<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2000 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-13439
DRIL-QUIP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2162088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13550 HEMPSTEAD HIGHWAY
HOUSTON, TEXAS
77040
(Address of principal executive offices)
(Zip Code)
(713) 939-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [_]
As of May 8, 2000, the number of shares outstanding of the registrant's
common stock, par value $.01 per share, was 17,269,124.
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<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DRIL-QUIP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ---------
(In thousands)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 10,456 $ 4,022
Trade receivables..................................... 36,832 39,285
Inventories........................................... 53,561 54,698
Deferred taxes........................................ 4,894 4,938
Prepaids and other current assets..................... 960 1,164
-------- --------
Total current assets................................ 106,703 104,107
Property, plant and equipment, net...................... 72,288 75,097
Other assets............................................ 472 472
-------- --------
Total assets........................................ $179,463 $179,676
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 12,775 $ 11,912
Current maturities of long-term debt.................. 88 75
Accrued income taxes.................................. 482 1,246
Customer prepayments.................................. 5,119 1,975
Accrued compensation.................................. 4,439 4,028
Other accrued liabilities............................. 1,888 2,285
-------- --------
Total current liabilities........................... 24,791 21,521
Long-term debt.......................................... 61 1,432
Deferred taxes.......................................... 1,987 1,909
-------- --------
Total liabilities................................... 26,839 24,862
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized at $0.01
par value (none issued).............................. - -
Common stock:
50,000,000 shares authorized at $0.01 par value,
17,260,374 shares issued and outstanding
(17,245,000 at December 31, 1999).................. 172 173
Additional paid-in capital............................ 63,291 63,737
Retained earnings..................................... 91,782 94,172
Foreign currency translation adjustment............... (2,621) (3,268)
-------- --------
Total stockholders' equity.......................... 152,624 154,814
-------- --------
Total liabilities and stockholders' equity.......... $179,463 $179,676
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1999 2000
----------- -----------
(In thousands except
share amounts)
<S> <C> <C>
Revenues.............................................. $ 39,584 $ 35,008
Cost and expenses:
Cost of sales....................................... 26,533 23,394
Selling, general and administrative................. 5,490 5,189
Engineering and product development................. 2,835 2,803
----------- -----------
34,858 31,386
----------- -----------
Operating income...................................... 4,726 3,622
Interest expense (income)............................. (103) (55)
----------- -----------
Income before income taxes............................ 4,829 3,677
Income tax provision.................................. 1,687 1,287
----------- -----------
Net income............................................ $ 3,142 $ 2,390
=========== ===========
Earnings per share:
Basic............................................... $ 0.18 $ 0.14
=========== ===========
Fully diluted....................................... $ 0.18 $ 0.14
=========== ===========
Weighted average shares:
Basic............................................... 17,245,000 17,260,000
=========== ===========
Fully diluted....................................... 17,245,000 17,455,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DRIL-QUIP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months
ended
March 31,
--------------
1999 2000
------ ------
(In
thousands)
<S> <C> <C>
Operating activities
Net income.................................................... $3,142 $2,390
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 1,623 1,751
Gain on sale of equipment.................................... 47 (3)
Deferred income taxes........................................ (33) (129)
Changes in operating assets and liabilities:
Trade receivables........................................... (1,088) (2,589)
Inventories................................................. (639) (1,615)
Prepaids and other assets................................... (116) (209)
Trade accounts payable and accrued expenses................. 2,003 (3,164)
------ ------
Net cash provided by operating activities..................... 4,939 (3,568)
Investing activities
Purchase of property, plant and equipment.................... (7,703) (4,794)
Proceeds from sale of equipment.............................. 8 6
------ ------
Net cash used in investing activities........................ (7,695) (4,788)
Financing activities
Proceeds from revolving line of credit and long-term
borrowing................................................... - 1,400
Principal payments on long-term debt......................... (36) (25)
Activity under stock option plan............................. - 447
------ ------
Net cash provided by (used in) financing activities.......... (36) 1,822
Effect of exchange rate changes on cash activities............ 150 100
------ ------
Increase (decrease) in cash................................... (2,642) (6,434)
Cash at beginning of period................................... 11,869 10,456
------ ------
Cash at end of period......................................... $9,227 $4,022
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DRIL-QUIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Dril-Quip, Inc., a Delaware corporation (the "Company" or "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'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.
The consolidated financial statements included herein have been prepared by
Dril-Quip and are unaudited, except for the balance sheet at December 31,
1999, which has been prepared from the audited financial statements at that
date. 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, 2000, and the results of operations and the cash
flows for each of the three-month periods ended March 31, 2000 and 1999.
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,
2000 are not necessarily indicative of the results to be expected for the full
year. The consolidated financial statements included herein should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1999 2000
------------ -----------
(In thousands)
<S> <C> <C>
Raw materials and supplies............................. $15,012 $13,831
Work in progress....................................... 11,731 15,086
Finished goods and purchased supplies.................. 26,818 25,781
------- -------
$53,561 $54,698
======= =======
</TABLE>
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholders' equity.
SFAS No. 130 requires the Company to include unrealized gains or losses on
foreign currency translation adjustments in other comprehensive income, which
prior to adoption were reported separately in stockholders' equity.
For the three-month periods ended March 31, 2000 and 1999, total
comprehensive income equaled $1.7 million and $1.6 million, respectively.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected certain aspects of the Company's
financial position and results of operations during the periods included in
the accompanying unaudited consolidated financial statements. This discussion
should be read in conjunction with the unaudited consolidated financial
statements included elsewhere herein, and with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the annual consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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.
Both the market for offshore drilling and production equipment and services
and the Company's business are substantially dependent on 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. Oil and gas prices and the level of offshore drilling and
production activity have historically been characterized by significant
volatility.
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. For the three months ended March
31, 2000, the Company derived 87.8% of its revenues from the sale of its
products and 12.2% of its revenues from services. Revenues from the Service
Group generally correlate to revenues from product sales because increased
product sales generate increased revenues from installation services and
rental running tools. 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.
Historically, Dril-Quip recognized revenues upon the delivery of a
completed product. Beginning in 1997, the Company began receiving orders
relating to larger and more complex projects that have longer manufacturing
time frames. The Company accounts for such projects on a percentage of
completion basis. For the first three months of 2000, five projects
representing approximately 31% of the Company's revenues were accounted for
using percentage of completion accounting. 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.
Foreign sales represent a significant portion of the Company's business. In
the three months ended March 31, 2000, the Company generated approximately 59%
of its revenues from foreign sales. In this period, approximately 71.6% (on
the basis of revenues generated) 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-
6
<PAGE>
thirds of the Company's cost of sales. Fixed costs, such as the fixed portion
of manufacturing overhead, constitute the remainder of the Company's cost of
sales. 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 effective tax rate has historically been
lower than the statutory rate due to benefits from its foreign sales
corporation.
Results of Operations
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three
months
ended
March 31,
-------------
1999 2000
----- -----
<S> <C> <C>
Revenues:
Product Group................................................... 85.2% 87.8%
Service Group................................................... 14.8% 12.2%
----- -----
Total.......................................................... 100.0% 100.0%
Cost of sales.................................................... 67.0% 66.9%
Selling, general and administrative expenses..................... 13.9% 14.8%
Engineering and product development expenses..................... 7.2% 8.0%
----- -----
Operating income................................................. 11.9% 10.3%
Interest expense (income)........................................ (0.3)% (0.2)%
----- -----
Income before income taxes....................................... 12.2% 10.5%
Income tax provision............................................. 4.3% 3.7%
----- -----
Net income....................................................... 7.9% 6.8%
===== =====
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999.
Revenues. Revenues decreased by $4.6 million, or 12%, to $35 million in the
three months ended March 31, 2000 from $39.6 million in the three months ended
March 31, 1999. The net decrease resulted from decreased domestic sales in the
United States of $4.6 million, decreased sales of $500,000 in the Asia-Pacific
area and decreased sales of $2.8 million in the European area, partially
offset by increased export sales from the United States of $3.3 million. The
overall decrease in revenues was primarily attributable to depressed oil
prices that began in 1998 and continued through the first half of 1999, which
led to worldwide exploration and budget cuts by most major oil companies.
Although oil prices have returned to higher levels since mid-1999, exploration
and production spending by major oil companies has not returned to previous
levels. These conditions have resulted in pricing pressure and lower demand
for Dril-Quip products.
Cost of Sales. Cost of sales decreased $3.1 million, or 12%, to $23.4
million for the three months ended March 31, 2000 from $26.5 million for the
same period in 1999. As a percentage of revenues, cost of sales remained
steady at approximately 67% for the three-month periods ending March 31, 2000
and 1999.
7
<PAGE>
Selling, General and Administrative Expenses. In the three months ended
March 31, 2000, selling, general and administrative expenses decreased by
$300,000, or 5%, to $5.2 million from $5.5 million in the 1999 period.
However, due to the reduction in revenues, selling, general and administrative
expenses increased as a percentage of revenues to 14.8% from 13.9%.
Engineering and Product Development Expenses. Engineering and product
development expenses were approximately $2.8 million for both of the three-
month periods ending March 31, 2000 and 1999. However, due to reduced
revenues, engineering and product development expenses increased as a
percentage of revenues to 8% from 7.2%.
Interest Income. Interest income for the three months ended March 31, 2000
was $55,000 as compared to interest income of $103,000 for the three-month
period ended March 31, 1999. This decrease of approximately $48,000 resulted
primarily from reductions in the Company's invested cash balance from 1999 to
2000.
Net Income. Net income decreased by approximately $750,000, or 24%, to $2.4
million in the three months ended March 31, 2000 from $3.1 million for the
same period in 1999 for the reasons set forth above.
Liquidity and Capital Resources
The primary liquidity needs of the Company are (i) to fund capital
expenditures to increase manufacturing capacity, improve and expand facilities
and manufacture additional rental running tools and (ii) to fund working
capital. The Company's principal sources of funds are cash flows from
operations and bank indebtedness.
Net cash used in operating activities was approximately $3.6 million for
the three months ended March 31, 2000 while net cash provided by operating
activities was approximately $4.9 million in the 1999 period. The decrease in
cash flow from operating activities was principally due to increased working
capital requirements attributable to accounts receivable and inventories,
increased working capital requirements attributable to trade accounts payable
and accrued expenses and a reduction in net income.
Capital expenditures by the Company were $4.8 million and $7.7 million for
the three months ended March 31, 2000 and 1999, respectively. Principal
payments on long-term debt were approximately $25,000 and $36,000 for the
three months ended March 31, 2000 and 1999, respectively.
On August 27, 1999, the Company entered into a credit agreement with Bank
One, Texas, N.A. which provides for an unsecured revolving line of credit of
up to $10 million. At the election of the Company, borrowing under this
facility bears interest at either a rate equal to LIBOR (London Interbank
Offered Rate) plus 2% or the Bank One base rate. In addition, the facility
calls for quarterly interest payments and terminates on August 27, 2001. As of
March 31, 2000, there were no drawdowns under this facility.
On November 18, 1999, Dril-Quip (Europe) Limited entered into a credit
agreement with the Bank of Scotland which provides for a secured line of
credit of up to British (Pounds)3.0 million (approximately U.S. $4.6 million).
Borrowing under this facility bears interest at the Bank of Scotland base
rate, currently 6.0%, plus 1%. As of March 31, 2000 Dril-Quip (Europe) Limited
had drawn down approximately U.S. $1.4 million under this facility.
The Company believes that cash on hand plus cash generated from operations
(in conjunction with its existing lines of credit, if necessary) will be
sufficient to fund operations, working capital needs and anticipated capital
expenditure requirements. However, should the above mentioned market
conditions result in unexpected cash requirements, the Company believes that
additional borrowing from commercial lending institutions would be readily
available and more than adequate to meet such requirements.
8
<PAGE>
Year 2000
Historically, certain computerized systems have used two digits rather than
four digits to define the applicable year, which could result in recognizing
the date using "00" as the year 1900 rather than the year 2000. The Company
experienced no critical failures during the date roll-over from 1999 to 2000.
We believe that Year 2000 issues pose no material threat to the Company's
business, results of operations, or financial condition.
Prior to the date roll-over, the Company addressed the Year 2000 problem
internally and progress was regularly reported to management and the board of
directors. Since the date roll-over the Company's Year 2000 program has been
stepped down. However, the Company remains alert for potential Year 2000
failures among third parties critical to the Company's operations, which could
possibly cause significant business interruptions. We cannot quantify the
potential impact of such failures.
The total cost of the Company's Year 2000 program prior to the date roll-
over was less than $200,000 and was not material to the Company's operations,
liquidity or capital resources. The Company does not expect any material
additional costs. Costs have been handled within the current information
systems budget, and no special allocations have been made.
This disclosure is provided pursuant to Securities Exchange Act Release No.
34-40277. As such, it is protected as a forward-looking statement under the
Private Securities Litigation Reform Act of 1995. See "Forward-Looking
Statements" on page 10. This disclosure is also subject to protection under
the Year 2000 Information and Readiness Disclosure Act of 1998, 15 U.S.C (S)1,
as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as defined
therein.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any material hedging transactions, forward
contracts or currency trading which could be subject to market risks inherent
to such transactions.
9
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Forward Looking Statements.
Statements contained in all parts of this document that are not historical
facts are forward looking statements that involve risks and uncertainties that
are beyond the Company's control. These forward-looking statements include the
following types of information and statements as they relate to the Company:
. scheduled, budgeted and other future capital expenditures;
. use of initial public offering proceeds;
. working capital requirements;
. the availability of expected sources of liquidity;
. the impact of the Year 2000 problem;
. all statements regarding future operations, financial results, business
plans and cash needs; and
. the use of the words "anticipate," "estimate," "expect," "may,"
"project," "believe" and similar expressions intended to identify
uncertainties.
These statements are based upon certain assumptions and analyses made by
management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, including but not
limited to, those relating to the volatility of oil and natural gas prices and
cyclicality of the oil and gas industry, the Company's international
operations, operating risks, the Company's dependence on key employees, the
Company's dependence on skilled machinists and technical personnel, the
Company's reliance on product development and possible technological
obsolescence, control by certain stockholders, the potential impact of
governmental regulation and environmental matters, competition, reliance on
significant customers and other factors detailed in the Registration Statement
on Form S-1 (Registration No. 333-33447) filed in connection with the initial
public offering and the Company's other filings with the Securities and
Exchange Commission. Prospective investors are cautioned that any such
statements are not guarantees of future performance, and that, should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <C> <S>
*3.1 -- Restated Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-33447)).
*3.2 -- Bylaws of the Company (Incorporated herein by reference to Exhibit
3.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-33447)).
*4.1 -- Certificate of Designations for Series A Junior Participating
Preferred Stock (Incorporated herein by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-1 (Registration
No. 333-33447)).
*4.2 -- Form of certificate representing Common Stock (Incorporated herein
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-33447)).
*4.3 -- Rights Agreement between Dril-Quip, Inc. and Chase Mellon
Shareholder Services, L.L.C., as rights agent (Incorporated herein
by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-33447)).
*10.1 -- Credit Agreement between the Company and Bank One, Texas, N.A.
dated August 27, 1999 (Incorporated herein by reference to Exhibit
10.1 to the Company's Report on Form 10-Q for the Quarter ended
September 30, 1999).
10.2 -- Credit Agreement between Dril-Quip (Europe) Limited and Bank of
Scotland dated November 18, 1999.
27.1 -- Financial Data Schedule.
</TABLE>
- --------
* Incorporated herein by reference as indicated.
Reports on Form 8-K
None.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRIL-QUIP, INC.
/s/ Jerry M. Brooks
-------------------------------------
Principal Financial Officer
and Duly Authorized Signatory
Date: May 8, 2000
12
<PAGE>
EXHIBIT 10.2
[Bank of Scotland Letterhead]
18th November 1999
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) Ltd (Company No. 81748) incorporated
under the Companies Acts and having its Registered Office at
18 Golden Square, Aberdeen, AB10 1HA.
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)3,000,000
1.3 Period of facility: 120 months from the date of the drawing under
the facility.
1.4 An Arrangement Fee of (Pounds)7,000 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 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 debited to the Servicing Account on the last
business day of each month. The interest rate will be 1% 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 5.5% per annum.
Changes are notified in national newspapers and all the Bank's
Branches.
1.8 The amount drawn under the facility must be repaid as follows:
Number of repayments: 120
1
<PAGE>
Amount each repayment: (Pounds)25,000.00
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.
2. USE OF FACILITY
The facility may be used only for capital costs relative to the
development of a Base in Norway.
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 calendar month and the Borrower shall give at
lest 30 days' prior notice to the Bank.
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 Any sums repaid early may not be redrawn.
3.4 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:
Annual financial statements for the Company and the US parent, within four
months after the end of the financial year 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;
2
<PAGE>
(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
which, consent will not be withheld unreasonably.
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 judgment; and/or
(d) change 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.
3
<PAGE>
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 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.
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
None
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 a 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.
4
<PAGE>
9. EMU COMPLIANCE
If the introduction of, changeover to or operation of a single or unified
European currency results in:
(1) the currency in which the facility is provided changing or being
replaced or the Bank (in its reasonable opinion) requiring to amend
either this facility letter or the security held by the Bank due to
changes in price sources for any European Union member state national
currency or the ECU or market conventions relating to the calculation
of interest; and/or
(2) the Bank incurring an additional or increased cost in relation to its
providing the facility;
then the Borrower agrees that in the case of (1) above, it will permit the
facility letter and/or the security held by the Bank to be amended to the
extent necessary (in the Bank's reasonable opinion) to reflect those
changed circumstances and in the case of (2) above, to indemnify the Bank
in respect of that additional or increased cost.
10. 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.
/s/ Date of Offer: 18th November 1999
- ----------------------------------
For and on behalf of the Bank
We accept the above Offer.
AS WITH ANY LEGALLY BINDING AGREEMENT WE RECOMMEND THAT YOU CONSULT YOUR
SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT PROFESSIONAL ADVISER BEFORE ACCEPTING
THIS OFFER.
Signed for and on behalf of Dril-Quip (Europe) Ltd:
/s/ J. Mike Walker Director
- ------------------------
/s/ Gary D. Smith Director/Secretary
- ------------------------
23-Nov-99 Date
- ------------------------
5
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0
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