P.
3000 ONE SHELL PLAZA 4200 TEXAS COMMERCE TOWER
910 LOUISIANA HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002-4995 (713) 220-4200
(713) 229-1234
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (1) (2)(3) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share (4).... -- -- $103,500,000 $31,364
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</TABLE>
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, as
amended, the number of shares being registered and the proposed maximum
offering price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(4) Includes associated rights to purchase preferred stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued August 12, 1997
Shares
DRIL-QUIP, INC.
COMMON STOCK
OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY, SHARES ARE
BEING SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDERS. PRIOR TO THE OFFERING MADE HEREBY (THE "OFFERING"), THERE
HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE
WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
-----------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE, UNDER THE SYMBOL "DRQ."
-----------
SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREOF FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
-----------
PRICE $ A SHARE
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------ -------------- ---------- ------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including under the Securities
Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
the Company will be $ , $ and $ , respectively.
See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Andrews & Kurth L.L.P., counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION
TO SUCH PERSONS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Dilution.................................................................. 13
Capitalization............................................................ 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 22
Management................................................................ 38
Certain Transactions...................................................... 42
Principal and Selling Stockholders........................................ 43
Shares Eligible for Future Sale........................................... 44
Description of Capital Stock.............................................. 45
Underwriters.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 52
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by an independent
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing interim unaudited consolidated financial information.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) gives effect to the
Company's expected reorganization as a Delaware corporation prior to the
consummation of the Offering, which will have the effect of a for
stock split, and (ii) assumes that the Underwriters' over-allotment
option will not be exercised. Unless otherwise indicated by the context,
references herein to the "Company" or "Dril-Quip" mean a Delaware corporation
that is the issuer of the Common Stock offered hereby, its predecessor and its
subsidiaries.
THE COMPANY
Dril-Quip is one of the world's leading manufacturers of highly engineered
offshore drilling and production equipment which is well suited for use in
deepwater, harsh environment and severe service applications. The Company
designs and manufactures subsea equipment, surface equipment and offshore rig
equipment for use by major integrated, large independent and foreign national
oil and gas companies in offshore areas throughout the world. The Company's
principal products consist of subsea and surface wellheads, subsea and surface
production trees, mudline hanger systems, specialty connectors and associated
pipe, drilling and production riser systems, wellhead connectors and diverters.
The Company also provides installation and reconditioning services and rents
running tools for use in connection with the installation and retrieval of its
products. In 1996, the Company derived 82.1% of its revenues from the sale of
its products and 17.9% of its revenues from services.
Dril-Quip has developed its broad line of subsea equipment, surface equipment
and offshore rig equipment exclusively through its internal product development
efforts. The Company believes that it has achieved significant market share and
brand name recognition with respect to its established products due to the
technological capabilities, reliability, cost effectiveness and operational
timesaving features of these products. In particular, the Company's Quik-
Thread(R) and Quik-Stab(R) specialty connectors, MS-15(R) mudline hanger
systems and SS-10(R) and SS-15(R) subsea wellheads are among the most widely
used in the industry. The Company believes that, as of June 1, 1997, its subsea
wellhead equipment was being used on approximately 70% of the wells being
drilled in waters deeper than 3,000 feet worldwide. Since 1991, the Company has
introduced a number of new products, including diverters, wellhead connectors,
dual-bore and single-bore subsea production trees, subsea and platform valves,
platform wellheads, platform trees, drilling risers and Spar and tension leg
platform ("TLP") production risers.
The Company has grown consistently since its inception in 1981 and has been
profitable in every year since 1983. As a result of new product introductions,
increased market share in established product lines and increased offshore
drilling and production activity, the Company's revenues have increased from
$65.2 million in 1992 to $115.9 million in 1996 (an annual growth rate of
15.4%), and its net income has increased from $1.7 million in 1992 to $9.1
million in 1996 (an annual growth rate of 52.1%). For the three months ended
March 31, 1997, the Company's revenues were $34.2 million and its net income
was $2.3 million, representing a 36.0% increase in revenues and a 30.2%
increase in net income from the comparable period in 1996.
The Company has experienced increased demand for its products due to the
increased drilling and production activity in offshore areas throughout the
world during the last several years, particularly in deeper waters. The
increase in offshore drilling and production activity has been driven by a
number of factors, including (i) the prospect for relatively larger hydrocarbon
discoveries in deepwater areas and (ii) recent technological advances in
offshore drilling and production equipment (including those introduced by Dril-
Quip), seismic data collection and interpretation techniques, and drilling
techniques, which have enhanced the economics of offshore drilling and
production. In addition, several foreign national oil companies have recently
opened offshore areas for exploration and development by other parties,
including major integrated and large
3
<PAGE>
independent oil and gas companies. These factors have contributed to the
increase in the Company's backlog from approximately $56 million at December
31, 1996 to approximately $101 million at June 30, 1997, an 80% increase. The
Company intends to use the proceeds from the Offering to expand its
manufacturing capacity in order to satisfy the increased demand for its
products.
Dril-Quip markets its products through its offices and sales representatives
located in all of the major international energy markets throughout the world.
In 1996, the Company generated approximately 68% of its revenues from foreign
sales. The Company manufactures its products at its facilities located in
Houston, Texas; Aberdeen, Scotland; and Singapore, and maintains additional
facilities for fabrication and/or reconditioning in Norway, Denmark and
Australia. Dril-Quip's manufacturing operations are vertically integrated, with
the Company performing substantially all of its forging, heat treating,
machining, fabrication, inspection, assembly and testing at its own facilities.
Unlike essentially all of the Company's competitors, which depend on outside
sources for forging and heat treatment services, Dril-Quip owns a forge and
heat treatment facility that handles virtually all of the Company's
requirements. This vertically integrated manufacturing capability provides
Dril-Quip with competitive advantages because the Company is able to (i)
control the quality of its products from initial stages, (ii) control the costs
of its production and (iii) assure timely delivery of high-volume and
customized orders.
The Company was co-founded in 1981 by the current Board of Directors, Larry
E. Reimert, Gary D. Smith, J. Mike Walker and Gary W. Loveless (the
"Founders"). Together, Messrs. Reimert, Smith and Walker have over 75 years of
combined experience in the oilfield equipment industry, essentially all of
which has been with the Company and its major competitors. In addition, key
department managers have been with the Company over 10 years, on average. See
"Management." After the Offering, the Founders will collectively beneficially
own % of the outstanding Common Stock ( % if the over-allotment option is
exercised in full).
STRATEGY
The Company's goal is to expand its existing market position in the offshore
oil and gas equipment and services sector while at the same time increasing its
earnings and cash flow per share to enhance overall stockholder value. Key
elements of the Company's strategy for achieving this goal are to:
. CONTINUE TO DEVELOP NEW PRODUCTS. The Company plans to utilize its
technological expertise to continue to develop and introduce new products
and product enhancements in both its existing product lines and new
product lines. For example, the Company has recently received purchase
orders for drilling risers, production risers and deepwater subsea
production trees. The Company believes that the strong brand name
recognition and reputation of its existing products will assist it in
successfully introducing new products to customers.
. INCREASE MANUFACTURING CAPACITY. To maintain and improve market share in
its major product lines, the Company plans to expand its manufacturing
capacity by approximately 90% during the three year period 1997 through
1999, approximately two-thirds of which is expected to be completed by
the end of 1998. The Company has been operating at close to full capacity
in recent years, and believes that this expansion is essential in order
to meet customer demand for its existing products and to continue its
strategy of developing new products.
. CONTINUE TO REDUCE COSTS AND INCREASE OPERATIONAL EFFICIENCIES. The
Company controls its costs through such activities as performing its own
forging and heat treatment, rebuilding quality used machine tools (rather
than purchasing new machine tools) and optimizing manufacturing
operations to increase the rate of production. Dril-Quip also plans to
expand its forging capacity to begin marketing forgings to third parties
in addition to supplying its own forging requirements. The Company
expects that this will provide additional cost efficiencies as well as
additional revenues, thereby contributing to profits.
4
<PAGE>
. CONTINUE EXPANSION INTO SELECTED INTERNATIONAL MARKETS. The Company's
products are currently utilized primarily in the Gulf of Mexico, the
North Sea and in selected markets in Southeast Asia, Australia and South
America. The Company has recently engaged international sales
representatives in several additional markets, including Mexico, West
Africa and the Middle East. The Company believes that there is
significant potential for increased sales through focused marketing
efforts in other active offshore areas in the world, such as China,
Argentina and the Caspian Sea.
. CAPITALIZE ON STRONG BALANCE SHEET. The Company plans to use a portion of
the net proceeds from the Offering initially to repay its existing
indebtedness. The Company believes that its strong balance sheet will
provide it with the financial flexibility to carry out its strategy to
design and develop new products, significantly increase manufacturing
capacity and expand its international presence.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company...................... shares
The Selling Stockholders......... shares
Total.......................... shares
Common Stock to be outstanding
after the Offering................ shares (1)
Use of Proceeds.................... To increase manufacturing capacity, improve
and expand facilities, and manufacture
additional running tools for rental. See
"Use of Proceeds."
Proposed New York Stock Exchange
Symbol............................ DRQ
</TABLE>
- --------
(1) Excludes an aggregate of shares of Common Stock reserved for issuance
upon exercise of stock options to be granted at the closing of the Offering
under the Company's 1997 Incentive Plan (the "Incentive Plan"). See
"Management--Incentive Plan," "Shares Eligible for Future Sale" and Notes
to the Company's Consolidated Financial Statements.
RISK FACTORS
Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT SHARE AND INDUSTRY
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $80,548 $108,390 $115,864 $25,155 $34,215
Cost of sales........................ 58,604 76,471 77,863 16,889 24,635
Selling, general and administrative
expenses............................ 11,673 13,597 15,031 3,606 3,701
Engineering and product development
expenses............................ 6,069 5,769 6,971 1,487 1,890
------- -------- -------- ------- -------
76,346 95,837 99,865 21,982 30,226
Operating income..................... 4,202 12,553 15,999 3,173 3,989
Interest expense..................... 2,273 2,944 2,647 636 668
------- -------- -------- ------- -------
Income before income taxes........... 1,929 9,609 13,352 2,537 3,321
Income tax provision................. 635 3,023 4,234 804 1,065
------- -------- -------- ------- -------
Net income........................... $ 1,294 $ 6,586 $ 9,118 $ 1,733 $ 2,256
======= ======== ======== ======= =======
Earnings per share................... $ $ $ $ $
Weighted average shares outstanding..
OTHER DATA:
EBITDA (1)........................... $ 8,069 $ 17,201 $ 20,387 $ 4,372 $ 5,277
Depreciation and amortization........ 3,867 4,648 4,388 1,199 1,288
Capital expenditures................. 4,614 6,184 7,228 1,463 1,869
OFFSHORE INDUSTRY DATA (2):
Worldwide average contracted offshore
rig count........................... 535.8 540.5 572.0 551.3 585.0
Worldwide average contracted floating
rig count........................... 143.0 139.4 152.8 147.7 157.7
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (UNAUDITED):
Working capital......................................... $ 50,957
Total assets............................................ 113,911
Total debt.............................................. 33,364
Total stockholders' equity.............................. 51,937
</TABLE>
- --------
(1) EBITDA, or "earnings from continuing operations before interest expense,
interest income, income taxes, extraordinary items, depreciation and
amortization," is not a generally accepted accounting principle measure,
but is a supplemental financial measurement used by the Company in the
evaluation of its business. EBITDA should not be construed as an
alternative to net income or to cash flow from operations or any other
measure of performance in accordance with generally accepted accounting
principles, and is presented solely as supplemental disclosure.
(2) Data obtained from Offshore Data Services.
(3) Adjusted to give effect to the Offering and the application of the
estimated net proceeds to the Company therefrom of approximately $
million (assuming an initial public offering price of $ per share). See
"Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. All statements
other than statements of historical facts included in this Prospectus,
including, without limitation, statements regarding the Company's business
strategy, plans and objectives of management of the Company for future
operations and future industry conditions are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will be met. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed below and
elsewhere in this Prospectus.
DEPENDENCE ON THE OIL AND GAS INDUSTRY
The Company's business is substantially dependent upon the condition of the
oil and gas industry and, in particular, the willingness of oil and gas
companies to make capital expenditures on exploration, drilling and production
operations offshore. The level of capital expenditures is generally dependent
on the prevailing view of future oil and gas prices, which are influenced by
numerous factors affecting the supply and demand for oil and gas, including
worldwide economic activity, interest rates and the cost of capital,
environmental regulation, tax policies, coordination by the Organization of
Petroleum Exporting Countries ("OPEC"), the cost of exploring for and
producing oil and gas, the sale and expiration dates of offshore leases in the
United States and overseas, the discovery rate of new oil and gas reserves in
offshore areas and technological advances. Oil and gas prices and the level of
offshore drilling and production activity have been characterized by
significant volatility in recent years. Although hydrocarbon prices have
improved in recent years and the level of offshore exploration, drilling and
production activity has increased, there can be no assurance that such price
and activity levels will be sustained and that there will not be continued
volatility in the level of drilling and production related activities. A
significant and prolonged decline in hydrocarbon prices would likely have a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
INTERNATIONAL OPERATIONS
The Company has substantial international operations, with approximately 68%
of its revenues derived from foreign sales in each of 1994, 1995 and 1996. The
Company operates its business and markets its products and services in all of
the significant oil and gas producing areas in the world and is, therefore,
subject to the risks customarily attendant to international operations and
investments in foreign countries. These risks include nationalization,
expropriation, war and civil disturbance, restrictive action by local
governments, limitation on repatriation of earnings, change in foreign tax
laws and change in currency exchange rates, any of which could have an adverse
effect on either the Company's ability to manufacture its products in its
facilities abroad or the demand in certain regions for the Company's products
or both. To date, the Company has not experienced any significant problems in
foreign countries arising from local government actions or political
instability, but there is no assurance that such problems will not arise in
the future. Interruption of the Company's international operations could have
a material adverse effect on its overall operations.
The Company conducts a portion of its business in currencies other than the
United States dollar, and the Company's operations are subject to fluctuations
in foreign currency exchange rates. The Company has generally endeavored to
protect itself against substantial foreign currency fluctuations by limiting
the amount of sales denominated in currencies other than United States dollars
and by contractual purchase price adjustments based on an exchange rate
formula related to U.S. dollars. There is no assurance that the Company will
be able to protect itself against such fluctuations in the future.
Historically, the Company has not conducted business in countries that limit
repatriation of earnings. However, as the Company expands its international
operations, it may begin operating in countries that have such limitations.
Further, there can be no assurance that the countries in which the Company
currently operates will not adopt policies limiting repatriation of earnings
in the future.
7
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Currency Risk."
OPERATING RISKS
Certain products of the Company are used in potentially hazardous drilling,
completion and production applications that can cause personal injury, product
liability and environmental claims. Litigation arising from a catastrophic
occurrence at a location where the Company's equipment and/or services are
used may in the future result in the Company being named as a defendant in
lawsuits asserting potentially large claims. To the extent available, the
Company maintains insurance coverage that it believes is customary in the
industry. Such insurance does not, however, provide coverage for all
liabilities (including liability for certain events involving pollution), and
there is no assurance that its insurance coverage will be adequate to cover
claims that may arise or that the Company will be able to maintain adequate
insurance at rates it considers reasonable. The occurrence of an event not
fully covered by insurance could have a material adverse effect on the
financial condition and results of operations of the Company.
A portion of the Company's business consists of designing, manufacturing,
selling and installing equipment for major projects pursuant to competitive
bids, and the number of such projects in any year fluctuates. The Company's
profitability on such projects is critically dependent on making accurate and
cost effective bids and performing efficiently in accordance with bid
specifications. Various factors can adversely affect the Company's performance
on individual projects, with potential adverse effects on project
profitability.
Some of the Company's revenues are earned on a percentage-of-completion
basis generally based on the ratio of costs incurred to the total estimated
costs. Accordingly, purchase order price and cost estimates are reviewed
periodically as the work progresses, and adjustments proportionate to the
percentage of completion are reflected in the period when such estimates are
revised. To the extent that these adjustments result in a reduction or
elimination of previously reported profits, the Company would have to
recognize a charge against current earnings, which could be significant
depending on the size of the project or the adjustment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
DEPENDENCE ON KEY EMPLOYEES AND TECHNICAL PERSONNEL
The Company depends to a large extent on the services of the Company's
executive management team, Mr. Larry E. Reimert, Mr. Gary D. Smith and Mr. J.
Mike Walker, the loss of any of whom could have a material adverse effect on
the Company's operations. Prior to the completion of the Offering, the Company
will enter into employment agreements with each of Messrs. Reimert, Smith and
Walker. See "Management--Employment Agreements."
The Company believes that its success is also dependent upon its ability to
continue to employ and retain skilled machinists and technical personnel. The
Company's ability to expand its operations depends in part on its ability to
increase its skilled labor force. The demand for such workers is high and the
supply is limited. While the Company believes that its wage rates are
competitive and that its relationship with its skilled labor force is good, a
significant increase in the wages paid by competing employers could result in
a reduction of the Company's skilled labor force, increases in the wage rates
paid by the Company or both. If either of these events were to occur, in the
near-term, the profits realized by the Company from work in progress would be
reduced and, in the long-term, the production capacity and profitability of
the Company could be diminished and the growth potential of the Company could
be impaired.
RELIANCE ON PRODUCT DEVELOPMENT AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE
The Company's ability to develop new products and maintain technological
advantages is important to its future success. There can be no assurance that
the Company will be able to develop new products, successfully differentiate
itself from its competitors or adapt to evolving markets and technologies.
8
<PAGE>
The Company's ability to compete effectively will also depend on its ability
to continue to obtain patents on its proprietary technology and products. As
of June 30, 1997 the Company held 40 U.S. patents and 95 foreign patents.
Although the Company does not consider any single patent to be material to its
business as a whole, the inability to protect its future innovations through
patents could have a material adverse effect on the Company.
CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the Offering, the Founders collectively will beneficially
own approximately % ( % if the Underwriters' over-allotment option is
exercised in full) of the outstanding shares of Common Stock. As a result,
they will be able to influence significantly and possibly control the outcome
of certain matters requiring a stockholder vote, including the election of
directors. Such ownership of Common Stock may have the effect of delaying or
preventing a change of control of the Company and may adversely affect the
voting and other rights of other stockholders. See "Principal and Selling
Stockholders."
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulations, including those relating to oilfield operations, worker safety
and the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally, including those specifically
directed to offshore operations. The adoption of laws and regulations
curtailing exploration and development drilling for oil and gas for economic
or other policy reasons could adversely affect the Company's operations by
limiting demand for the Company's products. 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.
The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for environmental damage without regard to negligence or fault on the
part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties, and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. See "Business--
Governmental Regulations."
COMPETITION
The Company faces significant competition from other manufacturers of
drilling and production equipment. Several of its primary competitors are
diversified multinational companies with substantially larger operating staffs
and greater capital resources than those of the Company and which, in some
instances, have been engaged in the manufacturing business for a much longer
time than the Company. See "Business--Competition."
RELIANCE ON SIGNIFICANT CUSTOMERS
The Company's business is dependent on securing and maintaining customers by
promptly delivering reliable, high-performance products. For the year ended
December 31, 1996, one of the Company's customers, the Royal Dutch Shell Group
of Companies (aggregating orders placed by all of its worldwide affiliates),
accounted for approximately 19% of revenues. The products that the Company may
sell to any particular customer depend on the size of that customer's capital
expenditure budget devoted to offshore drilling plans in a particular year and
on the results of competitive bids for major projects. Consequently, a
customer that accounts
9
<PAGE>
for a significant portion of revenues in one fiscal year may represent an
immaterial portion of revenues in subsequent years. See "--Operating Risks."
While the Company is not dependent on any one customer or group of customers,
the loss of one or more of its significant customers could, at least on a
short-term basis, have an adverse effect on the Company's results of
operations. See "Business--Customers."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have a total of
shares of Common Stock outstanding. Of these shares, the shares of Common
Stock offered hereby ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restrictions or
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by persons other than "affiliates" of the Company, as defined under the
Securities Act. The remaining shares of Common Stock outstanding will be
restricted securities as that term is defined by Rule 144 as promulgated under
the Securities Act. In addition, shares of Common Stock may be issued
pursuant to restricted stock awards and options that will be issued under the
Company's incentive plan at an exercise price equal to the initial public
offering price in the Offering. See "Management--Executive Compensation."
Under Rule 144 (and subject to the conditions thereof, including volume
limitations), of the restricted shares will become eligible for sale
90 days after the Offering. The directors and officers of the Company have
agreed that they will not, directly or indirectly, sell any shares of Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Morgan Stanley & Co. Incorporated. The Company will
enter into a Registration Rights Agreement upon the consummation of the
Offering whereby it will agree to register under the Securities Act shares of
Common Stock held by Messrs. Reimert, Smith, Walker and Loveless to facilitate
the sales thereof. See "Certain Transactions--Registration Rights Agreement."
Future sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. For further information concerning Common Stock available for resale
after the Offering, see "Shares Eligible for Future Sale" and "Underwriters."
NO INTENTION TO PAY DIVIDENDS
The Company currently intends to retain any earnings for the future
operation and development of its business and does not currently anticipate
paying any dividends in the foreseeable future. The Company's existing credit
facilities restrict the payment of dividends. See "Dividend Policy,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Notes to the Company's
Consolidated Financial Statements.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws, among other things,
provide for a classified Board of Directors with staggered terms, restrict the
ability of stockholders to take action by written consent, impose certain
supermajority voting requirements and authorize the Board of Directors to set
the terms of Preferred Stock. In addition, the Company's Certificate of
Incorporation and the Delaware General Corporation Law contain provisions that
impose restrictions on business combinations with interested parties. The
Company has also adopted a stockholder rights plan. The stockholder rights
plan, the provisions of the Company's Certificate of Incorporation and Bylaws
and the Delaware General Corporation Law may have the effect of delaying or
preventing a change of control of the Company. See "Description of Capital
Stock."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between
the Company and the Underwriters and may not be indicative of the price at
which the Common Stock will trade following the completion of the Offering.
See
10
<PAGE>
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The completion of the Offering provides no
assurance that an active trading market for the Common Stock will develop or,
if developed, that it will be sustained. The market price of the Common Stock
could also be subject to significant fluctuation and may be influenced by many
factors, including variations in results of operations, variations in natural
gas and oil prices, investor perceptions of the Company and the oil and
natural gas industry, and general economic and other conditions.
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their stock of per
share (assuming an initial public offering price of $ per share). See
"Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, assuming an initial
public offering price of $ per share, and after deducting underwriting
discounts, commissions and estimated expenses, are estimated to be
approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the
net proceeds for capital expenditures to increase manufacturing capacity,
improve and expand facilities and manufacture additional running tools for
rental. Dril-Quip expects that these expenditures will be incurred over a
three-year period and that total capital expenditures for these purposes will
be approximately $11 million in 1997 and approximately $23 million in 1998. In
particular, the Company expects to spend approximately $16 million to complete
the planned expansion at its Eldridge site in Houston, Texas, which is
expected to be completed in 1999. The Company plans to spend approximately
$4.5 million in 1997 to add machine tools at its existing facilities, most of
which will be moved to the new facilities upon their completion. Pending
application of the proceeds for these purposes, the Company intends to use
approximately $ million to repay its bank indebtedness in full and
approximately $ million for working capital. The balance of the proceeds
will be invested in short term investment grade securities.
The Company's credit facilities with Bank One, Texas, National Association
("Bank One") are provided through a Credit Agreement dated March 30, 1994, as
amended, and currently consist of (i) a $25 million revolving credit facility
bearing interest at a rate of 1/4% over Bank One's base rate from day to day
(this facility terminates on June 1, 1999), (ii) a $3 million advancing credit
facility for the purchase of land and equipment and improvements to facilities
bearing interest at a rate of 1/2% over Bank One's base rate from day to day
(this facility terminates on October 1, 2001), and (iii) a $10.7 million term
loan bearing interest at 1/2% over Bank One's base rate from day to day that
matures on July 1, 1999. Indebtedness under the term loan was used for the
purchase of land, buildings, equipment and improvements to facilities, as well
as other capital expenditures. At March 31, 1997, $29.7 million was
outstanding under the Bank One credit facilities, bearing interest at an
average rate of 8.85%, and approximately $7.3 million was available for
drawdown under the revolving facility.
The Company has three term loans with the Bank of Scotland: a June 7, 1996
loan, a September 19, 1994 loan and a December 12, 1991 loan. Each loan has a
120-month maturity. The June 7, 1996 and September 19, 1994 loans each bear
interest at 1.75% over the Bank of Scotland's base rate, and the December 12,
1991 loan bears interest at 1.5% over the Bank of Scotland's base rate.
Indebtedness under the Bank of Scotland term loans was used for the purchase
of land and buildings and to improve the Company's Aberdeen manufacturing
facilities. At March 31, 1997, $800,000, $600,000 and $1.8 million were
outstanding under the Bank of Scotland term loans, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company paid dividends of $ and $ per share of Common
Stock in 1995 and 1996, respectively. However, the Company does not intend to
pay cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain any earnings for the future operation and
development of its business. The Board of Directors will review this policy on
a regular basis in light of the Company's earnings, financial condition and
market opportunities. The Company's existing credit facilities restrict the
payment of dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
12
<PAGE>
DILUTION
As of March 31, 1997, the net tangible book value of the Company was
approximately $ million, or approximately $ per share of Common Stock.
Net tangible book value per share represents the amount of the Company's
tangible book value (total book value of tangible assets less total
liabilities) divided by the total number of shares of Common Stock
outstanding. After giving effect to the receipt of the estimated net proceeds
from the Offering (net of estimated underwriting discounts and commissions and
Offering expenses) at an assumed initial public offering price of $ per
share, the pro forma net tangible book value of the Common Stock outstanding
at March 31, 1997 would have been $ per share, representing an immediate
increase in net tangible book value of $ per share to current stockholders
and an immediate dilution of $ per share (the difference between the
assumed initial public offering price and the net tangible book value per
share after the Offering) to persons purchasing Common Stock at the assumed
initial public offering price. The following table illustrates such per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Net tangible book value per share before the Offering.............. $
Increase in net tangible book value per share attributable to new
investors.........................................................
----
Pro forma net tangible book value per share after giving effect to
the Offering........................................................ $
----
Dilution in net tangible book value per share to new investors....... $
====
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1997,
differences between the number of shares of Common Stock acquired from the
Company, the total consideration price and the average price per share paid to
the Company by existing stockholders and investors purchasing shares in the
Offering (based upon an assumed initial public offering price per share of
$ ).
<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED(1) CONSIDERATION PRICE
-------------- -------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Current stockholders...................... % $ % $
New investors.............................
--- --- --- ---
Total................................... 100% $ 100%
=== === === ===
</TABLE>
- --------
(1) Does not include approximately shares of Common Stock issuable
pursuant to options granted to officers and employees of the Company. The
exercise of such stock options will be dilutive to the interests of new
investors. See "Management--Incentive Plan."
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and total
capitalization of the Company (i) as of March 31, 1997 and (ii) as adjusted
for the sale of the shares of Common Stock offered by the Company hereby
at an assumed offering price of $ per share and the application of the net
proceeds to the Company therefrom (after deducting underwriting discounts and
commissions and estimated Offering expenses payable by the Company). See "Use
of Proceeds." This table should be read in conjunction with the Company's
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31,
1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt:................... $ 3,546 $
======= =======
Long-term debt, less current maturities:.................. $29,818 $
Stockholders' equity(1):
Preferred stock, $ par value, shares authorized,
none issued and outstanding............................
Common stock, $ par value, shares authorized,
shares issued and outstanding.......................... 10
Additional paid-in capital.............................. 43
Retained earnings....................................... 51,999
Foreign currency translation adjustment................. (115)
------- -------
Total stockholders' equity............................ 51,937
------- -------
Total capitalization................................ $81,755 $
======= =======
</TABLE>
- --------
(1) Does not include approximately shares of Common Stock issuable
pursuant to options granted to officers and employees of the Company. See
"Management--Incentive Plan."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data as of and for each of the years ended December
31, 1994, 1995 and 1996 are derived from the audited consolidated financial
statements of the Company included elsewhere in this Prospectus. The selected
financial data presented below as of and for the years ended December 31, 1992
and 1993 are derived from audited consolidated financial statements of the
Company not included in this Prospectus. The selected consolidated financial
data as of and for the three-month periods ended March 31, 1996 and 1997 are
derived from the unaudited consolidated financial statements of the Company
that in the opinion of the Company's management reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of its financial condition and results of operations as of such
dates and for such periods. The results for the three-month period ended March
31, 1997 are not necessarily indicative of the results that may be expected
for the entire year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $65,172 $82,553 $80,548 $108,390 $115,864 $25,155 $ 34,215
Cost of sales........... 48,120 61,704 58,604 76,471 77,863 16,889 24,635
Selling, general and
administrative
expenses............... 8,074 10,907 11,673 13,597 15,031 3,606 3,701
Engineering and product
development expenses... 4,494 5,152 6,069 5,769 6,971 1,487 1,890
------- ------- ------- -------- -------- ------- --------
60,688 77,763 76,346 95,837 99,865 21,982 30,226
Operating income........ 4,484 4,790 4,202 12,553 15,999 3,173 3,989
Interest expense........ 1,915 1,494 2,273 2,944 2,647 636 668
------- ------- ------- -------- -------- ------- --------
Income before income
taxes.................. 2,569 3,296 1,929 9,609 13,352 2,537 3,321
Income tax provision.... 916 886 635 3,023 4,234 804 1,065
------- ------- ------- -------- -------- ------- --------
Net income.............. $ 1,653 $ 2,410 $ 1,294 $ 6,586 $ 9,118 $ 1,733 $ 2,256
======= ======= ======= ======== ======== ======= ========
Earnings per share...... $ $ $ $ $ $ $
Weighted average shares
outstanding............
OTHER DATA:
EBITDA(1)............... $ 8,050 $ 8,549 $ 8,069 $ 17,201 $ 20,387 $ 4,372 $ 5,277
Depreciation and
amortization........... 3,566 3,759 3,867 4,648 4,388 1,199 1,288
Capital expenditures.... 4,283 6,592 4,614 6,184 7,228 1,463 1,869
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- ------- ------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $30,135 $30,913 $34,099 $ 40,682 $ 49,524 $ 50,957
Total assets............ 65,712 70,346 79,208 93,186 114,777 113,911
Total debt.............. 26,659 28,100 30,416 31,052 32,536 33,364
Total stockholders'
equity................. 28,048 30,267 32,903 39,501 50,882 51,937
</TABLE>
- --------
(1) EBITDA, or "earnings from continuing operations before interest expense,
interest income, income taxes, extraordinary items, depreciation and
amortization," is not a generally accepted accounting principle measure,
but is a supplemental financial measurement used by the Company in the
evaluation of its business. EBITDA should not be construed as an
alternative to net income or to cash flow from operations or any other
measure of performance in accordance with generally accepted accounting
principles, and is presented solely as a supplemental disclosure.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto presented elsewhere in
this Prospectus.
OVERVIEW
Dril-Quip manufactures highly engineered offshore drilling and production
equipment which is well suited for use in deepwater, harsh environment and
severe service applications. The Company designs and manufactures subsea
equipment, surface equipment and offshore rig equipment for use by major
integrated, large independent and foreign national oil and gas companies in
offshore areas throughout the world. The Company's principal products consist
of subsea and surface wellheads, subsea and surface production trees, mudline
hanger systems, specialty connectors and associated pipe, drilling and
production riser systems, wellhead connectors and diverters. Dril-Quip also
provides installation and reconditioning services and rents running tools for
use in connection with the installation and retrieval of its products.
The market for offshore drilling and production equipment and services is
fundamentally driven by the exploration, development and production spending
of oil and gas companies, particularly with respect to offshore activities
worldwide. The Company has experienced increased demand for its products due
to the increased drilling and production activity in offshore areas throughout
the world during the last several years, particularly in deeper waters. The
recent increase in offshore drilling and production activity has been driven
by a number of factors, including (i) the prospect for relatively larger
hydrocarbon discoveries in deepwater areas and (ii) recent technological
advances in offshore drilling and production equipment (including those
introduced by Dril-Quip), seismic data collection and interpretation
techniques, and drilling techniques, which have enhanced the economics of
offshore drilling and production. In addition, several foreign national oil
companies have recently opened offshore areas for exploration and development
by other parties, including major integrated and large independent oil and gas
companies. These factors have contributed to the increase in the Company's
backlog from approximately $56 million at December 31, 1996 to approximately
$101 million at June 30, 1997, an 80% increase. See "Business--Industry
Overview."
The Company intends to use the proceeds from the Offering for a three-year
capital expansion program to increase manufacturing capacity, improve and
expand facilities and manufacture additional running tools for rental. The
Company plans to expand its manufacturing capacity by approximately 90% during
the three year period 1997 through 1999, approximately two-thirds of which is
expected to be completed by the end of 1998. The Company believes that its
increased capacity and improved facilities will enable the Company to achieve
higher sales volumes. In connection with the capacity expansion, the Company
plans to hire additional workers. See "Use of Proceeds" and "Business--
Strategy."
Revenues. Dril-Quip's revenues are generated by its two operating groups:
the Product Group and the Service Group. The Product Group manufactures
offshore drilling and production equipment, and the Service Group provides
installation and reconditioning services as well as rental running tools for
installation and retrieval of its products. In 1996, the Company derived 82.1%
of its revenues from the sale of its products and 17.9% of its revenues from
services. Revenues from the Service Group generally correlate to revenues from
product sales, as increased product sales generate increased revenues from
installation services and rental running tools. Revenues have increased over
the last three years principally as a result of increased sales volumes of the
Company's established products and services, the introduction of new products
and product enhancements and price increases for the Company's products and
services. These price increases have occurred due to an increase in demand and
capacity constraints experienced by the Company and its competitors.
Substantially all of Dril-Quip's sales are made on a purchase order basis.
Purchase orders are subject to change and/or termination at the option of the
customer. In case of a change or termination, the customer is required to pay
the Company for work performed and other costs necessarily incurred as a
result of the change or termination.
16
<PAGE>
Historically, Dril-Quip recognized revenues upon the delivery of a completed
product. As the Company has begun manufacturing larger and more complex
products that have longer manufacturing times, the Company has begun to
account for purchase orders covering such products on a percentage of
completion basis. As the Company has only recently started marketing and
manufacturing such products, no purchase orders would have been accounted for
using the percentage of completion method prior to 1997. For the first six
months of 1997, one project representing 8.7% of the Company's revenues was
accounted for using percentage of completion accounting. The Company expects
that this percentage may increase in the future. Revenues accounted for in
this manner are generally recognized on the ratio of costs incurred to the
total estimated costs. Accordingly, price and cost estimates are reviewed
periodically as the work progresses, and adjustments proportionate to the
percentage of completion are reflected in the period when such estimates are
revised. Amounts received from customers in excess of revenues recognized are
classified as a current liability. The Company historically has experienced
some seasonality, with revenues and operating income slightly lower during the
first and third quarters compared to the second and fourth quarters. The
Company's revenues are affected by its customers' capital expenditure
budgeting process, which generally results in lower revenues in the first
quarter and higher revenues in the fourth quarter. The increase in revenues
recognized using percentage of completion accounting may result in less
fluctuation in revenues recognized from quarter to quarter. See "Risk
Factors--Operating Risks."
As part of its capacity expansion, the Company plans to expand its capacity
for forging and heat treatment by adding additional facilities and machinery.
In the future, the Company plans to market forgings to third parties to the
extent its capacity allows, an activity which it expects will be an additional
source of revenues.
Foreign sales represent a significant portion of the Company's business. In
the three months ended March 31, 1997 and in each of fiscal 1996, 1995 and
1994, the Company generated approximately 68% of its revenues from foreign
sales. However, in each period, approximately 70% of all products sold were
manufactured in the United States.
Cost of Sales. The principal elements of cost of sales are labor, raw
materials and manufacturing overhead. Variable costs, such as labor, raw
materials, supplies and energy, generally account for approximately two-thirds
of the Company's cost of sales. The Company has experienced increased labor
costs over the past few years due to the limited supply of skilled workers.
See "Risk Factors--Dependence on Key Employees and Technical Personnel." Fixed
costs, such as the fixed portion of manufacturing overhead, constitute the
remainder of the Company's cost of sales. The Company continually seeks to
improve its efficiency and cost position. See "Business--Strategy." Cost of
sales as a percentage of revenues is also influenced by the product mix sold
in any particular quarter and market conditions. The Company's costs related
to its foreign operations do not significantly differ from its domestic costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs associated with sales and marketing,
general corporate overhead, compensation expense, legal expenses and other
related administrative functions.
Engineering and Product Development Expenses. Engineering and product
development expenses consist of new product development and testing, as well
as application engineering related to customized products.
Income Tax Provision. Dril-Quip's marginal tax rate has historically been
lower than the statutory rate due to benefits from its foreign sales
corporation. The Company expects that its marginal tax rate will rise slightly
as its income increases.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
% % % % %
<S> <C> <C> <C> <C> <C>
Revenues:
Product Group............................. 83.0% 83.7% 82.1% 81.5% 86.5%
Service Group............................. 17.0 16.3 17.9 18.5 13.5
----- ----- ----- ----- -----
Total................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales............................... 72.8 70.6 67.2 67.2 72.0
Selling, general and administrative
expenses................................... 14.5 12.5 13.0 14.3 10.8
Engineering and product development
expenses................................... 7.5 5.3 6.0 5.9 5.5
----- ----- ----- ----- -----
Operating income............................ 5.2 11.6 13.8 12.6 11.7
Interest expense............................ 2.8 2.7 2.3 2.5 2.0
----- ----- ----- ----- -----
Income before income taxes.................. 2.4 8.9 11.5 10.1 9.7
Income tax provision........................ 0.8 2.8 3.6 3.2 3.1
----- ----- ----- ----- -----
Net income.................................. 1.6% 6.1% 7.9% 6.9% 6.6%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Revenues. Revenues increased by $9.1 million, or 36%, to $34.2 million in the
three months ended March 31, 1997 from $25.1 million in the three months ended
March 31, 1996. This increase was primarily due to strong market demand, along
with increased manufacturing capacity, price increases and an increase in
project related sales of new products.
Cost of Sales. Cost of sales increased $7.7 million, or 46%, to $24.6 million
for the three months ended March 31, 1997 from $16.9 million for the same
period in 1996. As a percentage of revenues, cost of sales increased from 67%
in 1996 to 72% in 1997. This increase in cost of sales as a percentage of
revenues was primarily due to sales of new products, which tend to initially
have lower margins, and higher labor costs, which was partially offset by
improved pricing.
Selling, General and Administrative Expenses. In the first three months of
1997, selling, general and administrative expenses increased by $100,000, or
3%, to $3.7 million from $3.6 million in the 1996 period. The increase was due
to an increased number of personnel to support higher sales volumes and
increased labor costs. Selling, general and administrative expenses decreased
as a percent of revenues from 14.3% to 10.8%.
Engineering and Product Development Expenses. In the first three months of
1997, engineering and product development expenses increased by $400,000, or
27%, to $1.9 million from $1.5 million in the same period in 1996. The increase
primarily reflects an increased number of personnel and, to a lesser extent,
increased development testing related to new products.
Interest Expense. Interest expense for the three months ended March 31, 1997
was approximately $650,000, the same as for the corresponding period in the
prior year.
Net Income. Net income increased by approximately $600,000, or 35%, from $1.7
million in the first three months in 1996 to $2.3 million in 1997 for the
reasons set forth above.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased by $7.5 million, or approximately 7%, to $115.9
million in 1996 from $108.4 million in 1995. This increase was primarily due to
a small volume increase plus a slight increase in prices in the last half of
the year. There was continued strong market demand for the Company's products
and services, but revenues were limited by manufacturing capacity constraints.
Domestic sales accounted for $4.8 million, or 64% of the increase.
Cost of Sales. Cost of sales increased $1.4 million, or 2%, to $77.9 million
for the year ended December 31, 1996 from $76.5 million for the year ended
December 31, 1995. Cost of sales increased due to higher sales volumes, offset
in part by decreases in costs. As a percentage of revenues, cost of sales
decreased from 71% in 1995 to 67% in 1996. This decrease was primarily due to
the effect of increased forging operations which resulted in lower per unit
costs than in the comparable prior period when more of the Company's forgings
were outsourced. In addition, price increases in the last half of the year
contributed to the decrease in cost of sales as a percentage of revenues.
Selling, General and Administrative Expenses. For the year ended December 31,
1996, selling, general and administrative expenses increased by $1.4 million,
or 10%, to $15.0 million from $13.6 million in 1995, but remained at
approximately 13% of revenues in each year. This increase was primarily due to
the increased number of personnel on a worldwide basis required to meet sales
demand.
Engineering and Product Development Expenses. For the year ended December 31,
1996, engineering and product development expenses increased by $1.2 million,
or 21%, to $7.0 million from $5.8 million in the same period in 1995. The
increase was due primarily to the addition of personnel needed to expand new
product development.
Interest Expense. Interest expense for the year ended December 31, 1996 was
$2.6 million, a decrease of $300,000, or 10%, from interest expense of $2.9
million for the prior year. The decrease was due to lower bank interest rates.
Net Income. Net income increased by $2.5 million, or 38%, from $6.6 million
for the year ended December 31, 1995 to $9.1 million in 1996 for the reasons
set forth above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased by $27.9 million, or 35%, to $108.4 million in
1995 from $80.5 million in 1994. This increase was due to increased sales
volumes of the Company's products and services. Foreign sales accounted for
$23.6 million, or 85%, of this increase.
Cost of Sales. Cost of sales increased $17.9 million, or 31%, to $76.5
million for the year ended December 31, 1995 from $58.6 million for the year
ended December 31, 1994. Cost of sales increased due to higher sales volumes
offset in part by decreases in costs. As a percentage of revenues, cost of
sales decreased from 73% in 1994 to 71% in 1995. This decrease was primarily
due to efficiencies associated with increased manufacturing volume, which
allowed allocation of fixed cost over a larger sales base, and increased
utilization of the Company's forging and heat treatment facilities, which
supplied all of the Company's heat treating requirements and a portion of its
forgings in 1995.
Selling, General and Administrative Expenses. For the year ended December 31,
1995, selling, general and administrative expenses increased by $1.9 million,
or 17%, to $13.6 million from $11.7 million in 1994. The increase was due to
the increased number of personnel on a worldwide basis required to meet sales
demand and, to a lesser extent, increases in wages paid to personnel.
Engineering and Product Development Expenses. For the year ended December 31,
1995, engineering and product development expenses decreased by $300,000, or
5%, to $5.8 million from $6.1 million in the same period in 1994. The decrease
was attributable to the large increase in revenues in 1995, which delayed a
portion
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of the Company's new product development and testing. However, the Company
continued its product development program with respect to SingleBore(TM) and
dual bore subsea trees, platform wellheads and TLP equipment.
Interest Expense. Interest expense for the year ended December 31, 1995 was
$2.9 million, an increase of $600,000, or 30%, from interest expense of $2.3
million for the prior year. The increase was due to increased bank debt and
higher interest rates.
Net Income. Net income increased by $5.3 million, or 408%, from $1.3 million
for the year ended December 31, 1994 to $6.6 million in 1995 for the reasons
set forth above.
LIQUIDITY AND CAPITAL RESOURCES
The primary liquidity needs of the Company are to fund capital expenditures,
such as increasing manufacturing capacity, improving and expanding facilities
and manufacturing additional rental running tools; to fund payments of
principal and interest on indebtedness; and to fund working capital. The
Company's principal sources of funds have been cash flow from operations and
bank indebtedness.
Net cash provided by operating activities was $2.4 million in 1994, $6.5
million in 1995 and $5.2 million in 1996. For the three months ended March 31,
1997, net cash provided by operating activities was $800,000. Improvements in
cash flow from operating activities are principally the result of improved
operating results, offset in 1995, 1996 and 1997 by increased working capital
requirements attributable to increases in accounts receivable and inventory
due to increased sales.
Capital expenditures by the Company were $4.6 million, $6.2 million, $7.2
million and $1.9 million in 1994, 1995, 1996 and the three months ended March
31, 1997, respectively. Principal payments on long-term debt were $2.7
million, $2.8 million, $3.2 million and $900,000 in 1994, 1995, 1996 and the
three months ended March 31, 1997, respectively.
The Company has planned to spend approximately $50 million over a three-year
period for a capital expenditure program to increase manufacturing capacity,
improve and expand facilities and manufacture additional rental running tools.
Dril-Quip expects that total capital expenditures for these purposes will be
approximately $11 million in 1997 and approximately $23 million in 1998. In
particular, the Company expects to spend approximately $16 million to complete
the planned expansion at its Eldridge site in Houston, Texas, which is
expected to be completed in 1999. The Company plans to spend approximately
$4.5 million in 1997 to add machine tools at its existing facilities, most of
which will be moved to the new facilities upon their completion. The Company
plans to use the net proceeds from the Offering to fund these capital
expenditures. Pending application of the proceeds for these purposes, the
Company intends to use approximately $ million to repay its bank
indebtedness in full and approximately $ million for working capital. The
balance of the proceeds will be invested in short-term investment grade
securities. See "Use of Proceeds."
The Company's credit facilities with Bank One are provided through a Credit
Agreement dated March 30, 1994, as amended, and currently consist of (i) a $25
million revolving credit facility bearing interest at a rate of 1/4% over Bank
One's base rate from day to day (this facility terminates on June 1, 1999),
(ii) a $3 million advancing credit facility for the purchase of land and
equipment and improvements to facilities bearing interest at a rate of 1/2%
over Bank One's base rate from day to day (this facility terminates on October
1, 2001), and (iii) a $10.7 million term loan bearing interest at 1/2% over
Bank One's base rate from day to day that matures on July 1, 1999.
Indebtedness under the term loan was used for the purchase of land, buildings,
equipment and improvements to facilities, as well as other capital
expenditures. At March 31, 1997, $29.7 million was outstanding under the Bank
One credit facilities, bearing interest at an average rate of 8.85%, and
approximately $7.3 million was available for drawdown under the revolving
facility.
In addition, the Company has three term loans with the Bank of Scotland to
finance land, buildings and improvements for its Aberdeen manufacturing
facility: a June 7, 1996 loan, a September 19, 1994 loan and a
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December 12, 1991 loan. Each loan has a 120-month maturity. The June 7, 1996
and September 19, 1994 loans each bear interest at 1.75% over the Bank of
Scotland's base rate, and the December 12, 1991 loan bears interest at 1.5%
over the Bank of Scotland's base rate. At March 31, 1997, $800,000, $600,000
and $1.8 million were outstanding under these term loans, respectively.
BACKLOG
Backlog consists of firm customer orders for which a purchase order has been
received, satisfactory credit or financing arrangements exist and delivery is
scheduled. The Company's backlog at December 31, 1996 and June 30, 1997 was
approximately $56 million and approximately $101 million, respectively. The
Company expects to fill approximately 50% of the June 30, 1997 backlog by
December 31, 1997. The remaining backlog at June 30, 1997 consists of longer-
term projects that will be designed and manufactured to customer
specifications rather than sold out of inventory. All of the Company's
projects currently included in backlog are subject to change and/or
termination at the option of the customer. In the case of a change or
termination, the customer is required to pay the Company for work performed
and other costs necessarily incurred as a result of the change or termination.
CURRENCY RISK
Through its subsidiaries, the Company conducts a portion of business in
currencies other than the United States dollar, principally the British pound
sterling and the Norwegian kroner. The Company generally attempts to minimize
its currency exchange risk by seeking international contracts payable in local
currency in amounts equal to the Company's estimated operating costs payable
in local currency and in U.S. dollars for the balance of the contract and by
contractual purchase price adjustments based on an exchange rate formula
related to U.S. dollars. Because of this strategy, the Company has not
experienced significant transaction gains or losses associated with changes in
currency exchange rates and does not anticipate such exposure to be material
in the future. Exchange losses were approximately $167,000 in 1994 and $0 in
1995, net of income taxes. In 1996, the Company had an exchange gain of
$163,000. The Company also has significant investments in countries other than
the United States, principally its manufacturing operations in Aberdeen,
Scotland and, to a lesser extent, Singapore. The functional currency of these
foreign operations is the local currency and, accordingly, financial statement
assets and liabilities are translated at current exchange rates. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity and have no current effect on earnings or cash flow. See "Risk
Factors--International Operations."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which establishes alternative methods of accounting and disclosure for
employee stock-based compensation arrangements. The Company intends to account
for anticipated stock options using the intrinsic value method of accounting
which, based on the expected stock option plan design, will not result in the
recognition of compensation expense as the anticipated exercise price of the
options will equal or exceed the fair market value of the stock on 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.
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BUSINESS
GENERAL
Dril-Quip is one of the world's leading manufacturers of highly engineered
offshore drilling and production equipment which is well suited for use in
deepwater, harsh environment and severe service applications. The Company
designs and manufactures subsea equipment, surface equipment and offshore rig
equipment for use by major integrated, large independent and foreign national
oil and gas companies in offshore areas throughout the world. The Company's
principal products consist of subsea and surface wellheads, subsea and surface
production trees, mudline hanger systems, specialty connectors and associated
pipe, drilling and production riser systems, wellhead connectors and
diverters. The Company also provides installation and reconditioning services
and rents running tools for use in connection with the installation and
retrieval of its products. In 1996, the Company derived 82.1% of its revenues
from the sale of its products and 17.9% of its revenues from services.
Dril-Quip has developed its broad line of subsea equipment, surface
equipment and offshore rig equipment exclusively through its internal product
development efforts. The Company believes that it has achieved significant
market share and brand name recognition with respect to its established
products due to the technological capabilities, reliability, cost
effectiveness and operational timesaving features of these products. In
particular, the Company's Quik-Thread(R) and Quik-Stab(R) specialty
connectors, MS-15(R) mudline hanger systems and SS-10(R) and SS-15(R) subsea
wellheads are among the most widely used in the industry. The Company believes
that, as of June 1, 1997, its subsea wellhead equipment was being used on
approximately 70% of the wells being drilled in waters deeper than 3,000 feet
worldwide. Since 1991, the Company has introduced a number of new products,
including diverters, wellhead connectors, dual-bore and single-bore subsea
production trees, subsea and platform valves, platform wellheads, platform
trees, drilling risers and Spar and TLP production risers.
The Company has grown consistently since its inception in 1981 and has been
profitable in every year since 1983. As a result of new product introductions,
increased market share in established product lines and increased offshore
drilling and production activity, the Company's revenues have increased from
$65.2 million in 1992 to $115.9 million in 1996 (an annual growth rate of
15.4%), and its net income has increased from $1.7 million in 1992 to $9.1
million in 1996 (an annual growth rate of 52.1%). For the three months ended
March 31, 1997, the Company's revenues were $34.2 million and its net income
was $2.3 million, representing a 36.0% increase in revenues and a 30.2%
increase in net income from the comparable period in 1996.
The Company has experienced increased demand for its products due to the
increased drilling and production activity in offshore areas throughout the
world during the last several years, particularly in deeper waters. The
increase in offshore drilling and production activity has been driven by a
number of factors, including (i) the prospect for relatively larger
hydrocarbon discoveries in deepwater areas and (ii) recent technological
advances in offshore drilling and production equipment (including those
introduced by Dril-Quip), seismic data collection and interpretation
techniques, and drilling techniques, which have enhanced the economics of
offshore drilling and production. In addition, several foreign national oil
companies have recently opened offshore areas for exploration and development
by other parties, including major integrated and large independent oil and gas
companies. These factors have contributed to the increase in the Company's
backlog from approximately $56 million at December 31, 1996 to approximately
$101 million at June 30, 1997, an 80% increase. The Company intends to use the
proceeds from the Offering to expand its manufacturing capacity in order to
satisfy the increased demand for its products. See "Use of Proceeds."
Dril-Quip markets its products through its offices and sales representatives
located in all of the major international energy markets throughout the world.
In 1996, the Company generated approximately 68% of its revenues from foreign
sales. The Company manufactures its products at its facilities located in
Houston, Texas; Aberdeen, Scotland; and Singapore, and maintains additional
facilities for fabrication and/or reconditioning in Norway, Denmark and
Australia. Dril-Quip's manufacturing operations are vertically integrated,
with the Company performing substantially all of its forging, heat treating,
machining, fabrication, inspection, assembly and testing at its own
facilities. Unlike essentially all of the Company's competitors, which depend
on outside
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sources for forging and heat treatment services, Dril-Quip owns a forge and
heat treatment facility that handles virtually all of the Company's
requirements. This vertically integrated manufacturing capability provides
Dril-Quip with competitive advantages because the Company is able to (i)
control the quality of its products from initial stages, (ii) control the
costs of its production and (iii) assure timely delivery of high-volume and
customized orders.
The Company was co-founded in 1981 by the current Board of Directors, Larry
E. Reimert, Gary D. Smith, J. Mike Walker and Gary W. Loveless. Together,
Messrs. Reimert, Smith and Walker have over 75 years of combined experience in
the oilfield equipment industry, essentially all of which has been with the
Company and its major competitors. In addition, key department managers have
been with the Company over 10 years, on average. See "Management." After the
Offering, the Founders will collectively beneficially own % of the
outstanding Common Stock ( % if the over-allotment option is exercised in
full).
The Company was incorporated as a Delaware corporation on August 12, 1997.
The Company's operations represent the original business, which was
incorporated as a Texas corporation on March 12, 1981. The Company's principal
executive offices are located at 13550 Hempstead Highway, Houston, Texas 77040
and its telephone number is (713) 939-7711.
INDUSTRY OVERVIEW
The market for offshore drilling and production equipment and services is
fundamentally driven by the exploration, development and production spending
of oil and gas companies, particularly with respect to offshore activities
worldwide. Industry exploration, development and production spending primarily
depends on the cash flow of oil and gas producers, which is a function of
current and anticipated future oil and gas production volumes and prices and
operating costs of oil and gas producers. Oil and gas prices are influenced
significantly by a variety of factors beyond the control of oil and gas
companies, including worldwide demand for oil and gas, production levels,
governmental policies regarding exploration and development of reserves and
political factors in production countries. Fundamental economics in the oil
and gas sector have improved in recent years and supply and demand for crude
oil and natural gas is currently relatively balanced with demand rising and
inventories comparatively low. Much of the incremental supply in recent years
has come from areas outside OPEC, particularly in offshore regions such as the
North Sea, the Gulf of Mexico and offshore Southeast Asia. These factors have
contributed to generally higher, and relatively more stable, oil and gas
prices during the last several years.
Since 1995, offshore exploration, development and production activity has
increased considerably due to, among other factors, (i) favorable oil and gas
prices, (ii) significant improvement in the financial condition of many oil
and gas companies in recent years, (iii) increasing worldwide demand for
hydrocarbons, (iv) the potential for relatively large oil and gas discoveries
in various offshore areas, particularly previously unexplored deepwater areas,
(v) the opening of new offshore areas for foreign investment, including areas
offshore of Brazil, China and West Africa, and (vi) royalty relief granted by
the U.S. government for oil and gas produced from wells drilled in newly
acquired deepwater blocks in the Gulf of Mexico. In addition, technological
advances in exploration, development and production techniques, including
seismic data collection and interpretation (particularly with respect to 3-D
seismic data), drilling techniques (such as the use of deviated, horizontal
and multilateral wells), subsea completion and production equipment, and
mobile production units have contributed to increased offshore activity by oil
and gas companies. These factors have facilitated exploration for and
development of new reserves in deepwater and harsh environment offshore areas,
allowed the development of oil and gas fields that were considered
commercially marginal and extended development and production of reserves from
existing fields.
The increased exploration, development and production activity in offshore
areas has resulted in significant increases in the amount of oil and gas
produced from offshore areas in recent years. According to the International
Energy Agency, (i) worldwide non-OPEC offshore oil production grew 29% from
10.9 million barrels of oil per day (mmbopd) in 1990 to 14.1 mmbopd in 1995,
and (ii) worldwide non-OPEC production is
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anticipated to grow an additional 37% from 14.1 mmbopd in 1995 to 19.3 mmbopd
in 2000. This increased activity has resulted in increased demand for drilling
and production equipment and services, as evidenced by the increase in the
average worldwide contracted utilization rate for all marketed offshore
drilling rigs from 76% for the year ended December 31, 1992 to 94% for the
first six months of 1997. Increased interest in offshore exploration,
development and production is also evidenced by the significant rise in
activity in the Gulf of Mexico lease sales held by the Department of the
Interior's Mineral Management Service. In the most recent Central Gulf of
Mexico lease sale held in March 1997, there were a record 1,790 bids received
for 1,032 blocks (out of 5,059 blocks available) at an average price of
approximately $799,000 per block. This compares to the May 1995 Central Gulf
of Mexico lease sale when only 880 bids were received on 588 blocks (out of
5,810 blocks available) at an average of approximately $551,000 per block.
Recently, several offshore drilling contractors have announced plans to
upgrade existing rigs to equip them with the capability to drill in deeper
water and harsher environments or to build new deepwater capable rigs. At
present there are approximately 31 semisubmersible rigs and ten drillship-type
rigs worldwide capable of drilling in 2,450 feet of water or greater. Based on
industry reports related to new drilling rig construction, it is anticipated
that by the year 2000 there will be 48 semisubmersible-rigs and 22 drillship-
type rigs capable of this deepwater drilling. In addition, there are four new
TLPs and three new Spars planned or under construction for utilization by the
year 2000. At the end of 1996, there were only six TLPs and one Spar in
operation worldwide. In addition, based on industry reports related to new
floating production, storage and offloading monohulled moored vessel ("FPSO")
construction, the number of FPSO ships will increase from 63 FPSOs currently
in operation worldwide to 110 by the year 2000. An increase in the number of
wells drilled and produced in deepwater or harsh environments should likewise
increase the demand for deepwater offshore equipment and services. The
foregoing statements concerning future industry conditions are forward-looking
statements, and, although the Company believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no assurance
that such expectations will be met. See "Risk Factors."
STRATEGY
The Company's goal is to expand its existing market position in the offshore
oil and gas equipment and services sector while at the same time increasing
its earnings and cash flow per share to enhance overall stockholder value. Key
elements of the Company's strategy for achieving this goal are to:
. CONTINUE TO DEVELOP NEW PRODUCTS. The Company plans to utilize its
technological expertise to continue to develop and introduce new products
and product enhancements in both its existing product lines and new product
lines. For example, the Company has recently received purchase orders for
drilling risers, production risers and deepwater subsea production trees.
In 1996, approximately 30% of the Company's revenues were derived from the
sale of products and product enhancements introduced since 1991. Of the
Company's approximately $101 million backlog at June 30, 1997, at least 45%
was attributable to orders for products and product enhancements developed
since 1991. The Company intends to focus its future new product
developments and product enhancements on areas where it believes it will be
able to achieve a significant market position. The Company believes that
the strong brand name recognition and reputation of its existing products
will assist it in successfully introducing new products to customers.
. INCREASE MANUFACTURING CAPACITY. To maintain and improve market share in
its major product lines, Dril-Quip plans to expand its manufacturing
capacity by approximately 90% during the three-year period 1997 through
1999, approximately two-thirds of which is expected to be completed by the
end of 1998. The Company has been operating at close to full capacity in
recent years, and believes that this expansion is essential in order to
meet customer demand for its existing products and to continue its strategy
of developing new products. The Company owns a 218-acre site in Houston,
Texas where it plans to build additional manufacturing facilities during
the three-year period 1997 through 1999. To increase manufacturing capacity
while the construction of the new facilities is in progress, the Company is
adding machine tools at its existing facilities, most of which will be
transported to and utilized at the new facilities when they are completed.
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. CONTINUE TO REDUCE COSTS AND INCREASE OPERATIONAL EFFICIENCIES. Dril-Quip
has historically controlled its costs through such activities as performing
its own forgings and heat treatment, rebuilding quality used machine tools
(rather than purchasing new machine tools) and optimizing manufacturing
operations to increase the rate of production. Although it will need to
purchase some new machine tools in order to expand its manufacturing
capacity as rapidly as planned, the Company has an inventory of used
machine tools that it will continue to rebuild and upgrade in order to
control overall costs. Dril-Quip also plans to expand its forging capacity
and to begin marketing forgings to third parties in addition to supplying
its own forging requirements. The Company expects that this will provide
additional cost efficiencies as well as additional revenues, thereby
contributing to profits.
. CONTINUE EXPANSION INTO SELECTED INTERNATIONAL MARKETS. The Company's
products are currently utilized primarily in the Gulf of Mexico, the North
Sea and in selected markets in Southeast Asia, Australia and South America.
The Company has recently engaged international sales representatives in
several additional markets, including Mexico, West Africa and the Middle
East. Dril-Quip believes that there is significant potential for increased
sales through focused marketing efforts in other active offshore areas in
the world, such as China, Argentina and the Caspian Sea.
. CAPITALIZE ON STRONG BALANCE SHEET. The Company plans to use a portion of
the net proceeds from the Offering initially to repay its existing
indebtedness. The Company believes that its strong balance sheet will
provide it with the financial flexibility to carry out its strategy to
design and develop new products, significantly increase manufacturing
capacity and expand its international presence. In addition, the Company
may investigate potential acquisition opportunities as they arise. However,
the Company currently has not identified any such acquisition
opportunities, and there can be no assurance that any will arise in the
future.
PRODUCTS AND SERVICES
Product Group
Dril-Quip designs, manufactures, fabricates, inspects, assembles, tests and
markets subsea equipment, surface equipment and offshore rig equipment. The
Company's products are used to explore for oil and gas on offshore drilling
rigs, such as floating rigs and jack-ups, and for drilling and production of
oil and gas wells on offshore platforms, TLPs, Spars and moored vessels such
as FPSOs. TLPs are floating production platforms that are connected to the
ocean floor via vertical mooring tethers (called tension legs). A Spar is a
floating cylindrical structure approximately six or seven times longer than
its diameter that is anchored in place (like a Spar buoy). FPSOs are floating
production, storage and offloading monohull moored vessels. Major oil
companies are actively pursuing TLPs, Spars and FPSOs as cost-effective means
of producing oil and gas from water depths in excess of 1,000 feet. The
Company believes that sales of its equipment in connection with TLPs, Spars
and FPSOs are potentially important sources of future revenues. The following
table illustrates the Company's products and their uses in various methods of
exploration, development and production:
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SUBSEA EQUIPMENT
SUBSEA WELLHEADS
The subsea wellhead is installed at the ocean floor and during drilling is
interconnected to the structure/vessel through the drilling riser. The
wellhead system provides a means of supporting and sealing each of the
multiple casing strings for well control. Major components include a guide
structure, wellhead housing, casing hangers, and seal assemblies
configured to specific well requirements.
[DIAGRAM OF SUBSEA WELLHEAD APPEARS HERE]
MUDLINE HANGER SYSTEMS
The mudline hanger system supports the weight of multiple casing strings at
the ocean floor while drilling a well. The mudline hanger system
incorporates disconnect features for abandonment after the drilling phase
and reconnect features for tie-back to a platform or subsea tree for the
production phase.
[DIAGRAM OF MUDLINE HANGER SYSTEM APPEARS HERE]
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SUBSEA EQUIPMENT (CONTINUED)
SPECIALTY CONNECTORS
Specialty connectors are used to join lengths of large diameter conductor
or casing used in offshore drilling operations. The specialty connector is
welded to the pipe prior to shipment offshore and provides fast, easy make-
up.
[DIAGRAM OF QUIK-THREAD/MULTI-THREAD CONNECTORS
AND QUIK-STAB CONNECTOR APPEARS HERE]
SUBSEA PRODUCTION TREES
The subsea production tree is used to control the flow of oil and gas from
a producing well. The main components are remotely controlled valves,
wellhead connector, flowline connector, control equipment and tree cap
specially designed and configured into an assembly which is installed onto
the subsea wellhead at the ocean floor. Subsea production trees typically
produce back via flowlines to a central control point located on a
production structure/vessel.
[DIAGRAM OF SINGLE BORE SUBSEA PRODUCTION TREE AND DUAL
BORE SUBSEA PRODUCTION TREE APPEARS HERE]
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SURFACE EQUIPMENT
PLATFORM WELLHEADS
The platform wellhead is installed at the surface on a platform or
production structure/vessel during drilling and provides a means of
supporting and sealing each of the multiple casing strings for well control.
The system includes a wellhead housing, casing hangers, seal assemblies,
and valves which are configured to specific well requirements.
[DIAGRAM OF PLATFORM WELLHEAD APPEARS HERE]
PLATFORM PRODUCTION TREES
The platform production tree is located on the production deck of the platform
or production structure/vessel and is used to control the flow of oil and gas
from a producing well. The main components are surface controlled valves, manual
wellhead connector, controls and tree cap, which are designed and configured
into an assembly specific to the well requirements.
[DIAGRAM OF PLATFORM PRODUCTION TREE APPEARS HERE]
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OFFSHORE RIG EQUIPMENT
DRILLING AND PRODUCTION RISER SYSTEMS
The drilling and production riser systems provide the vertical conduit
between the floating rig or floating production platforms and the subsea
wellhead. Through the riser system, equipment is guided into the well, and
drilling and production fluids are returned to the surface. The drilling
riser additionally provides a means of well control through integral
auxiliary high pressure tubes attached to the main riser body.
[DIAGRAM OF DRILLING RISER APPEARS HERE]
WELLHEAD CONNECTOR
The subsea wellhead connector provides remote connection of the drilling
riser to the blowout preventer stack (BOP), and the BOP to the wellhead.
The wellhead connector is also used to connect/disconnect the subsea
production tree or production riser to/from the subsea wellhead.
[DIAGRAM OF SUBSEA WELLHEAD CONNECTOR APPEARS HERE]
DIVERTERS
The diverter is located at the surface and diverts gases off the rig during
the drilling operation to provide protection from shallow gas blowouts.
[DIAGRAM OF DIVERTER APPEARS HERE]
29
<PAGE>
Subsea Equipment. Subsea equipment is used in the drilling and production of
offshore oil and gas wells around the world. Included in the subsea equipment
product line are subsea wellheads, mudline hanger systems, specialty
connectors and associated pipe, subsea production trees, valves and TLP and
Spar well systems. Management believes that the Company has achieved a current
market share of approximately 30% in its subsea wellhead, mudline hanger
system and specialty connector markets. Dril-Quip's subsea production tree
sales have increased steadily since their introduction in 1992.
Subsea wellheads are pressure-containing forged and machined metal housings
in which casing hangers are landed and sealed subsea to suspend casing
(downhole pipe). As drilling depth increases, successively smaller diameter
casing strings are installed, each suspended by an independent casing hanger.
Subsea wellheads are utilized when drilling from floating drilling rigs,
either semi-submersible or drill ship types, and TLPs and Spars. Management
believes that Dril-Quip's SS-15(R) and SS-10(R) wellheads are two of the most
widely used subsea wellheads in the world. Competitive advantages of the
Company's subsea wellheads include proprietary metal-to-metal seal technology
and simple installation procedures. These features are ideally suited to
subsea applications when a combination of high pressures, elevated
temperatures and corrosive environments are present. The Company generally
supplies subsea wellheads to customers from inventory.
Mudline hanger systems are used in jack-up drilling operations to support
the weight of the various casing strings at the ocean floor while drilling a
well. They also provide a method to disconnect the casing strings in an
orderly manner at the ocean floor after the well has been drilled, and
subsequently reconnect to enable production of the well by either tying it
back vertically to a subsequently-installed platform or by installing a subsea
tree. Dril-Quip's MS-15(R) mudline hanger systems are technologically advanced
products designed for simple operation while providing high load and high
pressure capacity. The Company believes many customers prefer its mudline
hanger systems to those manufactured by its competitors because of their
higher pressure and load capacity and field-proven reliability. The Company
generally supplies mudline hanger systems to customers from inventory.
Large diameter weld-on specialty connectors (threaded or stab type) are used
in offshore wells drilled from floating drilling rigs, jack-ups, fixed
platforms, TLPs and Spars. Specialty connectors join lengths of conductor or
large diameter (16-inch or greater) casing. Specialty connectors provide a
more rapid connection than other methods of connecting lengths of pipe, and,
although more expensive, their use becomes economically attractive when time
savings are considered, particularly as the rig day rate charged by offshore
drilling contractors increases. Connectors may be sold individually or as an
assembly after being welded to sections of Company or customer supplied pipe.
Dril-Quip's weld-on specialty connectors are designed to prevent cross
threading and provide a quick, convenient method of joining casing joints with
structural integrity compatible with casing strength. The Company generally
supplies specialty connectors individually or specialty connectors welded to
pipe from inventory.
A subsea production tree is an assembly composed of valves, a wellhead
connector, control equipment and various other components installed on a
subsea wellhead or a mudline hanger system and used to control the flow of oil
and gas from a producing well. Subsea trees may be either stand alone
satellite type or template mounted cluster arrangements. Both types typically
produce via flowlines to a central control point located on a platform, TLP,
Spar or FPSO. The use of subsea production trees has become an increasingly
important method for producing wells located in hard-to-reach deepwater areas
or economically marginal fields located in shallower waters. The Company is an
established manufacturer of more complicated dual-bore production trees, which
are used in severe service applications. In addition, Dril-Quip manufactures a
patented single bore (SingleBore(TM)) subsea completion system which features
a hydraulic mechanism instead of a wireline-installed mechanism that allows
the operator to plug the tubing hanger annulus remotely from the surface via a
hydraulic control line and subsequently unplug it when the well is put on
production. This mechanism eliminates the need for an expensive multibore
installation and workover riser, thereby saving both cost and installation
time. The Company's subsea production trees are generally custom designed and
manufactured to customer specifications.
30
<PAGE>
Surface Equipment. Surface equipment is principally used for flow control on
offshore production platforms, TLPs and Spars. Included in the Company's
surface equipment product line are platform wellheads and platform production
trees. Dril-Quip's development of platform wellheads and platform production
trees was facilitated by adaptation of its existing subsea wellhead and tree
technology to surface wellheads and trees.
Platform wellheads are pressure-containing forged and machined metal
housings in which casing hangers are landed and sealed at the platform deck to
suspend casings. The Company emphasizes the use of metal-to-metal sealing
wellhead systems with operational time-saving features which can be used in
high pressure, high temperature and corrosive drilling and production
applications. Dril-Quip believes that its SU-90(R) unitized platform wellheads
are superior to typical industry wellheads because they offer time savings,
safety and technological benefits to its customers.
After installation of the wellhead, platform production trees, consisting of
gate valves, a wellhead connector, controls, tree cap and associated
equipment, are installed on the wellhead to control and regulate oil or gas
production. Platform production trees are similar to subsea production trees
but utilize less complex equipment and more manual, rather than hydraulically
activated, valves and connectors. Platform wellheads and platform production
trees and associated equipment are designed and manufactured in accordance
with customer specifications.
Offshore Rig Equipment. Offshore rig equipment includes drilling and
production riser systems, wellhead connectors and diverters. The drilling
riser system consists of (i) lengths of riser pipe and associated riser
connectors that secure one to another; (ii) the telescopic joint, which
connects the entire drilling riser system to the diverter at the rig and
provides a means to compensate for vertical motion of the rig relative to the
ocean floor; and (iii) the wellhead connector, which provides a means for
remote connection and disconnection of the drilling riser system to and from
the BOP stack. Production risers provide a vertical conduit from the subsea
wellhead to a TLP, Spar or FPSO. The wellhead connector also provides remote
connection/disconnection of the BOP stack, production tree or production riser
to/from the wellhead. Diverters are used to provide protection from shallow
gas blowouts and to divert gases off of the rig during the drilling operation.
Wellhead connectors and drilling and production riser systems are also used
on both TLPs and Spars, which are being installed more frequently in deepwater
applications. The Company believes that its diverter is the simplest and most
reliable currently on the market, and that its DX(R) wellhead connector offers
the best combination of structural integrity and operational features of any
connector currently on the market. The Company has recently introduced
drilling and production risers as new product lines. The principal market for
offshore rig equipment is new rigs, rig upgrades, TLPs and Spars. Diverters,
drilling and production risers and wellhead connectors are generally designed
and manufactured to customer specifications.
SERVICE GROUP
Dril-Quip's Service Group provides field installation services,
reconditioning of its products which are customer-owned, and rental running
tools for installation and retrieval of its products. These services are
provided from the Company's worldwide locations and represented approximately
18% of revenues in 1996.
Field Installation. Dril-Quip provides field installation services through
the use of its technicians. These technicians assist in the onsite
installation of Company products and are available on a 24-hour call out from
the Company's facilities located in Houston, Texas; Aberdeen, Scotland;
Stavanger, Norway; Esbjerg, Denmark; Singapore; and Perth, Australia.
Reconditioning. The Company provides reconditioning of its products at its
facilities in Houston, Texas; Aberdeen, Scotland; Stavanger, Norway; and
Singapore.
Rental. The Company rents running and installation tools for use in
installing its products. These tools are used to install and retrieve Company
products which are purchased by customers. Running tools are available
31
<PAGE>
from Dril-Quip's locations in Houston, Texas; Aberdeen, Scotland; Stavanger,
Norway; Esbjerg, Denmark; Singapore; and Perth, Australia.
MANUFACTURING
Dril-Quip has major manufacturing facilities in Houston, Texas; Aberdeen,
Scotland; and Singapore. Each location conducts a broad variety of processes,
including machining, fabrication, inspection, assembly and testing. The Houston
facility provides forged and heat treated products to all the major
manufacturing facilities. The manufacturing process is illustrated in the
following diagram.
[MANUFACTURING CHART APPEARS HERE]
The Company's Houston and Aberdeen manufacturing plants are ISO 9001 and
American Petroleum Institute certified. See "--Properties--Major Manufacturing
Facilities." Dril-Quip maintains its high standards of product quality through
the use of quality assurance specialists who work with product manufacturing
personnel throughout the manufacturing process by inspecting and documenting
equipment as it is processed through the Company's manufacturing facilities.
The Company has the capability to manufacture various products from each of its
product lines at its major manufacturing facilities and believes that this
localized manufacturing capability is essential in order to compete with the
Company's major competitors.
The Company's manufacturing process is vertically integrated, performing, in
house, essentially all of its forging, heat treatment, machining, fabrication,
inspection, assembly and testing. This vertically integrated manufacturing
capability provides competitive advantages because Dril-Quip is able to (i)
control the quality of its products from initial stages, (ii) control the cost
of its production and (iii) assure timely delivery of high-
32
<PAGE>
volume and customized orders. The Company's primary raw material is cast steel
ingots, from which it produces steel shaped forgings at its forging and heat
treatment facility. The Company routinely purchases four different grades of
steel ingots from approximately four suppliers on a purchase order basis and
does not have any long-term supply contracts.
The Company acquired land and used equipment, and all equipment was rebuilt
to essentially "like new" condition to provide the Company with a modern
forging and heat treatment facility in Houston. This was done to reduce costs
and in anticipation of forging capacity shortages which could result if the
demand for forgings increased significantly. Dril-Quip now performs
essentially all of its own heat treatment and produces most of its forging
requirements. The Company's Houston facility also provides forgings and heat
treatment for its Aberdeen and Singapore facilities. The Company's major
competitors depend on outside sources for all or a substantial portion of
their forging and heat treatment requirements. With the expansion of its
forging capacity, the Company plans to begin marketing its forgings to third
party customers.
Dril-Quip's manufacturing facilities utilize state-of-the-art computer
numerically controlled ("CNC") machine tools and equipment, which contribute
to the Company's product quality and timely delivery. The Company has also
developed a cost effective, in-house machine tool rebuild capability, which
produces "like new" machine upgrades with customized features to enhance the
economic manufacture of its specialized products. The Company purchases
quality used machine tools as they become available and stores them at its
facilities to be rebuilt and upgraded as the need arises. Purchasing and
rebuilding used machine tools is a competitive advantage, allowing Dril-Quip
to add machine tools at lower overall costs than its competitors. Rebuilding
used machine tools also allows for greater customization suitable for
manufacturing Dril-Quip proprietary product lines. This provides the added
advantage of requiring only in-house expertise for repairs and maintenance of
these machines. A significant portion of the Company's manufacturing capacity
growth has been through the rebuild/upgrade of quality used machine tools,
including the replacement of outdated control systems with state-of-the-art
CNC controls.
In the last two years, as demand for offshore exploration and production
equipment has increased significantly, the Company has been operating at close
to full capacity. The Company plans to expand its manufacturing capacity by
approximately 90% during the three-year period 1997 through 1999,
approximately two-thirds of which is expected to be completed by the end of
1998. The first of the additional manufacturing facilities is currently under
construction and is expected to be completed by the end of 1998. The Company
believes that this capital expansion program will allow it to prudently manage
its growth in response to customer demand for its products. The Company has
already begun adding machine tools at its existing facilities that it will
move to the new facilities when they are completed. In order to expand its
capacity as rapidly as planned, the Company expects that it will supplement
its inventory of used machine tools, which it plans to rebuild and upgrade,
with purchases of new and additional used machine tools.
CUSTOMERS
The Company's principal customers are major integrated oil and gas
companies, large independent oil and gas companies and foreign national oil
and gas companies. Offshore drilling contractors and engineering and
construction companies also represent a minor, but steadily increasing,
customer base. The Company's customers are generally oil and gas companies
that are well-known participants in offshore exploration and production, who
depend on high quality, efficient, reliable products, such as those produced
by Dril-Quip, for their offshore activities, particularly in deepwater areas.
The Company is not dependent on any one customer or group of customers. In
1996, the Company's top 15 customers represented approximately 50% of total
revenues, with the Royal Dutch Shell Group of Companies (aggregating orders
placed by all of its worldwide affiliates), accounting for approximately 19%
of revenues. The number and variety of the Company's products required in a
given year by any one customer depends upon the amount of that customer's
capital expenditure budget devoted to offshore exploration and production in
any single year and on the results of competitive bids for major projects.
Consequently, a customer that accounts for a significant portion of revenues
in one fiscal year may represent an immaterial portion of revenues in
subsequent years.
33
<PAGE>
Due to the demanding operating conditions in the offshore drilling and
production sector and high costs associated with equipment failure, customers
prefer manufacturers of highly reliable products, with established
qualifications and experience, such as Dril-Quip. The Company strives to build
strong long-term relationships with its customers by maintaining its
reputation as a manufacturer of high-quality, efficient and reliable products,
by developing new products to meet its customer's needs and by responding
promptly to customer orders. See "Risk Factors--Reliance on Significant
Customers" and "--Competition."
MARKETING AND SALES
Dril-Quip markets its products and services throughout the world directly
through its sales personnel in two domestic and six international locations.
In addition, in certain foreign markets where the Company does not maintain
offices, it utilizes independent sales representatives to enhance its
marketing and sales efforts. Locations in which Dril-Quip has sales
representatives include the United Arab Emirates, Saudi Arabia, China, Canada,
the Philippines, Brazil, Indonesia, Malaysia, Kuwait, Brunei, Oman, Qatar and
West Africa. Although they do not have authority to contractually bind the
Company, these representatives market the Company's products in their
respective territories in return for sales commissions. The Company also
places print advertising from time to time in trade and technical publications
targeted to its customer base. It also participates in industry conferences
and trade shows to enhance industry awareness of its products.
The Company's customers generally order products on a purchase order basis.
Orders are typically filled within two weeks to three months after receipt of
a purchase order, depending on the type of product and whether it is sold out
of inventory or requires some customization. Contracts for certain of the
Company's larger, more complex products, such as subsea production trees,
drilling risers and equipment for TLPs and Spars can take a year or more to
complete.
The primary factors influencing a customer's decision to purchase the
Company's products are the quality, reliability and reputation of the product,
price and technologically superior features. Timely delivery of equipment is
also very important to customer operations and the Company maintains an
experienced sales coordination staff to help assure such delivery. For large
drilling and production system orders, project management teams coordinate
customer needs with engineering, manufacturing and service organizations, as
well as with subcontractors and vendors.
PRODUCT DEVELOPMENT AND ENGINEERING
The technological demands of the oil and gas industry continue to increase
as offshore exploration and drilling expand into more hostile environments.
Conditions encountered in these environments include well pressures of up to
15,000 psi (pounds per square inch) mixed flows of oil and gas under high
pressure that may also be highly corrosive and water depths in excess of 5,000
feet. Since its founding, Dril-Quip has actively engaged in continuing product
development to generate new products and improve existing products. When
developing new products, the Company typically seeks to design the most
technologically advanced version for a particular application to establish its
reputation and qualification in that product. Thereafter, the Company
leverages its expertise in the more technologically advanced product to
produce less costly and complex versions of the product for less demanding
applications. The Company also focuses its activities on reducing the overall
cost to the customer, which includes not only the initial capital cost but
also operating costs associated with its products. The reliable performance of
Dril-Quip's products during installation and during the life of the field is
one of the most important factors to the customer.
All of the Company's products have been developed from internally generated
designs, and the Company has continually introduced new products and product
enhancements since its founding in 1981. Product developments that began in
1991 have led to a series of new products, including diverters, wellhead
connectors, SingleBore(TM) subsea trees, improved severe service dual bore
subsea trees, subsea and platform valves, platform wellheads, platform trees,
subsea tree workover riser systems, drilling risers and TLP and Spar
production riser systems. For the year ended December 31, 1996, more than 30%
of the Company's total revenues were from the
34
<PAGE>
sales of products and product enhancements developed since 1991. In addition,
of the Company's approximately $101 million backlog at June 30, 1997, at least
45% was attributable to orders for products and product enhancements developed
since 1991.
Dril-Quip's product development work is conducted at its facilities in
Houston, Texas and Aberdeen, Scotland. In addition to the work of its product
development staff, the Company's application engineering staff provides
engineering services to customers in connection with the design and sales of
its products.
The Company believes that the success of its business depends more on the
technical competence, creativity and marketing abilities of its employees than
on any individual patent, trademark or copyright. Nevertheless, as part of its
ongoing product development and manufacturing activities, Dril-Quip's policy
has been to seek patents when appropriate on inventions concerning new
products and product improvements. As of June 30, 1997, the Company held 40
United States patents and 95 foreign patents. All patent rights for products
developed by employees are assigned to the Company. Virtually all of the
Company's products have components that are covered by patents.
Dril-Quip has 13 registered trademarks, including Dril-Quip(R), Quik-
Thread(R), Quick-Stab(R), Multi-Thread(R), MS-15(R), SS-15(R), SS-10(R), SU-
90(R) and DX(R). The Company has registered its trademarks in the countries
where such registration is deemed material.
Although in the aggregate the Company's patents and trademarks are of
considerable importance to the manufacturing and marketing of many of its
products, the Company does not consider any single patent or trademark or
group of patents or trademarks to be material to its business as a whole,
except the Dril-Quip(R) trademark. The Company also relies on trade secret
protection for its confidential and proprietary information. The Company
routinely enters into confidentiality agreements with its employees and
suppliers. There can be no assurance, however, that others will not
independently obtain similar information or otherwise gain access to the
Company's trade secrets.
COMPETITION
Dril-Quip faces significant competition from other manufacturers of
exploration and production equipment. Several of its primary competitors are
diversified multinational companies with substantially larger operating staffs
and greater capital resources than those of the Company and which, in many
instances, have been engaged in the manufacturing business for a much longer
time than the Company. However, Dril-Quip believes it has a significant
position in its oil and gas drilling and production equipment markets,
particularly with respect to its high performance and time-saving products. In
these markets, the Company competes principally with ABB Vetco Gray Inc. (a
subsidiary of Asea Brown Boveri, more commonly referred to as ABB), the
petroleum production equipment segment of Cooper Cameron Corporation, the
Petroleum Equipment Group of FMC Corporation and Kvaerner National Ltd. (a
division of Kvaerner A.S.).
Because of their relative size and diversity of products, several of these
companies have the ability to provide "turnkey" services for offshore drilling
and production applications, which enables them to use their own products to
the exclusion of Dril-Quip's products. The Company also competes to a lesser
extent with a number of other companies in various products. The principal
competitive factors in the petroleum drilling and production equipment markets
are quality, reliability and reputation of the product, price, technology,
service and timely delivery. See "Risk Factors--Competition."
35
<PAGE>
PROPERTIES
Major Manufacturing Facilities
<TABLE>
<CAPTION>
BUILDING
SIZE LAND
(APPROXIMATE (APPROXIMATE
LOCATION SQUARE FEET) ACREAGE) OWNED OR LEASED
-------- ------------ ------------ ----------------
<S> <C> <C> <C>
Houston, Texas
--13550 Hempstead Highway.......... 175,000 15.0 Owned
6,000 -- Leased (offices)
--6401 N. Eldridge Parkway......... 280,000 218.2 Owned
Aberdeen, Scotland................... 110,000 10.1 Owned
9,400 -- Leased (offices)
Singapore............................ 13,000 1.8 Leased
</TABLE>
Dril-Quip's manufacturing facilities in Houston and Aberdeen are capable of
manufacturing each of its products, and the facility in Singapore is capable
of manufacturing most of the Company's established products. The Company's
Eldridge site in Houston, Texas consists of 218 acres, of which approximately
70% is available for additional buildings and machine tools. The Company plans
to focus its domestic capacity expansion at the Eldridge site.
Sales, Service and Reconditioning Facilities
<TABLE>
<CAPTION>
BUILDING
SIZE LAND
(APPROXIMATE (APPROXIMATE
LEASED LOCATION SQUARE FEET) ACREAGE) ACTIVITY
--------------- ------------ ------------ -----------------------------
<S> <C> <C> <C>
New Orleans, Louisiana.. 2,300 -- Sales/Service
Beverwijk, Holland...... 5,200 0.2 Sales/Warehouse
Perth, Australia........ 13,300 1.4 Sales/Service/
Reconditioning/Warehouse
Stavanger, Norway....... 15,700 2.4 Sales/Service/Reconditioning/
Warehouse/Fabrication
Esbjerg, Denmark........ 7,800 0.5 Sales/Service/Reconditioning/
Warehouse
</TABLE>
The Company also performs sales, service and reconditioning activities at
its facilities in Houston, Aberdeen and Singapore. As part of its capital
expansion, the Company plans to expand its facilities in Stavanger to meet
growing demands for its products and services. Under the Company's existing
credit facilities, substantially all of the properties and assets of the
Company are subject to mortgages and security interests in favor of the
Company's lenders.
EMPLOYEES
The total number of the Company's employees as of June 30, 1997 was 926. Of
these, 580 were located in the United States. The Company's employees are not
covered by collective bargaining agreements, and the Company considers its
employee relations to be good.
GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulations, including those relating to oilfield operations, worker safety
and the protection of the environment. In addition, the Company depends on the
demand for its services from the oil
36
<PAGE>
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,
including those specifically directed to offshore operations. The adoption of
laws and regulations curtailing exploration and development drilling for oil
and gas for economic or other policy reasons could adversely affect the
Company's operations by limiting demand for the Company's products.
Recently, increased concern has been raised over the protection of the
environment. Offshore drilling in certain areas has been opposed by
environmental groups and, in certain areas, has been restricted. To the extent
that new laws or other governmental actions prohibit or restrict offshore
drilling or impose additional environmental protection requirements that
result in increased costs to the oil and gas industry in general and the
offshore drilling industry in particular, the business of the Company could be
adversely affected. The Company cannot determine to what extent its future
operations and earnings may be affected by new legislation, new regulations or
changes in existing regulations.
The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for the environmental damage without regard to negligence or fault on
the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. Compliance with
environmental laws and regulations may require the Company to obtain permits
or other authorizations for certain activities and to comply with various
standards or procedural requirements. The Company believes that its facilities
are in substantial compliance with current regulatory standards.
Based on the Company's experience to date, the Company does not currently
anticipate any material adverse effect on its business or consolidated
financial position as a result of future compliance with existing
environmental laws and regulations controlling the discharge of materials into
the environment. However, future events, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of
regulatory agencies, or stricter or different interpretations of existing laws
and regulations, may require additional expenditures by the Company, which may
be material.
LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any pending legal proceedings, which, in the opinion of management, are
expected to have a material adverse effect on the Company's consolidated
results of operations or financial position.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of June 30, 1997) and
positions of the Company's directors, the person nominated to become a
director of the Company upon completion of the Offering and the Company's
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry E. Reimert...................... 50 Co-Chairman of the Board and Director
Gary D. Smith......................... 54 Co-Chairman of the Board and Director
J. Mike Walker........................ 54 Co-Chairman of the Board and Director
Gary W. Loveless...................... 54 Director
James M. Alexander.................... 45 Director(1)
Jerry M. Brooks....................... 45 Chief Accounting Officer
</TABLE>
- --------
(1) Appointment will become effective upon completion of the Offering.
Larry E. Reimert is Co-Chairman of the Board with principal responsibility
for engineering, product development and finance. He has been the Director--
Engineering, Product Development and Finance, as well as a member of the Board
of Directors, since the Company's inception in 1981. Prior to that, he worked
for Vetco Offshore, Inc. in various capacities, including as Vice President of
Technical Operations, Vice President of Engineering and Manager of
Engineering. Mr. Reimert holds a BSME degree from the University of Houston
and a MBA degree from Pepperdine University.
Gary D. Smith is Co-Chairman of the Board with principal responsibility for
sales, service, training and administration. He has been the Director--Sales,
Service, Training and Administration, as well as a member of the Board of
Directors, since the Company's inception in 1981. Prior to that, he worked for
Vetco Offshore, Inc. in various capacities, including as General Manager and
Vice President of Sales and Service.
J. Mike Walker is Co-Chairman of the Board with principal responsibility for
manufacturing, purchasing and facilities. He has been the Director--
Manufacturing, Purchasing and Facilities, as well as a member of the Board of
Directors, since the Company's inception in 1981. Prior to that, he served as
the Director of Engineering, Manager of Engineering and Manager of Research
and Development with Vetco Offshore, Inc. Mr. Walker holds a BSME degree from
Texas A&M University, a MSME degree from the University of Texas at Austin and
a Ph.D. in mechanical engineering from Texas A&M University.
Gary W. Loveless has been an outside director since the Company's inception
in 1981. From 1986 to 1997, he held various positions with Great Western
Resources Corporation, most recently as Chief Executive Officer and Director.
In 1997, Great Western Resources Corporation was purchased by Forcenegy Inc.,
and Mr. Loveless currently serves as Vice President/Onshore Exploration and
Production of Forcenegy Inc. He holds a BSME from Texas A&M University and a
MSME from the University of Texas at Austin.
James M. Alexander will become an outside director of the Company upon
completion of the Offering. Since December 1996, he has served as the Vice
President, Chief Financial Officer and Secretary of Spinnaker Exploration
Company, L.L.C. From November 1995 to December 1996, Mr. Alexander was
President of Alexander Consulting, Inc. He was the Senior Vice President and
Chief Financial Officer of Enron Global Power & Pipelines L.L.C. from November
1994 to June 1995, and served as its President from June until November 1995.
Prior to that time, Mr. Alexander was President of Alexander Corporate
Financial Consulting, Inc. from June 1992 to November 1994.
Jerry M. Brooks has been Chief Accounting Officer since he joined the
Company in 1992. From 1980 to 1991, he held various positions with Chiles
Offshore Corporation, most recently as Chief Financial Officer, Secretary and
Treasurer. Mr. Brooks holds a BBA in Accounting and an MBA from the University
of Texas at Austin. He is a certified public accountant.
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<PAGE>
Upon completion of the Offering, there will be two committees of the Board
of Directors: an Audit Committee and a Compensation Committee. The initial
members of the Audit Committee will be Mr. Loveless and Mr. Alexander. The
Audit Committee will recommend the appointment of independent public
accountants to conduct audits of the Company's financial statements, review
with the independent accountants the plan and results of the auditing
engagement. The Audit Committee will also review the scope and results of
procedures for internal auditing of the Company and the adequacy of the
Company's system of internal accounting controls. The initial members of the
Compensation Committee will be Mr. Loveless and Mr. Alexander. The
Compensation Committee will approve, or in some cases, recommend to the Board,
remuneration arrangements and other compensation plans involving the Company's
directors, executive officers and certain other employees whose compensation
exceeds specified levels. The Compensation Committee will also act on the
granting of stock options, including grants made under the Incentive Plan to
the Company's directors and executive officers.
DIRECTOR COMPENSATION
Gary W. Loveless, one of the Company's directors, was paid fees totaling
$25,000 for his services as a director of the Company for the year ended
December 31, 1996. Commencing with the consummation of the Offering, each
director who is not an employee of the Company (a "Nonemployee Director") and
who is elected or appointed on or after completion of the Offering will
receive an annual fee of $ , plus a fee of $ for attendance at a each
Board of Directors meeting and $ for each committee meeting (unless held on
the same day as a Board of Directors meeting). All directors will be
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof and for other expenses incurred in
their capacity as directors. Directors who are employees of the Company will
not receive additional compensation for serving as directors.
OFFICER AND DIRECTOR INDEMNIFICATION
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Delaware
General Corporation Law. The Bylaws include related provisions meant to
facilitate the indemnitee's receipt of such benefits. These provisions cover,
among other things: (i) specification of the method of determining entitlement
to indemnification and the selection of independent counsel that will in some
cases make such determination; (ii) specification of certain time periods by
which certain payments or determinations must be made and actions must be
taken; and (iii) the establishment of certain presumptions in favor of an
indemnitee. The benefits of certain of these provisions are available to an
indemnitee only if there has been a change in control (as defined therein).
The Company has entered into indemnification agreements with its directors and
officers that provide for similar protections.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain summary
information concerning the compensation paid or accrued by the Company during
the year ended December 31, 1996 to the Company's executive officers whose
combined salary and bonus from the Company during such period exceeded
$100,000 (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
----------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- ------ -------- ---------------
<S> <C> <C> <C>
Larry E. Reimert.............................
Co-Chairman of the Board
Gary D. Smith................................
Co-Chairman of the Board
J. Mike Walker...............................
Co-Chairman of the Board
Jerry M. Brooks..............................
Chief Accounting Officer
</TABLE>
- --------
(1) Other annual compensation for each named executive officer during 1996 did
not exceed the lesser of $50,000 or 10% of the annual compensation earned
by such individual.
(2) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan and Company payments of life insurance premiums.
EMPLOYMENT AGREEMENTS
Prior to the completion of the Offering, the Company expects to enter into
employment agreements with each of Messrs. Reimert, Smith and Walker. The
following describes possible terms of such agreements; however, if entered
into, the terms of such agreements may differ from that described below. Each
of these agreements is expected to provide for an annual base salary in an
amount not less than $ , provided that such salaries shall be
reviewed at least annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in base salary
generally awarded in the ordinary course of business to executives of the
Company, and will entitle the employee to participate in all of the Company's
incentive, savings, retirement and welfare benefit plans in which other
executive officers of the Company participate.
INCENTIVE PLAN
Incentive Plan. Prior to the completion of the Offering, the Company expects
to adopt the Incentive Plan. The objectives of the Incentive Plan are to (i)
attract and retain the services of key employees and (ii) encourage the sense
of proprietorship in and stimulate the active interest of those persons in the
development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with proprietary
interest in the growth and performance of the Company.
The Company plans to reserve shares of Common Stock to use in
connection with the Incentive Plan. Persons eligible for Awards are employees
holding positions of responsibility with the Company or any of its
subsidiaries and whose performance can have a significant effect on the
success of the Company.
The Board of Directors will administer the Incentive Plan. With respect to
Awards to employees, the Board has the exclusive power to administer the
Incentive Plan, to take all actions specifically contemplated thereby or
necessary or appropriate in connection with the administration thereof, to
interpret the Incentive Plan and to
40
<PAGE>
adopt such rules, regulations and guidelines for carrying out its purposes as
the Board may deem necessary or proper in keeping with the objectives of such
plan. With respect to Awards to employees, the Board may, in its discretion,
among other things, (i) extend or accelerate the exercisability of, accelerate
the vesting of, or eliminate or make less restrictive any restrictions
contained in, any Award, (ii) waive any restriction or other provision of the
Incentive Plan or in any Award or (iii) otherwise amend or modify any Award in
any manner that is either not adverse to that participant holding the Award or
consented to by that participant. The Board also may delegate to certain
senior officers of the Company its duties under the Incentive Plan.
The Board of Directors may amend, modify, suspend or terminate the Incentive
Plan for the purpose of addressing any changes in legal requirements or for
any other lawful purpose, except that (i) no amendment or alteration that
would adversely affect the rights of any participant under any Award
previously granted to such participant shall be made without the consent of
such participant and (ii) no amendment or alteration shall be effective prior
to its approval by the stockholders of the Company to the extent such approval
is then required pursuant to Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") in order to preserve the applicability
of any exemption provided by such rule to any Award then outstanding (unless
the holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements. The Board of Directors
may make certain adjustments in the event of any subdivision, split or
consolidation of outstanding shares of Common Stock, any declaration of a
stock dividend payable in shares of Common Stock, any recapitalization or
capital reorganization of the Company, any consolidation or merger of the
Company with another corporation or entity, any adoption by the Company of any
plan of exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than normal cash dividends).
Awards to employees may be in the form of (i) rights to purchase a specified
number of shares of Common Stock at a specified price ("Options"), (ii) rights
to receive a payment, in cash or Common Stock, equal to the fair market value
or other specified value of a number of shares of Common Stock on the rights
exercise date over a specified strike price, (iii) grants of restricted or
unrestricted Common Stock or units denominated in Common Stock, (iv) grants
denominated in cash and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to
the attainment of one or more performance goals ("Performance Awards"). An
Option may be either an incentive stock option ("ISO") that qualifies, or a
nonqualified stock option ("NSO") that does not qualify, with the requirements
of Section 422 of the Internal Revenue Code. The Committee will determine the
employees to receive Awards and the terms, conditions and limitations
applicable to each such Award, which conditions may, but need not, include
continuous service with the Company, achievement of specific business
objectives, attainment of specified growth rates, increases in specified
indices or other comparable measures of performance. Performance Awards may
include more than one performance goal, and a performance goal may be based on
one or more business criteria applicable to the grantee, the Company as a
whole or one or more of the Company's business units and may include any of
the following: increased revenues, net income, stock price, market share,
earnings per share, return on equity or assets or decrease in costs.
The foregoing description summarizes the principal terms and conditions of
the Incentive Plan, does not purport to be complete and is qualified in its
entirety by reference to the Incentive Plan, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon completion of the Offering, the Company will establish a Compensation
Committee. In the past, matters with respect to the compensation of executive
officers of the Company were determined by the members of the Board of
Directors as a whole. Messrs. Reimert, Smith and Walker, who were members of
the Board of Directors, participated in deliberations concerning compensation.
41
<PAGE>
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
In connection with the Offering, the Company will enter into a registration
rights agreement among the Company and Messrs. Reimert, Smith, Walker and
Loveless (the "Registration Rights Agreement"). The Registration Rights
Agreement will provide for registration rights pursuant to which, upon the
request of each of Messrs. Reimert, Smith and Walker (the "Requesting
Holders"), the Company will file a registration statement under the Securities
Act to register the Common Stock subject to the agreement ("Registrable
Securities") held by such Requesting Holders and any other stockholders who
are parties to the Registration Rights Agreement and who desire to sell
Registrable Securities pursuant to such registration statement, subject to a
maximum of one request by each of Messrs. Reimert, Smith and Walker or their
successors and assigns. The first such request may not be made until after 180
days following the closing of the Offering. In addition, subject to certain
conditions and limitations, the Registration Rights Agreement will provide
that Messrs. Reimert, Smith, Walker and Loveless may participate in any
registration by the Company of any of its equity securities in an underwritten
offering. The registration rights covered by the Registration Rights Agreement
will generally be transferable to transferees (whether by assignment or by
death of the holder) of the Registrable Securities covered thereby. The
Registration Rights Agreement will terminate when all Registrable Securities
have been (i) distributed to the public pursuant to a registration statement
covering such securities that has been declared effective under the Securities
Act, or (ii) distributed to the public in accordance with the provisions of
Rule 144 (or any similar provision then in force) under the Securities Act. An
aggregate of outstanding shares of Common Stock and shares
of Common Stock issuable upon exercise of options will be subject to the
Registration Rights Agreement.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
current beneficial ownership of shares of Common Stock, and as adjusted to
reflect the sale of shares offered hereby, by (i) each person who is known by
the Company to own beneficially more than 5% of the Common Stock, (ii) each of
the Company's directors and named executive officers, (iii) all current
executive officers and directors as a group and (iv) each of the Selling
Stockholders. See "Risk Factors--Control by Certain Stockholders."
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED BEFORE NUMBER OWNED AFTER
OFFERING(1) OF OFFERING(1) (2)
----------------- SHARES -----------------
NAME OF BENEFICIAL OWNER(3) NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
--------------------------- ------ ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Larry E. Reimert(4)(5)............. 30% %
Gary D. Smith(5)(6)................ 30
J. Mike Walker(5).................. 30
Gary D. Loveless(5)(7)............. 10
James M. Alexander(5).............. --
Jerry M. Brooks(5)................. --
All directors and executive offi-
cers as a group (6 persons)....... 100
</TABLE>
- --------
(1) Shares of Common Stock subject to options that are expected to become
exercisable upon the consummation of the Offering are deemed outstanding
for computing the percentage ownership of the person holding such options,
but are not deemed outstanding for computing the percentage ownership of
any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(4) Includes shares of Common Stock held by Reimert Family Partners,
Ltd., a limited partnership of which Mr. Reimert is the Managing General
Partner, and with respect to which he exercises voting and investment
power with respect to such shares.
(5) The address of each such person is 13550 Hempstead Highway, Houston, Texas
77040.
(6) Includes shares of Common Stock held by Four Smith's Company, Ltd.,
a limited partnership of which Mr. Smith is the Managing General Partner,
and with respect to which he exercises voting and investment power with
respect to such shares.
(7) Includes shares of Common Stock held by Loveless Family Partners,
Ltd., a limited partnership of which Mr. Loveless is the Managing General
Partner, and with respect to which he exercises voting and investment
power with respect to such shares.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, approximately 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 certain manner of sale, volume limitations and
other restrictions with respect to any shares purchased in the Offering by an
affiliate of the Company (a "Company Affiliate"), which will be subject to the
resale limitations of Rule 144 under the Securities Act. Under Rule 144 under
the Securities Act, a person is an affiliate of an entity if such person
directly or indirectly controls or is controlled by or is under common control
with such entity and may include certain officers and directors, principal
stockholders and certain other stockholders with special relationships. This
Prospectus may not be used by Company Affiliates in connection with any resale
of shares of Common Stock acquired in the manner described above.
In general, under Rule 144 as currently in effect, if a minimum of one year
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.,
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 two 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 who 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 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 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 Company Affiliates and, subject to the volume
and other limitations of Rule 144, by holders who are Company Affiliates.
The Company and the Selling Stockholders have also agreed with the
Underwriters that they will not offer for sale or otherwise voluntarily
dispose of any shares of Common Stock or any securities convertible into or
exercisable for shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. See "Underwriters."
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.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share. Following consummation of the Offering there
will be approximately shares of Common Stock outstanding (assuming the
over-allotment option is not exercised), and no shares of Preferred Stock will
be outstanding. The following summary does not purport to be complete, and
reference is made to the more detailed provisions of the Company's Certificate
of Incorporation (the "Certificate of Incorporation") and Bylaws, which are
filed as exhibits to the registration statement of which this Prospectus is a
part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders
of a majority of the shares voting for the election of directors can elect all
the directors if they choose to do so. The Common Stock carries no preemptive
rights and is not convertible, redeemable or assessable, or entitled to the
benefits of any sinking fund. The holders of Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy" for
information regarding dividend policy.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine the powers,
designations, preferences and relative, participating, optional or other
rights (including, without limitation, voting powers, full or limited,
preferential rights to receive dividends or assets upon liquidation, rights of
conversion or exchange into Common Stock, Preferred Stock of any Series or
other securities, redemption provisions and sinking fund provisions) between
series and between the Preferred Stock or any series thereof and the Common
Stock, and the qualifications, limitations or restrictions of such rights.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or even a majority of the stockholders
might believe to be in their best interests or in which stockholders might
receive a premium for their stock over the then market price of such stock.
The Board of Directors does not at present intend to seek stockholder approval
prior to any issuance of currently authorized stock, unless otherwise required
by law or the rules of any market on which the Company's securities are
traded.
For purposes of the Rights Agreement described below, the Company Board has
authorized the creation of a series of Preferred Stock designated as "Series A
Junior Participating Preferred Stock" (the "Series A Preferred Stock"). An
aggregate of shares of Preferred Stock have been reserved for
issuance as Series A Preferred Stock. Series A Preferred Stock will rank
junior to all other series of Preferred Stock that have been or may be
established by the Company Board with respect to the payment of dividends and
the distribution of assets upon liquidation. In general, the voting, dividend
and liquidation rights of Series A Preferred Stock are designed in such a way
that one one-hundredth of a share of Series A Preferred Stock will
45
<PAGE>
be substantially equivalent from an economic point of view to one share of
Common Stock. For a statement of the rights and privileges of Series A
Preferred Stock, reference is made to the form of Certificate of Designations
which is included as an exhibit to this Registration Statement.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock offered hereby includes one right ("Right") to
purchase from the Company a unit consisting of one one-hundredth of a share (a
"Fractional Share") of Series A Preferred Stock at a specified purchase price
per Fractional Share, subject to adjustment in certain events (the "Purchase
Price"). The following summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to the Rights
Agreement between the Company and a Rights Agent (the "Rights Agreement"), the
form of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part and is incorporated herein by reference.
Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock
offered hereby, and no separate certificates for the Rights ("Rights
Certificates") will be distributed. The Rights will separate from the Common
Stock and a "Distribution Date" will, with certain exceptions, occur upon the
earlier of (i) 10 days following a public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the date of the announcement being the
"Stock Acquisition Date") or (ii) 10 business days following the commencement
of a tender offer or exchange offer that would result in a person's becoming
an Acquiring Person. Larry E. Reimert, Gary D. Smith, J. Mike Walker, Reimert
Family Partners, Ltd. and Four Smith's Company, Ltd. (the "Major
Stockholders"), each of whom will both prior to and, immediately after
consummation of the Offering be the beneficial owner of more than 15% of the
outstanding shares of Common Stock, will not be deemed to be an Acquiring
Person as a result of such ownership position or any subsequent increase in
ownership position. Additionally, a direct transferee of Common Stock owned by
a Major Stockholder (a "Major Stockholder Transferee") will not as a result of
such transfer be deemed to be an Acquiring Person so long as (a) such
transferee receives such Common Stock by will or intestate succession or (b)
such transfer is an intra-family transfer or a transfer to a trust, family
partnership or similar family-related or family-controlled entity for estate
planning purposes. If as a result of such transfer, a Major Stockholder
Transferee owns 15% or more of the outstanding shares of Common Stock, such
Major Stockholder Transferee will not, be or become an Acquiring Person unless
and until such Major Stockholder Transferee, together with his affiliates and
associates, becomes the beneficial owner of additional shares of Common Stock
constituting 1% or more of the then-outstanding shares of Common Stock or any
other person who is the beneficial owner of at least 1% of the then-
outstanding shares of Common Stock shall become an affiliate or associate of
such Major Stockholder Transferee. In certain circumstances the Distribution
Date may be deferred by the Board of Directors. Certain inadvertent
acquisitions will not result in a person's becoming an Acquiring Person if the
person promptly divests itself of sufficient Common Stock. Until the
Distribution Date, (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with those certificates,
(b) Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (c) the surrender for transfer of any certificate
for Common Stock also will constitute the transfer of the Rights associated
with the stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the date that is the tenth anniversary of the
adoption of the Rights Plan, unless earlier redeemed or exchanged by the
Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of Common Stock as of the close of business on
the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common
Stock issued prior to the Distribution Date will be issued with Rights. Shares
of Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with
46
<PAGE>
Rights. Except as otherwise determined by the Board of Directors, no other
shares of Common Stock issued after the Distribution Date will be issued with
Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
Common Stock at a price and on terms that a majority of the independent
members of the Board of Directors determines to be fair to and otherwise in
the best interests of the Company and its stockholders (a "Permitted Offer")),
each holder of a Right will thereafter have the right to receive, upon
exercise of such Right, a number of shares of Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a
Current Market Price (as defined in the Rights Agreement) equal to two times
the exercise price of the Right. Notwithstanding the foregoing, following the
occurrence of any Triggering Event (as defined below), all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by or transferred to an Acquiring Person (or by certain
related parties) will be null and void in the circumstances set forth in the
Rights Agreement. Rights are not exercisable following the occurrence of any
Flip-In Event until such time as the Rights are no longer redeemable by the
Company as set forth below.
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (i) the Company is acquired in a merger or
other business combination transaction (other than certain mergers that follow
a Permitted Offer) or (ii) 50% or more of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights that are
voided as set forth above) shall thereafter have the right to receive, upon
exercise, a number of shares of common stock of the acquiring company having a
Current Market Price equal to two times the exercise price of the Right. Flip-
In Events and Flip-Over Events are collectively referred to as "Triggering
Events."
The number of outstanding Rights associated with a share of Common Stock, or
the number of Fractional Shares of Preferred Stock issuable upon exercise of a
Right and the Purchase Price, are subject to adjustment in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Common Stock occurring prior to the Distribution Date. The Purchase Price
payable, and the number of Fractional Shares of Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event of certain
transactions affecting the Preferred Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Series A Preferred Stock that are not integral
multiples of a Fractional Share are required to be issued and, in lieu
thereof, an adjustment in cash may be made based on the market price of the
Series A Preferred Stock on the last trading date prior to the date of
exercise. Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any exercise
of Rights, a number of Rights be exercised so that only whole shares of Series
A Preferred Stock will be issued.
At any time until 10 days following the first date of public announcement of
the occurrence of a Flip-In Event, the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right, payable, at the option of the
Company, in cash, shares of the Common Stock or such other consideration as
the Board of Directors of the Company may determine. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and the only right of the holders of
Rights will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock
then outstanding or the occurrence of a Flip-Over Event, the Company may, at
its option, exchange the Rights (other than Rights owned by an Acquiring
Person or an affiliate or an associate of an Acquiring Person, which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, and/or other equity securities deemed to have the same value as one
share of Common Stock, per Right, subject to adjustment.
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<PAGE>
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors as long as the Rights are
redeemable. Thereafter, the provisions of the Rights Agreement other than the
redemption price may be amended by the Board of Directors in order to cure any
ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided, however, that no amendment to lengthen the time
period governing redemption shall be made at such time as the Rights are not
redeemable. Until a Right is exercised, the holder thereof, as such, will have
no rights to vote or to receive dividends or any other rights as a stockholder
of the Company.
The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the
Company without the approval of the Company's Board of Directors. As a result,
the overall effect of the Rights may be to render more difficult or discourage
any attempt to acquire the Company, even if such acquisition may be favorable
to the interests of the Company's stockholders. Because the Board of Directors
can redeem the Rights or approve a Permitted Offer, the Rights should not
interfere with a merger or other business combination approved by the Board.
The Rights are being issued to protect the Company's stockholders from
coercive or abusive takeover tactics and to afford the Company's Board of
Directors more negotiating leverage in dealing with prospective acquirors.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors of the Company to the
Company or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law
or (iv) for any transaction from which the director derived an improper
personal benefit.
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited the
Company and its stockholders. The Company's Bylaws provide indemnification to
the Company's officers and directors and certain other persons with respect to
certain matters, and the Company has entered into agreements with each of its
directors providing for indemnification with respect to certain matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written
consent. The Bylaws provide that special meetings of the stockholders can be
called only by the Chairman of the Board, the President or a majority of the
Board of Directors of the Company.
Pursuant to the Certificate of Incorporation, certain transactions
involving, among other persons, any person who is a beneficial owner of 10% or
more of the aggregate voting power of all outstanding stock of the Company (a
"related person") require the affirmative vote of the holders of both (i) at
least 80% of the outstanding voting stock and (ii) at least 66% of the
outstanding voting stock not beneficially owned by the related person.
Transactions subject to such approval include certain mergers or
consolidations of the Company or sales or
48
<PAGE>
transfers of assets and properties having an aggregate fair market value of
$10 million or more. Notwithstanding the foregoing, the Certificate of
Incorporation provides that none of Messrs. Reimert, Smith and Walker or their
transferees by virtue of the laws of descent and distribution shall be a
related person. Consequently, the current stockholders of the Company are not
related persons for these purposes.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered three-year terms.
As a result, approximately one-third of the Company's Board of Directors will
be elected each year. The classified board provision could prevent a party who
acquires control of a majority of the outstanding voting stock of the Company
from obtaining control of the Board of Directors until the second annual
stockholders' meeting following the date the acquiror obtains the controlling
interest. See "Management."
The Certificate of Incorporation provides that the number of directors will
be no greater than 12 and no less than 3. The Certificate of Incorporation
further provides that directors may be removed only for cause (as defined in
the Certificate of Incorporation), and then only by the affirmative vote of
the holders of at least a majority of all outstanding voting stock entitled to
vote. This provision, in conjunction with the provisions of the Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees. In addition, the
Bylaws provide that the Compensation Committee will consist solely of members
who are not employees of the Company and the Audit Committee will include at
least a majority of members who are not employees of the Company.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii)
upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (iii)
following the transaction in which such person became an interested
stockholder, the business combination was approved by the board of directors
of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock
of the corporation not owned by the interested stockholder. Under Section 203,
the restrictions described above also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of a majority of the corporation's directors, if such extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors prior to any person becoming an interested stockholder during the
previous three years or were recommended for election or elected to succeed
such directors by a majority of such directors.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders, and providing for certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors of the Company. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder (i) in the event of business to be brought by a stockholder before
an annual meeting, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of
49
<PAGE>
stockholders of the Company (with certain exceptions if the date of the annual
meeting is different by more than specified amounts from the anniversary date)
and (ii) in the event of nominations of persons for election to the Board of
Directors by any stockholder, (a) with respect to an election to be held at
the annual meeting of stockholders, not less than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders
of the Company (with certain exceptions if the date of the annual meeting is
different by more than specified amounts from the anniversary date) and (b)
with respect to an election to be held at a special meeting of stockholders
for the election of directors, not later than the close of business on the
tenth day following the day on which notice of the date of the special meeting
was mailed to stockholders or public disclosure of the date of the special
meeting was made, whichever first occurs. Such notice must set forth specific
information regarding such stockholder and such business or director nominee,
as described in the Company's Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
50
<PAGE>
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
Representatives, have severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
Morgan Stanley & Co. Incorporated.......................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
-------
Total.................................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the Underwriters' over-allotment option described below) if
any such shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price
and other selling terms may from time to time be varied by the
Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the
names of all Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
Application will be made for listing of the Common Stock on The New York
Stock Exchange under the symbol "DRQ".
51
<PAGE>
Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of this Prospectus, (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 to purchase or otherwise transfer, lend or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
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
restrictions in this paragraph do not apply to (w) Common Stock issued or
options granted pursuant to the Company's Incentive Plan, (x) the sale of
Shares to the Underwriters, (y) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date of this Prospectus of which the Underwriters
have been advised in writing or (z) transactions by any person other than the
Company relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Offering of the Shares.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings and certain other
financial operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas.
Certain legal matters in connection with the sale of the Common Stock offered
hereby will be passed upon for the Underwriters by Andrews & Kurth L.L.P.,
Houston, Texas.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report given upon the authority of such firm as experts in accounting and
auditing.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Offering, the Company will be subject to the informational
requirements of the Exchange Act, and in accordance therewith, will be
required to file periodic reports and other information with the Commission.
Such information can be inspected without charge after the Offering at the
public reference facilities of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material may also be obtained
at prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
Web site (http://www.sec.gov) that will contain all information filed
electronically by the Company with the Commission.
The Company has filed the Registration Statement with the Commission under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
including the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and, with respect to each such contract or document
filed as an exhibit to the Registration Statement, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. A copy of the Registration Statement, including the exhibits and
schedules thereto, may be inspected and copies thereof may be obtained as
described in the preceding paragraph with respect to periodic reports and
other information to be filed by the Company under the Exchange Act.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997, and as of
March 31, 1997 (unaudited)............................................... F-3
Consolidated Statements of Income for the Three Years in the Period Ended
December 31, 1996 and for the Three Months Ended March 31, 1996 and 1997
(unaudited).............................................................. F-4
Consolidated Statements of Cash Flows for the Three Years in the Period
Ended December 31, 1996 and for the Three Months Ended March 31, 1996 and
1997 (unaudited)......................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years in the Period Ended December 31, 1996 and for the Three Months
Ended March 31, 1997 (unaudited)......................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Dril-Quip, Inc.
We have audited the accompanying consolidated balance sheets of Dril-Quip,
Inc., as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dril-Quip,
Inc., at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Houston, Texas
April 3, 1997, except Note
11 as to which the date is
, 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reorganization described in Note 11 to the Financial Statements.
Ernst & Young LLP
Houston, Texas
August 8, 1997
F-2
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
----------------- MARCH 31,
ASSETS 1995 1996 1997
------ ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash........................................... $ 2,579 $ 1,361 $ 1,545
Trade receivables.............................. 20,150 25,514 28,434
Inventories.................................... 38,670 51,571 47,500
Deferred taxes................................. 3,088 3,739 3,810
Prepaids and other current assets.............. 619 789 697
------- -------- --------
Total current assets......................... 65,106 82,974 81,986
Property, plant, and equipment, net.............. 27,602 31,384 31,526
Other assets..................................... 478 419 399
------- -------- --------
Total assets................................. $93,186 $114,777 $113,911
======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................... $11,807 $ 14,965 $ 12,542
Current maturities of long-term debt........... 3,090 3,537 3,546
Accrued income taxes........................... 1,753 2,712 2,873
Customer prepayments........................... 1,104 7,215 7,582
Accrued compensation........................... 2,830 1,887 1,546
Other accrued liabilities...................... 3,840 3,134 2,940
------- -------- --------
Total current liabilities.................... 24,424 33,450 31,029
Long-term debt................................... 27,962 28,999 29,818
Deferred taxes................................... 1,299 1,446 1,127
------- -------- --------
Total liabilities............................ 53,685 63,895 61,974
Stockholders' equity:
Common stock:
1,000,000 voting shares authorized at $0.01
par value (100 shares issued); 10,000,000
nonvoting shares authorized at $0.01 par
value (1,000,000 shares issued).............. 10 10 10
Additional paid-in capital..................... 43 43 43
Retained earnings.............................. 40,725 49,743 51,999
Foreign currency translation adjustment........ (1,277) 1,086 (115)
------- -------- --------
Total stockholders' equity................... 39,501 50,882 51,937
------- -------- --------
Total liabilities and stockholders' equity... $93,186 $114,777 $113,911
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 80,548 $ 108,390 $ 115,864 $ 25,155 $ 34,215
Cost and expenses:
Cost of sales.............. 58,604 76,471 77,863 16,889 24,635
Selling, general, and
administrative............ 11,673 13,597 15,031 3,606 3,701
Engineering and product
development............... 6,069 5,769 6,971 1,487 1,890
--------- --------- --------- --------- ---------
76,346 95,837 99,865 21,982 30,226
--------- --------- --------- --------- ---------
Operating income............. 4,202 12,553 15,999 3,173 3,989
Interest expense............. 2,273 2,944 2,647 636 668
--------- --------- --------- --------- ---------
Income before income taxes... 1,929 9,609 13,352 2,537 3,321
Income tax provision......... 635 3,023 4,234 804 1,065
--------- --------- --------- --------- ---------
Net income................... $ 1,294 $ 6,586 $ 9,118 $ 1,733 $ 2,256
========= ========= ========= ========= =========
Earnings per share........... $ 1.29 $ 6.59 $ 9.12 $ 1.73 $ 2.26
========= ========= ========= ========= =========
Weighted average shares...... 1,000,100 1,000,100 1,000,100 1,000,100 1,000,100
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
-------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................... $ 1,294 $ 6,586 $ 9,118 $ 1,733 $ 2,256
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization. 3,867 4,648 4,388 1,199 1,288
Loss (gain) on sale of
equipment.................... (31) (111) (82) 25 (31)
Deferred income taxes......... (118) (426) (505) (245) (408)
Changes in operating assets
and liabilities:
Trade receivables........... 8 (4,025) (4,553) 3,994 (3,616)
Inventories................. (5,755) (6,663) (10,815) (1,760) 2,879
Prepaids and other assets... (447) 556 (144) (26) 92
Trade accounts payable and
accrued expenses........... 3,604 5,901 7,778 (4,446) (1,707)
------- ------- -------- ------- -------
Net cash provided by operating
activities..................... 2,422 6,466 5,185 474 753
INVESTING ACTIVITIES
Purchase of property, plant, and
equipment...................... (4,614) (6,184) (7,228) (1,463) (1,869)
Proceeds from sale of equipment. 90 525 222 59 31
------- ------- -------- ------- -------
Net cash used in investing ac-
tivities....................... (4,524) (5,659) (7,006) (1,404) (1,838)
FINANCING ACTIVITIES
Proceeds from revolving line of
credit and long-term
borrowings..................... 5,400 3,436 4,564 756 1,773
Principal payments on long-term
debt........................... (2,679) (2,823) (3,203) (758) (886)
Dividends paid.................. (53) (53) (100) -- --
------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities........... 2,668 560 1,261 (2) 887
Effect of exchange rate changes
on cash activities............. (971) (232) (658) (408) 382
------- ------- -------- ------- -------
Increase (decrease) in cash..... (405) 1,135 (1,218) (1,340) 184
Cash at beginning of period..... 1,849 1,444 2,579 2,579 1,361
------- ------- -------- ------- -------
Cash at end of period........... $ 1,444 $ 2,579 $ 1,361 $ 1,239 $ 1,545
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------- -------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... $10 $43 $32,951 $(2,737) $30,267
Net income...................... -- -- 1,294 -- 1,294
Translation adjustment.......... -- -- -- 1,395 1,395
Dividends ($.05 per share)...... -- -- (53) -- (53)
--- --- ------- ------- -------
Balance at December 31, 1994...... 10 43 34,192 (1,342) 32,903
Net income...................... -- -- 6,586 -- 6,586
Translation adjustment.......... -- -- -- 65 65
Dividends ($.05 per share)...... -- -- (53) -- (53)
--- --- ------- ------- -------
Balance at December 31, 1995...... 10 43 40,725 (1,277) 39,501
Net income...................... -- -- 9,118 -- 9,118
Translation adjustment.......... -- -- -- 2,363 2,363
Dividends ($.10 per share)...... -- -- (100) -- (100)
--- --- ------- ------- -------
Balance at December 31, 1996...... 10 43 49,743 1,086 50,882
Net income (unaudited).......... -- -- 2,256 -- 2,256
Translation adjustment
(unaudited).................... -- -- -- (1,201) (1,201)
--- --- ------- ------- -------
Balance at March 31, 1997 (unau-
dited)........................... $10 $43 $51,999 $ (115) $51,937
=== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Dril-Quip, Inc. (the "Company"), manufactures offshore drilling and
production equipment which is well suited for use in deepwater, harsh
environment and severe service applications. The Company's principal products
consist of subsea and surface wellheads, subsea and surface production trees,
mudline hanger systems, specialty connectors and associated pipe, drilling and
production riser systems, wellhead connectors and diverters for use by major
integrated, large independent and foreign national oil and gas companies in
offshore areas throughout the world. Dril-Quip also provides installation and
reconditioning services and rents running tools for use in connection with the
installation and retrieval of its products. The Company has three subsidiaries
that manufacture and market the Company's products abroad. Dril-Quip (Europe)
Limited is located in Aberdeen, Scotland, with branches in Norway, Holland,
and Denmark. Dril-Quip Asia Pacific PTE Ltd. is located in Singapore. DQ
Holdings PTY Ltd. is located in Perth, Australia.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
Interim Information
In the opinion of management, the unaudited consolidated interim financial
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial position as of
March 31, 1997, and the results of operations and cash flows for each of the
three-month periods ended March 31, 1997 and 1996. Although management
believes the unaudited interim related 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 three-month period ended March 31, 1997
are not necessarily indicative of the results to be expected for the full
year.
Use of Estimates
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.
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 months or less at
the time of purchase. The carrying values of these financial instruments
approximate their respective fair values.
Inventories
The Company's inventories are reported at the lower of cost (first-in,
first-out method) or market.
F-7
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost, with depreciation
provided on a straight-line basis over their estimated useful lives.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided on income and expenses which are reported in
different periods for income tax and financial reporting purposes.
Revenue Recognition
The Company delivers most of its products on an as-needed basis by its
customers and records revenues as the products are shipped. Certain revenues
are of a long-term nature and are recognized under the percentage-of-
completion method of accounting and are measured principally on a cost-
incurred basis.
Foreign Currency
The financial statements of foreign subsidiaries are translated into U.S.
dollars at current exchange rates except for revenues and expenses, which are
translated at average rates during each reporting period. Translation
adjustments are reflected as a separate component of shareholders' equity and
have no current effect on earnings or cash flows. These adjustments amounted
to a gain of $1,395,000 in 1994, a gain of $65,000 in 1995, and a gain of
$2,363,000 in 1996, net of allocated income taxes of $79,000, $37,000, and
$458,000, respectively.
Foreign currency exchange transactions are recorded using the exchange rate
at the date of the settlement. Exchange losses were approximately $167,000 in
1994 and $-0- in 1995, net of income taxes. In 1996, the Company had an
exchange gain of $163,000. These amounts are included in the consolidated
statements of income.
Earnings Per Share
Earnings per share amounts are based on weighted average number of shares
and common stock equivalents outstanding. Earnings per share on a fully
diluted basis are not presented since the effect is not material.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 (UNAUDITED)
--------------- MARCH 31,
1995 1996 1997
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and supplies.................... $ 7,208 $13,356 $15,156
Work in progress.............................. 10,028 15,164 12,198
Finished goods and purchased supplies......... 21,434 23,051 20,146
------- ------- -------
$38,670 $51,571 $47,500
======= ======= =======
</TABLE>
F-8
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL ---------------
LIVES 1995 1996
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements........................ 10-25 years $ 5,798 $ 6,910
Buildings.................................... 15-40 years 12,987 14,759
Machinery and equipment...................... 3-10 years 34,018 39,051
------- -------
52,803 60,720
Less accumulated depreciation................ 25,201 29,336
------- -------
$27,602 $31,384
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving lines of credit................................ $14,900 $16,600
Notes payable to bank.................................... 15,872 15,502
Other.................................................... 280 434
------- -------
31,052 32,536
Less current portion..................................... 3,090 3,537
------- -------
$27,962 $28,999
======= =======
</TABLE>
Subsequent to December 31, 1996, the Company renewed the terms of its
revolving line of credit. Accordingly, the debt, as of December 31, 1996, is
classified in accordance with the terms of the new agreement. The Company's
revolving lines of credit provide for borrowings of up to $25,000,000, with a
maturity date of June 1, 1999. Additionally, the Company has an advancing
credit note providing borrowings of up to $3,000,000 at prime plus 1/2% which
matures on October 1, 2001. At December 31, 1996, there were no borrowings
under this note.
Notes payable to bank include a note with an interest rate of prime plus
1/2%, maturing in July 1999, and a note with an interest rate of the Bank's
base rate plus 1 1/2% to 1 3/4%, maturing from February 2002 through December
2006.
Substantially all of the Company's assets are pledged under various lending
agreements. Interest paid on long-term debt for the years ended December 31,
1994, 1995, and 1996 was $2,352,000, $2,883,000, and $2,695,000, respectively.
Scheduled maturities of long-term debt are as follows: 1997--$3,537,000;
1998--$3,486,000; 1999-- $23,592,000; 2000--$623,000; 2001--$528,000; and
thereafter--$770,000.
F-9
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 620 $2,671 $3,408
Foreign.......................................... 133 778 1,331
----- ------ ------
Total current.................................. 753 3,449 4,739
Deferred:
Federal.......................................... 110 (825) (505)
Foreign.......................................... (228) 399 --
----- ------ ------
Total deferred................................. (118) (426) (505)
----- ------ ------
$635 $3,023 $4,234
===== ====== ======
</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:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate....................... 34.0% 34.0% 34.0%
Benefit of foreign sales corporation.................... (2.6) (1.4) (1.8)
Other................................................... 1.5 (1.1) (.5)
---- ---- ----
Effective tax rate...................................... 32.9% 31.5% 31.7%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax liability:
Fixed assets............................................. $1,299 $1,446
Deferred tax assets:
Deferred profit on intercompany sales.................... 1,913 2,499
Other--net............................................... 1,175 1,240
------ ------
Total deferred tax assets.................................. 3,088 3,739
------ ------
Net deferred tax asset..................................... $1,789 $2,293
====== ======
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
income taxes has been provided thereon. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not
practicable.
The Company paid approximately $1,708,000, $1,909,000, and $4,314,000 in
income taxes in 1994, 1995, and 1996, respectively.
F-10
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
The Company has a defined-contribution 401(k) plan covering domestic
employees and a defined-contribution pension plan covering certain foreign
employees. The Company generally makes contributions to the plans equal to
each participant's eligible contributions for the plan year up to a specified
percentage of the participant's annual compensation. The Company's
contribution expense was $440,000, $501,000, and $548,000 in 1994, 1995, and
1996, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain office, shop, and warehouse facilities;
automobiles; and equipment and expenses all lease payments when incurred.
Total lease expense incurred was $1,076,000, $923,000, and $853,000 in 1994,
1995, and 1996, respectively. Annual minimum lease commitments at December 31,
1996 are as follows: 1997--$546,000; 1998--$491,000; 1999--$267,000; and
2000--$35,000.
The Company operates its business and markets its products and services in
most of the significant oil and gas producing areas in the world and is,
therefore, subject to the risk customarily attendant to international
operations and dependency on the condition of the oil and gas industry.
Additionally, products of the Company are used in potentially hazardous
drilling, completion, and production applications that can cause personal
injury, product liability, and environmental claims. Although exposure to such
risk has not resulted in any significant problems in the past, there can be no
assurance that future developments will not adversely impact the Company.
9. STOCKHOLDERS' EQUITY
In August 1996, the Company revised its capital structure and retired all
outstanding common stock and issued new common stock. The new common stock
includes shares with voting and nonvoting rights. These changes in the capital
structure have been retroactively reflected in the financial statements.
Earnings per share and dividends per share in prior years have been restated
to reflect the change in the capital structure.
F-11
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Revenues
United States:
Domestic......................................... $27,710 $ 31,945 $ 36,759
Export........................................... 8,520 5,938 7,561
Intercompany..................................... 12,464 30,243 28,188
------- -------- --------
Total United States............................ 48,694 68,126 72,508
Europe, Middle East, and Africa.................... 34,629 52,978 54,728
Asia-Pacific....................................... 10,005 18,150 16,944
Eliminations....................................... (12,780) (30,864) (28,316)
------- -------- --------
Total.......................................... $80,548 $108,390 $115,864
======= ======== ========
Operating Income
United States...................................... $ 3,670 $ 10,944 $ 13,693
Europe, Middle East, and Africa.................... 392 2,948 3,309
Asia-Pacific....................................... 86 2,113 1,825
Eliminations....................................... 54 (3,452) (2,828)
------- -------- --------
Total.......................................... $ 4,202 $ 12,553 $ 15,999
======= ======== ========
Identifiable Assets
United States...................................... $42,265 $ 44,627 $ 50,664
Europe, Middle East, and Africa.................... 30,405 39,823 59,564
Asia-Pacific....................................... 8,621 12,730 9,700
Eliminations....................................... (2,083) (3,994) (5,151)
------- -------- --------
Total.......................................... $79,208 $ 93,186 $114,777
======= ======== ========
</TABLE>
Export sales from the United States to unaffiliated customers consist of
sales to South America, Latin America, and Canada. Europe, Middle East and
Africa area consist of sales primarily to the North Sea, with lesser sales to
Africa and the Middle East, while Asia-Pacific's sales are primarily to
Australia, Thailand, Malaysia, and Indonesia.
Eliminations of operating profits are related to intercompany inventory
transfers that are deferred until shipment is made to third-party customers.
One of the Company's customers, the Royal Dutch Shell Group of Companies
accounted for approximately 12%, 11% and 19% of consolidated sales in 1994,
1995, and 1996, respectively.
F-12
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INITIAL PUBLIC OFFERING
The Company filed a registration statement with the Securities and Exchange
Commission in August 1997 to register the sale of shares of its
common stock (the "Offering"). The Company intends to use the net proceeds from
the Offering to increase manufacturing capacity, improve and expand facilities,
and manufacture additional running tools for rental.
Before the consummation of the Offering, the Company will effect a
recapitalization wherein each outstanding share of its voting common stock will
be converted into shares of its voting common stock and each
outstanding share of its nonvoting common stock will be converted into
shares of voting common stock. The existing corporation, Dril-Quip,
Inc., a Texas corporation ("Dril-Quip--Texas"), will merge (the "Merger") into
Dril-Quip, Inc., a Delaware corporation ("Dril-Quip--Delaware"). The Merger
will result in the Company's reincorporation from Texas to Delaware. The
Company anticipates authorized common stock of 50 million shares, par value
$0.01 per share and 10 million shares of preferred stock, par value $0.01 per
share. In addition, the financial statements will be retroactively restated to
give effect to the recapitalization upon its completion.
In addition, prior to the consummation of the Offering, the Company will
adopt the Dril-Quip, Inc. 1997 Incentive Plan (the "Incentive Plan"). The
Company plans to reserve shares of Common Stock for use in connection
with the Incentive Plan. Persons eligible for awards under the Incentive Plan
are employees holding positions of responsibility with the Company or any
subsidiaries and whose performance can have a significant effect on the success
of the Company. To date, no awards have been made under the Incentive Plan.
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than underwriting discounts
and commission) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $31,364
NASD Filing Fee.................................................. 10,850
New York Stock Exchange Fees..................................... *
Printing Expenses................................................ *
Legal Fees and Expenses.......................................... *
Accountants' Fees and Expenses................................... *
Blue Sky Fees and Expenses....................................... *
Transfer Agent and Registrar Fees................................ *
Miscellaneous Expenses........................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person 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 such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement
or conviction or upon a plea of nolo contendere or its equivalent shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses that the Court of Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in subsections (a) and (b). Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination, (1) by the board of directors by a majority vote
of the directors who were not parties to such action, suit or proceeding, even
though less than a quorum or (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum or (3) if
such a quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it ultimately is determined that such person
is not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by former directors
and officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person against
such liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or
II-2
<PAGE>
modification of such provision of the Restated Certificate of Incorporation by
the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
Bylaws
The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was or has agreed to become a director or officer
of the Company or is or was serving or has agreed to serve at the request of
the Company as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving or having agreed to serve as a director
or officer, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the DGCL, as the same exists or may thereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment) against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to serve in the capacity which initially entitled such person
to indemnity thereunder, and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Company. The
Bylaws further provide that the right to indemnification conferred thereby
shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a current, former or proposed director or
officer in his or her capacity as a director or officer or proposed director
or officer (and not in any other capacity in which service was or is or has
been agreed to be rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such indemnified person, to
repay all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under the Bylaws or
otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification to employees and agents of the Company, individually or as a
group, with the same scope and effect as the indemnification of directors and
officers provided for in the Bylaws.
The Bylaws include related provisions meant to facilitate the indemnitee's
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination; (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken; and (iii)
the establishment of certain presumptions in favor of an indemnitee. The
benefits of certain of these provisions are available to an indemnitee only if
there has been a change in control (as defined therein).
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company intends to obtain a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.
II-3
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement.
*2.1 --Form of Agreement and Plan of Merger by and Between Dril-Quip, Inc.,
a Texas corporation, and Dril-Quip, Inc., a Delaware corporation.
*3.1 --Certificate of Incorporation of the Company.
*3.2 --Bylaws of the Company.
*3.3 --Form of Certificate of Designations
*4.1 --Form of certificate representing Common Stock.
*4.2 --Registration Rights Agreement.
*4.3 --Rights Agreement.
*5.1 --Opinion of Baker & Botts, L.L.P.
10.1 --Credit Agreement between Bank One Texas, National Association and
Dril-Quip, Inc., dated March 30, 1994.
10.2 --First Amendment to Credit Agreement between Dril-Quip, Inc. and Bank
One Texas, National Association, dated December 20, 1994.
10.3 --Second Amendment to Credit Agreement between Dril-Quip, Inc. and
Bank One Texas, National Association, dated December 13, 1995.
10.4 --Third Amendment to Credit Agreement between Dril-Quip, Inc. and Bank
One Texas, National Association, dated February 14, 1997.
10.5 --Credit Agreement between Bank One Texas, National Association, and
Dril-Quip (Europe) Ltd., dated March 30, 1994.
10.6 --First Amendment to Credit Agreement between Dril-Quip (Europe) Ltd.
and Bank One Texas, National Association, dated December 20, 1994.
10.7 --Second Amendment to Credit Agreement between Dril-Quip (Europe) Ltd.
and Bank One Texas, National Association, dated December 13, 1995.
10.8 --Third Amendment to Credit Agreement between Dril-Quip (Europe) Ltd.
and Bank One Texas, National Association, dated February 14, 1997.
10.9 --Loan Agreement between Dril-Quip (Europe) Ltd. and the Bank of
Scotland, dated June 7, 1996.
10.10 --Loan Agreement between Dril-Quip (Europe) Ltd. and the Bank of
Scotland, dated September 19, 1994.
10.11 --Loan Agreement between Dil-Quip (Europe) Ltd. and the Bank of
Scotland, dated December 12, 1991.
21.1 --Subsidiaries of the Company.
23.1 --Consent of Ernst & Young LLP.
*23.2 --Consent of Baker & Botts, L.L.P. (included in Exhibit 5.1).
23.3 --Consent of James M. Alexander to be named as a director.
24.1 --Powers of Attorney (included on signature page).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto
included in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as a
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF
TEXAS, ON THE 12TH DAY OF AUGUST, 1997.
DRIL-QUIP, INC.
/s/ J. Mike Walker
By __________________________________
J. Mike Walker
Co-Chairman of the Board
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS LARRY E. REIMERT,
GARY D. SMITH AND J. MIKE WALKER AND EACH OF THEM, ANY OF WHOM MAY ACT WITHOUT
THE JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS,
WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER
THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO
AND ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS
FULLY AND FOR ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON,
HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR
THEIR SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 12, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Larry E. Reimert Director and Co-Chairman of the Board
____________________________________ (Co-Principal Executive Officer and
Larry E. Reimert Principal Financial Officer)
/s/ Gary D. Smith Director and Co-Chairman of the Board
____________________________________ (Co-Principal Executive Officer)
Gary D. Smith
/s/ J. Mike Walker Director and Co-Chairman of the Board
____________________________________ (Co-Principal Executive Officer)
J. Mike Walker
/s/ Jerry Brooks Chief Accounting Officer
____________________________________ (Principal Accounting Officer)
Jerry M. Brooks
/s/ Gary W. Loveless Director
____________________________________
Gary W. Loveless
</TABLE>
II-6
<PAGE>
Exhibit 10.1
CREDIT AGREEMENT
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
DRIL-QUIP, INC.
GOVERNING
$15,000,000.00 REVOLVING CREDIT FACILITY
$1,500,000.00 ADVANCING CREDIT FACILITY
$12,175,000.00 TERM LOAN
MARCH 30, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB
<S> <C> <C> <C>
ARTICLE I Definitions.......................................................... v
Section 1.01. Definitions.................................................. v
Section 1.02. Other Definitional Provisions................................12
ARTICLE II Revolving Credit Loan................................................12
Section 2.01. Commitment for Revolving Credit Loan...................... 12
Section 2.02. Revolving Credit Note..................................... 12
Section 2.03. Expiration of Commitment to Lend under Revolving Credit... 13
Section 2.04. Procedure for Borrowing Under the Revolving Credit Loan... 13
Section 2.05. Use of Proceeds of Revolving Credit Loan.................. 14
Section 2.06. Reduction or Termination of Revolving Committed Sum....... 14
Section 2.07. Agreement to Remain in Effect; Revolving Credit........... 14
Section 2.08. Letters of Credit......................................... 14
Section 2.09. Aggregate Amounts Available under Letters of Credit....... 15
Section 2.10. Advances in Respect of Letters of Credit; Reimbursement... 15
Section 2.11. Purpose of Letters of Credit.............................. 16
Section 2.12. Conflicts in Terms........................................ 16
Section 2.13. Letter of Credit Fee...................................... 16
Section 2.14. Borrowing Base............................................ 16
Section 2.15. Required Date and Amount of Mandatory Prepayments......... 17
ARTICLE III Advancing Credit Loan............................................... 17
Section 3.01. Commitment for Advancing Credit Loan...................... 17
Section 3.02. Advancing Credit Note..................................... 18
Section 3.03. Expiration of Commitment to Lend under Advancing Credit... 18
Section 3.04. Procedure for Borrowing Under the Advancing Credit Loan... 18
Section 3.05. Use of Proceeds of Advancing Credit Loan.................. 19
Section 3.06. Reduction or Termination of Advancing Committed Sum....... 19
Section 3.07. Advancing Credit Commitment Fee........................... 19
ARTICLE IV Term Loan........................................................... 20
Section 4.01. Commitment for Term Loan.................................. 20
Section 4.02. Term Note................................................. 20
ARTICLE V Payments............................................................ 21
Section 5.01. Method of Payment......................................... 21
Section 5.02. Prepayment................................................ 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE VI Collateral.......................................................... 21
Section 6.01. Collateral................................................ 21
Section 6.02. Setoff.................................................... 22
ARTICLE VII Conditions Precedent................................................ 23
Section 7.01. Initial Advance........................................... 23
Section 7.02. Additional Revolving Credit Advances...................... 24
Section 7.03. Additional Conditions to Each Advancing Credit Advance.... 25
ARTICLE VIII Representations and Warranties...................................... 25
Section 8.01. Corporate Existence....................................... 25
Section 8.02. Financial Statements...................................... 26
Section 8.03. Default................................................... 26
Section 8.04. Authorization and Compliance with Laws and Material
Agreements................................................ 26
Section 8.05. Litigation and Judgments.................................. 26
Section 8.06. Rights in Properties; Liens............................... 27
Section 8.07. Enforceability............................................ 27
Section 8.08. Approvals................................................. 27
Section 8.09. Debt...................................................... 27
Section 8.10. Taxes..................................................... 27
Section 8.11. Use of Proceeds; Margin Securities........................ 27
Section 8.12. ERISA..................................................... 27
Section 8.13. Disclosure................................................ 28
Section 8.14. Subsidiaries.............................................. 28
Section 8.15. Principal Place of Business............................... 28
Section 8.16. Investment Company Act.................................... 28
Section 8.17. Public Utility Holding Company Act........................ 28
Section 8.18. Contracts................................................. 28
Section 8.19. Compliance with Law....................................... 29
Section 8.20. Consent................................................... 29
Section 8.21. Securities Laws........................................... 29
Section 8.22. Existing Loans to Affiliates.............................. 29
Section 8.23. Patents and Trademarks.................................... 29
ARTICLE IX Affirmative Covenants............................................... 29
Section 9.01. Financial Statements...................................... 29
Section 9.02. Periodic Miscellaneous Reports............................ 31
Section 9.03. Warehousing Agreements.................................... 32
Section 9.04. Performance of Obligations................................ 32
Section 9.05. Preservation of Existence and Conduct of Business......... 32
Section 9.06. Maintenance of Properties................................. 32
Section 9.07. Payment of Taxes and Claims............................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.08. Audit..................................................... 32
Section 9.09. Keeping Books and Records................................. 32
Section 9.10. Compliance with Laws...................................... 33
Section 9.11. Compliance with Agreements................................ 33
Section 9.12. Further Assurances........................................ 33
Section 9.13. Compliance with ERISA..................................... 33
Section 9.14. Use of Proceeds........................................... 33
Section 9.15. Insurance Summary......................................... 33
Section 9.16. Licenses.................................................. 33
Section 9.17. Insurance; Payment of Premiums............................ 34
Section 9.18. Casualty or Damage to Insured Property.................... 34
Section 9.19. Guaranty Obligation....................................... 35
ARTICLE X Negative Covenants.................................................. 35
Section 10.01. Limitation on Liens; Debt................................. 35
Section 10.02. Mergers, Acquisitions and Dissolutions.................... 36
Section 10.03. Capital Expenditures...................................... 36
Section 10.04. Lease Obligations......................................... 36
Section 10.05. Consolidated Tangible Net Worth Test...................... 36
Section 10.06. Current Ratio Test........................................ 36
Section 10.07. Cash Flow Coverage Test................................... 36
Section 10.08. Restricted Payments....................................... 37
Section 10.09. Loans and Investments..................................... 37
Section 10.10. Transactions With Affiliates.............................. 37
Section 10.11. Disposition of Assets..................................... 37
Section 10.12. Sale and Leaseback........................................ 37
Section 10.13. Prepayment of Debt........................................ 37
Section 10.14. Nature of Business........................................ 38
Section 10.15. Prohibited Transactions................................... 38
Section 10.16. Contingent Liabilities.................................... 38
Section 10.17. Removal of Collateral..................................... 38
Section 10.18. Negative Pledge........................................... 38
Section 10.19. Sale of Stock............................................. 38
Section 10.20. Compliance with Regulations G, T, U, and X................ 39
ARTICLE XI Default............................................................. 39
Section 11.01. Events of Default......................................... 39
Section 11.02. Occurrence of a Default or an Event of Default............ 41
Section 11.03. Performance by Lender..................................... 43
Section 11.04. Waivers................................................... 43
Section 11.05. Application of Proceeds................................... 43
Section 11.06. Cumulative Rights......................................... 43
Section 11.07. Expenditures by Lender or Any Lender...................... 43
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE XII Miscellaneous....................................................... 44
Section 12.01. Expenses of Lender........................................ 44
Section 12.02. Restatement............................................... 44
Section 12.03. No Waiver; Cumulative Remedies............................ 44
Section 12.04. Successors and Assigns.................................... 44
Section 12.05. Survival of Representations and Warranties................ 44
Section 12.06. Entire Agreement; Amendment............................... 45
Section 12.07. Maximum Interest Rate..................................... 45
Section 12.08. Notices................................................... 45
Section 12.09. APPLICABLE LAW............................................ 46
Section 12.10. Counterparts.............................................. 46
Section 12.11. Severability.............................................. 46
Section 12.12. Headings.................................................. 46
Section 12.13. Non-Application of Chapter 15 of Texas Credit Code........ 46
Section 12.14. Controlling Provision Upon Conflict....................... 46
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of March 30, 1994,
is by and between DRIL-QUIP, INC., a Texas corporation ("Borrower"), and BANK
ONE, TEXAS, NATIONAL ASSOCIATION, a national banking association ("Lender").
In consideration of the mutual covenants and agreements herein
contained, Borrower and Lender agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below:
"Accounts" means accounts (as such term is defined in the UCC) and
"Account" means any of the Accounts.
"Advance" means an advance of funds by Lender to Borrower pursuant to
Article II, Article III or Article IV.
"Advancing Credit Commitment Fee" shall have the meaning set forth in
Section 3.07 hereof.
"Advancing Credit Commitment Period" means the period commencing on
the date of this Agreement and ending on the Advancing Credit Termination Date.
"Advancing Credit Committed Sum" means ONE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,500,000.00) , as such amount may be reduced
pursuant to Section 3.06 or otherwise.
"Advancing Credit Loan" means the Loan made by Lender to Borrower, in
one or more Advances, during the Advancing Credit Commitment Period, pursuant to
Section 3.01.
"Advancing Credit Note" means the promissory note in favor of Lender
in substantially the form of Exhibit B hereto, and all extensions, renewals and
modifications thereof.
"Advancing Credit Termination Date" means 11:00 a.m. Houston, Texas,
time on September 30, 1994, or such earlier date as the Commitment to make
Advances pursuant to Section 3.01 terminates as provided in this Agreement.
<PAGE>
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, Borrower.
"Agreement" means this Credit Agreement (including all Exhibits and
Schedules attached hereto), as the same may be amended or supplemented from time
to time.
"Application" means the document between Borrower and Lender relating
to a Letter of Credit and evidencing, inter alia, the agreement of Lender to
issue such Letter of Credit and Borrower's reimbursement obligation with respect
thereto, which Application shall be in form and substance satisfactory to
Lender.
"Authorized Financial Officer" means the Chairman of the Board of
Directors, President, Vice President, Chief Financial Officer, Treasurer or
Controller of Borrower.
"Available Sum" means, as of the date of any determination thereof,
the Borrowing Base less the sum of (w) the aggregate unpaid balance of the
Revolving Credit Loan plus (x) the aggregate amount of any pending Notice of
Revolving Credit Borrowing plus (y) the aggregate contingent liability of Lender
under all open Letters of Credit plus (z) the aggregate amount of any pending
Notice of Letter of Credit Issuance.
"Bank One Texas Base Rate" means at any time the lesser of (i) the
rate of interest per annum then most recently established by Lender as its Bank
One Texas Base Rate in effect from day to day, with each change in the rate of
interest charged as the Bank One Texas Base Rate to become effective, without
notice to Borrower, on the effective date of each change in the Bank One Texas
Base Rate, such Bank One Texas Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
"Borrowing" means a borrowing hereunder consisting of Loans made to
Borrower by Lender in Advances under this Agreement and the Notes.
"Borrowing Base" means, at any particular time, an amount equal to the
sum of (a) eighty percent (80%) of Eligible Accounts, plus (b) fifty percent
(50%) of Eligible Inventory; provided, however, that fifty percent (50%) of
Eligible Inventory shall never exceed sixty percent (60%) of the Borrowing Base.
"Borrowing Base Deficiency" shall have the meaning set forth in
Section 2.14 hereof.
"Borrowing Base Report" shall have the meaning set forth in Section
2.14 hereof.
"Borrowing Date" means a date upon which an Advance is to be made
hereunder.
"Business Day" means a day when Lender is open for business.
2
<PAGE>
"Closing" means the exchange of the various documents and instruments
by the parties hereto on the Closing Date (as defined in Section 7.01 hereof)
which are required to be exchanged on the Closing Date to consummate the initial
Advances (regardless of whether such initial Advances are then made) and related
transactions in accordance with Article VII hereof.
"Closing Date" shall have the meaning set forth in Section 7.01
hereof.
"Collateral" shall have the meaning set forth in Section 6.01.
"Commitment" means (i) the commitment of Lender to make available the
Revolving Credit Loan hereunder, (ii) the commitment of Lender to make available
the Advancing Credit Loan hereunder, (iii) the commitment of Lender to make
available the Term Loan hereunder and (iv) the commitment of Lender to issue the
Letters of Credit hereunder.
"Consolidated" means, with reference to any item, such item of
Borrower or any Material Company or, if Borrower or any Material Company shall
have any Subsidiary or Subsidiaries which are consolidated for financial
reporting purposes for the date or for the period as of or with respect to which
a determination is made, of Borrower, the Material Companies and such Subsidiary
or Subsidiaries, consolidated in accordance with GAAP.
"Consolidated Tangible Net Worth" means, on any date as of which the
amount thereto is to be determined, all amounts which, as determined in
accordance with GAAP, would be included as stockholders' equity (including
capital stock, capital in excess of par value and retained earnings [or deficit]
but excluding treasury stock) on a Consolidated balance sheet of Borrower and
the Subsidiaries; provided, however, there shall be excluded therefrom (i) any
amount at which shares of capital stock of Borrower or any Material Company
appear as an asset on such Person's balance sheet, (ii) goodwill, including any
amounts, however designated, which represent the excess of the purchase price
paid for assets or stock over the value assigned thereto, (iii) patents,
trademarks, trade names, franchises, experimental expense and copyrights, (iv)
deferred expenses, (v) loans and advances to any stockholder, director, officer,
or employee of Borrower or any Subsidiary or any Affiliate (vi) all other assets
which are properly classified as intangible assets and (vii) any surplus
resulting from any write-up of assets subsequent to the date of this Agreement.
Notwithstanding anything to the contrary herein, foreign currency translation
adjustments shall be excluded in the calculation of Consolidated Tangible Net
Worth.
"Debt" means for any Person (i) all indebtedness whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of money borrowed, (ii) all indebtedness representing deferred payment of the
purchase price of property or assets, (iii) all indebtedness under any lease
which, in conformity with GAAP, is required to be capitalized for balance sheet
purposes, (iv) all indebtedness under guaranties, endorsements, assumptions or
other contingent obligations, in respect of, or to purchase or otherwise
acquire, indebtedness of others, and (v) all indebtedness secured by a Lien
existing on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner thereof.
3
<PAGE>
"Default" means the occurrence of any event which with the giving of
notice or lapse of time, or both, would become an Event of Default.
"DQAP" means Dril-Quip Asia Pacific Pte Ltd, a company incorporated in
the Republic of Singapore.
"DQE" mean Dril-Quip (Europe) Limited, a private limited company
formed under the Companies Act of the United Kingdom 1948, as amended.
"Eligible Accounts" means at any date of determination thereof, all
Accounts of Borrower that are acceptable to Lender in its sole reasonable
discretion and satisfy the following eligibility requirements:
(i) If the Account arises because of the sale of goods, such
goods have been shipped or delivered on an open account basis (or
Lender has been provided with a letter from the customer accepting
title for the goods prior to shipment and accepting risk of loss with
respect thereto and confirming its obligation to pay for such goods on
Borrower's regular terms to such customer) and on an absolute sales
basis and not on consignment, on approval or on a sale-or-return basis
or subject to any other repurchase or return agreement and no material
part of such goods has been returned, rejected, lost or damaged;
(ii) The Account is not evidenced by chattel paper or an
instrument of any kind unless such chattel paper or instrument is
assigned and delivered to and is acceptable to Lender;
(iii) The account debtor obligated on such account is not
insolvent or the subject of any bankruptcy, reorganization,
receivership or insolvency proceedings of any kind and Lender is
reasonably satisfied with the credit worthiness of such account
debtor;
(iv) The Account is a valid, legally enforceable obligation of
the relevant account debtor not subject to any offset, defense or
claim denying or limiting liability thereunder, other than normal
discounts and allowances granted in the ordinary course of Borrower's
business on prior notice to Lender, and other than any amount in
dispute or subject to debit memorandum which shall have been deducted
from the total Account to determine what may otherwise be the balance
of the Eligible Account;
4
<PAGE>
(v) The Account is subject to Lender's prior perfected security
interest and is not subject to any Lien other than any Permitted Lien;
(vi) The Account has arisen with respect to:
(1) sales invoiced for net payment on terms of thirty (30)
days or less after the date of the invoice and which remain
unpaid for no longer than ninety (90) days after the date of
invoice or the due date on the invoice; or
(2) sales invoiced for net payments beyond thirty (30) days,
and which remain unpaid for no longer than thirty (30) days after
due date, on the condition that no invoice will be eligible for
more than ninety (90) days before due date;
(vii) If the Account debtor is located in a jurisdiction which
requires the filing of any tax report or tax return with respect to
any Account, such tax reports and tax returns have been filed by
Borrower;
(viii) The Account is not owing from any employee, officer,
agent, director, or a stockholder of Borrower or any Subsidiary, or
from an Affiliate;
(ix) The Account does not arise from a contract containing a
prohibition against granting a security interest therein;
(x) The Account is not an account from the United States of
America or any agency thereof, unless the provisions of The Federal
Assignment of Claims Act have been complied with in regard to the
Account;
(xi) If ten percent (10%) or more of Accounts owing from an
account debtor become ineligible for reason of being past-due and
Borrower fails to notify Lender in writing of such fact before such
fact is reflected on the Borrowing Base Report next delivered to
Lender pursuant to Section 2.14, then, unless expressly approved by
Lender in writing, all Accounts owed by such account debtor shall be
ineligible;
5
<PAGE>
(xii) If ten percent (10%) or more of Accounts owing from an
account debtor become ineligible for reason of being past-due and
Borrower notifies Lender in writing of such fact before such fact is
reflected on the Borrowing Base Report next delivered to Lender
pursuant to Section 2.14, then, unless Lender notifies Borrower in
writing that all Accounts owed by such account debtor are ineligible
(which decision Lender shall make in its sole good faith discretion),
all the Accounts owed by such account debtor which satisfy all of the
other eligibility requirements of this definition, except for clause
(vi), shall be Eligible Accounts; and
(xiii) If the Lender has determined, in its sole reasonable
discretion, that the effect of any rebate or other sales program with
respect to any Accounts would be to reduce collections of the face
amounts of such Accounts, then the Lender may reduce the eligibility
of the face amount of such Accounts to the extent of any such rebate
or the amount covered by such sales program.
"Eligible Inventory" means at any date of determination thereof, all
Inventory of Borrower that is acceptable to Lender in its sole reasonable
discretion, but not exceeding the lesser of the actual cost or fair market value
of Borrower's Inventory. With respect to Inventory, "actual costs" shall mean
the sum of (i) the purchase price of the materials included in the raw
materials, work in process, and finished goods and (ii) all direct labor costs
attributable to the work in process or finished goods, less any progress
payments or partial billings included in such Inventory as reflected in
Borrower's work orders, if any, for such Inventory. Inventory is "eligible"
only if, on the date as of which the determination is being made, it satisfies
the following eligibility requirements:
(i) The Inventory consists of raw materials, work in process and
finished goods;
(ii) The Inventory does not consist of consigned Inventory;
(iii) The Inventory is in good condition, meets all standards
imposed by any governmental agency, or department or division thereof,
having regulatory authority over such goods, their use and/or sale and
is either currently usable or currently saleable in the normal course
of business of Borrower and is not otherwise unacceptable to the
Lender due to age, type, category and/or quantity;
(iv) Inventory not located at one of the Permitted Locations that
otherwise would be Eligible Inventory hereunder and
6
<PAGE>
which exceeds ten percent (10%) of the value of all Eligible Inventory
shall not be Eligible Inventory;
(v) The Inventory is subject to Lender's prior perfected security
interest and is not subject to any other Lien other than Permitted
Liens;
(vi) If the lesser of the actual cost or fair market value of
Tubular Goods exceeds thirty percent (30%) of Eligible Inventory, then
the amount of such excess shall be ineligible; and
(vii) Inventory which has been determined by Lender, in its sole
reasonable discretion, to be ineligible because such Inventory is
damaged, not currently usable or currently saleable in the normal
course of business of Borrower, shall not be Eligible Inventory for
purposes hereof.
"ERISA" shall have the meaning set forth in Section 8.12 hereof.
"Event of Default" shall have the meaning specified in Section 11.01.
"Excess Amount" shall have the meaning set forth in Section 2.14
hereof.
"Existing Letters of Credit" means those certain letters of credit
issued by Lender for the account of Borrower as more particularly described on
Schedule 12 hereto.
"Existing Liens" means any Lien on any assets or properties of
Borrower, including all such Liens that secure Debt of Borrower in an amount
(including any amounts which Borrower has the right to borrow under the
documents, agreements and instruments evidencing such Debt and Liens, whether or
not then advanced by such lender), as of the date of this Agreement, at least
equal to $50,000.00, as fully described in Schedule 1 hereto.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Inventory" means as at the date of determination, all Inventory (as
such term is defined in the UCC) of Borrower.
7
<PAGE>
"Investments" means all loans, advances, capital contributions and
transfers of assets (other than for cash in an amount equal to the fair market
value of the assets transferred) and all purchase and other acquisitions for
consideration or evidences of indebtedness, capital stock or other securities of
any partnership, corporation, firm or other Person.
"Letter of Credit" means either a standby letter of credit or a
commercial letter of credit issued by Lender for the account of Borrower in
accordance with the terms of Article II hereof.
"Letter of Credit Fee" shall have the meaning set forth in Section
2.13 hereof.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, or conditional sale or title retention agreement, or any other
interest in property designed to secure the repayment of Debt or any other
obligation, whether arising by agreement, or under any statute or law of any
applicable jurisdiction, or otherwise.
"Loans" means, collectively, the Revolving Credit Loan, the Advancing
Credit Loan and the Term Loan, and "Loan" means singly, the Revolving Credit
Loan, the Advancing Credit Loan or the Term Loan.
"Loan Papers" means this Agreement and all promissory notes, deeds of
trust, security agreements, or their equivalent under applicable laws, financing
statements, collateral assignments, guaranties, letters of credit, and other
instruments, documents, and agreements executed and delivered pursuant to, in
connection with or as contemplated by this Agreement and any future amendments,
supplements or other modifications hereto or thereto.
"Material Companies" means, collectively, both DQAP and DQE, and
"Material Company" means, singly, DQAP or DQE.
"Maximum Rate" has the meaning set forth in Section 2.02 hereof.
"Notes" shall mean the Revolving Credit Note, the Advancing Credit
Note and the Term Note and all extensions, renewals and modifications thereof.
"Notice of Advancing Credit Borrowing" shall have the meaning set
forth in Section 3.04 hereof.
"Notice of Credit Issuance" shall have the meaning set forth in
Section 2.08 hereof.
"Notice of Revolving Credit Borrowing" shall have the meaning set
forth in Section 2.04 hereof.
"Obligations" means all present and future obligations, liabilities
and indebtedness, and all renewals and extensions thereof, or any part thereof,
of Borrower to Lender arising pursuant
8
<PAGE>
to the Loan Papers and all interest accruing thereon and reasonable attorneys'
fees incurred in the enforcement or collection thereof, regardless of whether
such obligations, liabilities and indebtedness are direct or indirect, primary
or secondary, fixed, contingent, liquidated, unliquidated, joint, several, or
joint and several, including, but not limited to, the indebtedness and
obligations evidenced by the Notes, all reimbursement obligations with respect
to the Letters of Credit and all obligations referred to in any and all other
Loan Papers. The Letter of Credit Fee called for by Section 2.13 hereof and the
Advancing Credit Commitment Fee called for by Section 3.07 hereof shall be
included within the Obligations.
"Payment Notice" shall have the meaning set forth in Section 2.14
hereof.
"Permitted Investments" means any one or more of the following:
(a) readily marketable securities issued or fully guaranteed by
the United States of America;
(b) certificates of deposit, eurodollar or repurchase obligations
with maturities of one year or less from the date of acquisition
thereof of any commercial bank operating in the United States having
capital and surplus in excess of $100,000,000.00;
(c) certificates of deposit or time deposits of any commercial
bank operating in the United States with maturities of one (1) year or
less from the date of such deposit where any and all such deposits are
at all times fully insured at such institution by the Federal Deposit
and Insurance Corporation;
(d) commercial paper of a domestic issuer if at the time of
purchase such paper is rated "AA" by Moody's Investors Service with
maturities of not more than one hundred eighty (180) days; and
(e) capital contributions by Borrower to any Material Company.
"Permitted Liens" means any one or more of following:
(i) Liens for taxes, assessments or governmental charges either
not yet delinquent or the validity of which are being contested in
good faith by appropriate proceedings diligently prosecuted and as to
which adequate reserves shall have been set aside in conformity with
GAAP;
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(ii) Deposits, pledges or other liens to secure the payment of
workers' compensation, unemployment insurance or other social security
benefits or obligations, or to secure the performance of bids, trade
contracts, leases, public or statutory obligations, surety or appeal
bonds and other obligations of a like nature incurred in the ordinary
course of business and in each case to secure such obligations not yet
delinquent, or if delinquent which are being diligently contested in
good faith and as to which adequate reserves shall have been set aside
in conformity with GAAP;
(iii) Materialmen's, mechanics', worker's, repairmen's,
employees', warehousemen's, carrier's or other like statutory or
common law liens, in each case arising in the ordinary course of
business to secure obligations not yet delinquent, or if delinquent
which are being diligently contested in good faith and as to which
adequate reserves shall have been set aside in conformity with GAAP or
as to which adequate bonds shall have been obtained;
(iv) Purchase money liens, purchase money security interests, or
title retention arrangements upon or in any property acquired or held
by any Person in the ordinary course of business to secure purchase
money indebtedness which is otherwise permitted by Section 10.01
hereof and is incurred solely for the purpose of financing the
acquisition of such property, or renewals or extensions thereof;
(v) Existing Liens, or continuations, renewals and extensions
thereof; provided, however, that such Existing Lien shall not secure
any additional Debt (except any amounts which a Person has the right
to borrow under the documents, agreements and instruments evidencing
Debt existing as of the Closing Date) created pursuant to any such
continuation, renewal or extension; or
(vi) Lender's Liens.
"Permitted Locations" means the locations listed on Schedule 2
attached hereto, all of which are and shall at all times be locations in the
continental United States or locations where the Lender, in its sole discretion,
has made all filing necessary to perfect a security interest in any Inventory at
such location, and which are and shall at all times be either (i) locations,
where Collateral is located, owned by Borrower; (ii) locations, where Collateral
is located, leased by, in each case for which Borrower shall have obtained
landlords' waivers acceptable in form and substance to Lender; or (iii) public
warehouses for which Borrower shall use its best efforts to have: (1) filed
financing statements against such warehouseman covering the Inventory, which
financing
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statements shall have been assigned to Lender, and (2) obtained warehouseman's
waivers acceptable in form and substance to Lender, except that Lender shall
have the option to exclude from Eligible Inventory, Inventory at warehouse
locations having in the aggregate a value less than $30,000.00, but the
exclusion of such Inventory from Eligible Inventory shall be in the sole
discretion of Lender.
"Person" means and includes any natural person, corporation, business
trust, association, company, partnership, joint venture, or other entity.
"Revolving Credit Available Loan Amount" means, as of the date of any
determination thereof, the lesser of (i) the Revolving Credit Committed Sum less
the sum of (w) the aggregate unpaid balance of the Revolving Credit Loan plus
(x) the aggregate amount of any pending Notice of Revolving Credit Borrowings
plus (y) the aggregate contingent liability of Lender under all open Letters of
Credit plus (z) the aggregate amount of any pending Notice of Credit Issuance or
(ii) the Available Sum.
"Revolving Credit Commitment Period" means the period commencing on
the Closing Date and ending on the Revolving Credit Termination Date.
"Revolving Credit Committed Sum" means FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00), as such amount may be reduced pursuant to Section
2.06.
"Revolving Credit Loan" means the Loan made by Lender to Borrower, in
one or more Advances, during the Revolving Credit Commitment Period, pursuant to
Section 2.01.
"Revolving Credit Note" means the promissory note in favor of Lender
in substantially the form of Exhibit A hereto, and all extensions, renewals and
modifications thereof.
"Revolving Credit Termination Date" means October 1, 1995, or such
earlier date as the Revolving Credit Commitment terminates as provided in this
Agreement.
"Rights" means with respect to any Person, the rights, remedies
(equitable or legal), claims, causes of action, powers, and privileges granted
to such Person pursuant to any or all of the Loan Papers or any other document,
instrument or other agreement heretofore, now, or hereafter executed in
connection therewith, whether granted or arising pursuant to the express
provisions of any of the foregoing, or at law, or in equity, by constitution,
statute, case or otherwise.
"Security Documents" means the documents described in Section 6.01
hereof and all other documents now or hereafter existing which provide Lender
with Collateral to secure the Obligations, as the same may be amended or
restated from time to time.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned
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or controlled, directly or indirectly, by Borrower, DQE, DQAP and/or any other
Subsidiary, individually or jointly.
"Term Loan" means the loans made by Lender pursuant to Section 4.01
and evidenced by the Term Note.
"Term Note" means the promissory note described in Section 4.01 hereof
in favor of Lender in substantially the form of Exhibit C hereto, and all
extensions, renewals and modifications thereof.
"Tubular Goods" means all tubular goods of Borrower.
"UCC" means the Uniform Commercial Code as adopted and amended by the
State of Texas.
Section 1.02. Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular and plural
form of the term defined. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP as in effect from time to time,
applied on a basis consistent (except for changes disclosed to Lender,
consistent with GAAP and approved by Borrower's independent public accountants)
with the most recent respective financial statements of Borrower delivered to
Lender. The words "herein," "hereof," "hereunder" and other words of similar
import refer to this Agreement as a whole and not to a particular section,
paragraph or other subdivision. The terms defined in Section 1.01 hereof,
unless the context requires otherwise, will have the meaning assigned to them in
Section 1.01 hereof, and will include the plural as well as the singular. All
other terms used herein shall have the meanings as otherwise stated herein or as
otherwise defined in the UCC.
ARTICLE II
Revolving Credit Loan
Section 2.01. Commitment for Revolving Credit Loan. Subject to the
terms and conditions of this Agreement, and provided that no Default or Event of
Default has occurred or is continuing or no Default or Event of Default will
have occurred upon the making of such Advance, Lender agrees to lend to
Borrower, pursuant to this Agreement, such amounts as the Borrower may request
in one or more Advances, from time to time during the Revolving Credit
Commitment Period to and including the Revolving Credit Termination Date;
provided that the aggregate principal amounts available at any time under the
Revolving Credit Loan shall not at any time exceed the Revolving Credit
Available Loan Amount.
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Section 2.02. Revolving Credit Note. The obligation of Borrower to
repay the Revolving Credit Loan shall be evidenced by the Revolving Credit Note
executed by Borrower, payable to the order of Lender, in the principal amount of
the Revolving Credit Committed Sum and dated the date of the making of the
Revolving Credit Loan. The principal of the Revolving Credit Loan shall be due
and payable on the Revolving Credit Termination Date. The Revolving Credit Loan
shall bear interest prior to maturity at a varying rate per annum equal from day
to day to the lesser of (a) the maximum rate permitted from day to day by
applicable law ("Maximum Rate"), including as to Article 5069-1.04 Vernon's
Texas Civil Statutes (and as the same may be incorporated by reference in other
Texas statutes), but otherwise without limitation, that rate based upon the
"indicated rate ceiling," or (b) the sum of the Bank One Texas Base Rate in
effect from day to day plus one-half of one percent (1/2%), each such change in
the rate of interest charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank One Texas Base Rate;
provided, however, if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the interest on the
Revolving Credit Loan to be limited to the Maximum Rate, then any subsequent
reduction in the Bank One Texas Base Rate shall not reduce the rate of interest
on the Revolving Credit Loan below the Maximum Rate until the aggregate amount
of interest accrued on the Revolving Credit Loan equals the aggregate amount of
interest which would have accrued on the Revolving Credit Loan if the interest
rate specified in clause (b) preceding had at all times been in effect. Accrued
and unpaid interest on the Revolving Credit Loan shall be due and payable (a)
quarterly in arrears, on the 1st day of each successive July, October, January
and April commencing on July 1, 1994, until payment in full of the outstanding
principal under the Revolving Credit Note and (b) on the Revolving Credit
Termination Date. All past due principal and interest shall bear interest at
the Maximum Rate.
Section 2.03. Expiration of Commitment to Lend under Revolving
Credit. The maximum obligation of Lender to make Advances under Section 2.01
hereof or to issue Letters of Credit under Section 2.08 hereof shall not at any
time exceed in the aggregate the Revolving Credit Committed Sum, and Lender's
obligation to make additional Advances under Section 2.01 hereof or to issue
Letters of Credit under Section 2.08 hereof shall terminate and expire at 11:00
A.M., Houston, Texas time on the Revolving Credit Termination Date; provided
that Borrower's Obligations and the Rights of Lender under the Loan Papers shall
continue in full force and effect until the Obligations have been paid and
performed in full.
Section 2.04. Procedure for Borrowing Under the Revolving Credit
Loan. During the Revolving Credit Commitment Period, Borrower shall give Lender
a written notice executed on behalf of Borrower by any Authorized Financial
Officer of Borrower (the "Notice of Revolving Credit Borrowing") of any proposed
Borrowing under the Revolving Credit Loan which shall be irrevocable. Each
Notice of Revolving Credit Borrowing shall be received by Lender not later than
11:00 A.M., Houston, Texas time, at least two (2) Business Days prior to any
proposed Borrowing requested by Borrower. Each such Notice of Revolving Credit
Borrowing shall be in substantially the form of Exhibit D attached hereto.
Lender, at its option, may from time to time accept telephonic requests for
Advances; provided that Borrower shall promptly thereafter provide Lender with a
completed Notice of Revolving Credit Borrowing. Lender is hereby authorized to
act in reliance
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upon a certificate of incumbency from Borrower's Secretary or Assistant
Secretary as to the identity of the foregoing officers and their due appointment
and authorization to issue Borrowing requests and receive proceeds of Advances
hereunder on behalf of Borrower unless and until Lender is in actual receipt of
written notice by Borrower of revocation of said appointment and authorization.
If prior to the Borrowing Date, Lender shall request that Borrower provide
additional information on or confirmation of the Borrowing Base, Borrower agrees
to provide same and Lender shall not have any obligation to make any Advance
with respect to a proposed Borrowing until Lender is satisfied with the
Borrower's determination of the Borrowing Base. Prior to 11:00 A.M. (Houston,
Texas time) on each Borrowing Date and subject to the provisions of Section
2.01, Lender shall make available to Borrower in immediately available funds
such requested Advance by deposit to Borrower's deposit account maintained with
Lender or such other reasonable disposition of such funds as Borrower shall
request in writing. Lender may, and is hereby authorized by Borrower to, endorse
on the schedule attached to the Revolving Credit Note or on a continuation of
such schedule attached to and made a part of such Revolving Credit Note an
appropriate notation evidencing the date and amount of each Advance and payment
and prepayment by Borrower of the principal of and interest on the Revolving
Credit Loan evidenced by such Revolving Credit Note, but the failure of Lender
to make any such endorsement or any incorrect endorsement shall not subject
Lender to any liability hereunder and shall not limit or otherwise affect the
obligations of Borrower under such Revolving Credit Note.
Section 2.05. Use of Proceeds of Revolving Credit Loan. The initial
Advance under the Revolving Credit Loan shall be made the date of this Agreement
and shall be in an amount of $5,000,000.00. The proceeds of all Advances
comprising the Revolving Credit Loan shall be used for any legitimate corporate
purpose.
Section 2.06. Reduction or Termination of Revolving Committed Sum.
Borrower may at any time by giving at least three (3) Business Days' notice in
writing to Lender terminate or reduce the Revolving Credit Committed Sum;
provided, however, that (i) no such reduction of the Revolving Credit Committed
Sum shall be effective unless the amount by which the Revolving Credit Committed
Sum is reduced shall be ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) or
an integral multiple thereof, (ii) no such termination or reduction of the
Revolving Credit Committed Sum shall be effective unless, simultaneously
therewith, all principal outstanding under the Revolving Credit Loan in excess
of the new Revolving Credit Committed Sum, after giving effect to the proposed
reduction, together with all interest accrued thereon, shall be pre-paid in full
by Borrower, and (iii) simultaneously with such termination or reduction, DQE
shall have terminated or reduced by the same amount the maximum amount Lender is
obligated to loan to DQE pursuant to the revolving credit facility DQE has with
Lender. Once reduced or terminated, the Revolving Credit Committed Sum may not
be increased or reinstated without the prior written consent of Lender.
Section 2.07. Agreement to Remain in Effect; Revolving Credit. This
Agreement shall remain in effect regardless of the aggregate amount of Advances
from time to time outstanding evidenced by the Revolving Credit Note. Subject
to the limitations set forth in this Article II and
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to the other terms and provisions of this Agreement, Borrower may borrow, repay,
and reborrow under the Revolving Credit Note.
Section 2.08. Letters of Credit. Subject to the terms and conditions
of this Agreement, and provided that no Default or Event of Default has occurred
and is continuing, Lender will, upon Borrower's request, issue one or more
Letters of Credit during the Revolving Credit Commitment Period for the account
of Borrower; provided that the aggregate face amount of such Letters of Credit
to be issued shall not exceed the Revolving Credit Available Loan Amount; and
further provided that the aggregate face amount of all Letters of Credit issued
pursuant to this Section 2.08 shall not exceed $1,500,000.00 at any one time.
During the Revolving Credit Commitment Period, Borrower shall give Lender
written notice executed on behalf of Borrower by any Authorized Financial
Officer of Borrower (the "Notice of Credit Issuance") of any proposed issuance
of a Letter of Credit. Such Notice of Credit Issuance shall be in substantially
the form of Exhibit E attached hereto. Such Notice of Credit Issuance shall be
revocable prior to the issuance of the Letter of Credit; provided, however, if
such notice is revoked, Borrower shall pay to Lender a fee of $300.00. Each
Notice of Credit Issuance, except with respect to Letters of Credit to be opened
on the Closing Date, shall be delivered to Lender not less than two (2) Business
Days before the requested date of issuance thereof. Additionally, each Notice
of Letter of Credit Issuance shall be accompanied by an Application executed by
the Company relating to the subject Letter of Credit. If prior to the issuance
of any Letter of Credit, Lender shall request that Borrower provide additional
information on or confirmation of the Borrowing Base, Borrower agrees to provide
same and Lender shall not issue any Letter of Credit covered by the Notice of
Letter of Credit Issuance until Lender is satisfied with Borrower's
determination of the Borrowing Base. Each Letter of Credit shall be on
substantially such terms as Borrower may specify in the relevant Application and
must be in form and substance satisfactory to Lender and shall have a fixed
expiration date no later than 1:00 P.M. (Houston, Texas time) one (1) year from
the issuance thereof. The Existing Letters of Credit shall for all purposes be
deemed to have been issued pursuant to this Section 2.08.
Section 2.09. Aggregate Amounts Available under Letters of Credit.
The reimbursement obligation of Borrower to Lender with respect to the Letters
of Credit shall be evidenced by the Revolving Credit Note and the Application
relating to the subject Letter of Credit. Any amounts paid by Lender with
respect to such Letter of Credit shall be deemed to be an Advance by Lender
under the Revolving Credit Note as set forth in Section 2.10 hereof.
Section 2.10. Advances in Respect of Letters of Credit;
Reimbursement. (a) Prior to the expiration or termination of the Revolving
Credit Commitment Period, if Borrower does not provide Lender with funds, in the
amount and on the date necessary to settle such Lender's obligations under any
draft drawn or demand made under a Letter of Credit issued by Lender (whether at
or prior to the expiration of such Letter of Credit), Lender shall make and
Borrower shall accept, an Advance under the Revolving Credit Note in the amount
disbursed or to be disbursed by Lender pursuant to such draft on demand, such
Advance to be made as of the date of such settlement of the Letters of Credit.
The obligations and indebtedness of Borrower to the Lender pursuant to such
Advances shall be evidenced by the Revolving Credit Note and the Application
relating to the
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subject Letter of Credit. Anything herein to the contrary notwithstanding, in no
event shall any Advance be made under the Revolving Credit Note which, together
with the outstanding balance thereunder, would exceed the Revolving Credit
Available Loan Amount, and any such excess shall be payable to Lender on demand.
(b) After the expiration or termination of the Revolving Credit
Commitment Period, if any Letter of Credit is outstanding, Borrower agrees (i)
to deposit in an interest-bearing cash collateral account opened by Lender an
amount equal to the aggregate undrawn amount of such Letters of Credit and (ii)
to reimburse Lender in immediately available funds (which may be drawn by Lender
from such cash collateral account, including interest accrued thereon) upon
demand of Lender at any time, the amount necessary to settle Lender's
obligations under any draft drawn or demand made under a Letter of Credit issued
by Lender (whether at or prior to the expiration of such Letter of Credit) which
has not been paid by the proceeds of Revolving Credit Loans made pursuant to
Section 2.10(a) hereof. After the respective expiry dates of the Letters of
Credit and after the Obligations are paid in full, Lender shall return the
unused portion of such cash collateral described above, together with all
interest earned thereon, to the Borrower.
(c) In order to induce Lender to issue a Letter of Credit, Borrower
agrees that (i) Lender shall not be responsible or liable for, and the
obligation of Borrower to reimburse Lender for any payment made by Lender under
such Letter of Credit shall not be affected by, (A) the validity, enforceability
or genuineness of any note or other document (or any endorsement thereof)
presented to Lender under such Letter of Credit, even if such note or other
document (or such endorsement) is proven to be invalid, unenforceable,
fraudulent or forged, or (B) any dispute between Borrower and the beneficiary
under such Letter of Credit, and (ii) any action taken or omitted to be taken by
Lender in connection with such Letter of Credit, if taken in good faith and with
reasonable care, shall be binding upon Borrower and shall not create any
liability for Lender to Borrower.
Section 2.11. Purpose of Letters of Credit. Subject to the other
terms and conditions of this Agreement, Lender shall issue Letters of Credit for
any corporate purpose of Borrower or of any Material Company.
Section 2.12. Conflicts in Terms. In case of any conflict between
the terms of any Application with respect to a Letter of Credit and the terms
hereof, the terms of this Agreement shall control, except to the extent the
Application states that certain specified provisions thereof control, in which
case those specified provisions of the Application in question shall control.
Section 2.13. Letter of Credit Fee. Upon issuance of any Letter of
Credit, Borrower agrees to pay to Lender a fee (the "Letter of Credit Fee")
equal to the greater of $300.00 or one and one-half of one percent (1-1/2%) per
annum of the amount of the Letter of Credit for the period of time from the date
of issuance thereof to the stated expiry date.
Section 2.14. Borrowing Base. The restriction on the aggregate
outstanding principal amount of Advances up to the Revolving Credit Available
Loan Amount contained in
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Section 2.01 hereof shall be cumulative of other limitations and conditions
contained in this Agreement or any other Loan Papers. If at any time during the
term of this Agreement for whatever reason the Borrowing Base then in effect is
less than an amount equal to the sum of (i) the unpaid balance under the
Revolving Credit Loan plus (ii) the aggregate contingent liability of Lender
under all Letters of Credit (the amount by which the sum of (i) and (ii) exceeds
the Borrowing Base being called the "Excess Amount"), Borrower shall, within
three (3) days after the determination of such fact, give notice thereof to
Lender (a "Payment Notice") and, unless waived by Lender in writing upon the
written request of Borrower, Borrower shall, within thirty (30) days after
giving of notice to Lender, make mandatory prepayments in accordance with the
terms of Section 2.15. Borrower shall compute the Borrowing Base at the Closing
as of the last day of the preceding month. Thereafter Borrower shall compute the
Borrowing Base, at least monthly (and more often should Lender require), using
the Borrowing Base Report in substantially the form attached hereto as Exhibit F
(the "Borrowing Base Report"), for the immediately preceding calendar month,
which Borrower is obligated to furnish to Lender within twenty (20) days after
the end of each calendar month through the term of this Agreement, and more
frequent reports if and as Lender may require. The Borrowing Base Report shall
be certified by an Authorized Financial Officer of Borrower and shall contain
statements to the effect that, as of the date of such Borrowing Base Report, the
representations and warranties contained in Article VIII hereof, are true except
as disclosed in such report, and there exists no Default under the Loan Papers.
Notwithstanding anything to the contrary herein contained, if the Borrowing Base
Report shows a Borrowing Base less than an amount equal to the sum of (i) the
unpaid balance under the Revolving Credit Loan plus (ii) the aggregate
contingent liability of Lender under all Letters of Credit (a "Borrowing Base
Deficiency"), and Borrower fails to timely deliver the Payment Notice required
by this Section 2.14, Lender may demand that Borrower make, within thirty (30)
days, mandatory prepayments in accordance with the terms of Section 2.15.
Section 2.15. Required Date and Amount of Mandatory Prepayments.
Within thirty (30) Business Days after Lender has received a Payment Notice or
the Borrowing Base Report which reflects a Borrowing Base Deficiency, unless
waived by Lender in writing upon the written request of Borrower, Borrower shall
make a prepayment on the Revolving Credit Loan equal to the lesser of (i) the
Excess Amount or (ii) the unpaid balance under the Revolving Credit Loan.
ARTICLE III
Advancing Credit Loan
Section 3.01. Commitment for Advancing Credit Loan. Subject to the
terms and conditions of this Agreement, and provided that no Default or Event of
Default has occurred or is continuing, Lender agrees to lend to Borrower,
pursuant to this Agreement, such amounts as the Borrower may request in one or
more Advances, from time to time during the Advancing Credit Commitment Period
to and including the Advancing Credit Termination Date; provided that such
Advances shall not exceed either singularly or cumulatively the Advancing Credit
Committed Sum; and further provided that Lender shall not be obligated to make
such Loans pursuant to this Section
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3.01 in excess of eighty-five percent (85%) of the cost of improvements, eighty
percent (80%) of the cost of new equipment, eighty percent (80%) of the cost of
used, refurbished equipment and sixty percent (60%) of the cost of used,
unrefurbished equipment; provided, however, that with respect to any used,
unrefurbished equipment, if Borrower should subsequently refurbish such
equipment, then the limit shall be increased to eighty percent (80%) and
Borrower may increase the amount borrowed hereunder on account of such equipment
to bring the total to eighty percent (80%) of the cost of such equipment and the
cost of refurbishing such equipment.
Section 3.02. Advancing Credit Note. The obligation of Borrower to
repay the Advancing Credit Loan shall be evidenced by the Advancing Credit Note
executed by Borrower, payable to the order of Lender, in the principal amount of
the Advancing Credit Committed Sum and dated of even date herewith. The
principal of the Advancing Credit Loan outstanding on the Advancing Credit
Termination Date, plus accrued and unpaid interest thereon, shall be due and
payable in: (a) two (2) installments of accrued and unpaid interest only due and
payable on July 1, 1994 and October 1, 1994; (b) in fifteen (15) consecutive
installments each equal to one-thirtieth (1/30th) of the outstanding principal
of the Advancing Credit Loan on the Advancing Credit Termination Date, together
with all accrued and unpaid interest, the first of such installments being due
and payable on or before January 1, 1995 and like installments being due and
payable on the first day of each succeeding third calendar month thereafter
through and including July 1, 1998; and (c) a final installment shall be due on
or before October 1, 1998 in an amount equal to the remaining unpaid principal
outstanding on the Advancing Credit Loan together with all accrued and unpaid
interest. The Advancing Credit Loan shall bear interest prior to maturity at a
varying rate per annum equal from day to day to the lesser of (a) the Maximum
Rate or (b) the sum of the Bank One Base Rate in effect from day to day plus
three-quarters of one percent (3/4%), each such change in the rate of interest
charged hereunder to become effective, without notice to Borrower, on the
effective date of each change in the Bank One Base Rate; provided, however, if
at any time the rate of interest specified in clause (b) preceding shall exceed
the Maximum Rate, thereby causing the interest on the Advancing Credit Loan to
be limited to the Maximum Rate, then any subsequent reduction in the Bank One
Base Rate shall not reduce the rate of interest on the Advancing Credit Loan
below the Maximum Rate until the aggregate amount of interest accrued on the
Advancing Credit Loan equals the aggregate amount of interest which would have
accrued on the Advancing Credit Loan if the interest rate specified in clause
(b) preceding had at all times been in effect. All past due principal and
interest shall bear interest at the Maximum Rate.
Section 3.03. Expiration of Commitment to Lend under Advancing Credit.
The maximum obligation of Lender to make Advances under Section 3.01 hereof
shall not at any time exceed, either singularly or cumulatively, the Advancing
Credit Committed Sum, and Lender shall have no obligation to make additional
Advances under Section 3.01 hereof and Lender's Commitment to lend to Borrower
pursuant to Section 3.01 hereof shall terminate and expire at 11:00 a.m.,
Houston, Texas time on the Advancing Credit Termination Date; provided that
Borrower's Obligations and the Rights of Lender under the Loan Papers shall
continue in full force and effect until the Obligations have been paid and
performed in full.
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Section 3.04. Procedure for Borrowing Under the Advancing Credit
Loan. During the Advancing Credit Commitment Period, Borrower shall give Lender
a written notice executed on behalf of the Borrower by any Authorized Financial
Officer of the Borrower (the "Notice of Advancing Credit Borrowing") of any
proposed Borrowing under the Advancing Credit Loan which shall be irrevocable.
Each Notice of Advancing Credit Borrowing shall be received by Lender not later
than 11:00 a.m., Houston, Texas time, at least one (1) Business Day prior to any
proposed Borrowing requested by Borrower together with copies of invoices for
the equipment purchased or improvements undertaken. Each such Notice of
Advancing Credit Borrowing shall be substantially in the form of Exhibit G
attached hereto. Lender, at its option, may from time to time accept telephonic
requests for Advances; provided that Borrower shall promptly thereafter provide
Lender with a completed Notice of Advancing Credit Borrowing together with
copies of invoices for the equipment purchased or improvements undertaken.
Lender is hereby authorized to act in reliance upon a certificate of incumbency
from Borrower's Secretary or Assistant Secretary as to the identity of the
foregoing officers and their due appointment and authorization to issue
Borrowing requests and receive proceeds of Advances hereunder on behalf of
Borrower unless and until Lender is in actual receipt of written notice by
Borrower of revocation of said appointment and authorization. Prior to 11:00
A.M. (Houston, Texas time) on each Borrowing Date and subject to the provisions
of Section 3.01, Lender shall make available to Borrower in immediately
available funds such requested Advance by deposit to Borrower's deposit account
maintained with Lender or other reasonable disposition of such funds as Borrower
shall request in writing. Lender may, and is hereby authorized by Borrower to,
endorse on the schedule attached to the Advancing Credit Note or on a
continuation of such schedule attached to and made a part of such Advancing
Credit Note an appropriate notation evidencing the date and amount of each
Advance and payment and prepayment by Borrower of the principal of and interest
on the Advancing Credit Loan evidenced by such Advancing Credit Note, but the
failure of Lender to make any such endorsement or any incorrect endorsement
shall not subject Lender to any liability hereunder and shall not limit or
otherwise affect the obligations of Borrower under such Advancing Credit Note.
Section 3.05. Use of Proceeds of Advancing Credit Loan.
Notwithstanding anything to the contrary herein, the initial Advance under the
Advancing Credit Loan shall be made the date of this Agreement, and shall be in
an amount of $1,000,000.00. The proceeds of all additional Advances comprising
the Advancing Credit Loan shall be used to pay for up to eighty-five percent
(85%) of the costs of Borrower for improvements on the realty described on
Schedule 3 attached hereto, up to eighty-five percent (85%) of the cost of
improvements, eighty percent (80%) of the cost of new equipment, eighty percent
(80%) of the cost of used, refurbished equipment and sixty percent (60%) of the
cost of used, unrefurbished equipment; provided, however, that with respect to
any used, unrefurbished equipment, if Borrower should subsequently refurbish
such equipment, then the limit shall be increased to eighty percent (80%) and
Borrower may increase the amount borrowed hereunder on account of such equipment
to bring the total to eighty percent (80%) of the cost of such equipment and the
cost of refurbishing such equipment.
Section 3.06. Reduction or Termination of Advancing Committed Sum.
Borrower may at any time by giving at least three (3) Business Days' notice in
writing to Lender terminate or
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reduce the Advancing Credit Committed Sum; provided, however, that no such
reduction of the Advancing Credit Committed Sum shall be effective unless the
amount by which the Advancing Credit Committed Sum is reduced shall be ONE
HUNDRED THOUSAND AND NO/100 ($100,000.00) or an integral multiple thereof. Once
reduced or terminated, the Advancing Credit Committed Sum may not be increased
or reinstated without the prior written consent of Lender.
Section 3.07. Advancing Credit Commitment Fee. Borrower agrees to
pay to Lender a fee (the "Advancing Credit Commitment Fee") on the average daily
unused portion of the Advancing Credit Commitment, from the date of this
Agreement to and including the Advancing Credit Termination Date, at the rate of
one-half of one percent (1/2%) per annum based on a 365 day year and the actual
number of days elapsed, payable in arrears, on July 1, 1994 and on the Advancing
Credit Termination Date.
ARTICLE IV
Term Loan
Section 4.01. Commitment for Term Loan. Subject to the terms and
conditions of this Agreement, and provided that no Default or Event of Default
has occurred and is continuing on the Closing Date, Lender agrees to make the
Term Loan to Borrower under the Term Note, in the amount of TWELVE MILLION ONE
HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($12,175,000.00).
Section 4.02. Term Note. The obligation of Borrower to repay the
Term Loan shall be evidenced by the Term Note executed by Borrower, payable to
the order of Lender, in the principal amount of the Term Loan and dated of even
date herewith. The principal of the Term Loan, plus accrued and unpaid interest
thereon, shall be due and payable in: (a) fourteen (14) consecutive installments
each equal to FOUR HUNDRED SEVENTY-NINE THOUSAND AND NO/100 DOLLARS
($479,000.00) of principal, together with all accrued and unpaid interest, the
first of such installments being due and payable on or before April 1, 1994 and
like installments being due and payable on the first day of each succeeding
third calendar month thereafter through and including July 1, 1997; and (b) a
final installment due and payable on October 1, 1997 in an amount equal to the
remaining unpaid principal amount outstanding on the Term Loan, together with
all accrued and unpaid interest. The Term Loan shall bear interest prior to
maturity at a varying rate per annum equal from day to day to the lesser of (a)
the Maximum Rate or (b) the sum of the Bank One Texas Base Rate in effect from
day to day plus three-quarters of one percent (3/4%), each such change in the
rate of interest charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank One Texas Base Rate;
provided, however, if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the interest on the
Term Loan to be limited to the Maximum Rate, then any subsequent reduction in
the Bank One Texas Base Rate shall not reduce the rate of interest on the Term
Loan below the Maximum Rate until the aggregate amount of interest accrued on
the Term Loan equals the aggregate amount of interest which would have accrued
on the Term Loan if the interest rate
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specified in clause (b) preceding had at all times been in effect. All past due
principal and interest shall bear interest at the Maximum Rate.
ARTICLE V
Payments
Section 5.01. Method of Payment. All payments of principal,
interest, and other amounts to be made by Borrower hereunder and under the Notes
shall be made to Lender at its office at 910 Travis, Houston, Texas 77002, in
lawful currency of the United States of America and in immediately available
funds. Whenever any Payment hereunder or under the Notes shall be stated to be
due on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day and interest or commitment fee, as the case may be,
shall continue to accrue during such extension.
Section 5.02. Prepayment. Borrower may, on at least three (3)
Business Days' notice to Lender, prepay all or any portion of any of the Notes
at any time or from time to time without premium or penalty but with accrued
interest to the date of prepayment on the amount so prepaid, provided that each
partial prepayment shall be in the principal amount of FIFTY THOUSAND AND NO/100
DOLLARS ($50,000.00) or an integral multiple thereof and in the case of the
Advancing Credit Note and the Term Note, such prepayment shall be applied to
installments of principal thereof in the inverse order of maturity. All
prepayments made pursuant to Sections 2.06 or 2.14 shall be similarly applied.
Notwithstanding anything to the contrary in this Agreement, however, Borrower
shall not prepay the Term Note without DQE simultaneously making a prepayment of
the term Debt DQE owes Lender in an amount so that the percentage that DQE's
prepayment is to the total amount of principal term Debt DQE then owes Lender is
equal to or greater than the percentage Borrower's prepayment is to the total
amount of principal then outstanding under the Term Note.
ARTICLE VI
Collateral
Section 6.01. Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered the documents described below covering the property
and collateral described in this Section 6.01 (which, together with any other
property and collateral which may now or hereafter secure the Obligations or any
portion thereof are sometimes herein called the "Collateral").
(a) Borrower shall grant to Lender a first priority lien on the
real property located in Harris County, Texas, as more fully described
in Schedule 3 attached hereto, and all improvements thereon and all
appurtenances thereto and shall assign to Lender all rents, leases,
and profits relating to such
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property pursuant to reasonable documentation acceptable to Lender in
its sole good faith discretion.
(b) Borrower shall grant to Lender a first priority security
interest in all of its accounts, accounts receivable, equipment,
machinery, fixtures, raw materials, work-in process, inventory,
chattel paper, documents, instruments, and general intangibles,
whether now owned or hereafter acquired, and all products and proceeds
thereof, pursuant to reasonable documentation acceptable to Lender in
its sole good faith discretion.
(c) Borrower shall grant to Lender a first priority security
interest in all of its patents, tradenames and trademarks, whether now
owned or hereafter acquired, and all substitutions and replacements
therefor, pursuant to reasonable documentation acceptable to Lender in
its sole good faith discretion.
(d) Borrower shall collaterally assign the proceeds of the life
insurance policies required to be maintained pursuant to Section 9.17
to Lender pursuant to reasonable documentation acceptable to the
issuer of such life insurance policies and the Lender.
(e) Borrower shall execute and deliver and cause to be executed
and delivered such further documents and instruments, including
without limitation, Uniform Commercial Code financing statements, as
Lender, in its sole discretion, deems necessary or desirable to
evidence and perfect its liens and security interests in the
Collateral.
Section 6.02. Setoff. After the occurrence of any Default and so
long as such Default is continuing, Lender shall have the right to setoff and
apply against the Obligations, without notice to Borrower, any and all deposits
(general or special, time or demand, provisional or final) or other sums at any
time credited by or owing from Lender to Borrower for application against any of
the Obligations whether or not any portion of the Obligations are then due and
payable. As further security for the Obligations, Borrower hereby grants to
Lender a security interest in all money, instruments, and other property of
Borrower now or hereafter held by Lender, including, without limitation,
property held in safekeeping. In addition to Lender's right of setoff and as
further security for the Obligations, Borrower hereby grants to Lender a
security interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of Borrower now or hereafter on deposit
with or held by Lender and all of the sums at any time credited by or owing from
Lender to Borrower. The rights and remedies of Lender hereunder are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which Lender may have.
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ARTICLE VII
Conditions Precedent
Section 7.01. Initial Advance. The obligation of Lender to make the
initial Advances is subject to the condition precedent that Lender shall have
received from Borrower, as applicable, on or before the day (the "Closing Date")
of such Advances all of the following, each dated (unless otherwise indicated)
the day of the Advance, in form and substance satisfactory to Lender:
(a) Resolutions. Resolutions of the Board of Directors of
Borrower certified by its Secretary or Assistant Secretary, which
authorize the execution, delivery and performance by Borrower of this
Agreement and the other Loan Papers to which Borrower is or is to be a
party;
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of Borrower
certifying the names of the officers of Borrower authorized to sign
this Agreement and each of the other Loan Papers to which Borrower is
or is to be a party (including the certificates contemplated herein)
together with specimen signatures of such officers;
(c) Articles of Incorporation. The articles of incorporation of
Borrower certified by the Secretary of State of the State of
incorporation, and dated within ten (10) days prior to the date of the
initial Advance;
(d) Bylaws. The bylaws of Borrower certified by the Secretary or
an Assistant Secretary;
(e) Governmental Certificates. Certificates of the appropriate
government officials of the jurisdiction of incorporation of Borrower
as to its existence and good standing, each dated within ten (10) days
prior to the date of the initial Advance;
(f) Foreign Qualification. Certificates of the appropriate
governmental officials of each jurisdiction in which Borrower is
qualified to do business to the effect that Borrower is so qualified
and is in good standing under the laws of such jurisdiction, each
dated within ten (10) days prior to the date of the initial Advance;
(g) Notes. The Notes executed by Borrower;
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(h) Security Documents. The Security Documents executed by
Borrower;
(i) Financing Statements. Uniform Commercial Code financing
statements executed by Borrower covering such Collateral as Lender may
request;
(j) Insurance Policies. Copies of all casualty insurance
policies required by Section 9.17, showing Lender as loss payee;
(k) UCC Search. The results of a Uniform Commercial Code search
showing all financing statements and other documents or instruments on
file against Borrower in the office of the Secretaries of State of
State of Texas, such search to be as of a date no more than ten (10)
days prior to the date of the initial Advance;
(l) Opinion of Counsel. A favorable opinion or opinions of legal
counsel to Borrower as of the Closing Date;
(m) Other Documents. Such other documents, opinions,
certificates, and evidence as Lender or Lender's counsel may
reasonably request;
(n) Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents
incident thereto shall be satisfactory in form and substance to Lender
and Lender's counsel, and Lender shall have received copies of all
documents which it may reasonably request in connection with such
transactions and all corporate proceedings with respect thereto in
form and substance satisfactory to Lender and Lender's counsel; and
Section 7.02. Additional Revolving Credit Advances. The obligation
of Lender to make any additional Advance pursuant to Article II hereof is
subject to the following additional conditions precedent:
(a) Advance Request Form. Lender shall have received, not later
than 11:00 A.M., Houston, Texas time, at least two (2) Business Days
prior to the date of such Advance, an appropriate form of Notice of
Revolving Credit Borrowing or Notice of Credit Issuance as applicable,
dated the date of such Advance, executed by an authorized officer of
Borrower, all of the statements in which shall be true and correct on
and as of such date;
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(b) Additional Information. Lender shall have received such
additional documents, instruments, and information as Lender or its
legal counsel may request; and
(c) Other Matters. All corporate proceedings taken in connection
with the transactions contemplated by this Agreement and all
documents, instruments, and other legal matters incident thereto shall
be satisfactory to Lender and its legal counsel.
Section 7.03. Additional Conditions to Each Advancing Credit Advance.
The obligation of Lender to make any Advance, including, without limitation, the
initial Advance, pursuant to Article III hereof is subject to the following
additional conditions precedent:
(a) Advance Request Form. Lender shall have received, not later
than 11:00 A.M., Houston, Texas time, at least one (1) Business Days
prior to the date of such Advance, an appropriate form of Notice of
Advancing Credit Borrowing as applicable, dated the date of such
Advance, executed by an authorized officer of Borrower, all of the
statements in which shall be true and correct on and as of such date;
(b) Invoices. Lender shall have received not later than 11:00
A.M., Houston, Texas time, at least one (1) Business Day prior to the
date of such Advance copies of the invoices for equipment purchased or
improvements undertaken that are to be financed with such Advance.
(c) Additional Information. Lender shall have received such
additional documents, instruments, and information as Lender or its
legal counsel may request; and
(d) Other Matters. All corporate proceedings taken in connection
with the transactions contemplated by this Agreement and all
documents, instruments, and other legal matters incident thereto shall
be satisfactory to Lender and its legal counsel.
ARTICLE VIII
Representations and Warranties
To induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender that:
Section 8.01. Corporate Existence. Borrower and each Subsidiary (a)
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction
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of its incorporation; (b) has all requisite corporate power to own assets and
carry on its business as now being or as proposed to be conducted; and (c) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure to
so qualify would have a material adverse effect on its business, financial
condition, or operations. Borrower has the corporate power and authority to
execute, deliver, and perform its obligations under the Loan Papers to which it
is or may become a party.
Section 8.02. Financial Statements. Borrower has delivered to Lender
the audited Consolidated financial statements of Borrower and the Subsidiaries
as at and for the fiscal year ended December 31, 1992, and unaudited
Consolidated financial statements of Borrower and the Subsidiaries for the nine
(9) month period ended September 30, 1993. Such financial statements are true
and correct in all material respects, have been prepared in accordance with
GAAP, and fairly and accurately present, on a consolidated basis, the financial
condition of Borrower and the Subsidiaries as of the respective dates indicated
therein and the results of operations for the respective periods indicated
therein. Neither Borrower nor any Subsidiary has any material contingent
liabilities, liabilities for taxes, material forward or long-term commitments,
or unrealized or anticipated losses from any unfavorable commitments not
reflected in such financial statements. There has been no material adverse
change in the condition, financial or otherwise, or operations of Borrower or
the Subsidiaries, on a consolidated basis, since the date of the most recent
financial statements referred to in this Section 8.02.
Section 8.03. Default. Neither Borrower nor any Material Company is
in default in any material respect under the provisions of any instrument
evidencing any material obligation, indebtedness, or liability of such Person or
of any agreement relating thereto, or under any order, writ, injunction, or
decree of any tribunal, or in default in any material respect under or in
violation of any order, regulation, or demand of any tribunal, which default or
violation could have a material adverse effect on Borrower or such Material
Company.
Section 8.04. Authorization and Compliance with Laws and Material
Agreements. The execution, delivery, and performance by Borrower of this
Agreement, the Borrowings, and the execution, delivery and performance of the
Notes and the other Loan Papers to which Borrower is or may become a party have
been duly authorized by all requisite action on the part of Borrower and do not
and will not violate the articles of incorporation or bylaws of Borrower or any
law or any order of any court, governmental authority or arbitrator and do not
and will not conflict with, result in a breach of, or constitute a default
under, or result in the imposition of any Lien (except as provided in Article
VI) upon any assets of Borrower or any Subsidiary pursuant to the provisions of
any indenture, mortgage, deed of trust, security agreement, franchise, permit,
license, or other instrument or agreement to which Borrower or any Subsidiary or
their respective properties is bound.
Section 8.05. Litigation and Judgments. Except as disclosed on
Schedule 4 hereto, there is no action, suit, or proceeding before any court,
governmental authority or arbitrator pending, or to the knowledge of Borrower,
threatened against or affecting Borrower or any Subsidiary that would, if
adversely determined, have a material adverse effect on the financial condition
or
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operations of Borrower or any Subsidiary or the ability of Borrower to pay
and perform the Obligations under this Agreement or would invalidate any patent
or trademark currently owned or held, directly or indirectly, by Borrower. There
are no outstanding judgments against Borrower or any Subsidiary.
Section 8.06. Rights in Properties; Liens. Borrower has good and
indefeasible title or valid leasehold interests in its properties and assets,
real and personal reflected in the financial statements described in Section
8.02, and none of the properties, assets, or leasehold interests of Borrower or
any Subsidiary is subject to any Lien, except as permitted by Section 10.01.
Borrower represents and warrants that substantially all of its tangible
properties and assets reflected in said financial statements are located in the
continental United States.
Section 8.07. Enforceability. This Agreement constitutes and the other
Loan Papers to which Borrower is a party, when delivered, shall constitute,
legal, valid, and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditor's rights.
Section 8.08. Approvals. No authorization, approval, or consent of,
and no filing or registration with, any court, governmental authority, or third
party is necessary for the execution, delivery, or performance by Borrower of
this Agreement or the other Loan Papers to which Borrower is or may become a
party or the validity or enforceability thereof.
Section 8.09. Debt. Neither Borrower nor any Subsidiary has any Debt
other than (i) the Debt disclosed on Schedule 5 attached hereto, (ii) Debt owed
to Lender or (iii) Debt reflected in the financial statements most recently
delivered to Lender.
Section 8.10. Taxes. Borrower and each Subsidiary has filed all tax
returns (federal, state, local and foreign) required to be filed, including all
income, franchise, employment, property and sales taxes, and have paid all of
their respective tax liabilities, and except as disclosed on Schedule 11
attached hereto, Borrower does not know of any pending investigation of Borrower
or any Subsidiary by any taxing authority or of any pending but unassessed tax
liability of Borrower or any Subsidiary.
Section 8.11. Use of Proceeds; Margin Securities. Neither Borrower nor
any Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purposes of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
extension of credit under this Agreement will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock. Neither Borrower nor any Person acting on its
behalf has taken any action that might cause the transactions contemplated by
this Agreement or the Notes to violate Regulations G, T, U, or X or to violate
the Securities Exchange Act of 1934, as amended.
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Section 8.12. ERISA. With respect to each employee pension benefit
plan as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1984, as amended ("ERISA"), Borrower and each Subsidiary has complied with
all applicable minimum funding requirements and all other applicable and
material requirements of ERISA, and there are no existing conditions which would
give rise to any liability thereunder (other than routine claims for benefits
payable thereunder). No Reportable Event (as defined in Section 4043 of ERISA)
has occurred in connection with any such plan which might constitute grounds for
the termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a trustee to
administer such plan.
Section 8.13. Disclosure. No representation or warranty made by
Borrower in this Agreement or in any other Loan Papers contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading. There is no fact known to
Borrower which has a material adverse effect, or which might in the future have
a material adverse effect, on the business, assets, financial condition or
operations of Borrower or any Subsidiary.
Section 8.14. Subsidiaries. There are no Subsidiaries of Borrower or
any Subsidiary other than those listed on Schedule 6 attached hereto, and
Schedule 6 sets forth the jurisdiction of incorporation of each Subsidiary and
the percentage of Borrower's or each Subsidiary's ownership of the outstanding
voting stock of each Subsidiary. Except as disclosed on Schedule 7, there are no
outstanding contracts, instruments, documents, or agreements binding upon
Borrower or any Subsidiary granting to any Person or groups of Persons any right
to purchase or acquire shares of the capital stock of any of such Subsidiary
which would in the event that the rights granted thereby were acted upon, result
in Borrower or any Subsidiary retaining ownership of less than the majority of
the issued and outstanding voting stock of such Subsidiary, and the stockholders
(other than Borrower or any Subsidiary) of any such Subsidiary are not entitled
to any preemptive rights with respect to the issuance of any capital stock of
any such Subsidiary which would in the event that the rights granted thereby
were acted upon result in Borrower or any Subsidiary, retaining ownership of
less than the majority of the issued and outstanding voting stock of such
Person.
Section 8.15. Principal Place of Business. The principal place of
business and chief executive office of Borrower and the place where Borrower
keeps its books and records is located at the address set forth in Article XII.
Section 8.16. Investment Company Act. Neither Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.17. Public Utility Holding Company Act. Neither Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
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Section 8.18. Contracts. To the best of Borrower's knowledge, neither
Borrower nor any Subsidiary is a party to, or bound by, any agreement,
condition, contract, or arrangement which might in the future have a material
adverse effect on the business, operations, or financial condition of Borrower
or any Subsidiary.
Section 8.19. Compliance with Law. Borrower and each Subsidiary have
all necessary operating licenses and are in compliance with all laws, rules,
regulations, orders and decrees which are applicable to Borrower or any
Subsidiary or any of their respective properties necessary to enable each to
carry on their respective businesses in all material respects. No event which
with either the passage of time or the giving of notice or both, will cause
either of the foregoing representations to become untrue.
Section 8.20. Consent. Except as set forth on Schedule 8 attached
hereto and except for the filing with public officials in order to perfect
Lender's Liens, no consent of any Person and no consent, license, permit,
approval or authorization of, or registration or declaration with, any tribunal
is required in connection with the execution, delivery and performance of this
Agreement, the Notes, and the other Loan Papers to which Borrower is a party, or
to the extent that any such consent or other action may be required, it has been
validly procured.
Section 8.21. Securities Laws. Except with respect to Lender, Borrower
has not directly or indirectly offered the Notes for sale to, or solicited any
offer to buy the Notes, or otherwise negotiated in respect thereof with, any
Person (except Lender) and has not done (or omitted to do) any other act, so as
to bring the issuance or sale thereof within the registration requirements of
the Securities Act of 1933, as amended, and the Borrower has complied with or is
exempt from the registration provisions of all state securities or "blue sky"
laws applicable to the issuance or sale of the Notes.
Section 8.22. Existing Loans to Affiliates. Except for the loans
listed on Schedule 9 attached hereto, Borrower does not have any loans to an
Affiliate.
Section 8.23. Patents and Trademarks. Borrower is the owner and holder
of the patents and trademarks described on Schedule 10 attached hereto and the
patents and trademarks described on Schedule 10 are all of the United States and
United Kingdom patents and trademarks owned, directly or indirectly, by
Borrower. Lender hereby agrees to hold the information set forth on Schedule 10
confidential.
ARTICLE IX
Affirmative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any commitment hereunder, Borrower
will perform and observe the following positive covenants, unless the Lender
shall otherwise consent in writing:
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Section 9.01. Financial Statements. Borrower will furnish to
Lender:
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of Borrower,
beginning with the fiscal year ending December 31, 1993, a copy of the
annual audit report of Borrower and the Subsidiaries for such fiscal
year containing, on a Consolidated basis, balance sheets, statements
of income, statements of stockholders' equity, and statements of
changes in cash flows as at the end of such fiscal year and for the
12-month period then ended, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by independent certified public
accountants of nationally recognized standing acceptable to Lender, to
the effect that such report has been prepared in accordance with GAAP;
(b) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of Borrower,
beginning with the fiscal year ending December 31, 1993, a copy of an
unaudited financial report of Borrower and the Subsidiaries for such
fiscal year, containing, on a consolidating basis, balance sheets,
statements of income, and statements of changes in cash flows, in each
case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail and, certified by an Authorized Financial Officer of Borrower
as having been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the
financial condition and results of operations of Borrower and the
Subsidiaries, on a consolidating basis, at the date and for the period
indicated therein;
(c) As soon as available, and in any event within forty-five (45)
days after the end of each of the quarters of each fiscal year of
Borrower, a copy of an unaudited financial report of Borrower and the
Subsidiaries as of the end of such fiscal quarter and for the portion
of the fiscal year then ended, containing, on a Consolidated basis,
balance sheets, statements of income, and statements of changes in
cash flows, in each case setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, all in
reasonable detail and, certified by an Authorized Financial Officer of
Borrower as having been prepared in accordance with GAAP and to fairly
and accurately present (subject to year-end audit adjustments) the
financial condition and results of operations of Borrower and the
Subsidiaries, on a Consolidated basis, at the date and for the period
indicated therein;
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(d) Concurrently with the delivery of the financial statements
described in subsections (b) and (c) above, a certificate by an
Authorized Financial Officer of Borrower certifying to Lender that,
based upon his examination of the affairs of Borrower and each
Subsidiary performed in connection with the preparation of said
financial statements, he is not aware of any Default or Event of
Default or, if he is aware of such Default or Event of Default, the
nature thereof and specifying the steps taken or proposed to remedy
such condition or event;
(e) As soon as available, but not later than twenty (20) calendar
days after the end of each calendar month, a Borrowing Base Report,
accompanied by a certificate by an Authorized Financial Officer of
Borrower certifying to Lender that, based upon his examination of the
affairs of Borrower performed in connection with the preparation of
said Borrowing Base Report, he is not aware of any Default or Event of
Default or, if he is aware of such Default or Event of Default, the
nature thereof;
(f) All management and other reports to Borrower's and each
Material Company's financial condition or the Collateral or any part
thereof, including drafts if no final report is issued, submitted to
Borrower by the independent public accounting firm employed by
Borrower; and
(g) Such other data and information (financial and otherwise) ,
as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral, Borrower's or any Material Company's
financial condition and/or results of operations.
Section 9.02. Periodic Miscellaneous Reports. Promptly, but in no
event later than five (5) Business Days after Borrower's learning thereof,
Borrower shall inform Lender, in writing, of (i) as to any Accounts where the
aggregate amount in question is in excess of $100,000.00; (x) any material delay
in Borrower's performance of any of its obligations to any account debtor and of
any assertion of any disputes, claims, credits, offsets or counterclaims by any
account debtor and of any allowances, credits or other monies granted by
Borrower to any account debtor; (y) any material adverse information relating to
the financial condition of any account debtor; and (z) any material adverse
facts relating to any Account; (ii) any litigation affecting Borrower or any
Subsidiary if any claims are made for amounts in excess of $250,000.00 or if
such litigation involves an account debtor if any claims are made for amounts in
excess of $100,000.00, whether or not the claim is to be covered by insurance,
and of the institution of any litigation which might have a material adverse
effect on Borrower, any Subsidiary or Lender's Lien on the Collateral; (iii) any
default under, or delinquency in the payment of any rent pursuant to the terms
of, any lease of warehouse or storage facilities leased by Borrower for the
storage of any Collateral; (iv) any Default or an Event of Default hereunder;
(v) any default under any material agreement which could have a material adverse
effect on Borrower or any Material Company; (vi) any other matter that might
have a
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material adverse effect on the business, financial condition, or operations of
Borrower or any Subsidiary; and (vii) the change in the title or identification
of any office, officer or Person who has authority to sign certificates or
requests for advances, accompanied by a certificate of such officer's incumbency
certified by the secretary or assistant secretary, or its equivalent, of
Borrower which certificate shall contain a signature exemplar certified by such
secretary or assistant secretary, or its equivalent, as being true and correct.
Section 9.03. Warehousing Agreements. Borrower shall, upon request of
Lender, provide Lender with copies of all agreements between Borrower and any
other Person covering any Permitted Location at which Collateral may from time
to time be kept and all lease or similar agreements with respect to any
Permitted Location between Borrower and any other Person, whether Borrower is
lessor or lessee thereunder.
Section 9.04. Performance of Obligations. Borrower will duly and
punctually pay and perform the Obligations, including, without limitation,
Borrower's obligations under this Agreement and the other Loan Papers.
Section 9.05. Preservation of Existence and Conduct of Business.
Borrower will (i) preserve and maintain, and will cause each Subsidiary to
preserve and maintain, its corporate existence and all of its leases,
privileges, franchises, and rights that are necessary or desirable in the
ordinary conduct of its business, and (ii) conduct, and cause each Subsidiary to
conduct, its business as presently conducted in an orderly and efficient manner
in accordance with good business practices.
Section 9.06. Maintenance of Properties. Borrower will maintain, and
will cause each Subsidiary to maintain, its assets and properties in good
condition and repair.
Section 9.07. Payment of Taxes and Claims. Borrower will pay or
discharge, and will cause each Subsidiary to pay or discharge, at or before
maturity or before they become delinquent (i) all taxes, levies, assessments,
and governmental charges imposed on it or any of its property, and (ii) all
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; provided, however, that neither Borrower nor
any Subsidiary shall be required to pay or discharge any tax, levy, assessment,
or governmental charge which is being contested in good faith by appropriate
proceedings diligently pursued and if Borrower or such Subsidiary, as
appropriate, shall have set aside on its books and in cash adequate reserves in
respect thereof, which deferment of payment is permissible so long as the title
to and any right to use the Collateral is not materially adversely affected
thereby and Lender's Lien and the priority of Lender's Lien on the Collateral
are not affected, altered or impaired thereby.
Section 9.08. Audit. Lender shall have the right to require at any
time, but not more frequently than once every one hundred eighty (180) days, an
audit of all Inventory of Borrower. Such audit shall be conducted by a Person
mutually acceptable to Borrower and Lender. All such
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audits shall be paid for by Borrower, provided, however, Borrower shall not be
obligated to pay in excess of $2,000.00 for any such audit.
Section 9.09. Keeping Books and Records. Borrower will maintain, and
will cause each Subsidiary to maintain, proper books of record and account in
which full, timely and complete entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
Section 9.10. Compliance with Laws. Borrower will comply, and will
cause each Subsidiary to comply, with all material applicable laws, rules,
regulations, and orders of any court or governmental authority or arbitration.
Section 9.11. Compliance with Agreements. Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with all
agreements, indentures, mortgages, deeds of trust, and other documents binding
on it or affecting its properties or business.
Section 9.12. Further Assurances. Borrower will execute, and will
cause each Subsidiary to execute and deliver, such further instruments as may be
deemed necessary or desirable by Lender to carry out the provisions and purposes
of this Agreement and the other Loan Papers and to preserve and perfect the
Liens of Lender in the Collateral.
Section 9.13. Compliance with ERISA. Borrower will comply, and will
cause each Subsidiary to comply, with all minimum funding requirements, and all
other material requirements, of ERISA, if applicable, so as not to give rise to
any liability thereunder. Promptly after the filing thereof, Borrower shall
furnish to Lender with regard to each employee benefit plan of Borrower and its
Subsidiaries, copies of each annual report required to be filed pursuant to
Section 103 of ERISA in connection with each such plan for each plan year.
Borrower will notify Lender immediately of any fact, including, but not limited
to, any "Reportable Event", as that term is defined in Section 4043 of ERISA,
arising in connection with any such plan which might constitute grounds for the
termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States district court of a trustee to
administer such plan and furnish to Lender, promptly upon its request therefor,
such additional information concerning any such plan as may be reasonably
requested.
Section 9.14. Use of Proceeds. Borrower shall at all times during the
term hereof comply with the terms and conditions of Sections 2.05, 2.11 and 3.05
hereof.
Section 9.15. Insurance Summary. Borrower shall, not later than once
every twelve months, deliver to Lender a summary of the insurance coverage
maintained by Borrower and each Material Company accompanied by a certificate
from an authorized officer of Borrower to the effect that the summary is a true,
correct and complete summary of all insurance coverage maintained by Borrower
and each Material Company, all premiums have been paid on the policies described
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thereon, the policies described thereon conform to the requirements set forth in
Section 9.17 hereof and that all such policies are in full force and effect.
Section 9.16. Licenses. Borrower shall, and cause each Material
Company to, maintain all material licenses to do business or conduct operations
in all countries, states and provinces in which the laws thereof require
Borrower or any Material Company, as applicable, to be so licensed, and Borrower
shall, and cause each Material Company to obtain and keep in force all material
licenses to do business or conduct operations in any additional countries,
states and provinces in which the laws thereof require such Person to be so
licensed in the future.
Section 9.17. Insurance; Payment of Premiums. Borrower shall maintain
life insurance in the amount of $2,500,000.00 on each of the lives of J. Mike
Walker, Larry E. Reimert and Gary D. Smith. Borrower shall keep adequately
insured by reputable insurers, which, if requested by Lender, shall be
acceptable to Lender, all the Collateral and such other assets which it owns or
possesses for its full insurable value, subject to customary deductibles,
against loss or damage by fire, theft, tornado, flood (if such asset is located
in an identified "flood hazard area" in which flood insurance has been made
available pursuant to the National Flood Insurance Act of 1968), explosion,
sprinklers and all other hazards and risks ordinarily insured against by other
owners or users of such properties in similar businesses, and notify Lender
promptly of any event of occurrence causing a material loss or decline in value
of the Collateral and such other assets and the estimated (or actual, if
available) amount of such loss or decline. All policies of insurance on the
Collateral and such other assets shall be in form and with insurers recognized
as adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to Lender. Borrower shall deliver or cause to be
delivered to Lender the original (or certified copy) of each policy of insurance
covering any Collateral and evidence of payment of all premiums for all policies
of insurance. If requested by Lender, Borrower shall deliver or cause to be
delivered to Lender the original (or certified copy) of each other policy of
insurance. The policies of insurance shall contain an endorsement, in form and
substance acceptable to Lender, providing for the payment of all losses to
Lender. Such endorsement or any independent instrument furnished to Lender,
shall provide that the insurance companies will give Lender at least thirty (30)
days prior written notice before any such policy or policies of insurance shall
be altered or cancelled, and that no act or default of the insured or any other
Person shall affect the right of Lender to recover under such policy or policies
of insurance in case of loss or damage. Borrower hereby directs, to the full
extent permitted by law, all insurers under policies of insurance covering
Collateral with a value in excess of $300,000.00 to pay all proceeds payable
thereunder directly to Lender. In the event Borrower, at any time 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, then Lender, without
waiving or releasing any obligations or Default by Borrower hereunder, may at
any time thereafter (but Lender shall be under no obligation to) obtain and
maintain such policies of insurance and pay such premium and take any other
action with respect thereto which Lender deems advisable. All sums so disbursed
by Lender, including any related expenses and other charges relating thereto,
shall be payable on demand to Lender and shall be additional Obligations
hereunder secured by the Collateral.
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Section 9.18. Casualty or Damage to Insured Property. Notwithstanding
the provisions of the foregoing Section 9.17, if a casualty or any damage occurs
at the property of Borrower, insurance for such casualty or damage shall be used
to restore the property in question in the former condition unless:
(a) There shall be existing a Default or an Event of Default; or
(b) Lender shall otherwise consent in writing.
If the insurance proceeds are utilized to repair a casualty or damage,
Borrower will cause the insurance proceeds paid for any such casualty or damage
to be disbursed by the insurance company in question periodically as the work
progresses on a time and materials basis upon receipt of invoices for work
performed and materials provided, if the insurance proceeds to be paid shall be
less than $250,000.00, such proceeds may be paid as Borrower may direct to
restore the property in question subject to the conditions in this Section
9.18(a) and (b) hereof. All work paid for with insurance proceeds shall be
performed by reputable contractors, which shall, if Lender request, be
reasonably acceptable to Lender, and pursuant to plans and specifications which,
if Lender request, shall be reasonably acceptable to Lender. All work done to
restore property damaged to its former condition shall be done in accordance
with the plans and specifications in good and workmanlike fashion with first
quality materials and, if Lender requests, Borrower shall provide Lender with
evidence satisfactory to Lender of the same. If the cost of the work to restore
the property in question shall exceed the available insurance proceeds, Borrower
shall expend the necessary funds to complete the restoration. If the insurance
proceeds should exceed the final cost to complete the restoration, and there
shall be existing a Default or an Event of Default, any excess shall at the
election of Lender be used to repay any amounts owing hereunder or shall be held
as security for the Obligations. If the insurance proceeds are not utilized to
restore the property in question because of the operation of Section 9.18.(a) or
(b) hereof, Lender shall have the right, at its option, to hold the insurance
proceeds as security for the Obligations, apply such proceeds to any Obligations
then due and owing or to the Notes in such order and manner as Lender may
determine in its sole discretion or apply such proceeds to the restoration of
the Collateral.
Section 9.19. Guaranty Obligation. Upon execution hereof, Borrower
shall (i) execute a Guaranty Agreement in form and substance acceptable to
Lender, in its sole discretion, evidencing Borrower's agreement to
unconditionally and irrevocably guarantee the full and final payment of all Debt
of DQE owed to Lender, (ii) execute such documents and instruments in form and
substance acceptable to Lender, in its sole discretion, evidencing Borrower's
agreement that all of Lender's Liens on the Collateral shall secure, in addition
to the Obligations, all of Borrower's liabilities and obligations under such
Guaranty Agreement and all Debt of DQE owed to Lender, (iii) deliver certified
corporate resolutions which authorize the execution, delivery and performance by
Borrower of such Guaranty Agreement and lien documentation and (iv) have its
counsel deliver a favorable opinion of counsel relating to such matters.
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ARTICLE X
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any commitment hereunder, Borrower
will not, unless the Lender shall otherwise consent in writing:
Section 10.01. Limitation on Liens; Debt. Incur, create, assume
or permit to exist, nor permit any Subsidiary to incur, create, assume or permit
to exist, any Lien upon any of its property, assets, or revenues, whether now
owned or hereafter acquired, except Permitted Liens, or incur, or permit any
Subsidiary to incur, any additional Debt in excess of $300,000.00 in the
aggregate, except (i) Debt associated with a Permitted Lien (provided that such
Permitted Lien shall not secure any Debt in excess of the amount initially
incurred with respect to such Permitted Lien described in subparts (v)-(vi) in
the definition of "Permitted Liens" contained herein [except any amounts which a
Person has the right to borrow under the documents, agreements and instruments
evidencing Debt existing as of the Closing Date]), (ii) any amounts which such
Person has the right to borrow under the documents, agreements and instruments
evidencing Debt existing as of the Closing Date, (iii) trade accounts payable in
the ordinary course of business, (iv) accrued expenses incurred in the ordinary
course of business, (v) taxes, (vi) guaranties required or permitted to be
extended by law, (vii) Debt incurred in connection with capitalized expenditures
including capitalized leases and (viii) additional Debt owed Lender.
Section 10.02. Mergers, Acquisitions and Dissolutions. Become,
nor permit any Subsidiary to become, a party to a merger or consolidation, or
purchase or otherwise acquire all or a substantial part of the assets of any
Person or any shares or other evidence of beneficial ownership of any Person, or
dissolve or liquidate.
Section 10.03. Capital Expenditures. Permit the aggregate
capital expenditures of Borrower and Subsidiaries to exceed SEVEN MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($7,500,000.00) in the aggregate during any
fiscal year.
Section 10.04. Lease Obligations. Permit aggregate payments of
Borrower and Subsidiaries under leases of real or personal property to exceed
ONE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($1,400,000.00) in the
aggregate during any fiscal year.
Section 10.05. Consolidated Tangible Net Worth Test. Permit the
Consolidated Tangible Net Worth of Borrower and the Material Companies, on a
Consolidated basis, at any time to be less than the sum of (a) $26,300,000.00
plus (b) an amount equal to seventy-five percent (75%) of all earnings (if
positive) of Borrower and the Material Companies for the immediately preceding
fiscal quarter of Borrower ending prior to the date of such determination.
Section 10.06. Current Ratio Test. Permit the ratio of current
assets of Borrower and the Material Companies (on a Consolidated basis) to
current liabilities of Borrower and the Material Companies (on a Consolidated
basis, but exclusive of (i) the Debt evidenced by the
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Revolving Credit Note and (ii) the revolving credit Debt of DQE owed Lender), to
be less than 1.5 to 1.0.
Section 10.07. Cash Flow Coverage Test. Permit the ratio of (a)
the cash flow of Borrower and the Material Companies (on a Consolidated basis)
for each four consecutive fiscal quarter period, being the sum of (i) net
income, after provision for federal and state income taxes, plus (ii) depletion,
depreciation and amortization (other than payments made to amortize Debt), minus
(iii) the amount of unfinanced capital expenditures during such period, to (b)
the sum of all scheduled repayments of principal of any Debt of the Borrower or
the Material Companies presently owed Lender or Bank of Scotland and all
renewals and extensions thereof (except the last scheduled repayment under the
Advancing Credit Loan due October 1, 1998, under the Term Loan due October 1,
1997, under the Revolving Credit Loan due October 1, 1995, under the revolving
Debt of DQE owed Lender due October 1, 1995 and under the term Debt of DQE owed
Lender due October 1, 1997) for the next succeeding four fiscal quarter period,
to be less than 1.25 to 1.0.
Section 10.08. Restricted Payments. Borrower will not declare or
pay any dividends or make any other payment on account of its capital stock, or
redeem, purchase, or retire any of its capital stock, or grant or issue any
capital stock or any warrant, right, or option pertaining to its capital stock,
or issue any security convertible into capital stock, except to existing
shareholders for fair market value consideration.
Section 10.09. Loans and Investments. Make, and will not permit
any Subsidiary to make, any material advance, loan, extension of credit, or
capital contribution to any Person, except for inter-company loans between
Borrower and the Material Companies, or invest in or purchase, or permit any
Subsidiary to invest in or purchase, any stock, bonds, notes, debentures, or
other securities of any Person, except Permitted Investments.
Section 10.10. Transactions With Affiliates. Enter into, and
will not permit any Subsidiary to enter into, any transaction with any director,
officer, employee or shareholder of Borrower, any Subsidiary or any Affiliate,
except under fair and reasonable terms no less favorable than could be obtained
in an arm's length transaction with a Person not an Affiliate.
Section 10.11. Disposition of Assets. Sell, lease, assign,
transfer or otherwise dispose of any of its assets, or permit any Subsidiary to
do so with any of its assets, except (i) dispositions of inventory in the
ordinary course of business, (ii) assets with a value of less than $75,000.00,
provided, however, such assets permitted to be sold pursuant to this clause (ii)
shall not exceed $300,000.00 in the aggregate during any fiscal year, or (iii)
sales, leases, assignments, transfers or other dispositions of assets from
Borrower or a Material Company to Borrower or a Material Company.
Section 10.12. Sale and Leaseback. Enter into, and will not
permit any Subsidiary to enter into, any arrangement with any Person pursuant to
which it leases from such Person real or
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personal property that has been or is to be sold or transferred, directly or
indirectly, by it to such Person.
Section 10.13. Prepayment of Debt. Prepay, and will not permit
any Subsidiary to prepay, any Debt, except (i) the Obligations, (ii) Debt of DQE
owed Lender, (iii) prepayments of less than $50,000.00, provided, however, such
prepayments permitted to be made pursuant to this clause (iii) shall not exceed
$100,000.00 in the aggregate during any fiscal year or (iv) Debt owed by a
Subsidiary to Borrower.
Section 10.14. Nature of Business. Engage in, and will not
permit any Subsidiary to engage in, any business other than the business in
which they are engaged as of the date hereof, unless such business is of the
same or similar nature.
Section 10.15. Prohibited Transactions. Enter into, or permit
any Subsidiary to enter into, any transaction which has a material adverse
effect on the Collateral, Borrower or any Material Company's business, or
Borrower's ability to repay the Obligations, or permit or agree to any
extension, compromise or settlement in excess of $250,000.00 or make any change
or modification of any kind or nature with respect to any Accounts in the
aggregate in excess of $250,000.00 owing by any account debtor, including any of
the terms relating thereto.
Section 10.16. Contingent Liabilities. Guarantee or otherwise,
in any way, become liable with respect to the obligations or liabilities of any
Person (other than any Material Company), or permit any Subsidiary to become so
liable, except (i) its Affiliates' obligations to Lender, (ii) by endorsement of
instruments or items of payment for deposit to the general account of any
Material Company or for delivery to Lender on account of the Obligations, (iii)
for the indemnif ication provisions contained in the certif icate or articles of
incorporation or by-laws, or its equivalent, of Borrower or any Material Company
for the directors, officers, employees and others acting in a capacity
benefiting the general corporate purposes or business of Borrower or each
relevant Material Company or indemnif ication contracts entered into for the
benefit of such persons and in conformity with applicable Law, and (iv) other
Debt permitted by Section 10.01 hereof.
Section 10.17. Removal of Collateral. Remove its books and
records and/or the Collateral (the value of which shall exceed, in the aggregate
$100,000.00) from the locations set forth on Schedule 2 hereto, except for
removal of Inventory upon its sale or consignment, or keep any of such books and
records and/or the Collateral at any other office(s) or locations) unless
Borrower gives Lender written notice thereof and of the new location of said
books and records and/or the Collateral (accompanied by financing statements
satisfactory to Lender covering such Collateral and which comply with the Laws
of the jurisdictions) where such Collateral is to be relocated) at least thirty
(30) calendar days prior thereto.
Section 10.18. Negative Pledge. Grant any security interest in,
pledge, assign or otherwise encumber the stock of any Subsidiary owned by
Borrower or any Subsidiary, or allow a
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security interest to be granted in the stock of any Subsidiary owned by Borrower
or any Subsidiary or allow the stock to be pledged or otherwise encumbered.
Section 10.19. Sale of Stock. Other than (a) pursuant to the
obligation disclosed in Schedule 7 relating to P.T. Dril-Quip Indonesia and (b)
the stock of Borrower pursuant to a buy-sell agreement by and among J. Mike
Walker, Larry E. Reimert, Gary D. Smith and Gary W. Loveless, sell, convey,
assign or otherwise alienate, or allow to be sold, conveyed, assigned or
otherwise alienated, any of the stock of Borrower or any Subsidiary.
Section 10.20. Compliance with Regulations G, T, U, and X. Take
any action which might cause this Agreement or any of the Loan Papers to
violate, and will take all actions necessary to comply with, Regulations G, T,
U, and X of the Board of Governors of the Federal Reserve System and the
Securities Exchange Act of 1934, in each case as now in effect or as the same
may hereafter be in effect.
ARTICLE XI
Default
Section 11.01. Events of Default. The term "Event of Default,"
as used herein, means the occurrence of any one or more of the following events
(including the giving of notice and/or passage of time, if any specified
therefor) and the term "Default", as used herein, means the occurrence of any
one or more of the following events which, with notice or lapse of time or both,
would become an Event of Default (provided that, if any such event occurs, and
(i) prior to the exercise of any Rights or remedies under this Agreement
triggered by such event, such event has been remedied or cured, or both, or (ii)
Lender subsequently agrees in writing that they will not exercise any remedies
hereunder as a result thereof, the specific occurrence of such event shall no
longer be deemed a "Default" or "Event of Default", as applicable, hereunder
insofar as the state of facts giving rise to such event is concerned):
(a) Borrower shall fail to pay when due the Obligations or any
part thereof and such failure shall continue for three (3) Business
Days after notice has been given by Lender to Borrower.
(b) Any representation or warranty made or deemed made by
Borrower (or its officers) in any Loan Papers or in any certificate,
report, notice, or financial statement furnished at any time in
connection with this Agreement shall be false, misleading, or
erroneous in any material respect when made or deemed to have been
made.
(c) Borrower shall fail to perform, observe, or comply with (i)
any covenant set forth in Sections 10.03, 10.04, 10.05, 10.06
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or 10.07 hereof and such failure shall continue for ten (10) Business
Days after notice has been given by Lender to Borrower or (ii) any
other covenant, agreement, or term contained in this Agreement or any
other Loan Paper and such failure shall continue for thirty (30)
Business Days after notice has been given by Lender to Borrower.
(d) Borrower or any Subsidiary (if the Subsidiary, in the
Lender's sole reasonable discretion, is material to the financial
condition, business or operations of Borrower and the Material
Companies, on a Consolidated basis) shall commence a voluntary
proceeding seeking liquidation, reorganization, or other relief with
respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian, or other
similar official of it or a substantial part of its property or shall
consent to any such relief or to the appointment of or taking
possession by any such official in such a proceeding commenced against
it or shall make a general assignment for the benefit of creditors or
shall generally fail to pay its debts as they become due or shall take
any corporate action to authorize any of the foregoing.
(e) An involuntary proceeding or shall be commenced against
Borrower or any Subsidiary (if the Subsidiary, in the Lender's sole
reasonable discretion, is material to the financial condition,
business or operations of Borrower and the Material Companies, on a
Consolidated basis) seeking liquidation, reorganization, or other
relief with respect to it or its debts under any bankruptcy,
insolvency, or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or a substantial part of its property, and such
proceeding shall remain undismissed and unstayed for a period of
ninety (90) days.
(f) Borrower or any Material Company shall fail to discharge
within a period of thirty (30) days after the commencement thereof any
attachment, sequestration, or similar proceeding involving an amount
in excess of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) against
any of the assets or properties.
(g) Borrower or any Material Company shall fail to satisfy and
discharge promptly any final, non-appealable judgment against it for
the payment of money in an aggregate amount in excess of FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00).
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(h) Borrower or any Material Company shall default in the payment
of any Debt in excess of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000.00) beyond any applicable grace period, or shall default in
the performance of any other material agreement binding upon it or its
property.
(i) This Agreement or any other Loan Paper shall cease to be in
full force and effect or shall be declared null and void or the
validity or enforceability thereof shall be contested or challenged by
Borrower or any Subsidiary or any of their respective shareholders, or
Borrower shall deny that it has any further liability or obligation
under any of the Loan Papers.
(j) Any two of J. Mike Walker, Larry E. Reimert or Gary D. Smith
shall have died or have been declared incompetent by a court of proper
jurisdiction.
(k) Any two of J. Mike Walker, Larry E. Reimert or Gary D. Smith
shall cease to be active in the management of Borrower.
(1) The occurrence of any event which is material and adverse to
the financial condition, business or operations of Borrower and the
Material Companies on a Consolidated basis or which materially and
adversely impairs the ability of Borrower to perform its obligations
under the Loan Papers.
(m) An "Event of Default", as defined in any of the Loan Papers.
(n) An "Event of Default", as defined in that certain Credit
Agreement dated of even date herewith by and between Lender, DQE (as
borrower) and Borrower (as may be amended from time to time).
(o) Any representation or warranty made or deemed made by
Borrower (or its officers) in the Guaranty Agreement referred to in
Section 9.19 shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(p) Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in the Guaranty Agreement
referred to in Section 9.19 and such failure shall continue
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for thirty (30) Business Days after notice has been given by Lender to
Borrower.
Section 11.02. Occurrence of a Default or an Event of Default.
If a Default shall occur and be continuing, the obligation of the Lender to make
Advances or issue Letters of Credit shall immediately cease until such Default
shall have been cured or corrected. If an Event of Default shall occur and be
continuing (provided, however, that there shall be no right of cure after
acceleration of the Obligations), Lender may do any one or more of the
following:
(a) Acceleration. Declare the entire unpaid balance of the
Obligations, or any part thereof, immediately due and payable,
whereupon it shall be due and payable without demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, or protest, all of which are
hereby expressly waived.
(b) Termination of Commitments. Terminate the Commitment of
Lender hereunder.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Take such steps as Lender may deem appropriate
to foreclose or otherwise enforce any Liens which may at any time
hereafter be granted to Lender, for the benefit of Lender to secure
payment and performance of the Obligations; provided, however, Lender
agrees to foreclose on all Accounts, Inventory, equipment and real
property pledged to secure the Obligations prior to foreclosing on the
patents and trademarks pledged to secure the Obligations; further
provided, however, that if Lender is unable to foreclose on the real
estate pledged to secure the Obligations for reasons of
impracticability, legal impossibility or concerns regarding liability
for the Lender which would result from such foreclosure, Lender shall
be entitled to foreclose on the patents and trademarks without first
foreclosing on the real estate.
(e) Rights. Exercise any and all Rights afforded by the Laws of
the State of Texas or any other jurisdiction, as Lender shall deem
appropriate, including, but not limited to, the UCC or of such other
jurisdiction or by any of the Loan Papers, or by law or equity, or
otherwise.
Provided, however, that upon occurrence of an Event of Default under Section
11.01(d) and (e) hereof, the Commitment shall automatically terminate, and the
Obligations shall become
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immediately due and payable without notice of any kind whatsoever including,
without limitation, notice of intent to accelerate or notice of acceleration,
demand, presentment, notice of dishonor, or protest, which are hereby expressly
waived. Borrower acknowledges and understands that under the laws of the State
of Texas, unless waived, Borrower has the right to notice of Lender's intent to
accelerate the Obligations evidenced by the Notes, the right to notice of the
actual acceleration of the Obligations evidenced by the Notes, and the right to
presentment of the Notes by Lender's demand for payment. Borrower acknowledges
that it understands that it can waive these rights and by Borrower's execution
of this Agreement it agrees to waive its right to notice of intent to
accelerate, its rights to notice of acceleration and its right to presentment or
other demand for payment. Upon the occurrence of any such Event of Default as
described in the immediately preceding sentence, Lender may exercise all Rights
available to it in law or in equity, under the Loan Papers or otherwise. With
respect to all Letters of Credit that shall not have matured or with respect to
which presentment for honor shall not have occurred, Borrower shall deposit in a
cash collateral account with Lender an amount equal to the aggregate undrawn
amount of Letters of Credit, and the unused portion thereof, if any, shall be
returned to Borrower after the respective expiry dates of the Letters of Credit
and after all Obligations are paid in full.
Section 11.03. Performance by Lender. If any covenant, duty, or
agreement of Borrower should fail to be performed in accordance with the terms
of the Loan Papers, Lender shall perform, or attempt to perform, such covenants,
duty, or agreement on behalf of Borrower. In such event, Borrower shall, at the
request of Lender, promptly pay any reasonable amounts expended by Lender on
behalf of Borrower in such performance or attempted performance to Lender at its
principal office in Houston, Harris County, Texas, together with interest
thereon at the Maximum Rate from the date of such expenditure by Lender (as
appropriate) until paid and which amounts until paid shall be Obligations
hereunder secured by the Collateral. Notwithstanding the foregoing, it is
expressly understood that Lender shall not assume or have, except by its express
written consent, any liability or responsibility for the performance of any
duties of Borrower or any other Person hereunder.
Section 11.04. Waivers. The acceptance by Lender at any time and
from time to time of part payment on the Obligations shall not be deemed to be a
waiver of any Default or Event of Default then existing. No waiver by Lender of
any Default or Event of Default shall be deemed to be a waiver of any other then
existing or subsequent Default or Event of Default. No delay or omission by
Lender in exercising any Rights under the Loan Papers shall impair such Rights
or be construed as a waiver thereof or any acquiescence therein, nor shall any
single or partial exercise of any such Rights preclude other or further exercise
thereof, or the exercise of any other Rights under the Loan Papers or otherwise.
Section 11.05. Application of Proceeds. Any and all proceeds
ever received by Lender from the exercise of any Rights pursuant to this Article
XI, shall be applied promptly when received by Lender to the Obligations in such
order and manner as Lender, in its sole discretion, may deem appropriate.
Borrower shall remain liable to Lender for any deficiency.
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Section 11.06. Cumulative Rights. All Rights available to Lender
under the Loan Papers shall be cumulative of and in addition to all other rights
granted to Lender at law or in equity, whether or not the Obligation be due and
payable and whether or not Lender shall have instituted any suit for collection
or other action in connection with the Loan Papers.
Section 11.07. Expenditures by Lender or Any Lender. Any
reasonable sums spent by Lender pursuant to the exercise of any Right provided
herein shall become part of the Obligations, except as otherwise provided by
Law.
ARTICLE XII
Miscellaneous
Section 12.01. Expenses of Lender. Borrower agrees to pay on
demand all reasonable costs and expenses incurred by Lender in connection with
the preparation, negotiation, and execution of this Agreement and the other Loan
Papers and any and all amendments, modifications, and supplements thereto,
including, without limitation, all reasonable costs and fees of Lender's legal
counsel, and all reasonable costs and expenses incurred by Lender in connection
with the enforcement or preservation of any rights under this Agreement or any
other Loan Papers, including, without limitation, all reasonable costs and fees
of Lender's legal counsel.
Section 12.02. Restatement. The delivery of each statement,
report, and certificate to Lender pursuant to this Agreement and each request by
Borrower for an Advance hereunder (whether by Advance Request Form, Notice of
Revolving Credit Borrowing, Notice of Credit Issuance or otherwise) shall by
virtue of such delivery or request alone constitute a restatement of the
representations and warranties contained in Article VIII hereof on and as of the
date of delivery or the date requested for the Advance, except that the
representations and warranties contained in Section 8.02 shall in each instance
be deemed to be made with respect to the financial statements most recently
furnished to Lender pursuant to Section 8.02 or 9.01, as the case may be. Each
such delivery or request shall also constitute a representation and warranty at
the time of said delivery or on the date requested for the Advance that no Event
of Default has occurred and is continuing and that no event has occurred that,
with notice or lapse of time or both would be an Event of Default, has occurred
and is continuing.
Section 12.03. No Waiver; Cumulative Remedies. No failure on the
part of Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement and the other Loan Papers are
cumulative and not exclusive of any rights and remedies provided by law.
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Section 12.04. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of Lender and Borrower and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Lender.
Section 12.05. Survival of Representations and Warranties. All
representations and warranties made in this Agreement or any other Loan Document
or in any document, statement, or certificate furnished in connection with this
Agreement shall survive the execution and delivery of this Agreement and the
other Loan Papers, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
Section 12.06. Entire Agreement; Amendment. This Agreement
embodies the entire agreement among the parties hereto and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. The provisions of this Agreement
and the other Loan Papers to which Borrower or any other Person is a party may
be amended or waived only by an instrument in writing signed by the parties
hereto.
Section 12.07. Maximum Interest Rate. No provision of this
Agreement or of any Note shall require the payment or the collection of interest
in excess of the maximum permitted by applicable law. If any excess of interest
in such respect is hereby provided for, or shall be adjudicated to be so
provided, in any Note or otherwise in connection with this loan transaction, the
provisions of this Section 12.07 shall govern and prevail and neither Borrower
nor the sureties, guarantors, successors, or assigns of Borrower shall be
obligated to pay the excess amount of such interest or any other excess sum paid
for use, forbearance, or detention of sums loaned pursuant hereto. In the event
Lender ever receives, collects, or applies as interest any such sum, such amount
which would be in excess of the maximum amount permitted by applicable law shall
be applied as a payment and reduction of the principal of the indebtedness
evidenced by the Notes; and, if the principal of the Notes has been paid in
full, any remaining excess shall forthwith be paid to Borrower.
Section 12.08. Notices. Any notice, consent, or other
communication required or permitted to be given under any of the Loan Papers to
Lender or Borrower must be in writing and delivered in person or mailed by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
To Lender: BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis
Houston, Texas 77002
Attn: Damien G. Meiburger
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To Borrower: Dril-Quip, Inc.
13550 Hempstead Highway
Houston, Texas 77040
Attn: J. Mike Walker
with a copy to:
Dril-Quip, Inc.
13550 Hempstead Highway
Houston, Texas 77040
Attn: Jerry Brooks
and if the notice is pursuant to Section
11.01 or 11.02 hereof with a copy to:
Sewell & Riggs
333 Clay Street, Suite 800
Houston, Texas 77002
Attn: Michael F. Rogers
or such other address as shall be set forth in a notice from the appropriate
party given in compliance with this Section 12.08. Any such notice, consent, or
other communications shall be deemed given when delivered in person or, if
mailed, when duly deposited in the mails.
SECTION 12.09. APPLICABLE LAW. THIS AGREEMENT, THE NOTES, AND
THE OTHER LOAN PAPERS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN
HOUSTON, HARRIS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 12.10. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 12.11. Severability. Any provision of this Agreement
held by a court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 12.12. Headings. The headings, captions, and
arrangements used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
Section 12.13. Non-Application of Chapter 15 of Texas Credit
Code. The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas
Civil Statutes, Article 5069-15)
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are specifically declared by the parties hereto not to be applicable to this
Agreement or any of the Loan Papers or to the transactions contemplated hereby.
Section 12.14. Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Notes,
the Security Documents or any other Loan Paper, the provisions of this Agreement
shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
DRIL-QUIP, INC.
/s/ J. M. WALKER
By:___________________________________
J. M. Walker
Vice President
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
/s/ GARY L. STONE
By:____________________________________
Gary L. Stone
Vice President
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EXHIBIT A
PROMISSORY NOTE
$15,000,000.00 Houston, Texas March , 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1995, in lawful
money of the United States of America, the principal sum of FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance hereof, at a varying rate per annum which shall from day to day be equal
to the lesser of (a) the maximum rate permitted by applicable law as the same
exists from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the 1st day of each successive July, October,
January and April commencing on July 1, 1994, until payment in full of the
outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
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This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated of even date herewith by and among Maker and
Payee (such instrument as the same may be amended or modified from time to time,
is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be
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governed by and construed in accordance with the laws of the state of Texas and
the applicable laws of the United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP, INC.
By:__________________________________
J. Mike Walker, Vice President
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EXHIBIT B
PROMISSORY NOTE
$1,500,000.00 Houston, Texas March , 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1998, in lawful
money of the United States of America, the principal sum of ONE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00), or so much thereof as may
be advanced and outstanding hereunder, plus accrued and unpaid interest thereon
as hereinafter calculated, as follows:
(a) in two (2) installments of accrued and unpaid interest due and
payable on July 1, 1994 and October 1, 1994;
(b) fifteen (15) quarterly installments each in the principal amount
equal to one-thirtieth (1/30th) of the principal balance outstanding
hereunder as of 11:00 a.m., October 1, 1994, together with all accrued and
unpaid interest, with the first of such installments due and payable on
January 1, 1995, and like successive installments of principal plus accrued
and unpaid interest due and payable on the 1st day of each succeeding
April, July, October and January thereafter, through and including July 1,
1998; and
(c) a final installment in the amount of all outstanding principal,
plus accrued and unpaid interest, due and payable on the maturity of this
note, October 1, 1998.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus three-quarters of one percent (3/4%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate
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hereon to be limited to the Maximum Rate, then any subsequent reduction in the
Bank One Base Rate will not reduce the rate of interest hereon below the Maximum
Rate until the total amount of interest accrued hereon equals the amount of
interest which would have accrued hereon if the rate specified in clause (b)
preceding had at all times been in effect. All past due principal and interest
shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Advancing Credit Note provided for and as defined in
that certain Credit Agreement dated of even date herewith by and among Maker and
Payee (such instrument as the same may be amended or modified from time to time,
is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
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foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
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DRIL-QUIP, INC.
By:___________________________
J. Mike Walker, Vice President
<PAGE>
EXHIBIT C
PROMISSORY NOTE
$12,175,000.00 Houston, Texas March , 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1997, in lawful
money of the United States of America, the principal sum of TWELVE MILLION ONE
HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($12,175,000.00), plus accrued
and unpaid interest thereon as hereinafter calculated, as follows:
(a) fourteen (14) quarterly installments each in the principal amount
of FOUR HUNDRED SEVENTY-NINE THOUSAND AND NO/100 DOLLARS ($479,000.00),
together with all accrued and unpaid interest, with the first of such
installments due and payable on April 1, 1994, and like successive
installments of principal plus accrued and unpaid interest due and payable
on the 1st day of each succeeding April, July, October and January
thereafter, through and including July 1, 1997; and
(b) a fifteenth (15th) and final installment in the amount of all
outstanding principal, plus accrued and unpaid interest, due and payable on
the maturity of this note, October 1, 1997.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus three-quarters of one percent (3/4%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate
----------------
Initialled for
Identification
Page 1 of a 4 Page Note
<PAGE>
specified in clause (b) preceding had at all times been in effect. All past due
principal and interest shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Amended and Restated Credit Agreement dated of even date herewith by and among
Maker and Payee (such instrument as the same may be amended or modified from
time to time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
---------------
Initialled for
Identification
Page 2 of a 4 Page Note
<PAGE>
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP, INC.
By: ______________________________
J. Mike Walker, Vice President
----------------
Initialled for
Identification
Page 3 of a 4 Page Note
<PAGE>
EXHIBIT D
FORM OF NOTICE OF REVOLVING
CREDIT BORROWING
____________, 19__
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention: ____________________
Gentlemen:
The undersigned is an Authorized Financial Officer of Dril-Quip, Inc.,
a Texas corporation ("Borrower"), and as such is authorized to make and deliver
this Notice of Revolving Credit Borrowing pursuant to Section 2.04 of that
certain Credit Agreement dated March __, 1994 (as may be amended, the "Credit
Agreement"), by and among Bank One, Texas, National Association ("Lender") and
Borrower. All terms defined in the Credit Agreement shall have the same meaning
herein. Borrower hereby requests a Borrowing under the Revolving Credit Loan
from Lender in accordance with Section 2.04 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule I attached hereto, the
representations and warranties contained in Article VIII of the Credit
Agreement are true and correct in all material respects at and as of
the date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is
continuing.
(iii) The amount of the Revolving Credit Loan to be made
pursuant to this request does not exceed the Revolving Credit
Available Loan Amount.
(iv) All information supplied herein is true and accurate as of
the date hereof.
<PAGE>
BANK ONE, TEXAS, NATIONAL ASSOCIATION
_________________________
Page 2
The Borrowing Date shall be ___________________, 19__.
DRIL-QUIP, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
EXHIBIT E
---------
FORM OF NOTICE OF CREDIT ISSUANCE
---------------------------------
_____________, 19__
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention:_______________
Gentlemen:
The undersigned is an Authorized Financial Officer of Dril-Quip, Inc.,
a Texas corporation ("Borrower"), and as such is authorized to make and deliver
this Notice of Credit Issuance pursuant to Section 2.08 of that certain Credit
Agreement dated March __, 1994 (as may be amended, the "Credit Agreement"), by
and among Bank One, Texas, National Association ("Lender") and Borrower. All
terms defined in the Credit Agreement shall have the same meaning herein.
Borrower hereby notifies Lender of the proposed issuance of a Letter of Credit,
the terms of which are fully described on Schedule I attached hereto, and the
purpose of which is fully described on Schedule II attached hereto, in
accordance with Section 2.08 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule III attached hereto, the
representations and warranties contained in Article VIII of the Credit
Agreement are true and correct in all material respects at and as of
the date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is
continuing.
(iii) The amount of the Letter of Credit to be issued pursuant
to this request does not exceed the Revolving Credit Available Loan
Amount.
(iv) The amount of the Letter of Credit to be issued pursuant to
this request, together with all other outstanding Letters of Credit
does not exceed $3,000,000.00.
<PAGE>
BANK ONE, TEXAS, NATIONAL ASSOCIATION
- ----------------
Page 2
(v) All information supplied herein is true and accurate as of
the date hereof.
The issuance date of the Letter of Credit shall be ___________, 19__.
DRIL-QUIP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT F
---------
FORM OF BORROWING BASE REPORT
-----------------------------
TO: BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention:_______________________
Gentlemen:
This Borrowing Base Report (this "Report") for the month ending
_______________, 19__, is executed and delivered by DRIL-QUIP, INC. (the
"Borrower") to BANK ONE, TEXAS, NATIONAL ASSOCIATION (the "Lender") pursuant to
that certain Credit Agreement (the "Credit Agreement") dated as of March __,
1994, among the Borrower and the Lender. All terms used herein shall have the
meanings assigned to them in the Credit Agreement.
The Borrower represents and warranties to the Lender that all
information contained herein is true, correct and complete, and that below
represent the Eligible Accounts and Eligible Inventory that qualify for purposes
of determining the Borrowing Base under the Credit Agreement. The Borrower
further represents and warrants to the Lender that attached hereto as Schedule I
is a list of the Eligible Accounts for the month ending _________________, 19__,
showing all Eligible Accounts aged in thirty-day intervals and as Schedule II is
the amount of Eligible Accounts, Eligible Inventory and calculation of the
Borrowing Base.
ACCOUNTS RECEIVABLE:
1. Total Accounts Receivable per Financial Statement $__________
2. Eligible Accounts $__________
INVENTORY:
3. Total Inventory per Financial Statements $__________
4. Eligible Inventory $__________
BORROWING BASE:
5. 80% of line 2 $__________
6. 50% of line 4 (not to exceed 60% of the
total Borrowing Base) $__________
<PAGE>
7. Borrowing Base (line 5 plus line 6) $__________
OUTSTANDING SUM:
8. Outstanding Principal of Revolving Credit Loan
plus Amount of Open Letters of Credit Outstanding $__________
9. Amount of Any Pending Notice of Revolving Credit
Borrowing $__________
10. Amount of Any Pending Notice of Credit Issuance $__________
11. Aggregate Amount of Pending Notices (sums of lines
9 and 10) $__________
12. Outstanding Sum (line 8 plus line 11) $__________
13. Available Sum (the lesser of (i)$15,000,000.00
minus line 12, or (ii) line 7 minus line 12) $__________
The Borrower further represents and warrants to the Lender that the
representation and warranties contained in Article VIII of the Credit Agreement
(as modified, if appropriate, in accordance with Section 12.02 of the Agreement)
are true and correct in all material respects on and as of the date of this
Report as if made on and as of the date hereof, and that no Default or Event of
Default has occurred and is continuing.
Date:
---------------------
BORROWER:
DRIL-QUIP, INC.
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT G
---------
FORM OF NOTICE OF ADVANCING
---------------------------
CREDIT BORROWING
----------------
_____________, 19__
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention:_______________
Gentlemen:
The undersigned is an Authorized Financial Officer of Dril-Quip, Inc.,
a Texas corporation ("Borrower"), and as such is authorized to make and deliver
this Notice of Advancing Credit Borrowing pursuant to Section 3.04 of that
certain Credit Agreement dated March ___, 1994 (as may be amended, the "Credit
Agreement"), by and among BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Lender") and
Borrower. All terms defined in the Credit Agreement shall have the same meaning
herein. Borrower hereby requests a Borrowing under the Advancing Credit Loan
from Lender in accordance with Section 3.04 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule I attached hereto, the
representations and warranties contained in Article VIII of the Credit
Agreement are true and correct in all material respects at and as of the
date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is continuing.
(iii) The amount of the Advancing Credit Loan to be made pursuant to
this request, either singularly or together with other Borrowings
previously made under Section 3.01 of the Credit Agreement does not exceed
the Advancing Credit Committed Sum.
(iv) [Proceeds from this Borrowing will be used to pay for up to
eighty-five percent (85%) of the costs of improvements to the realty
described on Schedule 3 to the Credit Agreement].
<PAGE>
BANK ONE, TEXAS, NATIONAL ASSOCIATION
- ----------------
Page 2
[Proceeds from this Borrowing will be used to pay for up to sixty
percent (60%) of the cost of certain used, unrefurbished equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the cost of certain new equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the costs of certain used, refurbished equipment].
(v) [Attached hereto are copies of invoices for such materials and
work performed].
[Attached hereto are copies of invoices for such equipment purchased].
(vi) All information supplied herein is true and accurate as of the
date hereof.
The Borrowing Date shall be ___________, 19__.
DRIL-QUIP, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
SCHEDULE 1
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
EXISTING LIENS
--------------
Description of Property Covered Lienholder
- ------------------------------- ----------
1. Copier & Postage equipment Pitney Bowes Credit Corp.
2. Forklift trucks Citicorp Dealer Financial
3. Telephone System AT & T Credit Corp.
4. Computer equipment & software Hewlett Packard
5. Copier equipment Eaton Financial Corp.
<PAGE>
SCHEDULE 2
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
PERMITTED LOCATIONS
-------------------
Address Landlord
------- --------
1. 13550 Hempstead Hwy. Not applicable
Houston, Texas 77040 Owned by Dril-Quip, Inc.
2. 6401 North Eldridge Parkway Not applicable
Houston, Texas 77041 Owned by Dril-Quip, Inc.
3. 13501 Emmett Not applicable
Houston, Texas 77041 Owned by Dril-Quip, Inc.
<PAGE>
SCHEDULE 3
CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC.
AND
BANK ONE, TEXAS, N.A.
LEGAL DESCRIPTION OF
PROPERTY COVERED BY DEED OF TRUST
TRACT I:
All that certain 116,850 square feet of land being Lot 14 and the adjoining 90
feet of Lot 13, Replat of Faircourt Farms according to the plat thereof filed at
Volume 12, Page 72, Harris County Map Records and being more particularly
described by metes and bounds as follows:
BEGINNING at a 1/2 inch iron pipe marking the southeast corner of said Lot 13;
THENCE N 50 deg. 08 min. W - 190 feet, along the north right-of-way line of
Hempstead Road (100' wide), to a 5/8 inch iron rod for corner;
THENCE N 39 deg. 52 min. E - 615 feet to a 5/8 inch iron rod for corner;
THENCE S 50 deg. 08 min. E - 190 feet, along the south right-of-way line of
Hillmont Street (60' wide) to a 5/8 inch iron rod for corner;
THENCE S 39 deg. 52 min. W - 615 feet, along the west right-of-way line of
Raywood Boulevard (60' wide), to the POINT OF BEGINNING and containing 116,850
square feet of land, more or 1ess.
TRACT II:
Parcel I:
Tract containing all of Lots 10, 11, 30, 31 and southeast one-half of Lot 12,
Faircourt Farms Subdivision in R. Rowles Survey, Abstract 670, Harris County
Texas, said tract being more particularly described as follows:
COMMENCING at a 3/4 inch iron rod found set at the West Corner of Lot 6, same
being in the Northeast line or Hempstead Highway (U.S. 290) 100 feet wide;
THENCE North 50 deg. 08 min. West 610 feet with the Northeast right of way line
of aforesaid Hempstead Highway and Southwest line of Lots 7, 8, 9, 10, 11 and
Southeast one-half of Lot 12 to a 5/8 inch iron rod found set at West Corner of
Southeast one-half of Lot 12, same being on the Southeast line of Raywood
Street, 60 feet wide, to the PLACE OF BEGINNING of Tract herein described (5/8
inch iron rod being 1.0' Southwest and 4.5' Southeast of 7' fence corner);
THENCE North 39 deg. 46 min. East 615 feet with Northwest line of East one-half
of Lot 12 and Southeast line of Raywood Street to a 1 inch galvanized iron pipe
set for North Corner of Lot 12 and Tract herein described (1 inch iron pipe
being 9.2 feet Northeast and 1.8 feet Northwest of 7 foot fence corner);
Page 1 of 3
<PAGE>
SCHEDULE 3 Cont.
THENCE South 50 deg. 08 min. East 150 feet with the Southwest line of Lots 28
and 29 to a 1 inch galvanized iron pipe set for corner of Tract herein
described, same being the common corner of Lots 10, 11, 29 and 30 (1 inch iron
pipe being 9.2' Northeast of 7' fence corner;
THENCE North 39 deg. 46 min. East 395 feet with the Southeast line of Lot 29,
same being the Northwest line of Lot 30, to a point for the North Corner of Lot
30 and Tract herein described, said point being 0.4 feet Northwest and 0.1 foot
Northeast of 2 inch iron corner post of new 7 foot chain link fence;
THENCE South 50 deg. 08 min. East 200 feet with the Southwest line of Leghorn
Ave. (60 feet wide), same being the Northeast lines of Lots 30 and 31, to a 1
inch galvanized iron pipe set for East Corner of Lot 31 and Tract herein
described (1 inch iron pipe being 0.5' Southwest and 0.2' Southeast of 7' fence
corner);
THENCE South 39 deg. 46 min. West 395 feet with the Southeast line of Lot 31
(passing a 5/8 inch iron rod at 394.5') to a 1 inch galvanized iron pipe set for
the South corner of Lot 31 and common corner of Lots 32, 9, and 8 (1 inch iron
pipe being 1.1' Southeast of 7' fence corner);
THENCE North 50 deg. 08 min. West 100 feet with the Northeast line of Lot 9 to a
1 inch galvanized iron pipe set for the West corner of Lot 31 (found 1 inch
galvanized iron pipe 0.2' Northeast of corner in new 7' chain link fence) (1
inch iron pipe being 5.3' Southeast and 0.3' Southwest of 7' fence corner);
THENCE South 39 deg. 46 min. West 615 feet with the Northwest line of Lot 9 to a
5/8 inch iron rod set July 3, 1984, for South corner of Lot 10, on Northeast
right of way line of Hempstead Highway, 100 feet wide, (found 5/8 inch iron rod
0.3' Southeast of corner) (5/8 inch iron rod corner being 3.7' Southeast and
4.4' Southwest of 7' fence corner);
THENCE North 50 deg. 08 min. West 250 feet (passing 3/4 inch galvanized iron
pipe at 100 feet) with the Northeast right of way line of Hempstead Highway to
the PLACE OF BEGINNING and containing 5.3432 acres.
Parcel II:
All of Lot Four (4), in Block Nine (9), in YAUPON GROVE, a subdivision in Harris
County, Texas, according to the map thereof recorded in Volume 49, Page 49 of
the Map Records of Harris County, Texas.
TRACT III:
Lot Eight (8), of FAIRCOURT FARMS SUBDIVISION, a subdivision in Harris County,
Texas, according to the map or plat thereof recorded in Volume 12, Page 72 of
the Map Records of Harris County, Texas.
TRACT IV:
Lots Thirty-Two (32) and Thirty-Three (33) of FAIRCOURT FARMS, a subdivision in
Harris County, Texas, according to the map or plat thereof recorded in Volume
12, Page 72 of the Map Records of Harris County, Texas, being more particularly
described by metes and bounds as follows:
BEGINNING at a 1/2 inch iron rod found for the Southwest corner of said Lot 33
and being in the Northwesterly right-of-way line of Wyandott Boulevard, based
on a width of 60 feet;
Page 2 of 3
<PAGE>
SCHEDULE 3 Cont.
THENCE North 50 degrees 08 minutes West, passing at 100.00 feet the common
rear corner of said Lots 32 and 33 continuing for a total distance of 200.00
feet to a 1 inch galvanized iron pipe found for the Northwest corner of said
Lot 32;
THENCE North 39 degrees 46 minutes East, a distance of 395 feet to a 1 inch
galvanized iron pipe found for the Northeast corner of said Lot 32 and being
in the Southwesterly right-of-way line of Leghorn Avenue, based on a width of
60 feet;
THENCE South 50 degrees 08 minutes East, along the right-of-way line of
Leghorn Avenue, passing at 100.00 feet the common front corner of said Lots 32
and 33, continuing for a total distance of 105.00 feet to a 1/2 inch iron rod
set for a point of curvature to the right whose radius is 95 feet;
THENCE following said curve to the right whose radius is 95 feet, having a
central angle of 90 degrees 05 minutes 57 seconds, a distance of 149.39 feet
to a 1/2 inch iron rod set for a point of tangency and being in the
Northwesterly right-of-way line of Wyandott Boulevard;
THENCE South 39 degrees 46 minutes West, along the Northwesterly right-of-way
line of Wyandott Boulevard, a distance of 300.00 feet to the POINT OF
BEGINNING and containing 77,071 square feet of 1.7693 acres of land.
TRACT V:
That tract or parcel of land located in Harris County, Texas conveyed to Dril-
Quip, Inc. from Inex R. Weiman by Special Warranty Deed recorded in the Official
Public Records of Real Property of Harris County, Texas under County Clerk's
File No. M870602.
Page 3 of 3
<PAGE>
SCHEDULE 4
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC.,
BANK ONE, TEXAS, N.A.
EXISTING LITIGATION
-------------------
None.
<PAGE>
SCHEDULE 5
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
DEBT
----
None, except as identified in or otherwise reflected by the most recently
prepared financial statements of Borrower which have been delivered to Lender.
<PAGE>
SCHEDULE 6
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
SUBSIDIARIES
------------
Subsidiaries of Dril-Quip, Inc.
- -------------------------------
Name Jurisdiction % Owned
- ---- -------------- --------
DQE United Kingdom 100%
DQAP Singapore 100%
Dril-Quip Trade Corp. Virgin Islands 100%
PT Dril-Quip Indonesia Indonesia 80%
Subsidiaries of other Material Companies
None
<PAGE>
SCHEDULE 7
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
CONTRACTS
---------
With respect to P.T. Dril-Quip Indonesia ("PTDQI"), Borrower is obligated to
sell, transfer and assign a sufficient portion of its equity interest in PTDQI
to Ir. Iman Taufik, Borrower's current minority co-equity owner in PTDQI, to
bring his ownership interest in PTDQI to 51% in the 15th year following
commencement of commercial production in Indonesia. Such sale will be made at a
mutually agreed upon price or as may be determined as the then fair value by an
internationally recognized and independent firm of public accountants.
<PAGE>
SCHEDULE 8
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
CONSENTS
--------
None.
<PAGE>
SCHEDULE 9
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
LOANS TO AFFILIATES
-------------------
None, except as may be reflected in the most recently prepared financial
statements of Borrower which have been provided to Lender.
<PAGE>
SCHEDULE 10
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
PATENTS
-------
U.S. Patents
------------
Number Title Inventor
------ ----- --------
4,410,204 Connector Larry E. Reimert
4,429,904 Self-Aligning Connector Larry E. Reimert
4,610,467 Connector Larry E. Reimert
4,648,627 Stabbing Connector Larry E. Reimert
4,407,527 Self-Aligning Connector Assembly Larry E. Reimert
4,522,431 Self-Aligning Connector Assembly Larry E. Reimert
4,659,119 Latching Connector Larry E. Reimert
4,422,507 Wellhead Apparatus Larry E. Reimert
4,491,346 Apparatus for Releasably Connecting James M. Walker
Tubular Members in End-to-End Relation
4,496,172 Subsea Wellhead Apparatus James M. Walker
4,468,055 Wellhead Apparatus Larry E. Reimert
4,509,777 Weld-On Casing Connector James M. Walker
4,830,408 Connector Assembly Larry E. Reimert
4,757,860 Wellhead Equipment Larry E. Reimert
4,941,691 Tieback Connector Larry E. Reimert
5,026,097 Mudline Hanger System Larry E. Reimert
5,076,356 Tubing Hanger Seal Assembly Larry E. Reimert
4,902,044 Wellhead Connector Larry E. Reimert
4,995,464 Adjustable Sub Bruce Watkins
5,143,158 Tubing/Casing Annulus Valve Bruce Watkins
5,094,270 Double Gated Valve Larry E. Reimert
5,244,038 Hydraulically Actuated Tubing Hanger Bruce Watkins
Running Tool
5,226,493 Clutch Type Running Tool Bruce Watkins
5,211,228 Diverter System Bruce Watkins
5,236,037 Unitized Wellhead System Bruce Watkins
5,287,925 Wellhead Apparatus Bruce Watkins
5,273,117 Subsea Wellhead Equipment Larry E. Reimert
5,244,038 Hanger Running Tool Bruce Watkins
<PAGE>
Schedule 10 (Continued)
PATENTS
-------
U.K. Patents
Number Title Inventor
----- ----- --------
2099945B Connector Assembly Larry E. Reimert
2101700B Connector Larry E. Reimert
2119466 Self-Aligning Connector Larry E. Reimert
2104606B Self-Aligning Connector Assembly Larry E. Reimert
2147676B Self-Aligning Connector Assembly Larry E. Reimert
2152168B Latching Connector Larry E. Reimert
2129894B Apparatus for Releasably Connecting James M. Walker
Tubular Members in End-to-End Relation
2129895B Subsea Wellhead Connector James M. Walker
8302449 Wellhead Apparatus Larry E. Reimert
2161569 Connector Larry E. Reimert
2153027 Stabbing Connector Larry E. Reimert
2176518 Wellhead Equipment Larry E. Reimert
2203775 Wellhead Equipment Larry E. Reimert
2210444 Wellhead Equipment Larry E. Reimert
2234794A Wellhead Connector Larry E. Reimert
2262789B Subsea Wellhead Connector Larry E. Reimert
2235229B Adjustable Sub Bruce Watkins
2233364 Tubing Hanger Seal Assembly Larry E. Reimert
<PAGE>
Schedule 10 (Continued)
TRADEMARKS
----------
Registration No.
----------------
U.S. TRADEMARKS:
- ----------------
"DRIL-QUIP" 1677362
"WING" LOGO 1420650
"NO-CROSS" 1387231
"QUIK-STAB" 1500169
"QUIK-THREAD" 1524168
"QUIK-LATCH" 1489018
U.K. TRADEMARKS:
- ----------------
"DRIL-QUIP" B1242234
"NO-CROSS" B1279493
"QUIK-STAB" B1279495
"QUIK-THREAD" B1279496
"QUIK-LATCH" B1279494
<PAGE>
SCHEDULE 11
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
TAXES
-----
None.
<PAGE>
SCHEDULE 12
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP, INC. AND
BANK ONE, TEXAS, N.A.
OUTSTANDING LETTERS OF CREDIT
-----------------------------
30-Mar-94
<TABLE>
<CAPTION>
DESCRIPTION BANK ONE ISSUE EXPIRATION NET
LOC# DATE DATE EXPOSURE
TOTAL $358,625.13
<S> <C> <C> <C> <C>
ONGC 13327 07/21/93 04/22/94 13,500.00
Hong Kong and Shanghai Banking Corp.
BRBC\SP\IMP\DBG\DS\1\(06)\93\B-4042 Sales Order 20-S-0333
AL BAWARDI 13335 07/30/93 09/14/94 14,850.00
National Bank of Fujairah
ADCO P.O.#42974.1.01 - DQI SALES ORDER #20-10743
CONOCO NORWAY INC. 13348 08/12/93 08/31/96 271,739.13
Fokus Bank
HEIDRUN CONTRACT HEI - 6013 KOK $2,000,000
AL BAWARDI 13345 08/16/93 09/25/94 14,355.00
National Bank of Fujairah
ADCO P.O.#43795.1.01 - DQI SALES ORDER #20-10674
AL BAWARDI 13344 08/16/93 04/27/94 39,105.00
National Bank of Fujairah
ADCO P.O.#43795.1.01 - DQI SALES ORDER #20-10674
ONGC (Bid Bond) 13468 01/06/94 11/08/94 5,076.00
Hong Kong and Shanghai Banking Corp.
BRBC\DBG\MM\IMP\DS\A\17(85)\93\OT-269 Quote 10-H-7108
</TABLE>
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO
CREDIT AGREEMENT
----------------
This First Amendment to Credit Agreement (the "First Amendment"), dated as
of December 20, 1994 is entered into by and between DRIL-QUIP, INC., a Texas
corporation ("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national
banking association ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994
(the "Credit Agreement"), Lender agreed to make available to Borrower certain
loans upon the terms and conditions and for the purposes therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of SEVENTEEN MILLION AND NO/100 DOLLARS
($17,000,000.00) and extended to October 1, 1996 and Lender has agreed to such
increase and extension; and
WHEREAS, Borrower has requested Lender to make available to Borrower an
additional advancing line of credit of up to ONE MILLION FIVE HUNDRED THOUSAND
AND NO/100 DOLLARS ($1,500,000.00) and Lender has agreed to make such loan to
Borrower; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit and governs such additional advancing line of credit;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement,
such term shall refer to the Credit Agreement as amended by this
First Amendment;
1.2 Article I - Definitions. The definition of the term "Commitment"
is deleted in its entirety, and the following is substituted in
place thereof:
"Commitment" means (i) the commitment of Lender to make
available the Revolving Credit Loan hereunder, (ii) the
commitment of Lender to make available the Advancing Credit
Loan hereunder, (iii) the commitment of Lender to make
available the Second Advancing Credit Loan hereunder, (iv)
the commitment of Lender to make available the Term
1
<PAGE>
Loan hereunder and (v) the commitment of Lender to issue the
Letters of Credit hereunder.
1.3 Article I - Definitions. The definition of the term "Loans" is
deleted in its entirety, and the following is substituted in
place thereof:
"Loans" means, collectively, the Revolving Credit Loan, the
Advancing Credit Loan, the Second Advancing Credit Loan and
the Term Loan, and "Loan" means singly, the Revolving Credit
Loan, the Advancing Credit Loan, the Second Advancing Credit
Loan or the Term Loan.
1.4 Article I - Definitions. The definition of the term "Notes" is
deleted in its entirety, and the following is substituted in
place thereof:
"Notes" shall mean the Revolving Credit Note, the Advancing
Credit Note, the Second Advancing Credit Note and the Term
Note and all extensions, renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving
Credit Committed Sum" is deleted in its entirety, and the
following is substituted in place thereof:
"Revolving Credit Committed Sum" means SEVENTEEN MILLION AND
NO/100 DOLLARS ($17,000,000.00), as such amount may be
reduced pursuant to Section 2.06.
1.6 Article I - Definitions. The definition of the term "Revolving
Credit Note" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Note" means the promissory note in favor
of Lender in substantially the form of Exhibit H hereto, and
all extensions, renewals and modifications thereof.
1.7 Article I - Definitions. The definition of the term "Revolving
Credit Termination Date" is deleted in its entirety, and the
following is substituted in place thereof:
"Revolving Credit Termination Date" means October 1, 1996,
or such earlier date as the Revolving Credit Commitment
terminates as provided in this Agreement.
2
<PAGE>
1.8 Article I - Definitions. Article I-Section 1.01 of the Agreement
is hereby amended to add thereto the following definitions:
"Second Advancing Credit Commitment Fee" shall have the
meaning set forth in Section 3.14 hereof.
"Second Advancing Credit Commitment Period" means the period
commencing on December 20, 1994 and ending on the Second
Advancing Credit Termination Date.
"Second Advancing Credit Committed Sum" means ONE MILLION
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00), as
such amount may be reduced pursuant to Section 3.13 or
otherwise.
"Second Advancing Credit Loan" means the Loan made by Lender
to Borrower, in one or more Advances, during the Second
Advancing Credit Commitment Period, pursuant to
Section 3.08.
"Second Advancing Credit Note" means the promissory note in
favor of Lender in substantially the form of Exhibit I
hereto, and all extensions, renewals and modifications
thereof.
"Second Advancing Credit Termination Date" means 11:00 a.m.
Houston, Texas, time on October 1, 1995, or such earlier
date as the Commitment to make Advances pursuant to Section
3.08 terminates as provided in this Agreement.
1.9 Article III. The heading of Article III is hereby amended by the
substitution of "Advancing Credit Loans" for the previous
heading.
1.10 Article III. Article III is hereby amended to add thereto the
following Sections:
Section 3.08. Commitment for Second Advancing Credit Loan.
Subject to the terms and conditions of this Agreement, and
provided that no Default or Event of Default has occurred or
is continuing, Lender agrees to lend to Borrower, pursuant
to this Agreement, such amounts as the Borrower may request
in one or more Advances, from time to time during the Second
Advancing Credit Commitment Period to and including the
Second Advancing Credit Termination Date;
3
<PAGE>
provided, however, that such Advances shall not exceed
either singularly or cumulatively the Second Advancing
Credit Committed Sum; and further provided that Lender shall
not be obligated to make such Loans pursuant to this Section
3.08 in excess of eighty-five percent (85%) of the cost of
improvements, eighty percent (80%) of the cost of new
equipment, eighty percent (80%) of the cost of used,
refurbished equipment and sixty percent (60%) of the cost of
used, unrefurbished equipment; provided, however, that with
respect to any used, unrefurbished equipment, if Borrower
should subsequently refurbish such equipment, then the limit
shall be increased to eighty percent (80%) and Borrower may
increase the amount borrowed hereunder on account of such
equipment to bring the total to eighty percent (80%) of the
cost of such equipment and the cost of refurbishing such
equipment.
Section 3.09. Second Advancing Credit Note. The obligation
of Borrower to repay the Second Advancing Credit Loan shall
be evidenced by the Second Advancing Credit Note executed by
Borrower, payable to the order of Lender, in the principal
amount of the Second Advancing Credit Committed Sum and
dated December 20, 1994. The principal of the Second
Advancing Credit Loan outstanding on the Second Advancing
Credit Termination Date, plus accrued and unpaid interest
thereon, shall be due and payable: (a) in three (3)
installments of accrued and unpaid interest only due and
payable on April 1, 1995, July 1, 1995 and October 1, 1995;
(b) in fifteen (15) installments each equal to one thirtieth
(1/30th) of the outstanding principal of the Second
Advancing Credit Loan on the Second Advancing Credit
Termination Date, together with all accrued and unpaid
interest, the first of such installments being due and
payable on or before January 1, 1996 and like installments
being due and payable on the first day of each succeeding
third calendar month thereafter through and including July
1, 1999; and (c) a final installment shall be due on or
before October 1, 1999 in an amount equal to the remaining
unpaid principal outstanding on the Second Advancing Credit
Loan together with all accrued and unpaid interest. The
Second Advancing Credit Loan shall bear interest prior to
maturity at a varying rate per annum equal from day to day
to the lesser of (a) the Maximum Rate, or (b) the sum of the
Bank One Base Rate in effect from day to day
4
<PAGE>
plus three-quarters of one percent (3/4%), each such change
in the rate of interest charged hereunder to become
effective, without notice to Borrower, on the effective date
of each change in the Bank One Base Rate; provided, however,
if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the
interest on the Second Advancing Credit Loan to be limited
to the Maximum Rate, then any subsequent reduction in the
Bank One Base Rate shall not reduce the rate of interest on
the Second Advancing Credit Loan below the Maximum Rate
until the aggregate amount of interest accrued on the Second
Advancing Credit Loan equals the aggregate amount of
interest which would have accrued on the Second Advancing
Credit Loan if the interest rate specified in clause (b)
preceding had at all times been in effect. All past due
principal and interest shall bear interest at the Maximum
Rate.
Section 3.10. Expiration of Commitment to Lend Under Second
Advancing Credit. The maximum obligation of Lender to make
Advances under Section 3.08 hereof shall not at any time
exceed, either singularly or cumulatively, the Second
Advancing Credit Committed Sum, and Lender shall have no
obligation to make additional Advances under Section 3.08
hereof and Lender's Commitment to lend to Borrower pursuant
to Section 3.08 hereof shall terminate and expire at 11:00
a.m., Houston, Texas time on the Second Advancing Credit
Termination Date; provided that Borrower's Obligations and
the Rights of Lender under the Loan Papers shall continue in
full force and effect until the Obligations have been paid
and performed in full.
Section 3.11. Procedure for Borrowing Under the Second
Advancing Credit Loan. During the Second Advancing Credit
Commitment Period, Borrower shall give Lender a written
notice executed on behalf of the Borrower by any Authorized
Financial Officer of the Borrower (the "Notice of Second
Advancing Credit Borrowing") of any proposed Borrowing under
the Second Advancing Credit Loan which shall be irrevocable.
Each Notice of Second Advancing Credit Borrowing shall be
received by Lender not later than 11:00 a.m., Houston, Texas
time, at least one (1) Business Day prior to any proposed
Borrowing requested by Borrower together with copies of
invoices for the equipment purchased
5
<PAGE>
or improvements undertaken. Each such Notice of Second
Advancing Credit Borrowing shall be substantially in the
form of Exhibit J attached hereto. Lender, at its option,
may from time to time accept telephonic requests for
Advances; provided that Borrower shall promptly thereafter
provide Lender with a completed Notice of Second Advancing
Credit Borrowing together with copies of invoices for the
equipment purchased or improvements undertaken. Lender is
hereby authorized to act in reliance upon a certificate of
incumbency from Borrower's Secretary or Assistant Secretary
as to the identity of the foregoing officers and their due
appointment and authorization to issue Borrowing requests
and receive proceeds of Advances hereunder on behalf of
Borrower unless and until Lender is in actual receipt of
written notice by Borrower of revocation of said appointment
and authorization. Prior to 11:00 a.m. (Houston, Texas,
time) on each Borrowing Date and subject to the provisions
of Section 3.08, Lender shall make available to Borrower in
immediately available funds such requested Advance by
deposit to Borrower's deposit account maintained with Lender
or other reasonable disposition of such funds as Borrower
shall request in writing. Lender may, and is hereby
authorized by Borrower to, endorse on the schedule attached
to the Second Advancing Credit Note or on a continuation of
such schedule attached to and made a part of such Second
Advancing Credit Note an appropriate notation evidencing the
date and amount of each Advance and payment and prepayment
by Borrower of the principal of and interest on the Second
Advancing Credit Loan evidenced by such Second Advancing
Credit Note, but the failure of Lender to make any such
endorsement or any incorrect endorsement shall not subject
Lender to any liability hereunder and shall not limit or
otherwise affect the obligations of Borrower under such
Second Advancing Credit Note.
Section 3.12. Use of Proceeds of Second Advancing Credit
Loan. The proceeds of the Advances comprising the Second
Advancing Credit Loan shall be used to pay for up to eighty-
five percent (85%) of the cost's of Borrower for
improvements on the realty described on Schedule 3 attached
to the Credit Agreement, up to eighty-five percent (85%) of
the cost of improvements, eighty percent (80%) of the cost
of new equipment, eighty percent (80%) of the cost of used,
6
<PAGE>
refurbished equipment and sixty percent (60%) of the cost of
used, unrefurbished equipment; provided, however, that with
respect to any used, unrefurbished equipment, if Borrower
should subsequently refurbish such equipment, then the limit
shall be increased to eighty percent (80%) and Borrower may
increase the amount borrowed hereunder on account of such
equipment to bring the total to eighty percent (80%) of the
cost of such equipment and the cost of refurbishing such
equipment.
Section 3.13. Reduction or Termination of Second Advancing
Committed Sum. Borrower may at any time by giving at least
three (3) Business Days' notice in writing to Lender
terminate or reduce the Second Advancing Credit Committed
Sum; provided, however, that no such reduction of the Second
Advancing Credit Committed Sum shall be effective unless the
amount by which the Second Advancing Credit Committed Sum is
reduced shall be ONE HUNDRED THOUSAND AND NO/100
($100,000.00). Once reduced or terminated, the Second
Advancing Credit Committed Sum may not be increased or
reinstated without the prior written consent of Lender.
Section 3.14. Second Advancing Credit Commitment Fee.
Borrower agrees to pay to Lender a fee (the "Second
Advancing Credit Commitment Fee") on the average daily
unused portion of the Second Advancing Credit Commitment,
from December 20, 1994 to and including the Second Advancing
Credit Termination Date, at the rate of one-half of one
percent (1/2%) per annum based on a 365 day year and the
actual number of days elapsed payable in arrears, on April
1, 1995, and on the Second Advancing Credit Termination
Date.
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Sections 2.01 or 3.08 of the Agreement is subject to the condition
precedent that the Lender shall have received all of the following, each duly
executed and in form and substance satisfactory to Lender:
(a) Promissory Note dated December 20, 1994 in the principal amount
of $17,000,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Revolving Credit Note;
7
<PAGE>
(b) Promissory Note dated December 20, 1994 in the principal amount
of $1,500,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Second Advancing Credit
Note;
(c) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against (i) all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof, (ii) the realty described in
Schedule 3 of the Credit Agreement, the appurtenances thereto and
improvements thereon, and (iii) proceeds of the life insurance
policies required to be maintained by Section 9.17 of the Credit
Agreement;
(d) Certified copies of resolutions of the Board of Directors of
Borrower authorizing or ratifying the execution, delivery and
performance, respectively, of those of this First Amendment, the
Revolving Credit Note, the Second Advancing Credit Note, and all
other documents provided for in this First Amendment to which
each is a party;
(e) The articles of incorporation of Borrower certified by the
Secretary of State of the State of incorporation, and dated
reasonably near the date of this First Amendment;
(f) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this First
Amendment; and
(g) A favorable opinion of legal counsel to Borrower.
3. Representations and Warranties. The representations and warranties
made in Article VIII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this First Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by the terms of this First Amendment. Any of the terms
used in this First Amendment which are not defined in the Credit Agreement shall
be used therein as herein defined.
5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this First Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
8
<PAGE>
6. Applicable Law. This First Amendment shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
Texas.
7. Entire Agreement. The Credit Agreement as amended by this First
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this First Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP, INC.
By:_________________________________
J. Mike Walker
Vice President
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:_________________________________
Damien G. Meiburger
Vice President
9
<PAGE>
EXHIBIT H
---------
PROMISSORY NOTE
---------------
$17,000,000.00 Houston, Texas December 20, 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation, ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1996, in lawful
money of the United States of America, the principal sum of SEVENTEEN MILLION
AND NO/100 DOLLARS ($17,000,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance hereof, at a varying rate per annum which shall from day to day be equal
to the lesser of (a) the maximum rate permitted by applicable law as the same
exists from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the lst day of each successive January,
April, July and October commencing on January 1, 1995, until payment in full of
the outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that
is not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
______________
Initialled for
Page 1 of a 4 Page Note Identification
<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated March 30, 1994 as amended by First Amendment
to Credit Agreement dated of even date herewith by and among Maker and Payee
(such instruments as the same may be amended or modified from time to time, are
hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
______________
Initialled for
Page 2 of a 4 Page Note Identification
<PAGE>
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated March 30, 1994, in the original
principal amount of $15,000,000.00, executed by Maker for the benefit of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
______________
Initialled for
Page 3 of a 4 Page Note Identification
<PAGE>
DRIL-QUIP, INC.
By:________________________________
J. Mike Walker, Vice President
______________
Initialled for
Page 4 of a 4 Page Note Identification
<PAGE>
EXHIBIT I
---------
PROMISSORY NOTE
---------------
$1,500,000.00 Houston, Texas December 20, 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation, ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1999, in lawful
money of the United States of America, the principal sum of ONE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00), or so much thereof as may
be advanced and outstanding hereunder, plus accrued and unpaid interest thereon
as hereinafter calculated, as follows:
(a) in three (3) installments of accrued and unpaid interest due and
payable on April 1, 1995, July 1, 1995 and October 1, 1995;
(b) fifteen (15) quarterly installments each in the principal amount
equal to one-thirtieth (1/30th) of the principal balance outstanding
hereunder as of 11:00 a.m., October 1, 1995, together with all accrued and
unpaid interest, with the first of such installments due and payable on
January 1, 1996, and like successive installments of principal plus accrued
and unpaid interest due and payable on the 1st day of each succeeding
April, July, October and January thereafter, through and including July 1,
1999; and
(c) a final installment in the amount of all outstanding principal,
plus accrued and unpaid interest, due and payable on the maturity of this
note, October 1, 1999.
Whenever any payment hereunder shall be stated to be due on a day that
is not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
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The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus three-quarters of one percent (3/4%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate , then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in clause (b) preceding had at all times
been in effect. All past due principal and interest shall bear interest at the
Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Second Advancing Credit Note provided for and as
defined in that certain Credit Agreement dated March 30, 1994 as amended by
First Amendment to Credit Agreement dated of even date herewith by and among
Maker and Payee (such instruments as the same may be further amended or modified
from time to time, are hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent
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jurisdiction, any such excess shall be applied as a payment and reduction of the
principal of indebtedness evidenced by this note; and, if the principal amount
hereof has been paid in full, any remaining excess shall forthwith be paid to
Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other
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indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP, INC.
By:_________________________________
J. Mike Walker, Vice President
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EXHIBIT J
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FORM OF NOTICE OF SECOND ADVANCING
CREDIT BORROWING
_________________, 19___
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas, 77002
Attention: ____________________
Gentlemen:
The undersigned is an Authorized Financial Officer of Dril-Quip, Inc., a
Texas corporation ("Borrower"), and as such is authorized to make and deliver
this Notice of Advancing Credit Borrowing pursuant to Section 3.11 of that
certain Credit Agreement dated March 30, 1994 as amended by that certain First
Amendment to Credit Agreement dated December 20, 1994 (as may be further amended
from time to time, the "Credit Agreement"), by and between BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Lender") and Borrower. All terms defined in the Credit
Agreement shall have the same meaning herein. Borrower hereby requests a
Borrowing under the Advancing Credit Loan from Lender in accordance with Section
3.11 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule I attached hereto, the
representations and warranties contained in Article VIII of the Credit
Agreement are true and correct in all material respects at and as of the
date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is continuing.
(iii) The amount of the Second Advancing Credit Loan to be made
pursuant to this request, either singularly or together with other
Borrowings previously made under Section 3.08 of the Credit Agreement does
not exceed the Second Advancing Credit Committed Sum.
<PAGE>
(iv) [Proceeds from this Borrowing will be used to pay for up to
eighty-five percent (85%) of the costs of improvements to the realty
described on Schedule 3 to the Credit Agreement].
[Proceeds from this Borrowing will be used to pay for up to sixty
percent (60%) of the cost of certain used, unrefurbished equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the cost of certain new equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the costs of certain used, refurbished equipment].
(v) [Attached hereto are copies of invoices for such materials and
work performed].
[Attached hereto are copies of invoices for such equipment purchased].
(vi) All information supplied herein is true and accurate as of the
date hereof.
The Borrowing Date shall be ___________________________, 19_____.
DRIL-QUIP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
Exhibit 10.3
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Second Amendment"), dated
as of December 13, 1995 is entered into by and between DRIL-QUIP, INC., a Texas
corporation ("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national
banking association ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994 as
amended by that certain First Amendment to Credit Agreement dated December 20,
1994 (collectively, the "Credit Agreement"), Lender agreed to make available to
Borrower certain loans upon the terms and conditions and for the purposes
therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00)
and extended to October 1, 1997 and Lender has agreed to such increase and
extension;
WHEREAS, Borrower has requested Lender to make available to Borrower an
additional advancing line of credit of up to TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) and Lender has agreed to make such loan to Borrower;
WHEREAS, Borrower has requested Lender to consolidate certain term loans;
WHEREAS, Borrower has requested Lender to make certain other changes to the
Credit Agreement; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit, governs such additional advancing line of credit, consolidates
certain term loans and effects such other changes;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement,
such term shall refer to the Credit Agreement as amended by this Second
Amendment;
1.2 Article I - Definitions. The definition of the term "Commitment"
is deleted in its entirety, and the following is substituted in place
thereof:
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"Commitment" means (i) the commitment of Lender to make
available the Revolving Credit Loan hereunder, (ii) the
commitment of Lender to make available the Third Advancing
Credit Loan hereunder, (iii) the commitment of Lender to
make available the Term Loan hereunder, and (iv) the
commitment of Lender to issue the Letters of Credit
hereunder.
1.3 Article I - Definitions. The definition of the term "Loans" is
deleted in its entirety, and the following is substituted in place thereof:
"Loans" means, collectively, the Revolving Credit Loan, the
Third Advancing Credit Loan and the Term Loan, and "Loan"
means singly, the Revolving Credit Loan, the Third Advancing
Credit Loan or the Term Loan.
1.4 Article I - Definitions. The definition of the term "Notes" is
deleted in its entirety, and the following is substituted in place thereof:
"Notes" shall mean the Revolving Credit Note, the Third
Advancing Credit Note and the Term Note and all extensions,
renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving
Credit Committed Sum" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Committed Sum" means TWENTY MILLION AND
NO/100 DOLLARS ($20,000,000.00), as such amount may be
reduced pursuant to Section 2.06.
1.6 Article I - Definitions. The definition of the term "Revolving
Credit Note" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Note" means the promissory note in favor
of Lender in substantially the form of Exhibit K hereto, and
all extensions, renewals and modifications thereof.
1.7 Article I - Definitions. The definition of the term "Revolving
Credit Termination Date" is deleted in its entirety, and the following
is substituted in place thereof:
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"Revolving Credit Termination Date" means October 1, 1997,
or such earlier date as the Revolving Credit Commitment
terminates as provided in this Agreement.
1.8 Article I - Definitions. The definition of the term "Term Note"
is deleted in its entirety, and the following is substituted in place
thereof:
"Term Note" means the promissory note described in Section
4.01 hereof in favor of Lender in substantially the form of
Exhibit L hereto, and all extensions, renewals and
modifications thereof.
1.9 Article I - Definitions. Article I-Section 1.01 of the Agreement
is hereby amended to add thereto the following definitions:
"Third Advancing Credit Commitment Fee" shall have the
meaning set forth in Section 3.21 hereof.
"Third Advancing Credit Commitment Period" means the period
commencing on December 13, 1995 and ending on the Third
Advancing Credit Termination Date.
"Third Advancing Credit Committed Sum" means TWO MILLION AND
NO/100 DOLLARS ($2,000,000.00), as such amount may be
reduced pursuant to Section 3.20 or otherwise.
"Third Advancing Credit Loan" means the Loan made by Lender
to Borrower, in one or more Advances, during the Third
Advancing Credit Commitment Period, pursuant to Section
3.15.
"Third Advancing Credit Note" means the promissory note in
favor of Lender in substantially the form of Exhibit M
hereto, and all extensions, renewals and modifications
thereof.
"Third Advancing Credit Termination Date" means 11:00 a.m.
Houston, Texas, time on October 1, 1996, or such earlier
date as the Commitment to make Advances pursuant to Section
3.15 terminates as provided in this Agreement.
1.10 Article II. Article II is hereby amended to substitute the
following for Section 2.02 in its entirety:
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Section 2.02. Revolving Credit Note. The obligation of
Borrower to repay the Revolving Credit Loan shall be
evidenced by the Revolving Credit Note executed by Borrower,
payable to the order of Lender, in the principal amount of
the Revolving Credit Committed Sum and dated October 1,
1995. The principal of the Revolving Credit Loan shall be
due and payable on the Revolving Credit Termination Date.
Effective October 1, 1995, the Revolving Credit Loan shall
bear interest prior to maturity at a varying rate per annum
equal from day to day to the lesser of (a) the maximum rate
permitted from day to day by applicable law ("Maximum
Rate"), including as to Article 5069-1.04 Vernon's Texas
Civil Statutes (and as the same may be incorporated by
reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate
ceiling", or (b) the sum of the Bank One Texas Base Rate in
effect from day to day plus one-fourth of one percent
(1/4%), each such change in the rate of interest charged
hereunder to become effective, without notice to Borrower,
on the effective date of each change in the Bank One Texas
Base Rate; provided, however, if at any time the rate of
interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest on the Revolving
Credit Loan to be limited to the Maximum Rate, then any
subsequent reduction in the Bank One Texas Base Rate shall
not reduce the rate of interest on the Revolving Credit Loan
below the Maximum Rate until the aggregate amount of
interest accrued on the Revolving Credit Loan equals the
aggregate amount of interest which would have accrued on the
Revolving Credit Loan if the interest rate specified in
clause (b) preceding had at all times been in effect.
Accrued and unpaid interest on the Revolving Credit Loan
shall be due and payable (a) quarterly in arrears, on the
1st day of each successive January, April, July and October
commencing on January 1, 1996, until payment in full of the
outstanding principal under the Revolving Credit Note and
(b) on the Revolving Credit Termination Date. All past due
principal and interest shall bear interest at the Maximum
Rate.
1.11 Article III. The heading of Article III is hereby amended by the
substitution of "Advancing Credit Loans" for the previous heading.
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1.12 Article III. Article III is hereby amended to delete Section
3.01 through and including Section 3.14.
1.13 Article III. Article III is hereby amended to add thereto the
following Sections:
Section 3.15. Commitment for Third Advancing Credit Loan.
Subject to the terms and conditions of this Agreement, and
provided that no Default or Event of Default has occurred or
is continuing, Lender agrees to lend to Borrower, pursuant
to this Agreement, such amounts as the Borrower may request
in one or more Advances, from time to time during the Third
Advancing Credit Commitment Period to and including the
Third Advancing Credit Termination Date; provided, however,
that such Advances shall not exceed either singularly or
cumulatively the Third Advancing Credit Committed Sum; and
further provided that Lender shall not be obligated to make
such Loans pursuant to this Section 3.15 in excess of
eighty-five percent (85%) of the cost of improvements,
eighty percent (80%) of the cost of new equipment, eighty
percent (80%) of the cost of used, refurbished equipment and
sixty percent (60%) of the cost of used, unrefurbished
equipment; provided, however, that with respect to any used,
unrefurbished equipment, if Borrower should subsequently
refurbish such equipment, then the limit shall be increased
to eighty percent (80%) and Borrower may increase the amount
borrowed hereunder on account of such equipment to bring the
total to eighty percent (80%) of the cost of such equipment
and the cost of refurbishing such equipment.
Section 3.16. Third Advancing Credit Note. The obligation
of Borrower to repay the Third Advancing Credit Loan shall
be evidenced by the Third Advancing Credit Note executed by
Borrower, payable to the order of Lender, in the principal
amount of the Third Advancing Credit Committed Sum and dated
December 13, 1995. The principal of the Third Advancing
Credit Loan outstanding on the Third Advancing Credit
Termination Date, plus accrued and unpaid interest thereon,
shall be due and payable: (a) in four (4) installments of
accrued and unpaid interest only due and payable on January
1, 1996, April 1, 1996, July 1, 1996 and October 1,
-5-
<PAGE>
1996; (b) in fifteen (15) installments each equal to SEVENTY
THOUSAND AND NO/100 DOLLARS ($70,000.00) of principal,
together with all accrued and unpaid interest, the first of
such installments being due and payable on or before January
1, 1997 and like installments being due and payable on the
first day of each succeeding third calendar month thereafter
through and including July 1, 2000; and (c) a final
installment shall be due on or before October 1, 2000 in an
amount equal to the remaining unpaid principal outstanding
on the Third Advancing Credit Loan together with all accrued
and unpaid interest. The Third Advancing Credit Loan shall
bear interest prior to maturity at a varying rate per annum
equal from day to day to the lesser of (a) the Maximum Rate,
or (b) the sum of the Bank One Base Rate in effect from day
to day plus one-half of one percent (1/2%), each such change
in the rate of interest charged hereunder to become
effective, without notice to Borrower, on the effective date
of each change in the Bank One Base Rate; provided, however,
if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the
interest on the Third Advancing Credit Loan to be limited to
the Maximum Rate, then any subsequent reduction in the Bank
One Base Rate shall not reduce the rate of interest on the
Third Advancing Credit Loan below the Maximum Rate until the
aggregate amount of interest accrued on the Third Advancing
Credit Loan equals the aggregate amount of interest which
would have accrued on the Third Advancing Credit Loan if the
interest rate specified in clause (b) preceding had at all
times been in effect. All past due principal and interest
shall bear interest at the Maximum Rate.
Section 3.17. Expiration of Commitment to Lend Under Third
Advancing Credit. The maximum obligation of Lender to make
Advances under Section 3.15 hereof shall not at any time
exceed, either singularly or cumulatively, the Third
Advancing Credit Committed Sum, and Lender shall have no
obligation to make additional Advances under Section 3.15
hereof and Lender's Commitment to lend to Borrower pursuant
to Section 3.15 hereof shall terminate and expire at 11:00
a.m., Houston, Texas time on the Third Advancing Credit
Termination Date; provided that Borrower's Obligations and
the Rights of Lender under the Loan Papers
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<PAGE>
shall continue in full force and effect until the
Obligations have been paid and performed in full.
Section 3.18. Procedure for Borrowing Under the Third
Advancing Credit Loan. During the Third Advancing Credit
Commitment Period, Borrower shall give Lender a written
notice executed on behalf of the Borrower by any Authorized
Financial Officer of the Borrower (the "Notice of Third
Advancing Credit Borrowing") of any proposed Borrowing under
the Third Advancing Credit Loan which shall be irrevocable.
Each Notice of Third Advancing Credit Borrowing shall be
received by Lender not later than 11:00 a.m., Houston, Texas
time, at least one (1) Business Day prior to any proposed
Borrowing requested by Borrower together with copies of
invoices for the equipment purchased or improvements
undertaken. Each such Notice of Third Advancing Credit
Borrowing shall be substantially in the form of Exhibit N
attached hereto. Lender, at its option, may from time to
time accept telephonic requests for Advances; provided that
Borrower shall promptly thereafter provide Lender with a
completed Notice of Third Advancing Credit Borrowing
together with copies of invoices for the equipment purchased
or improvements undertaken. Lender is hereby authorized to
act in reliance upon a certificate of incumbency from
Borrower's Secretary or Assistant Secretary as to the
identity of the foregoing officers and their due appointment
and authorization to issue Borrowing requests and receive
proceeds of Advances hereunder on behalf of Borrower unless
and until Lender is in actual receipt of written notice by
Borrower of revocation of said appointment and
authorization. Prior to 11:00 a.m. (Houston, Texas, time)
on each Borrowing Date and subject to the provisions of
Section 3.15, Lender shall make available to Borrower in
immediately available funds such requested Advance by
deposit to Borrower's deposit account maintained with Lender
or other reasonable disposition of such funds as Borrower
shall request in writing. Lender may, and is hereby
authorized by Borrower to, endorse on the schedule attached
to the Third Advancing Credit Note or on a continuation of
such schedule attached to and made a part of such Third
Advancing Credit Note an appropriate notation evidencing the
date and amount of each Advance and payment and prepayment
by Borrower of the principal of and interest on the Third
Advancing Credit
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<PAGE>
Loan evidenced by such Third Advancing Credit Note, but the
failure of Lender to make any such endorsement or any
incorrect endorsement shall not subject Lender to any
liability hereunder and shall not limit or otherwise affect
the obligations of Borrower under such Third Advancing
Credit Note.
Section 3.19. Use of Proceeds of Third Advancing Credit
Loan. The proceeds of the Advances comprising the Third
Advancing Credit Loan shall be used to pay for up to eighty-
five percent (85%) of the costs of Borrower for improvements
on the realty described on Schedule 3 attached to the Credit
Agreement, up to eighty-five percent (85%) of the cost of
improvements, eighty percent (80%) of the cost of new
equipment, eighty percent (80%) of the cost of used,
refurbished equipment and sixty percent (60%) of the cost of
used, unrefurbished equipment; provided, however, that with
respect to any used, unrefurbished equipment, if Borrower
should subsequently refurbish such equipment, then the limit
shall be increased to eighty percent (80%) and Borrower may
increase the amount borrowed hereunder on account of such
equipment to bring the total to eighty percent (80%) of the
cost of such equipment and the cost of refurbishing such
equipment.
Section 3.20. Reduction or Termination of Third Advancing
Committed Sum. Borrower may at any time by giving at least
three (3) Business Days' notice in writing to Lender
terminate or reduce the Third Advancing Credit Committed
Sum; provided, however, that no such reduction of the Third
Advancing Credit Committed Sum shall be effective unless the
amount by which the Third Advancing Credit Committed Sum is
reduced shall be ONE HUNDRED THOUSAND AND NO/100
($100,000.00) or an integral multiple thereof. Once reduced
or terminated, the Third Advancing Credit Committed Sum may
not be increased or reinstated without the prior written
consent of Lender.
Section 3.21. Third Advancing Credit Commitment Fee.
Borrower agrees to pay to Lender a fee (the "Third Advancing
Credit Commitment Fee") on the average daily unused portion
of the Third Advancing Credit Commitment, from December 13,
1995 to and including the Third Advancing
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<PAGE>
Credit Termination Date, at the rate of one-half of one
percent (1/2%) per annum based on a 365 day year and the
actual number of days elapsed payable in arrears, on January
1, 1996, April 1, 1996, July 1, 1996 and on the Third
Advancing Credit Termination Date.
1.14 Article IV. Article IV is hereby amended to substitute the
following for Article IV in its entirety:
Term Loan
Section 4.01. Commitment for Term Loan. Subject to the
terms and conditions of this Agreement, and provided that no
Default or Event of Default has occurred and is continuing
on the Closing Date, Lender agrees to make the Term Loan to
Borrower under the Term Note, in the amount of ELEVEN
MILLION SIX HUNDRED TWENTY-TWO THOUSAND AND NO/100 DOLLARS
($11,622,000.00) to be effective October 1, 1995, which
amount represents a renewal and rearrangement in whole or in
part, of the principal indebtedness evidenced by:
(a) that certain Promissory Note dated March 30, 1994
in the principal amount of $12,175,000.00 executed by
Borrower and payable to the order of Lender;
(b) that certain Promissory Note dated March 30, 1994
in the principal amount of $1,500,000.00 executed by
Borrower and payable to the order of Lender; and
(c) that certain Promissory Note dated December 20,
1994 in the principal amount of $1,500,000.00 executed by
Borrower and payable to the order of Lender.
Section 4.02. Term Note. The obligation of Borrower to
repay the Term Loan shall be evidenced by the Term Note
executed by Borrower, payable to the order of Lender, in the
principal amount of the Term Loan and dated October 1, 1995.
The principal of the Term Loan, plus accrued and unpaid
interest thereon, shall be due and payable in:
(a) seven (7) consecutive installments each equal to
FIVE HUNDRED SEVENTY-NINE THOUSAND AND
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<PAGE>
NO/100 DOLLARS ($579,000.00) of principal, together with all
accrued and unpaid interest, the first of such installments
being due and payable on or before January 1, 1996 and like
installments being due and payable on the first day of each
succeeding third calendar month thereafter through and
including July 1, 1997; and
(b) a final installment due and payable on October 1,
1997 in an amount equal to the remaining unpaid principal
amount outstanding on the Term Loan, together with all
accrued and unpaid interest.
Effective October 1, 1995, the Term Loan shall bear interest
prior to maturity at a varying rate per annum equal from day
to day to the lesser of (a) the Maximum Rate or (b) the sum
of the Bank One Texas Base Rate in effect from day to day
plus one-half of one percent (1/2%), each such change in the
rate of interest charged hereunder to become effective,
without notice to Borrower, on the effective date of each
change in the Bank One Texas Base Rate; provided, however,
if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the
interest on the Term Loan to be limited to the Maximum Rate,
then any subsequent reduction in the Bank One Texas Base
Rate shall not reduce the rate of interest on the Term Loan
below the Maximum Rate until the aggregate amount of
interest accrued on the Term Loan equals the aggregate
amount of interest which would have accrued on the Term Loan
if the interest rate specified in clause (b) preceding had
at all times been in effect. All past due principal and
interest shall bear interest at the Maximum Rate.
1.15 Section 6.01. Section 6.01 is hereby amended to delete
Subsection (d) thereof.
1.16 Section 9.17. Section 9.17 is hereby amended to delete the first
sentence thereof
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Sections 2.01 or 3.15 of the Agreement is subject to the condition
precedent that the Lender shall have received all of the following, each duly
executed and in form and substance satisfactory to Lender:
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(a) Promissory Note dated October 1, 1995 in the principal amount of
$20,000,000.00 executed by Borrower to the order of Lender, after
execution and delivery being the Revolving Credit Note;
(b) Promissory Note dated October 1, 1995 in the principal amount of
$11,622,000.00 executed by Borrower to the order of Lender, after
execution and delivery being the Term Note;
(c) Promissory Note dated December 13, 1995 in the principal amount of
$2,000,000.00 executed by Borrower to the order of Lender, after
execution and delivery being the Third Advancing Credit Note;
(d) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against (i) all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof, and (ii) the realty described in
Schedule 3 of the Credit Agreement, the appurtenances thereto and
improvements thereon;
(e) Certified copies of resolutions of the Board of Directors of
Borrower authorizing or ratifying the execution, delivery and
performance, respectively, of those of this First Amendment, the
Revolving Credit Note, the Third Advancing Credit Note, the Term
Note and all other documents provided for in this Second
Amendment to which each is a party;
(f) The articles of incorporation of Borrower certified by the
Secretary of State of the State of incorporation, and dated
reasonably near the date of this Second Amendment;
(g) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this Second
Amendment; and
(h) A favorable opinion of legal counsel to Borrower.
3. Representations and Warranties. The representations and warranties
made in Article VIII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this Second Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by
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the terms of this Second Amendment. Any of the terms used in this Second
Amendment which are not defined in the Credit Agreement shall be used therein as
herein defined.
5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this Second Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
6. Applicable Law. This Second Amendment shall be deemed to be a
contract made under, and shall be construed in accordance with, the laws of the
State of Texas.
7. Entire Agreement. The Credit Agreement as amended by this Second
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this Second Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP, INC.
By:
---------------------------
J. Mike Walker
Vice President
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:
---------------------------
Gary L. Stone
Senior Vice President
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EXHIBIT K
PROMISSORY NOTE
$20,000,000.00 Houston, Texas October 1, 1995
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1997, in lawful
money of the United States of America, the principal sum of TWENTY MILLION AND
NO/100 DOLLARS ($20,000,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance hereof, at a varying rate per annum which shall from day to day be equal
to the lesser of (a) the maximum rate permitted by applicable law as the same
exists from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-fourth of one percent (1/4%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the 1st day of each successive January,
April, July and October commencing on January 1, 1996, until payment in full of
the outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that
is not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
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As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated March 30, 1994 as amended by First Amendment
to Credit Agreement dated December 20, 1994 and Second Amendment to Credit
Agreement dated December 13, 1995 by and among Maker and Payee (such instruments
as the same may be amended or modified from time to time, are hereinafter
referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
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If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated December 20, 1994, in the
original principal amount of $17,000,000.00, executed by Maker for the benefit
of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
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DRIL-QUIP, INC.
By:
----------------------------------
J. Mike Walker, Vice President
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EXHIBIT L
PROMISSORY NOTE
$11,622,000.00 Houston, Texas October 1, 1995
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas corporation
("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS, NATIONAL
ASSOCIATION, a national banking association ("Payee"), at its offices at 910
Travis, Houston, Harris County, Texas, in lawful money of the United States of
America, the principal sum of ELEVEN MILLION SIX HUNDRED TWENTY-TWO THOUSAND AND
NO/100 DOLLARS ($11,622,000.00), plus accrued and unpaid interest thereon as
hereinafter calculated, as follows:
(a) seven (7) quarterly installments each in the principal amount of
FIVE HUNDRED SEVENTY-NINE THOUSAND AND NO/100 DOLLARS ($579,000.00),
together with all accrued and unpaid interest, with the first of such
installments due and payable on January 1, 1996, and like successive
installments of principal plus accrued and unpaid interest due and payable
on the 1st day of each succeeding April, July, October and January
thereafter, through and including July 1, 1997; and
(b) an eighth (8th) and final installment in the amount of all
outstanding principal plus accrued and unpaid interest, due and payable on
the maturity of this note, October 1, 1997.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear interest at the Maximum
Rate.
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As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum then most recently established by Payee as
its Bank One Base Rate in effect from day to day, with each change in the rate
of interest charged as the Bank One Base Rate to become effective, without
notice to Maker, on the effective date of each change in the Bank One Base Rate,
such Bank One Base Rate to be computed on the basis of a year composed of 365
days for the actual number of days elapsed (including the first day but
excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Amended and Restated Credit Agreement dated March 30, 1994 as amended by that
certain First Amendment to Credit Agreement dated December 20, 1994 and that
certain Second Amendment to Credit Agreement dated December 13, 1995 by and
among Maker and Payee (such instrument as the same may be amended or modified
from time to time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
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If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and rearrangement but not in novation or
discharge, of (i) that certain Promissory Note dated March 30, 1994 in the
original principal amount of $12,175,000.00, executed by Maker for the benefit
of Payee, (ii) that certain Promissory Note dated March 30, 1994 in the original
principal amount of $1,500,000.00, executed by Maker for the benefit of Payee,
and (iii) that certain Promissory Note dated December 20, 1994 in the original
principal amount of $1,500,000.00, executed by Maker for the benefit of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to
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make endorsement shall not limit or otherwise affect the obligations of Maker
under the Agreement or this note.
DRIL-QUIP, INC.
By:
---------------------------------
J. Mike Walker, Vice President
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EXHIBIT M
PROMISSORY NOTE
$2,000,000.00 Houston, Texas December 13, 1995
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas corporation
("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS, NATIONAL
ASSOCIATION, a national banking association ("Payee"), at its offices at 910
Travis, Houston, Harris County, Texas, on October 1, 1996, in lawful money of
the United States of America, the principal sum of TWO MILLION AND NO/100
DOLLARS ($2,000,000.00), or so much thereof as may be advanced and outstanding
hereunder, together with accrued and unpaid interest thereon as hereinafter
calculated, as follows:
(a) in four (4) installments of accrued and unpaid interest due and
payable on January 1, 1996, April 1, 1996, July 1, 1996 and October 1,
1996;
(b) fifteen (15) quarterly installments each in the amount of SEVENTY
THOUSAND AND NO/100 DOLLARS ($70,000.00) of principal, together with all
accrued and unpaid interest, with the first of such installments due and
payable on January 1, 1997, and like successive installments of principal
plus accrued and unpaid interest due and payable on the 1st day of each
succeeding April, July, October and January thereafter, through and
including July 1, 2000; and
(c) a final installment in the amount of all outstanding principal,
plus accrued and unpaid interest, due and payable on the maturity of this
note, October 1, 2000.
Whenever any payment hereunder shall be stated to be due on a day that is
not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
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The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum Rate
, then any subsequent reduction in the Bank One Base Rate will not reduce the
rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear interest at the Maximum
Rate.
As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum, then most recently established by Payee
as its Bank One Base Rate in effect from day to day, with each change in the
rate of interest charged as the Bank One Base Rate to become effective, without
notice to Maker, on the effective date of each change in the Bank One Base Rate,
such Bank One Base Rate to be computed on the basis of a year composed of 365
days for the actual number of days elapsed (including the first day but
excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Third Advancing Credit Note provided for and as defined in
that certain Credit Agreement dated March 30, 1994 as amended by that certain
First Amendment to Credit Agreement dated December 20, 1994 and that certain
Second Amendment to Credit Agreement dated of even date herewith by and between
Maker and Payee (such instruments as the same may be amended or modified from
time to time, are hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent
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jurisdiction, any such excess shall be applied as a payment and reduction of the
principal of indebtedness evidenced by this note; and, if the principal amount
hereof has been paid in full, any remaining excess shall forthwith be paid to
Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other
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indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP, INC.
By:
--------------------------------
J. Mike Walker, Vice President
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Exhibit 10.4
THIRD AMENDMENT TO
CREDIT AGREEMENT
This Third Amendment to Credit Agreement (the "Third Amendment"), dated as
of February 14, 1997 is entered into by and between DRIL-QUIP, INC., a Texas
corporation ("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national
banking association ("Lender").
W I T N E S S E T H:
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WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994 as
amended by that certain First Amendment to Credit Agreement dated December 20,
1994 and that certain Second Amendment to Credit Agreement dated December 13,
1995 (collectively, the "Credit Agreement"), Lender agreed to make available to
Borrower certain loans upon the terms and conditions and for the purposes
therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of TWENTY-FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00) and extended to June 1, 1999 and Lender has agreed to such
increase and extension;
WHEREAS, Borrower has requested Lender to make available to Borrower an
additional advancing line of credit of up to THREE MILLION AND NO/100 DOLLARS
($3,000,000.00) and Lender has agreed to make such loan to Borrower;
WHEREAS, Borrower has requested Lender to consolidate certain term loans;
WHEREAS, Borrower has requested Lender to make certain other changes to the
Credit Agreement; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit, governs such additional advancing line of credit, consolidates
certain term loans and effects such other changes;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement,
such term shall refer to the Credit Agreement as amended by this
Third Amendment;
1.2 Article I - Definitions. The definition of the term "Commitment"
is deleted in its entirety, and the following is substituted in
place thereof:
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"Commitment" means (i) the commitment of Lender to make
available the Revolving Credit Loan hereunder, (ii) the
commitment of Lender to make available the Fourth Advancing
Credit Loan hereunder, (iii) the commitment of Lender to
make available the Term Loan hereunder and (iv) the
commitment of Lender to issue the Letters of Credit
hereunder.
1.3 Article I - Definitions. The definition of the term "Loans" is
deleted in its entirety, and the following is substituted in
place thereof:
"Loans" means, collectively, the Revolving Credit Loan, the
Fourth Advancing Credit Loan and the Term Loan, and "Loan"
means singly, the Revolving Credit Loan, the Fourth
Advancing Credit Loan or the Term Loan.
1.4 Article I - Definitions. The definition of the term "Notes" is
deleted in its entirety, and the following is substituted in
place thereof:
"Notes" shall mean the Revolving Credit Note, the Fourth
Advancing Credit Note and the Term Note and all extensions,
renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving
Credit Committed Sum" is deleted in its entirety, and the
following is substituted in place thereof:
"Revolving Credit Committed Sum" means TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000.00), as such amount may be
reduced pursuant to Section 2.06.
1.6 Article I - Definitions. The definition of the term "Revolving
Credit Note" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Note" means the promissory note in favor
of Lender in substantially the form of Exhibit O hereto, and
all extensions, renewals and modifications thereof.
1.7 Article I - Definitions. The definition of the term "Revolving
Credit Termination Date" is deleted in its entirety, and the following is
substituted in place thereof:
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"Revolving Credit Termination Date" means June 1, 1999, or
such earlier date as the Revolving Credit Commitment
terminates as provided in this Agreement.
1.8 Article I - Definitions. The definition of the term "Term Note"
is deleted in its entirety, and the following is substituted in
place thereof:
"Term Note" means the promissory note described in Section
4.01 hereof in favor of Lender in substantially the form of
Exhibit P hereto, and all extensions, renewals and
modifications thereof.
1.9 Article I - Definitions. Article I-Section 1.01 of the Agreement
is hereby amended to add thereto the following definitions:
"Fourth Advancing Credit Commitment Fee" shall have the
meaning set forth in Section 3.28 hereof.
"Fourth Advancing Credit Commitment Period" means the period
commencing on February 14, 1997 and ending on the Fourth
Advancing Credit Termination Date.
"Fourth Advancing Credit Committed Sum" means THREE MILLION
AND NO/100 DOLLARS ($3,000,000.00), as such amount may be
reduced pursuant to Section 3.27 or otherwise.
"Fourth Advancing Credit Loan" means the Loan made by Lender
to Borrower, in one or more Advances, during the Fourth
Advancing Credit Commitment Period, pursuant to Section
3.22.
"Fourth Advancing Credit Note" means the promissory note in
favor of Lender in substantially the form of Exhibit Q
hereto, and all extensions, renewals and modifications
thereof.
"Fourth Advancing Credit Termination Date" means 11:00 a.m.
Houston, Texas, time on December 31, 1997, or such earlier
date as the Commitment to make Advances pursuant to Section
3.22 terminates as provided in this Agreement.
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1.10 Article II. Article 11 is hereby amended to substitute the
following for Section 2.02 in its entirety:
Section 2.02. Revolving Credit Note. The obligation of
Borrower to repay the Revolving Credit Loan shall be
evidenced by the Revolving Credit Note executed by Borrower,
payable to the order of Lender, in the principal amount of
the Revolving Credit Committed Sum and dated February 14,
1997. The principal of the Revolving Credit Loan shall be
due and payable on the Revolving Credit Termination Date.
The Revolving Credit Loan shall bear interest prior to
maturity at a varying rate per annum equal from day to day
to the lesser of (a) the maximum rate permitted from day to
day by applicable law ("Maximum Rate"), including as to
Article 5069-1.04 Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas
statutes), but otherwise without limitation, that rate based
upon the "indicated rate ceiling", or (b) the sum of the
Bank One Texas Base Rate in effect from day to day plus one-
fourth of one percent (1/4%), each such change in the rate
of interest charged hereunder to become effective, without
notice to Borrower, on the effective date of each change in
the Bank One Texas Base Rate; provided, however, if at any
time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest
on the Revolving Credit Loan to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Texas
Base Rate shall not reduce the rate of interest on the
Revolving Credit Loan below the Maximum Rate until the
aggregate amount of interest accrued on the Revolving Credit
Loan equals the aggregate amount of interest which would
have accrued on the Revolving Credit Loan if the interest
rate specified in clause (b) preceding had at all times been
in effect. Accrued and unpaid interest on the Revolving
Credit Loan shall be due and payable (a) quarterly in
arrears, on the 1st day of each successive April, July,
October and January commencing on April 1, 1997, until
payment in full of the outstanding principal under the
Revolving Credit Note and (b) on the Revolving Credit
Termination Date. All past due principal and interest shall
bear interest at the Maximum Rate.
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1.11 Article III. Article III is hereby amended to delete Section
3.15 through and including Section 3.21.
1.12 Article III. Article III is hereby amended to add thereto the
following Sections:
Section 3.22. Commitment for Fourth Advancing Credit Loan.
Subject to the terms and conditions of this Agreement, and
provided that no Default or Event of Default has occurred or
is continuing, Lender agrees to lend to Borrower, pursuant
to this Agreement, such amounts as the Borrower may request
in one or more Advances, from time to time during the Fourth
Advancing Credit Commitment Period to and including the
Fourth Advancing Credit Termination Date; provided, however,
that such Advances shall not exceed either singularly or
cumulatively the Fourth Advancing Credit Committed Sum; and
further provided that Lender shall not be obligated to make
such Loans pursuant to this Section 3.22 in excess of
eighty-five percent (85%) of the cost of improvements,
eighty percent (80%) of the cost of new equipment, eighty
percent (80%) of the cost of used, refurbished equipment and
sixty percent (60%) of the cost of used, unrefurbished
equipment; provided, however, that with respect to any used,
unrefurbished equipment, if Borrower should subsequently
refurbish such equipment, then the limit shall be increased
to eighty percent (80%) and Borrower may increase the amount
borrowed hereunder on account of such equipment to bring the
total to eighty percent (80%) of the cost of such equipment
and the cost of refurbishing such equipment.
Section 3.23. Fourth Advancing Credit Note. The
obligation of Borrower to repay the Fourth Advancing Credit
Loan shall be evidenced by the Fourth Advancing Credit Note
executed by Borrower, payable to the order of Lender, in the
principal amount of the Fourth Advancing Credit Committed
Sum and dated February 14, 1997. The principal of the
Fourth Advancing Credit Loan outstanding on the Fourth
Advancing Credit Termination Date, plus accrued and unpaid
interest thereon, shall be due and payable: (a) in three (3)
installments of accrued and unpaid interest only due and
payable on April 1, 1997, July 1, 1997 and October 1, 1997;
(b) in fifteen (15) installments each equal to ONE HUNDRED
THOUSAND
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AND NO/100 DOLLARS ($100,000.00) of principal, together with
all accrued and unpaid interest, the first of such
installments being due and payable on or before January 1,
1998 and like installments being due and payable on the
first day of each succeeding third calendar month thereafter
through and including July 1, 2001; and (c) a final
installment shall be due on or before October 1, 2001 in an
amount equal to the remaining unpaid principal outstanding
on the Fourth Advancing Credit Loan together with all
accrued and unpaid interest. The Fourth Advancing Credit
Loan shall bear interest prior to maturity at a varying rate
per annum equal from day to day to the lesser of (a) the
Maximum Rate, or (b) the sum of the Bank One Base Rate in
effect from day to day plus one-half of one percent (1/2%),
each such change in the rate of interest charged hereunder
to become effective, without notice to Borrower, on the
effective date of each change in the Bank One Base Rate;
provided, however, if at any time the rate of interest
specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest on the Fourth Advancing
Credit Loan to be limited to the Maximum Rate, then any
subsequent reduction in the Bank One Base Rate shall not
reduce the rate of interest on the Fourth Advancing Credit
Loan below the Maximum Rate until the aggregate amount of
interest accrued on the Fourth Advancing Credit Loan equals
the aggregate amount of interest which would have accrued on
the Fourth Advancing Credit Loan if the interest rate
specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear
interest at the Maximum Rate.
Section 3.24. Expiration of Commitment to Lend under Fourth
Advancing Credit. The maximum obligation of Lender to make
Advances under Section 3.22 hereof shall not at any time
exceed, either singularly or cumulatively, the Fourth
Advancing Credit Committed Sum, and Lender shall have no
obligation to make additional Advances under Section 3.22
hereof and Lender's Commitment to lend to Borrower pursuant
to Section 3.22 hereof shall terminate and expire at 11:00
a.m., Houston, Texas time on the Fourth Advancing Credit
Termination Date; provided that Borrower's Obligations and
the Rights of Lender under the Loan Papers shall continue in
full force and effect until the Obligations have been paid
and performed in full.
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Section 3.25. Procedure for Borrowing Under the Fourth
Advancing Credit Loan. During the Fourth Advancing Credit
Commitment Period, Borrower shall give Lender a written
notice executed on behalf of the Borrower by any Authorized
Financial Officer of the Borrower (the "Notice of Fourth
Advancing Credit Borrowing") of any proposed Borrowing under
the Fourth Advancing Credit Loan which shall be irrevocable.
Each Notice of Fourth Advancing Credit Borrowing shall be
received by Lender not later than 11:00 a.m., Houston, Texas
time, at least one (1) Business Day prior to any proposed
Borrowing requested by Borrower together with copies of
invoices for the equipment purchased or improvements
undertaken. Each such Notice of Fourth Advancing Credit
Borrowing shall be substantially in the form of Exhibit R
attached hereto. Lender, at its option, may from time to
time accept telephonic requests for Advances; provided that
Borrower shall promptly thereafter provide Lender with a
completed Notice of Fourth Advancing Credit Borrowing
together with copies of invoices for the equipment purchased
or improvements undertaken. Lender is hereby authorized to
act in reliance upon a certificate of incumbency from
Borrower's Secretary or Assistant Secretary as to the
identity of the foregoing officers and their due appointment
and authorization to issue Borrowing requests and receive
proceeds of Advances hereunder on behalf of Borrower unless
and until Lender is in actual receipt of written notice by
Borrower of revocation of said appointment and
authorization. Prior to 11:00 a.m. (Houston, Texas, time)
on each Borrowing Date and subject to the provisions of
Section 3.22, Lender shall make available to Borrower in
immediately available funds such requested Advance by
deposit to Borrower's deposit account maintained with Lender
or other reasonable disposition of such funds as Borrower
shall request in writing. Lender may, and is hereby
authorized by Borrower to, endorse on the schedule attached
to the Fourth Advancing Credit Note or on a continuation of
such schedule attached to and made a part of such Fourth
Advancing Credit Note an appropriate notation evidencing the
date and amount of each Advance and payment and prepayment
by Borrower of the principal of and interest on the Fourth
Advancing Credit Loan evidenced by such Fourth Advancing
Credit Note, but the failure of Lender to make any such
endorsement or any incorrect endorsement shall not subject
Lender to any
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liability hereunder and shall not limit or otherwise affect
the obligations of Borrower under such Fourth Advancing
Credit Note.
Section 3.26. Use of Proceeds of Fourth Advancing Credit
Loan. The proceeds of the Advances comprising the Fourth
Advancing Credit Loan shall be used to pay (or reimburse
Borrower for amounts already spent by Borrower since October
1, 1996) for up to eighty-five percent (85%) of the costs of
Borrower for improvements on the realty described on
Schedule 3 attached to the Credit Agreement, up to eighty-
five percent (85%) of the cost of improvements, eighty
percent (80%) of the cost of new equipment, eighty percent
(80%) of the cost of used, refurbished equipment and sixty
percent (60%) of the cost of used, unrefurbished equipment;
provided, however, that with respect to any used,
unrefurbished equipment, if Borrower should subsequently
refurbish such equipment, then the limit shall be increased
to eighty percent (80%) and Borrower may increase the amount
borrowed hereunder on account of such equipment to bring the
total to eighty percent (80%) of the cost of such equipment
and the cost of refurbishing such equipment.
Section 3.27. Reduction or Termination of Fourth Advancing
Committed Sum. Borrower may at any time by giving at least
three (3) Business Days' notice in writing to Lender
terminate or reduce the Fourth Advancing Credit Committed
Sum; provided, however, that no such reduction of the Fourth
Advancing Credit Committed Sum shall be effective unless the
amount by which the Fourth Advancing Credit Committed Sum is
reduced shall be ONE HUNDRED THOUSAND AND NO/100
($100,000.00) or an integral multiple thereof. Once reduced
or terminated, the Fourth Advancing Credit Committed Sum may
not be increased or reinstated without the prior written
consent of Lender.
Section 3.28. Fourth Advancing Credit Commitment Fee.
Borrower agrees to pay to Lender a fee (the "Fourth
Advancing Credit Commitment Fee") on the average daily
unused portion of the Fourth Advancing Credit Commitment,
from February 14, 1997 to and including the Fourth Advancing
Credit Termination Date, at the rate of one-half of one
percent (1/2%) per annum based on a 365 day year and
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the actual number of days elapsed payable in arrears, on
April 1, 1997, July 1, 1997, October 1, 1997 and on the
Fourth Advancing Credit Termination Date.
1.13 Article IV. Article IV is hereby amended to substitute the
following for Article IV in its entirety:
Term Loan
---------
Section 4.01. Commitment for Term Loan. Subject to the
terms and conditions of this Agreement, and provided that no
Default or Event of Default has occurred and is continuing
on the Closing Date, Lender agrees to make the Term Loan to
Borrower under the Term Note, in the amount of TEN MILLION
SIX HUNDRED FIFTY-SEVEN THOUSAND AND NO/100 DOLLARS
($10,657,000.00), which amount represents a renewal and
extension, in whole or in part, of the principal
indebtedness evidenced by:
(a) that certain Promissory Note dated October 1, 1995
in the principal amount of $11,622,000.00 executed by
Borrower and payable to the order of Lender; and
(b) that certain Promissory Note dated December 13,
1995 in the principal amount of $2,000,000.00 executed by
Borrower and payable to the order of Lender.
Section 4.02. Term Note. The obligation of Borrower to
repay the Term Loan shall be evidenced by the Term Note
executed by Borrower, payable to the order of Lender, in the
principal amount of the Term Loan and dated February 14,
1997. The principal of the Term Loan, plus accrued and
unpaid interest thereon, shall be due and payable in:
(a) nine (9) consecutive installments each equal to SIX
HUNDRED FORTY-NINE THOUSAND AND NO/100 DOLLARS
($649,000.00) of principal, together with all accrued and
unpaid interest, the first of such installments being due
and payable on or before April 1, 1997 and like installments
being due and payable on the first day of each succeeding
third calendar month thereafter through and including April
1, 1999; and
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(b) a final installment due and payable on July 1, 1999
in an amount equal to the remaining unpaid principal amount
outstanding on the Term Loan, together with all accrued and
unpaid interest.
The Term Loan shall bear interest prior to maturity at a
varying rate per annum equal from day to day to the lesser
of (a) the Maximum Rate or (b) the sum of the Bank One Texas
Base Rate in effect from day to day plus one-half of one
percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank
One Texas Base Rate; provided, however, if at any time the
rate of interest specified in clause (b) preceding shall
exceed the Maximum Rate, thereby causing the interest on the
Term Loan to be limited to the Maximum Rate, then any
subsequent reduction in the Bank One Texas Base Rate shall
not reduce the rate of interest on the Term Loan below the
Maximum Rate until the aggregate amount of interest accrued
on the Term Loan equals the aggregate amount of interest
which would have accrued on the Term Loan if the interest
rate specified in clause (b) preceding had at all times been
in effect. All past due principal and interest shall bear
interest at the Maximum Rate.
1.14 Article X. Article X is hereby amended to substitute the
following for Section 10.04 in its entirety:
Section 10.04. Lease Obligations. Permit aggregate
payments of Borrower and Subsidiaries under leases of real
or personal property to exceed ONE MILLION SIX HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,600,000.00) in the aggregate
during any fiscal year.
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Sections 2.01 or 3.22 of the Agreement is subject to the condition
precedent that the Lender shall have received all of the following, each duly
executed and in form and substance satisfactory to Lender:
(a) Promissory Note dated February 14, 1997 in the principal amount
of $25,000,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Revolving Credit Note;
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(b) Promissory Note dated February 14, 1997 in the principal amount
of $10,657,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Term Note;
(c) Promissory Note dated February 14, 1997 in the principal amount
of $3,000,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Fourth Advancing Credit
Note;
(d) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against (i) all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof, and (ii) the realty described in
Schedule 3 of the Credit Agreement, the appurtenances thereto and
improvements thereon;
(e) Certified copies of resolutions of the Board of Directors of
Borrower authorizing or ratifying the execution, delivery and
performance, respectively, of those of this Fourth Amendment, the
Revolving Credit Note, the Fourth Advancing Second Credit Note,
the Term Note and all other documents provided for in this Third
Amendment to which each is a party;
(f) The articles of incorporation of Borrower certified by the
Secretary of State of the State of incorporation, and dated
reasonably near the date of this Third Amendment;
(g) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this Third
Amendment; and
(h) A favorable opinion of legal counsel to Borrower.
3. Representations and Warranties. The representations and warranties
made in Article VIII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this Third Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by the terms of this Third Amendment. Any of the terms
used in this Third Amendment which are not defined in the Credit Agreement shall
be used therein as herein defined.
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5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this Third Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
6. Applicable Law. This Third Amendment shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
Texas.
7. Entire Agreement. The Credit Agreement as amended by this Third
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this Third Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP, INC.
By:
-------------------------
J. Mike Walker
Vice President
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:
-----------------------
Charles Kingswell-Smith
Vice President
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EXHIBIT O
PROMISSORY NOTE
$25,000,000.00 Houston, Texas February ___, 1997
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on June 1, 1999, in lawful money
of the United States of America, the principal sum of TWENTY-FIVE MILLION AND
NO/100 DOLLARS ($25,000,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance hereof, at a varying rate per annum which shall from day to day be equal
to the lesser of (a) the maximum rate permitted by applicable law as the same
exists from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-fourth of one percent (1/4%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect.
Accrued and unpaid interest shall be due and payable quarterly in arrears
during the term hereof, on the 1st day of each successive April, July, October
and January commencing on April 1, 1997, until payment in full of the
outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that is
not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum then most recently established by Payee as
its Bank One Base Rate in effect
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from day to day, with each change in the rate of interest charged as the Bank
One Base Rate to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate, such Bank One Base Rate to be
computed on the basis of a year composed of 365 days for the actual number of
days elapsed (including the first day but excluding the last day) or (ii) the
Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in that
certain Credit Agreement dated March 30, 1994 as amended by First Amendment to
Credit Agreement dated December 20, 1994, Second Amendment to Credit Agreement
dated December 13, 1995 and that certain Third Amendment to Credit Agreement
dated of even date herewith by and among Maker and Payee (such instruments as
the same may be amended or modified from time to time, are hereinafter referred
to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement. Maker may borrow, repay and reborrow hereunder upon
the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
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Identification
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If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated October 1, 1995, in the
original principal amount of $20,000,000.00, executed by Maker for the benefit
of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
--------------
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Identification
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<PAGE>
DRIL-QUIP, INC.
By:
------------------------------------
J. Mike Walker, Vice President
---------------
Initialled for
Identification
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<PAGE>
EXHIBIT P
PROMISSORY NOTE
$10,657,000.00 Houston, Texas February ___, 1997
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, in lawful money of the United
States of America, the principal sum of TEN MILLION SIX HUNDRED FIFTY-SEVEN
THOUSAND AND NO/100 DOLLARS ($10,657,000.00), plus accrued and unpaid interest
thereon as hereinafter calculated, as follows:
(a) nine (9) quarterly installments each in the principal amount of
SIX HUNDRED FORTY-NINE THOUSAND AND NO/100 DOLLARS ($649,000.00), together
with all accrued and unpaid interest, with the first of such installments
due and payable on April 1, 1997, and like successive installments of
principal plus accrued and unpaid interest due and payable on the 1st day
of each succeeding July, October, January and April thereafter, through and
including April 1, 1999; and
(b) a tenth (10th) and final installment in the amount of all
outstanding principal, plus accrued and unpaid interest, due and
payable on the maturity of this note, July 1, 1999.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear interest at the Maximum
Rate.
--------------
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Identification
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<PAGE>
As used herein, the term "Bank One Base Rate" means, at any, time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Credit Agreement dated March 30, 1994 as amended by that certain First Amendment
to Credit Agreement dated December 20, 1994, that certain Second Amendment to
Credit Agreement dated December 13, 1995 and that certain Third Amendment to
Credit Agreement dated of even date herewith by and among Maker and Payee (such
instrument as the same may be amended or modified from time to time, is
hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
----------------
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<PAGE>
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and rearrangement but not in novation or
discharge, of (i) that certain Promissory Note dated October 1, 1995 in the
original principal amount of $11,622,000.00, executed by Maker for the benefit
of Payee, and (ii) that certain Promissory Note dated December 13, 1995 in the
original principal amount of $2,000,000.00, executed by Maker for the benefit of
Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
---------------
Initialled for
Identification
Page 3 of a 4 Page Note
<PAGE>
DRIL-QUIP, INC.
By:
-------------------------------
J. Mike Walker, Vice President
---------------
Initialled for
Identification
Page 4 of a 4 Page Note
<PAGE>
EXHIBIT Q
---------
PROMISSORY NOTE
$3,000,000.00 Houston, Texas February ___, 1997
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP, INC., a Texas
corporation ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, in lawful money of the United
States of America, the principal sum of THREE MILLION AND NO/100 DOLLARS
($3,000,000.00), or so much thereof as may be advanced and outstanding
hereunder, plus accrued and unpaid interest thereon as hereinafter calculated,
as follows:
(a) in three (3) installments of accrued and unpaid interest due and
payable on April 1, 1997, July 1, 1997 and October 1, 1997;
(b) fifteen (15) quarterly installments each in the amount of ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) of principal, together
with all accrued and unpaid interest, with the first of such installments
due and payable on January 1, 1998, and like successive installments of
principal plus accrued and unpaid interest due and payable on the 1st day
of each succeeding April, July, October and January thereafter, through and
including July 1, 2001; and
(c) a final installment in the amount of all outstanding principal,
plus accrued and unpaid interest due and payable on the maturity of this
note, October 1, 2001.
Whenever any payment hereunder shall be stated to be due on a day that is
not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall accrue during such
extension.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of
----------------
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<PAGE>
each change in the Bank One Base Rate; provided however, if at any time the rate
of interest specified in clause (b) preceding shall exceed the Maximum Rate,
thereby causing the interest rate hereon to be limited to the Maximum Rate, then
any subsequent reduction in the Bank One Base Rate will not reduce the rate of
interest hereon below the Maximum Rate until the total amount of interest
accrued hereon equals the amount of interest which would have accrued hereon if
the rate specified in clause (b) preceding had at all times been in effect. All
past due principal and interest shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any, time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Fourth Advancing Credit Note provided for and as defined
in that certain Credit Agreement dated March 30, 1994 as amended by that certain
First Amendment to Credit Agreement dated December 20, 1994, that certain Second
Amendment to Credit Agreement dated February 13, 1997 and that certain Third
Amendment to Credit Agreement date of even date herewith by and between Maker
and Payee (such instruments as the same may be further amended or modified from
time to time, are hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default, as such term is
----------------
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<PAGE>
defined in the Agreement, the holder hereof may, at its option, declare the
entire unpaid principal of and accrued interest on this note immediately due and
payable without additional notice, demand or presentment, all of which are
hereby waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerated, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to
---------------
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Identification
Page 3 of a 4 Page Note
<PAGE>
make endorsement shall not limit or otherwise affect the obligations of Maker
under the Agreement or this note.
DRIL-QUIP, INC.
By:
-------------------------------
J. Mike Walker, Vice President
-----------------
Initialled for
Identification
Page 4 of a 4 Page Note
<PAGE>
EXHIBIT R
---------
FORM OF NOTICE OF FOURTH ADVANCING
CREDIT BORROWING
_________________, 19___
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention: ____________________
Gentlemen:
The undersigned is an Authorized Financial Officer of Dril-Quip, Inc., a
Texas corporation ("Borrower") , and as such is authorized to make and deliver
this Notice of Fourth Advancing Credit Borrowing pursuant to Section 3.25 of
that certain Credit Agreement dated March 30, 1994 as amended by that certain
First Amendment to Credit Agreement dated December 20, 1994, that certain Second
Amendment to Credit Agreement dated December 13, 1995 and that certain Third
Amendment to Credit Agreement dated February 14, 1997 (as may be further amended
from time to time, the "Credit Agreement"), by and between BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Lender") and Borrower. All terms defined in the Credit
Agreement shall have the same meaning herein. Borrower hereby requests a
Borrowing under the Fourth Advancing Credit Loan from Lender in accordance with
Section 3.25 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule I attached hereto, the
representations and warranties contained in Article VIII of the Credit
Agreement are true and correct in all material respects at and as of the
date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is continuing.
(iii) The amount of the Fourth Advancing Credit Loan to be made
pursuant to this request, either singularly or together with other
Borrowings previously made under Section 3.22 of the Credit Agreement does
not exceed the Fourth Advancing Credit Committed Sum.
<PAGE>
Bank One, Texas, National Association
___________________, 19________
Page 2
(iv) [Proceeds from this Borrowing will be used to pay for up to
eighty-five percent (85%) of the costs of improvements to the realty
described on Schedule 3 to the Credit Agreement].
[Proceeds from this Borrowing will be used to pay for up to sixty
percent (60%) of the cost of certain used, unrefurbished equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the cost of certain new equipment].
[Proceeds from this Borrowing will be used to pay for up to eighty
percent (80%) of the costs of certain used, refurbished equipment].
(v) [Attached hereto are copies of invoices for such materials and
work performed].
[Attached hereto are copies of invoices for such equipment purchased].
(vi) All information supplied herein is true and accurate as of the
date hereof.
The Borrowing Date shall be ___________________________, 19_____.
DRIL-QUIP, INC.
By:________________
Name:______________
Title:_____________
<PAGE>
EXHIBIT 10.5
CREDIT AGREEMENT
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
DRIL-QUIP (EUROPE) LIMITED
GOVERNING
$15,000,000.00 REVOLVING CREDIT FACILITY
$1,704,000.00 TERM LOAN
MARCH 30, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB
<S> <C> <C>
ARTICLE I Definitions........................................................... 1
Section 1.01. Definitions................................................... 1
Section 1.02. Other Definitional Provisions................................. 11
ARTICLE II Revolving Credit Loan................................................. 11
Section 2.01. Commitment for Revolving Credit Loan.......................... 11
Section 2.02. Revolving Credit Note......................................... 11
Section 2.03. Expiration of Commitment to Lend Under Revolving Credit....... 12
Section 2.04. Procedure for Borrowing Under the Revolving Credit Loan....... 12
Section 2.05. Use of Proceeds of Revolving Credit Loan...................... 13
Section 2.06. Reduction or Termination of Revolving Committed Sum........... 13
Section 2.07. Agreement to Remain in Effect; Revolving Credit............... 13
Section 2.08. Letters of Credit............................................. 13
Section 2.09. Aggregate Amounts Available under Letters of Credit........... 14
Section 2.10. Advances in Respect of Letters of Credit; Reimbursement....... 14
Section 2.11. Purpose of Letters of Credit.................................. 15
Section 2.12. Conflicts in Terms............................................ 15
Section 2.13. Revolving Credit Commitment Fee; Letter of Credit Fee......... 15
Section 2.14. Borrowing Base................................................ 15
Section 2.15. Required Date and Amount of Mandatory Prepayments............. 16
ARTICLE III Term Loan............................................................. 16
Section 3.01. Commitment for Term Loan...................................... 16
Section 3.02. Term Note..................................................... 16
Section 3.03. Use of Proceeds of Term Loan.................................. 17
ARTICLE IV Payments.............................................................. 17
Section 4.01. Method of Payment............................................. 17
Section 4.02. Prepayment.................................................... 17
ARTICLE V Collateral............................................................ 18
Section 5.01. Collateral.................................................... 18
Section 5.02. Setoff........................................................ 18
ARTICLE VI Conditions Precedent.................................................. 19
Section 6.01. Initial Advance............................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TAB
<S> <C> <C>
Section 6.02. Additional Revolving Credit Advances.......................... 20
ARTICLE VII Representations and Warranties........................................ 20
Section 7.01. Corporate Existence........................................... 21
Section 7.02. Financial Statements.......................................... 21
Section 7.03. Default....................................................... 21
Section 7.04. Authorization and Compliance with Laws and Material Agreements 21
Section 7.05. Litigation and Judgments...................................... 21
Section 7.06. Rights in Properties; Liens................................... 22
Section 7.07. Enforceability................................................ 22
Section 7.08. Approvals..................................................... 22
Section 7.09. Debt.......................................................... 22
Section 7.10. Taxes......................................................... 22
Section 7.11. Use of Proceeds; Margin Securities............................ 22
Section 7.12. ERISA......................................................... 23
Section 7.13. Disclosure.................................................... 23
Section 7.14. Subsidiaries.................................................. 23
Section 7.15. Principal Place of Business................................... 23
Section 7.16. Investment Company Act........................................ 23
Section 7.17. Public Utility Holding Company Act............................ 23
Section 7.18. Contracts..................................................... 24
Section 7.19. Compliance with Law........................................... 24
Section 7.20. Consent....................................................... 24
Section 7.21. Securities Laws............................................... 24
Section 7.22. Existing Loans to Affiliates.................................. 24
Section 7.23. Patents and Trademarks........................................ 24
ARTICLE VIII Affirmative Covenants................................................. 24
Section 8.01. Financial Statements.......................................... 24
Section 8.02. Periodic Miscellaneous Reports................................ 25
Section 8.03. Warehousing Agreements........................................ 26
Section 8.04. Performance of Obligations.................................... 26
Section 8.05. Preservation of Existence and Conduct of Business............. 26
Section 8.06. Maintenance of Properties..................................... 26
Section 8.07. Payment of Taxes and Claims................................... 26
Section 8.08. Audit......................................................... 26
Section 8.09. Keeping Books and Records..................................... 26
Section 8.10. Compliance with Laws.......................................... 27
Section 8.11. Compliance with Agreements.................................... 27
Section 8.12. Further Assurances............................................ 27
Section 8.13. Compliance with ERISA......................................... 27
Section 8.14. Use of Proceeds............................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TAB
<S> <C> <C>
Section 8.15. Insurance Summary............................................. 27
Section 8.16. Licenses...................................................... 27
Section 8.17. Insurance; Payment of Premiums................................ 27
Section 8.18. Casualty or Damage to Insured Property........................ 28
ARTICLE IX Negative Covenants.................................................... 29
Section 9.01. Limitation on Liens; Debt..................................... 29
Section 9.02. Mergers, Acquisitions and Dissolutions........................ 29
Section 9.03. Section 9.03 Left Blank Intentionally......................... 29
Section 9.04. Section 9.04 Left Blank Intentionally........................ 30
Section 9.05. Section 9.05 Left Blank Intentionally........................ 30
Section 9.06. Section 9.06 Left Blank Intentionally........................ 30
Section 9.07. Section 9.07 Left Blank Intentionally........................ 30
Section 9.08. Loans and Investments......................................... 30
Section 9.09. Transactions With Affiliates.................................. 30
Section 9.10. Disposition of Assets......................................... 30
Section 9.11. Sale and Leaseback............................................ 30
Section 9.12. Prepayment of Debt............................................ 30
Section 9.13. Nature of Business............................................ 30
Section 9.14. Prohibited Transactions....................................... 30
Section 9.15. Contingent Liabilities........................................ 31
Section 9.16. Removal of Collateral......................................... 31
Section 9.17. Compliance with Regulations G, T, U, and X.................... 31
ARTICLE X Default............................................................... 31
Section 10.01. Events of Default............................................. 31
Section 10.02. Occurrence of a Default or an Event of Default................ 33
Section 10.03. Performance by Lender......................................... 35
Section 10.04. Waivers....................................................... 35
Section 10.05. Application of Proceeds....................................... 35
Section 10.06. Cumulative Rights............................................. 35
Section 10.07. Expenditures by Lender or Any Lender.......................... 35
ARTICLE XI Miscellaneous......................................................... 35
Section 11.01. Expenses of Lender............................................ 35
Section 11.02. Foreign Taxes................................................. 36
Section 11.03. Restatement................................................... 36
Section 11.04. No Waiver; Cumulative Remedies................................ 36
Section 11.05. Successors and Assigns........................................ 37
Section 11.06. Survival of Representations and Warranties.................... 37
Section 11.07. Entire Agreement; Amendment................................... 37
Section 11.08. Maximum Interest Rate......................................... 37
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TAB
<S> <C> <C>
Section 11.09. Notices....................................................... 37
Section 11.10. Applicable Law................................................ 38
Section 11.11. Counterparts.................................................. 38
Section 11.12. Severability.................................................. 38
Section 11.13. Headings...................................................... 39
Section 11.14. Non-Application of Chapter 15 of Texas Credit Code............ 39
Section 11.15. Controlling Provision Upon Conflict........................... 39
</TABLE>
iv
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of March 30, 1994,
is by and among DRIL-QUIP (EUROPE) LIMITED, a private limited company formed
under the Companies Act of the United Kingdom 1948, as amended ("Borrower"), and
BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking association
("Lender").
In consideration of the mutual covenants and agreements herein
contained, Borrower, Parent and Lender agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below:
"Accounts" means accounts (as such term is defined in the UCC) and
"Account" means any of the Accounts.
"Advance" means an advance of funds by Lender to Borrower pursuant to
Article II or Article III.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, Borrower.
"Agreement" means this Credit Agreement (including all Exhibits and
Schedules attached hereto), as the same may be amended or supplemented from time
to time.
"Application" means the document between Borrower and Lender relating
to a Letter of Credit and evidencing, inter alia, the agreement of Lender to
issue such Letter of Credit and Borrower's reimbursement obligation with respect
thereto, which Application shall be in form and substance satisfactory to
Lender.
"Authorized Financial Officer" means (i) any Director of Borrower, or
(ii) the Chairman of the Board of Directors, President, Vice President, Chief
Financial Officer, Treasurer or Controller of Parent.
"Available Sum" means, as of the date of any determination thereof,
the Borrowing Base less the sum of (w) the aggregate unpaid balance of the
Revolving Credit Loan plus (x) the aggregate amount of any pending Notice of
Revolving Credit Borrowing plus (y) the aggregate
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contingent liability of Lender under all open Letters of Credit plus (z) the
aggregate amount of any pending Notice of Letter of Credit Issuance.
"Average Daily Unused Balance" means, for any period of time, the
average daily amount during such period of time by which (i) the lesser of (a)
the Revolving Credit Committed Sum or (b) the sum of the Borrowing Base plus the
Parent's Borrowing Base exceeds (ii) the sum of (a) the aggregate unpaid balance
of the Revolving Credit Loan plus (b) the aggregate amount of any pending Notice
of Revolving Credit Borrowings plus (c) the aggregate contingent liability of
Lender under all open Letters of Credit plus (d) the aggregate amount of any
pending Notice of Credit Issuance plus (e) the aggregate unpaid balance of
Parent's Revolving Debt Facility plus (f) the aggregate amount of any pending
request to borrow monies or issue letters of credit under Parent's Revolving
Debt Facility plus (g) the aggregate contingent liability of Lender under all
open letters of credit issued by Lender for the account of Parent under Parent's
Revolving Debt Facility.
"Bank One Texas Base Rate" means at any time the lesser of (i) the
rate of interest per annum then most recently established by Lender as its Bank
One Texas Base Rate in effect from day to day, with each change in the rate of
interest charged as the Bank One Texas Base Rate to become effective, without
notice to Borrower, on the effective date of each change in the Bank One Texas
Base Rate, such Bank One Texas Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
"Borrowing" means a borrowing hereunder consisting of Loans made to
Borrower by Lender in Advances under this Agreement and the Notes.
"Borrowing Base" means, at any particular time, an amount equal to the
sum of (a) eighty percent (80%) of Eligible Accounts, plus (b) fifty percent
(50%) of Eligible Inventory; provided, however, that fifty percent (50%) of
Eligible Inventory shall never exceed sixty percent (60%) of the Borrowing Base.
"Borrowing Base Deficiency" shall have the meaning set forth in
Section 2.14 hereof.
"Borrowing Base Report" shall have the meaning set forth in Section
2.14 hereof.
"Borrowing Date" means a date upon which an Advance is to be made
hereunder.
"Business Day" means a day when Lender is open for business.
"Closing" means the exchange of the various documents and instruments
by the parties hereto on the Closing Date (as defined in Section 6.01 hereof)
which are required to be exchanged on the Closing Date to consummate the initial
Advances (regardless of whether such initial Advances are then made) and related
transactions in accordance with Article VI hereof.
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"Closing Date" shall have the meaning set forth in Section 6.01
hereof.
"Collateral" shall have the meaning set forth in Section 5.01.
"Commitment" means (i) the commitment of Lender to make available the
Revolving Credit Loan hereunder, (ii) the commitment of Lender to make available
the Term Loan hereunder and (iii) the commitment of Lender to issue the Letters
of Credit hereunder.
"Consolidated" means, with reference to any item, such item of Parent
or any Material Company or, if Parent or any Material Company shall have any
Subsidiary or Subsidiaries which are consolidated for financial reporting
purposes for the date or for the period as of or with respect to which a
determination is made, of Parent, the Material Companies and such Subsidiary or
Subsidiaries, consolidated in accordance with GAAP.
"Debt" means for any Person (i) all indebtedness whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of money borrowed, (ii) all indebtedness representing deferred payment of the
purchase price of property or assets, (iii) all indebtedness under any lease
which, in conformity with GAAP, is required to be capitalized for balance sheet
purposes, (iv) all indebtedness under guaranties, endorsements, assumptions or
other contingent obligations, in respect of, or to purchase or otherwise
acquire, indebtedness of others, and (v) all indebtedness secured by a Lien
existing on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner thereof.
"Default" means the occurrence of any event which with the giving of
notice or lapse of time, or both, would become an Event of Default.
"DQAP" means Dril-Quip Asia Pacific Pte Ltd, a company incorporated in
the Republic of Singapore.
"Eligible Accounts" means at any date of determination thereof, all
Accounts of Borrower that are acceptable to Lender in its sole reasonable
discretion and satisfy the following eligibility requirements:
(i) If the Account arises because of the sale of goods, such goods have
been shipped or delivered on an open account basis (or Lender has been provided
with a letter from the customer accepting title for the goods prior to shipment
and accepting risk of loss with respect thereto and confirming its obligation to
pay for such goods on Borrower's regular terms to such customer) and on an
absolute sales basis and not on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return agreement and no material
part of such goods has been returned, rejected, lost or damaged;
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(ii) The Account is not evidenced by chattel paper or an instrument of any
kind unless such chattel paper or instrument is assigned and delivered to and is
acceptable to Lender;
(iii) The account debtor obligated on such Account is not insolvent or the
subject of any bankruptcy, reorganization, receivership or insolvency
proceedings of any kind and Lender is reasonably satisfied with the credit
worthiness of such account debtor;
(iv) The Account is a valid, legally enforceable obligation of the relevant
account debtor not subject to any offset, defense or claim denying or limiting
liability thereunder, other than normal discounts and allowances granted in the
ordinary course of Borrower's business on prior notice to Lender, and other than
any amount in dispute or subject to debit memorandum which shall have been
deducted from the total Account to determine what may otherwise be the balance
of the Eligible Account;
(v) The Account is subject to Lender's prior perfected security interest,
or foreign equivalent thereof, and is not subject to any Lien other than any
Permitted Lien;
(vi) The Account has arisen with respect to:
(1) sales invoiced for net payment on terms of thirty (30) days or
less after the date of the invoice and which remain unpaid for no longer than
ninety (90) days after the date of invoice or the due date on the invoice; or
(2) sales invoiced for net payments beyond thirty (30) days, and which
remain unpaid for no longer than thirty (30) days after due date, on the
condition that no invoice will be eligible for more than ninety (90) days before
due date;
(vii) If the Account debtor is located in a jurisdiction which requires
the filing of any tax report or tax return with respect to any Account, such tax
reports and tax returns have been filed by Borrower;
(viii) The Account is not owing from any employee, officer, agent,
director, or a stockholder of Parent, any Material Company, any other
Subsidiary, or from an Affiliate;
(ix) The Account does not arise from a contract containing a prohibition
against granting a security interest, or foreign equivalent thereof, therein;
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(x) If ten percent (10%) or more of Accounts owing from an account debtor
become ineligible for reason of being past-due and Borrower fails to notify
Lender in writing of such fact before such fact is reflected on the Borrowing
Base Report next delivered to Lender pursuant to Section 2.14, then, unless
expressly approved by Lender in writing, all Accounts owed by such account
debtor shall be ineligible;
(xi) If ten percent (10%) or more of Accounts owing from an account debtor
become ineligible for reason of being past-due and Borrower notifies Lender in
writing of such fact before such fact is reflected on the Borrowing Base Report
next delivered to Lender pursuant to Section 2.14, then, unless Lender notifies
Borrower in writing that all Accounts owed by such account debtor are ineligible
(which decision Lender shall make in its sole good faith discretion), all the
Accounts owed by such account debtor which satisfy all of the other eligibility
requirements of this definition, except for clause (vi), shall be Eligible
Accounts; and
(xii) If the Lender has determined, in its sole reasonable discretion,
that the effect of any rebate or other sales program with respect to any
Accounts would be to reduce collections of the face amounts of such Accounts,
then the Lender may reduce the eligibility of the face amount of such Accounts
to the extent of any such rebate or the amount covered by such sales program.
"Eligible Inventory" means at any date of determination thereof, all
Inventory of Borrower that is acceptable to Lender in its sole reasonable
discretion, but not exceeding the lesser of the actual cost or fair market value
of Borrower's Inventory. With respect to Inventory, "actual costs" shall mean
the sum of (i) the purchase price of the materials included in the raw
materials, work in process, and finished goods and (ii) all direct labor costs
attributable to the work in process or finished goods, less any progress
payments or partial billings included in such Inventory as reflected in
Borrower's work orders, if any, for such Inventory. Inventory is "eligible"
only if, on the date as of which the determination is being made, it satisfies
the following eligibility requirements:
(i) The Inventory consists of raw materials, work in process and finished
goods;
(ii) The Inventory does not consist of consigned Inventory;
(iii) The Inventory is in good condition, meets all standards imposed by
any governmental agency, or department or division thereof, having regulatory
authority over such goods, their use and/or sale and is either currently usable
or currently saleable in the normal course of business of Borrower and is not
otherwise unacceptable to the Lender due to age, type, category and/or quantity;
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(iv) Inventory not located at one of the Permitted Locations that otherwise
would be Eligible Inventory hereunder and which exceeds ten percent (10%) of the
value of all Eligible Inventory shall not be Eligible Inventory;
(v) The Inventory is subject to Lender's prior perfected security interest
and is not subject to any other Lien other than Permitted Liens;
(vi) If the lesser of the actual cost or fair market value of Tubular Goods
exceeds thirty percent (30%) of Eligible Inventory, then the amount of such
excess shall be ineligible; and
(vii) Inventory which has been determined by Lender, in its sole
reasonable discretion, to be ineligible because such Inventory is damaged, not
currently usable or currently saleable in the normal course of business of
Borrower, shall not be Eligible Inventory for purposes hereof.
"ERISA" shall have the meaning set forth in Section 7.12 hereof.
"Event of Default" shall have the meaning specified in Section 10.01.
"Excess Amount" shall have the meaning set forth in Section 2.14
hereof.
"Existing Liens" means any Lien on any assets or properties of
Borrower, including all such Liens that secure Debt of Borrower in an amount
(including any amounts which Borrower has the right to borrow under the
documents, agreements and instruments evidencing such Debt and Liens, whether or
not then advanced by such lender), as of the date of this Agreement, at least
equal to $50,000.00, as fully described in Schedule 1 hereto.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Inventory" means as at the date of determination, all Inventory (as
such term is defined in the UCC) of Borrower.
"Investments" means all loans, advances, capital contributions and
transfers of assets (other than for cash in an amount equal to the fair market
value of the assets transferred) and all
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purchase and other acquisitions for consideration or evidences of indebtedness,
capital stock or other securities of any partnership, corporation, firm or other
Person.
"Letter of Credit" means either a standby letter of credit or a
commercial letter of credit issued by Lender for the account of Borrower in
accordance with the terms of Article II hereof.
"Letter of Credit Fee" shall have the meaning set forth in Section
2.13 hereof.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, or conditional sale or title retention agreement, or any other
interest in property designed to secure the repayment of Debt or any other
obligation, whether arising by agreement, or under any statute or law of any
applicable jurisdiction, or otherwise.
"Loans" means, collectively, the Revolving Credit Loan and the Term
Loan, and "Loan" means singly, the Revolving Credit Loan or the Term Loan.
"Loan Papers" means this Agreement and all promissory notes, deeds of
trust, security agreements, or their equivalent under applicable laws, financing
statements, collateral assignments, guaranties, letters of credit, and other
instruments, documents, and agreements executed and delivered pursuant to, in
connection with or as contemplated by this Agreement and any future amendments,
supplements or other modifications hereto or thereto.
"Material Companies" means, collectively, both DQAP and Borrower, and
"Material Company" means, singly, DQAP or Borrower.
"Maximum Rate" has the meaning set forth in Section 2.02 hereof.
"Notes" shall mean the Revolving Credit Note and the Term Note and all
extensions, renewals and modifications thereof.
"Notice of Credit Issuance" shall have the meaning set forth in
Section 2.08 hereof.
"Notice of Revolving Credit Borrowing" shall have the meaning set
forth in Section 2.04 hereof.
"Obligations" means all present and future obligations, liabilities
and indebtedness, and all renewals and extensions thereof, or any part thereof,
of Borrower to Lender arising pursuant to the Loan Papers and all interest
accruing thereon and reasonable attorneys' fees incurred in the enforcement or
collection thereof, regardless of whether such obligations, liabilities and
indebtedness are direct or indirect, primary or secondary, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several, including, but
not limited to, the indebtedness and obligations evidenced by the Notes, all
reimbursement obligations with respect to the Letters of Credit and all
obligations referred
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to in any and all other Loan Papers. The Revolving Commitment Fee and the Letter
of Credit Fee called for by Section 2.13 hereof shall be included within the
Obligations.
"Parent" means Dril-Quip, Inc., a Texas corporation.
"Parent's Borrowing Base" means the Borrowing Base as defined in that
certain Credit Agreement between Lender and Parent dated of even date herewith
as such Credit Agreement may be hereafter amended, renewed or extended from time
to time.
"Parent's Revolving Debt Facility" means that certain revolving credit
loan in the maximum principal amount of $15,000,000.00 made by Lender to Parent
of even date herewith and governed by that certain Credit Agreement between
Lender and Parent dated of even date herewith as such Credit Agreement may be
hereafter amended, renewed or extended from time to time.
"Payment Notice" shall have the meaning set forth in Section 2.14
hereof.
"Permitted Investments" means any one or more of the following:
(a) readily marketable securities issued or fully guaranteed by the United
States of America;
(b) certificates of deposit, eurodollar or repurchase obligations with
maturities of one year or less from the date of acquisition thereof of any
commercial bank operating in the United States having capital and surplus in
excess of $100,000,000.00;
(c) certificates of deposit or time deposits of any commercial bank
operating in the United States with maturities of one (1) year or less from the
date of such deposit where any and all such deposits are at all times fully
insured at such institution by the Federal Deposit and Insurance Corporation;
(d) commercial paper of a domestic issuer if at the time of purchase such
paper is rated "AA" by Moody's Investors Service with maturities of not more
than one hundred eighty (180) days.
"Permitted Liens" means any one or more of following:
(i) Liens for taxes, assessments or governmental charges either not yet
delinquent or the validity of which are being contested in good faith by
appropriate proceedings diligently prosecuted and as to which adequate reserves
shall have been set aside in conformity with GAAP;
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(ii) Deposits, pledges or other liens to secure the payment of workers'
compensation, unemployment insurance or other social security benefits or
obligations, or to secure the performance of bids, trade contracts, leases,
public or statutory obligations, surety or appeal bonds and other obligations of
a like nature incurred in the ordinary course of business and in each case to
secure such obligations not yet delinquent, or if delinquent which are being
diligently contested in good faith and as to which adequate reserves shall have
been set aside in conformity with GAAP;
(iii) Materialmen's, mechanics', worker's, repairmen's, employees',
warehousemen's, carrier's or other like statutory or common law liens, in each
case arising in the ordinary course of business to secure obligations not yet
delinquent, or if delinquent which are being diligently contested in good faith
and as to which adequate reserves shall have been set aside in conformity with
GAAP or as to which adequate bonds shall have been obtained;
(iv) Purchase money liens, purchase money security interests, or title
retention arrangements upon or in any property acquired or held by any Person in
the ordinary course of business to secure purchase money indebtedness which is
otherwise permitted by Section 9.01 hereof and is incurred solely for the
purpose of financing the acquisition of such property, or renewals or extensions
thereof;
(v) Existing Liens, or continuations, renewals and extensions thereof;
provided, however, that such Existing Lien shall not secure any additional Debt
(except any amounts which a Person has the right to borrow under the documents,
agreements and instruments evidencing Debt existing as of the Closing Date)
created pursuant to any such continuation, renewal or extension; or
(vi) Lender's Liens.
"Permitted Locations" means the locations listed on Schedule 2
attached hereto, all of which are and shall at all times be locations in
Scotland, Norway or locations where the Lender, in its sole discretion, has made
all filings necessary to perfect a security interest in any Inventory at such
location, and which are and shall at all times be either (i) locations, where
Collateral is located, owned by Borrower; (ii) locations, where Collateral is
located, leased by, in each case for which Borrower shall have obtained
landlords' waivers acceptable in form and substance to Lender; or (iii) public
warehouses for which Borrower shall use its best efforts to have: (1) filed
financing statements, or the foreign equivalent thereof, against such
warehouseman covering the Inventory, which financing statements, or the foreign
equivalent thereof, shall have been assigned to Lender, and (2) obtained
warehouseman's waivers acceptable in form and substance to Lender, except that
Lender shall have the option to exclude from Eligible Inventory, Inventory at
warehouse locations
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having in the aggregate a value less than $30,000.00, but the exclusion of such
Inventory from Eligible Inventory shall be in the sole discretion of Lender.
"Person" means and includes any natural person, corporation, business
trust, association, company, partnership, joint venture, or other entity.
"Revolving Credit Available Loan Amount" means, as of the date of any
determination thereof, the lesser of (i) the Revolving Credit Committed Sum less
the sum of (a) the aggregate unpaid balance of the Revolving Credit Loan plus
(b) the aggregate amount of any pending notice of Revolving Credit Borrowings
plus (c) the aggregate contingent liability of Lender under all open Letters of
Credit plus (d) the aggregate amount of any pending Notice of Credit Issuance
plus (e) the aggregate unpaid balance of Parent's Revolving Debt Facility plus
(f) the aggregate amount of any pending request to borrow moneys or issue
letters of credit under Parent's Revolving Debt Facility plus (g) the aggregate
contingent liability of Lender under all open letters of credit issued by Lender
for the account of Parent under Parent's Revolving Debt Facility or (ii) the
Available Sum.
"Revolving Credit Commitment Fee" shall have the meaning set forth in
Section 2.13 hereof.
"Revolving Credit Commitment Period" means the period commencing on
the Closing Date and ending on the Revolving Credit Termination Date.
"Revolving Credit Committed Sum" means FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00), as such amount may be reduced pursuant to Section
2.06.
"Revolving Credit Loan" means the Loan made by Lender to Borrower, in
one or more Advances, during the Revolving Credit Commitment Period, pursuant to
Section 2.01.
"Revolving Credit Note" means the promissory note in favor of Lender
in substantially the form of Exhibit A hereto, and all extensions, renewals and
modifications thereof.
"Revolving Credit Termination Date" means October 1, 1995, or such
earlier date as the Revolving Credit Commitment terminates as provided in this
Agreement.
"Rights" means with respect to any Person, the rights, remedies
(equitable or legal), claims, causes of action, powers, and privileges granted
to such Person pursuant to any or all of the Loan Papers or any other document,
instrument or other agreement heretofore, now, or hereafter executed in
connection therewith, whether granted or arising pursuant to the express
provisions of any of the foregoing, or at law, or in equity, by constitution,
statute, case or otherwise.
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"Security Documents" means the documents described in Section 5.01
hereof and all other documents now or hereafter existing which provide Lender
with Collateral to secure the Obligations, as the same may be amended or
restated from time to time.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or indirectly, by
Parent, Borrower and/or any other Subsidiary, individually or jointly.
"Term Loan" means the loans made by Lender pursuant to Section 3.01
and evidenced by the Term Note.
"Term Note" means the promissory note described in Section 3.01 hereof
in favor of Lender in substantially the form of Exhibit B hereto, and all
extensions, renewals and modifications thereof.
"Tubular Goods" means all tubular goods of Borrower.
"UCC" means the Uniform Commercial Code as adopted and amended by the
State of Texas.
Section 1.02. Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural form of the
term defined. Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with GAAP as in effect from time to time, applied on a
basis consistent (except for changes disclosed to Lender, consistent with GAAP
and approved by Borrower's independent public accountants) with the most recent
respective financial statements of Borrower delivered to Lender. The words
"herein," "hereof," "hereunder" and other words of similar import refer to this
Agreement as a whole and not to a particular section, paragraph or other
subdivision. The terms defined in Section 1.01 hereof, unless the context
requires otherwise, will have the meaning assigned to them in Section 1.01
hereof, and will include the plural as well as the singular. All other terms
used herein shall have the meanings as otherwise stated herein or as otherwise
defined in the UCC.
ARTICLE II
Revolving Credit Loan
Section 2.01 Commitment for Revolving Credit Loan. Subject to the
terms and conditions of this Agreement, and provided that no Default or Event of
Default has occurred or is continuing or no Default or Event of Default will
have occurred upon the making of such Advance,
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Lender agrees to lend to Borrower, pursuant to this Agreement, such amounts as
the Borrower may request in one or more Advances, from time to time during the
Revolving Credit Commitment Period to and including the Revolving Credit
Termination Date; provided that the aggregate principal amounts available at any
time under the Revolving Credit Loan shall not at any time exceed the Revolving
Credit Available Loan Amount.
Section 2.02. Revolving Credit Note. The obligation of Borrower to
repay the Revolving Credit Loan shall be evidenced by the Revolving Credit Note
executed by Borrower, payable to the order of Lender, in the principal amount of
the Revolving Credit Committed Sum and dated the date of the making of the
Revolving Credit Loan. The principal of the Revolving Credit Loan shall be due
and payable on the Revolving Credit Termination Date. The Revolving Credit Loan
shall bear interest prior to maturity at a varying rate per annum equal from day
to day to the lesser of (a) the maximum rate permitted from day to day by
applicable law ("Maximum Rate"), including as to Article 5069-1.04 Vernon's
Texas Civil Statutes (and as the same may be incorporated by reference in other
Texas statutes), but otherwise without limitation, that rate based upon the
"indicated rate ceiling," or (b) the sum of the Bank One Texas Base Rate in
effect from day to day plus one-half of one percent (1/2%), each such change in
the rate of interest charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank One Texas Base Rate;
provided, however, if at any time the rate of interest specified in clause (b)
preceding shall exceed the Maximum Rate, thereby causing the interest on the
Revolving Credit Loan to be limited to the Maximum Rate, then any subsequent
reduction in the Bank One Texas Base Rate shall not reduce the rate of interest
on the Revolving Credit Loan below the Maximum Rate until the aggregate amount
of interest accrued on the Revolving Credit Loan equals the aggregate amount of
interest which would have accrued on the Revolving Credit Loan if the interest
rate specified in clause (b) preceding had at all times been in effect. Accrued
and unpaid interest on the Revolving Credit Loan shall be due and payable (a)
quarterly in arrears, on the 1st day of each successive July, October, January
and April commencing on July 1, 1994, until payment in full of the outstanding
principal under the Revolving Credit Note and (b) on the Revolving Credit
Termination Date. All past due principal and interest shall bear interest at the
Maximum Rate.
Section 2.03. Expiration of Commitment to Lend Under Revolving Credit.
The maximum obligation of Lender to make Advances under Section 2.01 hereof or
to issue Letters of Credit under Section 2.08 hereof shall not at any time
exceed in the aggregate the Revolving Credit Committed Sum, and Lender's
obligation to make additional Advances under Section 2.01 hereof or to issue
Letters of Credit under Section 2.08 hereof shall terminate and expire at 11:00
A.M., Houston, Texas time on the Revolving Credit Termination Date; provided
that Borrower's Obligations and the Rights of Lender under the Loan Papers shall
continue in full force and effect until the obligations have been paid and
performed in full.
Section 2.04. Procedure for Borrowing Under the Revolving Credit Loan.
During the Revolving Credit Commitment Period, Borrower shall give Lender a
written notice executed on behalf of Borrower by any Authorized Financial
Officer (the "Notice of Revolving Credit
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Borrowing") of any proposed Borrowing under the Revolving Credit Loan which
shall be irrevocable. Each Notice of Revolving Credit Borrowing shall be
received by Lender not later than 11:00 A.M., Houston, Texas time, at least two
(2) Business Days prior to any proposed Borrowing requested by Borrower. Each
such Notice of Revolving Credit Borrowing shall be in substantially the form of
Exhibit C attached hereto. Lender, at its option, may from time to time accept
telephonic requests for Advances; provided that Borrower shall promptly
thereafter provide Lender with a completed Notice of Revolving Credit Borrowing.
Lender is hereby authorized to act in reliance upon a certificate of incumbency
from any of Borrower's Directors as to the identity of the foregoing officers
and their due appointment and authorization to issue Borrowing requests and
receive proceeds of Advances hereunder on behalf of Borrower unless and until
Lender is in actual receipt of written notice by Borrower of revocation of said
appointment and authorization. If prior to the Borrowing Date, Lender shall
request that Borrower provide additional information on or confirmation of the
Borrowing Base, Borrower agrees to provide same and Lender shall not have any
obligation to make any Advance with respect to a proposed Borrowing until Lender
is satisfied with the Borrower's determination of the Borrowing Base. Prior to
11:00 A.M. (Houston, Texas time) on each Borrowing Date and subject to the
provisions of Section 2.01, Lender shall make available to Borrower in
immediately available funds such requested Advance by deposit to Borrower's
deposit account maintained with Lender or such other reasonable disposition of
such funds as Borrower shall request in writing. Lender may, and is hereby
authorized by Borrower to, endorse on the schedule attached to the Revolving
Credit Note or on a continuation of such schedule attached to and made a part of
such Revolving Credit Note an appropriate notation evidencing the date and
amount of each Advance and payment and prepayment by Borrower of the principal
of and interest on the Revolving Credit Loan evidenced by such Revolving Credit
Note, but the failure of Lender to make any such endorsement or any incorrect
endorsement shall not subject Lender to any liability hereunder and shall not
limit or otherwise affect the obligations of Borrower under such Revolving
Credit Note.
Section 2.05. Use of Proceeds of Revolving Credit Loan. The proceeds
of all Advances comprising the Revolving Credit Loan shall be used for any
legitimate corporate purpose of Borrower which shall include, without
limitation, the repayment of Debt owed by Borrower to Parent and the payment of
a dividend from Borrower to Parent.
Section 2.06. Reduction or Termination of Revolving Committed Sum.
Borrower may at any time by giving at least three (3) Business Days' notice in
writing to Lender terminate or reduce the Revolving Credit Committed Sum;
provided, however, that (i) no such reduction of the Revolving Credit Committed
Sum shall be effective unless the amount by which the Revolving Credit Committed
Sum is reduced shall be ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) or
an integral multiple thereof (ii) no such termination or reduction of the
Revolving Credit Committed Sum shall be effective unless, simultaneously
therewith, all principal outstanding under the Revolving Credit Loan in excess
of the new Revolving Credit Committed Sum, after giving effect to the proposed
reduction, together with all interest accrued thereon, shall be pre-paid in full
by Borrower and (iii) simultaneously with such termination or reduction, Parent
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shall have terminated or reduced by the same amount the maximum amount Lender is
obligated to loan to Parent pursuant to Parent's Revolving Debt Facility. Once
reduced or terminated, the Revolving Credit Committed Sum may not be increased
or reinstated without the prior written consent of Lender.
Section 2.07. Agreement to Remain in Effect; Revolving Credit. This
Agreement shall remain in effect regardless of the aggregate amount of Advances
from time to time outstanding evidenced by the Revolving Credit Note. Subject
to the limitations set forth in this Article II and to the other terms and
provisions of this Agreement, Borrower may borrow, repay, and reborrow under the
Revolving Credit Note.
Section 2.08. Letters of Credit. Subject to the terms and conditions
of this Agreement, and provided that no Default or Event of Default has occurred
and is continuing, Lender will, upon Borrower's request, issue one or more
Letters of Credit during the Revolving Credit Commitment Period for the account
of Borrower; provided that the aggregate face amount of such Letters of Credit
to be issued shall not exceed the Revolving Credit Available Loan Amount; and
further provided that the aggregate face amount of all Letters of Credit issued
pursuant to this Section 2.08 shall not exceed $1,500,000.00 at any one time.
During the Revolving Credit Commitment Period Borrower shall give Lender written
notice executed on behalf of Borrower by any Authorized Financial Officer of
Borrower (the "Notice of Credit Issuance") of any proposed issuance of a Letter
of Credit. Such Notice of Credit Issuance shall be in substantially the form of
Exhibit D attached hereto. Such Notice of Credit Issuance shall be revocable
prior to the issuance of the Letter of Credit; provided, however, if such notice
is revoked, Borrower shall pay to Lender a fee of $300.00. Each Notice of Credit
Issuance, except with respect to Letters of Credit to be opened on the Closing
Date, shall be delivered to Lender not less than two (2) Business Days before
the requested date of issuance thereof. Additionally, each Notice of Letter of
Credit Issuance shall be accompanied by an Application executed by the Company
relating to the subject Letter of Credit. If prior to the issuance of any Letter
of Credit, Lender shall request that Borrower provide additional information on
or confirmation of the Borrowing Base, Borrower agrees to provide same and
Lender shall not issue any Letter of Credit covered by the Notice of Letter of
Credit Issuance until Lender is satisfied with Borrower's determination of the
Borrowing Base. Each Letter of Credit shall be on substantially such terms as
Borrower may specify in the relevant Application and must be in form and
substance satisfactory to Lender and shall have a fixed expiration date no later
than 1:00 P.M. (Houston, Texas time) one (1) year from the issuance thereof. The
Existing Letters of Credit shall for all purposes be deemed to have been issued
pursuant to this Section 2.08.
Section 2.09. Aggregate Amounts Available under Letters of Credit. The
reimbursement obligation of Borrower to Lender with respect to the Letters of
Credit shall be evidenced by the Revolving Credit Note and the Application
relating to the subject Letter of Credit. Any amounts paid by Lender with
respect to such Letter of Credit shall be deemed to be an Advance by Lender
under the Revolving Credit Note as set forth in Section 2.10 hereof.
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Section 2.10. Advances in Respect of Letters of Credit; Reimbursement.
(a) Prior to the expiration or termination of the Revolving Credit Commitment
Period, if Borrower does not provide Lender with funds, in the amount and on the
date necessary to settle such Lender's obligations under any draft drawn or
demand made under a Letter of Credit issued by Lender (whether at or prior to
the expiration of such Letter of Credit), Lender shall make and Borrower shall
accept, an Advance under the Revolving Credit Note in the amount disbursed or to
be disbursed by Lender pursuant to such draft on demand, such Advance to be made
as of the date of such settlement of the Letters of Credit. The obligations and
indebtedness of Borrower to the Lender pursuant to such Advances shall be
evidenced by the Revolving Credit Note and the Application relating to the
subject Letter of Credit. Anything herein to the contrary notwithstanding, in no
event shall any Advance be made under the Revolving Credit Note which, together
with the outstanding balance thereunder, would exceed the Revolving Credit
Available Loan Amount, and any such excess shall be payable to Lender on demand.
(b) After the expiration or termination of the Revolving Credit
Commitment Period, if any Letter of Credit is outstanding, Borrower agrees (i)
to deposit in an interest-bearing cash collateral account opened by Lender an
amount equal to the aggregate undrawn amount of such Letters of Credit and (ii)
to reimburse Lender in immediately available funds (which may be drawn by Lender
from such cash collateral account, including interest accrued thereon) upon
demand of Lender at any time, the amount necessary to settle Lender's
obligations under any draft drawn or demand made under a Letter of Credit issued
by Lender (whether at or prior to the expiration of such Letter of Credit) which
has not been paid by the proceeds of Revolving Credit Loans made pursuant to
Section 2.10(a) hereof. After the respective expiry dates of the Letters of
Credit and after the Obligations are paid in full, Lender shall return the
unused portion of such cash collateral described above, together with all
interest earned thereon, to the Borrower.
(c) In order to induce Lender to issue a Letter of Credit, Borrower
agrees that (i) Lender shall not be responsible or liable for, and the
obligation of Borrower to reimburse Lender for any payment made by Lender under
such Letter of Credit shall not be affected by, (A) the validity, enforceability
or genuineness of any note or other document (or any endorsement thereof)
presented to Lender under such Letter of Credit, even if such note or other
document (or such endorsement) is proven to be invalid, unenforceable,
fraudulent or forged, or (B) any dispute between Borrower and the beneficiary
under such Letter of Credit, and (ii) any action taken or omitted to be taken by
Lender in connection with such Letter of Credit, if taken in good faith and with
reasonable care, shall be binding upon Borrower and shall not create any
liability for Lender to Borrower.
Section 2.11. Purpose of Letters of Credit. Subject to the other terms
and conditions of this Agreement, Lender shall issue Letters of Credit for any
corporate purpose of Borrower.
Section 2.12. Conflicts in Terms. In case of any conflict between the
terms of any Application with respect to a Letter of Credit and the terms
hereof, the terms of this Agreement shall
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control, except to the extent the Application states that certain specified
provisions thereof control, in which case those specified provisions of the
Application in question shall control.
Section 2.13. Revolving Credit Commitment Fee; Letter of Credit Fee.
Borrower agrees to pay to Lender a fee (the "Revolving Credit Commitment Fee")
on the Average Daily Unused Balance from the date of this Agreement to and
including the Revolving Credit Termination Date, at the rate of one-half of one
percent (1/2%) per annum, based on a 365 day year and the actual number of days
elapsed, payable quarterly in arrears, on the 1st day of July, October, January
and April commencing July 1, 1994, and on the Revolving Credit Termination Date.
Upon issuance of any Letter of Credit, Borrower agrees to pay to Lender a fee
(the "Letter of Credit Fee") equal to the greater of $300.00 or one and one-half
of one percent (1-1/2%) per annum of the amount of the Letter of Credit for the
period of time from the date of issuance thereof to the stated expiry date.
Section 2.14. Borrowing Base. The restriction on the aggregate
outstanding principal amount of Advances up to the Revolving Credit Available
Loan Amount contained in Section 2.01 hereof shall be cumulative of other
limitations and conditions contained in this Agreement or any other Loan Papers.
If at any time during the term of this Agreement for whatever reason the
Borrowing Base then in effect is less than an amount equal to the sum of (i) the
unpaid balance under the Revolving Credit Loan plus (ii) the aggregate
contingent liability of Lender under all Letters of Credit (the amount by which
the sum of (i) and (ii) exceeds the Borrowing Base being called the "Excess
Amount"), Borrower shall, within three (3) days after the determination of such
fact, give notice thereof to Lender (a "Payment Notice") and, unless waived by
Lender in writing upon the written request of Borrower, Borrower shall, within
thirty (30) days after giving of notice to Lender, make mandatory prepayments in
accordance with the terms of Section 2.15. Borrower shall compute the Borrowing
Base at the Closing as of the last day of the preceding month. Thereafter
Borrower shall compute the Borrowing Base, at least monthly (and more often
should Lender require), using the Borrowing Base Report in substantially the
form attached hereto as Exhibit E (the "Borrowing Base Report"), for the
immediately preceding calendar month, which Borrower is obligated to furnish to
Lender within twenty (20) days after the end of each calendar month through the
term of this Agreement, and more frequent reports if and as Lender may require.
The Borrowing Base Report shall be certified by an Authorized Financial Officer
of Borrower and shall contain statements to the effect that, as of the date of
such Borrowing Base Report, the representations and warranties contained in
Article VII hereof, are true except as disclosed in such report, and there
exists no Default under the Loan Papers. Notwithstanding anything to the
contrary herein contained, if the Borrowing Base Report shows a Borrowing Base
less than an amount equal to the sum of (i) the unpaid balance under the
Revolving Credit Loan plus (ii) the aggregate contingent liability of Lender
under all Letters of Credit (a "Borrowing Base Deficiency"), and Borrower fails
to timely deliver the Payment Notice required by this Section 2.14, Lender may
demand that Borrower make, within thirty (30) days, mandatory prepayments in
accordance with the terms of Section 2.15.
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Section 2.15. Required Date and Amount of Mandatory Prepayments.
Within thirty (30) Business Days after Lender has received a Payment Notice or
the Borrowing Base Report which reflects a Borrowing Base Deficiency, unless
waived by Lender in writing upon the written request of Borrower, Borrower shall
make a prepayment on the Revolving Credit Loan equal to the lesser of (i) the
Excess Amount or (ii) the unpaid balance under the Revolving Credit Loan.
ARTICLE III
Term Loan
Section 3.01. Commitment for Term Loan. Subject to the terms and
conditions of this Agreement, and provided that no Default or Event of Default
has occurred and is continuing on the Closing Date, Lender agrees to make the
Term Loan to Borrower under the Term Note, in the amount of ONE MILLION SEVEN
HUNDRED FOUR THOUSAND AND NO/100 DOLLARS ($1,704,000.00).
Section 3.02. Term Note. The obligation of Borrower to repay the Term
Loan shall be evidenced by the Term Note executed by Borrower, payable to the
order of Lender, in the principal amount of the Term Loan and dated of even date
herewith. The principal of the Term Loan, plus accrued and unpaid interest
thereon, shall be due and payable in: (a) thirteen (13) consecutive installments
each equal to SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00) of principal,
together with all accrued and unpaid interest, the first of such installments
being due and payable on or before July 1, 1994 and like installments being due
and payable on the first day of each succeeding third calendar month thereafter
through and including July 1, 1997; and (b) a final installment due and payable
on October 1, 1997 in an amount equal to the remaining unpaid principal amount
outstanding on the Term Loan, together with all accrued and unpaid interest. The
Term Loan shall bear interest prior to maturity at a varying rate per annum
equal from day to day to the lesser of (a) the Maximum Rate or (b) the sum of
the Bank One Texas Base Rate in effect from day to day plus three-quarters of
one and percent (3/4%), each such change in the rate of interest charged
hereunder to become effective, without notice to Borrower, on the effective date
of each change in the Bank One Texas Base Rate; provided, however, if at any
time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest on the Term Loan to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Texas Base Rate
shall not reduce the rate of interest on the Term Loan below the Maximum Rate
until the aggregate amount of interest accrued on the Term Loan equals the
aggregate amount of interest which would have accrued on the Term Loan if the
interest rate specified in clause (b) preceding had at all times been in effect.
All past due principal and interest shall bear interest at the Maximum Rate.
Section 3.03. Use of Proceeds of Term Loan. The proceeds of all of the
Term Loan shall be used immediately by Borrower to repay certain existing Debt
of Borrower owed to Parent.
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ARTICLE IV
Payments
Section 4.01. Method of Payment. All payments of principal, interest,
and other amounts to be made by Borrower hereunder and under the Notes shall be
made to Lender at its office at 910 Travis, Houston, Texas 77002, in lawful
currency of the United States of America and in immediately available funds.
Whenever any Payment hereunder or under the Notes shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day and interest or commitment fee, as the case may be, shall continue
to accrue during such extension.
Section 4.02. Prepayment. Borrower may, on at least three (3) Business
Days' notice to Lender, prepay all or any portion of any of the Notes at any
time or from time to time without premium or penalty but with accrued interest
to the date of prepayment on the amount so prepaid, provided that each partial
prepayment shall be in the principal amount of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000.00) or an integral multiple thereof and in the case of the Term Note,
such prepayment shall be applied to installments of principal thereof in the
inverse order of maturity. All prepayments made pursuant to Sections 2.06 or
2.14 shall be similarly applied.
ARTICLE V
Collateral
Section 5.01. Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered the documents described below covering the property
and collateral described in this Section 5.01 (which, together with any other
property and collateral which may now or hereafter secure the Obligations or any
portion thereof are sometimes herein called the "Collateral").
(a) Borrower shall grant, to Lender a Scottish law equivalent and a
Norwegian law equivalent of a first priority security interest in all of its
accounts, accounts receivable, equipment, machinery, fixtures, raw materials,
work-in-process, inventory, chattel paper, documents, instruments, and general
intangibles, whether now owned or hereafter acquired, and all products and
proceeds thereof, pursuant to reasonable documentation acceptable to Lender in
its sole good faith discretion.
(b) Borrower shall execute and deliver and cause to be executed and
delivered such further documents and instruments, including, without limitation,
Uniform Commercial Code financing statements, as Lender, in its sole discretion,
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deems necessary or desirable to evidence and perfect its Liens and security
interests in the Collateral.
Section 5.02. Setoff. After the occurrence of any Default and so long
as such Default is continuing, Lender shall have the right to setoff and apply
against the Obligations, without notice to Borrower, any and all deposits
(general or special, time or demand, provisional or final) or other sums at any
time credited by or owing from Lender to Borrower for application against any of
the Obligations whether or not any portion of the Obligations are then due and
payable. As further security for the Obligations, Borrower hereby grants to
Lender a security interest in all money, instruments, and other property of
Borrower now or hereafter held by Lender, including, without limitation,
property held in safekeeping. In addition to Lender's right of setoff and as
further security for the Obligations, Borrower hereby grants to Lender a
security interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of Borrower now or hereafter on deposit
with or held by Lender and all of the sums at any time credited by or owing from
Lender to Borrower. The rights and remedies of Lender hereunder are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which Lender may have.
ARTICLE VI
Conditions Precedent
Section 6.01. Initial Advance. The obligation of Lender to make the
initial Advances is subject to the condition precedent that Lender shall have
received from Borrower on or before the day (the "Closing Date") of such
Advances all of the following, each dated (unless otherwise indicated) the day
of the Advance, in form and substance satisfactory to Lender:
(a) Resolutions. Resolutions of the Board of Directors of Borrower
certified by one of its Directors, which authorize the execution, delivery and
performance by Borrower of this Agreement and the other Loan Papers to which
Borrower is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
a Director of Borrower certifying the names of the Directors of Borrower
authorized to sign this Agreement and each of the other Loan Papers to which
Borrower is or is to be a party (including the certificates contemplated herein)
together with specimen signatures of such Directors;
(c) Memorandum and Articles of Association. The Memorandum and
Articles of Association of Borrower certified by the relevant governmental
authority of the jurisdiction of incorporation, dated within ten (10) days prior
to the date of the initial Advance;
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(d) Governmental Certificates. Certificates of the appropriate
government officials of the jurisdiction of incorporation of Borrower as to its
existence and good standing, each dated within ten (10) days prior to the date
of the initial Advance;
(e) Foreign Qualification. Certificates of the appropriate
governmental officials of each jurisdiction in which Borrower is qualified to do
business to the effect that Borrower is so qualified and is in good standing
under the laws of such jurisdiction, dated within ten (10) days prior to the
date of the initial Advance;
(f) Notes. The Notes executed by Borrower;
(g) Security Documents. The Security Documents executed by Borrower;
(h) Insurance Policies. Copies of all casualty insurance policies
required by Section 8.19, showing Lender as loss payee;
(i) Lien Searches. The results of a Lien search showing all Lien
documents or instruments on file against Borrower in the United Kingdom, such
search to be as of a date no more than ten (10) days prior to the date of the
initial Advance;
(j) Opinion of Counsel. A favorable opinion or opinions of legal
counsel to Borrower as of the Closing Date;
(k) Other Documents. Such other documents, opinions, certificates,
and evidence as Lender or Lender's counsel may reasonably request; and
(1) Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to Lender and Lender's counsel, and
Lender shall have received copies of all documents which it may reasonably
request in connection with such transactions and all corporate proceedings with
respect thereto in form and substance satisfactory to Lender and Lender's
counsel.
Section 6.02. Additional Revolving Credit Advances. The obligation of
Lender to make any additional Advance pursuant to Article II hereof is subject
to the following additional conditions precedent:
(a) Advance Request Form. Lender shall have received, not later than
11:00 A.M., Houston, Texas time, at least two (2) Business Days prior to the
date of such Advance, an appropriate form of Notice of Revolving Credit
Borrowing or Notice of Credit Issuance as applicable, dated the date of such
Advance, executed by
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an authorized officer of Borrower, all of the statements in which shall be
true and correct on and as of such date;
(b) Additional Information. Lender shall have received such
additional documents, instruments, and information as Lender or its legal
counsel may request; and
(c) Other Matters. All corporate proceedings taken in connection with
the transactions contemplated by this Agreement and all documents,
instruments, and other legal matters incident thereto shall be satisfactory
to Lender and its legal counsel.
ARTICLE VII
Representations and Warranties
To induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender that:
Section 7.01. Corporate Existence. Borrower (a) is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite corporate power to own
assets and carry on its business as now being or as proposed to be conducted;
and (c) is qualified to do business in all jurisdictions in which the nature of
the business conducted by it makes such qualification necessary and where
failure to so qualify would have a material adverse effect on its business,
financial condition, or operations. Borrower has the corporate power and
authority to execute, deliver, and perform its obligations under the Loan Papers
to which it is or may become a party.
Section 7.02. Financial Statements. Parent has delivered to Lender
the audited Consolidated financial statements of Parent and the Subsidiaries as
at and for the fiscal year ended December 31, 1992, and the unaudited
Consolidated financial statements of Parent and the Subsidiaries for the nine
(9) month period ended September 30, 1993. Such financial statements are true
and correct in all material respects, have been prepared in accordance with
GAAP, and fairly and accurately present, on a consolidated basis, the financial
condition of Parent and the Subsidiaries as of the respective dates indicated
therein and the results of operations for the respective periods indicated
therein. Neither Parent, Borrower nor any other Subsidiary has any material
contingent liabilities, liabilities for taxes, material forward or long-term
commitments, or unrealized or anticipated losses from any unfavorable
commitments not reflected in such financial statements. There has been no
material adverse change in the condition, financial or otherwise, or operations
of Parent, Borrower or any other Subsidiaries, on a consolidated basis, since
the date of the most recent financial statements referred to in this
Section 7.02.
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Section 7.03. Default. Borrower is not in default in any material
respect under the provisions of any instrument evidencing any material
obligation, indebtedness, or liability of Borrower or of any agreement relating
thereto, or under any order, writ, injunction, or decree of any tribunal, or in
default in any material respect under or in violation of any order, regulation,
or demand of any tribunal, which default or, violation could have a material
adverse effect on Borrower.
Section 7.04. Authorization and Compliance with Laws and Material
Agreements. The execution, delivery, and performance by Borrower of this
Agreement, the Borrowings, and the execution, delivery and performance of the
Notes and the other Loan Papers to which Borrower is or may become a party have
been duly authorized by all requisite action on the part of Borrower and do not
and will not violate the articles of incorporation or bylaws, or their
equivalent, of Borrower or any law or any order of any court, governmental
authority or arbitrator and do not and will not conflict with, result in a
breach of, or constitute a default under, or result in the imposition of any
Lien (except as provided in Article V) upon any assets of Borrower pursuant to
the provisions of any indenture, mortgage, deed of trust, security agreement,
franchise, permit, license, or other instrument or agreement to which Borrower
or its properties is bound.
Section 7.05. Litigation and Judgments. Except as disclosed on
Schedule 4 hereto, there is no action, suit, or proceeding before any court,
governmental authority or arbitrator pending, or to the knowledge of Borrower,
threatened against or affecting Borrower that would, if adversely determined,
have a material adverse effect on the financial condition or operations of
Borrower or the ability of Borrower to pay and perform the Obligations under
this Agreement. There are no outstanding judgments against Borrower.
Section 7.06. Rights in Properties; Liens. Borrower has good and
indefeasible title or valid leasehold interests in its properties and assets,
real and personal reflected in the financial statements described in Section
7.01, and none of the properties, assets, or leasehold interests of Borrower is
subject to any Lien, except as permitted by Section 9.01. Borrower represents
and warrants that substantially all of its tangible properties and assets
reflected in said financial statements are located in Scotland or Norway.
Section 7.07. Enforceability. This Agreement constitutes and the
other Loan Papers to which Borrower is a party, when delivered, shall
constitute, legal, valid, and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms, except as limited by
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditor's rights.
Section 7.08. Approvals. No authorization, approval, or consent of,
and no filing or registration with, any court, governmental authority, or third
party is necessary for the execution, delivery, or performance by Borrower of
this Agreement or the other Loan Papers to which Borrower is or may become a
party or the validity or enforceability thereof.
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Section 7.09. Debt. Borrower does not have any Debt other than (i)
the Debt disclosed on Schedule 5 attached hereto, (ii) Debt reflected in the
financial statements most recently delivered to Lender and (iii) Debt owed to
Lender.
Section 7.10. Taxes. Borrower has filed all tax returns (federal,
state, local and foreign) required to be filed, including all income, franchise,
employment, property and sales taxes, and have paid all of their respective tax
liabilities, and except as disclosed on Schedule 10 attached hereto, Borrower
knows of no pending investigation of Borrower by any taxing authority or of any
pending but unassessed tax liability of Borrower.
Section 7.11. Use of Proceeds; Margin Securities. Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purposes of purchasing or carrying margin stock (within
the meaning of Regulations G, T, U, or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any extension of credit
under this Agreement will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock. Neither Borrower nor any Person acting on its behalf has taken
any action that might cause the transactions contemplated by this Agreement or
the Notes to violate Regulations G, T, U, or X or to violate the Securities
Exchange Act of 1934, as amended.
Section 7.12. ERISA. With respect to each employee pension benefit
plan as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1984, as amended ("ERISA"), Borrower has complied with all applicable minimum
funding requirements and all other applicable and material requirements of
ERISA, and there are no existing conditions which would give rise to any
liability thereunder (other than routine claims for benefits payable
thereunder). No Reportable Event (as defined in Section 4043 of ERISA) has
occurred in connection with any such plan which might constitute grounds for the
termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a trustee to
administer such plan.
Section 7.13. Disclosure. No representation or warranty made by
Borrower in this Agreement or in any other Loan Papers contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading. There is no fact known to
Borrower which has a material adverse effect, or which might in the future have
a material adverse effect, on the business, assets, financial condition or
operations of Borrower.
Section 7.14. Subsidiaries. There are no Subsidiaries of Parent or
any Subsidiary other than those listed on Schedule 6 attached hereto, and
Schedule 6 sets forth the jurisdiction of incorporation of each Subsidiary and
the percentage of Parent's or each Subsidiary's ownership of the outstanding
voting stock of each Subsidiary. Except as disclosed on Schedule 7, there are
no outstanding contracts, instruments, documents, or agreements binding upon
Parent or any Subsidiary granting to any Person or groups of Persons any right
to purchase or acquire shares of the capital
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stock of any of such Subsidiary which would in the event that the rights granted
thereby were acted upon, result in Parent or any Subsidiary retaining ownership
of less than the majority of the issued and outstanding voting stock of such
Subsidiary, and the stockholders (other than Parent or any Subsidiary) of any
such Subsidiary are not entitled to any preemptive rights with respect to the
issuance of any capital stock of an such Subsidiary which would in the event
that the rights granted thereby were acted upon result in Parent or any
Subsidiary, retaining ownership of less than the majority of the issued and
outstanding voting stock of such Person.
Section 7.15. Principal Place of Business. The principal place of
business and chief executive office of Borrower and the place where Borrower
keeps its books and records is located at Stoneywood Park, Stoneywood Road,
Dyce, Aberdeen, AB2 ODF.
Section 7.16. Investment Company Act. Neither Parent, Borrower nor
any other Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 7.17. Public Utility Holding Company Act. Neither Parent,
Borrower nor any other Subsidiary is a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 7.18. Contracts. To the best of Borrower's knowledge
Borrower is not a party to, or bound by, any agreement, condition, contract, or
arrangement which might in the future have a material adverse effect on the
business, operations, or financial condition of Borrower.
Section 7.19. Compliance with Law. Borrower has all necessary
operating licenses and is in compliance with all laws, rules, regulations,
orders and decrees which are applicable to Borrower or any of its properties
necessary to enable it to carry on its business in all material respects. No
event which with either the passage of time or the giving of notice or both,
will cause either of the foregoing representations to become untrue.
Section 7.20. Consent. Except as set forth on Schedule 8 attached
hereto and except for the filing with public officials in order to perfect
Lender's Liens, no consent of any Person and no consent, license, permit,
approval or authorization of, or registration or declaration with, any tribunal
is required in connection with the execution, delivery and performance of this
Agreement, the Notes, and the other Loan Papers to which Borrower is a party, or
to the extent that any such consent or other action may be required, it has been
validly procured.
Section 7.21. Securities Laws. Except with respect to Lender,
Borrower has not directly or indirectly offered the Notes for sale to, or
solicited any offer to buy the Notes, or otherwise negotiated in respect thereof
with, any Person (except Lender) and has not done (or omitted to do) any other
act, so as to bring the issuance or sale thereof within the registration
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requirements of the Securities Act of 1933, as amended, and the Borrower has
complied with or is exempt from the registration provisions of all state
securities or "blue sky" laws applicable to the issuance or sale of the Notes.
Section 7.22. Existing Loans to Affiliates. Except for loans listed
on Schedule 9 attached hereto, Borrower has no loans to an Affiliate.
Section 7.23. Patents and Trademarks. Borrower owns no patents or
trademarks.
ARTICLE VIII
Affirmative Covenants
Parent covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any commitment hereunder, Borrower
will perform and observe the following positive covenants, unless the Lender
shall otherwise consent in writing:
Section 8.01. Financial Statements. Furnish to Lender:
(a) Financial statements of Borrower, all prepared in accordance with
GAAP, all in form and detail as reasonably requested by Lender, audited or
unaudited but certified by an Authorized Financial Officer as reasonably
requested by Lender, and delivered on or before such date and covering such
period of time as reasonably requested by Lender;
(b) Concurrently with the delivery of the financial statements
described in subsection (a) above, a certificate by an Authorized Financial
Officer certifying to Lender that, based upon his examination of the
affairs of Borrower in connection with the preparation of said financial
statements, he is not aware of any Default or Event of Default or, if he is
aware of such Default or Event of Default, the nature thereof and
specifying the steps taken or proposed to remedy such condition or event;
(c) As soon as available, but not later than twenty (20) calendar days
after the end of each calendar month, a Borrowing Base Report, accompanied
by a certificate by an Authorized Financial Officer certifying to Lender
that, based upon his examination of the affairs of Borrower performed in
connection with the preparation of said Borrowing Base Report, he is not
aware of any Default or Event of Default or, if he is aware of such Default
or Event of Default, the nature thereof;
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(d) All management and other reports to Borrower's financial condition
or the Collateral or any part thereof, including drafts if no final report
is issued, submitted to Parent or Borrower by the independent public
accounting firm employed by Parent or Borrower; and
(e) Such other data and information (financial and otherwise), as
Lender, from time to time, may reasonably request, bearing upon or related
to the Collateral, Borrower's financial condition and/or results of
operations.
Section 8.02. Periodic Miscellaneous Reports. Promptly, but in no
event later than five (5) Business Days after Borrower's learning thereof,
Borrower shall inform Lender, in writing, of (i) as to any Accounts where the
aggregate amount in question is in excess of $100,000.00; (x) any material delay
in Borrower's performance of any of its obligations to any account debtor and of
any assertion of any disputes, claims, credits, offsets or counterclaims by any
account debtor and of any allowances, credits or other monies granted by
Borrower to any account debtor; (y) any material adverse information relating to
the financial condition of any account debtor; and (z) any material adverse
facts relating to any Account; (ii) any litigation affecting Borrower if any
claims are made for amounts in excess of $250,000.00 or if such litigation
involves an account debtor if any claims are made for amounts in excess of
$100,000.00, whether or not the claim is to be covered by insurance, and of the
institution of any litigation which might have a material adverse effect on
Borrower or Lender's Lien on the Collateral; (iii) any default under, or
delinquency in the payment of any rent pursuant to the terms of, any lease of
warehouse or storage facilities leased by Borrower for the storage of any
Collateral; (iv) any Default or an Event of Default hereunder; (v) any default
under any material agreement which could have a material adverse effect on
Borrower; (vi) any other matter that might have a material adverse effect on the
business, financial condition, or operations of Borrower; and (vii) the change
in the title or identification of any office, officer or Person who has
authority to sign certificates or requests for advances, accompanied by a
certificate of such officer's incumbency certified by the secretary or assistant
secretary, or its equivalent, of Borrower which certificate shall contain a
signature exemplar certified by such secretary or assistant secretary, or its
equivalent, as being true and correct.
Section 8.03. Warehousing Agreements. Borrower shall, upon request
of Lender, provide Lender with copies of all agreements between Borrower and any
other Person covering any Permitted Location at which Collateral may from time
to time be kept and all lease or similar agreements with respect to any
Permitted Location between Borrower and any other Person, whether Borrower is
lessor or lessee thereunder.
Section 8.04. Performance of Obligations. Borrower will duly and
punctually pay and perform the Obligations, including, without limitation,
Borrower's obligations under this Agreement and the other Loan Papers.
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Section 8.05. Preservation of Existence and Conduct of Business.
Borrower will (i) preserve and maintain its corporate existence and all of its
leases, privileges, franchises, and rights that are necessary or desirable in
the ordinary conduct of its business, and (ii) conduct its business as presently
conducted in an orderly and efficient manner in accordance with good business
practices.
Section 8.06. Maintenance of Properties. Borrower will maintain its
assets and properties in good condition and repair.
Section 8.07. Payment of Taxes and Claims. Borrower will pay or
discharge at or before maturity or before they become delinquent (i) all taxes,
levies, assessments, and governmental charges imposed on it or any of its
property, and (ii) all lawful claims for labor, material, and supplies, which,
if unpaid, might become a Lien upon any of its property; provided, however, that
Borrower shall not be required to pay or discharge any tax, levy, assessment, or
governmental charge which is being contested in good faith by appropriate
proceedings diligently pursued and if Borrower shall have set aside on its books
and in cash adequate reserves in respect thereof, which deferment of payment is
permissible so long as the title to and any right to use the Collateral is not
materially adversely affected thereby and Lender's Lien and the priority of
Lender's Lien on the Collateral are not affected, altered or impaired thereby.
Section 8.08. Audit. Lender shall have the right to require at any
time, but not more frequently than once every one hundred eighty (180) days, an
audit of all Inventory of Borrower. Such audit shall be conducted by a Person
mutually acceptable to Borrower and Lender. All such audits shall be paid for
by Borrower, provided, however, Borrower shall not be obligated to pay in excess
of $2,000.00 for any such audit.
Section 8.09. Keeping Books and Records. Borrower will maintain
proper books of record and account in which full, timely and complete entries in
conformity with GAAP shall be made of all dealings and transactions in relation
to its business and activities.
Section 8.10. Compliance with Laws. Borrower will comply with all
material applicable laws, rules, regulations, and orders of any court or
governmental authority or arbitration.
Section 8.11. Compliance with Agreements. Borrower will comply in
all material respects with all agreements, indentures, mortgages, deeds of
trust, and other documents binding on it or affecting its properties or
business.
Section 8.12. Further Assurances. Borrower will execute such further
instruments as may be deemed necessary or desirable by Lender to carry out the
provisions and purposes of this Agreement and the other Loan Papers and to
preserve and perfect the Liens of Lender in the Collateral.
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Section 8.13. Compliance with ERISA. Borrower will comply with all
minimum funding requirements, and all other material requirements, of ERISA, if
applicable, so as not to give rise to any liability thereunder. Promptly after
the filing thereof, Borrower shall furnish to Lender with regard to each
employee benefit plan of Borrower, copies of each annual report required to be
filed pursuant to Section 103 of ERISA in connection with each such plan for
each plan year. Borrower will notify Lender immediately of any fact, including,
but not limited to, any "Reportable Event", as that term is defined in Section
4043 of ERISA, arising in connection with any such plan which might constitute
grounds for the termination thereof by the Pension Benefit Guaranty Corporation
or for the appointment by the appropriate United States district court of a
trustee to administer such plan and furnish to Lender, promptly upon its request
therefor, such additional information concerning any such plan as may be
reasonably requested.
Section 8.14. Use of Proceeds. Borrower shall at all times during
the term hereof comply with the terms and conditions of Sections 2.05, 2.11 and
3.03 hereof.
Section 8.15. Insurance Summary. Borrower shall, not later than once
every twelve months, deliver to Lender a summary of the insurance coverage
maintained by Borrower accompanied by a certificate from an Authorized Financial
Officer to the effect that the summary is a true, correct and complete summary
of all insurance coverage maintained by Borrower, all premiums have been paid on
the policies described thereon, the policies described thereon conform to the
requirements set forth in Section 8.17 hereof and that all such policies are in
full force and effect.
Section 8.16. Licenses. Borrower shall maintain all material
licenses to do business or conduct operations in all countries, states and
provinces in which the laws thereof require Borrower to be so licensed, and
Borrower shall obtain and keep in force all material licenses to do business or
conduct operations in any additional countries, states and provinces in which
the laws thereof require Borrower to be so licensed in the future.
Section 8.17. Insurance; Payment of Premiums. Borrower shall keep
adequately insured by reputable insurers, which, if requested by Lender, shall
be acceptable to Lender, all the Collateral and such other assets which either
owns or possesses for its full insurable value, subject to customary
deductibles, against loss or damage by fire, theft, tornado, flood, explosion,
sprinklers and all other hazards and risks ordinarily insured against by other
owners or users of such properties in similar businesses, and notify Lender
promptly of any event of occurrence causing a material loss or decline in value
of the Collateral and such other assets and the estimated (or actual, if
available) amount of such loss or decline. All policies of insurance on the
Collateral and such other assets shall be in form and with insurers recognized
as adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to Lender. Borrower shall deliver or cause to be
delivered to Lender the original (or certified copy) of each policy of insurance
covering any Collateral and evidence of payment of all premiums for all policies
of insurance. If requested by Lender, Borrower shall deliver or cause to be
delivered to Lender the original (or certified copy) of
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each other policy of insurance. The policies of insurance shall contain an
endorsement, in form and substance acceptable to Lender, providing for the
payment of all losses to Lender. Such endorsement or any independent instrument
furnished to Lender, shall provide that the insurance companies will give Lender
at least thirty (30) days prior written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act or default
of the insured or any other Person shall affect the right of Lender to recover
under such policy or policies of insurance in case of loss or damage. Borrower
hereby directs, to the full extent permitted by law, all insurers under policies
of insurance covering Collateral with a value in excess of $300,000.00 to pay
all proceeds payable thereunder directly to Lender. In the event Borrower, at
any time 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, then Lender, without waiving or releasing any obligations or Default by
Borrower hereunder, may at any time thereafter (but Lender shall be under no
obligation to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which Lender deems
advisable. All sums so disbursed by Lender, including any related expenses and
other charges relating thereto, shall be payable on demand to Lender and shall
be additional Obligations hereunder secured by the Collateral.
Section 8.18. Casualty or Damage to Insured Property.
Notwithstanding the provisions of the foregoing Section 8.17, if a casualty or
any damage occurs at the property of Borrower, insurance for such casualty or
damage shall be used to restore the property in question in the former condition
unless:
(a) There shall be existing a Default or an Event of Default; or
(b) Lender shall otherwise consent in writing.
If the insurance proceeds are utilized to repair a casualty or damage,
Borrower will cause the insurance proceeds paid for any such casualty or damage
to be disbursed by the insurance company in question periodically as the work
progresses on a time and materials basis upon receipt of invoices for work
performed and materials provided, if the insurance proceeds to be paid shall be
less than $250,000.00, such proceeds may be paid as Borrower may direct to
restore the property in question subject to the conditions in this Section 8.18
(a) and (b) hereof. All work paid for with insurance proceeds shall be
performed by reputable contractors, which shall, if Lender request, be
reasonably acceptable to Lender, and pursuant to plans and specifications which,
if Lender request, shall be reasonably acceptable to Lender. All work done to
restore property damaged to its former condition shall be done in accordance
with the plans and specifications in good and workmanlike fashion with first
quality materials and, if Lender requests, Borrower shall provide Lender with
evidence satisfactory to Lender of the same. If the cost of the work to restore
the property in question shall exceed the available insurance proceeds, Borrower
shall expend the necessary funds to complete the restoration. If the insurance
proceeds should exceed the final cost to complete the restoration, and there
shall be existing a Default or an Event of Default, any excess shall at the
election of Lender be used to repay any amounts owing hereunder or shall be held
as security for the
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Obligations. If the insurance proceeds are not utilized to restore the property
in question because of the operation of Section 8.18 (a) or (b) hereof, Lender
shall have the right, at its option, to hold the insurance proceeds as security
for the Obligations, apply such proceeds to any Obligations then due and owing
or to the Notes in such order and manner as Lender may determine in its sole
discretion or apply such proceeds to the restoration of the Collateral.
ARTICLE IX
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any commitment hereunder, it will
not, unless the Lender shall otherwise consent in writing:
Section 9.01. Limitation on Liens; Debt. Incur, create, assume
or permit to exist any Lien upon any of its property, assets, or revenues,
whether now owned or hereafter acquired, except Permitted Liens, or incur any
additional Debt in excess of $100,000.00 in the aggregate except (i) Debt
associated with a Permitted Lien (provided that such Permitted Lien shall not
secure any Debt in excess of the amount initially incurred with respect to such
Permitted Lien described in subparts (v)-(vi) in the definition of "Permitted
Liens" contained herein [except any amounts which Borrower has the right to
borrow under the documents, agreements and instruments evidencing Debt existing
as of the Closing Date]), (ii) any amounts which Borrower has the right to
borrow under the documents, agreements and instruments evidencing Debt existing
as of the Closing Date, (iii) trade accounts payable in the ordinary course of
business, (iv) accrued expenses incurred in the ordinary course of business, (v)
taxes, (vi) guaranties required or permitted to be extended by law, (vii) Debt
incurred in connection with capitalized expenditures including capitalized
leases and (viii) additional Debt owed Lender.
Section 9.02. Mergers, Acquisitions and Dissolutions. Become a
party to a merger or consolidation, or purchase or otherwise acquire all or a
substantial part of the assets of any Person or any shares or other evidence of
beneficial ownership of any Person, or dissolve or liquidate.
Section 9.03. Section 9.03 Left Blank Intentionally.
Section 9.04. Section 9.04 Left Blank Intentionally.
Section 9.05. Section 9.05 Left Blank Intentionally.
Section 9.06. Section 9.06 Left Blank Intentionally.
Section 9.07. Section 9.07 Left Blank Intentionally.
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Section 9.08. Loans and Investments. Make any material
advance, loan, extension of credit, or capital contribution to any Person,
except for inter-company loans between Borrower and Parent, or invest in or
purchase any stock, bonds, notes, debentures, or other securities of any Person,
except Permitted Investments.
Section 9.09. Transactions With Affiliates. Enter into any
transaction with any director, officer, employee or shareholder of Parent,
Borrower, any other Subsidiary or any Affiliate, except under fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person not an Affiliate.
Section 9.10. Disposition of Assets. Sell, lease, assign,
transfer or otherwise dispose of any of its assets, except (i) dispositions of
inventory in the ordinary course of business, (ii) assets with a value of less
than $75,000.00, provided, however, such assets permitted to be sold pursuant to
this clause (ii) shall not exceed $100,000.00 in the aggregate during any fiscal
year, or (iii) sales, leases, assignments, transfers or other dispositions of
assets from Borrower to Parent.
Section 9.11. Sale and Leaseback. Enter into any arrangement
with any Person pursuant to which it leases from such Person real or personal
property that has been or is to be sold or transferred, directly or indirectly,
by it to such Person.
Section 9.12. Prepayment of Debt. Prepay any Debt, except (i)
the Obligations, (ii) Debt of Borrower owed to Parent, or (iii) prepayments of
less than $50,000.00, provided, however, such prepayments permitted to be made
pursuant to this clause (iii) shall not exceed $50,000.00 in the aggregate
during any fiscal year.
Section 9.13. Nature of Business. Engage in any business other
than the business in which they are engaged as of the date hereof, unless such
business is of the same or similar nature.
Section 9.14. Prohibited Transactions. Enter into any
transaction which has a material adverse effect on the Collateral, Borrower's
business, or Borrower's ability to repay the Obligations, or permit or agree to
any extension, compromise or settlement in excess of $250,000.00 or make any
change or modification of any kind or nature with respect to any Accounts in the
aggregate in excess of $250,000.00 owing by any account debtor, including any of
the terms relating thereto.
Section 9.15. Contingent Liabilities. Guarantee or otherwise,
in any way, become liable with respect to the obligations or liabilities of any
Person except (i) by endorsement of instruments or items of payment for deposit
to the general account of Borrower or for delivery to Lender on account of the
Obligations, (ii) for the indemnification provisions contained in the
certificate or articles of incorporation or by-laws, or its equivalent, of
Borrower for the directors, officers, employees and others acting in a capacity
benefiting the general corporate purposes or
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business of Borrower or indemnification contracts entered into for the benefit
of such persons and in conformity with applicable Law, and (iii) other Debt
permitted by Section 9.01 hereof.
Section 9.16. Removal of Collateral. Remove its books and
records and/or the Collateral (the value of which shall exceed, in the aggregate
$50,000.00) from the locations set forth on Schedule 2 hereto, except for
removal of Inventory upon its sale or consignment, or keep any of such books and
records and/or the Collateral at any other office(s) or location(s) unless
Borrower gives Lender written notice thereof and of the new location of said
books and records and/or the Collateral (accompanied by Security Documents
satisfactory to Lender covering such Collateral and which comply with the Laws
of the jurisdiction(s) where such Collateral is to be relocated) at least thirty
(30) calendar days prior thereto.
Section 9.17. Compliance with Regulations G, T, U, and X. Take
any action which might cause this Agreement or any of the Loan Papers to
violate, and will take all actions necessary to comply with, Regulations G, T,
U, and X of the Board of Governors of the Federal Reserve System and the
Securities Exchange Act of 1934, in each case as now in effect or as the same
may hereafter be in effect.
ARTICLE X
Default
Section 10.01. Events of Default. The term "Event of Default,"
as used herein, means the occurrence of any one or more of the following events
(including the giving of notice and/or passage of time, if any specified
therefor) and the term "Default", as used herein, means the occurrence of any
one or more of the following events which, with notice or lapse of time or both,
would become an Event of Default (provided that, if any such event occurs, and
(i) prior to the exercise of any Rights or remedies under this Agreement
triggered by such event, such event has been remedied or cured, or both, or (ii)
Lender subsequently agrees in writing that they will not exercise any remedies
hereunder as a result thereof, the specific occurrence of such event shall no
longer be deemed a "Default" or "Event of Default", as applicable, hereunder
insofar as the state of facts giving rise to such event is concerned):
(a) Borrower shall fail to pay when due the Obligations or any
part thereof and such failure shall continue for three (3) Business Days
after notice has been given by Lender to Borrower.
(b) Any representation or warranty made or deemed made by
Borrower (or its directors or officers) in any Loan Papers or in any
certificate, report, notice, or financial statement furnished at any time
in connection with this Agreement shall be false, misleading, or erroneous
in any material respect when made or deemed to have been made.
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(c) Subsection 10.01(c) is left blank intentionally.
(d) Parent, Borrower or any other Subsidiary (if the other
Subsidiary, in the Lender's sole reasonable discretion, is material to the
financial condition, business or operations of Parent and the Material
Companies, on a Consolidated basis) shall commence a voluntary proceeding
seeking liquidation, reorganization, or other relief with respect to itself
or its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or a substantial
part of its property or shall consent to any such relief or to the
appointment of or taking possession by any such official in such a
proceeding commenced against it or shall make a general assignment for the
benefit of creditors or shall generally fail to pay its debts as they
become due or shall take any corporate action to authorize any of the
foregoing.
(e) An involuntary proceeding or shall be commenced against
Parent, Borrower or any other Subsidiary (if the Subsidiary, in the
Lender's sole reasonable discretion, is material to the financial
condition, business or operations of Parent and the Material Companies, on
a Consolidated basis) seeking liquidation, reorganization, or other relief
with respect to it or its debts under any bankruptcy, insolvency, or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
a substantial part of its property, and such proceeding shall remain
undismissed and unstayed for a period of ninety (90) days.
(f) Parent or any Material Company shall fail to discharge within
a period of thirty (30) days after the commencement thereof any attachment,
sequestration, or similar proceeding involving an amount in excess of FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00) against any of the assets or
properties.
(g) Parent or any Material Company shall fail to satisfy and
discharge promptly any final, non-appealable judgment against it for the
payment of money in an aggregate amount in excess of FIFTY THOUSAND AND
NO/100 DOLLARS ($50,000.00).
(h) Parent or any Material Company shall default in the payment
of any Debt in excess of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00)
beyond any applicable grace period, or shall default in the performance of
any other material agreement binding upon it or its property.
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(i) This Agreement or any other Loan Paper shall cease to be in
full force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower or any
of its shareholders, or Borrower shall deny that it has any further
liability or obligation under any of the Loan Papers.
(j) Any two of J. Mike Walker, Larry E. Reimert or Gary D. Smith
shall have died or have been declared incompetent by a court of proper
jurisdiction.
(k) Any two of J. Mike Walker, Larry E. Reimert or Gary D. Smith
shall cease to be active in the management of Borrower or Parent.
(1) The occurrence of any event which is material and adverse to
the financial condition, business or operations of Parent and the Material
Companies on a Consolidated basis or which materially and adversely impairs
the ability of Borrower or Parent to perform their respective obligations
under the Loan Papers.
(m) An "Event of Default", as defined in any of the Loan Papers.
(n) An "Event of Default", as defined in that certain Credit
Agreement dated of even date herewith by and between Lender and Parent (as
may be amended from time to time).
(o) At any time the sum of (a) the aggregate unpaid balance of
the Revolving Credit Loan plus (b) the aggregate amount of any pending
Notice of Revolving Credit Borrowings plus (c) the aggregate contingent
liability of Lender under all open Letters of Credit plus (d) the aggregate
amount of any pending Notice of Credit Issuance plus (e) the aggregate
unpaid balance of the Parent's Revolving Debt Facility plus (f) the
aggregate amount of any pending request to borrow moneys or issue letters
of credit under the Parent's Revolving Debt Facility plus (g) the aggregate
contingent liability of Lender under all open letters of credit issued by
Lender for the account of Parent or any Material Company under Parent's
Revolving Credit Facility shall be in excess of the Revolving Credit
Committed Sum.
Section 10.02. Occurrence of a Default or an Event of Default.
If a Default shall occur and be continuing, the obligation of the Lender to make
Advances or issue Letters of Credit shall immediately cease until such Default
shall have been cured or corrected. If an Event of Default shall occur and be
continuing (provided, however, that there shall be no right of cure after
acceleration of the Obligations), Lender may do any one or more of the
following:
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(a) Acceleration. Declare the entire unpaid balance of the
Obligations, or any part thereof, immediately due and payable, whereupon it
shall be due and payable without demand, presentment, notice of dishonor,
notice of acceleration, notice of intent to accelerate, notice of intent to
demand, or protest, all of which are hereby expressly waived.
(b) Termination of Commitments. Terminate the Commitment of
Lender hereunder.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Take such steps as Lender may deem appropriate
to foreclose or otherwise enforce any Liens which may at any time hereafter
be granted to Lender, for the benefit of Lender to secure payment and
performance of the Obligations.
(e) Rights. Exercise any and all Rights afforded by the Laws of
the State of Texas or any other jurisdiction, as Lender shall deem
appropriate, including, but not limited to, the UCC or of such other
jurisdiction or by any of the Loan Papers, or by law or equity, or
otherwise.
Provided, however, that upon occurrence of an Event of Default under Section
10.01(d) and (e) hereof, the Commitment shall automatically terminate, and the
Obligations shall become immediately due and payable without notice of any kind
whatsoever including, without limitation, notice of intent to accelerate or
notice of acceleration, demand, presentment, notice of dishonor or protest,
which are hereby expressly waived. Borrower acknowledges and understands that
under the laws of the State of Texas, unless waived, Borrower has the right to
notice of Lender's intent to accelerate the Obligations evidenced by the Notes,
the right to notice of the actual acceleration of the Obligations evidenced by
the Notes, and the right to presentment of the Notes by Lender's demand for
payment. Borrower acknowledges that it understands that it can waive these
rights and by Borrower's execution of this Agreement it agrees to waive its
right to notice of intent to accelerate, its rights to notice of acceleration
and its right to presentment or other demand for payment. Upon the occurrence
of any such Event of Default as described in the immediately preceding sentence,
Lender may exercise all Rights available to it in law or in equity, under the
Loan Papers or otherwise. With respect to all Letters of Credit that shall not
have matured or with respect to which presentment for honor shall not have
occurred, Borrower shall deposit in a cash collateral account with Lender an
amount equal to the aggregate undrawn amount of Letters of Credit, and the
unused portion thereof, if any, shall be returned to Borrower, after the
respective expiry dates of the Letters of Credit and after all Obligations are
paid in full.
Section 10.03. Performance by Lender. If any covenant, duty,
or agreement of Borrower should fail to be performed in accordance with the
terms of the Loan Papers, Lender shall
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perform, or attempt to perform, such covenants, duty, or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly pay
any reasonable amounts expended by Lender on behalf of Borrower in such
performance or attempted performance to Lender at its principal office in
Houston, Harris County, Texas, together with interest thereon at the Maximum
Rate from the date of such expenditure by Lender (as appropriate) until paid and
which amounts until paid shall be Obligations hereunder secured by the
Collateral. Notwithstanding the foregoing, it is expressly understood that
Lender shall not assume or have, except by its express written consent, any
liability or responsibility for the performance of any duties of Borrower or any
other Person hereunder.
Section 10.04. Waivers. The acceptance by Lender at any time
and from time to time of part payment on the Obligations shall not be deemed to
be a waiver of any Default or Event of Default then existing. No waiver by
Lender of any Default or Event of Default shall be deemed to be a waiver of any
other then existing or subsequent Default or Event of Default. No delay or
omission by Lender in exercising any Rights under the Loan Papers shall impair
such Rights or be construed as a waiver thereof or any acquiescence therein, nor
shall any single or partial exercise of any such Rights preclude other or
further exercise thereof, or the exercise of any other Rights under the Loan
Papers or otherwise.
Section 10.05. Application of Proceeds. Any and all proceeds
ever received by Lender from the exercise of any Rights pursuant to this Article
X, shall be applied promptly when received by Lender to the Obligations in such
order and manner as Lender, in its sole discretion, may deem appropriate.
Borrower shall remain liable to Lender for any deficiency.
Section 10.06. Cumulative Rights. All Rights available to
Lender under the Loan Papers shall be cumulative of and in addition to all other
rights granted to Lender at law or in equity, whether or not the Obligation be
due and payable and whether or not Lender shall have instituted any suit for
collection or other action in connection with the Loan Papers.
Section 10.07. Expenditures by Lender or Any Lender. Any
reasonable sums spent by Lender pursuant to the exercise of any Right provided
herein shall become part of the Obligations, except as otherwise provided by
Law.
ARTICLE XI
Miscellaneous
Section 11.01. Expenses of Lender. Borrower agrees to pay on
demand all reasonable costs and expenses incurred by Lender in connection with
the preparation, negotiation, and execution of this Agreement and the other Loan
Papers and any and all amendments, modifications, and supplements thereto,
including, without limitation, all reasonable costs and fees of Lender's legal
counsel, and all reasonable costs and expenses incurred by Lender in connection
with the
36
<PAGE>
enforcement or preservation of any rights under this Agreement or any other Loan
Papers, including, without limitation, all reasonable costs and fees of Lender's
legal counsel.
Section 11.02. Foreign Taxes. All taxes, income taxes,
assessments, filing or other fees, levies, imposts, duties, deductions,
withholdings, stamp taxes, interest equalization taxes, capital transaction
taxes, foreign exchange taxes or charges, or other charges of any nature
whatsoever from time to time or at any time imposed on the transactions governed
by this Agreement (including, without limitation, interest and fees paid to
Lender by Borrower) by any governmental entity other than the United States of
America, a State of the United States of America or any agency or department
thereof shall be paid by Borrower or shall be reimbursed to Lender by Borrower
if Lender is obligated to pay any such taxes. If Lender has an obligation to
file a tax return or report of any kind with any governmental entity other than
the United States of America, any State of the United States of America or any
agency or department thereof solely because of the transactions governed by this
Agreement, Borrower shall reimburse Lender for all costs and expenses in the
preparation and filing of such return or report (including, without limitation,
all attorney and accountant fees). Lender hereby agrees and covenants with
Borrower that it will take all reasonable actions, and execute such documents,
as may be, from time to time, reasonably requested by Borrower to attempt to
eliminate or minimize the payment of any taxes, assessments, fees, levies,
imposts, duties, deductions, withholding requirements or charges imposed upon
Lender and covered by the provisions of this Section 11.02, such actions and
documents to include, without limitation, the execution and filing of a Claim on
Behalf of a United States Domestic Corporation to Relief from United Kingdom
Income Tax on Interest and Royalties in the United Kingdom.
Section 11.03. Restatement. The delivery of each statement,
report, and certificate to Lender pursuant to this Agreement and each request by
Borrower for an Advance hereunder (whether by Notice of Revolving Credit
Borrowing, Notice of Credit Issuance or otherwise) shall by virtue of such
delivery or request alone constitute a restatement of the representations and
warranties contained in Article VII hereof on and as of the date of delivery or
the date requested for the Advance, except that the representations and
warranties contained in Section 7.02 shall in each instance be deemed to be made
with respect to the financial statements most recently furnished to Lender
pursuant to Section 7.02 or 8.01, as the case may be. Each such delivery or
request shall also constitute a representation and warranty at the time of said
delivery or on the date requested for the Advance that no Event of Default has
occurred and is continuing and that no event has occurred that, with notice or
lapse of time or both would be an Event of Default, has occurred and is
continuing.
Section 11.04. No Waiver; Cumulative Remedies. No failure on
the part of Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement and the other
Loan Papers are cumulative and not exclusive of any rights and remedies provided
by law.
37
<PAGE>
Section 11.05. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of Lender.
Section 11.06. Survival of Representations and Warranties. All
representations and warranties made in this Agreement or any other Loan Document
or in any document, statement, or certificate furnished in connection with this
Agreement shall survive the execution and delivery of this Agreement and the
other Loan Papers, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely upon them.
Section 11.07. Entire Agreement; Amendment. This Agreement
embodies the entire agreement among the parties hereto and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. The provisions of this Agreement
and the other Loan Papers to which Borrower, Parent or any other Person is a
party may be amended or waived only by an instrument in writing signed by the
parties hereto.
Section 11.08. Maximum Interest Rate. No provision of this
Agreement or of any Note shall require the payment or the collection of interest
in excess of the maximum permitted by applicable law. If any excess of interest
in such respect is hereby provided for, or shall be adjudicated to be so
provided, in any Note or otherwise in connection with this loan transaction, the
provisions of this Section 11.07 shall govern and prevail and neither Borrower
nor the sureties, guarantors, successors, or assigns of Borrower shall be
obligated to pay the excess amount of such interest or any other excess sum paid
for use, forbearance, or detention of sums loaned pursuant hereto. In the event
Lender ever receives, collects, or applies as interest any such sum, such amount
which would be in excess of the maximum amount permitted by applicable law shall
be applied as a payment and reduction of the principal of the indebtedness
evidenced by the Notes; and, if the principal of the Notes has been paid in
full, any remaining excess shall forthwith be paid to Borrower.
Section 11.09. Notices. Any notice, consent, or other
communication required or permitted to be given under any of the Loan Papers to
Lender or Borrower must be in writing and delivered in person or mailed by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
38
<PAGE>
To Lender: BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis
Houston, Texas 77002
Attn: Damien G. Meiburger
To Borrower: Dril-Quip (Europe) Limited
c/o Dril-Quip, Inc.
13550 Hempstead Highway
Houston, Texas 77040
Attn: J. Mike Walker
with a copy to:
Dril-Quip (Europe) Limited
c/o Dril-Quip, Inc.
13550 Hempstead Highway
Houston, Texas 77040
Attn: Jerry Brooks
and if the notice is pursuant to Section 10.01 or 10.02 hereof
with a copy to:
Sewell & Riggs
333 Clay Street, Suite 800
Houston, Texas 77002
Attn: Michael F. Rogers
or such other address as shall be set forth in a notice from the appropriate
party given in compliance with this Section 11.09. Any such notice, consent, or
other communications shall be deemed given when delivered in person or, if
mailed, when duly deposited in the mails.
SECTION 11.10. APPLICABLE LAW. THIS AGREEMENT, THE NOTES, AND
THE OTHER LOAN PAPERS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN
HOUSTON, HARRIS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 11.11. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
39
<PAGE>
Section 11.12. Severability. Any provision of this Agreement
held by a court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 11.13. Headings. The headings, captions, and
arrangements used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
Section 11.14. Non-Application of Chapter 15 of Texas Credit
Code. The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas
Civil Statutes, Article 5069-15) are specifically declared by the parties hereto
not to be applicable to this Agreement or any of the Loan Papers or to the
transactions contemplated hereby.
Section 11.15. Controlling Provision Upon Conflict. In event
of a conflict between the provisions of this Agreement those of the Notes, the
Security Documents or any other Loan Paper, the provisions of this Agreement
shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed Agreement as
of the day and year first above written.
BORROWER:
DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed under
the Companies Act of the United
Kingdom 1948, as amended
By: /s/ LARRY E. REIMERT
----------------------------------
Larry E. Reimert, Director
By: /s/ J. M. WALKER
----------------------------------
J. M. Walker, Director
40
<PAGE>
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ GARY L. STONE
----------------------------------
Gary L. Stone
Senior Vice President
41
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$15,000,000.00 Houston, Texas March __, 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a
private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Maker"), hereby promises to pay to the order of BANK ONE,
TEXAS, NATIONAL ASSOCIATION, a national banking association ("Payee"), at its
offices at 910 Travis, Houston, Harris County, Texas, on October 1, 1995, in
lawful money of the United States of America, the principal sum of FIFTEEN
MILLION AND NO/100 DOLLARS ($15,000,000.00), or so much thereof as may be
advanced and outstanding hereunder, together with interest on the outstanding
principal balance hereof, at a varying rate per annum which shall from day to
day be equal to the lesser of (a) the maximum rate permitted by applicable law
as the same exists from day to day during the term hereof ("Maximum Rate"),
including, as to Article 5069-1.04, Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas statutes), but otherwise
without limitation, that rate based upon the "indicated rate ceiling" or (b) the
sum of the Bank One Base Rate (hereinafter defined) of Payee in effect from day
to day plus one-half of one percent ( 1/2%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in clause (b) preceding had at all times
been in effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the 1st day of each successive July, October,
January and April commencing on July 1, 1994, until payment in full of the
outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Page 1 of a 3 Page Note ---------------------
Initialled for
Identification
<PAGE>
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated of even date herewith by and between Maker
and Payee (such instrument as the same may be amended or modified from time to
time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
Page 2 of a 3 Page Note ---------------------
Initialled for
Identification
<PAGE>
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof , all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP (EUROPE) LIMITED
By:
------------------------------------
_____________________________, Director
By:
-----------------------------------
____________________________, Director
Page 3 of a 3 Page Note ---------------------
Initialled for
Identification
<PAGE>
SCHEDULE 1
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
EXISTING LIENS
Description of Property Covered Lienholder
- ------------------------------- ----------
1. Land & building at Stoneywood Park, Bank of Scotland
Stoneywood Road, Dyce, Aberdeen, Scotland
<PAGE>
SCHEDULE 2
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
PERMITTED LOCATIONS
-------------------
Address Landlord
- ------- --------
1. Stoneywood Park Not applicable
Stoneywood Road Owned by Dril-Quip (Europe) Ltd.
Dyce, Aberdeen AB2 ODF
Scotland
2. Unit 1 & 2 Riverside Lindgreat Ltd.
Industrial Centre 9 Queen Street
Riverside Road, Gorleston Great Yarmouth
Great Yarmouth, Norfolk Norfolk, England
England NR31, 6PU
United Kingdom
3. Ryfylkegaten 70 KS Ryfylkegaten
4014 Stavanger P.O. Box 109
Norway 4001 Stavanger, Norway
<PAGE>
SCHEDULE 3
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
[This Schedule is being left blank intentionally. There is no reference to a
"Schedule 3" in the Credit Agreement to which this is attached.]
<PAGE>
SCHEDULE 4
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED
AND BANK ONE, TEXAS, N.A.
EXISTING LITIGATION
-------------------
None.
<PAGE>
SCHEDULE 5
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
DEBT
----
None.
<PAGE>
SCHEDULE 6
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
SUBSIDIARIES
------------
Subsidiaries of Dril-Quip. Inc.
- -------------------------------
Name Jurisdiction % Owned
- ---- ------------ -------
DQE United Kingdom 100%
DQAP Singapore 100%
Dril-Quip Trade Corp. Virgin Islands 100%
PT Dril-Quip Indonesia Indonesia 80%
Subsidiaries of Other Material Companies
- ----------------------------------------
None
<PAGE>
SCHEDULE 7
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
CONTRACTS
---------
With respect to P.T. Dril-Quip Indonesia ("PTDQI") , Parent is
obligated to sell, transfer and assign a sufficient portion of its equity
interest in PTDQI to Ir. Iman Taufik, Parent's current minority co-equity owner
in PTDQI, to bring his ownership interest in PTDQI to 51% in the 15th year
following commencement of commercial production in Indonesia. Such sale will be
made at a mutually agreed upon price or as may be determined as the then fair
value by an internationally recognized and independent firm of public
accountants.
<PAGE>
SCHEDULE 8
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
CONSENTS
--------
None.
<PAGE>
SCHEDULE 9
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
LOANS TO AFFILIATES
-------------------
None.
<PAGE>
SCHEDULE 10
TO CREDIT AGREEMENT
BY AND BETWEEN DRIL-QUIP (EUROPE) LIMITED AND
BANK ONE, TEXAS, N.A.
TAXES
-----
None.
<PAGE>
EXHIBIT B
---------
PROMISSORY NOTE
---------------
$1,704,000.00 Houston, Texas March , 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a
private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Maker"), hereby promises to pay to the order of BANK ONE,
TEXAS, NATIONAL ASSOCIATION, a national banking association ("Payee"), at its
offices at 910 Travis, Houston, Harris County, Texas, on October 1, 1997, in
lawful money of the United States of America, the principal sum of ONE MILLION
SEVEN HUNDRED FOUR THOUSAND AND NO/100 DOLLARS ($1,704,000.00), plus accrued and
unpaid interest thereon as hereinafter calculated, as follows:
(a) thirteen (13) quarterly installments each in the principal
amount of SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00), together
with all accrued and unpaid interest, with the first of such installments
due and payable on July 1, 1994, and like successive installments of
principal plus accrued and unpaid interest due and payable on the 1st day
of each succeeding April, July, October and January thereafter, through and
including July 1, 1997; and
(b) a fourteenth (14th) and final installment in the amount of
all outstanding principal, plus accrued and unpaid interest, due and
payable on the maturity of this note, October 1, 1997.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus three-quarters of one percent (3/4%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in clause (b) preceding had at all times
been in effect. All past due principal and interest shall bear interest at the
Maximum Rate.
--------------
Initialled for
Page 1 of a 3 Page Note Identification
<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Amended and Restated Credit Agreement dated of even date herewith by and between
Maker and Payee (such instrument as the same may be amended or modified from
time to time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys, fees.
--------------
Initialled for
Page 2 of a 3 Page Note Identification
<PAGE>
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
DRIL-QUIP (EUROPE) LIMITED
By:
--------------------------------
_________________________, Director
By:
--------------------------------
_________________________, Director
--------------
Initialled for
Page 3 of a 3 Page Note Identification
<PAGE>
EXHIBIT C
---------
FORM OF NOTICE OF REVOLVING
CREDIT BORROWING
______________________, 19___
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention: __________________________________________________
Gentlemen:
The undersigned is an Authorized Financial Officer, and as such is
authorized to make and deliver this Notice of Revolving Credit Borrowing
pursuant to Section 2.04 of that certain Credit Agreement dated March ___, 1994
(as may be amended, the "Credit Agreement"), by and between Bank One, Texas,
National Association ("Lender") and Dril-Quip (Europe) Limited ("Borrower"). All
terms defined in the Credit Agreement shall have the same meaning herein.
Borrower hereby requests a Borrowing under the Revolving Credit Loan from Lender
in accordance with Section 2.04 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule I attached hereto, the
representations and warranties contained in Article VII of the Credit
Agreement are true and correct in all material respects at and as of the
date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is
continuing.
(iii) The amount of the Revolving Credit Loan to be made
pursuant to this request does not exceed the Revolving Credit Available
Loan Amount.
(iv) All information supplied herein is true and accurate as of
the date hereof.
<PAGE>
BANK ONE, TEXAS, NATIONAL ASSOCIATION
Page 2
The Borrowing Date shall be __________________________, 19___.
DRIL-QUIP (EUROPE) LIMITED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT D
FORM OF NOTICE OF CREDIT ISSUANCE
____________________, 19___
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 Travis Street
Houston, Texas 77002
Attention:
Gentlemen:
The undersigned is an Authorized Financial Officer, and as such is
authorized to make and deliver this Notice of Credit Issuance pursuant to
Section 2.08 of that certain Credit Agreement dated March __, 1994 (as may be
amended, the "Credit Agreement"), by and between Bank One, Texas, National
Association ("Lender") and Dril-Quip (Europe) Limited ("Borrower"). All terms
defined in the Credit Agreement shall have the same meaning herein. Borrower
hereby notifies Lender of the proposed issuance of a Letter of Credit, the terms
of which are fully described on Schedule I attached hereto, and the purpose of
which is fully described on Schedule II attached hereto, in accordance with
Section 2.08 of the Credit Agreement.
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that:
(i) Except as disclosed in Schedule III attached hereto, the
representations and warranties contained in Article VII of the Credit
Agreement are true and correct in all material respects at and as of the
date hereof as though made as of the date hereof.
(ii) No Default or Event of Default has occurred and is
continuing.
(iii) The amount of the Letter of Credit to be issued pursuant
to this request does not exceed the Revolving Credit Available Loan Amount.
(iv) The amount of the Letter of Credit to be issued pursuant to
this request, together with all other outstanding Letters of Credit does
not exceed $3,000,000.00.
(v) All information supplied herein is true and accurate as of
the date hereof.
<PAGE>
The issuance date of the Letter of Credit shall be ________________,
19___.
DRIL-QUIP (EUROPE) LIMITED
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE>
EXHIBIT E
FORM OF BORROWING BASE REPORT
TO: BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention:_______________________________________________
Gentlemen:
This Borrowing Base Report (this "Report") for the month ending
________________, 19___, is executed and delivered by DRIL-QUIP (EUROPE) LIMITED
(the "Borrower") to BANK ONE, TEXAS, NATIONAL ASSOCIATION (the "Lender")
pursuant to that certain Credit Agreement (the "Credit Agreement") dated as of
March ___, 1994, between the Borrower and the Lender. All terms used herein
shall have the meanings assigned to them in the Credit Agreement.
The Borrower represents and warranties to the Lender that all
information contained herein is true, correct and complete, and that below
represent the Eligible Accounts and Eligible Inventory that qualify for purposes
of determining the Borrowing Base under the Credit Agreement. The Borrower
further represents and warrants to the Lender that attached hereto as Schedule I
is a list of the Eligible Accounts for the month ending _________________,
19___, showing all Eligible Accounts aged in thirty-day intervals and as
Schedule II is the amount of Eligible Accounts, Eligible Inventory and
calculation of the Borrowing Base on a consolidating basis.
<TABLE>
ACCOUNTS RECEIVABLE:
<S> <C> <C>
1. Total Accounts Receivable per Financial Statement $_______
2. Eligible Accounts $_______
INVENTORY:
3. Total Inventory per Financial Statements $_______
4. Eligible Inventory $_______
BORROWING BASE:
5. 80% of line 2 $_______
6. 50% of line 4 $_______
(not to exceed 60% of the total Borrowing Base)
7. Borrowing Base (line 5 plus line 6) $_______
</TABLE>
<PAGE>
<TABLE>
OUTSTANDING SUM OF BORROWER:
<C> <S> <C>
8. Outstanding Principal of Revolving Credit Loan plus
Amount of Open Letters of Credit Outstanding $_______
9. Amount of Any Pending Notice of Revolving
Credit Borrowing $_______
10. Amount of Any Pending Notice of Credit Issuance $_______
11. Aggregate Amount of Pending Notices
(sums of lines 9 and 10) $_______
12. Outstanding Sum of Borrower (line 8 plus line 11) $_______
OUTSTANDING SUM OF DRIL-QUIP, INC.:
13. Outstanding Principal of Revolving Credit plus amount
of open Letters of Credit Outstanding $_______
14. Amount of any Pending Notice of Revolving Credit Borrowing $________
15. Amount of Pending Notice of Letter of Credit Insurance $_______
16. Aggregate Amount of Pending Notices
(sum of line 14 and 15) $_______
AVAILABILITY:
17. Outstanding Sum of Dril-Quip, Inc. (line 13 plus line 16) $_______
18. Available Sum (the lesser of (i)$15,000,000.00 minus
line 12 minus line 17, or (ii) line 7 minus line 12) $________
</TABLE>
The Borrower further represents and warrants to the Lender that the
representation and warranties contained in Article VII of the Credit Agreement
(as modified, if appropriate, in accordance with Section 11.02 of the Agreement)
are true and correct in all material respects on and as of the date of this
Report as if made on and as of the date hereof, and that no Default or Event of
Default has occurred and is continuing.
<PAGE>
Date:
------------------------
BORROWER:
DRIL-QUIP (EUROPE) LIMITED
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
<PAGE>
Exhibit 10.6
FIRST AMENDMENT TO
CREDIT AGREEMENT
----------------
This First Amendment to Credit Agreement (the "First Amendment"), dated as
of December 20, 1994 is entered into by and between DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a
national banking association ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994
(the "Credit Agreement"), Lender agreed to make available to Borrower certain
loans upon the terms and conditions and for the purposes therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of SEVENTEEN MILLION AND NO/100 DOLLARS
($17,000,000.00) and extended to October 1, 1996 and Lender has agreed to such
increase and extension; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit and governs such additional advancing line of credit;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement,
such term shall refer to the Credit Agreement as amended by this
First Amendment;
1.2 Article I - Definitions. The definition of the term "Parent's
Revolving Debt Facility" is deleted in its entirety and the
following is substituted in place thereof:
"Parent's Revolving Debt Facility" means that certain
revolving credit loan in the maximum principal amount of
$17,000,000.00 made by Lender to Parent and governed by that
certain Credit Agreement dated March 30, 1994 as amended by
that certain First Amendment to Credit Agreement dated
December 20, 1994 between Lender and Parent as such Credit
Agreement may be further amended, renewed or extended from
time to time.
-1-
<PAGE>
1.3 Article I - Definitions. The definition of the term "Revolving Credit
Committed Sum" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Committed Sum" means SEVENTEEN MILLION AND
NO/100 DOLLARS ($17,000,000.00), as such amount may be reduced
pursuant to Section 2.06.
1.4 Article I - Definitions. The definition of the term "Revolving Credit
Note" is deleted in its entirety, and the following is substituted in
place thereof:
"Revolving Credit Note" means the promissory note in favor of
Lender in substantially the form of Exhibit F hereto, and all
extensions, renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving Credit
Termination Date" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Termination Date" means October 1, 1996, or
such earlier date as the Revolving Credit Commitment terminates
as provided in this Agreement.
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Section 2.01 of the Agreement is subject to the condition precedent
that the Lender shall have received all of the following, each duly executed and
in form and substance satisfactory to Lender:
(a) Promissory Note dated December 20, 1994 in the principal amount
of $17,000,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Revolving Credit Note;
(b) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof;
(c) The Memorandum and Articles of Association of Borrower certified
by the relevant governmental authority of the jurisdiction of
incorporation, dated reasonably near the date of this First
Amendment;
-2-
<PAGE>
(d) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this First
Amendment; and
(e) A favorable opinion of legal counsel to Borrower.
3. Representations and Warranties. The representations and warranties
made in Article VII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this Second Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by the terms of this First Amendment. Any of the terms
used in this First Amendment which are not defined in the Credit Agreement shall
be used therein as herein defined.
5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this First Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
6. Applicable Law. This First Amendment shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
Texas.
7. Entire Agreement. The Credit Agreement as amended by this First
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this First Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed
under the Corporation Act of the
United Kingdom 1948, as amended
-3-
<PAGE>
By:_________________________________
Printed Name:_______________________
Title: Director
By:_________________________________
Printed Name:_______________________
Title: Director
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:_________________________________
Damien G. Meiburger
Vice President
-4-
<PAGE>
EXHIBIT F
PROMISSORY NOTE
---------------
$17,000,000.00 Houston, Texas December 20, 1994
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a
private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Maker"), hereby promises to pay to the order of BANK ONE,
TEXAS, NATIONAL ASSOCIATION, a national banking association ("Payee"), at its
offices at 910 Travis, Houston, Harris County, Texas, on October 1, 1996, in
lawful money of the United States of America, the principal sum of SEVENTEEN
MILLION AND NO/100 DOLLARS ($17,000,000.00), or so much thereof as may be
advanced and outstanding hereunder, together with interest on the outstanding
principal balance hereof, at a varying rate per annum which shall from day to
day be equal to the lesser of (a) the maximum rate permitted by applicable law
as the same exists from day to day during the term hereof ("Maximum Rate"),
including, as to Article 5069-1.04, Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas statutes), but otherwise
without limitation, that rate based upon the "indicated rate ceiling" or (b) the
sum of the Bank One Base Rate (hereinafter defined) of Payee in effect from day
to day plus one-half of one percent (1/2%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in clause (b) preceding had at all times
been in effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the 1st day of each successive January,
April, July and October commencing on January 1, 1995, until payment in full of
the outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that
is not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
_______________
Initialled for
Page 1 of a 4 Page Note Identification
<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated March 30, 1994 as amended by First Amendment
to Credit Agreement dated of even date herewith by and among Maker and Payee
(such instruments as the same may be amended or modified from time to time, are
hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
_______________
Initialled for
Page 2 of a 4 Page Note Identification
<PAGE>
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated March 30, 1994, in the original
principal amount of $15,000,000.00, executed by Maker for the benefit of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
_______________
Initialled for
Page 3 of a 4 Page Note Identification
<PAGE>
DRIL-QUIP (EUROPE) LIMITED
By:________________________________
Printed Name:______________________
Title: Director
By:________________________________
Printed Name:______________________
Title: Director
Page 4 of a 4 Page Note
<PAGE>
Exhibit 10.7
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Second Amendment"), dated
as of December 13, 1995 is entered into by and between DRIL-QUIP (EUROPE)
LIMITED, a private limited company formed under the Companies Act of the United
Kingdom 1948, as amended ("Borrower"), and BANK ONE, TEXAS, NATIONAL
ASSOCIATION, a national banking association ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994 as
amended by that certain First Amendment to Credit Agreement dated December 20,
1994 (collectively, the "Credit Agreement"), Lender agreed to make available to
Borrower certain loans upon the terms and conditions and for the purposes
therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00)
and extended to October 1, 1997 and Lender has agreed to such increase and
extension; and
WHEREAS, Borrower has requested Lender to make certain other changes to the
Credit Agreement; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit and effects such other changes;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement,
such term shall refer to the Credit Agreement as amended by this Second
Amendment;
1.2 Article I - Definitions. The definition of the term "Parent's
Revolving Debt Facility" is deleted in its entirety and the following is
substituted in place thereof:
"Parent's Revolving Debt Facility" means that certain
revolving credit loan in the maximum principal amount of
$20,000,000.00 made by Lender to Parent and governed by
-1-
<PAGE>
that certain Credit Agreement dated March 30, 1994 as
amended by that certain First Amendment to Credit Agreement
dated December 20, 1994 and that certain Second Amendment to
Credit Agreement dated December 13, 1995 between Lender and
Parent as such Credit Agreement may be further amended,
renewed or extended from time to time.
1.3 Article I - Definitions. The definition of the term "Revolving Credit
Committed Sum" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Committed Sum" means TWENTY MILLION AND NO/100
DOLLARS ($20,000,000.00), as such amount may be reduced pursuant
to Section 2.06.
1.4 Article I - Definitions. The definition of the term "Revolving Credit
Note" is deleted in its entirety, and the following is substituted in
place thereof:
"Revolving Credit Note" means the promissory note in favor of
Lender in substantially the form of Exhibit G hereto, and all
extensions, renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving Credit
Termination Date" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Termination Date" means October 1, 1997, or
such earlier date as the Revolving Credit Commitment terminates
as provided in this Agreement.
1.6 Article I - Definitions. The definition of the term "Term Note" is
deleted in its entirety, and the following is substituted in place
thereof:
"Term Note" means the promissory note described in Section 3.01
hereof in favor of Lender in substantially the form of Exhibit H
hereto, and all extensions, renewals and modifications thereof.
1.7 Article II. Article II is hereby amended to substitute the following
for Section 2.02 in its entirety:
Section 2.02. Revolving Credit Note. The obligation of Borrower
to repay the Revolving Credit Loan shall be evidenced by the
Revolving Credit Note executed by Borrower, payable to the order
of Lender, in the principal amount of the Revolving Credit
Committed Sum and dated October 1, 1995. The principal of the
Revolving Credit Loan
-2-
<PAGE>
shall be due and payable on the Revolving Credit Termination
Date. Effective October 1, 1995, the Revolving Credit Loan shall
bear interest prior to maturity at a varying rate per annum equal
from day to day to the lesser of (a) the maximum rate permitted
from day to day by applicable law ("Maximum Rate"), including as
to Article 5069-1.04 Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas statutes),
but otherwise without limitation, that rate based upon the
"indicated rate ceiling", or (b) the sum of the Bank One Texas
Base Rate in effect from day to day plus one-fourth of one
percent (1/4%), each such change in the rate of interest charged
hereunder to become effective, without notice to Borrower, on the
effective date of each change in the Bank One Texas Base Rate;
provided, however, if at any time the rate of interest specified
in clause (b) preceding shall exceed the Maximum Rate, thereby
causing the interest on the Revolving Credit Loan to be limited
to the Maximum Rate, then any subsequent reduction in the Bank
One Texas Base Rate shall not reduce the rate of interest on the
Revolving Credit Loan below the Maximum Rate until the aggregate
amount of interest accrued on the Revolving Credit Loan equals
the aggregate amount of interest which would have accrued on the
Revolving Credit Loan if the interest rate specified in clause
(b) preceding had at all times been in effect. Accrued and unpaid
interest on the Revolving Credit Loan shall be due and payable
(a) quarterly in arrears, on the 1st day of each successive
January, April, July and October commencing on January 1, 1996,
until payment in full of the outstanding principal under the
Revolving Credit Note and (b) on the Revolving Credit Termination
Date. All past due principal and interest shall bear interest at
the Maximum Rate.
1.8 Article III. Article III is hereby amended to substitute the
following for Article III in its entirety:
Term Loan
Section 3.01. Commitment for Term Loan. Subject to the terms and
conditions of this Agreement, and provided that no Default or
Event of Default has occurred and is continuing on the Closing
Date, Lender agrees to make the Term Loan to Borrower under the
Term Note, in the amount of ONE MILLION TWO HUNDRED SEVENTY-EIGHT
THOUSAND AND NO/100 DOLLARS ($1,278,000.00) to be effective
October 1, 1995, which amount represents a renewal and
rearrangement of the principal indebtedness evidenced by that
certain Promissory Note dated March 30, 1994 in
-3-
<PAGE>
the principal amount of $1,704,000.00 executed by Borrower and
payable to the order of Lender.
Section 3.02. Term Note. The obligation of Borrower to repay the
Term Loan shall be evidenced by the Term Note executed by
Borrower, payable to the order of Lender, in the principal amount
of the Term Loan and dated of even date herewith. The principal
of the Term Loan, plus accrued and unpaid interest thereon, shall
be due and payable in:
(a) seven (7) consecutive installments each equal to
SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00) of
principal, together with all accrued and unpaid interest, the
first of such installments being due and payable on or before
January 1, 1996 and like installments being due and payable on
the first day of each succeeding third calendar month thereafter
through and including July 1, 1997; and
(b) a final installment due and payable on October 1, 1997
in an amount equal to the remaining unpaid principal amount
outstanding on the Term Loan, together with all accrued and
unpaid interest.
Effective October 1, 1995, the Term Loan shall bear interest
prior to maturity at a varying rate per annum equal from day to
day to the lesser of (a) the Maximum Rate or (b) the sum of the
Bank One Texas Base Rate in effect from day to day plus one-half
of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank One
Texas Base Rate; provided, however, if at any time the rate of
interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest on the Term Loan to be
limited to the Maximum Rate, then any subsequent reduction in the
Bank One Texas Base Rate shall not reduce the rate of interest on
the Term Loan below the Maximum Rate until the aggregate amount
of interest accrued on the Term Loan equals the aggregate amount
of interest which would have accrued on the Term Loan if the
interest rate specified in clause (b) preceding had at all times
been in effect. All past due principal and interest shall bear
interest at the Maximum Rate.
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<PAGE>
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Section 2.01 of the Agreement is subject to the condition precedent
that the Lender shall have received all of the following, each duly executed and
in form and substance satisfactory to Lender:
(a) Promissory Note dated October 1, 1995 in the principal amount of
$20,000,000.00 executed by Borrower to the order of Lender, after
execution and delivery being the Revolving Credit Note;
(b) Promissory Note dated October 1, 1995 in the principal amount of
$1,278,000.00 executed by Borrower to the order of Lender, after
execution and delivery being the Term Note;
(c) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof;
(d) The Memorandum and Articles of Association of Borrower certified
by the relevant governmental authority of the jurisdiction of
incorporation, dated reasonably near the date of this Second
Amendment;
(e) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this Second
Amendment; and
(f) A favorable opinion of legal counsel to Borrower.
3. Representations and Warranties. The representations and warranties
made in Article VII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this Second Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by the terms of this Second Amendment. Any of the terms
used in this Second Amendment which are not defined in the Credit Agreement
shall be used therein as herein defined.
5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this Second Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
-5-
<PAGE>
6. Applicable Law. This Second Amendment shall be deemed to be a
contract made under, and shall be construed in accordance with, the laws of the
State of Texas.
7. Entire Agreement. The Credit Agreement as amended by this Second
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this Second Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed
under the Corporation Act of the
United Kingdom 1948, as amended
By: ___________________________________
Printed Name: _________________________
Title: Director
By:
Printed Name:
Title: Director
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: __________________________________
Gary L. Stone
Senior Vice President
-6-
<PAGE>
EXHIBIT G
PROMISSORY NOTE
---------------
$20,000,000.00 Houston, Texas October 1, 1995
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a
private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Maker"), hereby promises to pay to the order of BANK ONE,
TEXAS, NATIONAL ASSOCIATION, a national banking association ("Payee"), at its
offices at 910 Travis, Houston, Harris County, Texas, on October 1, 1997, in
lawful money of the United States of America, the principal sum of TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00), or so much thereof as may be
advanced and outstanding hereunder, together with interest on the outstanding
principal balance hereof, at a varying rate per annum which shall from day to
day be equal to the lesser of (a) the maximum rate permitted by applicable law
as the same exists from day to day during the term hereof ("Maximum Rate"),
including, as to Article 5069-1.04, Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas statutes), but otherwise
without limitation, that rate based upon the "indicated rate ceiling" or (b) the
sum of the Bank One Base Rate (hereinafter defined) of Payee in effect from day
to day plus one-fourth of one percent (1/4%), each such change in the rate of
interest charged hereunder to become effective, without notice to Maker, on the
effective date of each change in the Bank One Base Rate; provided however, if at
any time the rate of interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest rate hereon to be limited to the
Maximum Rate, then any subsequent reduction in the Bank One Base Rate will not
reduce the rate of interest hereon below the Maximum Rate until the total amount
of interest accrued hereon equals the amount of interest which would have
accrued hereon if the rate specified in clause (b) preceding had at all times
been in effect.
Accrued and unpaid interest shall be due and payable quarterly in
arrears during the term hereof, on the 1st day of each successive January,
April, July and October commencing on January 1, 1996, until payment in full of
the outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that
is not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
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<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the
lesser of (i) the rate of interest per annum then most recently established by
Payee as its Bank One Base Rate in effect from day to day, with each change in
the rate of interest charged as the Bank One Base Rate to become effective,
without notice to Maker, on the effective date of each change in the Bank One
Base Rate, such Bank One Base Rate to be computed on the basis of a year
composed of 365 days for the actual number of days elapsed (including the first
day but excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in
that certain Credit Agreement dated March 30, 1994 as amended by that certain
First Amendment to Credit Agreement dated December 20, 1994 and that certain
Second Amendment to Credit Agreement dated December 13, 1995 by and among Maker
and Payee (such instruments as the same may be amended or modified from time to
time, are hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and
conditions specified in the Agreement. Maker may borrow, repay and reborrow
hereunder upon the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no
provisions of this note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this note or otherwise in connection with this loan transaction the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this
note and such default shall continue for three (3) Business Days after notice
thereof to Maker pursuant to the Agreement, as defined in the Agreement, or upon
the occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
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<PAGE>
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker
and each surety, guarantor, endorser and other party ever liable for payment of
any sums of money payable on this note, jointly and severally waive the right to
be sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable
for payment of any sums of money payable on this note jointly and severally
waive presentment and demand for payment, protest, notice of protest and non-
payment of dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, and grace, and consent to
all extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated December 20, 1994, in the
original principal amount of $17,000,000.00, executed by Maker for the benefit
of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
--------------
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<PAGE>
DRIL-QUIP (EUROPE) LIMITED
By: _________________________________
Printed Name: _______________________
Title: Director
By: _________________________________
Printed Name: _______________________
Title: Director
Page 4 of a 4 Page Note
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<PAGE>
EXHIBIT H
PROMISSORY NOTE
$1,278,000.00 Houston, Texas October 1, 1995
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a private
limited company formed under the Companies Act of the United Kingdom 1948,
amended ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on October 1, 1997, in lawful
money of the United States of America, the principal sum of ONE MILLION TWO
HUNDRED SEVENTY-EIGHT THOUSAND AND NO/100 DOLLARS ($1,278,000.00), plus accrued
and unpaid interest thereon as hereinafter calculated, as follows:
(a) seven (7) quarterly installments each in the principal amount of
SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00), together with all
accrued and unpaid interest with the first of such installments due and
payable on January 1, 1996, and like successive installments of principal
plus accrued and unpaid interest due and payable on the 1st day of each
succeeding April, July, October and January thereafter, through and
including July 1, 1997; and
(b) an eighth (8th) and final installment in the amount of all
outstanding principal plus accrued and unpaid interest due and payable on
the maturity of this note, October 1, 1997.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate
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<PAGE>
specified in clause (b) preceding had at all times been in effect. All past due
principal and interest shall bear interest at the Maximum Rate.
As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum then most recently established by Payee as
its Bank One Base Rate in effect from day to day, with each change in the rate
of interest charged as the Bank One Base Rate to become effective, without
notice to Maker, on the effective date of each change in the Bank One Base Rate,
such Bank One Base Rate to be computed on the basis of a year composed of 365
days for the actual number of days elapsed (including the first day but
excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Amended and Restated Credit Agreement dated March 30, 1994 as amended by that
certain First Amendment to Credit Agreement dated December 20, 1994 and that
certain Second Amendment to Credit Agreement dated December 13, 1995 by and
between Maker and Payee (such instrument as the same may be amended or modified
from time to time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof
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<PAGE>
to Maker. Failure of the holder hereof to exercise this option shall not
constitute a waiver of the right to exercise the same upon the occurrence of a
subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and rearrangement but not in novation or
discharge, of that certain Promissory Note dated March 30, 1994 in the original
principal amount of $1,704,000.00, executed by Maker for the benefit of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to
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<PAGE>
make endorsement shall not limit or otherwise affect the obligations of Maker
under the Agreement or this note.
DRIL-QUIP (EUROPE) LIMITED
By: __________________________________
___________________, Director
By: __________________________________
___________________, Director
Page 4 of a 4 Page Note
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<PAGE>
Exhibit 10.8
THIRD AMENDMENT TO
CREDIT AGREEMENT
----------------
This Third Amendment to Credit Agreement (the "Third Amendment"), dated as
of February 14, 1997 is entered into by and between DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed under the Companies Act of the United Kingdom
1948, as amended ("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a
national banking association ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Credit Agreement dated March 30, 1994 as
amended by that certain First Amendment to Credit Agreement dated December 20,
1994 and that certain Second Amendment to Credit Agreement dated December 13,
1995 (collectively, the "Credit Agreement"), Lender agreed to make available to
Borrower certain loans upon the terms and conditions and for the purposes
therein contained;
WHEREAS, Borrower has requested that its revolving line of credit be
increased up to a maximum of TWENTY-FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00) and extended to June 1, 1999 and Lender has agreed to such
increase and extension;
WHEREAS, Borrower has requested Lender to make certain other changes to the
Credit Agreement; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement so that
the Credit Agreement evidences such increase and extension of the revolving line
of credit and effects such other changes;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is modified as
follows:
1.1 Wherever the term "Agreement" is used in the Credit Agreement, such
term shall refer to the Credit Agreement as amended by this Third
Amendment;
1.2 Article I - Definitions. The definition of the term "Parent's
Revolving Debt Facility" is deleted in its entirety and the following
is substituted in place thereof:
"Parent's Revolving Debt Facility" means that certain
revolving credit loan in the maximum principal amount of
$25,000,000.00 made by Lender to Parent and governed by that
certain Credit Agreement dated March 30, 1994 as
1
<PAGE>
amended by that certain First Amendment to Credit Agreement
dated December 20, 1994, that certain Second Amendment to
Credit Agreement dated December 13, 1995 and that certain
Third Amendment to Credit Agreement dated February 14, 1997
between Lender and Parent as such Credit Agreement may be
further amended, renewed or extended from time to time.
1.3 Article I - Definitions. The definition of the term "Revolving
Credit Committed Sum" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Committed Sum" means TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000.00), as such amount may be
reduced pursuant to Section 2.06.
1.4 Article I - Definitions. The definition of the term "Revolving Credit
Note" is deleted in its entirety, and the following is substituted in
place thereof:
"Revolving Credit Note" means the promissory note in favor
of Lender in substantially the form of Exhibit I hereto, and
all extensions, renewals and modifications thereof.
1.5 Article I - Definitions. The definition of the term "Revolving Credit
Termination Date" is deleted in its entirety, and the following is
substituted in place thereof:
"Revolving Credit Termination Date" means June 1, 1999, or
such earlier date as the Revolving Credit Commitment
terminates as provided in this Agreement.
1.6 Article I - Definitions. The definition of the term "Term Note" is
deleted in its entirety, and the following is substituted in place
hereof:
"Term Note" means the promissory note described in Section
3.01 hereof in favor of Lender in substantially the form of
Exhibit J hereto, and all extensions, renewals and
modifications thereof.
1.7 Article II. Article II is hereby amended to substitute the following
for Section 2.02 in its entirety:
2
<PAGE>
Section 2.02. Revolving Credit Note. The obligation of
Borrower to repay the Revolving Credit Loan shall be
evidenced by the Revolving Credit Note executed by Borrower,
payable to the order of Lender, in the principal amount of
the Revolving Credit Committed Sum and dated February 14,
1997. The principal of the Revolving Credit Loan shall be
due and payable on the Revolving Credit Termination Date.
The Revolving Credit Loan shall bear interest prior to
maturity at a varying rate per annum equal from day to day
to the lesser of (a) the maximum rate permitted from day to
day by applicable law ("Maximum Rate"), including as to
Article 5069-1.04 Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas
statutes), but otherwise without limitation, that rate based
upon the "indicated rate ceiling", or (b) the sum of the
Bank One Texas Base Rate in effect from day to day plus one-
fourth of one percent (1/4%), each such change in the rate
of interest charged hereunder to become effective, without
notice to Borrower, on the effective date of each change in
the Bank One Texas Base Rate; provided, however, if at any
time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest
on the Revolving Credit Loan to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Texas
Base Rate shall not reduce the rate of interest on the
Revolving Credit Loan below the Maximum Rate until the
aggregate amount of interest accrued on the Revolving Credit
Loan equals the aggregate amount of interest which would
have accrued on the Revolving Credit Loan if the interest
rate specified in clause (b) preceding had at all times been
in effect. Accrued and unpaid interest on the Revolving
Credit Loan shall be due and payable (a) quarterly in
arrears, on the 1st day of each successive April, July,
October and January commencing on April 1, 1997, until
payment in full of the outstanding principal under the
Revolving Credit Note and (b) on the Revolving Credit
Termination Date. All past due principal and interest shall
bear interest at the Maximum Rate.
1.8 Article III. Article III is hereby amended to substitute the
following for Article III in its entirety:
3
<PAGE>
Term Loan
---------
Section 3.01. Commitment for Term Loan. Subject to the terms
and conditions of this Agreement, and provided that no
Default or Event of Default has occurred and is continuing
on the Closing Date, Lender agrees to make the Term Loan to
Borrower under the Term Note, in the amount of NINE HUNDRED
TWENTY-THREE THOUSAND AND NO/100 DOLLARS ($923,000.00),
which amount represents a renewal and extension, of the
principal indebtedness evidenced by that certain Promissory
Note dated October 1, 1995 in the principal amount of
$1,278,000.00 executed by Borrower and payable to the order
of Lender.
Section 3.02. Term Note. The obligation of Borrower to repay
the Term Loan shall be evidenced by the Term Note executed
by Borrower, payable to the order of Lender, in the
principal amount of the Term Loan and dated February 14,
1997. The principal of the Term Loan, plus accrued and
unpaid interest thereon, shall be due and payable in:
(a) nine (9) consecutive installments each equal to
SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00) of
principal, together with all accrued and unpaid interest,
the first of such installments being due and payable on or
before April 1, 1997 and like installments being due and
payable on the first day of each succeeding third calendar
month thereafter through and including April 1, 1999; and
(b) a final installment due and payable on July 1, 1999
in an amount equal to the remaining unpaid principal amount
outstanding on the Term Loan, together with all accrued and
unpaid interest.
The Term Loan shall bear interest prior to maturity at a
varying rate per annum equal from day to day to the lesser
of (a) the Maximum Rate or (b) the sum of the Bank One Texas
Base Rate in effect from day to day plus one-half of one
percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to
Borrower, on the effective date of each change in the Bank
One Texas Base Rate; provided, however, if at any time the
rate of
4
<PAGE>
interest specified in clause (b) preceding shall exceed the
Maximum Rate, thereby causing the interest on the Term Loan
to be limited to the Maximum Rate, then any subsequent
reduction in the Bank One Texas Base Rate shall not reduce
the rate of interest on the Term Loan below the Maximum Rate
until the aggregate amount of interest accrued on the Term
Loan equals the aggregate amount of interest which would
have accrued on the Term Loan if the interest rate specified
in clause (b) preceding had at all times been in effect. All
past due principal and interest shall bear interest at the
Maximum Rate.
2. Condition Precedent. The obligation of Lender to make any Advances
pursuant to Section 2.01 of the Agreement is subject to the condition precedent
that the Lender shall have received all of the following, each duly executed and
in form and substance satisfactory to Lender:
(a) Promissory Note dated February 14, 1997 in the principal amount
of $25,000,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Revolving Credit Note;
(b) Promissory Note dated February 14, 1997 in the principal amount
of $923,000.00 executed by Borrower to the order of Lender,
after execution and delivery being the Term Note;
(c) Ratifications or amendments of existing Security Documents and/or
new Security Documents as may be requested by Lender to continue
or establish a Lien in favor or for the benefit of Lender in or
against all of Borrower's accounts, accounts receivable,
equipment, machinery, fixtures, raw materials, work-in-process,
inventory, chattel paper, documents, instruments and general
intangibles, whether now owned or hereafter acquired, and all
products and proceeds thereof;
(d) The Memorandum and Articles of Association of Borrower certified
by the relevant governmental authority of the jurisdiction of
incorporation, dated reasonably near the date of this Third
Amendment;
(e) Certificates of the appropriate government officials of the
jurisdiction of incorporation of Borrower as to its existence and
good standing, dated reasonably near the date of this Third
Amendment; and
(f) A favorable opinion of legal counsel to Borrower.
5
<PAGE>
3. Representations and Warranties. The representations and warranties
made in Article VII of the Credit Agreement by Borrower to Lender are true and
correct as of the date of execution of this Third Amendment.
4. Defined Terms. Words and terms used herein which are defined in the
Credit Agreement are used herein as defined in the Credit Agreement, except as
specifically modified by the terms of this Third Amendment. Any of the terms
used in this Third Amendment which are not defined in the Credit Agreement shall
be used therein as herein defined.
5. Preservation of the Credit Agreement. Except as specifically modified
by the terms of this Third Amendment, all of the terms, provisions, covenants,
warranties and agreements contained in the Credit Agreement shall remain in full
force and effect.
6. Applicable Law. This Third Amendment shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
Texas.
7. Entire Agreement. The Credit Agreement as amended by this Third
Amendment and the other Loan Papers contain the entire agreement between the
parties relating to the transactions contemplated hereby. All prior or
contemporaneous understandings, representations, statements and agreements,
whether written or oral, are merged herein and superseded by the Credit
Agreement as amended by this Third Amendment. THIS WRITTEN AGREEMENT AND THE
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the date first above written.
BORROWER:
DRIL-QUIP (EUROPE) LIMITED,
a private limited company formed under the
Corporation Act of the United Kingdom 1948,
as amended
By:___________________________________
Printed Name:________________________
Title: Director
(Signatures continued on next pages)
6
<PAGE>
By:___________________________________
Printed Name:_________________________
Title: Director
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:___________________________________
Charles Kingswell-Smith
Vice President
7
<PAGE>
EXHIBIT I
PROMISSORY NOTE
---------------
$25,000,000.00 Houston, Texas February ____, 1997
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a private
limited company formed under the Companies Act of the United Kingdom 1948, as
amended ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, on June 1, 1999, in lawful money
of the United States of America, the principal sum of TWENTY-FIVE MILLION AND
NO/100 DOLLARS ($25,000,000.00), or so much thereof as may be advanced and
outstanding hereunder, together with interest on the outstanding principal
balance hereof, at a varying rate per annum which shall from day to day be equal
to the lesser of (a) the maximum rate permitted by applicable law as the same
exists from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-fourth of one percent (1/4%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect.
Accrued and unpaid interest shall be due and payable quarterly in arrears
during the term hereof, on the 1st day of each successive April, July, October
and January commencing on April 1, 1997, until payment in full of the
outstanding principal hereunder. All principal hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on maturity. All
past due principal and interest shall bear interest at the Maximum Rate.
Whenever any payment hereunder shall be stated to be due on a day that is
not a day Payee is open for business, such payment may be made on the next
succeeding day Payee is open for business and interest shall continue to accrue
during such extension.
______________
Initialled for
(Page 1 of a 4 Page Note) Identification
<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum then most recently established by Payee as
its Bank One Base Rate in effect from day to day, with each change in the rate
of interest charged as the Bank One Base Rate to become effective, without
notice to Maker, on the effective date of each change in the Bank One Base Rate,
such Bank One Base Rate to be computed on the basis of a year composed of 365
days for the actual number of days elapsed (including the first day but
excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Revolving Credit Note provided for and as defined in that
certain Credit Agreement dated March 30, 1994 as amended by that certain First
Amendment to Credit Agreement dated December 20, 1994, that certain Second
Amendment to Credit Agreement dated December 3, 1995 and that certain Third
Amendment to Credit Agreement dated of even date herewith by and among Maker and
Payee (such instruments as the same may be amended or modified from time to
time, are hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement. Maker may borrow, repay and reborrow hereunder upon
the terms and conditions specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement, or upon the
occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
______________
Initialled for
(Page 2 of a 4 Page Note) Identification
<PAGE>
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and extension, but not in novation or
discharge, of that certain Promissory Note dated October 1, 1995, in the
original principal amount of $20,000,000.00, executed by Maker for the benefit
of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
______________
Initialled for
(Page 3 of a 4 Page Note) Identification
<PAGE>
DRIL-QUIP (EUROPE) LIMITED
By:_____________________________________
Printed Name:___________________________
Title: Director
By:_____________________________________
Printed Name:___________________________
Title: Director
(Page 4 of a 4 Page Note)
<PAGE>
EXHIBIT J
PROMISSORY NOTE
---------------
$923,000.00 Houston, Texas February ____, 1997
FOR VALUE RECEIVED, the undersigned, DRIL-QUIP (EUROPE) LIMITED, a private
limited company formed under the Companies Act of the United Kingdom 1948, as
amended ("Maker"), hereby promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Payee"), at its offices
at 910 Travis, Houston, Harris County, Texas, in lawful money of the United
States of America, the principal sum of NINE HUNDRED TWENTY-THREE THOUSAND AND
NO/100 DOLLARS ($923,000.00), plus accrued and unpaid interest thereon as
hereinafter calculated, as follows:
(a) nine (9) quarterly installments each in the principal amount of
SEVENTY-ONE THOUSAND AND NO/100 DOLLARS ($71,000.00), together with all
accrued and unpaid interest, with the first of such installments due and
payable on April 1, 1997, and like successive installments of principal
plus accrued and unpaid interest due and payable on the lst day of each
succeeding July, October, January and April thereafter, through and
including April 1, 1999; and
(b) a tenth (10th) and final installment in the amount of all
outstanding principal, plus accrued and unpaid interest due and payable on
the maturity of this note, July 1, 1999.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of (a) the maximum rate permitted by applicable law as the same exists
from day to day during the term hereof ("Maximum Rate"), including, as to
Article 5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "indicated rate ceiling" or (b) the sum of
the Bank One Base Rate (hereinafter defined) of Payee in effect from day to day
plus one-half of one percent (1/2%), each such change in the rate of interest
charged hereunder to become effective, without notice to Maker, on the effective
date of each change in the Bank One Base Rate; provided however, if at any time
the rate of interest specified in clause (b) preceding shall exceed the Maximum
Rate, thereby causing the interest rate hereon to be limited to the Maximum
Rate, then any subsequent reduction in the Bank One Base Rate will not reduce
the rate of interest hereon below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the rate specified in clause (b) preceding had at all times been in
effect. All past due principal and interest shall bear interest at the Maximum
Rate.
______________
Initialled for
(Page 1 of a 4 Page Note) Identification
<PAGE>
As used herein, the term "Bank One Base Rate" means, at any time the lesser
of (i) the rate of interest per annum then most recently established by Payee as
its Bank One Base Rate in effect from day to day, with each change in the rate
of interest charged as the Bank One Base Rate to become effective, without
notice to Maker, on the effective date of each change in the Bank One Base Rate,
such Bank One Base Rate to be computed on the basis of a year composed of 365
days for the actual number of days elapsed (including the first day but
excluding the last day) or (ii) the Maximum Rate (as herein defined).
This note is the Term Note provided for and as defined in that certain
Amended and Restated Credit Agreement dated March 30, 1994 as amended by that
certain First Amendment to Credit Agreement dated December 20, 1994, that
certain Second Amendment to Credit Agreement dated December 13, 1995 and that
certain Third Amendment to Credit Agreement dated of even date herewith by and
between Maker and Payee (such instrument as the same may be amended or modified
from time to time, is hereinafter referred to as the "Agreement").
Maker may prepay the principal of this note upon the terms and conditions
specified in the Agreement.
Notwithstanding anything to the contrary contained herein, no provisions of
this note shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is herein
provided for, or shall be adjudicated to be so provided, in this note or
otherwise in connection with this loan transaction the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker.
If default be made in the payment of principal or interest under this note
and such default shall continue for three (3) Business Days after notice thereof
to Maker pursuant to the Agreement, as defined in the Agreement or upon the
occurrence of any other Event of Default, as such term is defined in the
Agreement, the holder hereof may, at its option, declare the entire unpaid
principal of and accrued interest on this note immediately due and payable
without additional notice, demand or presentment, all of which are hereby
waived, and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to
foreclose or otherwise enforce all liens or security interests securing any sum
or sums owed by the holder hereof to Maker. Failure of the holder hereof to
exercise this option shall not constitute a waiver of the right to exercise the
same upon the occurrence of a subsequent Event of Default.
______________
Initialled for
(Page 2 of a 4 Page Note) Identification
<PAGE>
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part or installment of any sum due the holder hereunder, or if
this note is placed in the hands of an attorney for collection, or if it is
collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
This note is performable in Houston, Harris County, Texas, and Maker and
each surety, guarantor, endorser and other party ever liable for payment of any
sums of money payable on this note, jointly and severally waive the right to be
sued hereon elsewhere. This note shall be governed by and construed in
accordance with the laws of the state of Texas and the applicable laws of the
United States of America.
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, diligence in collecting, and grace, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. Maker
acknowledges and understands that under the laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this note, the right to notice of the actual
acceleration of the indebtedness evidenced by this note, and the right to
presentment of this note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
note it agrees to waive its right to notice of intent to accelerate, its right
to notice of acceleration, and its right to presentment or other demand for
payment. The holder shall similarly have the right to deal in any way, at any
time, without one or more of the foregoing parties without notice to any other
party, and to grant any such party and extensions of time for payment of any of
said indebtedness, or to release part or all of the collateral securing this
note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
This note is executed in renewal and rearrangement but not in novation or
discharge, of that certain Promissory Note dated October 1, 1995 in the original
principal amount of $1,278,000.00, executed by Maker for the benefit of Payee.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Maker
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
endorsement shall not limit or otherwise affect the obligations of Maker under
the Agreement or this note.
______________
Initialled for
(Page 3 of a 4 Page Note) Identification
<PAGE>
DRIL-QUIP (EUROPE) LIMITED
By:__________________________________
_______________________, Director
By:__________________________________
_______________________, Director
(Page 4 of a 4 Page Note)
<PAGE>
Exhibit 10.9
[LETTERHEAD OF BANK OF SCOTLAND]
PRIVATE & CONFIDENTIAL
Dril-Quip (Europe) Ltd
Stoneywood Park
Dyce
ABERDEEN
AB2 0DF
TERM LOAN
The Bank is pleased to offer a facility to the undernoted Borrower on the
following terms and conditions ("this Offer"):
1. MAIN FINANCIAL PROVISIONS
1.1. Name and Address of each Borrower:
Dril-Quip (Europe) Limited (Company No. 81748) incorporated under the
Companies Acts and having its Registered Office at 18 Golden Square,
Aberdeen.
Where there is more than one Borrower any reference to "the Borrower"
shall mean and include each of the above and their obligations and
liabilities under this facility shall be joint and several.
1.2. Amount of facility: (Pounds)460,000
1.3. Period of facility: 120 months from the date of the drawing under
the facility.
1.4. An Arrangement Fee of (Pounds)Nil is payable on acceptance of
this Offer and will be debited to the Servicing Account unless
otherwise agreed.
1.5. The Servicing Account is Account Number 00361710 with the Bank.
The Borrower must ensure that at all times there are sufficient
funds available in the Servicing
-1-
<PAGE>
Account to pay the amounts debited under this Offer as soon as
those amounts are debited.
1.6 Interest will be calculated by the Bank on a day-to-day basis on the
outstanding balance of the facility owing to the Bank. Interest
accruing will be added to the outstanding balance on the last business
day of each month. The interest rate will be 1.75% per annum over the
Bank's Base Rate, as fluctuating from time to time.
1.7. The Bank's Base Rate at the date of this Offer is 6.00% per annum.
Changes are notified in national newspapers and all the Bank's
Branches.
1.8. The amount drawn under the facility, plus interest, must be repaid as
follows:
(a) Number of repayments: 120
(b) The amounts of the repayments will be as fixed by the Bank for 12
months at a time and notified to the Borrower. (When the Bank
calculates repayments it will do so having regard to the interest
rate as at the date of calculation and how long the period of
facility then has to run).
(c) Repayments will be debited to the Servicing Account at intervals
of one month after the date of the drawing under the facility.
(d) Depending upon the movements of Base Rate in the final 12 months
of repayment, the repayments fixed for these 12 months may not
exactly match the amount outstanding. The Bank will calculate the
amount of any necessary balancing payment to or from the Bank in
this connection, and the amount of that balancing payment will be
debited or credited to the Servicing Account by the Bank as
appropriate.
(e) If the Bank's Base Rate does not change after the date of this
Offer, repayments for the first 12 months will be
(Pounds)5,520.48 per month. Please note however that the
repayments for the first 12 months will in fact be calculated by
reference to the level of the Bank's Base Rate at the date of the
first drawing under the facility, and may not be the same as the
figure given above.
1.9. Following upon the drawdown in full of the Facilities the Borrower may
elect to convert the Term Loan Facilities to U.S. Dollar Term Loan
Facilities, at an interest rate of 1.75 % over cost of funds, by
service of notice (an "Election Notice") upon the same terms and
conditions as are provided herein.
An Election Notice must be served by the Borrower on the Bank not
later than fourteen Business Days before the proposed date of
conversion. In the event that the loan is converted to a U.S. Dollar
loan, this will not constitute an early repayment per Clause 3.
-2-
<PAGE>
2. USE OF FACILITY
The facility may be used only to assist with the extension of the machine
shop, refurbishment workshop and off-line fabrication facility.
Where the facility is to be used for the purchase of an asset (or assets)
or property then any proceeds of sale of such asset (or assets) or property
shall be paid to the Bank in reduction or repayment of the facility.
3. EARLY REPAYMENT OF THE FACILITY
3.1. The facility may be repaid earlier than as specified in paragraph 1.8
of this Offer provided repayment takes place on the last business day
of a month and the Borrower shall:
(a) give at least 30 days' prior notice to the Bank;
(b) at the time of early repayment, pay an additional amount equal to
one month's interest (at the rate then applicable to the facility)
on the amount of the early repayment; and
(c) pay an administration fee to the Bank; the minimum such fee at the
date of this Offer is (Pounds)50.00.
3.2. If only part of the facility is repaid early the Borrower shall ensure
that the repayments required under this Offer shall continue to be
paid until all sums due under this Offer have been paid.
3.3. Where the Bank has to recalculate the amount of repayments from time
to time in terms of this Offer, such recalculation will be on the
assumption that the period of the facility specified in paragraph 1.3
expires earlier than as stated, at a date determined by the Bank
having regard to the proportion which the sums owing, after taking
into account the early repayment, bear to the sums which would have
been owing if the early repayment had not been made.
3.4. Any sums repaid early may not be redrawn.
3.5. This paragraph also applies where a Borrower is required to repay part
of the facility early because an asset purchased by using the facility
has been sold.
-3-
<PAGE>
4. FINANCIAL INFORMATION
Throughout the period the facility is available (including any extension of
the facility) the Borrower must provide the Bank with the following
financial information:
Annual audited financial statements for the Borrower within four
months after the end of the financial year to which they relate;
Budget and cash flow projections, not less than one month before the
start of the period to which they relate;
Quarterly management accounts, within one month after the end of the
period to which they relate.
5. EVENTS OF DEFAULT
5.1 The Bank may declare that an event of default has occurred upon or at
any time after the happening of any of the following events:
(a) if the Borrower fails to pay any sum on the due date for payment
under this Offer or any other sum due and payable to the Bank;
(b) if a petition is presented or an order is made or resolution is
passed for the bankruptcy, sequestration, winding-up or
administration of the Borrower or (in Scotland) the appointment of
a judicial factor to the Borrower;
(c) if any diligence, distress, execution, sequestration or other
legal process is levied or enforced or sued out against any of the
assets of the Borrower;
(d) if any person takes possession of, or a receiver is appointed
over, the whole or any part of the assets of the Borrower;
(e) if the Borrower ceases or suspends payment of sums due or is
unable to pay debts as they fall due or is deemed unable to pay
sums due or is deemed apparently insolvent under insolvency
legislation;
(f) if any of the events specified in clauses (a) to (e) inclusive
above happen in regard to a Guarantor of the Borrower; or
(g) if the Borrower is a limited company and control of the Borrower
passes to any person without the Bank's prior consent.
-4-
<PAGE>
5.2. If the Bank declares that an event of default has occurred the Bank
may at (or at any time after) the time of making the declaration:
(a) cancel the facility; and/or
(b) demand immediate payment of the sums outstanding (in which case
the sums outstanding shall become immediately due and payable by
the Borrower) or declare that the sums outstanding shall become
due and payable on demand; and/or
(c) elect that interest at the default rate (being 2% over the rate
specified in this Offer) will apply in which case interest under
the facility will become payable at that rate before or after any
court decree or judgement; and/or
(d) charge an administration fee to compensate it for the additional
time spent in administering the facility.
6. GENERAL ADMINISTRATIVE PROVISIONS
6.1. The Bank can withdraw this Offer at any time prior to acceptance.
However, unless it is withdrawn, this Offer is open for acceptance
which must reach the Bank within three calendar months of this Offer.
If this Offer, duly signed, is not received by the Bank within that
period, then, unless the Bank agrees otherwise, this Offer shall
lapse.
6.2. If the term loan remains undrawn twelve months from the date of this
Offer (or such longer period as the Bank may agree) then it shall
automatically cease to be available.
6.3. A statement of the sums outstanding at any time and/or interest and/or
charges due to the Bank at any time, duly certified by a Bank
authorised official, shall (except where the Bank has made an obvious
error) be final and conclusive.
6.4. No delay by the Bank in exercising any right, power or privilege under
this Offer shall prevent the Bank from exercising it at a later date
and the Bank can exercise any of the powers conferred on more than one
occasion.
6.5. Unless the Bank otherwise agrees in this Offer, this Offer will be
governed by the law of the country in which the branch of the Bank
specified in this Offer is situated and the courts of that country
will have jurisdiction in relation to any matter relating to this
Offer.
-5-
<PAGE>
6.6. Any notice from the Bank shall be effectively given if sent by post to
the Registered Office/place of business/residence of the addressee
last known to the Bank. Any notice shall be deemed to have been given
and received forty eight hours after being sent by first class post.
6.7. The Borrower shall reimburse the Bank for all legal fees and expenses
relating to this Offer and any security that may be required.
7. ADDITIONAL CONDITIONS
The conditions in the attached Appendix shall also apply.
8. SECURITY
The following security ALREADY HELD by the Bank shall be available as
security for the amounts owing to the Bank under this Offer (as well as for
any other amounts covered by that security):
Standard Security over 4.6 acre site, Stoneywood Park, Dyce, Aberdeen
Standard Security over office, workshop and yard on 5.5 acre site at
Stoneywood Park, Dyce, Aberdeen
Any security WHICH MAY SUBSEQUENTLY BE HELD by the Bank shall be available
to secure the amounts owing to the Bank under this Offer and all other sums
due to the Bank, to the full extent that the terms of such security permit.
A charge of (Pounds)Nil will be made to cover the Bank's security
administration costs and will be debited on acceptance of this Offer. This
is in addition to any costs and expenses charged by any firm of solicitors
employed by the Bank to complete the documentation and procedures for the
above security requirements which will be paid by the Borrower.
9. TIME LIMIT FOR ACCEPTANCE OF OFFER
To accept this Offer, each Borrower named in paragraph 1.1. should please
sign below where indicated, and the completed Offer should be returned to
the Bank at the above address within three calendar months from the date of
this Offer. A duplicate of this Offer is enclosed for the Borrower to keep.
-6-
<PAGE>
/s/ D.W Date of Offer 26th March 1996
- ------------------------------
For and on behalf of the Bank
I/We accept the above Offer.
Signed for and on behalf of Dril-Quip (Europe) Ltd
/s/ J. Mike Walker Director
- ------------------------------
/s/ Gary D. Smith Director/Secretary
- ------------------------------
June 7, 1997 Date
- ------------------------------
-7-
<PAGE>
Appendix of Additional Conditions for Offer to Dril-Quip (Europe) Ltd
Dated 26th March 1996
Drawdown may be made upon satisfaction of the following conditions precedent:
1. The Bank to receive confirmation that planning permission has been obtained
together with the building warrant to enable the building work to be
carried out.
2. The Borrower to provide the Bank with detailed costings in respect of the
building work with confirmation that the work will be undertaken on a fixed
price contract basis.
3. The Borrower to provide the Bank with a schedule detailing the proposed
payments against surveyor's certificates.
4. The Bank to receive and be satisfied with the letters of appointment for
the professional team.
5. The Bank to receive confirmation from the Borrower's solicitors that the
property extension will be on land covered by the existing standard
securities.
The following condition shall continue to apply while the borrowing is bridged
on overdraft pending receipt of the completion certificate:
1) Drawdowns in respect of the building works to be made against surveyor's
certificates.
_____________________________
For and on behalf of the Bank Date of signing 26th March 1996
Signed for and on behalf of Dril-Quip (Europe) Ltd
_____________________________ Director
_____________________________ Director/Secretary
_____________________________ Date
-8-
<PAGE>
Exhibit 10.10
[LETTERHEAD OF BANK OF SCOTLAND]
PRIVATE & CONFIDENTIAL
The Directors
Dril-Quip (Europe) Limited
Stoneywood Park
Stoneywood Road
Dyce
Aberdeen
AB2 ODF
TERM LOAN
The Bank is pleased to offer a facility to the undernoted Borrower on the
following terms and conditions ("this Offer"):
1 MAIN FINANCIAL PROVISIONS
1.1. Name and Address of each Borrower:
Dril-Quip (Europe) Limited
Stoneywood Park
Stoneywood Road
Dyce
Aberdeen AB2 ODF
Where there is more than one Borrower any reference to "the Borrower"
shall mean and include each of the above and their obligations and
liabilities under this facility shall be joint and several.
1.2. Amount of facility: (Pounds)391,510
1.3. Period of facility: 120 months from the date of the drawing under the
facility.
<PAGE>
1.4. An Arrangement Fee of (Pounds)l,957.55 or 1/2% of loan drawn down is
payable on acceptance of this Offer and will be debited to the
Servicing Account unless otherwise agreed.
1.5. The Servicing Account is Account Number 00296986 with the Bank. The
Borrower must ensure that at all times there are sufficient funds
available in the Servicing Account to pay the amounts debited under
this Offer as soon as those amounts are debited.
1.6. Interest will be calculated by the Bank on a day-to-day basis on the
outstanding balance of the facility owing to the Bank. Interest
accruing will be added to the outstanding balance on the last business
day of each month. The interest rate will be 1.75% per annum over the
Bank's Base Rate, as fluctuating from time to time.
1.7. The Bank's Base Rate at the date of this Offer is 5.25% per annum.
Changes are notified in national newspapers and all the Bank's
Branches.
1.8. The amount drawn under the facility, plus interest, must be repaid as
follows:
(a) Number of repayments: 120
(b) The amounts of the repayments will be as fixed by the Bank for 12
months at a time and notified to the Borrower. (When the Bank
calculates repayments it will do so having regard to the interest
rate as at the date of calculation and how long the period of
facility then has to run).
(c) Repayments will be debited to the Servicing Account at intervals
of one month commencing one month after the date of the drawing
under the facility.
(d) Depending upon the movements of Base Rate in the final 12 months
of repayment, the repayments fixed for these 12 months may not
exactly match the amount outstanding. The Bank will calculate the
amount of any necessary balancing payment to or from the Bank in
this connection, and the amount of that balancing payment will be
debited or credited to the Servicing Account by the Bank as
appropriate.
(e) If the Bank's Base Rate does not change after the date of this
Offer, repayments for the first 12 months will be
(Pounds)4,545.76 per month. Please note however that the
repayments for the first 12 months will in fact be calculated by
reference to the level of the Bank's Base Rate at the date of the
first drawing under the facility, and may not be the same as the
figure given above.
-2-
<PAGE>
2 USE OF FACILITY
The facility may be used only to assist with the cost of the test and
assembly building project.
Where the facility is to be used for the purchase of an asset (or assets)
or property then any proceeds of sale of such asset (or assets) or property
shall be paid to the Bank in reduction or repayment of the facility.
3 EARLY REPAYMENT OF THE FACILITY
3.1. The facility may be repaid earlier than as specified in paragraph 1.8
of this Offer provided repayment takes place on the last business day
of a month and the Borrower shall:
(a) give at least 30 days' prior notice to the Bank;
(b) at the time of early repayment, pay an additional amount equal to
one month's interest (at the rate then applicable to the
facility) on the amount of the early repayment;
3.2. If only part of the facility is repaid early the Borrower shall ensure
that the repayments required under this Offer shall continue to be
paid until all sums due under this Offer have been paid.
3.3. Where the Bank has to recalculate the amount of repayments from time
to time in terms of this Offer, such recalculation will be on the
assumption that the period of the facility specified in paragraph 1.3
expires earlier than as stated, at a date determined by the Bank
having regard to the proportion which the sums owing, after taking
into account the early repayment, bear to the sums which would have
been owing if the early repayment had not been made.
3.4. Any sums repaid early may not be redrawn.
3.5. This paragraph also applies where a Borrower is required to repay part
of the facility early because an asset purchased by using the facility
has been sold.
4 FINANCIAL INFORMATION
Throughout the period the facility is available (including any extension of
the facility) the Borrower must provide the Bank with the following
financial information:
-3-
<PAGE>
Annual audited financial statements, within five months after the end
of the financial year to which they relate;
Budget and cash flow projections, not less than one month before the
start of the period to which they relate;
Quarterly management accounts, within one month after the end of the
period to which they relate;
5 EVENTS OF DEFAULT
5.1. The Bank may declare that an event of default has occurred upon or at
any time after the happening of any of the following events:
(a) if the Borrower fails to pay any sum on the due date for payment
under this Offer or any other sum due and payable to the Bank;
(b) if a petition is presented or an order is made or resolution is
passed for the bankruptcy, sequestration, winding-up or
administration of the Borrower or (in Scotland) the appointment
of a judicial factor to the Borrower;
(c) if any diligence, distress, execution, sequestration or other
legal process is levied or enforced or sued out against any of
the assets of the Borrower;
(d) if any person takes possession of, or a receiver is appointed
over, the whole or any part of the assets of the Borrower;
(e) if the Borrower ceases or suspends payment of sums due or is
unable to pay debts as they fall due or is deemed unable to pay
sums due or is deemed apparently insolvent under insolvency
legislation;
(f) if any of the events specified in clauses (a) to (e) inclusive
above happen in regard to a Guarantor of the Borrower; or
(g) if the Borrower is a limited company and control of the Borrower
passes to any person without the Bank's prior consent.
5.2. If the Bank declares that an event of default has occurred the Bank
may at (or at any time after) the time of making the declaration:
(a) cancel the facility; and/or
-4-
<PAGE>
(b) demand immediate payment of the sums outstanding (in which case
the sums outstanding shall become immediately due and payable by
the Borrower) or declare that the sums outstanding shall become
due and payable on demand; and/or
(c) elect that interest at the default rate (being 2% over the rate
specified in this Offer) will apply in which case interest under
the facility will become payable at that rate before or after any
court decree, or judgement; and/or
(d) charge an administration fee to compensate it for the additional
time spent in administering the facility.
6 GENERAL ADMINISTRATIVE PROVISIONS
6.1. The Bank can withdraw this Offer at any time prior to acceptance.
However, unless it is withdrawn, this Offer is open for acceptance
which must reach the Bank within one calendar month of the date of
this Offer. If this Offer, duly signed, is not received by the Bank
within that period then, unless the Bank agrees otherwise, this Offer
shall lapse.
6.2. If the term loan remains undrawn three months from the date of this
Offer (or such longer period as the Bank may agree) then it shall
automatically cease to be available.
6.3. A statement of the sums outstanding at any time and/or interest and/or
charges due to the Bank at any time, duly certified by a Bank
authorised official, shall (except where the Bank has made an obvious
error) be final and conclusive.
6.4. No delay by the Bank in exercising any right, power or privilege under
this Offer shall prevent the Bank from exercising it at a later date
and the Bank can exercise any of the powers conferred on more than one
occasion.
6.5. Unless the Bank otherwise agrees in this Offer, this Offer will be
governed by the law of the country in which the branch of the Bank
specified in this Offer is situated and the courts of that country
will have jurisdiction in relation to any matter relating to this
Offer.
6.6. Any notice from the Bank shall be effectively given if sent by post to
the Registered Office/place of business/residence of the addressee
last known to the Bank. Any notice shall be deemed to have been given
and received forty eight hours after being sent by first class post.
-5-
<PAGE>
6.7. The Borrower shall reimburse the Bank for all legal fees and expenses
relating to this Offer and any security that may be required.
7 ADDITIONAL CONDITIONS
The conditions in the attached Appendix shall also apply.
8 SECURITY
The following security ALREADY HELD by the Bank shall be available as
security for the amounts owing to the Bank under this Offer (as well as for
any other amounts covered by that security):
Standard Security over 4.6 acre site, Stoneywood Park Dyce, Aberdeen
Standard Security over office, workshop, new pipe fabrication shop at
Stoneywood Park Dyce, Aberdeen
Any security WHICH MAY SUBSEQUENTLY BE HELD by the Bank shall be available
to secure the amounts owing to the Bank under this Offer and all other sums
due to the Bank, to the full extent that the terms of such security permit.
9 TIME LIMIT FOR ACCEPTANCE OF OFFER
To accept this Offer, each Borrower named in paragraph 1.1. should please
sign below where indicated, and the completed Offer should be returned to
the Bank at the above address within one calendar month from the date of
this Offer. A duplicate of this Offer is enclosed for the Borrower to keep.
Date of Offer 31/8/94
_____________________________
For and on behalf of the Bank
I/We accept the above Offer.
Signed: /s/ J. Mike Walker Witness:________________________
______________________
_____________________________ Full Name_______________________
/s/ D. E. Young
_____________________________ Occupation______________________
_____________________________ Address_________________________
-6-
<PAGE>
19/9/94
Date__________________________ ________________________________
Witness_________________________
Full Name_______________________
Occupation______________________
Address_________________________
________________________________
Notes: 1. Witnesses are not needed where the Borrower is a Company.
2. Only one Witness is needed where the Branch issuing this Offer is
located in England.
-7-
<PAGE>
Appendix of Additional Conditions for Offer to Dril-Quip (Europe) Limited
Dated
The following Conditions Precedent will also apply:
1) The Bank requires sight of the fixed price build contract.
2) The Bank requires confirmation of planning approval.
3) Confirmation that the new buildings are to be constructed on the land
already held under our existing Standard Securities, and that the
development will be undertaken on a fixed price contract basis.
_____________________________
For and on behalf of the Bank
-8-
<PAGE>
SECRETARY'S CERTIFICATE
To: The Governor and Company
of the Bank of Scotland
Re: Dril-Quip (Europe) Limited
Registered Office: 17\18 Golden Square, Aberdeen
Number: 81748
Credit Facilities of (Pounds)391,510
I, , Secretary of the above company
("the Company") do hereby certify that:
(1) the Company has the necessary and unrestricted power to borrow or incur
liabilities specified in the Bank's Offer;
(2) the Board of the Company has duly authorised the acceptance of the credit
facilities specified in the Bank's Offer and draw down thereof;
(3) the Board of the Company has duly authorised its directors/officers to
execute on its behalf the documentation necessary to complete the security
specified by the Bank in its Offer; and that the granting of such security
is for the commercial benefit of the Company; and
(4) the resolutions giving these authorisations were validly passed at a
properly convened meeting and are in full force and effect.
/s/ D. E. Young
Signed:___________________________
Secretary
19/9/94
Date:_____________________________
-9-
<PAGE>
EXHIBIT 10.11
[LETTERHEAD OF BANK OF SCOTLAND]
Dril-Quip (Europe) Limited
17/18 Golden Square
ABERDEEN
12 December 1991
Dear Sirs
(Pounds)2,715,000 CREDIT FACILITIES
-----------------------------------
We are pleased to offer you the Facilities on the terms and conditions set forth
herein. The Facilities are as described in Part 1 and shall be available
subject to the conditions set forth in Part 2 upon receipt by the Bank of the
copy of this letter duly accepted. The definitions set forth in Clause 10 of
Part 2 shall apply.
The Facilities hereby offered are:
1. Term Loan Facilities of (Pounds)2,435,000; and
2. Guarantee Facilities of (a) US$66,605; and
(b) (Pounds)240,000
PART 1: TERMS OF FACILITIES
- ------ -------------------
1. Term Loan Facilities ("Term Loan Facilities")
1.1 Amount: (Pounds)2,435,000
1.2 Purpose: The Term Loan Facilities may only be applied for the
Specified Purpose.
1.3 Interest: The rate of interest applicable to the Term Loan Facilities
shall be one and one half per cent (1 1/2%) per annum over
the Bank's Base Rate from time to time fluctuating
therewith.
<PAGE>
Dril-Quip (Europe) Limited -2-
1.4 Availability: The Term Loan Facilities shall be available until the tenth
anniversary of the date of the Borrower's drawdown hereunder
("the Final Repayment Date").
1.5 Drawdown: Provided no Event of Default has occurred the Borrower may
draw the Term Loan Facilities as follows:
(a) in respect of parts (i) and (ii) of the Specified
Purpose in one tranche within 3 months of date of
acceptance ("the First Drawdown"); and
(b) in respect of part (iii) of the Specified Purpose in
tranches of such amount as the Borrower may specify to
the Bank by one Business Day's notice in writing.
1.6 Repayment: Repayment installments of the Term Loan Facilities shall be
made monthly, will be inclusive of principal and interest
and will be fixed for consecutive periods of twelve months
at a time. Upon each anniversary of the date of the First
Drawdown ("the Review Date"), the amount of the Term Loan
Facilities and all interest chargeable thereon will be
reviewed and the repayment adjusted upwards or downwards
depending on the current charging rate, the total sums due
to the Bank and the remaining term of the Facilities.
For the avoidance of doubt any sums paid in respect of
interest for the previous year, which can be identified as
an overpayment of interest by reference to the actual rate
of interest applicable to the Facilities during the previous
twelve month period, shall be applied in reduction of the
principal amount of the Facilities outstanding as at the
date of such review.
Depending on the movement of the Bank's Base Rate in the
final year of the Term Loan Facilities, the repayments as
established on the last Review Date may not liquidate the
loan balance exactly. A balancing payment either to or from
the Bank will then be required.
For illustration purposes, based on the Bank's Base Rate as
at the date of this letter repayments for the first year
would be (Pounds)34771.80 per month (inclusive of principal
and interest). Repayments will be debited to current account
number 00296986 commencing one month after the date of
drawdown of the Term Loan Facilities.
<PAGE>
Dril-Quip (Europe) Limited -3-
Please note however, that the repayments for the first year
will be calculated by reference to the level of the Bank's
Base Rate on the date of drawdown of the Term Loan
Facilities.
1.7 Prepayment: The Borrower may prepay all or any part of the Term Loan
Facilities without premium or penalty provided it has given
the Bank not less than thirty Business Days notice in
writing of its intention to prepay, provided that any such
prepayment is on a Business Day and, where the Term Loan
Facilities have been converted to US Dollar, is at the end
of an Interest Period relative thereto and is in an amount
of not less than (Pounds)100,000; amounts prepaid may not be
redrawn.
Any amount paid to prepay the Term Loan Facilities shall be
accompanied by accrued interest if any on the amount prepaid
and will be by installments in the inverse order in which
they are due as aforesaid.
1.8 Conversion: Following upon the earlier of drawdown in full of the total
Facilities available and expiry of both the Drawdown Periods
the Borrower may, provided no Event of Default has occurred,
elect to convert the Sterling Term Loan Facilities to US
Dollar Term Loan Facilities ("an Election Notice") upon
substantially the same terms and conditions as are provided
herein and, without prejudice to the foregoing generality,
subject to the following further conditions:
I. General: (A) The outstanding amount of the Term Loan Facilities at the
effective date of conversion shall be restricted to the
greater of:
(i) (Pounds)2,250,000; and
(ii) 65% of the Agreed Value of the Property as at date of
an Election Notice.
(B) No Event of Default has occurred or would result from the
Bank permitting the conversion required by the Borrower's
Election Notice.
(C) The Representations and Warranties in Clause 2 of Part 2 of
this Facility Letter remain true and accurate as at the date
of conversion by reference to the facts and circumstances
subsisting at that time.
<PAGE>
Dril-Quip (Europe) Limited -4-
(D) An Election Notice must be served by the Borrower on the
Bank not later than fourteen Business Days before the
proposed date of conversion.
II. Interest: Upon conversion the rate of interest payable on the Term
Loan Facilities for each Interest Period shall be the rate
per annum equal to the US$ LIBOR plus a margin of one and
one half per cent (1 1/2%).
Interest shall be paid by the Borrower in arrears at the end
of each Interest period. Interest shall be payable in the
currency in which the Term Loan Facilities are denominated.
The remaining period of the Term Loan Facilities shall be
divided into consecutive Interest Periods of such length as
may be offered by the Bank at the time of conversion but in
any event shall not be greater than three months.
2. Guarantee Facilities ("the Guarantee Facilities")
2.1 Amount: (a) US$66,605 ("the US Dollar Guarantee Facilities")
(b) (Pounds)240,000 ("the Sterling Guarantee Facilities")
2.2 Purpose: (a) the US Dollar Guarantee Facilities may only be applied
to provide a guarantee in favour of Norsk Hydro in
respect of an order for a divertor, overshot mandrels
and spools;
(b) the Sterling Guarantee facilities may only be applied
to provide a guarantee in respect of VAT deferment.
2.3 Utilisation: The Guarantee Facilities shall be utilised by the issue by
the Bank on behalf of the Borrower of the following:
(a) guarantee in favour of Norsk Hydro; and
(b) guarantee in favour of HM Customs & Excise;
which guarantees shall be on terms wholly acceptable to the
Bank and shall include a provision that they shall expire
not later than the Final Repayment Date.
<PAGE>
Dril-Quip (Europe) Limited -5-
2.4 Commission: The Borrower shall pay the Bank a guarantee commission
calculated as being one and one half per cent (1 1/2%) per
annum of the total liability of the Bank under the
Guarantees such commission being calculated on a daily basis
and being payable quarterly in advance.
2.5 Indemnity: The Borrower shall be obliged to counter indemnify the Bank
in respect of its contingent liability under such
guarantees, which counter indemnity shall include a
provision entitling the Bank to debit the Borrower's account
with the amount of any liability due and payable thereunder.
In the event of the occurrence of any Event of Default
hereunder, or the occurrence of any event which may with the
lapse of time become an Event of Default, the Borrower shall
be obliged to lodge such sums as the Bank may specify in a
written demand as security for such contingent liability.
PART 2: CONDITIONS
The conditions applicable to the Facilities are as follows:
(1) Conditions Precedent:
The conditions precedent which require to be satisfied before drawdown
are:
(A) Security:
the Borrower shall have procured that the Bank receives or
continues to hold the undermentioned security documentation in a
form and content acceptable to the Bank as a continuing security
for all moneys obligations and liabilities certain or contingent
now or hereafter due, owing or incurred in respect of:
(i) the Term Loan and the US Dollar Guarantee Facilities a first
and only Standard Security over the Property owned by the
Borrower;
(ii) the Sterling Guarantee Facilities an irrevocable standby
letter of credit from the Parent Company's bankers, Bank One
in the sum of (Pounds)240,000 duly delivered to the Bank;
(B) Professional Representations:
(i) the Bank shall have received a valuation of all heritable and
leasehold property owned by the Borrower prepared by a
surveyor acceptable to it, and
<PAGE>
Dril-Quip (Europe) Limited -6-
in a form acceptable to it, confirming the open market
valuation of such properties in an amount acceptable to the
Bank.
(ii) the Bank shall have received a Report on Title in regard to
the Property in a form and substance acceptable to the Bank.
(iii) the Bank shall have received the audited financial statements
of the Borrower as at 31st December 1990.
(C) Miscellaneous:
(i) the Bank shall have received a copy certified a true complete
and up to date copy by a Director or the Secretary of the
Borrower of the resolution of the Board of Directors of the
Borrower in a form and content satisfactory to the Bank
approving the acceptance of the Facilities and the granting
of the Security Documents;
(ii) the Bank shall have received evidence satisfactory to it that
the Necessary Consents have been obtained and that all
conditions attaching thereto have been complied with;
(iii) the Bank shall have received copies of the Building Contract
and Letters of Appointment for the Professional Team;
(iv) the Bank shall have received and be satisfied with the
arrangements for repayment by the Borrower of the Scottish
Enterprise Indebtedness and discharge of all security granted
in respect of the same;
(v) the Bank shall be satisfied that insurance for the Property
has been effected by the Borrower on terms reasonably
satisfactory to the Bank and that the Bank's interest as
heritable creditors primo loco has been endorsed on such
policy of insurance in the Bank's usual form.
(2) Representations and Warranties:
To induce the Bank to enter into the Agreement and to make and maintain
Drawings hereunder the Borrower represents and warrants to the Bank that as at
the date hereof:
<PAGE>
Dril-Quip (Europe) Limited -7-
(A) it is duly incorporated in Scotland, it has full power to own assets
and carry on business wherever it owns assets or carries on business
and is registered for Value Added Tax purposes;
(B) no Event of Default, has occurred;
(C) the Borrower has power to enter into and perform and comply with its
obligations under the Agreement and the Security Documents;
(D) all actions, conditions and things required to be taken, fulfilled
or done have been taken, fulfilled and done (including the obtaining
of any necessary consents) in order:
(i) to enable the Borrower lawfully to enter into, exercise its
rights and perform and comply with its obligations under the
Agreement and the Security Documents;
(ii) to ensure that those obligations under the Agreement and the
Security Documents are legally binding and enforceable;
(E) (i) the execution, delivery and performance of the Agreement and
the Security Documents does not and will not cause the Borrower
or the Guarantor to be in breach of:
(a) any law or regulation to which it is subject;
(b) its Memorandum or Articles of Association; or
(c) any agreement to which it is party;
(ii) all governmental or other consents requisite for such
execution, delivery and performance are in full force and
effect;
(F) save as disclosed in writing to the Bank prior to the Borrower's
acceptance of the Agreement no litigation, arbitration or
administrative proceeding before, by or of any court or governmental
authority is pending or (so far as the Borrower knows) threatened
against the Borrower or any of its assets;
(G) save as aforesaid, there has been no material adverse change in the
financial condition or operations of the Borrower since the date of
its last audited accounts;
<PAGE>
Dril-Quip (Europe) Limited -8-
(H) the unaudited financial statements relating to the Borrower which
have been delivered to the Bank were, or will be, prepared in
accordance with accounting principles and practices which are both
generally accepted and adopted in the United Kingdom and to the best
of the knowledge, information and belief of the Borrower give a true
and fair view of the financial condition of the Borrower as at the
end of the period to which they relate and of the results of
operations, during that period;
(I) other than as previously disclosed in writing to the Bank no loan,
debt, guarantee or other obligation of the Borrower is secured by,
and the execution, delivery and performance of the Agreement will
not result in the existence of, or oblige the Borrower to create,
any mortgage, charge, pledge, lien or other encumbrance over any
present or future revenues or assets other than as provided for
herein;
each of the above warranties will be correct and to the best of the
Borrower's abilities complied with at all times so long as the
Facilities remain outstanding and the Borrower shall notify the Bank
forthwith in the event of this no longer being the case.
(3) Financial Information:
The Borrower will supply to the Bank two copies of its Annual Report and
Audited Accounts within five months of its financial year end and interim
statements (if produced), together with any notice issued to shareholders;
(4) Borrower's Obligations:
the Borrower shall:
(A) maintain its corporate existence and ensure that all filings with
the Registrar as required under any applicable law or regulation are
made timeously;
(B) advise the Bank promptly of the details of any litigation,
arbitration or administrative proceedings pending or (to the best of
its knowledge and belief) threatened against it involving a
potential liability to the Borrower in excess of (Pounds)500,000;
(C) notify the Bank of any Event of Default upon becoming aware of the
occurrence thereof;
(D) keep or cause to be kept well and sufficiently insured with a
reputable insurance company or insurance companies in the name of
the Borrower (with the interest of the Bank as heritable creditors
primo loco endorsed on the relevant policies in terms
<PAGE>
Dril-Quip (Europe) Limited -9-
of a style of endorsement to be provided by the Bank) all buildings,
structures and other insurable items comprised in the Property for
their full reinstatement value (being not less than such sum as may
reasonably be requested in writing by the Bank from time to time)
and against such risks as would from time to time normally prudently
be covered and to exhibit to the Bank the policy or policies and all
endorsements thereto forthwith on their receipt of the same and to
exhibit the receipts for premiums to the Bank as and when requested;
(E) forthwith upon the drawdown of any of the Facilities in respect of
part (iii) of the Specified Purpose, cause to be commenced and
thereafter faithfully and diligently cause the Project to be carried
out and completed in accordance with the plans and proposals
submitted to the Bank;
(F) upon issue of the certificate of completion for the Project procure
that the Bank receives a valuation, confirming on terms satisfactory
to the Bank the value of the Property as at completion.
(5) Payments and Interest Calculations:
(A) All sums falling due hereunder by way of interest shall be
calculated on the basis of a year of 365 days where such sums are
due in Sterling and 360 days where such sums are due in US Dollars,
for the actual number of days elapsed and shall accrue on a daily
basis.
(B) Payments to be made by the Borrower to the Bank shall be made in the
currency in which they are drawndown or converted to and in
immediately cleared funds, free and clear of and without deduction
for or on account of (i) any set-off or counterclaim or (ii) (other
than as required by law), any tax or other matter, to the Bank
Branch (or in such other manner as the Bank may have specified for
this purpose) by no later than 11:00 a.m. on the due date for each
such payment.
(C) On each occasion an Event of Default occurs or is continuing then
the Bank is authorised to apply any credit balance to which the
Borrower is entitled on any account of the Borrower with the Bank in
satisfaction of any sum due and payable from the Borrower to the
Bank under the Facilities but unpaid; for this purpose the Bank is
authorised to purchase with the monies standing to the credit of any
such account such other currencies as may be necessary to effect
such application.
<PAGE>
Dril-Quip (Europe) Limited -10-
(6) Illegality:
If any applicable law, regulation or regulatory requirement or change
therein or in the interpretation thereof makes it unlawful for the Bank to
perform any of its obligations hereunder then the Bank will serve notice to that
effect on the Borrower whereupon the Bank shall be discharged from all
obligations to make, renew or maintain advances hereunder the Facilities shall
be cancelled and the Borrower shall pay within thirty days of demand to the Bank
the amount of the advances then outstanding together with accrued interest
thereon and any then ascertained amounts hereof.
(7) Events of Default:
The Bank reserves the right upon notice in writing to the Borrower to
elect to treat any of the following events as an event of default:
(A) the Borrower fails to pay any sum due hereunder on the due date and
such failure continues for fourteen days after notice thereof is
given by the Bank to the Borrower;
(B) any representation, warranty or statement made by or on behalf of
the Borrower herein or in any certificate, statement, notice,
opinion or other document given, made or furnished to the Bank in
writing pursuant to or in connection herewith is not complied with
in any material respect or is or proves to have been incorrect in
any material respect when made or, if it had been made on any later
date by reference to the circumstances then existing, would have
been incorrect in any material respect on that later date;
(C) any Indebtedness of the Borrower shall not be paid when due for
payment (excluding always any indebtedness, other than indebtedness
in terms of the Agreement, which the Bank is satisfied is the
subject of genuine dispute) in accordance with the terms of the
contract in respect thereof or shall be found not to have been so
paid or becomes capable of being declared due prior to its stated
date of payment or if payable on demand shall not be paid when
demanded;
(D) the Borrower defaults in the due performance or observance of any of
its undertakings or obligations under the Agreement (other than
obligations which require the Borrower to make any payment to the
Bank) and, in respect of any such default (which is capable of being
remedied) such default continues for 14 days after notice thereof is
given by the Bank to the Borrower (or such longer period as may be
notified by the Bank to the Borrower having regard to the
circumstances);
<PAGE>
Dril-Quip (Europe) Limited -11-
(E) the Borrower suspends Payment of its debts or ceases to carry on its
business or the Borrower is deemed to be unable to pay its debts
within the meaning of Section 123 of the Insolvency Act 1986 or any
statutory modification or re-enactment thereof;
(F) a proposal is made or a nominee or supervisor is appointed for a
composition in satisfaction of the debts of the Borrower or for a
scheme of arrangement of the affairs of the Borrower or the Borrower
commences negotiations with one or more of its creditors with a view
to the general readjustment or rescheduling of all or part of its
indebtedness or enters into any composition or other arrangement for
the benefit of its creditors generally or any class of creditors or
proceedings are commenced in relation to the Borrower under any law,
regulation or procedure relating to the reconstruction or
readjustment of debt;
(G) an application is made to the Court for an administration order
under the Insolvency Act 1986 with respect to the Borrower;
(H) the Borrower takes, without the consent of the Bank, any action or
any legal proceedings are started or other steps taken by any third
party (other than where the Borrower satisfies the Bank there is a
genuine dispute in accordance with the terms of the contract in
respect thereof) for:
(i) the winding up or dissolution of the Borrower;
(ii) the appointment of a liquidator, trustee, receiver,
administrative receiver or similar officer of the Borrower
over the whole or any part of its undertaking, assets, rights
or revenues;
(I) any event occurs or proceedings are taken with respect to the
Borrower in any jurisdiction to which it is subject which has an
effect equivalent or similar to any of the events mentioned in sub-
Clause (F), (G) and (H);
(J) by or under the authority of any government the management of the
Borrower is wholly or partially displaced or its authority in the
conduct of its business wholly or partially curtailed;
(K) the Borrower ceases or threatens to cease to carry on its business;
Upon service of such notice the Bank shall be under no obligation to
advance moneys hereunder and may by notice to the Borrower:
<PAGE>
Dril-Quip (Europe) Limited -12-
(i) cancel any part of the Facilities then undrawn; and/or
(ii) require repayment (forthwith or otherwise as the Bank may
require) of the Facilities with accrued interest thereon;
(8) Indemnity
The Borrower hereby undertakes to indemnify the Bank on demand:
(A) Against any proper claim, cost, loss or expense (including
reasonable legal fees) incurred by the Bank in connection with the
Property or as a result of the default by the Borrower hereunder and
the consequent enforcement of its rights against the Borrower; and
(B) Against any loss or expense properly and reasonably incurred by the
Bank as a result of any other failure on the part of the Borrower to
comply with the terms of this Agreement or any other document
pursuant hereto or connected herewith.
(9) Fees and Expenses:
(A) All proper and reasonable legal, valuation and other costs and
expenses on a full indemnity basis and Value Added Tax thereon
incurred by the Bank in connection with the Facilities (including
the fees and outlays of any other professional consulted by the Bank
in the enforcement or preservation of the Bank's rights under the
Agreement) and the preservation, administration and enforcement of
the Bank's rights under the Agreement, the Ancillary Documentation,
the Security Documents and any other document or agreement entered
into pursuant thereto will be payable by the Borrower to the Bank on
request.
(B) The Borrower will pay to the Bank an Arrangement Fee of
(Pounds)7,500 payable contemporaneously with the Borrower's drawdown
of the Facilities or any part thereof.
(10) Definitions:
(A) References to periods of "months" shall be construed so that, where
any such period would otherwise end on a non-Business Day, it shall
end on the next Business Day, unless that day falls in the calendar
month succeeding that in which it would otherwise have ended, in
which case it shall end on the preceding Business Day. Provided,
that if a period starts on the last Business Day in a calendar month
and if
<PAGE>
Dril-Quip (Europe) Limited -13-
there is no numerically corresponding day in the month in which that
period ends, that period shall end on the last Business Day in that
last month.
(B) When used herein "the Agreement" means and includes, as the context
so admits the agreement resulting from the acceptance by the
Borrower of this offer of facilities and shall include any deed or
document varying, modifying, supplementing or in substitution of its
terms.
(C) "Agreed Value" means in relation to the Property the value
attributed thereto by an independent surveyor acceptable to the Bank
in terms of instructions agreed by the Bank and the Borrower.
(D) "Bank" means the Governor and Company of the Bank of Scotland and
its successors and assignees.
(E) "Bank's Branch" means 501 Union Street, Aberdeen.
(F) "Borrower" means Dril-Quip (Europe) Limited (Company Number SC
81748) having its Registered Office at 17/18 Golden Square,
Aberdeen.
(G) "the Building Contract" means the contract or contracts (to be in
conformity with such style, based upon one of the Joint Contracts
Tribunal Styles of Building Contract, as the Bank may have approved
in writing from time to time, such approval not to be unreasonably
withheld or delayed) to be entered into by the Borrower in terms
hereof with a building or other contractor or contractors relative
to the Project or any part or parts thereof.
(H) "Business Day" means a day upon which the Bank's Branch is open for
business which is also where the Term Loan Facilities are drawn in
US Dollars, a day upon which foreign exchange markets are open for
business in London and Dollar deposits are carried on in the London
Interbank Market.
(I) "Development Cost" shall mean all expenditure properly incurred by
the Borrower in carrying out the Project.
(J) "Drawdown Periods" shall mean in respect of parts (i) and (ii) of
the Specified Purpose, the period of three months from the date of
acceptance hereof; and in respect of part (iii) of the Specified
Purpose, the period of eighteen months from the date of same.
<PAGE>
Dril-Quip (Europe) Limited -14-
(K) "Event of Default" means one of the events in Clause (7) of the
Agreement.
(L) "Facilities" means the facilities made available pursuant to the
Agreement.
(M) "Interest Application Dates" in respect of interest means the last
Business Days of February, May, August and November each year.
(N) "LIBOR" means in relation to the Term Loan Facilities the rate per
annum determined as the arithmetic mean (rounded upwards, if
necessary, to the nearest whole multiple of one-sixteenth of one per
cent) of the rates at which prime banks in the London Interbank
Market offer deposits in US Dollars for a period equal to the
selected Interest Period at or about 11.00 hours on a date upon
which prime banks i+n London would ordinarily give quotations for
currency deposits, for delivery on the first day of the Interest
Period for which the interest rate is to be determined.
(O) "the Margin" means one and one half per cent (1 1/2%).
(P) "Necessary Consents" means the planning permission and all other
development permits, licences, consents, approvals, permissions and
others under the Town and Country Planning (Scotland) Acts or any
other statute as are necessary to enable the Project to be carried
out and to be occupied and used for its intended purposes.
(Q) "the Plan" means the plan annexed and executed as relative hereto
which illustrates the Property.
(R) "the Project" means, the construction by the Borrower of a Pipe
Fabrication Building at the Property all in accordance with the
Approved Plans.
(S) "the Property" means the heritable subjects at Stoneywood Park
North, Stoneywood, Aberdeen outlined in red on the Plan.
(T) "the Project Team" means such professional persons appointed by the
Borrower in connection with the Project.
(U) "Scottish Enterprise Indebtedness" means the amount of the loan
outstanding and due by the Borrower to Scottish Enterprise totalling
(Pounds)1,456,137.
(V) "Security Documents" means the documents specified in Clause(1)(A)
of Part 2 hereof.
<PAGE>
Dril-Quip (Europe) Limited -15-
(W) "Specified Purpose" means the application of the proceeds of the
Facilities to fund:
(i) the refinancing of the Borrower's existing overdraft facility;
(ii) the repayment of the Scottish Enterprise Indebtedness; and
(iii) the Development Cost.
(X) "Sterling" and the figure "(Pounds)" shall mean the lawful currency
of the United Kingdom.
(Y) "Subsidiary" shall have the meaning ascribed thereto in Section 736
of the Companies Act 1985 and shall include all subsidiaries of the
Borrower present and future whether incorporated under the Companies
Acts or under the laws of any other jurisdiction.
(Z) "United Kingdom" or "UK" means the United Kingdom of Great Britain
and Northern Ireland and
(AA) "US Dollars" and "US$" means the lawful currency of the U.S.
(AB) "United States" or "US" means the United States of America and its
territories and possessions.
(AC) "tax" shall be construed so as to include any tax, levy, impost,
duty or other charge of a similar nature (including any interest
and penalties payable in connection with any failure to pay or
delay in paying any of the above and "taxation" shall be construed
accordingly.
(11) Benefit of Agreement:
(A) The Agreement shall bind and inure to the benefit of the Borrower
and the Bank and their respective successors.
(B) The Borrower may not assign or transfer all or any part of its
rights and benefits under the Agreement.
(12) No Waiver:
No failure or delay on the part of the Bank to exercise any right or
remedy under the Agreement or the Security Documents will operate as a waiver
thereof, nor will any single
<PAGE>
Dril-Quip (Europe) Limited -16-
or partial exercise of any right or remedy preclude any further exercise of any
other right or remedy, such rights and remedies being cumulative and not
exclusive of any other rights or remedies provided by law.
(13) Notices:
Except as otherwise herein provided all notices, requests, demands or
other communications to or upon the parties hereto;
(i) shall be given or sent by letter;
(ii) shall be deemed to have been given and received forty-eight
hours after being posted first-class postage prepaid recorded
delivery or registered mail;
(iii) if given to the Bank shall be given at the Bank's Branch or at
such other address as it may designate as its address from
time to time by notice to the Borrower.
(iv) if given to the Borrower shall be given at its address set
forth above or at such other address as it may designate as its
address from time to time by notice to the Bank.
(14) Law:
The Agreement shall be governed by and construed in accordance with the
Law of Scotland and the Borrower submits to the jurisdiction of the Scottish
Courts.
The offer set forth above may be accepted by you countersigning and
returning to us the enclosed copy hereof but will lapse if we have not received
the enclosed copy hereof, duly countersigned by 31 December 1991.
Yours faithfully
for and on behalf of
THE GOVERNOR AND COMPANY
OF THE BANK OF SCOTLAND
/s/
- -----------------------------------
<PAGE>
Dril-Quip (Europe) Limited -17-
This and the preceding 14 pages agreed and accepted on behalf of Dril
Quip (Europe) Limited.
By /s/ Larry E. Reimert Director
------------------------
/s/ Director/Secretary
------------------------
Date: 23rd December 1991
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Dril-Quip (Europe) Limited, a private limited company.
Dril-Quip Asia Pacific PTE Ltd., a private limited company.
DQ Holdings PTY Ltd., a private limited company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report dated April 3, 1997 (except Note 11, as to which the
date is , 1997), in the Registration Statement (Form S-1) and related
Prospectus of Dril-Quip, Inc. dated August 12, 1997.
Ernst & Young LLP
Houston, Texas
- -------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 11 to the financial
statements.
Houston, Texas
August 8, 1997
<PAGE>
Exhibit 23.3
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of Dril-Quip, Inc., a Delaware corporation
(the "Company"), in the Prospectus constituting a part of the Registration
Statement on Form S-1 which has been filed by the Company with the Securities
and Exchange Commission pursuant to the Act.
Dated: August 4, 1997
/s/ James M. Alexander
----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORMTHE COMPANY'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 1,361 1,545
<SECURITIES> 0 0
<RECEIVABLES> 25,514 28,434
<ALLOWANCES> 0 0
<INVENTORY> 51,571 47,500
<CURRENT-ASSETS> 82,974 81,986
<PP&E> 35,772 32,814
<DEPRECIATION> 4,388 1,288
<TOTAL-ASSETS> 114,777 113,911
<CURRENT-LIABILITIES> 33,450 31,029
<BONDS> 0 0
0 0
0 0
<COMMON> 10 10
<OTHER-SE> 50,872 51,927
<TOTAL-LIABILITY-AND-EQUITY> 114,777 113,911
<SALES> 115,864 34,215
<TOTAL-REVENUES> 115,864 34,215
<CGS> 77,863 24,635
<TOTAL-COSTS> 99,865 30,226
<OTHER-EXPENSES> 0 0<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,647 668
<INCOME-PRETAX> 13,352 3,321
<INCOME-TAX> 4,234 1,065
<INCOME-CONTINUING> 9,118 2,256
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,118 2,256
<EPS-PRIMARY> 9.12 2.26
<EPS-DILUTED> 0 0
<FN>
<F1>INCLUDES OTHER OPERATING EXPENSES AND OTHER INCOME.
</FN>
</TABLE>
